Invacare 2014 Annual Report Download - page 59

I-55
While there was no indication of impairment in 2014 related to goodwill for the Europe or IPG segments, a future potential
impairment is possible for any of the Company's segments should actual results differ materially from forecasted results used in
the valuation analysis. Furthermore, the Company's annual valuation of goodwill can differ materially if the market inputs used
to determine the discount rate change significantly. For instance, higher interest rates or greater stock price volatility would increase
the discount rate and thus increase the chance of impairment. In consideration of this potential, the Company reviewed the results
if the discount rate used were 100 basis points higher for the 2014 impairment analysis and determined that there still would not
be any indicator of potential impairment for the segments with goodwill which are Europe and IPG.
The Company's intangible assets consist of intangible assets with defined lives as well as intangible assets with indefinite
lives. Defined-lived intangible assets consist principally of customer lists, developed technology, license agreements, patents and
other miscellaneous intangibles such as non-compete agreements. The Company's indefinite lived intangible assets consist entirely
of trademarks.
The Company evaluates the carrying value of definite-lived assets whenever events or circumstances indicate possible
impairment. Definite-lived assets are determined to be impaired if the future un-discounted cash flows expected to be generated
by the asset are less than the carrying value. Actual impairment amounts for definite-lived assets are then calculated using a
discounted cash flow calculation. The Company reviews indefinite-lived assets for impairment annually in the fourth quarter of
each year and whenever events or circumstances indicate possible impairment. Any impairment amounts for indefinite-lived
assets are calculated as the difference between the future discounted cash flows expected to be generated by the asset less than
the carrying value for the asset.
During 2014, the Company recognized intangible write-down charges in the IPG segment of $13,041,000 comprised of a
customer list impairment of $12,826,000 and a non-compete agreement of $215,000 as the actual and remaining cash flows
associated with the intangibles were less than the cash flows originally used to value the intangibles, primarily driven by reduced
net sales. The after-tax and pre-tax impairment amounts were the same for each of the above impairments.
During 2013, the Company recognized intangible write-down charges of $1,523,000 comprised of: trademarks with indefinite
lives impairment of $568,000, a trademark with a definite life impairment of $123,000, customer list impairment of $442,000 and
developed technology impairment of $223,000 all recorded in the IPG segment and a customer list impairment of $167,000
recorded in the North America/HME segment. The after-tax and pre-tax impairment amounts were the same for each of the above
impairments except for the indefinite-lived trademark impairments in the IPG segment, which were $496,000 after-tax.
As a result of the Company's 2012 intangible impairment review, the Company recognized intangible write-down charges
of $773,000 related to a trademark with an indefinite life of $279,000 and a developed technology impairment of $398,000 each
in the IPG segment and a patent impairment of $96,000 in the North America/HME segment. The after-tax and pre-tax impairment
amounts were the same for each of the above impairments except for the trademark impairment in the IPG segment, which was
$204,000 after-tax.
The fair values of the customer lists were calculated using an excess earnings method, using a discounted cash flow model.
Estimated cash flow returns to the customer relationship were reduced by the cash flows required to satisfy the return requirements
of each of the assets employed with the residual cash flow then discounted to value the customer list. The fair values of the
trademarks and developed technology were calculated using a relief from royalty payment methodology which requires applying
an estimated market royalty rate to forecasted net sales and discounting the resulting cash flows to determine fair value. The patent
was impaired as the related product was discontinued.
Product Liability
The Company is self-insured in North America for product liability exposures through its captive insurance company,
Invatection Insurance Company, which currently has a policy year that runs from September 1 to August 31 and insures annual
policy losses up to $10,000,000 per occurrence and $13,000,000 in the aggregate. The Company also has additional layers of
external insurance coverage, related to all lines of insurance coverage, insuring up to $75,000,000 in aggregate losses per policy
year arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits
of the Company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s current insurance
levels will continue to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and other
indicators. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims
based upon actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are
taken into consideration by the Company in estimating the ultimate reserves. For example, the actuarial analysis assumes that
historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of