Invacare 2013 Annual Report Download - page 86

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-12
to pay down debt. The interest allocation was based on the net proceeds assumed to pay down debt applying the Company's average
interest rates for the periods presented.
In addition, in accordance with ASC 350, when a portion of a reporting entity that constitutes a business is disposed of,
goodwill associated with that business should be included in the carrying amount of the net assets of the business sold in determining
the gain or loss on the disposal. As such, the Company allocated additional goodwill of $16,205,000 to Champion from the
continuing operations of the IPG segment based on the relative fair value of Champion as compared to the remaining IPG reporting
unit.
The Company recorded an incremental intra-period tax allocation expense to discontinued operations in 2013 representing
the cumulative intra-period allocation expense to discontinued operations.
The Company has classified ISG and Champion as a discontinued operation for all periods presented.
Receivables
Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all
of the Company’s receivables are due from health care, medical equipment providers and long term care facilities located throughout
the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to providers, both foreign
and domestic, is ultimately funded through government reimbursement programs such as Medicare and Medicaid in the U.S. As
a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability. The estimated allowance
for uncollectible amounts ($17,715,000 in 2013 and $22,213,000 in 2012) is based primarily on management’s evaluation of the
financial condition of specific customers. In addition, as a result of the third party financing arrangement with DLL, a third party
financing company which the Company has worked with since 2000, management monitors the collection status of these contracts
in accordance with the Company’s limited recourse obligations and provides amounts necessary for estimated losses in the
allowance for doubtful accounts and establishing reserves for specific customers as needed. The Company charges off uncollectible
trade accounts receivable after such receivables are moved to collection status and legal remedies are exhausted. See Concentration
of Credit Risk in the Notes to the Consolidated Financial Statements for a description of the financing arrangement. Long-term
installment receivables are included in “Other Assets” on the consolidated balance sheet.
The Company’s U.S. customers electing to finance their purchases can do so using DLL. In addition, the Company often
provides financing directly for its Canadian customers for which DLL is not an option, as DLL typically provides financing to
Canadian customers only on a limited basis. The installment receivables recorded on the books of the Company represent a single
portfolio segment of finance receivables to the independent provider channel and long-term care customers. The portfolio segment
is comprised of two classes of receivables distinguished by geography and credit quality. The U.S. installment receivables are the
first class and represent installment receivables re-purchased from DLL because the customers were in default. Default with DLL
is defined as a customer being delinquent by 3 payments. The Canadian installment receivables represent the second class of
installment receivables which were originally financed by the Company because third party financing was not available to the
HME providers. The Canadian installment receivables are typically financed for twelve months and historically have had a very
low risk of default.
The estimated allowance for uncollectible amounts and evaluation for impairment for both classes of installment receivables
is based on the Company’s quarterly review of the financial condition of each individual customer with the allowance for doubtful
accounts adjusted accordingly. Installments are individually and not collectively reviewed for impairment. The Company assesses
the bad debt reserve levels based upon the status of the customer’s adherence to a legally negotiated payment schedule and the
Company’s ability to enforce judgments, liens, etc.
For purposes of granting or extending credit, the Company utilizes a scoring model to generate a composite score that
considers each customer’s consumer credit score and or D&B credit rating, payment history, security collateral and time in business.
Additional analysis is performed for customers desiring credit greater than $250,000 which includes a detailed review of the
customer’s financials as well as consideration of other factors such as exposure to changing reimbursement laws.
Interest income is recognized on installment receivables based on the terms of the installment agreements. Installment
accounts are monitored and if a customer defaults on payments and is moved to collection, interest income is no longer recognized.
Subsequent payments received once an account is put on non-accrual status are generally first applied to the principal balance and
then to the interest. Accruing of interest on collection accounts would only be restarted if the account became current again. All
installment accounts are accounted for using the same methodology regardless of the duration of the installment agreements. When