Invacare 2006 Annual Report Download - page 71

Accounting Policies — Continued
Recent Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board, or
“FASB,” issued FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106 and 123(R) (“FAS 158”). FAS 158
requires plan sponsors to recognize the funded status of the benefit in its statement of financial position, measure the
fair value of plan assets and benefit obligations as of the balance sheet date and provide additional disclosures. On
December 31, 2006, the company adopted the recognition and disclosure provisions of FAS 158. The effect of
adopted FAS 158 on the company’s financial condition at December 31, 2006 has been included in the 2006
consolidated financial statements and did not have an effect on the company’s financial condition at December 31,
2005 or 2004 and did not effect the company’s consolidated statement of operations for 2006, 2005, or 2004. The
adoption of FAS 158 resulted in a decrease of $14,940,000 on a pre-tax and after-tax basis on the company’s
accumulated other comprehensive earnings (loss). See Retirement and Benefit Plans Note for further discussion on
the effect of adopting FAS 158 on the company’s consolidated financial statements.
In 2006, the company determined that the reported December 31, 2005 accumulated benefit for the company’s
non-qualified defined benefit Supplemental Executive Retirement Plan (SERP) was understated by $2,941,000
($1,912,000 after-tax) as the result of accounting errors in which recorded expense in prior years was netted by
SERP benefit payments. The company assessed the error amounts considering SEC staff published Staff Account-
ing Bulletin No. 99, Materiality, as well as SEC staff published Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements,or
“SAB 108.” The error was not deemed to be material to any prior period reported financial statements, but was
deemed material in the current year. Accordingly, the company recorded the correction of the understatement of
expense as an adjustment to beginning retained earnings pursuant to the special transition provision detailed in
SAB 108.
In June 2006, the FASB, issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, or “FIN 48.” FIN 48 prescribes recognition and measurement of a tax
position taken or expected to be taken in a tax return as well as guidance regarding derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006, thus January 1, 2007 for Invacare. The company will adopt the standard as of
the effective date and currently does not believe the adoption will have a material impact on the company’s financial
position or future results.
Reclassifications: Certain reclassifications have been made to the prior years’ consolidated financial
statements to conform to the presentation used for the year ended December 31, 2006.
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 dealers and long term
care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A significant
portion of products sold to dealers, both foreign and domestic, is ultimately funded through government reim-
bursement programs such as Medicare and Medicaid. In addition, the company has seen a significant shift in
reimbursement to customers from managed care entities. As a consequence, changes in these programs can have an
adverse impact on dealer liquidity and profitability. The estimated allowance for uncollectible amounts
($35,591,000 in 2006 and $12,470,000 in 2005) is based primarily on management’s evaluation of the financial
condition of the customer. The increase in the allowance for uncollectible accounts in 2006 compared to 2005 is
primarily the result of the company recording additional allowances due to the increased collectibility risk to the
company resulting from changes in Medicare reimbursement regulations, specifically changes to the qualification
processes and reimbursement levels of power wheelchairs. The company has reviewed the accounts receivables
FS-12
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)