Invacare 2006 Annual Report Download - page 72

Receivables — Continued
associated with many of it’s customers that are most exposed to these issues. The company is also working with
certain of its customers in an effort to help them reduce costs, including product line consolidations and introduction
of simplified pricing. In addition, the company has also implementing tighter credit policies with many of these
accounts.
On September 30, 2005, the company entered into a 364-day $100 million accounts receivable securitization
facility. The Receivables Purchase Agreement (the “Receivables Agreement”), provides for, among other things,
the transfer from time to time by Invacare and certain of its subsidiaries of ownership interests of certain domestic
accounts receivable on a revolving basis to the bank conduit, an asset-backed issuer of commercial paper, and/or the
financial institutions named in the Receivables Agreement. Pursuant to the Receivables Agreement, the company
and certain of its subsidiaries from time to time may transfer accounts receivable to Invacare Receivables
Corporation (IRC), a special purpose entity and subsidiary of Invacare. IRC then transfers interests in the
receivables to the Conduit and/or the financial institutions named in the Receivables Agreement and receives
funds from the conduit and/or the financial institutions raised through the issuance of commercial paper (in its own
name) by the conduit and/or the financial institutions. In accordance with U.S. Generally Accepted Accounting
Principles (GAAP), Invacare accounts for the transaction as a secured borrowing. Borrowings under the facility are
effectively repaid as receivables are collected, with new borrowings created as additional receivables are sold. As of
December 31, 2006 and 2005, Invacare had $71,750,000 and $79,351,000, respectively, in borrowings pursuant to
the securitization facility at a borrowing rate of approximately 6.1% in 2006 and 4.6% in 2005. The initial
borrowings were used to reduce balances outstanding on Invacare’s revolving credit facility. The debt is reflected on
the short-term debt and current maturities of long-term obligations line of the consolidated balance sheet at
December 31, 2006 and 2005.
Installment receivables as of December 31, 2006 and 2005 consist of the following (in thousands):
Current
Long-
Term Total Current
Long-
Term Total
2006 2005
Installment receivables ........... $9,077 $18,991 $28,068 $ 23,630 $162 $ 23,792
Less:
Unearned interest ............. (1,401) (1,738) (3,139) (71) (16) (87)
Allowance for doubtful accounts . . (579) (1,463) (2,042) (10,624) — (10,624)
$ 7,097 $15,790 $22,887 $ 12,935 $146 $ 13,081
The decrease in the allowance for doubtful accounts in 2006 was the result of the write-off of accounts
receivable for which collection efforts were exhausted.
In addition, as a result of the third party financing arrangement with DLL, 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. 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.
FS-13
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)