Invacare 2007 Annual Report Download - page 98

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net Earnings Per Common Share—Continued
higher than the average fair market value price of $21.35 for 2007. In 2006, all of the shares associated with
stock options were anti-dilutive because of the company’s loss. In 2005, the majority of the anti-dilutive shares
were granted at an exercise price of $41.87, which was higher than the average fair market value price of $41.46
for 2005.
Concentration of Credit Risk
The company manufactures and distributes durable medical equipment and supplies to the home health care,
retail and extended care markets. The company performs credit evaluations of its customers’ financial condition.
Prior to December 2000, the company financed equipment to certain customers for periods ranging from 6 to
39 months. In December 2000, Invacare entered into an agreement with DLL, a third party financing company, to
provide the majority of future lease financing to Invacare’s customers. The DLL agreement provides for direct
leasing between DLL and the Invacare customer. The company retains a limited recourse obligation
($32,795,000 at December 31, 2007) to DLL for events of default under the contracts (total balance outstanding
of $94,945,000 at December 31, 2007). FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires the company to
record a guarantee liability as it relates to the limited recourse obligation. As such, the company has recorded a
liability for this guarantee obligation within accrued expenses. The company monitors the collections status of
these contracts and has provided amounts for estimated losses in its allowances for doubtful accounts in
accordance with SFAS No. 5, Accounting for Contingencies. Credit losses are provided for in the financial
statements.
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 reimbursement programs such as Medicare and Medicaid. In addition, the company has also 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. In addition, reimbursement guidelines
in the home health care industry have a substantial impact on the nature and type of equipment an end user can
obtain as well as the timing of reimbursement and, thus, affect the product mix, pricing and payment patterns of
the company’s customers.
Fair Values of Financial Instruments
The company in estimating its fair value disclosures for financial instruments used the following methods
and assumptions:
Cash, cash equivalents and marketable securities: The carrying amount reported in the balance sheet for
cash, cash equivalents and marketable securities approximates its fair value.
Installment receivables: The carrying amount reported in the balance sheet for installment receivables
approximates its fair value. The interest rates associated with these receivables have not varied significantly since
inception. Management believes that after consideration of the credit risk, the net book value of the installment
receivables approximates market value.
Long-term debt: Fair values for the company’s senior notes and convertible debt are based on quoted market
prices as of December 31, 2007, while the term loan and revolving credit facility fair values are based upon the
company’s estimate of the market for similar borrowing arrangements.
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