Invacare 2008 Annual Report Download - page 24

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dependent, in part, upon public budgetary constraints. Canada, Germany and other European countries, for
example, have tightened reimbursement rates and other countries may follow. If adequate levels of
reimbursement from third-party payors outside of the United States are not obtained, international sales of the
company’s products may decline, which could adversely affect the company’s net sales and would have a
material adverse effect on the company’s business, financial condition and results of operations.
The impact of all the changes discussed above is uncertain and could have a material adverse effect on the
company’s business, financial condition and results of operations.
The consolidation of health care customers and the company’s competitors could result in a loss of
customers or in additional competitive pricing pressures.
Numerous initiatives and reforms instituted by legislators, regulators and third-party payors to reduce home
medical equipment costs have resulted in a consolidation trend in the home medical equipment industry as well
as among the company’s customers, including home health care providers. Some of the company’s competitors
have been lowering the purchase prices of their products in an effort to attract customers. This in turn has
resulted in greater pricing pressures, including pressure to offer customers more competitive pricing terms, and
the exclusion of certain suppliers from important market segments as group purchasing organizations,
independent delivery networks and large single accounts continue to consolidate purchasing decisions for some
of the company’s customers. Further consolidation could result in a loss of customers, in increased collectability
risks, or in increased competitive pricing pressures.
The company is subject to risks arising out of the current global economic and credit crisis.
As is the case for many companies operating in the current economic environment, the company is exposed
to a number of risks arising out of the global credit crisis. These risks include the possibility that: one or more of
the lenders participating in the company’s revolving credit facility may be unable or unwilling to extend credit to
the company; the third party company that provides lease financing to the company’s customers may refuse or be
unable to fulfill its financing obligations or extend credit to the company’s customers; one or more customers of
the company may be unable to pay for purchases of the company’s products on a timely basis; one or more key
suppliers may be unable or unwilling to provide critical goods or services to the company; and one or more of the
counterparties to the company’s hedging arrangements may be unable to fulfill its obligations to the company.
Although the company has taken actions in an effort to mitigate these risks, during periods of economic
downturn, the company’s exposure to these risks increases. Events of this nature may adversely affect the
company’s liquidity or sales and revenues, and therefore have an adverse effect on the company’s business and
results of operations.
The company’s reported results may be adversely affected by increases in reserves for uncollectible
accounts receivable.
The company has a large balance of accounts receivable and has established a reserve for the portion of such
accounts receivable that the company estimates will not be collected because of the company’s customers’
non-payment. The reserve is based on historical trends and current relationships with the company’s customers
and providers. Changes in the company’s collection rates can result from a number of factors, including turnover
in personnel, changes in the payment policies or practices of payor changes in industry rates or pace of
reimbursement or changes in the financial health of the company’s customers. As a result of recent changes in
Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement
levels of consumer power wheelchairs and custom power wheelchairs, the business viability of several of the
company’s customers has become questionable. The company’s reserve for uncollectible receivables has
fluctuated in the past and will continue to fluctuate in the future. Changes in rates of collection or fluctuations,
even if they are small in absolute terms, could require the company to increase its reserve for uncollectible
receivables beyond its current level. The company has reviewed the accounts receivables, including those
receivables financed through DLL, associated with many of its customers that are most exposed to these issues.
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