Invacare 2008 Annual Report Download - page 54

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The company offers discounts and rebates, which are accounted for as reductions to revenue in the period in
which the sale is recognized. Discounts offered include: cash discounts for prompt payment, base and trade
discounts based on contract level for specific classes of customers. Volume discounts and rebates are given based
on large purchases and the achievement of certain sales volumes. Product returns are accounted for as a reduction
to reported sales with estimates recorded for anticipated returns at the time of sale. The company does not sell
any goods on consignment.
Distributed products sold by the company are accounted for in accordance with Emerging Issues Task
Force, or “EITF” No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The company
records distributed product sales gross as a principal since the company takes title to the products and has the
risks of loss for collections, delivery and returns.
Product sales that give rise to installment receivables are recorded at the time of sale when the risks and
rewards of ownership are transferred. In December 2000, the company entered into an agreement with DLL, a
third party financing company, to provide the majority of future lease financing to Invacare customers. As such,
interest income is recognized based on the terms of the installment agreements. Installment accounts are
monitored and if a customer defaults on payments, interest income is no longer recognized. All installment
accounts are accounted for using the same methodology, regardless of duration of the installment agreements.
Allowance for Uncollectible Accounts Receivable
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
reimbursement programs such as Medicare and Medicaid. As a consequence, changes in these programs can have
an adverse impact on dealer liquidity and profitability. The estimated allowance for uncollectible amounts is
based primarily on management’s evaluation of the financial condition of the customer. In addition, as a result of
the third party financing arrangement, 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.
The company continues to closely monitor the credit-worthiness of its customers and adhere to tight credit
policies. Due to delays in the implementation of various government reimbursement policies, including national
competitive bidding, there still remains significant uncertainty as to the impact that those changes will have on
the company’s customers.
Invacare has an agreement with De Lage Landen, Inc. (“DLL”), a third party financing company, to provide
the majority of future lease financing to Invacare’s North America customers. The DLL agreement provides for
direct leasing between DLL and the Invacare customer. The company retains a recourse obligation for events of
default under the contracts. The company monitors the collections status of these contracts and has provided
amounts for estimated losses in its allowances for doubtful accounts.
Inventories and Related Allowance for Obsolete and Excess Inventory
Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out
method. Inventories have been reduced by an allowance for excess and obsolete inventories. The estimated
allowance is based on management’s review of inventories on hand compared to estimated future usage and
sales. A provision for excess and obsolete inventory is recorded as needed based upon the discontinuation of
products, redesigning of existing products, new product introductions, market changes and safety issues. Both
raw materials and finished goods are reserved for on the balance sheet.
I-48