Invacare 2011 Annual Report Download - page 83

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting Policies—Continued
ASU). ASU 2011-05 requires comprehensive income to be reported in either a single statement or in two
consecutive statements reporting net income and other comprehensive income (OCI). The ASU does not change
what is required to be reported in OCI or the requirement to disclose reclassifications of items from OCI to net
income. The company is analyzing the impact of ASU 2011-05, which is required to be adopted for the
company’s first quarter 2012 Form 10-Q. The company does not believe ASU 2011-05 will have a material
impact on the company’s financial position, results of operations or cash flows.
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 providers and long
term care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A
significant portion of products sold to providers, both foreign and domestic, is ultimately funded through
government reimbursement programs such as Medicare and Medicaid in the U.S. As a consequence, changes in
these programs can have an adverse impact on dealer liquidity and profitability. The estimated allowance for
uncollectible amounts ($27,947,000 in 2011 and $25,327,000 in 2010) is based primarily on management’s
evaluation of the financial condition of specific customers. In addition, as a result of the third party financing
arrangement with DLL, a third party financing company which the company has worked with since 2000,
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 and
establishing reserves for specific customers as needed. The company charges off uncollectible trade accounts
receivable after such receivables are moved to collection status and legal remedies are exhausted. 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.
The company’s U.S. customers electing to finance their purchases can do so using DLL. In addition,
Invacare often provides financing directly for its Canadian customers for which DLL is not an option, as DLL
typically provides financing to Canadian customers only on a limited basis. The installment receivables recorded
on the books of the company represent a single portfolio segment of finance receivables to the independent
provider channel. The portfolio segment is comprised of two classes of receivables distinguished by geography
and credit quality. The U.S. installment receivables are the first class and represent installment receivables
re-purchased from DLL because the customers were in default. Default with DLL is defined as a customer being
delinquent by three payments. The Canadian installment receivables represent the second class of installment
receivables which were originally financed by Invacare because third party financing was not available to the
HME providers. The Canadian installment receivables are typically financed for twelve months and historically
have had a very low risk of default.
The estimated allowance for uncollectible amounts and evaluation for impairment for both classes of
installment receivables is based on the company’s quarterly review of the financial condition of each individual
customer with the allowance for doubtful accounts adjusted accordingly. Installments are individually and not
collectively reviewed for impairment. The company assesses the bad debt reserve levels based upon the status of
the customer’s adherence to a legally negotiated payment schedule and the company’s ability to enforce
judgments, liens, etc.
For purposes of granting or extending credit, the company utilizes a scoring model to generate a composite
score that considers each customer’s consumer credit score and or D&B credit rating, payment history, security
FS-11