Invacare 2012 Annual Report Download - page 119

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
anti-dilutive shares were granted at an exercise price of $41.87, which was higher than the average fair market
value price of $25.82 for 2010. Shares necessary to settle a conversion spread on the convertible notes were
included in the common shares assuming dilution as the average market price of the company stock for 2010 did
exceed the conversion price, which was not the case in 2012 and 2011.
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.
Invacare utilizes 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 of $9,155,000 at
December 31, 2012 to DLL for events of default under the contracts, which total $63,231,000 at December 31,
2012. Guarantees, ASC 460, requires the company to record a guarantee liability as it relates to the limited
recourse obligation. As such, the company has recorded a liability of $274,000 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 Receivables, ASC 310-
10-05-4.Credit losses are provided for in the financial statements.
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 dealers, both foreign and domestic, is ultimately funded through
government reimbursement programs such as Medicare and Medicaid. 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.
The company’s top 10 customers accounted for approximately 16.5% of 2012 net sales. The loss of business
of one or more of these customers may have a significant impact on the company, although no single customer
accounted for more than 3.9% of the company’s 2012 net sales. Providers who are part of a buying group
generally make individual purchasing decisions and are invoiced directly by the company.
Derivatives
ASC 815 requires companies to recognize all derivative instruments in the consolidated balance sheet as
either assets or liabilities at fair value. The accounting for changes in fair value of a derivative is dependent upon
whether or not the derivative has been designated and qualifies for hedge accounting treatment and the type of
hedging relationship. For derivatives designated and qualifying as hedging instruments, the company must
designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge,
or a hedge of a net investment in a foreign operation.
Cash Flow Hedging Strategy
The company uses derivative instruments in an attempt to manage its exposure to foreign currency exchange
risk and interest rate risk. Foreign forward exchange contracts are used to manage the price risk associated with
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