Invacare 2015 Annual Report Download - page 110

INVACARE CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-38
At December 31, 2015, 2014 and 2013, shares associated with stock options of 1,479,912, 2,857,590 and 4,307,458,
respectively, were excluded from the average common shares assuming dilution, as they were anti-dilutive. At December 31, 2015,
the majority of the anti-dilutive shares were granted at an exercise price of $25.24, which was higher than the average fair market
value price of $18.51 for 2015. For the 2015, 2014 and 2013 net loss per share from continuing operations calculation, all of the
shares associated with stock options were anti-dilutive because of the company's loss. In 2014, 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 $16.95 for 2014.
In 2013, 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 $16.48 for 2013. Shares necessary to settle a conversion spread on the convertible notes issued in 2007
were not included in the common shares assuming dilution as the average market price of the company stock in 2015, 2014 and
2013 did not exceed the conversion price.
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. The company 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 $6,089,000 at December 31, 2015 to DLL for events of default under the contracts, which total $39,510,000
at December 31, 2015. 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 $109,000 for this guarantee obligation within accrued expenses.
The company's recourse is re-evaluated by DLL biannually, considers activity between the biannual dates and excludes any
receivables purchased by the company from DLL. 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 16.4% of 2015 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 3.3% of
the company’s 2015 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 transactional foreign currency exchange
risk and interest rate risk. Foreign forward exchange contracts are used to manage the price risk associated with forecasted sales
denominated in foreign currencies and the price risk associated with forecasted purchases of inventory over the next twelve months.
Interest rate swaps are, at times, utilized to manage interest rate risk associated with the company’s fixed and floating-rate
borrowings.