Invacare 2015 Annual Report Download - page 80

INVACARE CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-8
Accrued Warranty Cost: Generally, the company’s products are covered by warranties against defects in material and
workmanship for various periods depending on the product from the date of sale to the customer. Certain components carry a
lifetime warranty. A provision for estimated warranty cost is recorded at the time of sale based upon actual experience. The company
continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily
used to determine the company’s warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However,
the company does consider other events, such as a product recall, which could warrant additional warranty reserve provision. See
Current Liabilities in the Notes to the Consolidated Financial Statements for a reconciliation of the changes in the warranty accrual.
Product Liability Cost: The company is self-insured in North America for product liability exposures through its captive
insurance company, Invatection Insurance Company, which currently has a policy year that runs from September 1 to August 31
and insures annual policy losses up to $10,000,000 per occurrence and $13,000,000 in the aggregate. The company also has
additional layers of external insurance coverage, related to all lines of insurance coverage, insuring up to $75,000,000 in aggregate
losses per policy year arising from individual claims anywhere in the world that exceed the captive insurance company policy
limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s
current insurance levels will continue to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and other
indicators. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims
based upon actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are
taken into consideration by the company in estimating the ultimate reserves. For example, the actuarial analysis assumes that
historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of
operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the
government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be
impacted by actual loss awards and settlements on claims. While actuarial analysis is used to help determine adequate reserves,
the company is responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving
standards and practices.
Revenue Recognition: Invacare’s revenues are recognized when products are shipped or service provided to unaffiliated
customers, risk of loss is passed and title is transferred. Revenue Recognition, ASC 605, provides guidance on the application of
generally accepted accounting principles to selected revenue recognition issues. Shipping and handling costs are included in cost
of goods sold.
Sales are made only to customers with whom the company believes collection is reasonably assured based upon a credit
analysis, which may include obtaining a credit application, a signed security agreement, personal guarantee and/or a cross corporate
guarantee depending on the credit history of the customer. Credit lines are established for new customers after an evaluation of
their credit report and/or other relevant financial information. Existing credit lines are regularly reviewed and adjusted with
consideration given to any outstanding past due amounts.
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 the revenue recognition guidance in ASC
605-45-05. 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. 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. The company has entered into an agreement
with De Lage Landen, Inc. (“DLL”), a third party financing company, to provide the majority of future lease financing to Invacare
customers.