ACCOUNTS RECEIVABLE ALLOWANCES

9 Months Ended

Sep. 30, 2013

ACCOUNTS RECEIVABLE ALLOWANCES [Abstract]

ACCOUNTS RECEIVABLE ALLOWANCES

NOTE 4 — ACCOUNTS RECEIVABLE ALLOWANCES

The nature of the Company’s business inherently involves, in the ordinary course, significant amounts and substantial volumes of transactions and estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. This is a natural circumstance of the pharmaceutical industry and is not specific to the Company, and inherently lengthens the collections process. Depending on the product, the end-user customer, the specific terms of national supply contracts and the particular arrangements with the Company’s wholesaler customers, certain rebates, chargebacks and other credits are deducted from the Company’s accounts receivable. The process of claiming these deductions depends on wholesalers reporting to the Company the amount of deductions that were earned under the terms of the respective agreement with the end-user customer (which in turn depends on the specific end-user customer, each having its own pricing arrangement, which entitles it to a particular deduction). This process can lead to partial payments against outstanding invoices as the wholesalers take the claimed deductions at the time of payment.

With the exception of the provision for doubtful accounts, which is reflected as part of selling, general and administrative expense, the provisions for the following customer reserves are reflected in the accompanying financial statements as reductions of revenues in the statements of comprehensive income. The ending reserve balances are included in trade accounts receivable, net in the Company’s condensed consolidated balance sheets.

Net trade accounts receivable consists of the following (in thousands):

	SEPTEMBER 30,			DECEMBER 31,
	2013			2012
Gross accounts receivable	$	85,139		$	74,855
Less reserves for:
Chargebacks and rebates		(14,463	)		(13,452	)
Product returns		(7,027	)		(8,409	)
Discounts and allowances		(1,575	)		(1,362	)
Advertising and promotions		(466	)		(585	)
Doubtful accounts		(64	)		(30	)
Trade accounts receivable, net	$	61,544		$	51,017

For the three month periods ended September 30, 2013 and 2012, the Company recorded chargeback and rebate expense of $49.4 million and $30.4 million, respectively.  For the nine month periods ended September 30, 2013 and 2012, the Company recorded chargeback and rebate expense of $136.1 million and $75.4 million, respectively.

For the three month period ended September 30, 2013, the Company recorded a provision for product returns of $0.7 million.  During the three months ended September 30, 2012, the Company recorded $0.3 million benefit as a result of a change in estimate of future product returns.  For the nine month periods ended September 30, 2013 and 2012, the Company recorded provisions for product returns of $2.4 million and $2.8 million, respectively.

For the three month periods ended September 30, 2013 and 2012, the Company recorded provisions for cash discounts of $2.2 million and $1.6 million, respectively.  For the nine month periods ended September 30, 2013 and 2012, the Company recorded provisions for cash discounts of $6.2 million and $4.2 million, respectively.

The current period increases in the provisions for chargebacks, rebates and cash discounts were related to the increase in sales within the Ophthalmic and Hospital drugs & injectables segments.  The changes, year over year, in the provisions for product returns were due to changes in estimated future product returns rates based on historical returns experience.