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5. Accounts Receivable

Net accounts receivable consisted of the following (in thousands):

The Company’s accounts receivable balance includes unbilled amounts that represent revenues recorded for customers that are typically billed monthly in arrears. The Company records reserves against its accounts receivable balance. These reserves consist of allowances for doubtful accounts and reserves for cash-basis customers. Increases and decreases in the allowance for doubtful accounts are included as a component of general and administrative expenses. The Company’s reserve for cash-basis customers increases as services are provided to customers where collection is no longer assured. Increases to the reserve for cash-basis customers are recorded as reductions of revenues. The reserve decreases and revenue is recognized when and if cash payments are received.

Estimates are used in determining these reserves and are based upon the Company’s review of outstanding balances on a customer-specific, account-by-account basis. The allowance for doubtful accounts is based upon a review of customer receivables from prior sales with collection issues where the Company no longer believes that the customer has the ability to pay for services previously provided. The Company also performs ongoing credit evaluations of its customers. If such an evaluation indicates that payment is no longer reasonably assured for services provided, any future services provided to that customer will result in the creation of a cash-basis reserve until the Company receives consistent payments. The Company does not have any off-balance sheet credit exposure related to its customers.

For presentation on the balance sheet at December 31, 2008, the Company reduced customer accounts receivable balances and deferred revenue by the amount of any deferred revenue recorded for customers that had a balance receivable. The reduction as of December 31, 2008 totaled $22.2 million. Beginning in the quarter ended March 31, 2009, the Company ceased to record such reduction for balance sheet presentation and now only records a reduction of customers’ accounts receivable balances for the amount of any deferred revenue related to services that have not yet commenced and any deferred revenue for customers from which collection is not reasonably assured. The actual reported deferred revenue on the balance sheet at December 31, 2008 was $12.8 million. That amount would have been $30.1 million if the new presentation had been applied at December 31, 2008.

Note 3 – Accounts Receivable, Net and Significant Customers

Accounts receivable, net consisted of the following:

We maintain allowances for doubtful accounts and sales returns to reduce our receivables to their estimated realizable value. During the three months ended September 25, 2009, we reduced our allowance for doubtful accounts based on our sustained favorable collection experience and estimated probable credit losses in our existing accounts receivable based on analysis of current aging, economic indicators and customer conditions. This change in accounting estimate reduced our Selling, general and administrative expense by $2.3 million for the three months ended September 25, 2009.

We sell our products to original equipment manufacturers, or OEMs, and to electronic components distributors who resell these products to OEMs, or their subcontract manufacturers. Net sales by customer type and net sales to significant customers were as follows:

Huawei Technologies Co., Ltd., an OEM, individually accounted for 11% of our net sales for the nine months ended September 25, 2009. No other individual OEM accounted for more than 10% of our net sales for the nine months ended September 25, 2009. For the three months ended September 25, 2009 and for the three and nine months ended September 26, 2008, no single OEM accounted for more than 10% of our net sales.

As of September 25, 2009, accounts receivable from Arrow and Macnica individually accounted for approximately 46% and 20%, respectively, of our total accounts receivable. As of December 31, 2008, accounts receivable from Arrow and Macnica individually accounted for approximately 20% and 31%, respectively, of our total accounts receivable. No other distributor or OEM accounted for more than 10% of our accounts receivable as of September 25, 2009 or December 31, 2008.

3. Accounts Receivable

Accounts receivable at September 30, 2009 and December 31, 2008, consisted of:

The following table presents changes in the cardmember receivable reserve for losses for the nine months ended September 30:

Note 13. Receivables, Net

The major categories of receivables were as follows:

Receivables are netted with deferred income related to alliance partners until recognition of income. As a result, a corresponding reclassification was made which reduced alliance partner receivables and deferred income by $662 million and $566 million at September 30, 2009 and December 31, 2008, respectively. For additional information on the Company’s alliance partners, see “—Note 2. Alliances and Collaborations.”

In the aggregate, receivables due from three pharmaceutical wholesalers in the U.S. represented 40% and 35% of total trade receivables at September 30, 2009 and December 31, 2008, respectively.

Note 6. Accounts Receivable

Accounts receivable are net of an allowance for doubtful accounts of $2.5 million and $1.3 million at September 30, 2009 and December 31, 2008, respectively.

The following table details the composition of our notes receivable balances at September 11, 2009, and January 2, 2009.

We classify notes receivable due within one year as current assets in the caption “Accounts and notes receivable” in the accompanying Condensed Consolidated Balance Sheets, including $73 million and $81 million, at September 11, 2009, and January 2, 2009, respectively, related to “Loans to timeshare owners.”

In the first quarter of 2009, we fully reserved two notes receivable balances that we deemed uncollectible, one of which relates to a project that is in development. We recorded a total charge of $42 million in the first quarter of 2009 in the “Provision for loan losses” caption in our Condensed Consolidated Statements of Income related to these two notes receivable balances. We also recorded a $1 million charge in the second quarter of 2009 related to two notes receivable balances. See Footnote No. 19, “Restructuring Costs and Other Charges” for additional information.

In the 2009 third quarter we fully reserved certain notes receivable balances that we deemed uncollectible, which relate to a Timeshare segment project that is in development. Accordingly, we recorded a loan impairment charge of $40 million in the 2009 third quarter in the “Timeshare strategy-impairment charges (non-operating)” caption of our Consolidated Statements of Income. See Footnote No. 18, “Timeshare Strategy-Impairment Charges,” for additional information.

Accounts receivable are net of allowances for doubtful accounts of $38.3 million, $30.3 million, and $25.9 million as of September 30, 2009, September 30, 2008, and December 31, 2008, respectively.

Note 3—Receivables, net

Receivables, net consisted of:

NOTE 5

ACCOUNTS RECEIVABLE SECURITIZATION

The Company did not extend its accounts receivable securitization facility agreement, which was described in Note 1 to the Consolidated Financial Statements included in the Company’s 2008 Form 10-K, upon its expiration on April 24, 2009. There were no amounts of undivided percentage ownership interests in accounts receivable sold by Stryker Funding Corporation (SFC), a wholly owned special-purpose subsidiary of the Company, under the facility as of December 31, 2008 or at any time thereafter.

NOTE 7. RECEIVABLES
Receivables, net (including retained interests in securitizations) were as follows:

The reduction in the level of securitized receivables sold to third parties during the nine months ended September 30, 2009 was due to a scheduled $175 million reduction in the level of participation by a sponsor in one of the Company's securitization programs in the second quarter of 2009, which the Company elected not to replace, and seasonal fluctuations in qualifying receivables. There are no other scheduled reductions in the remaining terms of the securitization facilities, which are subject to renewal on an annual basis. The financial cost of funding and the cash flow impact of the securitization programs to the Company’s operating cash flows are included in Note 13.