Invacare 2013 Annual Report Download

Download and view the complete annual report

Please find the complete 2013 Invacare annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

2013 Annual Report
And Form 10-K

Table of contents

  • Page 1
    2013 Annual Report And Form 10-K

  • Page 2

  • Page 3
    ... 2013, we also leveraged opportunities to reduce complexity within our business in order to focus on our core product lines and geographies with the long-term goal of returning to a high-single digit operating margin. The divestiture of Invacare Supply Group, our former domestic medical supplies...

  • Page 4
    ...2013. In another step toward driving efficiencies within our business, we announced our decision to close our London, Canada manufacturing facility by mid-2014. Production of case goods currently manufactured in London will be transferred to the Invacare plant in Sanford, Florida. The long-term care...

  • Page 5
    ... us rebuild our market share in custom power wheelchair devices over time and further position us as the leader in the home and long-term care medical device markets. Importantly, as a management team and Board of Directors who collectively own approximately 15% of the stock, we are aligned with our...

  • Page 6
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 7
    ... values indicated were calculated based upon the last sale price of the Common Shares as reported by The New York Stock Exchange on June 30, 2013, which was $14.36. For purposes of this information, the 2,623,984 Common Shares and 1,080,174 Class B Common Shares which were held by Executive Officers...

  • Page 8
    INVACARE CORPORATION 2013 ANNUAL REPORT ON FORM 10-K CONTENTS Item PART I: 1 1A. 1B. 2 3 4 Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal Proceedings ...Mine Safety Disclosures...Executive Officers of the Registrant ...PART II: 5 6 7 7A. 8 9 9A. 9B. Market for the ...

  • Page 9
    ... sells its products principally to home health care and medical equipment providers, distributors and government locations in the United States, Europe, Canada, New Zealand, Australia and Asia. Invacare's products are sold through its worldwide distribution network by its sales force, telesales...

  • Page 10
    ... and the Company's distribution within them, develop. Reimbursement The Company is directly affected by government regulation and reimbursement policies in virtually every country in which the Company operates. In the United States, the growth of health care costs has increased at rates in excess of...

  • Page 11
    ...Seating, Lifestyle and Respiratory Therapy product lines as discussed below. This segment comprised 44.9%, 48.3% and 50.4% of the net sales from continuing operations in 2013, 2012 and 2011, respectively. MOBILITY AND SEATING PRODUCTS Power Wheelchairs. Invacare manufactures a complete line of power...

  • Page 12
    ... Australia and Invacare New Zealand, which distribute a range of home medical equipment including mobility and seating, lifestyle and respiratory therapy products to homecare and long-term care markets; and Dynamic Controls, a manufacturer of electronic operating components used in power wheelchairs...

  • Page 13
    ... from continuing operations in 2013, 2012 and 2011, respectively. Most wheelchair products sold in Europe are designed locally to meet specific market requirements. The Company manufactures and/or assembles both manual and power wheelchair products at the following European facilities: Invacare UK...

  • Page 14
    ... sales force, a national rentals and services organization and a team of clinical professionals who call on clinical decision makers. Products from IPG include beds and resident room furnishings, safe patient handling equipment and programs, bathing, durable medical equipment and clinical therapies...

  • Page 15
    ... a dealer network that sells products to the consumer market; and Long-Term Care products are sold directly to aged care facilities. Invacare Australia and New Zealand have invested heavily in marketing efforts to increase demand for Invacare product in 2013. Customer Relationship Management (CRM...

  • Page 16
    ... European power wheelchair model with a new lighting system and updated electronics. This power wheelchair was designed to be a more consumer friendly product for markets needing an excellent outdoor/indoor driving performance at an affordable price. The Invacare® Pronto® Air Personal Transporter...

  • Page 17
    ... final assembly of a variety of standard manual wheelchairs and personal care products. The Company operates four major factories located in Elyria, Ohio; Sanford, Florida; London, Ontario and Reynosa, Mexico. On February 12, 2014, the Company announced its decision to close its London manufacturing...

  • Page 18
    ... regulations relating to the design, manufacture and marketing of health care products. Consent Decree. In December 2012, the Company reached an agreement with the FDA on the terms of a consent decree of injunction with respect to the Company's corporate facility and its Taylor Street wheelchair...

  • Page 19
    ... to take a wide variety of actions if the FDA finds that the Company is not in compliance with the consent decree or FDA regulations, including requiring the Company to shut down all operations relating to wheelchairs manufactured at the Taylor Street facility. The FDA can also order the Company to...

  • Page 20
    ... of credit to customers and monitors whether other payors begin to model their payments on the NCB program. The Company also closely watches state Medicaid budgets and how deficits may impact coverage and payments for home medical equipment and institutional care products. Although reductions...

  • Page 21
    ...the Elyria, Ohio, facilities impacted by the FDA consent decree, including any possible requirement to perform additional remediation activities; the failure or refusal of customers or healthcare professionals to sign verification of medical necessity (VMN) documentation or other certification forms...

  • Page 22
    ...2012. The injunction limits the Company's manufacture and distribution of power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also temporarily limited design activities related to wheelchairs and power beds...

  • Page 23
    ... sites of medical device companies, and in 2010, 2011 and 2014, the FDA inspected certain of the Company's facilities. In December 2012, the Company and the FDA agreed to a consent decree of injunction affecting the Company's corporate facility and its Taylor Street manufacturing facility in Elyria...

  • Page 24
    ... of operations. The Company sells its products principally to medical equipment and home health care providers who resell or rent those products to consumers. Many of those providers (the Company's customers) are reimbursed for the Invacare products sold to their customers and patients by third...

  • Page 25
    ... policies have in the past added, and could continue to add, significant pressure to the Company's revenues and profitability. For example, in 100 metropolitan areas, CMS introduced a national competitive bidding program (NCB) which set new, lower payment rates for medical equipment and supplies...

  • Page 26
    ... negatively impacted. In response to reimbursement reductions and competitive pricing pressures, the Company continues to initiate numerous cost reduction and organizational efficiency efforts, including globalization of its product lines. The Company may not be successful in achieving the operating...

  • Page 27
    ... of operations. The consolidation of health care customers and the Company's competitors could result in a loss of customers or in additional competitive pricing pressures. Numerous initiatives and reforms instituted by legislators, regulators and third-party payors to reduce home medical equipment...

  • Page 28
    ...significant international operations, including operations in Australia, Canada, New Zealand, Mexico, Asia (primarily China) and Europe. There are risks inherent in operating and selling products internationally, including different regulatory environments and reimbursement systems; difficulties in...

  • Page 29
    ...inadequate. The manufacture and sale of home health care devices and related products exposes the Company to a significant risk of product liability claims. From time to time, the Company has been, and is currently, subject to a number of product liability claims alleging that the use of the Company...

  • Page 30
    ...price is increasingly a primary consideration in customers' purchasing decisions. The Company historically has been engaged in product development and improvement programs. However, during 2012 and 2013 as a result of the FDA consent decree, which is described elsewhere in this Annual Report on Form...

  • Page 31
    ... its control, including changes in general economic and business conditions, or they can be affected by government enforcement actions, such as, for example, adverse impacts from the FDA consent decree of injunction. If the Company were unsuccessful in meeting those, or other, financial or operating...

  • Page 32
    ...that are necessary in the design and manufacture of some of the Company's products. The loss of these licenses could prevent the Company from, or could cause additional disruption or expense in, manufacturing, marketing and selling these products, which could harm the Company's business. The Company...

  • Page 33
    ... Company's plans typically include identifying, analyzing, acquiring, and integrating other strategic businesses. There are various reasons for the Company to acquire businesses or product lines, including providing new products or new manufacturing and service capabilities, to add new customers, to...

  • Page 34
    ... loss of the services of the Company's key management and personnel could adversely affect its ability to operate the Company's business. The Company's future success will depend, in part, upon the continued service of key managerial, research and development staff and sales and technical personnel...

  • Page 35
    ...Park, Florida ...Pinellas Park, Florida ...Reynosa, Mexico ...Sanford, Florida ...Scarborough, Ontario ...Shanghai, China ...Shenzhen, China ...Simi Valley, California...Spicewood, Texas ...Suzhou, China...Tonawanda, New York...Vaughan, Ontario ...Institutional Products Group Albuquerque, New Mexico...

  • Page 36
    ..., Florida ...Tea, South Dakota...Wallingford, Connecticut ...Westin, Wisconsin...Woburn, Massachusetts ...Asia/Pacific Operations Auckland, New Zealand ...Christchurch, New Zealand ...Christchurch, New Zealand ...Kidderminster, United Kingdom ...Netley, SA, Australia ...North Olmsted, Ohio ...North...

  • Page 37
    ....) Use Warehouse Manufacturing, Warehouse and Offices Manufacturing, Warehouse and Offices Warehouse and Offices Warehouse and Offices Warehouse Manufacturing, Warehouse and Offices Warehouse and Offices Warehouse Offices Warehouse Manufacturing and Warehouse Warehouse and Offices Offices Offices...

  • Page 38
    ... procedures and its design control systems are compliant with the FDA's QSR. As a result of the FDA's acceptance of the first certification report on May 13, 2013, the Taylor Street facility was able to resume supplying parts and components for the further manufacturing of medical devices at other...

  • Page 39
    ...compliance with the consent decree or FDA regulations, including requiring the Company to shut down all operations relating to Taylor Street products. The FDA can also order the Company to undertake a partial shutdown or a recall, issue a safety alert, public health advisory, or press release, or to...

  • Page 40
    ... and General Manager at TTI Floor Care where he was responsible for select business units, product marketing, engineering, operations and supply chain. Prior to that, he spent thirteen years with Robert Bosch Tool Corporation, where he served as the Sr. Vice President of New Product Development. Mr...

  • Page 41
    ... and General Manager of North American Operations from September 1989 to September 1992. Mr. Richey was a director of Invacare from 1980 until he retired from his director role in May 2013. Mr. Richey is also a member of the Board of Trustees for Case Western Reserve University and The Cleveland...

  • Page 42
    ... of Equity Securities. Invacare's Common Shares, without par value, trade on the New York Stock Exchange (NYSE) under the symbol "IVC." Ownership of the Company's Class B Common Shares (which are not listed on NYSE) cannot be transferred, except, in general, to family members without first being...

  • Page 43
    ...© 2014 Russell Investment Group. All rights reserved. _____ * The S&P Healthcare Equipment & Supplies Index is a capitalization-weighted average index comprised of health care companies in the S&P 500 Index. The graph assumes $100 invested on December 31, 2008 in the common shares of Invacare...

  • Page 44
    ... by reference to the information under the caption "Equity Compensation Plan Information" in the Company's definitive Proxy Statement on Schedule 14A for the 2014 Annual Meeting of Shareholders. Item 6. Selected Financial Data. The selected consolidated financial data set forth below with respect...

  • Page 45
    ... ...276,165 Working Capital...Long-Term Debt ...Other Long-Term Obligations...Shareholders' Equity ...Other Data Research and Development Expenditures ...$ Capital Expenditures ...Depreciation and Amortization ...Key Ratios Return on Sales % from continuing operations ...Return on Average Assets...

  • Page 46
    ... from continuing operations of $9,336,000 ($7,493,000 after-tax expense or $0.23 per share assuming dilution), incremental warranty expense of $7,264,000 ($7,170,000 after-tax expense or $0.22 per share assuming dilution related to the power wheelchair joystick recall) and the positive impact...

  • Page 47
    ... is to resume full production at its Taylor Street wheelchair manufacturing facility in Elyria, Ohio. In 2014, the Company expects continued pressure on its organic net sales, cash flow and operating profitability for at least as long as the injunctive phase of the consent decrease is in place...

  • Page 48
    ... Annual Report on Form 10-K. DISCONTINUED OPERATIONS On December 21, 2012, as part of the Company's globalization strategy, and to allow it to focus on its core equipment product lines, the Company entered into an agreement to sell ISG and determined on that date that the "held for sale" criteria...

  • Page 49
    ...491,000 for 2013, 2012 and 2011, respectively. Earnings before income taxes for the discontinued operation of ISG were $402,000, $16,238,000 and $14,725,000 for 2013, 2012 and 2011, respectively. The Company continues to sell products to the acquirer of ISG. On January 17, 2014, the Company received...

  • Page 50
    ... order of HomeFill® oxygen systems by a national account which was fulfilled in 2013. The sales decline in mobility and seating products was primarily driven by the impact of the FDA consent decree, which limits sales of mobility products from the Taylor Street manufacturing facility to products...

  • Page 51
    ... of the businesses in this segment, higher warranty expense and increased research and development expenses. The 2013 gross margin reflects an incremental warranty expense for the power wheelchair joystick recall of $4,639,000 pre-tax, or 9.3 percentage points. Selling, General and Administrative...

  • Page 52
    ... by the U.S. government, as well as similar healthcare reimbursement pressures abroad, which negatively affect the Company's customers (e.g. home health care providers) and continued pricing pressures faced by the Company as a result of outsourcing by competitors to lower cost locations. In addition...

  • Page 53
    ... the consent decree. In addition, in the second half of 2012 there were also external pressures on the Company's customers relating to the second round of National Competitive Bidding, as well as prepayment reviews and post-payment audits from Medicare and Medicaid. Institutional Products Group (IPG...

  • Page 54
    ... expenses. The increased research and development expenses for this segment include the costs of contracted engineering on negative pressure wound therapy products. Gross profit in Europe as a percentage of net sales decreased 1.9 percentage points in 2012 from the prior year. The decrease...

  • Page 55
    ... as part of the Company's globalization initiatives. In addition, a portion of the North America/HME segment severance was related to positions eliminated, principally in sales and marketing as well as manufacturing, at the Company's Taylor Street facility as a result of the FDA consent decree. The...

  • Page 56
    ...LIQUIDITY AND CAPITAL RESOURCES The Company continues to maintain an adequate liquidity position through its unused bank lines of credit (see Long-Term Debt in the Notes to Consolidated Financial Statements included in this report) and working capital management. The Company's total debt outstanding...

  • Page 57
    ... Company completed the sale of its ISG business for net proceeds of $144,680,000 in cash and on August 6, 2013, the Company sold Champion, its domestic medical recliner business for dialysis clinics, for net proceeds of $42,872,000 in cash. The net proceeds from these divestitures were used to repay...

  • Page 58
    ...party expert certification audit and FDA inspection contemplated under the consent decree and receipt of the written notification from the FDA permitting the Company to resume full operations, as well as the Company's continued compliance with the covenants under its credit facility. Notwithstanding...

  • Page 59
    ...due 2027 ...$ Revolving Credit Agreement due 2015 ...Operating lease obligations ...Capital lease obligations ...Purchase obligations (primarily computer systems contracts) ...Product liability ...Supplemental Executive Retirement Plan ...Other, principally deferred compensation ...Total ...$ 20,577...

  • Page 60
    ... 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...

  • Page 61
    ... 2013 and 2012, the Company performed a review for potential impairments of any other assets, including the Company's Taylor Street facility which is subject to the FDA consent decree that limits the Company's manufacture and distribution of custom power and manual wheelchairs, wheelchair components...

  • Page 62
    ...segment. In December 2011, the FDA requested that the Company agree to a consent decree of injunction at the Company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the then proposed terms of which would require the suspension of certain operations at those facilities...

  • Page 63
    ...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...

  • Page 64
    ...reporting entity expects to pay on behalf of its co-obligors. The update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The requirements of ASU No. 2013-04 are effective on a retrospective basis for interim and annual...

  • Page 65
    ... in the reports it files and submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and (2) accumulated and communicated to the Company's management, including the Chief Executive Officer and the...

  • Page 66
    ... no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. None. Other Information. I-60

  • Page 67
    ...the information set forth under the captions "Executive Compensation" and "Corporate Governance" in the Company's definitive Proxy Statement on Schedule 14A for the 2014 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required...

  • Page 68
    ... page number I-64 of this Report on Form 10-K. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 27, 2014. INVACARE CORPORATION...

  • Page 69
    ...by the following persons on behalf of the Registrant and in the capacities indicated as of February 27, 2014. Signature /s/ A. MALACHI MIXON, III A. Malachi Mixon, III /s/ GERALD B. BLOUCH Gerald B. Blouch Title Chairman of the Board of Directors President and Chief Executive Officer and Director...

  • Page 70
    ... Agreement among AssuraMed, Inc. and Invacare Corporation and Invacare Supply Group, Inc., dated December 21, 2012. (Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to supplementally furnish to the Securities and Exchange Commission upon request any omitted schedule...

  • Page 71
    ... Stock Option Award under Invacare Corporation 2003 Performance Plan Director Compensation Schedule Invacare Corporation Executive Incentive Bonus Plan, as amended March 9, 2010 Form of Rule 10b5-1 Sales Plan entered into between the Company and certain of its executive officers and other employees...

  • Page 72
    ... for Swiss Employees under Invacare Corporation 2013 Equity Compensation Plan Form of Director Restricted Stock Award under Invacare Corporation 2013 Equity Compensation Plan Form of Restricted Stock Award under Invacare Corporation 2013 Equity Compensation Plan Amended and Restated Credit Agreement...

  • Page 73
    ... made to the appropriate Exhibit of the Company report on Form 10-Q, dated September 30, 2013, which Exhibit is incorporated herein by reference. Reference is made to the appropriate Exhibit of the Company report on Form 8-K, dated January 31, 2014, which Exhibit is incorporated herein by reference...

  • Page 74
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 75
    ...in all material respects the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Invacare Corporation's internal control over financial reporting as of December 31, 2013, based on criteria established...

  • Page 76
    ... criteria). Invacare Corporation's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying "Management's Annual Report on Internal Control over...

  • Page 77
    ... COMPREHENSIVE INCOME (LOSS) INVACARE CORPORATION AND SUBSIDIARIES Years Ended December 31, 2013 2012 2011 (In thousands, except per share data) Net sales...$ 1,352,359 $ 1,432,693 $ 1,482,429 Cost of products sold ...974,893 996,218 1,008,644 Gross Profit ...377,466 436,475 473,785 Selling, general...

  • Page 78
    ... for sale - current ...Total Current Liabilities ...Long-Term Debt ...Other Long-Term Obligations...Shareholders' Equity Preferred Shares (Authorized 300 shares; none outstanding) ...Common Shares (Authorized 100,000 shares; 34,084 and 33,952 issued in 2013 and 2012, respectively)-no par ...Class...

  • Page 79
    ... from sale of property and equipment ...Proceeds from sale of businesses...Business acquisitions, net of cash acquired ...(Increase) Decrease in other long-term assets ...Other ...Net Cash Used for Investing Activities ...Financing Activities Proceeds from revolving lines of credit and long-term...

  • Page 80
    ... plans: ...Amortization of prior service costs and unrecognized losses and credits...Amounts arising during the year, primarily due to the addition of new participants...Total comprehensive income...Extinguishment of Convertible Debt...Dividends...December 31, 2012 Balance ...$ Exercise of stock...

  • Page 81
    ... of Operations: Invacare Corporation is a leading manufacturer and distributor of medical equipment used in the home based upon the Company's distribution channels, breadth of product line and net sales. The Company designs, manufactures and distributes an extensive line of health care products for...

  • Page 82
    ... 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...

  • Page 83
    ... recognized as part of selling, general and administrative expense ...$ 5,957 $ 2012 6,545 $ 2011 6,640 The amounts above reflect compensation expense related to restricted stock awards and nonqualified stock options awarded under the Invacare Corporation 2013 Equity Compensation Plan and 2003...

  • Page 84
    ... Financial Statements. Discontinued Operations On December 21, 2012, as part of the Company's globalization strategy, and to allow it to focus on its core equipment product lines, the Company entered into an agreement to sell ISG and determined on that date that the "held for sale" criteria of ASC...

  • Page 85
    ... taxes for the discontinued operation of ISG were $402,000, $16,238,000 and $14,725,000 for 2013, 2012 and 2011, respectively. The Company continues to sell products to the acquirer of ISG. On August 6, 2013, the Company sold Champion, its domestic medical recliner business for dialysis clinics, to...

  • Page 86
    ... 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 providers, both foreign and domestic, is ultimately funded through government reimbursement programs...

  • Page 87
    ... as follows (in thousands): 2013 3,823 $ 3,457 (1,241) 6,039 $ 2012 4,273 458 (908) 3,823 Balance as of January 1...$ Current period provision ...Direct write-offs charged against the allowance...Balance as of December 31...$ Installment receivables by class as of December 31, 2013 consist of the...

  • Page 88
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Installment receivables by class as of December 31, 2012...receivables are assigned a specific allowance for doubtful accounts based on management's review when the Company does not expect to receive both the ...

  • Page 89
    ...Derivatives (foreign exchange forward contracts) ...Prepaid insurance ...Prepaids and other current assets ...$ Other Assets Other long-term assets as of December 31, 2013 and 2012 consist of the following (in thousands): 2013 Cash surrender value of life insurance policies ...$ Deferred Financing...

  • Page 90
    ...'s ability to service regional and national longterm care providers. DMS has a clinical solution selling approach for wound therapies, safe patient handling and other rental applications in institutional settings. Pursuant to the purchase agreement, the Company paid $9,000,000 in 2012 for contingent...

  • Page 91
    ... 2013 and 2012, the Company performed a review for potential impairments of any other assets, including the Company's Taylor Street facility which is subject to the FDA consent decree that limits the Company's manufacture and distribution of custom power and manual wheelchairs, wheelchair components...

  • Page 92
    ... carrying value for the asset. During 2013, the Company recognized intangible write-down charges of $1,523,000 comprised of: trademarks with indefinite lives impairment of $568,000, a trademark with a definite life impairment of $123,000, customer list impairment of $442,000 and developed technology...

  • Page 93
    ... cash flow then discounted to value the customer relationship. The fair value of the trademark and developed technology was calculated using a relief from royalty payment methodology which requires applying an estimated market royalty rate to forecasted net sales and discounting the resulting cash...

  • Page 94
    ... change in estimate increased warranty expense by $3,402,000 ($3,308,000 after-tax) in the fourth quarter of 2013. The Company will continue to review the adequacy of the joystick recall accrual as the recall progresses. Long-Term Debt Debt as of December 31, 2013 and 2012 consisted of the following...

  • Page 95
    ... using cash, as opposed to stock. As of December 31, 2013, the principal amount of the Company's Convertible Notes exceeded the if-converted value of those notes by $851,000. The Company retired principal amounts of $500,000 in 2012 compared $63,351,000 in 2011 of Convertible Notes at a premium...

  • Page 96
    ...,000 in 2013, 2012 and 2011, respectively. Other Long-Term Obligations Other long-term obligations as of December 31, 2013 and 2012 consist of the following (in thousands): 2013 Supplemental Executive Retirement Plan liability ...$ Product liability ...Deferred income taxes ...Deferred compensation...

  • Page 97
    ...of the Compensation and Management Development Committee of the Board of Directors. The Company may make discretionary contributions to the domestic plans based on an annual resolution of the Board of Directors. Contribution expense for the Invacare Retirement Savings Plan in 2013, 2012 and 2011 was...

  • Page 98
    ... under the 2003 Plan will be added back as one common share. The Compensation and Management Development Committee of the Board (the "Committee"), in its discretion, may grant an award under the 2013 Plan to any director or employee of the Company or an affiliate. The 2013 Plan initially allows the...

  • Page 99
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The 2013 Plan, 2003 Plan and the 1994 Performance Plans (the "Plans") have provisions that allow employees to exchange mature shares to pay the exercise price and surrender shares from the options or ...

  • Page 100
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2013 Expected dividend yield ...Expected ...

  • Page 101
    ... (Loss) line (927) Selling, General and Administrative 80 Income Taxes (847) 432 Net Sales (703) Cost of Products Sold (337) Interest Expense (608) (10) Income Taxes (598) Stock awards for 12,925, 10,631 and 4,900 shares were canceled in 2013, 2012 and 2011, respectively. In 2013, 2012 and 2011...

  • Page 102
    ... 2011, 2012 and 2013 were necessitated primarily by continued declines in Medicare and Medicaid reimbursement by the U.S. government, as well as similar healthcare reimbursement pressures abroad, which negatively affect the Company's customers (e.g. home health care providers) and continued pricing...

  • Page 103
    ... Sold. However, in 2011, 2012 and into 2013, these savings have been more than offset by continued margin decline, principally as a result of product mix, and higher regulatory and compliance costs related to quality system improvements and reduced net sales volumes primarily related to mobility...

  • Page 104
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Severance Payments North America/HME ...IPG...Europe ...Asia/Pacific ...Total...December 31, 2012 Balance North America/HME ...IPG...Europe ...Asia/Pacific ...Total...Charges North America/HME ...IPG......

  • Page 105
    ... 16,832 2012 2011 Included in the 2013 and 2012 Federal current tax benefit is a benefit of $1,220,000 and $7,126,000 related to an intraperiod allocation to continuing operations. A charge in an equal amount is in discontinued operations. A reconciliation to the effective income tax rate from the...

  • Page 106
    ... 31, 2013 and 2012 are as follows (in thousands): 2013 Current deferred income tax assets (liabilities), net: Loss carryforwards ...$ Bad debt ...Warranty...State and local taxes ...Other accrued expenses and reserves ...Inventory ...Compensation and benefits ...Product liability ...Valuation...

  • Page 107
    ... the balance of uncertain tax positions in Other Long-Term Obligations at the end of 2013 is an accrual of tax ($6,275,000) and interest ($4,498,000) resulting from a foreign audit related to years before 2012. The Company and its subsidiaries file income tax returns in the U.S. and certain foreign...

  • Page 108
    ... as the average market price of the Company stock in 2013, 2012 and 2011 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...

  • Page 109
    ... 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...

  • Page 110
    ... currency forward contracts that are not designated as hedges in accordance with ASC 815. These contracts are entered into to eliminate the risk associated with the settlement of short-term intercompany trading receivables and payables between Invacare Corporation and its foreign subsidiaries. The...

  • Page 111
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Foreign exchange forward contracts not qualifying or designated for hedge accounting treatment entered into in 2013 and 2012, respectively, and outstanding were as follows (in thousands USD): December 31, ...

  • Page 112
    ...net sales were increased by $155,000 and cost of product sold was decreased by $3,608,000 for a net realized gain of $3,763,000 compared to a net loss of $250,000 in 2011. The Company recognized incremental expense of $337,000 and $600,000 in 2013 and 2012, respectively related to interest rate swap...

  • Page 113
    ...in 2012 and a net loss of $250,000 in 2011 related to ASC 815 designated derivatives. Gains or losses recognized as the result of the settlement of forward contracts are recognized in cost of products sold for hedges of inventory transactions, sales for hedges of forecasted sales or selling, general...

  • Page 114
    ...segment. In December 2011, the FDA requested that the Company agree to a consent decree of injunction at the Company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the then proposed terms of which would require the suspension of certain operations at those facilities...

  • Page 115
    ... lifestyle, mobility and seating and respiratory therapy products. IPG sells or rents long-term care medical equipment, health care furnishings and accessory products. Europe and Asia/Pacific sell product lines similar to North America/HME and IPG. Each business segment sells to the home health care...

  • Page 116
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The information by segment is as follows (in thousands): 2013 Revenues from external customers North America/HME ...$ Institutional Products Group ...Europe ...Asia/Pacific ...607,094 112,290 583,143 $ 692,...

  • Page 117
    ... STATEMENTS-(Continued) 2013 Long-lived assets North America/HME (2) ...$ Institutional Products Group (2) ...Europe ...Asia/Pacific (2) ...All Other (1)...Assets held for sale ...Consolidated ...$ Expenditures for assets North America/HME ...$ Institutional Products Group ...Europe ...Asia/Pacific...

  • Page 118
    ..., including repair services, equipment rentals and external contracting. No single customer accounted for more than 3.5% of the Company's sales. Contingencies General In the ordinary course of its business, the Company is a defendant in a number of lawsuits, primarily product liability actions in...

  • Page 119
    ...'s manufacture and distribution of power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also temporarily limited design activities related to wheelchairs and power beds that take place at the impacted Elyria...

  • Page 120
    ... change in estimate increased warranty expense by $3,402,000 ($3,308,000 after-tax) in the fourth quarter of 2013. For additional information regarding the consent decree, please see the following sections of this Annual Report on Form 10-K: Item 1. Business - Government Regulation and Item 1A. Risk...

  • Page 121
    ... announced its decision to close its London, Canada manufacturing facility during 2014. The closure of this plant, which produces long-term care beds and case goods, is part of the Company's long-term strategy to remain cost competitive by optimizing its global supply chain. Production of case goods...

  • Page 122
    ...Net sales ...$ Cost of products sold ...Gross Profit ...Selling, general and administrative expenses ...Charge related to restructuring activities . . Asset write-downs to intangibles ...Income (loss) from equity investee ...Interest (income) expense-net ...Earnings (Loss) from Continuing Operations...

  • Page 123
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS The Company (Parent) Year ended December 31, 2012 Net sales ...$ Cost of products sold ...Gross Profit ...Selling, general and administrative expenses ......

  • Page 124
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS The Company (Parent) Year ended December 31, 2011 Net sales ...$ Cost of products sold ...Gross Profit ...Selling, general and administrative expenses ......

  • Page 125
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED BALANCE SHEETS The Company (Parent) December 31, 2013 Assets Current Assets Cash and cash equivalents ...$ Trade receivables, net ...Installment receivables, net ...Inventories, net ...

  • Page 126
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED BALANCE SHEETS The Company (Parent) December 31, 2012 Assets Current Assets Cash and cash equivalents ...$ Trade receivables, net ...Installment receivables, net ...Inventories, net ...

  • Page 127
    ... The Company (Parent) Year ended December 31, 2013 Net Cash Provided (Used) by Operating Activities ...$ Investing Activities Purchases of property and equipment . Proceeds from sale of property and equipment ...Proceeds from sale of businesses ...Other long-term assets ...Other ...Net Cash Provided...

  • Page 128
    ... December 31, 2012 Net Cash Provided (Used) by Operating Activities ...$ Investing Activities Purchases of property and equipment . Proceeds from sale of property and equipment ...Business acquisitions, net of cash acquired ...Other long-term assets ...Other ...Net Cash Used for Investing Activities...

  • Page 129
    ... December 31, 2011 Net Cash Provided (Used) by Operating Activities ...$ Investing Activities Purchases of property and equipment . Proceeds from sale of property and equipment ...Business acquisitions, net of cash acquired ...Other long-term assets ...Other ...Net Cash Used for Investing Activities...

  • Page 130
    ...) 1.28 1.10 March 31, 2012 Net sales...$ Gross profit ...Earnings (loss) before income taxes ...Net earnings (loss) from continuing operations ...Net earnings from discontinued operations...Net earnings (loss)...Net earnings (loss) per share from continuing operations-basic ...Net earnings per share...

  • Page 131
    ... recognized expense for continuing operations, despite the Company being in a domestic tax valuation allowance and the negative impact to warranty expense of $3,862,000 ($3,862,000 after tax or $0.12 per share assuming dilution) related to the Company's power wheelchair joystick recall. Earnings and...

  • Page 132
    ... liability ...Year Ended December 31, 2012 Deducted from asset accounts- Allowance for doubtful accounts...$ Inventory obsolescence reserve...Tax valuation allowances...Accrued warranty cost ...Accrued product liability ...Year Ended December 31, 2011 Deducted from asset accounts- Allowance for...

  • Page 133
    ... or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) INVACARE CORPORATION /s/ GERALD B. BLOUCH Gerald B. Blouch Chief Executive Officer (Principal Executive Officer) Date: February 27, 2014

  • Page 134
    ... not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) INVACARE CORPORATION /s/ ROBERT K. GUDBRANSON Robert K. Gudbranson Chief Financial Officer (Principal Financial Officer) Date: February 27, 2014

  • Page 135
    ... In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K for the period ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald B. Blouch, Chief Executive Officer of the company, certify, pursuant...

  • Page 136
    ... of 2002 In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K for the period ending December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert K. Gudbranson, Chief Financial Officer of the company, certify...

  • Page 137
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 138
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 139

  • Page 140