Invacare 2006 Annual Report Download

Download and view the complete annual report

Please find the complete 2006 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 104

  • 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

Fellow Shareholders:
Invacare has encountered a steady stream of disruptive change in its industry over the past few years. As the
home medical equipment (HME) industry continues to evolve due to ongoing cuts in Medicare and Medicaid HME
reimbursement in the U.S., Invacare has found strength in the diversity of its business and the long-term
demographic, social and economic trends that will continue to drive its growth. Combined with the Company’s
diversity in products, programs, and global presence, Invacare remains the best positioned manufacturer/distributor
in its industry.
Most of the Company’s challenges stem from the North America/Home Medical Equipment (NA/HME)
division, which is greatly impacted by Medicare and Medicaid reimbursement uncertainty. Segments of the
business not impacted by reimbursement are doing well. The Company’s international businesses, particularly in
Europe, continued to strengthen and build a foundation for growth.
In 2006, Invacare continued to focus on its global initiative to reduce costs. Since the cost reduction initiatives
were first announced in 2005, approximately 600 positions have been eliminated, several facilities were exited, and
manufacturing and sourcing capabilities were increased in Asia. These initiatives will make us a lean and efficient
Company, which should put us in a favorable position when the dust settles around reimbursement.
2006 Financial Results
Results for 2006 reflect the ongoing uncertainty and caution with which HME customers are approaching the
market. For the year, Invacare reported a net sales decrease of 2.1% to $1.50 billion. Dealer uncertainty attributable
to reimbursement changes, lower prices due to competitive pressure from Asian sourcing, and the elimination of
certain product lines contributed to the revenue decline.
Adjusted earnings per share (See Table) for the year were $1.18 versus $1.66 last year, which excludes the
impact of a pre-tax $21.3 million restructuring charge in 2006 and a pre-tax $7.5 million restructuring charge in
2005. The 2006 adjusted results also exclude fourth quarter 2006 finance charges, interest and fees related to debt
refinancing, incremental reserve against accounts receivable due to Medicare reimbursement reductions and an
impairment charge related to goodwill and intangible assets. Loss per share on a U.S. generally accepted accounting
principles (GAAP) basis was $10.00 ($317.8 million net loss after-tax) as compared to earnings per share last year
of $1.51 ($48.9 million net income after-tax).
Performance by Region
In 2006, NA/HME net sales decreased 4.3% to $676.3 million from $706.6 million last year with revenue
declines in Rehab, Standard and Respiratory product lines. The reduction in sales was largely due to the pricing and
competitive industry conditions driven by reimbursement declines and the growing impact of low-cost Asian
products.
Areas in North America outside of the HME Group showed solid performance in 2006. Invacare Supply Group
(ISG) net sales increased 3.3% to $228.2 million from $220.9 million last year. The Institutional Products Group
(IPG) net sales increased 9.4% to $93.5 million from $85.4 million last year due to increased volumes in its core bed
products and in other product offerings such as bathing products.
For the year, European net sales were down .4% to $430.4 million versus $432.1 million last year. Pricing
reductions contributed to the sales declines. In addition, foreign currency translation reduced sales by one
percentage point, which was offset by acquisitions that increased sales by one percentage point.
Asia/Pacific net sales for 2006 decreased 17.8% to $69.6 million versus $84.7 million last year. Foreign
currency accounted for four percentage points of the net sales decline, while acquisitions increased net sales by five
percentage points. Performance in this region continues to be negatively impacted by U.S. reimbursement
uncertainty in the consumer power wheelchair market, resulting in decreased sales of microprocessor controllers
by Invacare’s New Zealand subsidiary.

Table of contents

  • Page 1
    ...lines. The reduction in sales was largely due to the pricing and competitive industry conditions driven by reimbursement declines and the growing impact of low-cost Asian products. Areas in North America outside of the HME Group showed solid performance in 2006. Invacare Supply Group (ISG) net sales...

  • Page 2
    ... global initiatives: • Product line simplification. The Company plans to simplify its product lines and pricing processes to reduce costs and improve service levels. • Foreign sourcing. The Company intends to increase Chinese manufacturing and Asian sourcing from 20% global cost of sales in 2006...

  • Page 3
    ... powerchairs or scooters, and will result in increased revenues from services and replacement parts. The provider will purchase the plan when it buys a chair, and the consumer works directly with the third-party for any maintenance needs, in or out of warranty. While the provider continues to offer...

  • Page 4
    INVACARE CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET EARNINGS PER SHARE TO ADJUSTED EARNINGS PER SHARE (1) Year Ended December 31, 2006 2005 (In thousands, except per share data) Net earnings (loss) per share - assuming dilution*...Weighted average shares outstanding - assuming dilution* ...

  • Page 5
    ... calculated based upon the last sale price of the Common Shares as reported by The New York Stock Exchange on June 30, 2006, which was $24.88. For purposes of this information, the 2,828,283 Common Shares and 1,080,174 Class B Common Shares which were held by Executive Officers and Directors of the...

  • Page 6
    ... PART I: Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal Proceedings ...Submission of Matters to a Vote of Security Holders ...Executive Officers of the Registrant ...PART II: 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases...

  • Page 7
    ... Corporation is the world's leading manufacturer and distributor in the $8.0 billion worldwide market for medical equipment used in the home based upon our distribution channels, breadth of product line and net sales. The company designs, manufactures and distributes an extensive line of health care...

  • Page 8
    ... domestic home medical equipment products will continue to grow during the next decade and beyond as a result of several factors, including: Growth in Population over Age 65. Globally, overall life expectancy continues to increase. Recent reports from the U.S. Department of Health and Human Services...

  • Page 9
    ... Invacare distributes two portable, compact scooters for consumers needing powered mobility and capable of operating a tiller. The Lynx model scooters are available in three-wheel and four-wheel versions. Seating and Positioning Products. Invacare markets seat cushions, back supports and accessories...

  • Page 10
    ... can be used to replace parts on products manufactured by others. Invacare Supply Group Invacare distributes numerous lines of branded medical supplies including ostomy, incontinence, diabetic, wound care, urology and miscellaneous home medical products, as well as home medical equipment aids for...

  • Page 11
    ... beds, furniture and pressure care products; Dynamic Controls, a New Zealand manufacturer of electronic operating components used in power wheelchairs and scooters; Invacare New Zealand, a distributor of a wide range of home medical equipment; and Invacare Asia, which imports and distributes home...

  • Page 12
    ... basis and markets to those nursing homes utilizing a direct outside sales force. ISG also markets a Home Delivery Program to home medical equipment providers through which ISG drop ships supplies in the provider's name to the customer's address. Thus, providers have no products to stock, no minimum...

  • Page 13
    ..., product sales are typically made through dealers of medical equipment and, in certain markets, directly to government agencies. In 2006, the expected consolidation of big buying groups tending to develop their business on a European scale has confirmed itself. As a result, Invacare is generalizing...

  • Page 14
    ...on the success of the Value Line Rollator introduction in the first quarter of 2006, Invacare added three new product families to the Line: Ambulatory (Single and Blue-ReleaseTM Walkers), Bath Safety (Tool-less Transfer Benches and Shower Chairs) & Toilet Safety (Clamp-on raised toilet seats and tub...

  • Page 15
    ... is easy to fold and store and is adjustable with many options and accessories to comfortably allow prolonged seating. Zephyr is a front wheel driven electric power wheelchair equipped with TrueTractTM motors, which are well known for their silent drive and their soft control. At higher speed, when...

  • Page 16
    ...flexibility to the supply chain. North America The company has focused its factories in North America on the final assembly of powered mobility and custom manual wheelchairs, the fully integrated manufacture of homecare and institutional care beds, the final assembly of respiratory products, and the...

  • Page 17
    ... Domestic and foreign manufacturers of medical devices distributed commercially in the U.S. are subject to periodic inspections by the FDA. Furthermore, state, local and foreign governments have adopted regulations relating to the design, manufacture and marketing of health care products. During the...

  • Page 18
    ..., the company plans to accelerate our activities in China to make sure that we are one of the lowest cost manufacturers and distributors to the home care provider. BACKLOG The company generally manufactures most of its products to meet near-term demands by shipping from stock or by building to order...

  • Page 19
    ...independent provider sales declined as these dealers slowed their purchases of the company's HomeFillTM oxygen system product line, in part, until they had a clearer view of future oxygen reimbursement levels. Furthermore, a study issued by the Office of Inspector General or "OIG," in September 2006...

  • Page 20
    ... markets have government-managed health care systems that govern reimbursement for new home health care products. The ability of hospitals and other providers supported by such systems to purchase the company's products is dependent, in part, upon public budgetary constraints. Canada and Germany...

  • Page 21
    ... results 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...

  • Page 22
    ... margins and reducing the company's overall profitability. Asian goods had a particularly strong negative impact on the company's sales of Standard Products (this category includes products such as manual wheelchairs, canes, walkers and bath aids) during 2006, which declined compared to the previous...

  • Page 23
    ... were to recur. In general, unless an exemption applies, the company's wheelchair and respiratory medical devices must receive a pre-marketing clearance from the FDA before they can be marketed in the United States. The FDA also regulates the export of medical devices to foreign countries. The...

  • Page 24
    the health care professionals that use, prescribe and recommend the company's products. The company could have product recalls or field actions that result in significant costs to the company in the future, and these actions could have a material adverse effect on the company's business. The company...

  • Page 25
    ... liability claims may harm the company's business, particularly if the number of claims increases significantly or the company's product liability insurance proves inadequate. The manufacture and sale of home health care devices and related products exposes the company to a significant risk of...

  • Page 26
    ... 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's operating results...

  • Page 27
    The 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 ...

  • Page 28
    ... international operations, including operations in Australia, New Zealand, Asia and Europe. There are risks inherent in operating and selling products internationally, including difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; foreign customers...

  • Page 29
    ......-One Invacare Way ...-1320 Taylor Street ...-1160 Taylor Street ...Hong Kong, China ...Kirkland, Quebec...Kunshan City, China ...Marlboro, New Jersey ...Mississauga, Ontario ...Morton, Minnesota ...North Ridgeville, Ohio...North Ridgeville, Ohio...Pharr, Texas ...Pinellas Park, Florida ...Reynosa...

  • Page 30
    ..., New Jersey ...Rancho Cucamonga, California ...South Bend, Indiana ...Institutional Products Group Elkhart, Indiana ...London, Ontario ...London, Ontario ...Overland, Missouri ...Asia/Pacific Operations Adelaide, Australia ...Auckland, New Zealand ...Brisbane, Australia ...Christchurch, New Zealand...

  • Page 31
    ... Expiration Date of Lease Renewal Options Use Taipei, Taiwan ...Taipei, Taiwan ...Windsor, Australia ...Windsor, Australia ...Windsor, Australia ...Windsor, Australia ...Windsor, Australia ...Worcester, United Kingdom ...European Operations Albstadt-Tailfi, Germany ...Anderstorp, Sweden ...Bergen...

  • Page 32
    ... President - Electronics and Design Engineering and Director Senior Vice President - Global Market Development Senior Vice President - Human Resources A. Malachi Mixon, III has been a director since 1979. Mr. Mixon has been Chief Executive Officer since 1979 and Chairman of the Board since 1983 and...

  • Page 33
    ...), Cleveland, Ohio, a manufacturer and distributor of medical sterilizing equipment and as Chairman of the Board of Directors and CEO of NeuroControl Corporation, North Ridgeville, Ohio, a privately held company, which develops and markets electromedical stimulation systems for stroke patients, and...

  • Page 34
    on February 23, 2007 as reported by NYSE was $19.54. The prices set forth below do not include retail markups, markdowns or commissions. The range of high and low quarterly prices of the Common Shares and dividends in each of the two most recent fiscal years were as follows: 2006 Quarter Ended: High...

  • Page 35
    ... 31, 2001 in the common shares of Invacare Corporation, S&P 500 Index, Russell 2000 Index and the S&P Supercomposite Health Care Equipment & Supplies Index, including reinvestment of dividends, through December 31, 2006. The following table presents information with respect to repurchases of common...

  • Page 36
    ... company's previously reported debt covenant violations ($3,300 after tax or $.10 per share assuming dilution), $26,775 expense related to accounts receivable collectibility issues arising primarily from Medicare reimbursement reductions for power wheelchairs announced on November 15, 2006 ($26,775...

  • Page 37
    ... for medical equipment by U.S. government programs as well as similar reimbursement pressures abroad and continued pricing pressures faced by the company as a result of outsourcing by competitors to lower cost locations. The cost reduction and profit improvement actions include: reduction...

  • Page 38
    ... (manual wheelchairs, personal care, home care beds, low air loss therapy and patient transport), and Respiratory (oxygen concentrators, HomeFillTM transfilling systems, sleep apnea, aerosol therapy and other respiratory) products. Rehab product line net sales declined by .7% in 2006, primarily...

  • Page 39
    equipment, and bathing equipment products sold into the long-term care market. The increase is primarily attributable to higher volumes in its core bed products as well as increases in bathing equipment. Europe European net sales declined .4% in 2006 compared to the prior year to $430,427,000 from $...

  • Page 40
    ...,000 in 2006 compared to 2005. The increase is attributable to an increase in distribution and sales and marketing expenses. Selling general and administrative expenses for IPG increased by 3.4% or $463,000 compared to 2005. The increase is attributable to increased product liability and advertising...

  • Page 41
    ... of the company's power wheelchairs. NA/HME sales of respiratory products were also negatively affected by the changes in 2006. Small and independent provider sales declined as these dealers slowed their purchases of the company's HomeFillTM oxygen system product line, in part, until they had...

  • Page 42
    ... (power wheelchairs, custom manual wheelchairs, personal mobility and seating and positioning), Standard (manual wheelchairs, personal care, home care beds, low air loss therapy and patient transport), and Respiratory (oxygen concentrators, aerosol therapy, sleep, homefill and associated respiratory...

  • Page 43
    ...reduced Rehab and Respiratory product line volumes, pricing pressures in the Standard product line and higher freight costs as a result of the high price of oil, which was partially offset by continued cost reduction efforts. ISG gross profit as a percentage of net sales decreased .6 of a percentage...

  • Page 44
    ... inflation does continue to have an influence on the cost of materials, salaries and benefits, utilities and outside services. The company attempts to minimize or offset the effects through increased sales volume, capital expenditure programs designed to improve productivity, alternative sourcing...

  • Page 45
    ... totaling a U.S. dollar equivalent of approximately $53,722,000 as of December 31, 2006. The lines of credit along with cash generated from operations have been and will continue to be used to fund the company's domestic and foreign working capital, capital expenditures and acquisition requirements...

  • Page 46
    ... of net cash provided by operating activities, excluding net cash impact related to restructuring activities, less net purchases of property and equipment, net of proceeds from sales of property and equipment. Management believes that this financial measure provides meaningful information for...

  • Page 47
    ... Senior Notes ...$431,167 Revolving credit agreements ...184,147 Other notes ...71,750 Operating lease obligations ...43,589 Capital lease obligations ...18,675 Purchase obligations (primarily computer systems contracts) ...542 Other long-term obligations Product liability ...22,631 SERP ...33...

  • Page 48
    ... due from health care, medical equipment dealers 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...

  • Page 49
    ...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 50
    ... value of options granted and the company continues to use a Black-Scholes valuation model. As of December 31, 2006, there was $13,182,000 of total unrecognized compensation cost from stock-based compensation arrangements granted under the plans, which is related to non-vested shares, and includes...

  • Page 51
    ... statement of operations for the year ended December 31, 2006, or for any prior period presented. See Retirement and Benefit Plans in the Notes to the Consolidated Financial Statements included in this report. In December 2004, FASB issued SFAS 123R, which required companies to expense stock options...

  • Page 52
    ...; a Code of Conduct; written policies and procedures; and a careful selection and training of employees. Actions are taken to correct deficiencies as they are identified. An effective internal control system, no matter how well designed, has inherent limitations - including the possibility of the...

  • Page 53
    ... Annual Meeting of Shareholders. We submitted the New York Stock Exchange ("NYSE") Section 12(a) Annual CEO Certification as to our compliance with the NYSE corporate governance listing standards to the NYSE in June 2006. In addition, we have filed the certifications of our Chief Executive Officer...

  • Page 54
    ... 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 March 7, 2007. INVACARE CORPORATION By: /s/ A. Malachi Mixon, III A. Malachi Mixon, III Chairman of the Board of Directors and Chief Executive Officer...

  • Page 55
    ... Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of March 7, 2007. Signature Title /s/ /s/ A. Malachi Mixon, III A. Malachi Mixon, III Chairman of the Board of Directors and Chief Executive Officer...

  • Page 56
    ... and among Invacare Corporation, the Guarantors named therein and Wells Fargo Bank, N.A., as trustee (including the Form of 9 3⁄4% Senior Note due 2015 and related Guarantee attached as Exhibit A). 1992 Non-Employee Directors Stock Option Plan adopted in May 1992 Deferred Compensation Plan for Non...

  • Page 57
    ... Form of Restricted Stock Option Award under Invacare Corporation 2003 Performance Plan Form of Stock Option Award under Invacare Corporation 2003 Performance Plan Director Compensation Schedule Invacare Corporation Executive Incentive Bonus Plan, effective as of January 1, 2005 Receivables Purchase...

  • Page 58
    ... Invacare Corporation, the Subsidiary Guarantors named therein, and the Initial Purchasers named therein dated as of February 7, 2007. Letter re: Change in Accounting Principles Subsidiaries of the company Consent of Independent Registered Public Accounting Firm Certification of the Chief Executive...

  • Page 59
    ...is made to the appropriate Exhibit of the company report on Form 8-K, dated April 27, 2006, which is incorporated herein by reference. Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated November 14, 2006, which is incorporated herein by reference. Reference is made...

  • Page 60
    ... with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Invacare Corporation's internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of...

  • Page 61
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Invacare Corporation as of December 31, 2006 and 2005 and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the...

  • Page 62
    ... STATEMENT OF OPERATIONS INVACARE CORPORATION AND SUBSIDIARIES Years Ended December 31, 2006 2005 2004 (In thousands, except per share data) Net sales ...$1,498,035 Cost of products sold ...1,080,965 Gross Profit ...Selling, general and administrative expenses ...Charge related to restructuring...

  • Page 63
    ... ...Marketable securities ...Trade receivables, net ...Installment receivables, net ...Inventories, net ...Deferred income taxes ...Other current assets ...Total Current Assets ...Other Assets ...Other Intangibles ...Property and Equipment, net ...Goodwill ...Liabilities and Shareholders' Equity...

  • Page 64
    ... FLOWS INVACARE CORPORATION AND SUBSIDIARIES 2006 Years Ended December 31, 2005 2004 (In thousands) Operating Activities Net earnings (loss) ...Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization ...Provision for losses on trade...

  • Page 65
    ... OF SHAREHOLDERS' EQUITY INVACARE CORPORATION AND SUBSIDIARIES Accumulated Other Additional Unearned Treasury Common Class B Paid-in- Retained Comprehensive Stock Stock Capital Earnings Earnings (Loss) Compensation Stock (In thousands) January 1, 2004 Balance ...Exercise of stock options, including...

  • Page 66
    ... Corporation is the world's leading manufacturer and distributor in the $8.0 billion worldwide market for medical equipment used in the home based upon our distribution channels, breadth of product line and net sales. The company designs, manufactures and distributes an extensive line of health care...

  • Page 67
    .../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...

  • Page 68
    ... 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...

  • Page 69
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Accounting Policies - Continued The 2006 amounts above reflect compensation expense related to restricted stock awards and nonqualified stock options awarded under the 2003 Performance Plan. The 2005 and ...

  • Page 70
    ... purchases/sales denominated in foreign currencies. The company recognized a net loss of $240,000 and $280,000 in 2006 and in 2005, respectively and a net gain in 2004 of $6,961,000, on foreign currency cash flow hedges. The gains and losses are included in cost of products sold and selling, general...

  • Page 71
    ... due from health care, medical equipment dealers 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...

  • Page 72
    ...an asset-backed issuer of commercial paper, and/or the financial institutions named in the Receivables Agreement. Pursuant to the Receivables Agreement, the company and certain of its subsidiaries from time to time may transfer accounts receivable to Invacare Receivables Corporation (IRC), a special...

  • Page 73
    ...: • Home Health Equipment Pty Ltd (HHE), an Australian based company, and leading supplier of medical equipment in South Australia, providing high quality equipment and service to institutions and individual clients selling the full range of rehabilitation, mobility and continuing care products...

  • Page 74
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Acquisitions - Continued Alber, Aquatec and Dolomite. The acquisition allows the company to expand its product line and reach new markets. The final purchase price was $226,806,000, including acquisition ...

  • Page 75
    ... of the company's power wheelchairs. NA/HME sales of respiratory products were also negatively affected by the changes in 2006. Small and independent provider sales declined as these dealers slowed their purchases of the company's HomeFillTM oxygen system product line, in part, until they had...

  • Page 76
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Other Intangibles All of the company's other intangible assets have definite lives and continue to be amortized over their useful lives, except for $33,034,000 related to trademarks, which have indefinite ...

  • Page 77
    ... NeuroControl, a development stage company, which is currently pursuing FDA approval to market a product focused on the treatment of post-stroke shoulder pain in the United States. Certain of the company's officers and directors (or their affiliates) have small minority equity ownership positions in...

  • Page 78
    ... operating cash flow. The company believed the limits were exceeded as a result of borrowings by the company in early October, 2006 under its $500 million credit facility dated January 14, 2005 with various banks (the "Credit Facility"). The violation of the covenant under the Note Purchase...

  • Page 79
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Long-Term Debt - Continued company's existing indebtedness and pay related fees and expenses. See Subsequent Events in the Notes to the Consolidated Financial Statements for an explanation of the details ...

  • Page 80
    ..., transportation equipment, data processing equipment and certain other equipment. These leases have terms of up to 14 years and provide for renewal options. Generally, the company is required to pay taxes and normal expenses of operating the facilities and equipment. As of December 31, 2006...

  • Page 81
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Retirement and Benefit Plans Substantially all full-time salaried and hourly domestic employees are included in the Invacare Retirement Savings Plan sponsored by the company. The company makes matching ...

  • Page 82
    ... vesting period. Compensation expense of $1,075,000, $881,000 and $812,000 was recognized in 2006, 2005 and 2004, respectively, related to restricted stock awards granted since 2001. The 2003 Plan has provisions that allow employees to exchange mature shares to pay the exercise price and surrender...

  • Page 83
    ...241,649. The following table summarizes information about stock options outstanding at December 31, 2006: Number Outstanding At 12/31/06 Options Outstanding Weighted Average Remaining Weighted Average Contractual Life Exercise Price Options Exercisable Number Exercisable Weighted Average At 12/31/06...

  • Page 84
    ...' Equity Transactions - Continued have not been met. 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: 2006 2005 2004 Expected Expected Risk-free Expected dividend yield ...stock price...

  • Page 85
    ... translation adjustments ...Unrealized loss on available for sale securities ...Deferred tax benefit relating to unrealized loss on available for sale securities ...Current period unrealized loss on cash flow hedges, net of reclassifications ...Deferred tax benefit relating to unrealized loss on...

  • Page 86
    ...-year cost reductions and profit improvement actions, which included: reducing global headcount, outsourcing improvements utilizing the company's China manufacturing capability and third parties, shifting substantial resources from product development to manufacturing cost reduction activities and...

  • Page 87
    ...at 12/31/06 North America/HME Severance ...Product line discontinuance . . Contract terminations ...Total ...Invacare Supply Group Severance ...Product line discontinuance . . Contract terminations ...Total ...Institutional Products Group Severance ...Europe Severance ...Product line discontinuance...

  • Page 88
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Charge Related to Restructuring Activities - Continued...259 679 2,037 - $7,975 Earnings (loss) before income taxes consist of the following (in thousands): 2006 2005 2004 Domestic ...Foreign... $(349,144)...

  • Page 89
    ...in thousands): 2006 2005 Current deferred income tax assets (liabilities), net: Loss carryforwards ...$ 7,375 Bad debt...14,006 Warranty...3,365 State and local taxes ...3,154 Other accrued expenses and reserves ...2,645 Inventory ...2,337 Compensation and benefits ...3,079 Product liability ...292...

  • Page 90
    ... average fair market value price of $44.39 for 2004. 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...

  • Page 91
    ... due from health care, medical equipment dealers 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...

  • Page 92
    ...and respiratory products. Invacare Supply Group sells distributed product and the Institutional Products Group sells health care furnishings and accessory products. Europe and Asia/Pacific sell the same product lines with the exception of distributed products. Each business segment sells to the home...

  • Page 93
    ..., intercompany profit or loss on intersegment sales and transfers is not considered in evaluating segment performance. The information by segment is as follows (in thousands): 2006 2005 2004 Revenues from external customers North America/HME ...Invacare Supply Group ...Institutional Products Group...

  • Page 94
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Business Segments - Continued 2006 2005 2004 Earnings (loss) before income taxes North America/HME ...Invacare Supply Group ...Institutional Products Group ...Europe ...Asia/Pacific ...All Other (1) ......

  • Page 95
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Business Segments - Continued North America. The reported assets above give effect to that re-allocation as if it had occurred on January 1, 2004. Net sales by product, are as follows (in thousands): 2006 ...

  • Page 96
    ... of approximately $710,000,000, the net proceeds of which have been used to refinance substantially all of the company's existing indebtedness and pay related fees and expenses. As part of the financing, the company entered into a $400,000,000 senior secured credit facility consisting of a $250,000...

  • Page 97
    ...$15,576 9,532 29,540 13,998 17,045 Note (A) - Uncollectible accounts written off, net of recoveries. Note (B) - Amounts written off or payments incurred. Note (C) - Loss and loss adjustment. Note (D) - Elimination of allowance for investment following consolidation of variable interest entity. Note...

  • Page 98
    .... Invacare Florida Corporation, a Delaware corporation and wholly owned subsidiary. 32. Invacare Florida Holdings, LLC, a Florida limited liability company and wholly owned subsidiary. 33. Invacare France Operations SAS, A French corporation and wholly owned subsidiary. 34. Invacare Germany Holding...

  • Page 99
    ... - (Continued) 41. Invacare Holdings Two BV, a Netherlands corporation and wholly owned subsidiary. 42. Invacare International Corporation, an Ohio corporation and wholly owned subsidiary. 43. Invacare International SARL, a Swiss corporation and wholly owned subsidiary. 44. Invacare Limited, a UK...

  • Page 100
    ...assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Invacare Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2006. /s/ Cleveland, Ohio March 1, 2007 ERNST & YOUNG...

  • Page 101
    ... financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. INVACARE CORPORATION By: /s/ A. MALACHI MIXON, II A. Malachi Mixon, III Chief Executive Officer...

  • Page 102
    ... this annual report on Form 10-K/A of Invacare Corporation; 2. Based on my knowledge, this report does ...board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting...

  • Page 103
    ... 2002 In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K/A for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, A. Malachi Mixon, III, Chief Executive Officer of the company, certify...

  • Page 104
    ... of 2002 In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K/A for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregory C. Thompson, Chief Financial Officer of the company, certify...