Invacare 2006 Annual Report Download - page 84

Shareholders’ 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 dividend yield ......................................... .93% .67% .63%
Expected stock price volatility .................................... 29.5% 26.7% 28.8%
Risk-free interest rate ........................................... 4.71% 4.38% 3.67%
Expected life (years) ........................................... 4.4 5.6 5.6
Expected stock price volatility is calculated at each date of grant based on historical stock prices. Actual risk
free rates used during the year ranged from a low of 4.3% to a high of 5.0%. The weighted-average fair value of
options granted during 2006, 2005 and 2004, based upon an expected exercise year of 2010, was $7.87, $12.41 and
$13.58, respectively. The plans provide that shares granted come from the company’s authorized but unissued
Common Shares or treasury shares. In addition, the company’s stock-based compensation plans allow participants
to exchange shares for withholding taxes, which results in the company acquiring treasury shares. The weighted-
average remaining contractual life of options outstanding at December 31, 2006 and 2005 was 5.3 and 5.7 years,
respectively. The weighted-average contractual life of options exercisable at December 31, 2006 was 4.8 years. The
total intrinsic value of stock awards exercised in 2006, 2005 and 2004 was $1,792,170, $7,401,047 and $9,871,085,
respectively. As of December 31, 2006, the intrinsic value of all options outstanding and of all options exercisable
was $4,149,899 and $3,287,272, respectively. The exercise of stock awards in 2006, 2005 and 2004 resulted in cash
received by the company totaling $3,081,000, $4,623,000 and $9,850,000 for each period, respectively and tax
benefits of $955,000, $4,545,000 and $2,934,000, respectively.
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 options and shares, which
includes $3,512,000 related to restricted stock awards. The company expects the compensation expense to be
recognized over a weighted-average period of approximately 2 years. Prior to the adoption of SFAS 123R, the
company presented all tax benefit deductions resulting from the exercise of stock options as a component of
operating cash flows in the Consolidated Statement of Cash Flows. In accordance with SFAS 123R, tax benefits
resulting from tax deductions in excess of the compensation expense recognized for those options is classified as a
component of financing cash flows. The impact of this change was not material in 2006.
Effective July 8, 2005, the company adopted a new Rights Agreement to replace the company’s previous
shareholder rights plan, which expired on July 7, 2005. In order to implement the new Rights Agreement, the Board
of Directors declared a dividend of one Right for each outstanding share of the company’s Common Shares and
Class B Common Shares to shareholders of record at the close of business on July 19, 2005. Each Right entitles the
registered holder to purchase from the company one one-thousandth of a Series A Participating Serial Preferred
Share, without par value, at a Purchase Price of $180.00 in cash, subject to adjustment. The Rights will not become
exercisable until after a person (an “Acquiring Party”) has acquired, or obtained the right to acquire, or commences
a tender offer to acquire, shares representing 30% or more of the company’s outstanding voting power, subject to
deferral by the Board of Directors. After the Rights become exercisable, under certain circumstances, the Rights
may be exercisable to purchase Common Shares of the company, or common shares of an acquiring company, at a
price equal to the exercise price of the Right divided by 50% of the then current market price per Common Share or
acquiring company common share, as the case may be. The Rights will expire on July 18, 2015 unless previously
redeemed or exchanged by the company. The company may redeem and terminate the Rights in whole, but not in
part, at a price of $0.001 per Right at any time prior to 10 days following a public announcement that an Acquiring
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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)