Invacare 2012 Annual Report Download

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2012 Annual Report
And Form 10-K

Table of contents

  • Page 1
    2012 Annual Report And Form 10-K

  • Page 2

  • Page 3
    ... requirements, the Company may continue manufacturing wheelchairs and seating systems at Taylor Street in cases of existing orders, repair and replacement of products currently in use and cases of medical necessity when a doctor and clinician determine that a patient's medical need cannot be met by...

  • Page 4
    ...core equipment product lines. The sale, which was completed on January 18, 2013, generated net proceeds of $146.6 million that were used primarily to reduce debt outstanding under the Company's revolving credit facility. Another key to the success of globalization is the commercial acceptance of new...

  • Page 5
    More importantly for the home medical equipment industry, the Centers for Medicaid and Medicare Services announced the bid rates for the second round of National Competitive Bidding (NCB). On average, the reimbursement rates for Invacare's customers will be reduced by 45% in the 91 metropolitan ...

  • Page 6
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 7
    ... market 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, 2012, which was $15.43. For purposes of this information, the 2,513,310 Common Shares and 1,080,174 Class B Common Shares which were held by Executive...

  • Page 8
    INVACARE CORPORATION 2012 ANNUAL REPORT ON FORM 10-K CONTENTS Item 1 1A. 1B. 2 3 4 PART I: Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal Proceedings ...Mine Safety Disclosures ...Executive Officers of the Registrant ...PART II: Market for the Registrant's Common Equity...

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

  • Page 10
    THE HOME MEDICAL EQUIPMENT INDUSTRY North America Market The home medical equipment (HME) market includes home health care products, physical rehabilitation products and other non-disposable products used for the recovery and long-term care of patients. As healthcare spending continues to escalate ...

  • Page 11
    ... and 51.8% of the net sales from continuing operations in 2012, 2011 and 2010, respectively. MOBILITY AND SEATING PRODUCTS Power Wheelchairs. Invacare manufactures a complete line of power wheelchairs for individuals who require independent powered mobility. The range includes products that can be...

  • Page 12
    ...rollators, walkers, knee walkers and wheeled walkers. Also available are safety aids such as tub transfer benches, shower chairs and grab bars, and patient care products such as commodes and other toilet assist aids. Homecare Beds. Invacare manufactures and distributes a wide variety of manual, semi...

  • Page 13
    ... 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, scooters...

  • Page 14
    ...in Canada. Oxygen products such as concentrators and homefill are imported from Invacare U.S. or China operations. Discontinued Operation Invacare distributed numerous lines of branded medical supplies including ostomy, incontinence, diabetic, enteral, wound care and urology products as well as home...

  • Page 15
    ... and sells Invacare® branded products to HME providers. Each member of Invacare's HME sales force functions as a Territory Business Manager (TBM) and handles all product and service needs for an account, thus saving customers' valuable time. The TBM also provides training and servicing information...

  • Page 16
    ... dealers of medical equipment and, in certain markets, directly to government agencies. Commercial efforts are focused primarily on the following product areas: power wheelchairs, manual wheelchairs and homecare beds in all markets. Portable oxygen concentrators or Invacare® HomeFill® oxygen...

  • Page 17
    ... controlled by capped budgets. Invacare New Zealand sells through three distribution channels Mobility and Seating products are sold directly to end users via government-funded providers; Homecare products are sold via a dealer network that sells products to the consumer market; and Long-Term Care...

  • Page 18
    ... and personalized adjustments for the consumer. The Myon™ wheelchair is based off of a successful Invacare platform in Europe. It was customized and launched in Canada in 2011 and in the United States in 2012. The Invacare® Medley® Ergo bed represents a new generation of homecare beds in...

  • Page 19
    ...and final assembly of a variety of standard manual wheelchairs and personal care products in North America. The company operates four major factories located in Elyria, Ohio; Sanford, Florida; London, Ontario and Reynosa, Mexico. Asia/Pacific Invacare manufactures products that serve regional market...

  • Page 20
    ... and marketing of health care products. In December 2011, the FDA requested that the company negotiate and agree to a consent decree of injunction at the company's corporate facility and its Taylor Street wheelchair manufacturing facility in Elyria, Ohio. The consent decree, which was filed as...

  • Page 21
    ... operations at the corporate and Taylor Street manufacturing facilities. • • The first two of the three expert certification audits started in December 2012 and were still in progress at the time of filing of this Annual Report on Form 10-K. See Item 1A. Risk Factors and Item 7. Management...

  • Page 22
    ... one of the lowest cost manufacturers and distributors to the homecare provider. BACKLOG The company generally manufactures most of its products to meet near-term demands by shipping from stock or by building to order based on the specialty nature of certain products. Therefore, the company does not...

  • Page 23
    ...; exchange rate or tax rate fluctuations; inability to design, manufacture, distribute and achieve market acceptance of new products with greater functionality or lower costs or new product platforms that deliver the anticipated benefits of Invacare's globalization strategy; consolidation of health...

  • Page 24
    ... and distribution of custom power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also temporarily limits design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio...

  • Page 25
    ... where the company does business. The FDA regulates virtually all aspects of a medical device's development, testing, manufacturing, labeling, promotion, distribution and marketing. In addition, the company is required to file reports with the FDA if the company's products cause, or contribute to...

  • Page 26
    ... sites of medical device companies, and in 2010 and 2011, 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, Ohio...

  • Page 27
    ... its corporate facility and Taylor Street manufacturing facility in Elyria, Ohio and received a FDA warning letter related to its Sandford, Florida facility. The company received a subpoena in 2006 from the U.S. Department of Justice ("DOJ") seeking documents relating to three long-standing and...

  • Page 28
    ...by country. Many foreign 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...

  • Page 29
    ... 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 efficiencies and operating cost reductions...

  • Page 30
    ... result in a loss of customers, increased collectability risks, or increased competitive pricing pressures. The company's products are subject to recalls, which could harm the company's reputation and business. The company is subject to ongoing medical device reporting regulations that require the...

  • Page 31
    ... would divert managerial and financial resources and could harm the company's reputation with its customers, product users and 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...

  • Page 32
    ... of tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country; general economic and political conditions in countries where the company operates or where end users of the...

  • Page 33
    ... 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 34
    ... company's overall profitability. The company's success depends on the company's ability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs. The company sells products to customers primarily in markets that are characterized by...

  • Page 35
    ... 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 36
    ... customers to defer or limit their purchase or use of the affected products until resolution of the litigation. If the company is unable to protect its intellectual property rights or resolve successfully claims of infringement brought against it, the company's product sales and business could...

  • Page 37
    ...for the company to acquire businesses or product lines, including providing new products or new manufacturing and service capabilities, to add new customers, to increase penetration with existing customers, and to expand into new geographic markets. The company's ability to successfully grow through...

  • Page 38
    ... 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. In...

  • Page 39
    ... None North American/HME Operations Akron, Ohio ...Alexandria, Virginia ...Alpharetta, Georgia ...Arlington, Texas ...Atlanta, Georgia ...Atlanta, Georgia ...Beijing, China ...Cranbury, New Jersey ...Cranbury, New Jersey ...Elyria, Ohio -1200 Taylor Street ...-899 Cleveland Street ...-One Invacare...

  • Page 40
    ..., Mexico ...152,256 Sanford, Florida ...116,272 Scarborough, Ontario ...5,428 Shenzhen, China ...2,901 Simi Valley, California ...38,501 Spicewood, Texas ...Suzhou, China ...Suzhou, China ...Tonawanda, New York ...Vaughan, Ontario ...Institutional Products Group Albuquerque, New Mexico ...Boise...

  • Page 41
    ... ...Asia/Pacific Operations Auckland, New Zealand ...Banyo, QLD, Australia ...Christchurch, New Zealand ...Christchurch, New Zealand ...Kidderminster, United Kingdom ...Malaga, WA, Australia ...Netley, SA, Australia ...North Olmsted, Ohio ...North Rocks, NSW, Australia ...Shanghai, China...

  • Page 42
    European Operations Albstadt, Germany ...Albstadt, Germany ...Anderstorp, Sweden ...Backemarks, Sweden ... Square Feet 73,894 12,917 47,576 65,660 Ownership Or Expiration Date of Lease February 2018 November 2013 Own December 2014 November 2013 Month to Month Own May 2024 November 2014 November ...

  • Page 43
    ... and distribution of custom power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also temporarily limits design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio...

  • Page 44
    ...VMN forms. 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; Item 1A. Risk Factors; and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 45
    ... of Strategic Planning and Acquisitions at Lincoln Electric Holdings, Inc. (NASDAQ: LECO), a $2.0 billion global manufacturer of welding, brazing and soldering products located in Cleveland, Ohio. Prior to joining Lincoln Electric, Mr. Gudbranson served as Director of Business Development and...

  • Page 46
    ... Senior Vice President of Product Development from July 1984 to September 1992 and Senior Vice President and General Manager of North American Operations from September 1989 to September 1992. Mr. Richey is also a member of the Board of Trustees for Case Western Reserve University and The Cleveland...

  • Page 47
    ... Purchases 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...

  • Page 48
    .... 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, 2007 in the common shares of Invacare Corporation, S&P 500 Index, Russell 2000...

  • Page 49
    ...2013 Annual Meeting of Shareholders. Item 6. Selected Financial Data. The selected consolidated financial data set forth below with respect to the company's consolidated statements of comprehensive income (loss), cash flows and shareholders' equity for the fiscal years ended December 31, 2012, 2011...

  • Page 50
    ...Working Capital ...268,214 Long-Term Debt ...229,375 Other Long-Term Obligations ...112,195 Shareholders' Equity ...620,989 Other Data Research and Development Expenditures ...$ Capital Expenditures ...Depreciation and Amortization ...Key Ratios Return on Sales % from continuing operations ...Return...

  • Page 51
    ... after-tax expense) or $0.01 per share assuming dilution and the positive impact of an intraperiod tax allocation associated with discontinued operations of $5,758,000 or $0.18 per share assuming dilution. ** Reflects loss on debt extinguishment including debt finance charges and associated fees of...

  • Page 52
    ...from its Taylor Street manufacturing facility. The decree also temporarily limits design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio facilities. In order to resume full operations at the impacted Elyria, Ohio facilities, the company must successfully...

  • Page 53
    ...on its organic net sales, cash flow and operating profitability. The key drivers of these pressures include the ongoing quality systems remediation costs, the related diversion of resources, and the limited production at its Taylor Street wheelchair manufacturing facility in Elyria, Ohio, due to the...

  • Page 54
    ... was experienced in 2012. DISCONTINUED OPERATIONS As part of the company's globalization strategy, and to allow the company to focus on its core equipment product lines, the company completed the sale of its medical supplies business, Invacare Supply Group (ISG), on January 18, 2013. The transaction...

  • Page 55
    ... margin decline was principally related to sales mix favoring lower margin product lines and lower margin customers, reduced volumes and increased research and development expenses partially offset by the benefit of the company's 2011 acquisition of a rental business. Gross profit as a percentage of...

  • Page 56
    ... due to an unfavorable sales mix favoring lower margin customers and product lines, reduced volumes and increased research and development expenses, primarily focused on FDA remediation. IPG gross profit as a percentage of net sales increased 1.8 percentage points in 2012 from the prior year...

  • Page 57
    ...'s customers (e.g. home health care providers), coupled with continued pricing pressures faced by the company as a result of outsourcing by competitors to lower cost locations. While the company's restructuring efforts have been executed on a timely basis, resulting in operating cost savings, the...

  • Page 58
    ... 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 savings from these charges will be reflected primarily in reduced selling, general...

  • Page 59
    ...and seating products. Specifically, net sales increases in stationary and portable oxygen concentrators and Invacare® Homefill® Oxygen systems were partially offset by decreases in net sales of powered mobility products, including custom and consumer power wheelchairs. Institutional Products Group...

  • Page 60
    ... as a percentage of net sales declined 0.4 percentage points in 2011 from the prior year. The decrease was primarily a result of unfavorable product mix toward lower margin product and lower margin customers, pricing pressures primarily in personal care products and unfavorable foreign currency...

  • Page 61
    ... 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 significant decline in the company's stock price and market capitalization, as occurred following...

  • Page 62
    ... increased sales volumes, capital expenditure programs designed to improve productivity, alternative sourcing of material and other cost control measures. LIQUIDITY AND CAPITAL RESOURCES The company continues to maintain an adequate liquidity position through its unused bank lines of credit (see...

  • Page 63
    ... against the collateral securing the indebtedness. Since December 31, 2012, the company has completed the sale of its ISG business for net proceeds of approximately $146,600,000, which were used to repay amounts outstanding under the credit facility and other current payables and thereby improve the...

  • Page 64
    ...effectively convert a portion of floating rate revolving credit facility debt to fixed rate debt to avoid the risk of changes in market interest rates. Specifically, interest rate swap agreements, as of December 31, 2012, for notional amounts of $15,000,000 through February 2013, $20,000,000 and $25...

  • Page 65
    ... Debentures 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...

  • Page 66
    ..., which may include obtaining 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...

  • Page 67
    ... accounts and establishing reserves for specific customers as needed. The company continues to closely monitor the credit-worthiness of its customers and adhere to tight credit policies. During the first quarter of 2011, the Centers for Medicare and Medicaid Services implemented the single payment...

  • Page 68
    ... facility which is subject to the consent decree injunction that limits the company's manufacture and distribution of custom power and manual wheelchairs, wheelchair components and wheelchair subassemblies at the Taylor Street facility. The company determined there was no impairment of the property...

  • Page 69
    ... by the cash flows required to satisfy the return requirements of each of the assets employed with the residual 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...

  • Page 70
    ...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 71
    ... change what is required to be reported in OCI or the requirement to disclose reclassifications of items from OCI to net income. The company adopted ASU 2011-05 in the first quarter 2012 Form 10-Q with no impact on the company's financial position, results of operations or cash flows other than the...

  • Page 72
    ...; 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 73
    ... independent registered public accounting firm, Ernst & Young LLP, audited the company's internal control over financial reporting and, based on that audit, issued an attestation report regarding the company's internal control over financial reporting, which is included in this Annual Report on Form...

  • Page 74
    ... Item 10. Directors, Executive Officers and Corporate Governance. Information required by Item 10 as to the executive officers of the company is included in Part I of this Annual Report on Form 10-K. The other information required by Item 10 as to the directors of the company, the Audit Committee...

  • Page 75
    ... page number I-71 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 March 15, 2013. INVACARE CORPORATION By...

  • Page 76
    ...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 15, 2013. Signature /s/ A. MALACHI MIXON, III A. Malachi Mixon, III GERALD B. BLOUCH Gerald B. Blouch Title Chairman of the Board...-Invacare ...

  • Page 77
    ... CORPORATION Report on Form 10-K for the fiscal year ended December 31, 2012. Exhibit Index Official Exhibit No. Description 2.1 Share Purchase Agreement among AssuraMed, Inc. and Invacare Corporation and Invacare Supply Group, Inc., dated December 21, 2012. (Pursuant to Item 601(b)(2) of Regulation...

  • Page 78
    ...under Invacare Corporation 2003 Performance Plan 10(u) Form of Switzerland Executive Stock Option Award under Invacare Corporation 2003 Performance Plan 10(v)** Director Compensation Schedule 10(w) Invacare Corporation Executive Incentive Bonus Plan, as amended March 9, 2010 10(x) Purchase Agreement...

  • Page 79
    ...Agent. 10(ah) 2012 Non-employee Directors Deferred Compensation Plan, effective January 1, 2012 10(ai) Amendment No. 3 to Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005 10(aj) Amendment No. 3 to the $400,000,000 Revolving Credit Facility Credit Agreement by and among...

  • Page 80
    ... Exhibit of the company report on Form 10-K for the fiscal year ended December 31, 2011, which Exhibit is incorporated herein by reference. Reference is made to the appropriate Exhibit of the company report on Form 10-Q for the fiscal quarter ended June 30, 2012, which Exhibit is incorporated...

  • Page 81
    ... the consolidated financial position of Invacare Corporation and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U. S. generally accepted accounting...

  • Page 82
    ... as of December 31, 2012 and 2011 and the related consolidated statements of comprehensive income (loss), cash flows and shareholders' equity for each of the three years in the period ended December 31, 2012 of Invacare Corporation and our report dated March 15, 2013 expressed an unqualified opinion...

  • Page 83
    ...STATEMENT OF COMPREHENSIVE INCOME (LOSS) INVACARE CORPORATION AND SUBSIDIARIES Years Ended December 31, 2012 2011 2010 (In thousands, except... Net sales ...Cost of products sold ...Gross Profit ...Selling, general and administrative expenses ...Charges related to restructuring activities ...Loss on ...

  • Page 84
    ... SHEETS INVACARE CORPORATION AND SUBSIDIARIES December 31, December 31, 2012 2011 (In thousands) Assets Current Assets Cash and cash equivalents ...Trade receivables, net ...Installment receivables, net ...Inventories, net ...Deferred income taxes ...Other current assets ...Assets held for sale...

  • Page 85
    ... STATEMENT OF CASH FLOWS INVACARE CORPORATION AND SUBSIDIARIES Years Ended December 31, 2011 2010 (In thousands) $ (4,113) $ 25,341 2012 Operating Activities Net earnings (loss) ...$ Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization...

  • Page 86
    ... stock option expense ...Restricted stock awards ...Conversion from Class B Stock to Common Stock ...Net earnings ...Foreign currency translation adjustments ...Unrealized gain on cash flow hedges ...Defined benefit plans: Amortization of prior service costs and unrecognized losses and credits...

  • Page 87
    ... of Operations: Invacare Corporation is a leading manufacturer and distributor of medical equipment and supplies 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...

  • Page 88
    ...when products are shipped or service provided to unaffiliated customers, risk of loss is passed and title is transferred. Revenue Recognition, ASC 605, provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. Shipping and handling costs...

  • Page 89
    ..., which may include obtaining 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...

  • Page 90
    ... monthly average exchange rates. Gains and losses resulting from translation of balance sheet items are included in accumulated other comprehensive earnings. Net Earnings Per Share: Basic earnings per share are computed based on the weighted-average number of Common Shares and Class B Common Shares...

  • Page 91
    ...2013, as part of the company's globalization strategy, and to allow it to focus on its core equipment product lines, the company completed the sale of the ISG medical supplies business for a purchase price of approximately $150,800,000 in cash, which is subject to final post-closing adjustments. ISG...

  • Page 92
    ... 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 93
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For purposes of granting or extending credit, the company utilizes a scoring model to generate a composite score that considers each customer's consumer credit score and or D&B credit rating, payment ...

  • Page 94
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Installment receivables by class as of December 31, 2012 consist of the following (in thousands): Related Allowance for Doubtful Accounts Total Installment Receivables U.S. Impaired Installment receivables...

  • Page 95
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Installment receivables with a related allowance recorded as noted in the table above represent those installment receivables on a non-accrual basis in accordance with ASU 2010-20. As of December 31, 2012, ...

  • Page 96
    ... 2012 Machinery and equipment ...Land, buildings and improvements ...Furniture and fixtures ...Leasehold improvements ...Less allowance for depreciation ...$ Acquisitions In September 2011, the company completed the acquisition of Dynamic Medical Systems (DMS), a solutions-based service organization...

  • Page 97
    ... 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 consideration thus eliminating the liability. In October 2011, the company acquired a developed...

  • Page 98
    .... In 2012, the company reviewed for potential impairments of any other assets related to the segment, specifically 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...

  • Page 99
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) affected by the consent decree, and factored in a 230 basis point risk premium to the discount rate used to reflect the increased uncertainty with the company's forecasted cash flows for the reporting unit....

  • Page 100
    ... 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 101
    ...STATEMENTS-(Continued) Current Liabilities Accrued expenses as of December 31, 2012 and 2011 consisted of accruals for the following (in thousands): 2012 Salaries and wages ...Taxes other than income taxes, primarily Value Added Taxes ...Warranty cost ...Freight ...Professional ...Product liability...

  • Page 102
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Long-Term Debt Debt as of December 31, 2012 and 2011 consisted of the following (in thousands): 2012 $400,000,000 senior secured revolving credit facility, due in October 2015 ...Convertible senior ...

  • Page 103
    ... intends to satisfy the conversion spread using cash, as opposed to stock. As of December 31, 2012, the principal amount of the company's Convertible Notes exceeded the if-converted value of those notes by $4,571,000. During 2012, the company retired $500,000 compared to 2011 in which $63,351,000 in...

  • Page 104
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The company includes the... credit facility, there were no borrowings denominated in foreign currencies as of December 31, 2011 or December 31, 2012. For 2012 and 2011, the weighted average interest rate on...

  • Page 105
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Other Long-Term Obligations Other long-term obligations as of December 31, 2012 and 2011 consist of the following (in thousands): 2012 Supplemental Executive Retirement Plan liability ...Product liability ...

  • Page 106
    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 cash...

  • Page 107
    ... general, can only be transferred to family members. Holders of Class B Common Shares are entitled to convert their shares into Common Shares at any time on a share-for-share basis. The 2003 Performance Plan, as amended (the "2003 Plan"), allows the Compensation and Management Development Committee...

  • Page 108
    ...-line basis over the vesting period. Compensation expense of $2,241,000, $2,199,000 and $2,022,000 was recognized in 2012, 2011 and 2010, respectively, related to restricted stock awards granted since 2004. The 2003 Plan and the 1994 Performance Plan have provisions that allow employees to exchange...

  • Page 109
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes information about stock options outstanding at December 31, 2012: Options Outstanding Weighted Average Number Remaining Outstanding Contractual Life Weighted Average At 12/31/...

  • Page 110
    ..., 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...

  • Page 111
    ...'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. While the company's restructuring efforts have been executed on a timely basis resulting in operating cost savings, the savings have...

  • Page 112
    ... 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 savings from these charges will be reflected primarily in reduced selling, general...

  • Page 113
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A progression by reporting segment of the accruals recorded as a result of the ... 4,979 4,247 35 2,093 5,020 11,395 (3,592) (106) (3,314) (2,369) (9,381) Inventory Lease Terminations Other Total FS-33

  • Page 114
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Severance December 31, 2012 Balance NA/HME ...IPG ...Europe ...Asia/Pacific ...Total ...$ Income Taxes 3,747 - 595 869 5,211 $ Inventory - - - 151 Lease Terminations - - - 1,625 1,625 $ Other - - - 6 6 $...

  • Page 115
    ... continuing operations. A charge in an equal amount is in discontinued operations. A reconciliation to the effective income tax rate from the federal statutory rate is as follows: 2012 Statutory federal income tax rate ...State and local income taxes, net of federal income tax benefit ...Tax credits...

  • Page 116
    ... at December 31, 2012 and 2011 are as follows (in thousands): 2012 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 ...Basis...

  • Page 117
    ... taken during a prior year ...Deductions due to: Exchange rate impact ...Positions taken during a prior year ...Settlements with taxing authorities ...Lapse of statute of limitations ...Balance at end of year ...$ 4,075 516 6,055 (14) (118) (621) (42) 9,851 $ $ 2011 4,500 475 105 20 (545) (195) (285...

  • Page 118
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Net Earnings (Loss) Per Common Share The following table sets forth the computation of basic and diluted net earnings (loss) per common share. 2011 2010 2012 (In thousands except per share data) Basic ...

  • Page 119
    ... the case in 2012 and 2011. 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. Invacare utilizes De Lage...

  • Page 120
    ...company utilizes foreign currency forward contracts to hedge portions of its forecasted purchases/sales denominated in foreign currencies. The gains and losses are included in cost of products sold and selling, general and administrative expenses on the consolidated statement of comprehensive income...

  • Page 121
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Foreign exchange forward contracts qualifying and designated for hedge accounting treatment were as follows (in thousands USD): December 31, 2012 Unrealized Notional Net Gain Amount (Loss) USD / AUD ...USD ...

  • Page 122
    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 2012 and 2011, respectively, and outstanding were as follows (in thousands USD): December 31, ...

  • Page 123
    ... of inventory purchases. In 2012, 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. In 2011, net sales were increased by $3,080,000 and cost of product sold was increased by $3,330,000 for a net realized loss of $250...

  • Page 124
    ... in 2011 and a net gain of $2,803,000 in 2010 on 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 and...

  • Page 125
    ... other investments in limited partnerships and non-marketable equity securities, which are accounted for using the cost method, adjusted for any estimated declines in value. These investments were acquired in private placements and there are no quoted market prices or stated rates of return and the...

  • Page 126
    ... for 20-year debt of companies of similar credit risk and the cost of equity is based upon the 20-year treasury rate for the risk free rate, a market risk premium, the industry average beta and a small cap stock adjustment. The discount rates used have a significant impact upon the discounted cash...

  • Page 127
    ...: lifestyle, mobility and seating and respiratory therapy products. The Institutional Products Group sells or rents long-term care medical equipment, health care furnishings and accessory products. Europe and Asia/Pacific sell the same product lines as NA/HME and IPG. Each business segment sells to...

  • Page 128
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The information by segment is as follows (in thousands): 2012 Revenues from external customers North America/HME ...$ Institutional Products Group ...Europe ...Asia/Pacific ...Consolidated ...$ Intersegment...

  • Page 129
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2012 Assets North America/HME (2) ...$ Institutional Products Group ...Europe ...Asia/Pacific (2) ...All Other (1) ...Discontinued Operations ...Consolidated ...$ Long-lived assets North America/HME (2) ...

  • Page 130
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Net sales by product, are as follows (in thousands): 2012 North America/HME Lifestyle Products ...$ Mobility and Seating ...Respiratory Therapy ...Other(1) ...$ Institutional Products Group Continuing Care ...

  • Page 131
    ... and distribution of custom power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also temporarily limits design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio...

  • Page 132
    ... major repair, replacement or scrapping of its fixed assets at the Taylor Street manufacturing facility. Based on the company's expectations at the time of filing of this Annual Report on Form 10-K with respect to the timeframe for completion of the third-party expert certifications audits and FDA...

  • Page 133
    ... and results of operations. 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; Item 1A. Risk Factors; Item 3. Legal Proceedings; and Item 7. Management's Discussion and Analysis...

  • Page 134
    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 ...$ 357,184 Cost of products sold ...274,439 Gross Profit ...Selling, general and administrative...

  • Page 135
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company (Parent) Year ended December 31, 2011 Net sales ...$ 379,570 Cost of products sold ...276,164 Gross Profit ...Selling, general and administrative expenses ...Charge related to restructuring ...

  • Page 136
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company (Parent) Year ended December 31, 2010 Net sales ...$ 403,227 Cost of products sold ...283,859 Gross Profit ...Selling, general and administrative expenses ...Charge related to restructuring ...

  • Page 137
    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 138
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED BALANCE SHEETS The Company (Parent) Combined Combined Guarantor Non-Guarantor Subsidiaries Subsidiaries Eliminations (in thousands) Total December 31, 2011 Assets Current Assets ...

  • Page 139
    ... (in thousands) Year ended December 31, 2012 Net Cash Provided (Used) by Operating Activities ...$ (46,194) $ Investing Activities Purchases of property and equipment ...(2,266) Proceeds from sale of property and equipment ...12 Business acquisitions, net of cash acquired ...- Other long-term...

  • Page 140
    ... Eliminations (in thousands) Year ended 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...

  • Page 141
    ... CASH FLOWS The Company (Parent) Year ended December 31, 2010 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...

  • Page 142
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Interim Financial Information (unaudited) QUARTER ENDED (In thousands, except per share data) March 31, June 30, September 30, December 31, 2012 Net sales ...$ Gross profit ...Earnings (loss) before income ...

  • Page 143
    INVACARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Earnings and earnings per share for the quarter ended March 31, 2012 reflects incremental regulatory and compliance costs related to quality systems improvements of $4,104,000 ($3,500,000 after tax or $0.11...

  • Page 144
    ...Balance At Beginning of Period 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...

  • Page 145
    ... and report financial information; and 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 /S/ GERALD B. BLOUCH Gerald B. Blouch Chief Executive Officer...

  • Page 146
    ... ability to record, process, summarize and report financial information; and 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 /s/ ROBERT K. GUDBRANSON Robert...

  • Page 147
    ... Act of 2002 In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K for the period ending December 31, 2012 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...

  • Page 148
    ... Certification Pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K for the period ending December 31, 2012 as filed with the Securities and Exchange...

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