Invacare 2014 Annual Report Download

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2014 Annual Report
And Form 10-K

Table of contents

  • Page 1
    2014 Annual Report And Form 10-K

  • Page 2

  • Page 3
    ... purchased Invacare Corporation in December 1979, net sales were $19 million, and the Company was producing only standard wheelchairs and a few patient aid products, including walkers, canes and commodes. Today, Invacare is a global manufacturer of medical devices in the home and long-term care...

  • Page 4
    ...market leadership position. We are focused on serving our customers and enhancing the lives of the millions of people who use Invacare's medical devices - Making Life's Experiences Possible. Thank you for your continued support. Sincerely, Robert K. Gudbranson Interim President and Chief Executive...

  • Page 5
    ... 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, 2014, which was $18.37. For purposes of this information, the 2,368,807 Common Shares and 1,080,174 Class B Common Shares which were held by Executive...

  • Page 6
    INVACARE CORPORATION 2014 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 7
    ... lines. The Company 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...

  • Page 8
    ..., New Zealand and Asian markets as these markets, and the Company's distribution within them, develop. Reimbursement The Company is 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...

  • Page 9
    ..., 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-electric and fully-electric beds for home use under the Invacare® brand name. Homecare bed accessories include...

  • Page 10
    ... 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 11
    ... diabetic, enteral, wound care and urology products as well as home medical equipment, including lifestyle products through Invacare Supply Group, Inc. (ISG), which was sold on January 18, 2013. Invacare manufactured and sold medical recliners for dialysis clinics through Champion Manufacturing, Inc...

  • Page 12
    ... Product Group (IPG) include beds and resident room furnishings, safe patient handling equipment, bathing, durable medical equipment and clinical therapies, such as therapeutic support surfaces and negative pressure wound therapy. IPG sales and marketing organizations consist of field sales...

  • Page 13
    ... East Asia related to its Australia and New Zealand distribution businesses. Invacare Australia and Invacare New Zealand both sell through three distribution channels Mobility and Seating products are sold via a dealer network in Australia and directly in New Zealand. Almost all sales are directly...

  • Page 14
    ... in the shower. With a wide height adjustment range and high load capacity, the Dot covers a broad range of consumers and usage scenarios. The Invacare® Accent bed, which was launched in the United Kingdom in August, is a new variant of the successful Invacare® Medley Ergo product family. The...

  • Page 15
    ... major factories located in Elyria, Ohio; Sanford, Florida; and Reynosa, Mexico. During 2014, the Company closed its major facility in London, Ontario. Production of case goods manufactured in London were transferred to the Invacare plant in Sanford, Florida. The long-term care beds production in...

  • Page 16
    ... certain medically necessary wheelchairs provided that documentation and recordkeeping requirements are followed, as well as ongoing replacement, service and repair of products already in use, under terms delineated in the consent decree. In addition, the Company was able to fulfill purchase orders...

  • Page 17
    ... to production process controls. The Company has timely filed its response with the FDA and continues to work on addressing the FDA observations. At the time of filing of this Annual Report on Form 10-K, this matter remains pending. See Item 1A. Risk Factors. In January 2014, the FDA conducted...

  • Page 18
    ...furnished to, the SEC. Copies of the Company's filings also can be requested, free of charge, by writing to: Shareholder Relations Department, Invacare Corporation, One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125. The contents of the Company's website is not part of this Annual Report on Form...

  • Page 19
    ... costs or new product platforms that deliver the anticipated benefits; consolidation of health care providers; lower cost imports; uncollectible accounts receivable; difficulties in implementing/ upgrading Enterprise Resource Planning systems; risks inherent in managing and operating businesses in...

  • Page 20
    ...'s Form 8-K filed on December 20, 2012, became effective December 21, 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 in Elyria, Ohio. The...

  • Page 21
    ... 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 may have caused, or...

  • Page 22
    ...services provided to their customers and patients by third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans and managed care programs. Most of these programs set maximum reimbursement levels for some of the products sold by the Company in the United...

  • Page 23
    .... Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have governmentmanaged health care systems that govern reimbursement for home health care products. The ability of hospitals and other providers supported by such systems to purchase the Company...

  • Page 24
    ..., the Company's profitability could be 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...

  • Page 25
    ...in a loss of customers, increased collectability risks, or increased competitive pricing pressures. The Company's products are subject to recalls, which could be costly and harm the Company's reputation and business. The Company is subject to ongoing medical device reporting regulations that require...

  • Page 26
    ... inherent in managing and operating businesses in many different foreign jurisdictions. The Company has 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...

  • Page 27
    ... 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 28
    ... the FDA's approval to resume design activities at the impacted Elyria facilities in 2013 and has refocused certain of its engineering resources on new product development. The Company must continue to design and improve innovative products, effectively distribute and achieve market acceptance...

  • Page 29
    ... 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 30
    ... 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 provisions of the New Credit Agreement prevent acquisitions...

  • Page 31
    .... 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 32
    ... ...Atlanta, Georgia ...Cranbury, New Jersey ...Cranbury, New Jersey ...Elyria, Ohio ...-1200 Taylor Street...-899 Cleveland Street ...-One Invacare Way...-1320 Taylor Street...-1166 Taylor Street...-56 Ternes Avenue ...Grand Prairie, Texas ...Guangzhou, China...Kirkland, Quebec ...Lawrenceville...

  • Page 33
    ... Products Group Albuquerque, New ...2015 June 2015 December 2015 December 2015 November 2019 March 2016 June 2016 January 2016 November 2015 February 2016 May 2015 August 2015 October 2015 Month to Month August 2017 November 2015 April 2018 December 2015 December 2015 August 2015 November 2015 May 2015...

  • Page 34
    ... Feet Asia/Pacific Operations Auckland, New Zealand ...Christchurch, New Zealand...Kidderminster, United Kingdom...North Olmsted, Ohio...North Rocks, NSW, Australia...Suzhou, China ...European Operations Albstadt, Germany ...Albstadt, Germany ...Albstadt, Germany ...Albstadt, Germany ...Backemarks...

  • Page 35
    ...and distribution of power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also initially limited design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio facilities...

  • Page 36
    ...the FDA and continues to work on addressing the FDA observations. At the time of filing of this Annual Report on Form 10-K, this matter remains pending. See Item Item 1. Business - Government Regulation - Other FDA Matters and 1A. Risk Factors in this Annual Report on Form 10-K. On November 15, 2013...

  • Page 37
    ... 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 38
    ... her current position in 2009. Previously, Mrs. Stumpp served as Director of Compensation & Benefits from January 2001 to August 2006 and as Director of the Human Resources Group from August 2006 until August 2009. She also has prior experience in healthcare, small business and the services industry...

  • Page 39
    PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer 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 ...

  • Page 40
    ...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, 2009 in the common shares of Invacare Corporation, S&P 500...

  • Page 41
    ...2015 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, 2014, 2013...

  • Page 42
    ...Current Liabilities ...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...

  • Page 43
    ... to restructuring 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), asset write...

  • Page 44
    ...2014 and will continue to be pressured in 2015 as a result of its consent decree with the United States Food and Drug Administration (FDA) affecting operations at the Corporate and Taylor Street facilities in Elyria, Ohio, which requires that a third-party expert perform three separate certification...

  • Page 45
    ... that products such as the HomeFill® oxygen systems can enable providers an opportunity to reduce costs and transform their business model. The Company does not expect to experience significant increased net sales in the North America/HME segment for custom power wheelchairs and seating systems...

  • Page 46
    ... continuing operations of the IPG segment based on the relative fair value of Champion as compared to the remaining IPG reporting unit. On August 29, 2014, the Company sold Altimate Medical, Inc. (Altimate), its manufacturer of stationary standing assistive devices for use in patient rehabilitation...

  • Page 47
    ... In addition, the mobility and seating product category continued to be impacted by the FDA consent decree, which limits production of custom power wheelchairs and seating systems at the Taylor Street manufacturing facility to products having properly completed verification of medical necessity (VMN...

  • Page 48
    ...27.5% in 2013. The margin decline was principally related to reduced volumes, sales mix favoring lower margin product lines and lower margin customers and an incremental warranty expense related to three recalls. Gross profit as a percentage of net sales for the Europe, IPG and Asia/Pacific segments...

  • Page 49
    ... 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, restructuring decisions were also the result of reduced profitability in the North America/HME segment impacted by the FDA...

  • Page 50
    ... industry, as well as reduced sales of electronic components for mobility products. The Company's Australian and New Zealand distribution businesses experienced a decline in net sales, primarily in lifestyle and mobility and seating products. Changes in exchange rates, particularly with the Euro and...

  • Page 51
    ... lower margin product lines and lower margin customers and an incremental warranty expense related to a power wheelchair recall. Gross profit as a percentage of net sales for the Europe and IPG segments was favorable as compared to the prior year with North America/HME and Asia/Pacific segments...

  • Page 52
    ... 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, restructuring decisions were also the result of reduced profitability in the North America/HME segment impacted by the FDA...

  • Page 53
    ...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 Long-Term Debt in the Notes to Consolidated Financial Statements included in this report) and working capital management. The...

  • Page 54
    ... as of December 31, 2013. The December 31, 2014 leverage ratio reflects a net positive adjustment to adjusted EBITDA (as defined in the Amended and Restated Credit Agreement) of $8,228,000 as permitted under the provision of the Amendment allowing for the add back of warranty expense accruals up to...

  • Page 55
    ... $24,700,000 in 2015 as the result of the retirement of four senior executives during 2014 which will negatively impact operating cash flows for the Company. As of December 31, 2014, the Company has approximately $12,000,000 in life insurance policies that can be sold to partially fund these...

  • Page 56
    ...end of the third quarter of 2015 which will negatively impact operating cash flows for the Company. Cash flows provided by investing activities in 2013 were primarily related to the proceeds from sale of two businesses of $187,552,000. Cash flows used by financing activities in 2014 were $32,158,000...

  • Page 57
    ... losses in the allowance for doubtful 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. In 2013, the Centers for Medicare and Medicaid Services announced new...

  • Page 58
    .... In 2014, 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...

  • Page 59
    ...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 60
    ...recorded at the time of sale based upon actual experience. The Company continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily used to determine the Company's warranty reserves. Claims history is reviewed and provisions are...

  • Page 61
    ...calculation of net income, comprehensive income or earnings per share. The Company adopted ASU 2014-08 effective January 1, 2015. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 requires a company to recognize revenue when promised goods or services are...

  • Page 62
    ...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 circumvention...

  • Page 63
    ...the information set forth under the captions "Executive Compensation" and "Corporate Governance" in the Company's definitive Proxy Statement on Schedule 14A for the 2015 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required...

  • Page 64
    ... 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 26, 2015. INVACARE CORPORATION...

  • Page 65
    Pursuant to the requirements of the Securities 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 February 26, 2015. Signature /s/ C. MARTIN HARRIS, M.D. C. Martin Harris, M.D. ROBERT K. GUDBRANSON ...

  • Page 66
    ... agreement.) Share Purchase Agreement among Champion Equity Holdings, LLC, Invacare Corporation and Champion Manufacturing Inc., dated August 7, 2013. (Pursuant to Item 601(b)(2) of Regulation S-K, the registrant hereby agrees to supplementally furnish to the Securities and Exchange Commission upon...

  • Page 67
    ... and Global Product Development 2012 Non-employee Directors Deferred Compensation Plan, effective January 1, 2012 Amendment No. 3 to Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005 Invacare Corporation 2013 Equity Compensation Plan Form of Executive Stock Option...

  • Page 68
    ....CAL** 101.DEF** 101.LAB** 101.PRE** Description Retirement Agreement and Release, dated as of November 14, 2014, by and between Invacare Corporation and Joseph B. Richey, II. Revolving Credit and Security Agreement, dated as of January 16, 2015, by and among the Company, the other Borrowers party...

  • Page 69
    ...Exhibit of the Company report on Form 10-K for the fiscal year ended December 31, 2011, which Exhibit is incorporated...report on Form 8-K, dated January 21, 2015, which Exhibit is incorporated herein by reference. Reference is made to Exhibit 10.1 of the Company report on Form 8-K, dated March 7, 2014...

  • Page 70
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  • Page 71
    ... referred to above present fairly, in all material respects, the consolidated financial position of Invacare Corporation and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31...

  • Page 72
    ... of December 31, 2014 and 2013 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, 2014 of Invacare Corporation and our report dated February 26, 2015 expressed an unqualified opinion...

  • Page 73
    ... INCOME (LOSS) INVACARE CORPORATION AND SUBSIDIARIES Years Ended December 31, 2014 2013 2012 (In thousands, except per share data) Net sales...$ 1,270,163 $ 1,334,505 $ 1,415,818 Cost of products sold ...922,775 967,079 988,881 Gross Profit ...347,388 367,426 426,937 Selling, general and...

  • Page 74
    ... long-term obligations ...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; 34,219 and 34,084 issued in 2014 and 2013, respectively)-no par ...Class...

  • Page 75
    ... OF CASH FLOWS INVACARE CORPORATION AND SUBSIDIARIES Years Ended December 31, 2014 2013 2012 (In thousands) (56,070) $ 33,051 $ 1,827 Operating Activities Net earnings (loss) ...$ Adjustments to reconcile net earnings to net cash provided by operating activities: Gain on sale of business (pre-tax...

  • Page 76
    ...31, 2013 Balance ...$ Deferred equity compensation ...Exercise of stock options...Non-qualified stock option expense ...Restricted stock awards...Net loss ...Foreign currency translation adjustments . . Unrealized gain on cash flow hedges ...Defined benefit plans: Amortization of prior service costs...

  • Page 77
    ... Policies Nature 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...

  • Page 78
    ... 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 79
    ... stock for the period exceeds the conversion price of $24.79. For periods in which there was a net loss, loss per share assuming dilution utilized weighted average shares-basic. Defined Benefit Plans: The Company's benefit plans are accounted for in accordance with Compensation-Retirement Benefits...

  • Page 80
    ... 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 360-10-45-9 were met. On January 18, 2013, the Company completed the sale of the ISG medical supplies business to AssuraMed, Inc. for a purchase price...

  • Page 81
    ... continuing operations of the IPG segment based on the relative fair value of Champion as compared to the remaining IPG reporting unit. On August 29, 2014, the Company sold Altimate Medical, Inc. (Altimate), its manufacturer of stationary standing assistive devices for use in patient rehabilitation...

  • Page 82
    ... 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, China and Europe. A significant portion of products sold to providers, both foreign and domestic, is ultimately...

  • Page 83
    ..., 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 history, security collateral and time in business. Additional analysis is performed for customers desiring credit greater than $250,000 which...

  • Page 84
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Installment receivables by class as of December 31, 2014...all U.S. installment receivables are assigned a specific allowance for doubtful accounts based on management's review when the Company does not expect...

  • Page 85
    ...074 $ December 31, 2013 Total U.S. Canada 1,338 7 - - 7,574 8,919 $ - - - - 7,464 7,464 $ 1,338 7 - - 110 1,455 $ $ $ $ $ $ $ $ During 2014, the Company sold $21,338,000 of life insurance policies to fund payments as the result of the retirement of certain executive officers of the Company...

  • Page 86
    ... enhances the Company'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...

  • Page 87
    .... In 2014, 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...

  • Page 88
    ... above impairments except for the trademark impairment in the IPG segment, which was $204,000 after-tax. The fair values of the customer lists were calculated using an excess earnings method, using a discounted cash flow model. Estimated cash flow returns to the customer relationship were reduced by...

  • Page 89
    ... future periods as new developments change the Company's estimate of the total cost of these matters. The warranty expense for 2013 included an increase in warranty expense of $7,264,000 related to the power wheelchair joystick recall, the impact of which was recorded in the Asia/Pacific ($4,639,000...

  • Page 90
    ...,000 for onetime cash restructuring charges incurred after May 30, 2013, which was an incremental increase of $5,000,000 from the terms of the Prior Credit Agreement. The Amendment on September 30, 2014 allowed for an additional add back to EBITDA for warranty expense accrued up to $10,000,000 and...

  • Page 91
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) On January 16, 2015, the Company entered into a Revolving Credit and Security Agreement (the "New Credit Agreement"). The proceeds of the New Credit Agreement were used to repay and terminate the Company's ...

  • Page 92
    ...,000 in 2014, 2013 and 2012, respectively. Other Long-Term Obligations Other long-term obligations as of December 31, 2014 and 2013 consist of the following (in thousands): 2014 Supplemental Executive Retirement Plan liability ...$ Product liability ...Deferred income taxes ...Deferred compensation...

  • Page 93
    ... unfunded U.S. defined benefit plans, the Company has invested in life insurance policies related to certain employees to help satisfy these obligations of which $21,338,000 in life insurance policies were sold during 2014 to fund payments related to the retirement of certain executive officers of...

  • Page 94
    ..., 2014 and 2013, respectively for a net change of $2,187,000 with $1,127,000 in net periodic benefit income recognized during the year. Equity Compensation The Company's Common Shares have a $.25 stated value. The Common Shares and the Class B Common Shares generally have identical rights, terms and...

  • Page 95
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The amounts of equity-based compensation expense recognized as part of selling, general and administrative expenses were as follows (in thousands): 2014 Non-Qualified stock options ...$ Restricted stock and...

  • Page 96
    ... is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2014 Expected dividend yield ...Expected stock price volatility ...Risk-free interest rate ...Expected life in years ...Forfeiture percentage ...0.3% 36.8% 1.76% 6.1 13...

  • Page 97
    ... 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...

  • Page 98
    ... as follows (in thousands): Foreign Currency December 31, 2013 ...$ OCI before reclassifications...Amount reclassified from accumulated OCI ...Net current-period OCI ...December 31, 2014 ...$ Defined Long-Term Benefit Notes Plans Derivatives Total (5,414) $ (709) $ 125,156 143,845 $ (12,566) $ (57...

  • Page 99
    ...'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, restructuring decisions were also the result of reduced profitability in the North America/HME and Asia/Pacific segments...

  • Page 100
    ... to lost sales volumes resulting from the continued impact of the FDA consent decree. The Other severance related to the elimination of two senior corporate executive positions. IPG segment severance related principally to the closure of the London, Canada facility. Europe and Asia/Pacific severance...

  • Page 101
    ...Costs of Products Sold. However, 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 as well as reduced net sales volumes. A progression by reporting segment of...

  • Page 102
    ...IPG...Europe ...Asia/Pacific ...Total...December 31, 2013 Balance North America/HME ...IPG...Europe ...Asia/Pacific ...Total...Charges North America/HME ...IPG...Europe ...Asia/Pacific ...Other ...Total...Payments North America/HME ...IPG...Europe ...Asia/Pacific ...Total...December 31, 2014 Balance...

  • Page 103
    ... 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: 2014 Statutory federal income tax rate ...State and local income taxes, net of federal income tax benefit ...Tax credits...

  • Page 104
    ...and 2013 are as follows (in thousands): 2014 Current deferred income tax assets (liabilities), net: Bad debt ...$ Warranty...State and local taxes ...Other accrued expenses and reserves ...Inventory ...Compensation and benefits ...Product liability ...Valuation allowance ...Other, net ...$ Long-term...

  • Page 105
    ... and 2013, respectively. Included in the balance of uncertain tax positions in Other Long-Term Obligations at the end of 2014 is an accrual of tax $5,940,000 and interest $4,400,000 resulting from a foreign audit related to years before 2012. The Company and its subsidiaries file income tax returns...

  • Page 106
    ... Company stock in 2014, 2013 and 2012 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 credit evaluations of its customers...

  • Page 107
    ... 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 portion of products sold to dealers, both foreign and domestic, is ultimately funded...

  • Page 108
    ... to intercompany sales and purchases for which settlement occurs on a specific day each month. Forward contracts with a total notional amount in USD of $157,121,000 and $182,213,000 matured during the twelve months ended December 31, 2014 and 2013, respectively. Foreign exchange forward contracts...

  • Page 109
    ... is offset by the gain/loss on the foreign currency forward contract. No material net gain or loss was realized by the Company in 2014 or 2013 related to these contracts and the associated short-term intercompany trading receivables and payables. Foreign exchange forward contracts not qualifying or...

  • Page 110
    ... hedges of inventory purchases. In 2014, net sales were decreased by $657,000 and cost of product sold was decreased by $995,000 for a net realized gain of $338,000. In 2013, net sales were increased by $432,000 and cost of product sold was increased by $703,000 for a net realized loss of $271,000...

  • Page 111
    ...,000 in 2014, a net loss of $271,000 in 2013 and a net gain of $3,763,000 in 2012 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...

  • Page 112
    ... 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. The Company...

  • Page 113
    ... 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. The Company evaluates performance and allocates resources based on profit...

  • Page 114
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The information by segment is as follows (in thousands): 2014 Revenues from external customers North America/HME ...Institutional Products Group ...Europe ...Asia/Pacific ...Consolidated ...Intersegment ...

  • Page 115
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2014 Long-lived assets North America/HME (2) ...Institutional Products Group (2) ...Europe ...Asia/Pacific (2) ...All Other (1)...Consolidated ...Expenditures for assets North America/HME ...Institutional ...

  • Page 116
    ...): 2014 North America/HME Lifestyle Products ...$ Mobility and Seating ...Respiratory Therapy...Other(1) ...$ Institutional Products Group Continuing Care ...$ Europe Lifestyle Products ...$ Mobility and Seating ...Respiratory Therapy...Other(1) ...$ Asia/Pacific Mobility and Seating ...$ Lifestyle...

  • Page 117
    ...and distribution of power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility. The decree also initially limited design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio facilities...

  • Page 118
    ... round of National Competitive Bidding ("NCB"). The negative effect of the consent decree on customer orders and net sales in these segments has been considerable, and the Company expects to continue to experience low levels of net sales in the North America/HME and Asia/Pacific segments at least...

  • Page 119
    ... rates from large customers in the U.S. and Canada and a product mix toward higher cost joysticks, which was recorded in the North America/HME segment ($1,612,000) and the Asia/Pacific segment ($1,265,000). These warranty reserves are subject to adjustment in future periods as new developments...

  • Page 120
    ... or undertake certain sale/leaseback transactions, dispositions of assets, additional credit facilities, sales of receivables, additional indebtedness and intercompany indebtedness, all subject to limitations set forth in the New Credit Agreement. The New Credit Agreement also contains a covenant...

  • Page 121
    ...31, 2014 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 expense-net ...Earnings (Loss) from Continuing Operations...

  • Page 122
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS The Company (Parent) Year ended December 31, 2013 Net sales ...$ Cost of products sold ...Gross Profit ...Selling, general and administrative expenses ......

  • Page 123
    INVACARE CORPORATION AND SUBSIDIAIRIES 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 SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) CONSOLIDATING CONDENSED BALANCE SHEETS The Company (Parent) December 31, 2014 Assets Current Assets Cash and cash equivalents ...$ Trade receivables, net ...Installment receivables, net ...Inventories, net ...

  • Page 125
    INVACARE CORPORATION AND SUBSIDIAIRIES 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
    ... Year ended December 31, 2014 Net Cash Provided (Used) by Operating Activities ...$ (34,135) $ Investing Activities Purchases of property and equipment . (2,256) Proceeds from sale of property and equipment ...- Proceeds from sale of businesses ...- Decrease in other long-term assets ...20,926 Other...

  • Page 127
    ... 31, 2013 Net Cash Provided (Used) by Operating Activities ...$ 11,566 $ Investing Activities Purchases of property and equipment . (3,601) Proceeds from sale of property and equipment ...4 Proceeds from sale of businesses ...- Decrease in other long-term assets ...833 Other ...181,195 Net Cash...

  • Page 128
    ... 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 ...- (Increase) decrease in other long-term assets ...(381...

  • Page 129
    INVACARE CORPORATION AND SUBSIDIAIRIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Interim Financial Information (unaudited) QUARTER ENDED (In thousands, except per share data) March 31, 2014 Net sales...$ Gross profit ...Loss before income taxes ...Net loss from continuing operations ......

  • Page 130
    ... expense for continuing operations, despite the Company being in a domestic tax valuation allowance, 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 and increased amortization...

  • Page 131
    ... of Period Year Ended December 31, 2014 Deducted from asset accounts- Allowance for doubtful accounts...$ Inventory obsolescence reserve...Tax valuation allowances...Accrued warranty cost ...Accrued product liability ...Year Ended December 31, 2013 Deducted from asset accounts- Allowance for...

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  • Page 133
    ... 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. b) INVACARE CORPORATION ROBERT K. GUDBRANSON Robert K. Gudbranson Interim President and Chief Executive...

  • Page 134
    ... In connection with the Annual Report of Invacare Corporation (the "company") on Form 10-K for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert K. Gudbranson, Interim President and Chief Executive Officer and Chief...

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