Subsequent Events (Notes)

12 Months Ended

Dec. 31, 2019

On March 7, 2020, the company, completed the sale (the “Transaction”) of its indirect subsidiary, Dynamic Controls, a New Zealand incorporated unlimited company (“Dynamic Controls”), to Allied Motion Christchurch Limited, a New Zealand limited company (the “Purchaser”), pursuant to a Securities Purchase Agreement among the company, Invacare Holdings New Zealand, a New Zealand incorporated unlimited company, and the Purchaser, dated March 6, 2020 (the “Purchase Agreement”). Dynamic Controls is a producer of electronic control systems for powered medical mobility devices, including systems incorporating the LiNX™ technology platform. Dynamic Controls was a component of the All Other Segment.

Dynamic Controls is a supplier of power mobility products and respiratory components to the company as well as supplying power mobility products to external customers. In 2019, total sales were $17,174,000, including $13,087,000 in intercompany sales, compared to 2018 sales of $19,982,000, including $17,778,000 in intercompany sales. Earnings before Income Taxes was approximately $853,000 and $2,462,000 in 2019 and 2018, respectively, inclusive of intercompany profits on sales to the company.

The decline in revenue and profits in 2019 as compared to 2018 was the result of lower intercompany sales as the Company focused on improving its working capital, specifically related to inventory globally, which temporarily impacted the demand for product from Dynamic Controls. In addition, the decline in respiratory sales as result of reimbursement changes in the U.S. as well as the company’s strategic decision to balance sales volume growth with optimizing profitability, also reduced intercompany sales and related profit in 2019 as compared to 2018.

The transaction was the result of considering options for the products sold by Dynamic Controls which resulted in selling the business to a third-party which can provide access to further technological innovations to further differentiate the company’s power mobility products.

Upon the closing of the Transaction, the price paid to the company for Dynamic Controls was approximately $15,000,000 in cash, which is subject to certain post-closing adjustments required by the Purchase Agreement. The company estimates net proceeds from the Transaction are approximately $12,800,000, net of taxes and expenses. The company expects to realize a pre-tax gain of approximately $13,300,000.

The Purchase Agreement contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and

covenants, and certain other specified matters, which are subject to certain exceptions, terms and limitations described further in the Purchase Agreement.

At the closing of the Transaction, the parties entered into a supply agreement pursuant to which Dynamic Controls will supply certain electronic components as required by the company for a five-year period following the Transaction, including ongoing supply and support of the LiNX™ electronic control system with informatics technology, continued contract manufacturing of certain electronic components for the company’s respiratory products and continued infrastructure and applications support for the informatics solution for the company’s respiratory products. The estimated continued inflows and outflows following the disposal with the Purchaser are not expected to be material to the company.

The asset and liabilities of Dynamic Controls as of December 31, 2019 and 2018 consist of the following (in thousands):



	2019		2018
Trade receivables, net	$	1,804	$	2,528
Inventories, net	3,008		2,980
Other assets	933		1,014
Property and equipment, net	707		847
Operating lease assets, net	1,870		—
Total assets	$	8,322	$	7,369

Accounts payable	$	4,501	$	5,183
Accrued expenses	2,108		1,614
Current taxes payable	92		50
Current portion of operating lease obligations	393		—
Operating lease long-term obligations	1,754		—
Total liabilities	$	8,848	$	6,847