##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 Annual Report
pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For fiscal year ended September 30, 2006
 Commission File Number: 0-18933
 Rochester Medical Corporation
 Minnesota
    
    41-1613227State of Incorporation
    
    IRS Employer Identification No.
 One Rochester Medical Drive
Stewartville, Minnesota 55976
    Common Stock without par value
 
 o þ
 o þ
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   DOCUMENTS INCORPORATED BY REFERENCE




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Table of Contents
 PART I
    
    
    3ITEM 1. Business
    
    
    3ITEM 1A. Risk Factors
    
    
    10ITEM 1B. Unresolved Staff Comments
    
    
    16ITEM 2. Properties
    
    
    16ITEM 3. Legal Proceedings
    
    
    16ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    16PART II
    
    
    16ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    16ITEM 6. Selected Financial Data
    
    
    17ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27ITEM 8. Financial Statements and Supplementary Data
    
    
    29ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    47ITEM 9A. Controls and Procedures
    
    
    48ITEM 9B. Other Information
    
    
    48PART III
    
    
    48ITEM 10. Directors, Executive Officers and Corporate Governance
    
    
    48ITEM 11. Executive Compensation
    
    
    48ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    48ITEM 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    49ITEM 14. Principal Accounting Fees and Services
    
    
    49PART IV
    
    
    49ITEM 15. Exhibits, Financial Statement Schedules
    
    
    49SIGNATURES
    
    
    52INDEX TO EXHIBITS
    
    
    54Articles of IncorporationAmended and Restated BylawsForm of Incentive Stock Option AgreementForm of Non-Incentive Stock Option AgreementSubsidiaries of the CompanyConsent of McGladrey & Pullen LLPConsent of Ernst & Young LLPPower of Attorney302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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##### Table of Contents



PART I
 
 ITEM 1. Business
 Overview
 FemSoft® Insert RELEASE-NF®
Catheter
 Rochester Medical®
 Extended Care Products
 Male External Catheters UltraFlex® Pop-On® Wide Band®, Natural®, Clear Advantage® Transfix® UltraFlex, Clear Advantage Transfix Style 1 Pop-On Transfix Style 2 Wide Band Transfix Style 3 Wide Band Natural
   Freedom Freedom Plus
 Intermittent Catheters Personal Catheters® Personal Catheters Personal Catheter Personal Catheter Personal Catheter, Personal Catheter HydroPersonal Catheter Personal Catheter Personal Catheter HydroPersonal Catheter
 3




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Personal Catheter
 FemSoft Insert FemSoft Insert
 FemSoft Insert FemSoft Insert
 FemSoft Insert FemSoft Insert
 Acute Care Products
 Foley Catheters RELEASE-NF Catheter RELEASE-NF
Catheter
  Rochester Medical
 Technology
 FemSoft Insert
  4




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Marketing and Sales
  Rochester Medical Rochester Medical
  Rochester Medical
 Manufacturing
 FemSoft Insert
  FemSoft Insert
  Sources of Supply
  Freedom Freedom Plus
 Research and Development
  5




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Competition
   Rochester Medical
 Patents and Proprietary Rights
      6




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Government Regulation
      7




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Third Party Reimbursement
 FemSoft Insert
  Private Label Distribution Agreements
  Release-NF
 Environmental Matters
  Employees
  Executive Officers of the Registrant
  Name
    
    Age
    
    PositionAnthony J. Conway
    
    
    62
    
    
    Chairman of the Board, Chief Executive Officer, President and SecretaryDavid A. Jonas
    
    
    42
    
    
    Chief Financial Officer and TreasurerPhilip J. Conway
    
    
    50
    
    
    Vice President, Production TechnologiesDara Lynn Horner
    
    
    48
    
    
    Vice President, MarketingMartyn R. Sholtis
    
    
    47
    
    
    Corporate Vice President
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Anthony J. Conway
 David A. Jonas
 Philip J. Conway
 Dara Lynn Horner FemSoft
Insert
 Martyn R. Sholtis
  Recent Developments
  Freedom Freedom Plus
  9




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Information Available on Our Website
  
 ITEM 1A. Risk Factors
 Our business, financial condition or results of operations could be materially adversely affected
by any of the risks and uncertainties described below. Additional risks not presently known to us,
or that we currently deem immaterial, may also impair our business, financial condition or results
of operations.
 A significant portion of our revenues come from a small number of customers
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We depend on private label sales arrangements and third party distributors for a significant
portion of our revenues, the loss of one or more of which could reduce our future sales revenue
  Our products may not succeed in the market
 RELEASE-NF Catheter FemSoft Insert
 We may not succeed in establishing a separate brand identity for our Rochester Medical brand
products
 Rochester Medical
  We face significant competition in the market for urinary continence products
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Our products may become obsolete if we are unable to anticipate and adapt to new treatments or
techniques
  We have a limited history of profitability and may experience future losses
  Our products and manufacturing activities are subject to extensive governmental regulation that
could prevent us from selling our products or introducing new and/or improved products in the
United States or internationally
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Our success may depend on the ability of healthcare providers to achieve adequate levels of
third-party reimbursement
    We depend on certain key personnel, the loss of whom could harm our business
  We depend on a few suppliers for key components, making us vulnerable to supply shortages and price
fluctuation
  All of our manufacturing operations are conducted at a single industrial park; therefore, any
disruption at our existing facilities could substantially affect our business
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We depend on patents and proprietary rights, which we may not be able to protect
  We may face intellectual property infringement claims that would be costly to resolve
  We may face product liability claims that could result in costly litigation and significant
liabilities
  International operations will expose us to additional risks
   
    
    the ability of our independent distributors to market and sell our products;
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
    
    our ability to identify new independent distributors in international markets where we do not currently have distributors;
    
    the impact of recessions in economies outside the United States;
    
    greater difficulty in collecting accounts receivable and longer collection periods;
    
    unexpected changes in regulatory requirements, tariffs or other trade barriers;
    
    weaker intellectual property rights protection in some countries;
    
    potentially adverse tax consequences; and
    
    political and economic instability.
   We will incur significant increased costs as a result of operating as a public company, and our
management will be required to devote substantial time to new compliance requirements
   We may be unable to meet our future capital requirements
 RELEASE-NF Catheter FemSoft Insert
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##### Table of Contents



ITEM 1B. Unresolved Staff Comments
  
 ITEM 2. Properties
  
 ITEM 3. Legal Proceedings
    
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  High
    
    LowFiscal 2005First Quarter
    
    $
    4.89
    
    
    $
    4.26Second Quarter
    
    
    6.65
    
    
    
    4.29Third Quarter
    
    
    6.14
    
    
    
    4.75Fourth Quarter
    
    
    4.80
    
    
    
    4.25Fiscal 2006First Quarter
    
    $
    5.10
    
    
    
    4.55Second Quarter
    
    
    6.37
    
    
    
    5.08Third Quarter
    
    
    7.75
    
    
    
    6.22Fourth Quarter
    
    
    8.12
    
    
    
    7.05
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Holders
  Dividends
  
 ITEM 6. Selected Financial Data
  Fiscal Years Ended September 30,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In thousands, except for per share data)Net sales
    
    $
    21,666
    
    
    $
    15,942
    
    
    $
    15,011
    
    
    $
    14,655
    
    
    $
    11,076Cost of sales
    
    
    13,057
    
    
    
    10,330
    
    
    
    9,615
    
    
    
    9,574
    
    
    
    7,888Gross profit
    
    
    8,609
    
    
    
    5,612
    
    
    
    5,396
    
    
    
    5,081
    
    
    
    3,188Operating expenses:Marketing and selling
    
    
    3,109
    
    
    
    2,398
    
    
    
    2,176
    
    
    
    2,225
    
    
    
    2,196Research and development
    
    
    760
    
    
    
    730
    
    
    
    706
    
    
    
    875
    
    
    
    835General and administrative
    
    
    3,345
    
    
    
    2,127
    
    
    
    1,857
    
    
    
    1,809
    
    
    
    1,763Total operating expenses
    
    
    7,214
    
    
    
    5,255
    
    
    
    4,739
    
    
    
    4,909
    
    
    
    4,794Income (loss) from operations
    
    
    1,395
    
    
    
    357
    
    
    
    657
    
    
    
    172
    
    
    
    (1,606
    )Interest income (expense), net
    
    
    (110
    )
    
    
    124
    
    
    
    90
    
    
    
    158
    
    
    
    212Net income (loss) before income tax
    
    
    1,287
    
    
    
    481
    
    
    
    747
    
    
    
    330
    
    
    
    (1,394
    )Income tax benefit
    
    
    672
    
    
    
    454
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1,959
    
    
    $
    935
    
    
    $
    747
    
    
    $
    330
    
    
    $
    (1,394
    )Net income (loss) per common share  basic
    
    $
    .18
    
    
    $
    .09
    
    
    $
    .07
    
    
    $
    .03
    
    
    $
    (.13
    )Net income (loss) per common share  diluted
    
    $
    .17
    
    
    $
    .08
    
    
    $
    .07
    
    
    $
    .03
    
    
    $
    (.13
    )Weighted average number of common shares outstanding  basic
    
    
    11,068
    
    
    
    10,932
    
    
    
    10,868
    
    
    
    10,760
    
    
    
    10,658Weighted average number of common shares outstanding  diluted
    
    
    11,666
    
    
    
    11,430
    
    
    
    11,374
    
    
    
    11,308
    
    
    
    10,658
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As of September 30,2006
    
    2005
    
    2004
    
    2003
    
    2002(in thousands, except per share data)Balance Sheet Data:Cash, cash equivalents and marketable securities
    
    $
    2,907
    
    
    $
    6,416
    
    
    $
    5,872
    
    
    $
    5,966
    
    
    $
    4,464Working capital
    
    
    7,664
    
    
    
    12,671
    
    
    
    11,119
    
    
    
    10,398
    
    
    
    8,523Total assets
    
    
    35,952
    
    
    
    22,209
    
    
    
    21,384
    
    
    
    21,125
    
    
    
    19,636Long-term debt and capital lease obligations
    
    
    7,563
    
    
    
    98
    
    
    
    172
    
    
    
    267
    
    
    
    Accumulated deficit
    
    
    (20,086
    )
    
    
    (22,045
    )
    
    
    (22,979
    )
    
    
    (23,726
    )
    
    
    (24,056
    )Total shareholders equity
    
    $
    23,097
    
    
    $
    20,288
    
    
    $
    18,888
    
    
    $
    18,142
    
    
    $
    17,144
 
 ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Our Managements Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the narrative description of our business in Item 1 of Part I of
our Annual Report on Form 10-K and our Consolidated Financial Statements, accompanying Notes and
other information listed in the accompanying Financial Table of Contents
 Overview
 FemSoft Insert. Rochester Medical
   Rochester Medical
   
    
    On June 2, 2006, we, through our subsidiary Rochester Medical Limited, completed the
acquisition of certain assets of Coloplast A/S (Coloplast) and Mentor Medical Limited
(MML). Through the acquisition, we acquired certain assets,
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including certain trademarks, related to sales of male external catheters, or MECs, in the
United Kingdom. The assets also included MMLs sales offices and warehouse facility in
Lancing, England.
 
    
    We also entered into a separately negotiated Private Label Distribution Agreement
with Coloplast under which we will supply silicone MECs to Coloplast, which will be sold
under Coloplasts brands worldwide excepting the United Kingdom. The Private Label
Distribution Agreement specifies annual minimum purchases of silicone MECs by Coloplast.
Coloplast will also supply us with our requirement of latex MECs which we will sell in
the United Kingdom under our newly acquired Freedom ® and
Freedom Plus ® brands.
    
    On June 2, 2006, we separately completed the acquisition of certain assets owned and
used by Mentor Corporation (Mentor) in its silicone MEC business. We acquired certain
equipment and other tangible assets in Mentors facility in Anoka, Minnesota, and
purchased certain inventory, work-in-progress and raw materials for the production of
silicone MECs; we also leased the Anoka facility from Mentor for six months following
the closing of the transaction until we were able to transfer the assets to our
Stewartville facilities. Upon the closing of the transactions, the existing Supply
Agreement, Foley Catheter Sales and Distribution Agreement and MEC License and Sales
Distribution Agreement (including, but not limited to the Patent License and Technology
License thereunder) between us and Mentor were terminated, and Mentor conveyed to us all
intellectual property exclusively related to the manufacturing and sale of silicone MECs
at the Anoka facility.
    
    On October 31, 2006, our Board of Directors declared a two-for-one stock split of the
our common stock. As a result of the stock split, on November 17, 2006, shareholders
received one additional common share for each common share held on the record date of
November 14, 2006. All share and per share amounts in the discussion below have been
restated to reflect our stock split.
    
    On November 6, 2006, we announced we had been awarded a national Group Purchasing
Contract for urological products from Premier Purchasing Partners, L.P. (Premier).
The agreement becomes effective March 1, 2007. Premier is one of the largest Group
Purchasing Organizations in the United States with over $27 billion in contract
purchases per year. Its members include more than 1,500 hospital facilities and hundreds
of other care sites. The contract includes our Foley catheters (including its infection
control catheters), MECs, intermittent catheters, and urethral inserts.
    
    On November 20, 2006, we announced that we had reached a settlement with Premier,
Inc. and Premier Purchasing Partners, L.P. with respect to the lawsuit we initiated in
February 2004 against certain GPOs and individual defendants alleging anti-competitive
conduct against the defendants in the markets for standard and anti-infection Foley
catheters as well as urethral catheters. Under the settlement agreement, Premier will
pay us $8,825,000 (net $5,155,000 after payment of attorneys fees and expenses) and
will be dismissed from the lawsuit. On December 14, 2006, we announced we had reached a
settlement with C.R. Bard, Inc., whereby C.R. Bard, Inc. will pay us $49,000,000 (net
$33,450,000 after payment of attorneys fees and expenses), and will be released from
the lawsuit. The litigation continues against all other defendants in the case, which is
scheduled for trial in May 2007. We cannot estimate the prospects of a favorable
outcome for this litigation.
    
    On December 11, 2006, we announced we had signed a new Private Label Agreement for
supply of MECs to Hollister Incorporated for sale under the Hollister brand worldwide,
excluding the United Kingdom, and also announced that we amended our 2003 OEM/Private
Label Agreement. The two companies also agreed to terminate the Common Interest and
Defense Agreement which we entered into in September 2004 for the defense of our
Hydrophilic Intermittent catheter technology with respect to the patent infringement
action in the United Kingdom between Coloplast A/S and Hollister. We have agreed with
Hollister to release each other from any claims under the Common Interest and Defense
Agreement. In particular, we will not be required to pay any additional legal fees
under the terminated agreement.
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Application of Critical Accounting Policies
   Inventories
  Accounts Receivable
  Revenue Recognition
  Stock-Based Compensation
 Share-Based Payment
 Income Taxes
  20




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Goodwill
 Goodwill and Other Intangible Assets
 Long-Lived Assets
 Accounting for
the Impairment of Disposal of Long-Lived Assets
 Results of Operations
  
 Fiscal Years Ended September 30,2006
    
    2005
    
    2004Total net sales
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of sales
    
    
    60
    
    
    
    65
    
    
    
    64Gross margin
    
    
    40
    
    
    
    35
    
    
    
    36Operating expenses:Marketing and selling
    
    
    14
    
    
    
    15
    
    
    
    15Research and development
    
    
    4
    
    
    
    5
    
    
    
    5General and administrative
    
    
    15
    
    
    
    13
    
    
    
    12Total operating expenses
    
    
    33
    
    
    
    33
    
    
    
    32Income from operations
    
    
    7
    
    
    
    2
    
    
    
    4Interest income (expense), net
    
    
    (1
    )
    
    
    1
    
    
    
    1Income before income taxes
    
    
    6
    %
    
    
    3
    %
    
    
    5
    %
 
 FemSoft Insert. Rochester Medical
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Fiscal Years Ended September 30,2006
    
    
    2005
    
    
    2004Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    TotalPrivate label sales:Base products
    
    $
    5,596
    
    
    $
    4,406
    
    
    $
    10,002
    
    
    $
    4,100
    
    
    $
    4,156
    
    
    $
    8,256
    
    
    $
    3,660
    
    
    $
    3,900
    
    
    $
    7,560Advanced products
    
    
    646
    
    
    
    100
    
    
    
    682
    
    
    
    250
    
    
    
    139
    
    
    
    389
    
    
    
    725
    
    
    
    154
    
    
    
    879Total private label sales
    
    
    6,242
    
    
    
    4,506
    
    
    
    10,684
    
    
    
    4,350
    
    
    
    4,295
    
    
    
    8,645
    
    
    
    4,385
    
    
    
    4,054
    
    
    
    8,439Branded sales:Base products
    
    
    3,368
    
    
    
    5,706
    
    
    
    9,138
    
    
    
    3,208
    
    
    
    2,893
    
    
    
    6,101
    
    
    
    3,027
    
    
    
    2,618
    
    
    
    5,645Advanced products
    
    
    1,383
    
    
    
    461
    
    
    
    1,844
    
    
    
    884
    
    
    
    312
    
    
    
    1,196
    
    
    
    575
    
    
    
    352
    
    
    
    927Total branded sales
    
    
    4,751
    
    
    
    6,167
    
    
    
    10,982
    
    
    
    4,092
    
    
    
    3,205
    
    
    
    7,297
    
    
    
    3,602
    
    
    
    2,970
    
    
    
    6,572Total net sales:
    
    $
    10,993
    
    
    $
    10,673
    
    
    $
    21,666
    
    
    $
    8,442
    
    
    $
    7,500
    
    
    $
    15,942
    
    
    $
    7,987
    
    
    $
    7,024
    
    
    $
    15,011
 Fiscal Year Ended September 30, 2006 Compared to Fiscal Year Ended September 30, 2005
 Net Sales
 Gross Margin
 Marketing and Selling
 Research and Development
 General and Administrative
 Interest Income
 Interest Expense
 Income Taxes
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Net Income.
 Fiscal Year Ended September 30, 2005 Compared to Fiscal Year Ended September 30, 2004
 Net Sales
 Gross Margin
 Marketing and Selling
 Research and Development
 General and Administrative
 Interest Income, Net
 Income Taxes
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Net Income.
 Liquidity and Capital Resources
    
    
    $1,289,000 increase in accounts receivable reflecting increasing sales activity over prior year.
    
    $706,000 increase in inventory for the reason stated above.
    
    $995,000 increase in accounts payable relating to timing of payments and increased volume over fiscal 2005.
    
    $983,000 increase in accrued expenses primarily related to VAT and income taxes
payable in the United Kingdom as a result of the asset acquisition from Coloplast.
 Release-NF
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Disclosures about Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4 - 5 years
    
    
    yearsLong Term Debt, including interest
    
    $
    11,033,229
    
    
    $
    2,295,296
    
    
    $
    6,776,747
    
    
    $
    1,961,187
    
    
    $
    Capital Lease Obligations
    
    
    67,600
    
    
    
    44,615
    
    
    
    22,985
    
    
    
    
    
    
    
    Purchase Obligations (general operating)
    
    
    1,722,957
    
    
    
    1,722,957
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    12,823,786
    
    
    $
    4,062,868
    
    
    $
    6,799,732
    
    
    $
    1,961,187
    
    
    $
    
 Off-Balance Sheet Arrangements
  25




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New Accounting Pronouncements
 Share-Based Payment Accounting for Stock Issued
to Employees Accounting for Stock-Based Compensation
 Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards
 Inventory Costs  an amendment of ARB No. 43,
Chapter 4
 Accounting for Asset Retirement Obligations
 Accounting Changes and Error Corrections
 Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement 109
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Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
 Fair Value Measurements
 Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
 Cautionary Statement Regarding Forward Looking Information
  
    
    the uncertainty of market acceptance of new product introductions;
    
    the uncertainty of gaining new strategic relationships;
    
    the uncertainty of timing of revenues from private label sales (particularly with respect to international customers);
    
    the uncertainty of successfully integrating and growing our new UK operations and the
risks associated with operating an international business;
    
    FDA and other regulatory review and response times;
    
    the securing of Group Purchasing Organization contract participation;
    
    and other risk factors listed from time to time in our SEC reports, including, without
limitation, the section entitled Risk Factors in our Annual Report on Form 10-K for the
year ended September 30, 2006.
 
 ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.
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ITEM 8. Financial Statements and Supplementary Data
 Rochester Medical Corporation
 Consolidated Financial Statements
 Years Ended September 30, 2006, 2005 and 2004
 PageReport of Independent Registered Public Accounting Firm
    
    
    30Audited Financial StatementsConsolidated Balance Sheets
    
    
    32Consolidated Statements of Operations
    
    
    33Consolidated
Statement of Shareholders Equity and Comprehensive Income
    
    
    34Consolidated Statements of Cash Flows
    
    
    35Notes to Consolidated Financial Statements
    
    
    36
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Report of Independent Registered Public Accounting Firm
      
 30




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Report of Independent Registered Public Accounting Firm
      
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ROCHESTER MEDICAL CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 September 30,2006
    
    
    2005Assets:Current assets:Cash and cash equivalents
    
    $
    2,906,698
    
    
    $
    1,129,876Marketable securities
    
    
    
    
    
    
    5,286,553Accounts receivable, less allowance for doubtful accounts ($55,540 
2006; $93,549 - 2005)
    
    
    4,494,094
    
    
    
    3,204,824Inventories, net
    
    
    4,642,578
    
    
    
    3,936,243Prepaid expenses and other current assets
    
    
    410,267
    
    
    
    351,027Deferred
income tax assets
    
    
    53,000
    
    
    
    21,00012,506,637
    
    
    
    13,929,523Property, plant and equipment:Land
    
    
    365,951
    
    
    
    365,951Buildings
    
    
    7,210,156
    
    
    
    5,994,496Equipment and fixtures
    
    
    12,208,194
    
    
    
    11,783,21319,784,301
    
    
    
    18,143,660Less accumulated depreciation
    
    
    (11,545,055
    )
    
    
    (10,582,357
    )Total property, plant and equipment
    
    
    8,239,246
    
    
    
    7,561,303Deferred
income tax assets
    
    
    1,178,000
    
    
    
    433,000Goodwill
    
    
    5,487,141
    
    
    
    Finite life intangibles, less accumulated amortization ($217,843 - 2006; $0 - 2005)
    
    
    8,270,157
    
    
    
    Patents, less accumulated amortization ($1,026,564  2006; $965,013 - 2005)
    
    
    271,171
    
    
    
    285,194Total assets
    
    $
    35,952,352
    
    
    $
    22,209,020Liabilities and Shareholders Equity:Current liabilities:Accounts payable
    
    $
    1,278,441
    
    
    $
    283,332Accrued compensation
    
    
    651,476
    
    
    
    326,284Accrued vacation
    
    
    105,358
    
    
    
    88,706Accrued professional fees
    
    
    137,000
    
    
    
    150,321Accrued VAT
    
    
    454,453
    
    
    
    Accrued expenses
    
    
    378,648
    
    
    
    178,945Deferred revenue
    
    
    114,287
    
    
    
    157,143Current maturities of debt
    
    
    1,681,361
    
    
    
    34,000Current maturities of capital leases
    
    
    42,084
    
    
    
    39,785Total current liabilities
    
    
    4,843,108
    
    
    
    1,258,516Long-term liabilities:Deferred revenue
    
    
    449,999
    
    
    
    564,286Long-term debt, less current maturities
    
    
    7,540,737
    
    
    
    34,000Capital leases, less current maturities
    
    
    21,946
    
    
    
    64,030Total long-term liabilities
    
    
    8,012,682
    
    
    
    662,316Shareholders equity:Common stock, no par value:Authorized shares  40,000,000
Issued and outstanding shares; (11,086,560  2006; 11,047,000 - 2005)
    
    
    43,128,727
    
    
    
    42,407,912Accumulated deficit
    
    
    (20,085,742
    )
    
    
    (22,044,650
    )Accumulated
other comprehensive income (loss)
    
    
    53,577
    
    
    
    (75,074
    )Total shareholders equity
    
    
    23,096,562
    
    
    
    20,288,188Total liabilities and shareholders equity
    
    $
    35,952,352
    
    
    $
    22,209,020
 See accompanying notes.
 32




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##### Table of Contents



ROCHESTER MEDICAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Fiscal Years Ended September 30,2006
    
    
    2005
    
    
    2004Net sales
    
    $
    21,665,837
    
    
    $
    15,941,649
    
    
    $
    15,011,419Cost of sales
    
    
    13,057,090
    
    
    
    10,330,113
    
    
    
    9,615,427Gross profit
    
    
    8,608,747
    
    
    
    5,611,536
    
    
    
    5,395,992Operating expenses:Marketing and selling
    
    
    3,109,207
    
    
    
    2,397,816
    
    
    
    2,175,665Research and development
    
    
    759,639
    
    
    
    730,105
    
    
    
    706,157General and administrative
    
    
    3,344,662
    
    
    
    2,126,813
    
    
    
    1,856,858Total operating expenses
    
    
    7,213,508
    
    
    
    5,254,734
    
    
    
    4,738,680Income from operations
    
    
    1,395,239
    
    
    
    356,802
    
    
    
    657,312Other income (expense):Interest income
    
    
    116,341
    
    
    
    138,692
    
    
    
    114,982Interest (expense)
    
    
    (224,848
    )
    
    
    (15,067
    )
    
    
    (25,481
    )(108,507
    )
    
    
    123,625
    
    
    
    89,501Net income before income taxes
    
    
    1,286,732
    
    
    
    480,427
    
    
    
    746,813Income tax benefit
    
    
    672,176
    
    
    
    454,000
    
    
    
    Net income
    
    $
    1,958,908
    
    
    $
    934,427
    
    
    $
    746,813Net income per common share  basic
    
    $
    .18
    
    
    $
    .09
    
    
    $
    .07Net income per common share  diluted
    
    $
    .17
    
    
    $
    .08
    
    
    $
    .07Weighted average number of common shares outstanding  basic
    
    
    11,068,102
    
    
    
    10,932,246
    
    
    
    10,868,676Weighted average number of common shares outstanding  diluted
    
    
    11,665,992
    
    
    
    11,429,230
    
    
    
    11,373,188
 See accompanying notes.
 33




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##### Table of Contents



ROCHESTER MEDICAL CORPORATION
 
 CONSOLIDATED STATEMENT
OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
 UnrealizedGain (Loss)
    
    
    Foreignon Available-
    
    
    CurrencyCommon Stock
    
    
    Accumulated
    
    
    for-Sale
    
    
    TranslationShares
    
    
    Amount
    
    
    Deficit
    
    
    Securities
    
    

Adjustment
    
    
    TotalBalance at September 30, 2003
    
    
    10,849,400
    
    
    $
    41,857,144
    
    
    $
    (23,725,890
    )
    
    $
    10,473
    
    
    
    
    
    
    $
    18,141,727Net income for the year
    
    
    
    
    
    
    
    
    
    
    746,813
    
    
    
    
    
    
    
    
    
    
    
    746,813Unrealized loss on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,347
    )
    
    
    
    
    
    
    (84,347
    )Subtotal-comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    662,466Stock option exercise
    
    
    32,862
    
    
    
    83,556
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,556Balance at September 30, 2004
    
    
    10,882,262
    
    
    
    41,940,700
    
    
    
    (22,979,077
    )
    
    
    (73,874
    )
    
    
    
    
    
    
    18,887,749Net income for the year
    
    
    
    
    
    
    
    
    
    
    934,427
    
    
    
    
    
    
    
    
    
    
    
    934,427Unrealized loss on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,200
    )
    
    
    
    
    
    
    (1,200
    )Subtotal-comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    933,227Stock option exercise
    
    
    164,738
    
    
    
    467,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467,212Balance at September 30, 2005
    
    
    11,047,000
    
    
    
    42,407,912
    
    
    
    (22,044,650
    )
    
    
    (75,074
    )
    
    
    
    
    
    
    20,288,188Net income for the year
    
    
    
    
    
    
    
    
    
    
    1,958,908
    
    
    
    
    
    
    
    
    
    
    
    1,958,908Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,577
    
    
    
    53,577Unrealized loss on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,074
    
    
    
    
    
    
    
    75,074Subtotal-comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,087,559Stock option compensation
    
    
    
    
    
    
    599,527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    599,527Stock option exercise
    
    
    39,560
    
    
    
    121,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,288Balance at September 30, 2006
    
    
    11,086,560
    
    
    $
    43,128,727
    
    
    $
    (20,085,742
    )
    
    $
    
    
    
    $
    53,577
    
    
    $
    23,096,562
 See accompanying notes.
 34




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##### Table of Contents



ROCHESTER MEDICAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Years Ended September 30,2006
    
    
    2005
    
    
    2004Operating Activities:Net income
    
    $
    1,958,908
    
    
    $
    934,427
    
    
    $
    746,813Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    962,698
    
    
    
    1,208,946
    
    
    
    1,238,694Amortization
    
    
    279,394
    
    
    
    58,315
    
    
    
    56,383Stock based compensation
    
    
    599,527
    
    
    
    
    
    
    
    Deferred revenue
    
    
    (157,142
    )
    
    
    (157,142
    )
    
    
    (157,142
    )Deferred income taxes
    
    
    (776,999
    )
    
    
    (454,000
    )
    
    
    Changes in
operating assets and liabilities, net of the effects of business
acquisitions:Accounts receivable
    
    
    (1,267,082
    )
    
    
    (573,635
    )
    
    
    (176,878
    )Inventories
    
    
    (693,206
    )
    
    
    9,071
    
    
    
    (402,694
    )Other current assets
    
    
    (59,240
    )
    
    
    (77,799
    )
    
    
    (984
    )Accounts payable
    
    
    995,117
    
    
    
    (495,434
    )
    
    
    271,186Other current liabilities
    
    
    982,675
    
    
    
    149,112
    
    
    
    (503,433
    )Net cash provided by operating activities
    
    
    2,824,649
    
    
    
    601,860
    
    
    
    1,071,945Investing Activities:Capital expenditures
    
    
    (354,182
    )
    
    
    (327,822
    )
    
    
    (1,017,459
    )Business acquisition
    
    
    (10,857,505
    )
    
    
    
    
    
    
    Patents
    
    
    (47,529
    )
    
    
    (124,213
    )
    
    
    (50,082
    )Purchase of marketable securities
    
    
    
    
    
    
    (1,133,075
    )
    
    
    (3,474,519
    )Sales and maturities of marketable securities
    
    
    5,361,625
    
    
    
    1,097,084
    
    
    
    2,340,145Net cash used in investing activities
    
    
    (5,897,591
    )
    
    
    (488,026
    )
    
    
    (2,201,915
    )Financing Activities:Payments on capital leases
    
    
    (39,785
    )
    
    
    (37,611
    )
    
    
    (63,644
    )Proceeds
from long-term financing
    
    
    5,000,000
    
    
    
    
    
    
    
    Payments on
long-term financing
    
    
    (250,000
    )
    
    
    (34,000
    )
    
    
    (34,000
    )Sale of common stock upon exercise of options
    
    
    121,288
    
    
    
    467,212
    
    
    
    83,556Net cash provided by (used in) financing activities
    
    
    4,831,503
    
    
    
    395,601
    
    
    
    (14,088
    )Effect of
exchange rate changes on cash
    
    
    18,261
    
    
    
    
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    1,776,822
    
    
    
    509,435
    
    
    
    (1,144,058
    )Cash and cash equivalents at beginning of year
    
    
    1,129,876
    
    
    
    620,441
    
    
    
    1,764,499Cash and cash equivalents at end of year
    
    $
    2,906,698
    
    
    $
    1,129,876
    
    
    $
    620,441Supplemental Cash Flow Information:Interest Paid
    
    $
    94,650
    
    
    $
    15,665
    
    
    $
    22,903Supplemental disclosure of non-cash financing activities:Debt used to finance asset acquisition
    
    $
    4,409,099
    
    
    $
    
    
    
    $
    
 See accompanying notes.
 35




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##### Table of Contents



ROCHESTER MEDICAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2006
 1. Business Activity
 FemSoft Insert Release-NF
 2. Summary of Significant Accounting Policies
 Principles of Consolidation
  Cash Equivalents
  Marketable Securities
  Amortized
    
    Unrealized
    
    EstimatedCost
    
    Gain (Loss)
    
    Market ValueSeptember 30, 2005
    
    $
    5,361,627
    
    
    $
    (75,074
    )
    
    $
    5,286,553
 Concentration of Credit
  Inventories
  Property and Equipment
  36




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##### Table of Contents



Intangible Assets with Finite Lives
  Foreign Currency Translation
 Foreign Currency Translation
 Goodwill
and Other Intangible Assets
 Goodwill and Other Intangible Assets.
 Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Patents
  Research and Development Costs
  Revenue Recognition
  Income Taxes
  37




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##### Table of Contents



Stock-Based Compensation
  Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation
 Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards
   Year ended September 30,2005
    
    
    2004Net income, as reported
    
    $
    934,427
    
    
    $
    746,813Deduct: total stock-based
employee compensation expense
under fair value method for all
awards
    
    
    (439,130
    )
    
    
    (462,276
    )Pro forma net income
    
    $
    495,297
    
    
    $
    284,537Net Income per common share:Basic  as reported
    
    $
    .09
    
    
    $
    .07Diluted  as reported
    
    $
    .08
    
    
    $
    .07Basic  pro forma
    
    $
    .05
    
    
    $
    .03Diluted  pro forma
    
    $
    .04
    
    
    $
    .03
 38




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##### Table of Contents



Stock Options
  2006
    
    2005Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    54
    %
    
    
    55
    %Risk-free interest rate
    
    
    4.33
    %
    
    
    3.68
    %Expected holding period (in years)
    
    
    6.69
    
    
    
    6.44Weighted-average grant-date fair value
    
    $
    3.40
    
    
    $
    2.67
   WeightedWeighted
    
    AverageAverage
    
    RemainingNumber of
    
    Exercise
    
    ContractShares
    
    Price
    
    LifeOutstanding options at beginning of period
    
    
    2,046,000
    
    
    $
    4.42Granted
    
    
    210,000
    
    
    
    5.85Exercised
    
    
    (39,560
    )
    
    
    3.07Canceled
    
    
    (194,440
    )
    
    
    6.64Outstanding options at end of period
    
    
    2,022,000
    
    
    $
    4.38
    
    
    4.94 Yrs.Outstanding exercisable at end of period
    
    
    1,698,000
    
    
    $
    4.24
    
    
    4.28 Yrs.
   WeightedNumber of
    
    Average GrantShares
    
    Date Fair ValueNonvested stock options at beginning of period
    
    
    351,500
    
    
    $
    2.37Granted
    
    
    210,000
    
    
    
    3.40Vested
    
    
    (158,000
    )
    
    
    2.68Canceled
    
    
    (79,500
    )
    
    
    5.55Nonvested stock options at end of period
    
    
    324,000
    
    
    $
    2.97
 Use of Estimates
  Impairment of Long-Lived Assets
  39




---



##### Table of Contents



Net Income Per Share
 Earnings Per Share
 Year ended September 30,2006
    
    
    2005
    
    
    2004Numerator:Net income
    
    $
    1,958,903
    
    
    $
    934,427
    
    
    $
    746,813Denominator:Denominator for basic net
income per common share 
weighted average shares
outstanding
    
    
    11,068,102
    
    
    
    10,932,246
    
    
    
    10,868,676Effect of dilutive stock options
    
    
    597,890
    
    
    
    496,984
    
    
    
    504,512Denominator for diluted net
income per common share 
weighted average shares
outstanding
    
    
    11,665,992
    
    
    
    11,429,230
    
    
    
    11,373,188Net income per common share  basic
    
    $
    .18
    
    
    $
    .09
    
    
    $
    0.07Net income per common share  diluted
    
    $
    .17
    
    
    $
    .08
    
    
    $
    0.07
  3. Advertising Costs
  4. Inventories
  September 30,2006
    
    
    2005Raw materials
    
    $
    1,807,706
    
    
    $
    1,076,839Work-in-process
    
    
    1,603,912
    
    
    
    1,637,694Finished goods
    
    
    1,312,978
    
    
    
    1,321,710Reserve for inventory obsolescence
    
    
    (82,018
    )
    
    
    (100,000
    )$
    4,642,578
    
    
    $
    3,936,243
 5. Intangible Assets with Finite Lives
  September 30, 2006Estimated Lives
    
    
    
    
    
    Accumulated(Years)
    
    Gross Carrying Amount
    
    
    Amortization
    
    
    Net ValueTrade marks
    
    8 to 15
    
    $
    5,423,000
    
    
    $
    135,056
    
    
    $
    5,287,944Supply agreement
    
    5
    
    
    634,050
    
    
    
    42,270
    
    
    
    591,780Customer relationships
    
    20
    
    
    2,431,000
    
    
    
    40,517
    
    
    
    2,390,483Totals
    
    
    
    $
    8,488,050
    
    
    $
    217,843
    
    
    $
    8,20,207
 40




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##### Table of Contents



Year ended September 30, 2006
    
    $
    217,843
  2007
    
    $
    653,4272008
    
    $
    653,4272009
    
    $
    653,4272010
    
    $
    653,4272011
    
    $
    611,257
 6. Shareholders Equity
 Stock Options
      WeightedAverageShares
    
    
    
    
    
    
    ExerciseReserved
    
    
    Options
    
    
    Price PerFor Grant
    
    
    Outstanding
    
    
    ShareBalance as of September 30, 2003
    
    
    454,500
    
    
    
    1,942,600
    
    
    $
    4.24Options granted
    
    
    (132,000
    )
    
    
    132,000
    
    
    
    4.63Options exercised
    
    
    
    
    
    
    (32,862
    )
    
    
    2.55Options canceled
    
    
    4,500
    
    
    
    (4,500
    )
    
    
    4.131991 Plan  options canceled and not reissuable
    
    
    
    
    
    
    
    
    
    
    Balance as of September 30, 2004
    
    
    327,000
    
    
    
    2,037,238
    
    
    
    4.30Options granted
    
    
    (210,000
    )
    
    
    210,000
    
    
    
    4.70Options exercised
    
    
    
    
    
    
    (164,738
    )
    
    
    2.84Options canceled
    
    
    36,500
    
    
    
    (36,500
    )
    
    
    6.261991 Plan  options canceled and not reissuable
    
    
    (3,000
    )
    
    
    
    
    
    
    2.35Balance as of September 30, 2005
    
    
    150,500
    
    
    
    2,046,000
    
    
    
    4.42Increase in Authorized Shares
    
    
    1,000,000Options granted
    
    
    (210,000
    )
    
    
    210,000
    
    
    
    5.85
 41




---



##### Table of Contents



WeightedAverageShares
    
    
    
    
    
    
    ExerciseReserved
    
    
    Options
    
    
    Price PerFor Grant
    
    
    Outstanding
    
    
    ShareOptions exercised
    
    
    
    
    
    
    (39,560
    )
    
    
    3.07Options canceled
    
    
    194,440
    
    
    
    (194,440
    )
    
    
    6.641991, 1995 Plan  options canceled and not reissuable
    
    
    (175,940
    )
    
    
    
    
    
    
    6.85Balance as of September 30, 2006
    
    
    959,000
    
    
    
    2,022,000
    
    
    $
    4.39
  Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation
 Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards
   Weighted
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    
    AverageAverage
    
    
    Exercise Price
    
    
    
    
    
    
    Exercise PriceNumber
    
    
    Remaining
    
    
    Per Share -
    
    
    Number
    
    
    Per Share -Outstanding
    
    
    Contractual
    
    
    Total Options
    
    
    Exercisable
    
    
    OptionsRange of Exercise Prices
    
    at 9/30/06
    
    
    Life
    
    
    Outstanding
    
    
    at 9/30/06
    
    
    Exercisable$0.00 - $2.50
    
    
    569,500
    
    
    4.7 years
    
    $
    2.28
    
    
    
    569,500
    
    
    $
    2.282.51 - 5.00
    
    
    856,500
    
    
    5.6 years
    
    
    4.04
    
    
    
    662,500
    
    
    
    3.875.01 - 7.50
    
    
    420,000
    
    
    5.6 years
    
    
    6.35
    
    
    
    290,000
    
    
    
    6.537.51 - 10.00
    
    
    176,000
    
    
    0.8 years
    
    
    8.18
    
    
    
    176,000
    
    
    
    8.182,022,000
    
    
    4.9 years
    
    $
    4.38
    
    
    
    1,698,000
    
    
    $
    4.24
  42




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##### Table of Contents



7. Income Taxes
  September 30,2006
    
    
    2005Deferred income tax assets:Net operating loss carryforwards
    
    $
    7,840,000
    
    
    $
    8,661,000Research and development credit carryforwards
    
    
    291,000
    
    
    
    306,000Allowance for doubtful accounts
    
    
    20,000
    
    
    
    34,000Inventory reserves
    
    
    30,000
    
    
    
    36,000Inventory capitalization
    
    
    192,000
    
    
    
    108,000Accrued expenses
    
    
    66,000
    
    
    
    54,000Deferred revenue
    
    
    205,000
    
    
    
    262,000Valuation allowance
    
    
    (7,108,000
    )
    
    
    (8,593,000
    )Total income tax deferred assets
    
    
    1,536,000
    
    
    
    868,000Deferred income tax liability:Depreciation and amortization
    
    
    305,000
    
    
    
    414,000Net deferred income tax assets
    
    $
    1,231,000
    
    
    $
    454,000
  September 30,2006
    
    
    2005Current assets
    
    $
    53,000
    
    
    $
    21,000Noncurrent assets
    
    
    1,189,000
    
    
    
    433,000$
    1,231,000
    
    
    $
    454,000
    September 30,2006
    
    
    2005
    


2004Current tax expense
    
    $
    104,824
    
    
    $
    
    

$
Deferred tax expense (benefit)
    
    
    (777,000
    )
    
    
    (454,000
    )


$
    (672,176
    )
    
    $
    (454,000
    )

$

 43




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##### Table of Contents



2006
    
    2005
    
    2004Statutory federal income tax rate
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %Increase (decrease) in taxes resulting from:State taxes
    
    
    3
    
    
    
    3
    
    
    
    3Foreign taxes
    
    
    8
    
    
    
    
    
    
    
    Utilization of net operating loss carryforward
    
    
    (37
    )
    
    
    (23
    )
    
    
    (36
    )Change in valuation allowance
    
    
    (60
    )
    
    
    (109
    )
    
    
    (1
    )Effective income tax rate
    
    
    (52
    )%
    
    
    (95
    )%
    
    
    0
    %
 8. Related Party Transactions
  9. Significant Customers
  September 30,2006
    
    2005
    
    2004Significant customers:Hollister
    
    
    16
    %
    
    
    16
    %
    
    
    16
    %Mentor and
subsidiaries:Porges (business sold to Coloplast)
    
    
    5
    
    
    
    6
    
    
    
    9Mentor (business sold to Coloplast and Rochester Medical, see Note 14)
    
    
    4
    
    
    
    11
    
    
    
    13Mentor Medical (business sold to Coloplast and Rochester Medical, see Note 14)
    
    
    2
    
    
    
    4
    
    
    
    3Total
    
    
    27
    %
    
    
    37
    %
    
    
    41
    %
 10. Employee Benefit Plan
  11. Geographic Area Data
  September 30,2006
    
    
    2005
    
    
    2004United States
    
    $
    10,993,204
    
    
    $
    8,441,565
    
    
    $
    7,990,527Europe
    
    
    8,383,854
    
    
    
    5,164,633
    
    
    
    4,769,601Rest of world
    
    
    2,288,779
    
    
    
    2,335,451
    
    
    
    2,251,291Total
    
    $
    21,665,837
    
    
    $
    15,941,649
    
    
    $
    15,011,419
  12.
Line of Credit and Long-Term Debt
  44




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##### Table of Contents



2007
    
    $
    1,681,3612008
    
    
    1,764,4022009
    
    
    1,888,0132010
    
    
    2,025,5372011
    
    
    1,862,785Thereafter
    
    
    
 13. Capital Leases
  Fiscal Year2007
    
    $
    44,6152008
    
    
    22,985Total future minimum lease payments
    
    
    67,600Less amount representing interest at 5.6%
    
    
    (3,570
    )Present value of net minimum lease payments
    
    
    64,030Less current portion
    
    
    (42,084
    )Long-term capital lease obligation
    
    $
    21,946
  September 30,2006
    
    
    2005Packaging equipment
    
    $
    194,024
    
    
    $
    194,024Less accumulated amortization
    
    
    (81,999
    )
    
    
    (54,281
    )$
    112,025
    
    
    $
    139,743
  14. Acquisition of Assets from Mentor and Coloplast
    45




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##### Table of Contents



Purchase
    Price Summary
  Category

AmountInitial Cash Payment

$
9,269,000Cash payment for Inventories

936,000Direct acquisition costs

653,000Total cash paid

10,858,000Seller financed debt

5,340,000Total Consideration

$
16,198,000   Value
    Assigned to Assets & Liabilities
  Category

AmountCurrent assets

$
936,000Property & Equipment

1,287,000Identifiable Intangibles

8,488,000Goodwill

5,487,000Net Assets Acquired

$
16,198,000  Year EndedSeptember
30 (unaudited)2006
    
    2005Net Sales
    
    $
    26,634,721
    
    
    $
    23,317,974Net Income
    
    
    3,295,002
    
    
    
    3,566,626Per share data:Basic earnings
    
    $
    0.30
    
    
    $
    0.33Diluted earnings
    
    $
    0.28
    
    
    $
    0.31
  15. Quarterly Results (Unaudited)
  Three Months EndedDecember 31
        
    March 31
        
    June 30
        
    September 30Fiscal year 2006:Net sales
    
    $
    4,607
    
    
    $
    4,874
    
    
    $
    5,358
    
    
    $
    6,826Gross profit
    
    
    1,602
    
    
    
    1,559
    
    
    
    1,996
    
    
    
    3,452Income (loss) from operations
    
    
    257
    
    
    
    (199
    )
    
    
    212
    
    
    
    1,125Net income (loss) before taxes
    
    
    311
    
    
    
    (244
    )
    
    
    226
    
    
    
    993Net income (loss) per common share  basic
    
    $
    .03
    
    
    $
    (.02
    )
    
    $
    .02
    
    
    $
    .09Net income (loss) per common share  diluted
    
    $
    .03
    
    
    $
    (.02
    )
    
    $
    .02
    
    
    $
    .08Fiscal year 2005:Net sales
    
    $
    3,665
    
    
    $
    4,147
    
    
    $
    3,815
    
    
    $
    4,314Gross profit
    
    
    1,398
    
    
    
    1,514
    
    
    
    1,303
    
    
    
    1,396Income from operations
    
    
    94
    
    
    
    113
    
    
    
    31
    
    
    
    118Net income before taxes
    
    
    122
    
    
    
    141
    
    
    
    60
    
    
    
    157Net income per common share  basic
    
    $
    .01
    
    
    $
    .01
    
    
    $
    .01
    
    
    $
    .01Net income per common share  diluted
    
    $
    .01
    
    
    $
    .01
    
    
    $
    .01
    
    
    $
    .01
 46




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##### Table of Contents



16. Subsequent Events
    
 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
       47




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##### Table of Contents



ITEM 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Controls
 
 ITEM 9B. Other Information
  
 PART III
 
 ITEM 10. Directors, Executive Officers and Corporate Governance
   
 ITEM 11. Executive Compensation
  
 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
   Number of securitiesremaining availablefor future issuanceNumber of securities
    
    
    
    
    
    under equityto be issued upon
    
    Weighted-average
    
    compensation plansexercise of
    
    exercise price of
    
    (excluding securitiesoutstanding options,
    
    outstanding options,
    
    reflected in columnwarrants and rights
    
    warrants and rights
    
    (a))Plan category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans approved by security holders(1)
    
    
    2,010,000
    
    
    $
    4.38
    
    
    
    871,000Equity compensation plans not approved by security holders(2)
    
    
    12,000
    
    
    $
    5.06
    
    
    
    88,000Total
    
    
    2,022,000
    
    
    $
    4.38
    
    
    
    959,000
 48




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##### Table of Contents



(1)
    
    Includes shares issuable under our 1991 Stock Option Plan and 2001 Stock Incentive Plan.(2)
    
    Includes shares issuable to persons other than our full-time officers or employees pursuant
to the exercise of stock options granted under our 1995 Non-Statutory Stock Option Plan that
do not qualify as incentive stock options within the meaning of Section 422 of the Code.  
 ITEM 13. Certain Relationships and Related Transactions, and Director Independence
  
 ITEM 14. Principal Accounting Fees and Services
  
 PART IV
 
 ITEM 15. Exhibits, Financial Statement Schedules
 (a)(1) The following financial statements are filed herewith in Item 8.
 (i)
    
    Consolidated Balance Sheets as of September 30, 2006 and 2005.(ii)
    
    Consolidated Statements of Operations for the years ended September 30, 2006, 2005 and 2004.(iii)
    
    Consolidated Statement of Shareholders Equity and
Comprehensive Income for the years ended September 30, 2006 and 2005.(iv)
    
    Consolidated Statements of Cash Flows for the years ended September 30, 2006, 2005 and 2004.(v)
    
    Notes to financial statements at September 30, 2006.
 (a)(2) Financial Statement Schedules.
 Schedule II  Valuation and Qualifying AccountsFinancial statement schedules other than those listed have been omitted since they are
not required or are not applicable or the required information is shown in the financial
statements or related notes.
   3.1 *
    
    Articles of Incorporation of the
Company, as amended.3.2 *
    
    Amended and Restated Bylaws of the Company, as amended.4.1
    
    Specimen of Common Stock Certificate. (Incorporated by reference to Exhibit 4.4 of Registrants Annual
Report on Form 10-KSB for fiscal year ended September 30, 1995).
 49




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##### Table of Contents



4.2 
    
    The Companys 1991 Stock Option Plan as amended (Incorporated by reference to Exhibit 4.5 of
Registrants Registration Statement on Form S-8, Registration Number 333-10261).4.3 
    
    Amendment to the Companys 1991 Stock Option Plan as amended (Incorporated by reference to Exhibit 4.3
of Registrants Annual Report on Form 10-K for fiscal year ended September 30, 1998).10.1 
    
    Employment Agreement, dated August 31, 1990 between the Company and Anthony J. Conway. (Incorporated
by reference to Exhibit 10.13 of Registrants Registration Statement on Form S-18, Registration Number
33-36362-C).10.2 
    
    Employment Agreement, dated August 31, 1990 between the Company and Philip J. Conway. (Incorporated by
reference to Exhibit 10.14 of Registrants Registration Statement on Form S-18, Registration Number
33-36362-C).10.3 
    
    Change of Control Agreement dated December 4, 1998, between the Company and Philip J. Conway
(Incorporated by reference to Exhibit 10.3 of Registrants Annual Report on Form 10-K for fiscal year
ended September 30, 1998).10.4 
    
    Change of Control Agreement dated November 21, 2000, between the Company and Anthony J. Conway.
(Incorporated by reference to Exhibit 10.6 of the Registrants Annual Report on Form 10-K for fiscal
year ended September 30, 2000).10.5 
    
    Change of Control Agreement dated November 21, 2000, between the Company and Dara Lynn Horner.
(Incorporated by reference to Exhibit 10.7 of the Registrants Annual Report on Form 10-K for fiscal
year ended September 30, 2000).10.6 
    
    Employment Agreement, dated November 16, 1998 between the Company and Dara Lynn Horner. (Incorporated
by reference to Exhibit 10.8 of Registrants Annual Report on Form 10-K for fiscal year ended
September 30, 1999).10.7 
    
    Change of Control Agreement dated November 21, 2000, between the Company and Martyn R. Sholtis.
(Incorporated by reference to Exhibit 10.9 of the Registrants Annual Report on Form 10-K for fiscal
year ended September 30, 2000).10.8 
    
    Change of Control Agreement dated November 21, 2000, between the Company and David A. Jonas.
(Incorporated by reference to Exhibit 10.10 of the Registrants Annual Report on Form 10-K for fiscal
year ended September 30, 2000).10.9 
    
    The Companys 2001 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1 of Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.10.10 *
    
    Form of Incentive Stock Option Agreement.10.11 *
    
    Form of Non-Incentive Stock Option Agreement.10.12
    
    Form of Restricted Stock Award (Incorporated by reference to Exhibit 10.2 of the Registrants Current
Report on Form 8-K filed on November 21, 2006).10.13 
    
    The Companys Fiscal 2006 Executive Compensation Plan. (Incorporated by reference to Exhibit 10.1 of
the Registrants Current Report on Form 8-K filed on December 12, 2005)10.14 
    
    The Companys Fiscal 2007 Executive Compensation Plan. (Incorporated by reference to Exhibit 10.1 of
the Registrants Current Report on Form 8-K filed on November 21, 2006)10.15
    
    Agreement, dated May 17, 2006, between Coloplast A/S, Coloplast Limited, Mentor Medical Limited, the
Company and Rochester Medical Limited (Incorporated by reference to Exhibit 10.1 of the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006).10.16
    
    Asset Purchase Agreement, dated May 27, 2006, by and between Mentor Corporation and the Company
(Incorporated by reference to Exhibit 10.4 of the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006).
 50




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##### Table of Contents



10.17
    
    Term Loan Agreement, dated May 26, 2006, between the Company and U.S. Bank N.A. (Incorporated by
reference to Exhibit 10.5 of the Registrants Quarterly Report on Form 10-Q for the quarter ended June
30, 2006).10.18
    
    Revolving Credit Agreement, dated May 26, 2006, between the Company and U.S. Bank N.A. (Incorporated
by reference to Exhibit 10.6 of the Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2006).10.19
    
    First Amendment to Term Loan Agreement and Addendum and Revolving Credit Agreement, dated May 26, 2006
(Incorporated by reference to Exhibit 10.7 of the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006).16.1
    
    Letter from Ernst & Young LLP to the Securities and Exchange Commission dated June 23, 2005
(Incorporated by reference to Exhibit 16.1 of the Registrants Current Report on Form 8-K filed on
June 23, 2005)21 *
    
    Subsidiaries of the Company23.1 *
    
    Consent of McGladrey & Pullen LLP.23.2 *
    
    Consent of Ernst & Young LLP.24 *
    
    Power of Attorney.31.1 *
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 *
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1 *
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 *
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit to
Form 10-K pursuant to Item 15(b) of Form 10-K. 51




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##### Table of Contents



SIGNATURES
  Rochester Medical CorporationDated:
December 26, 2006
    
    By:
    
    /s/ Anthony J. ConwayAnthony J. ConwayChairman of the Board, President,Chief Executive Officer and Secretary
  Signature
    
    
    
    Title/s/ Anthony J. Conway

Anthony J. Conway
    
    
    
    Chairman of the Board, President, Chief Executive Officer, and Secretary
(principal executive officer)/s/ David A. Jonas

David A. Jonas
    
    
    
    Chief Financial Officer and Treasurer (principal financial and accounting officer)*
    
    
    
    DirectorDarnell L. Boehm*
    
    
    
    DirectorPeter R. Conway*
    
    
    
    DirectorRoger W. Schnobrich*
    
    
    
    DirectorBenson Smith*By David A. Jonas

David A. Jonas
    
    
    
    Dated: December 26, 2006Attorney-in-Fact
 52




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##### Table of Contents



ROCHESTER MEDICAL CORPORATION
SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 COL. A
    
    COL. B
    
    COL. C
    
    COL. D
    
    COL. EAdditionsCharged toBalance at
    
    Charged to
    
    OtherBeginning of
    
    Costs and
    
    Accounts-
    
    Deductions-
    
    Balance atDescription
    
    Period
    
    Expenses
    
    Describe
    
    Describe
    
    End of PeriodYear ended September 30, 2006:Reserves and allowances deducted from asset accounts:Allowance for doubtful accounts
    
    $
    93,549
    
    
    $
    6,128
    
    
    
    
    
    
    $
    44,137
    
    
    $
    55,540Allowance for inventory obsolescence
    
    
    100,000
    
    
    
    85,993
    
    
    
    
    
    
    
    103,976
    
    
    
    82,018Year ended September 30, 2005:Reserves and allowances deducted from asset accounts:Allowance for doubtful accounts
    
    $
    73,445
    
    
    $
    29,387
    
    
    
    
    
    
    $
    9,283
    
    
    $
    93,549Allowance for inventory obsolescence
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Year ended September 30, 2004:Reserves and allowances deducted from asset accounts:Allowance for doubtful accounts
    
    $
    69,948
    
    
    $
    18,996
    
    
    
    
    
    
    $
    15,499
    
    
    $
    73,445Allowance for inventory obsolescence
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
 
 (1)
    
    Uncollectible accounts written off net of recoveries(2)
    
    Obsolete inventory written off against the allowance 53




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit3.1
    
    Articles of Incorporation of the
Company, as amended.3.2
    
    Amended and Restated Bylaws of the Company, as amended.10.10
    
    Form of Incentive Stock Option Agreement.10.11
    
    Form of Non-Incentive Stock Option Agreement.21
    
    Subsidiaries of the Company.23.1
    
    Consent of McGladrey & Pullen LLP23.2
    
    Consent of Ernst & Young LLP24
    
    Power of Attorney31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 54