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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ________________
Commission file number 0-12938
INVACARE CORPORATION
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(Exact name of Registrant as specified in its charter)
Ohio 95-2680965
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
899 Cleveland Street, P. O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 329-6000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
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(Title of Class)
Rights to purchase Common Shares of Invacare, without par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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As of February 28, 1996, 27,930,528 Common Shares and 1,677,367 Class B Common
Shares were outstanding. At that date, the aggregate market value of the
23,003,376 Common Shares of the Registrant held by non-affiliates was
$563,582,712 and the aggregate market value of the 344,271 Class B Common Shares
of the Registrant held by non-affiliates was $8,434,640 while the Class B Common
Shares are not listed for public trading on any exchange or market system,
shares of that class are convertible into Common Shares at any time on a
share-for-share basis. The market values indicated were calculated based upon
the last sale price of the Common Shares as reported by the NASDAQ National
Market System on February 28, 1996 which was $24.50. For purposes of this
information, the 4,927,152 Common Shares and 1,333,096 Class B Common Shares
which were held by Executive Officers and Directors were deemed to be the Common
Shares and Class B Common Shares held by affiliates.
Documents Incorporated By Reference
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<CAPTION>
Part of Form 10-K Document Incorporated By Reference
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<S> <C>
Part III (Items 10, 11, Portions of the Registrant's
12 and 13) definitive Proxy Statement to
be used in connection with
its 1996 Annual Meeting of
Shareholders.
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Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 1995.
PART I
Item 1. Business.
(a) General Development of Business.
Invacare is the leading home medical equipment manufacturer in the world based
upon its distribution channels, the breadth of its product line and sales. The
company designs, manufactures and distributes an extensive line of medical
equipment for the home health care and extended care markets. Invacare
continuously revises and expands its product lines to meet changing market
demands. The company's products are sold principally to over 10,000 home health
care and medical equipment dealer locations in the U.S., Canada, Europe and New
Zealand, with the remainder of its sales being primarily to government agencies
and distributors. Invacare's products are sold through its world-wide
distribution network by its sales force, telemarketing employees and various
organizations of independent manufacturer's representatives. The company also
uses its extensive dealer network to distribute medical equipment and related
supplies manufactured by others.
Invacare is committed to design, manufacture and distribute the best value in
mobility products and medical equipment for people with disabilities and those
requiring home health care. Invacare will achieve this vision by:
* designing and developing innovative and technologically superior
products;
* ensuring continued focus on our primary market - the home
care market;
* providing the industry's best and most cost-effective sales,
customer service and distribution organization;
* providing superior and innovative dealer support and aggressive
product line extensions;
* building a strong referral base among health care professionals;
* building brand preference with consumers;
* handling the retail channel through a dedicated sales and
marketing structure;
* managing the extended care institutional market with separate
sales and distribution;
* continuous recruitment of top management candidates;
* empowering all employees;
* providing a performance based reward environment; and
* continually striving for total quality throughout the organization.
When the company was acquired in December 1979 by a group of investors,
including certain members of management and of the Board of Directors, it had
$19.5 million in net sales and a limited product line of standard wheelchairs
and patient aids. In 1995, Invacare reached $504.0 million in net sales,
representing a 22.5% compound average sales growth since 1979, and currently is
one of the only companies in the industry which manufactures and markets
products in each of the following major home medical equipment categories: power
and manual wheelchairs, patient aids, home care beds, home respiratory products,
low air loss therapy products, seating and positioning products and ambulatory
infusion pumps.
The company's executive offices are located at 899 Cleveland Street, Elyria,
Ohio and its telephone number is (216) 329-6000. In this report, "Invacare" and
the "company" refer to Invacare Corporation and, unless the context otherwise
indicates, its consolidated subsidiaries.
(b) Financial Information About Industry Segments.
The company operates predominantly in the home medical equipment industry
segment. For information relating to net sales, operating income, identifiable
assets and other information for this industry segment, see the Consolidated
Financial Statements of the company.
(c) Narrative Description of Business
THE HOME MEDICAL EQUIPMENT INDUSTRY
NORTH AMERICA
The home medical equipment market includes home health care products, physical
rehabilitation products and other non-disposable products used for the recovery
and long-term care of patients. The company believes that the sales of domestic
home medical equipment products will continue to grow during the next decade as
a result of several factors, including:
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Growth in population over age 65. The over 65 age group represents the vast
majority of home health care patients and continues to grow. In 1993, the
U.S. Census Bureau estimated that by the year 2000 approximately 35 million
people, 13% of the population in the U.S., will be over age 65. The growth
of this segment is expected to continue until the year 2010, when over 40
million people in this group will still represent nearly 13% of the
population.
Treatment trends. Many medical professionals and patients prefer home
health care over institutional care as it is believed that it results in
greater patient independence, increased patient responsibility and improved
responsiveness to treatment as familiar surroundings are conducive to
improved patient outcomes. Healthcare professionals and public and private
payors agree that home care is a cost effective, clinically appropriate
alternative to facility-based care. Recent surveys show that approximately
70% of adults would rather recover from accident or illness in their home,
while approximately 90% of the older population showed preference for home
based long term care.
Technological trends. Technological advances have made medical equipment
increasingly adaptable for use in the home while hospital procedures often
allow for earlier patient discharge, thereby lengthening recuperation
periods outside of the institutional setting. In addition, continuing
medical advances prolong the life of adults and children, thus increasing
the demand for home medical care equipment.
Healthcare cost containment trends. In 1994, it was estimated that spending
on health care in the U.S. surpassed $ 940 billion dollars, which is
approximately 14.0% of Gross Domestic Product (GDP). Current spending is
projected to reach $1 trillion in 1995, and 15.9% and 17.9% of GDP, in the
year's 2000 and 2005, respectively. The rising cost of health care has
caused many payors of health care expenses to look for ways to contain
costs. Home health care continues to gain acceptance due to the
technological and treatment trends described above, as well as many health
care payors altering their reimbursement patterns to encourage home health
care whenever appropriate, as studies have shown that home health care is
generally less costly than hospital or other institutional treatment.
Society's acceptance of people with disabilities. People with disabilities
are part of the mainstream of society, and this has increased, in large
part, due to the Americans with Disabilities Act which became law in 1991.
This legislation provides mainstream opportunities to people with
disabilities. The Americans with Disabilities Act imposes requirements on
certain components of society to make "reasonable accommodations" to
integrate people with disabilities into the community and the workplace.
Distribution channels. The changing home health care market continues to
provide new ways of reaching the end user. The distribution network for
products has expanded to include not only specialized home health care
dealers and nursing homes but retail drug stores, surgical supply houses,
rental dealers, hospital and HMO-based stores, home health agencies, mass
merchandisers and direct sales.
EUROPE
The company believes that, while many of the market factors influencing demand
in the U.S. are also present in Europe - aging of the population, technological
trends and society's acceptance of people with disabilities - each of the major
national markets within Europe has distinctive characteristics. Variations in
product specifications, regulatory approvals, distribution requirements and
reimbursement policies require the company to tailor its approach to each
market. Management believes that as the European markets become more homogeneous
and the company continues to refine its distribution channels, the company can
effectively penetrate these markets.
OPERATING UNITS
NORTH AMERICA
North American operations are aligned into three operating groups, which
manufacture and market products in all of the major home medical equipment
categories. In Canada, the company principally sells Invacare products
manufactured in the U.S. The company also sells standard wheelchairs and seating
and positioning products manufactured in Canada and certain patient aids
manufactured in Europe.
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REHAB PRODUCTS GROUP
Power wheelchairs. Invacare manufactures and markets a complete line of
prescription power wheelchairs for people with chronic and temporary
disabilities, older persons and people who are convalescing. Prescription
power wheelchairs are designed to accommodate the capabilities of the
individual and are custom built for long-term use by one individual based
on specifications prescribed by a medical professional. Invacare's power
wheelchair lines are marketed under the Action brand name and includes the
Storm SeriesTM, a technologically advanced series of power wheelchairs. The
Storm SeriesTM was extended in 1995 with the Action Power 9000 and Ranger
II chairs that introduced the Storm Series styling, performance and feature
package to economy power chairs. Additionally, diagnostic features such as
the battery quality monitor and fault log monitor were added to reduce
downtime and maintenance.
Custom manual wheelchairs. Invacare manufactures and markets a range of
custom manual wheelchairs for everyday, sports and recreational uses. These
lightweight chairs are marketed under the Action brand name and Action Top
End(R) product name. The chairs provide mobility for people with moderate
to severe disabilities in their everyday activities as well as for sports
such as basketball, racing, skiing and tennis.
Scooters. Invacare manufactures and markets three- and four-wheeled
motorized scooters, including rear wheel drive models for outdoor use and a
front-wheel drive model for indoor use, under the Action brand name. This
product line includes the Action Cat(TM) and Action Flyer(TM) products.
Seating and positioning products. Invacare manufactures and markets seat
cushions, back positioners and a variety of attachments used for comfort,
support, pressure relief and posture control under the PinDot(R) brand.
Seating products marketed under the Action brand name include the Tarsys
brand of electronic and mechanical tilting and reclining devices for use on
power wheelchairs.
STANDARD PRODUCTS GROUP
Manual wheelchairs. For use in the home or public places (e.g. hospitals,
nursing homes, airports) by people who are chronically or temporarily
disabled but do not require or qualify under medical reimbursement programs
for customization in terms of size, basic performance characteristics, or
frame modification. Examples of Invacare's standard wheelchair lines, which
are marketed under the Invacare(R) brand name, include the 9000 and
TracerTM lines. Both standard and prescription manual wheelchairs are
designed to accommodate the capabilities of the individual.
Self Care. Invacare manufactures and/or distributes a full line of patient
aids including ambulatory aids such as crutches, canes, walkers and wheeled
walkers; bath safety aids such as tub transfer benches, shower chairs and
grab bars; and patient care products such as commodes, lift-out chairs, and
foam products.
Home care beds. Invacare manufactures and distributes a wide variety of
manual, semi-electric and fully-electric beds for home use under the
Invacare(R) brand name. Home care bed accessories include bed side rails,
mattresses, overbed tables, traction equipment, trapeze bars and traction
bars.
Low air loss therapy products. Invacare manufactures and markets a complete
line of mattress overlays and replacement products, under the Invacare(R)
brand name, which use air flotation to redistribute weight and move
moisture away from patients who spend a great deal of time in bed.
Patient transport. Invacare manufactures and markets products for use in
home care and institutional settings, including patient lifts and
slings and multi-position recliners.
Distributed products. Invacare distributes a line of personal medical care
products manufactured by others, including incontinence products and
bedding.
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RESPIRATORY PRODUCTS GROUP
Home respiratory products. Invacare manufactures and distributes home
respiratory products including oxygen concentrators, liquid oxygen systems,
nebulizer compressors, aspirators, portable compressed oxygen systems and
respiratory disposables. Invacare's home respiratory products are marketed
predominately under the Invacare(R) brand name.
OTHER PRODUCTS
Microprocessor electronic control systems. Invacare manufactures and
markets electronic control systems for power wheelchairs, scooters,
respiratory and other products.
Accessory Products. Invacare also manufactures, markets and distributes
many accessory products, including spare parts, wheelchair cushions, arm
rests, wheels and respiratory parts. In some cases, Invacare's accessory
items are built to be interchangeable so that they can be used to replace
parts on products manufactured by others.
Infusion Therapy. Invacare manufactures and markets ambulatory infusion
pumps and accessories for delivery of a variety of therapies, including
pain and feeding.
EUROPE
The company's European operations operate as a "common market" company with
sales throughout Europe. The European operation currently sells a limited line
of products providing significant room for growth as Invacare continues to
broaden the product line offerings to mirror that of the North American
operations. The expansion of respiratory products and the development of a home
care bed is a key focus for 1996.
Most wheelchair products sold in Europe are designed and manufactured locally to
meet specific market requirements. However, as a result of Invacare's worldwide
development efforts, the Action 2000, which is a manual lightweight design that
originated in the U.S., was the first wheelchair in Europe to meet the high
standards of quality required to receive the CE (Community European) mark and
the Action Storm Series, which has been very successful in the U.S., is
scheduled for roll out in Europe in the first quarter of 1996. In addition,
certain power wheelchair products sold in the United States are adaptations of
products originally designed for the European markets.
The company manufactures and/or assembles both manual and power wheelchair
products at all five of its European facilities - Bencraft Ltd. and Carters
(J&A) Ltd. in the U.K., Poirier S.A. in France, Invacare Deutschland GmbH in
Germany, and Paratec AG in Switzerland. Motorized scooters are manufactured in
Germany. Self care products and patient lifts and slings are manufactured in the
U.K. and France. Oxygen products are imported from Invacare in the U.S.
WARRANTY
In general, Invacare's products are sold with limited warranties of up to five
years. Customers may also purchase extended warranties on certain products.
Electrical components are warranted for one year. Certain components of the
company's prescription wheelchairs carry a lifetime warranty.
COMPETITION
In each of the company's major product lines, both domestically and
internationally, there are a limited number of significant national competitors
and a number of regional and local competitors. In some countries or in certain
product lines, the company may face competition from other manufacturers that
have larger market shares, greater resources or other competitive advantages.
Invacare believes that it is the leading home medical equipment manufacturer
based on its distribution channels, breadth of product line and sales.
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NORTH AMERICA
The home medical equipment market is highly competitive, and Invacare's products
face significant competition from other well-established manufacturers. The
company believes that its success in increasing market share is dependent on
providing value to the customer based on the quality, performance and price of
the company's products, the range of products offered, the technical expertise
of the sales force, the effectiveness of the company's distribution system, the
strength of the dealer and distributor network and the availability of prompt
and reliable service for its products. The company believes our "One Stop
Shopping" approach provides the competitive advantage necessary for continuing
profitability and market share growth. In the past, various manufacturers have
from time to time instituted price-cutting programs in an effort to gain market
share. There can be no assurance that other home medical equipment manufacturers
will not attempt to implement such aggressive pricing again.
EUROPE
As a result of the differences encountered in the European marketplace,
competition generally varies from one market to another. The company typically
encounters one or two strong competitors in each country, but no single
competitor is dominant outside the country in which its sales are concentrated.
Management believes that as the European markets become more homogeneous and the
company continues to refine its distribution channels, the company can
effectively penetrate these markets.
MARKETING AND DISTRIBUTION
NORTH AMERICA Sales and Marketing. Invacare's products are marketed in the
United States primarily to home health care and medical equipment dealers that
in turn sell or rent these products directly to the end user or to health care
institutions. Although the company's primary customer is the dealer, the company
also markets its products to medical professionals, including physical,
occupational and respiratory therapists, who refer their patients to dealers to
purchase specific types of home medical equipment. As a result of the superior
service provided by the "One Stop Shopping" approach, Invacare was able to
increase large national account business as well as enhance service to smaller
independent dealers. In some cases, Invacare sells directly to government
agencies such as the Department of Veterans Affairs or the Department of
Defense. The company made improvements to existing programs to generate greater
consumer awareness of Invacare and its products, as witnessed by enhancements
made to its consumer marketing program by sponsoring a variety of wheelchair
activities for consumers supporting charitable causes which benefit users of its
products. In addition, the company launched a new domestic brand strategy in
November designed to effectively communicate to home health care providers and
consumers the wide variety of products which Invacare manufactures. The new
brand strategy makes Invacare(R) the company's primary brand for home health
care and respiratory equipment, or "stock" products. Action is the primary brand
for high-tech mobility and sports equipment, or "custom" products and the
PinDot(R) brand represents the company's various seating and positioning
products.
Invacare's domestic sales and marketing organization consists primarily
of in-house salespersons, in some cases Invacare utilizes independent
manufacturers' representatives. Each of the company's domestic sales territories
is coordinated by an area vice president. The sales force is trained to sell
Invacare's entire range of products so that a dealer can order any Invacare
product from one person. The salespersons also provide training and servicing
information to the dealers, as well as brochures, point-of-sale display
materials and advertising and merchandising aids. In Canada, products are sold
by a separate direct sales force of the company's wholly owned subsidiaries and
are distributed through regional distribution centers in British Columbia,
Ontario and Quebec and health care dealers. In addition, Invacare advertises in
home health care journals and trade publications, and its representatives attend
trade shows and similar conventions to display its products to dealers, medical
professionals and others.
In addition to the North American sales force, in January 1996, the North
American sales and marketing group created a new department in order to provide
additional focus on clinical applications for Invacare's products. Initially, a
clinical staff of 12 physical and occupational therapists was hired and trained
to provide valuable services to medical professionals in the facility-based
rehab setting. The specialists will assist peer professionals with: in-service
education on relevant topics of seating and positioning; broad spectrum of
product education and their clinical applications; assistance in clinical
evaluations for mobility; documentation for reimbursement entities; programs
offering continuing education credits; and selected product availability for
patient evaluation purposes.
The company's top ten customers and buying groups accounted for approximately
30% of 1995 net sales. The loss of business of one or more of these customers or
buying groups may have a significant impact on the company although no single
customer accounted for more than 8% of the companies 1995 net sales. Dealers
that are part of a buying group generally make individual purchasing decisions
and are invoiced directly by the company.
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Customer Service. As part of "One Stop Shopping, the company views its customer
service activities as strategically important in its efforts to achieve market
leadership. The company's customer service strategy is directed at meeting the
need of medical equipment dealers and is specifically designed to focus on the
dealer's inventory management, equipment financing, training and administrative
needs.
Invacare has made a significant investment in assisting dealers in minimizing
inventory requirements. For stock items, dealers can either pick up orders at
the nearest center or receive freight-free delivery (with minimum order levels),
generally within 48 hours of the company's receipt of an order for any standard
product. This distribution system permits dealers to minimize their inventory
levels. As an additional service, Invacare manufactures accessories, such as
upholstery and arm rests for wheelchairs, that are interchangeable with products
of other manufacturers, thereby allowing dealers to stock only one line of
accessories.
The company also maintains a network of five regional technical centers where
Invacare products can be repaired promptly by factory technicians. Invacare has
a network of 23 independent dealers that can provide factory authorized service
and train the service technicians of selected dealers. This service network,
when combined with the company's distribution centers, enables dealers to
minimize spare parts inventory.
To further assist dealers in reducing their cash requirements for inventory
and rental equipment, the company provides various financing options for certain
types of its products. In a typical financing arrangement, the company sells the
equipment on a financing contract to the dealer for periods ranging from 6 to 51
months. The company also introduced a revolving credit agreement, known as
Invacard, which provides an additional financing option to our dealer base.
The company devotes significant time and resources to train dealers,
rehabilitation therapists, and others in the sale, use, maintenance and repair
of its products. Expenditures for training are expected to increase as the
company's product lines continue to expand and as certain products, such as
power wheelchairs, become more complex.
Invacare is continuing to develop programs to assist dealers in reducing
administrative costs. One such effort is to provide customers with direct
computer-to-computer links with the company in order to provide on-line order
entry and order tracking to further expedite delivery, thereby reducing the
dealer's paperwork and inventory. During 1995, additional programming
enhancements were made which resulted in an increase in the number of customers
utilizing Electronic Data Interchange (EDI) and an increase in related EDI
sales.
Invacare is also dedicated to reducing its own internal costs and running cost
effective operations. To further this endeavor, a new sales and order processing
system was installed in 1995. This system brought the following benefits:
automatic price generation, on-line order accuracy check, paperless order
processing environment and automatic sourcing of order to the proper fulfillment
facility. This new system will allow customer service to handle more calls and
process more orders without a comparable increase in cost.
The company believes 1996 holds additional opportunities as Invacare will
enter two new distribution channels as a result of acquisitions made during the
first quarter of 1996. The acquisition of Frohock-Stewart will provide Invacare
entry into the "retail distribution channel", utilizing a different brand name
and separate sales force and the acquisition of Healthtech, a nursing home bed
manufacturer and marketer, will provide access into the extended care
institutional market.
EUROPE The company's European operations consist primarily of
manufacturing, marketing and distribution operations in Western Europe and
export sales activities through local distributors elsewhere in the world. The
company has a direct sales force and distribution centers in the U.K., France,
Germany, Spain, Sweden and Switzerland, and sells through distributors elsewhere
in Europe. In markets where the company has its own sales force, product sales
are typically made through dealers of medical equipment and, in certain markets,
directly to Government authorities. In most markets, Government health care and
reimbursement policies play an important role in determining the types of
equipment sold and price levels for such products. Key organizational
enhancements were made during 1995 that are required to implement the "One Stop
Shopping" concept in Europe, which will be a key focus over the next several
years.
PRODUCT LIABILITY COSTS
Invacare supports its dealers in defending product liability claims in an effort
to hold down costs. The company's captive insurance company, formed in 1986,
insures the first $2 million per claim of the company's product liability
exposure. The company also has additional layers of coverage insuring up to $50
million in annual aggregate losses arising from individual losses that exceed $2
million. There can be no assurance that Invacare's insurance will continue to be
available at affordable rates or will be adequate.
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PRODUCT DEVELOPMENT AND ENGINEERING
Invacare is engaged in continuous efforts to improve, expand and broaden its
existing product lines. During the past three years, new product introductions
included: major improvements in the power wheelchair line in terms of
electronics, functionality and aesthetics; new models of power wheelchairs; new
electronic controllers for power wheelchairs; new models of both composite and
aluminum frame ultralight wheelchairs; a comprehensive new line of innovative
seating and positioning products; a complete line of home respiratory products,
including nebulizers, compressors, flowmeters, aspirators, liquid oxygen, oxygen
analyzer, and respiratory disposables; new version of the Invacare(R)
microAir(R) Turn-Q(TM) automatic turning mattress system; and an improved line
of ambulatory and safety products.
NORTH AMERICA
New product development remains a key component of Invacare's strategy to grow
market share and maintain competitive advantage. More than 27 major new products
were introduced at the Medtrade/NHHCE in Atlanta, the industry's largest trade
show, where Invacare's exhibit was recognized as "Best of Show". Important new
technologies were added, as well as many line extensions and refinements to
existing categories. The most significant introductions included:
Action Power 9000 Storm Series(R) - Redesigned with the clean, sleek
styling characteristic of the Storm Series. The gear system was redesigned
to improve performance and provide for a quiet ride, while at the same
time offering more efficient operation and reliability. For a smoother
response, the INT P9 and MKIV RII electronic control systems also were
introduced.
Action Comet(TM) Pediatric Wheelchair - Created specifically to address
the market need for early intervention and treatment of children with
genetic deformities. Early mediation may provide for improved function,
promote bone growth, enhance comfort and improve coordination and posture,
thereby contributing to the overall health and well-being of the child.
Tarsys Tilt and Recline System - Developed to maximize the benefits that
tilt, recline or a combination of tilt and recline offers. Provides
cost-effective pressure relief and postural benefits for a wide range of
disabilities, including spinal cord injuries and neuromuscular diseases.
Invacare(R) 9000 Series Wheelchair - Available in the SL, XT and
Recliner/Tall series. The SL is the perfect rental chair for those who
want quality at a moderate price. The XT is a manual prescription
wheelchair for individuals who require a standard or custom size
wheelchair. The Recliner/Tall is designed for individuals who, based on
anatomy and function level, require a custom size wheelchair.
Invacare(R) Venture (TM) Demand Oxygen Delivery Device (D.O.D.D.) - A
technologically advanced, convenient oxygen delivery device used in
conjunction with compressed oxygen cylinders and liquid oxygen, it is
lightweight, portable and extremely easy to carry. Through a wide range of
respiratory rates, it is able to deliver precise amounts of oxygen on each
breath and can be used in continuous or pulse modes at prescribed flow
rates.
EUROPE
During 1995, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 1995 included updated and reengineered patient aids
and lifting equipment, as well as new lines of manual wheelchairs.
MANUFACTURING AND SUPPLIERS The company's objective is to maintain its
commitment to be the lowest-cost manufacturer in its industry, as well as the
highest-quality producer. The company believes that it is achieving this
objective not only through improved product design, but also by taking a number
of steps to lower manufacturing costs. During 1995, the worldwide consolidation
of purchasing began in order to take advantage of significant leverage
opportunities available to the company for certain commodity raw materials
thereby helping to achieve ongoing cost reduction objectives. The company also
makes substantial investments in its facilities in order to increase
productivity, lower costs and improve quality. Over the past three years, the
company has invested $35 million in capital improvements and acquisition of
facilities.
The cost containment initiatives and manufacturing improvements resulted in
improved inventory turns, service levels and working capital management.
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NORTH AMERICA
The company has vertically integrated its manufacturing processes by
fabricating, coating, plating and assembling many of the components of each
product. The company designs and manufactures electronics for power wheelchairs,
from insertion of components into printed circuit boards to final assembly and
testing.
Invacare has focused on "value engineering" which reduces manufacturing cost by
eliminating product complexity and using common components. Value engineering
has been applied to all product introductions in the last three years, including
the latest generation of oxygen concentrators, electronic controls, wheelchairs,
patient lifts, beds and bath safety products.
Investments continue to be made in manufacturing automation. The company has
initiated programs to reduce manufacturing lead times, shorten production
cycles, increase employee training, encourage employee involvement in
decision-making and improve manufacturing quality. Employee involvement teams
participate in engineering, production and processing strategies and employees
have been given responsibility for their own quality assurance.
The manufacturing operations for the company's wheelchairs and replacement
parts, patient aids and home care beds consist of a variety of metal fabricating
procedures, electronics production, coating, plating and assembly operations.
Manufacturing operations for the company's oxygen concentrators, nebulizer
compressors, and electronic seating and positioning products consist of both
finishing and assembly. The company purchases raw materials, fabricated
components and services from a variety of suppliers. Invacare does not have any
long-term contracts with its suppliers, but considers its relationships with
suppliers to be satisfactory and believes that adequate alternative sources of
supply are available.
EUROPE
As in other areas, manufacturing and operational issues faced in the U.S. are
also present in Europe. The European operations has challenged and rationalized
the mission of each manufacturing location allowing for the realization of
significant synergies and identified areas for further cost reductions and
improved efficiencies for 1996.
ACQUISITIONS
During 1995, the company made eight acquisitions for $31 million in cash
which extended or added new product lines as well as expanded distribution
capabilities, without increasing its debt-to-equity ratio which remains at .6 to
1. As a result of our unending search for opportunities, coupled with the
industry trend toward consolidation, numerous acquisition opportunities were
evaluated in 1995. The company focuses on acquisitions which fulfill the
following objectives:
Tactical. Grow market share or extend current product lines.
- Special Health Systems (Canada) - designer and manufacturer
of planar seating and positioning systems for wheelchairs.
- Paratec (Switzerland) - manufacturer of active
wheelchairs sold under the Kuschall name.
- PinDot Products, (Northbrook, Illinois) - designer,
manufacturer and distributor of contour, custom seating
systems.
Strategic. Enter new market segments that complement existing businesses or
utilize our distribution strength.
- Patient Solutions (San Diego, California) - manufacturer of
ambulatory infusion pumps.
- Medical Equipment Repair Service (Sarasota, Florida) -
aftermarket oxygen concentrator parts and repair service, as well
as supplier of other related respiratory equipment.
Geographic. Enables rapid entry into new foreign markets.
- Group Pharmaceutical (New Zealand) - distributor of
Invacare prescription wheelchairs and other rehab products.
- Thompson Rehab (New Zealand) - manufacturer and distributor
of manual and power wheelchairs.
- Bencraft (England) - manufacturer of wheelchairs
and specialty seating systems and cushions.
GOVERNMENT REGULATION
The company is directly affected by government regulation and reimbursement
policies in virtually every country in which it operates. Government regulations
and health care policy differ from country to country, and within the U.S. and
Canada, from state to state or province to province. Changes in regulations and
health care policy take place frequently and can impact the size, growth
potential, and profitability of products sold in each market.
<PAGE>
10
In the U.S. the growth of health care costs has increased at rates in excess of
the rate of inflation and as a percentage of GDP for more than four decades. A
number of efforts to control the federal deficit have impacted reimbursement
guidelines for government sponsored health care programs and often changes in
federal programs are imitated by private insurance companies. Reimbursement
guidelines in the home health care industry have a substantial impact on the
nature and type of equipment an end user can obtain and thus affect the product
mix, pricing and payment patterns of our dealers.
Congress, in their efforts to balance the federal budget, continue to propose
Medicare and Medicaid cuts to accomplish this task. Cuts in Medicare are
projected at $200 to $250 billion over a seven year period. The cuts proposed
would affect oxygen reimbursement and the elimination of cost of living
increases in reimbursement levels. Invacare believes the cuts currently proposed
are manageable as they are not disproportionate to the overall budget. Congress
is serious about reducing health care costs and is interested in cost effective
alternatives such as home care. The company believes that home health care is a
viable solution to reducing health care costs.
Invacare will continue its pro-active efforts on improving public policy
affecting home health care and believes that it gives us a competitive advantage
over other HME manufacturers who are forced to react to change instead of
helping to direct change.
The Safe Medical Devices Act of 1990 and Medical Device Amendments of 1976 to
the Federal Food, Drug and Cosmetics Act of 1938 (the "Act") provide for
regulation by the United States Food and Drug Administration (the "FDA") of the
manufacture and sale of medical devices. Under the Act, all medical devices are
classified as Class I, Class II or Class III devices. The company's principal
products are designated as Class I or Class II devices. In general, Class I
devices must comply with labeling and recordkeeping requirements and are subject
to other general controls. In addition to general controls, certain Class II
devices may have to comply with performance standards when established by the
FDA. Manufacturers of all medical devices are subject to periodic inspections by
the FDA. Furthermore, state, local and foreign governments have adopted
regulations relating to the manufacture and marketing of health care products.
The company believes that it is presently in material compliance with all
applicable regulations promulgated by FDA, for which the failure to comply would
have a material adverse effect.
BACKLOG
The company generally manufactures most of its products to meet near term
demands by shipping from stock or by building to order based on the specialty
nature of certain products. Therefore, the company does not have substantial
backlog of orders of any particular products nor does it believe that backlog is
a significant factor for its business.
EMPLOYEES
As of December 31, 1995, the company had approximately 3,740 employees.
(d)Financial Information About Foreign and Domestic Operations and Export Sales.
The company also markets its products for export to other foreign countries. The
company had product sales in approximately 80 countries worldwide.
For information relating to net sales, operating income and identifiable assets
of the company's foreign and domestic operations, see Business Segments in the
Notes to the Consolidated Financial Statements of the company.
<PAGE>
11
Item 2. Properties.
The company owns or leases its warehouses, offices and manufacturing
facilities and believes these facilities to be well-maintained, adequately
insured and suitable for their present and intended uses. Information concerning
certain of the leased facilities of the company is set forth in Leases and
Commitments in the Notes to the Consolidated Financial Statements of the company
and in the table below:
<TABLE>
<CAPTION>
Ownership Or
Expiration Renewal
Location Square Feet Date of Lease Options Use
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North America
Atlanta, Georgia 45,866 May 1997 none Warehouse
Auckland, New Zealand 11,244 March 1996 one (2 yr.) Manufacturing
Auckland, New Zealand 11,959 March 2003 one (5 yr.) Distribution
Auckland, New Zealand 24,750 December 1997 two (2 yr.) Distribution
Aurora, Ontario 25,125 September 1997 one (5 yr.) Manufacturing and offices
Carmel, New York 13,900 July 1998 none Manufacturing and offices
Cerritos, California 47,366 May 1996 none Warehouse
Christchurch, New Zealand 48,178 April 1998 one (2 yr.) Manufacturing and offices
Concord, Ontario 22,000 February 19 none Manufacturing and offices
Edison, New Jersey 32,207 November 1996 one (3 yr.) Warehouse and sales office
Elyria, Ohio
- Taylor Street 145,344 Own - Manufacturing and offices
- Cleveland Street 226,998 September 1999 one (5 yr.) Manufacturing and offices
Grand Prairie, Texas 43,754 December 1998 one (3 yr.) Warehouse
Kirkland, Quebec 26,500 December 1996 one (2 yr.) Warehouse
McAllen, Texas 12,000 March 1997 none Warehouse
Mississauga, Ontario 81,004 January 2005 none Manufacturing, warehouse and offices
North Ridgeville, Ohio 139,200 Own - Manufacturing warehouses and offices
Northbrook, Illinois 27,458 June 1999 two (3 yr.
& 2 yr.) Manufacturing and offices
Pinellas Park, Florida 12,000 June 1996 three (1 yr.) Wheelchair manufacturing and offices
Reynosa, Mexico 70,400 Own - Wheelchair and patient aid
manufacturing and offices
Sacramento, California 26,900 February 1998 none Wheelchair parts and accessories
manufacturing, warehouse and offices
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
Ownership Or
Expiration Renewal
Location Square Feet Date of Lease Options Use
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Diego, California 5,940 May 1997 none Manufacturing and offices
Sanford, Florida 7,485 June 1996 one (1 yr.) Warehouse
Sanford, Florida 113,034 Own - Manufacturing and offices
Sarasota, Florida 15,450 March 1998 five (5 yr.) Manufacturing, warehouse and offices
Tonawanda, New York 4,700 April 1998 none Warehouse and offices
Delta, British Columbia 6,900 January 2000 none Warehouse & offices
Europe
Allschwill, Switzerland 36,000 Own - Manufacturing and offices
Anthony, France 7,126 April 2000 one (3 yr.) Warehouse and offices
Askersund, Sweden 10,000 November 1998 one (1 yr.) Warehouse
Bad Oeynhousen, Germany 76,600 June 1998 one (3 yr.) Manufacturing, warehouse and offices
Birmingham, England 13,000 Own - Warehouses and offices
Birmingham, England 19,378 Own - Manufacturing and offices
Bridgend, Wales 131,522 Own - Manufacturing and offices
Fondettes, France 86,000 November 2007 none Manufacturing
Fondettes, France 104,500 Own - Manufacturing, warehouse and offices
Girona, Spain 13,600 November 2004 (1 yr.) Warehouse and offices
Spanga, Sweden 2,000 April 1999 none Offices
</TABLE>
Item 3. Legal Proceedings.
Invacare is a defendant in a number of product liability actions in which
various plaintiffs seek damages for injuries allegedly caused by defective
products. All these actions have been referred to the company's insurance
carriers and are being vigorously contested. The primary carrier for the first
$2 million of insurance coverage per claim is a subsidiary of the company which
was established in September 1986 to provide the first layer of product
liability insurance for the company. The company has additional layers of
coverage insuring up to $50 million in annual aggregate losses arising from
individual losses that exceed $2 million. Management does not believe that the
outcome of any of these actions will have a material adverse effect upon its
business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
13
Executive Officers of the Registrant.*
The following table sets forth the names of the executive officers of Invacare,
each of whom serves at the pleasure of the Board of Directors, as well as
certain other information.
<TABLE>
<CAPTION>
Name Age Position
- - ------ ------ -----------
<S> <C> <C>
A. Malachi Mixon, III 55 Chairman of the Board of Directors, President and
Chief Executive Officer
Gerald B. Blouch 49 Chief Operating Officer
Joseph B. Richey, II 59 President - Invacare Technologies & Invacare Senior Vice
President - Total Quality Management
Thomas R. Miklich 48 Chief Financial Officer, General Counsel, Treasurer
and Corporate Secretary
Benoit Juranville 47 President - Invacare Europe
Richard A. Sayers, II 44 Vice President - Human Resources
Louis F.J. Slangen 48 Senior Vice President - Sales & Marketing
M. Louis Tabickman 51 Group Vice President Rehab Products
Thomas J. Buckley 47 Group Vice President Standard Products
</TABLE>
A. Malachi Mixon, III has been President and Chief Executive Officer and a
Director of the company since December 1979 and Chairman of the Board since
September 1983.
Gerald B. Blouch was named Chief Operating Officer in December 1994 and has been
Chairman - Invacare International since December 1993. Previously, Mr. Blouch
was President - Home Care Division from March 1994 to December 1994 and Senior
Vice President - Homecare Division from September 1992 to March 1994. Mr. Blouch
served as Chief Financial Officer from May 1990 to May 1993 and Treasurer from
March 1991 to May 1993.
Joseph B. Richey, II has been a Director since 1980 and in September 1992 was
named President-Invacare Technologies and Senior Vice President - Total Quality
Management. Previously, Mr. Richey was Senior Vice President of Product
Development from July 1984 to September 1992, Senior Vice President and General
Manager of North American Operations from September 1989 to September 1992.
Thomas R. Miklich has been Chief Financial Officer, General Counsel and
Treasurer since May 1993 and in September 1993 was named Secretary. Previously,
Mr. Miklich was Executive Vice President and Chief Financial Officer of Van Dorn
Company from 1991 to 1993, and Chief Financial Officer of The Sherwin-Williams
Company from 1986 to 1991.
Benoit Juranville has been President - Invacare Europe since December 1993 and
previously was President of Poirier S.A. which was purchased by Invacare in
1992. He was added to the company's Executive Committee in December of 1994.
From 1983 through 1992, Mr. Juranville was Chairman of the Board and Managing
Director of Poirier, S.A.
Richard A. Sayers, II has been Vice President - Human Resources since July
1991. Mr. Sayers was Vice President and General Manager - Aftermarkets Parts
Division from September 1992 to August 1995. From 1989 to July 1991, Mr. Sayers
was Vice President of Human Resources for the Steering Systems group of TRW Inc.
Louis F. J. Slangen was named Senior Vice President - Sales & Marketing in
December 1994 and from September 1989 to December 1994 was Vice President -
Sales and Marketing. Mr. Slangen was previously President - Rehab Division from
March 1994 to December 1994 and Vice President and General Manager - Rehab
Division from September 1992 to March 1994.
<PAGE>
14
M. Louis Tabickman was named Group Vice President - Rehab Products in
August 1995. Mr. Tabickman has been an officer since July 1985 and was named
President - Invacare Canada in March, 1994. Previously, Mr. Tabickman was Vice
President & General Manager - Power Business Unit from December 1994 to August
1995, Vice President and General Manager - Invacare Canada from September 1992
to March 1994 and Vice President and General Manager of Service and Distribution
from July 1985 until September 1992.
Thomas J. Buckley was named Group Vice President - Standard Products in
August 1995. Mr. Buckley was previously General Manager of Manual Wheelchairs
from December 1994 to August 1995. From November 1993 to December 1994 Mr.
Buckley was the Business Unit Leader of the Bed Products and Pressure Relief
Business Units. Before this period, Mr. Buckley served as Director of
Distribution.
* The description of executive officers is included pursuant to
Instruction 3 to section (b) of Item 401 of Regulation S-K.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Invacare's Common Shares, without par value, are traded over-the-counter in the
NASDAQ National Market System under the symbol IVCR. Ownership of the company's
Class B Common Shares cannot be transferred, except, in general, to family
members. Class B Common Shares may be converted into Common Shares at any time
on a share-for-share basis. The approximate number of record holders of the
company's Common Shares and Class B Common Shares at February 28, 1996 was 2,048
and 40 , respectively. The closing sale price for the Common Shares on February
28, 1996 as reported by NASDAQ, was $24.50 . The prices set forth below do not
include retail markups, markdowns or commissions.
The range of high and low quarterly prices of the Common Shares in each of the
two most recent fiscal years are as follows:
<TABLE>
<CAPTION>
1995* 1994*
----- -----
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
December 31 $29.75 $21.25 $18.13 $13.63
September 30 24.00 19.25 15.88 13.38
June 30 21.88 17.63 14.50 12.63
March 31 18.13 16.13 14.75 12.88
</TABLE>
* All share prices are adjusted to reflect the 2 for 1 stock split which
occurred on October 16, 1995.
During 1995, the Board of Directors for Invacare Corporation declared dividends
of $.0375 per Common Share. For information regarding limitations on the payment
of dividends in the company's loan and note agreements, see Long Term
Obligations in the Notes to the Consolidated Financial Statements of the
company. The Common Shares are entitled to receive cash dividends at a rate of
at least 110% of cash dividends paid on the Class B Common Shares.
<PAGE>
15
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------
(In thousands except per share data and ratio data)
<S> <C> <C> <C> <C> <C> <C>
Earnings
Net Sales $504,032 $411,123 $365,457 $305,171 $263,181 $229,797
Income from Operations 54,144 43,736 36,870 27,567 23,628 16,750
Net Earnings 32,165 26,377 22,110 17,739 14,128 7,610
Earnings per Share * 1.07 .89 .75 .63 .53 .33
Dividends per Common Share* .03750 .01875 - - - -
Balance Sheet
Current Assets $204,685 $180,435 $156,191 $151,934 $119,814 $103,810
Total Assets 408,750 338,109 286,367 262,412 162,349 138,338
Current Liabilities 84,936 67,667 60,913 68,226 42,056 42,801
Working Capital 119,749 112,768 95,278 83,708 77,758 61,009
Long-Term Obligations 122,456 105,528 90,351 78,648 31,795 51,506
Shareholders' Equity 201,319 164,007 134,962 114,000 86,710 41,862
Other Data
Research and Development
Expenditures $ 9,002 $ 7,651 $ 6,840 $ 5,251 $ 4,518 $ 3,343
Capital Expenditures, net of
disposals 11,027 12,217 11,961 17,301 11,396 8,600
Depreciation and Amortization 14,159 12,686 12,280 10,008 8,073 6,603
Key Ratios
Return on Sales 6.4% 6.4% 6.0% 5.8% 5.4% 3.3%
Return on Average Assets 8.6% 8.4% 8.1% 8.4% 9.4% 5.8%
Return on
Beginning 19.6% 19.5% 19.4% 20.5% 33.7% 23.7%
Shareholders' Equity
Current Ratio 2.4:1 2.7:1 2.6:1 2.2:1 2.8:1 2.4:1
Debt-to-Equity Ratio .6:1 .6:1 .7:1 .7:1 .4:1 1.2:1
</TABLE>
* As adjusted for the 2-for-1 splits effected in the form of a 100% share
dividend in September 1991 and October 1995.
<PAGE>
16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
1995 Versus 1994
Net Sales. Net sales for 1995 increased 22.6% for the year with
acquisitions accounting for 5.2% of the increase and a positive impact from
currency translation of 2.7%. The sales increase of 14.7%, excluding
acquisitions and the impact of foreign currency translation, was due primarily
to increased unit volumes as competitive pressures caused prices to decline for
most product lines during 1995. All product lines had sales gains for the year
with power wheelchairs, respiratory, beds and personal care products posting the
largest percentage increases. Sales growth was aided by the successful
completion of supply contracts with several major national providers late in
1995. It is believed these arrangements will provide additional sales momentum
as we enter 1996. The company achieved its long-term goal of reaching $500
million in sales and set a new long-term goal of reaching $1 billion in sales by
the year 2000.
North America
Rehab Group. Sales of the Rehab Group, which consists of the power wheelchairs,
custom manual wheelchairs and seating and positioning business units, increased
38.4% for the year, with 9.3% of the increase due to the acquisition of Genus
Medical, Inc., PinDot Products, Inc. and Special Health Systems. All of the gain
was due to unit volume growth as prices for the Group's products declined
slightly during the year. The successful introduction in 1994 of the Action
Storm Series(R) of power wheelchairs continued to lead the way as sales for the
power business unit increased 42.6% with all of the improvement due to increased
unit sales.
Sales of custom manual wheelchairs also showed strong sales growth of 13.5%,
primarily due to the introduction of an adult tilt-in-space chair and continued
strong market acceptance of the Action Patriot(R), a prescription manual
wheelchair. Seating and positioning sales more than doubled, principally as a
result of key strategic acquisitions made to complete this product line during
1995. The Group is now well-positioned for growth in this product area as the
company will be able to market a full range of seating and positioning products.
The acquisitions also provide opportunities for product line consolidations as
well as manufacturing synergies in 1996.
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs/patient transport, personal care, beds and low air loss
therapy business units, increased 15.4%. The Group had a significant unit volume
increase as prices for the Group's product lines declined due to significant
competitive pricing pressures. The beds and personal care product lines each
posted sales increases of over 19%, while low air loss therapy grew more than
40% for the year despite governmental cuts in reimbursement policies near the
end of 1995.
Respiratory Group. Sales of the Respiratory Group, which consists of the oxygen
concentrator, liquid oxygen, aerosol therapy and associated respiratory products
business units, increased 21.8% for the year. Volume increases were
significantly greater than the overall sales increases as the Group experienced
significant pricing pressure in 1995, particularly in the oxygen concentrator
product line. The wide acceptance of the company's SensO2 concentrator and the
continued growth of business with large national accounts, as well as
independent providers, led to the increase.
Other. The Other Group, consisting primarily of the company's Canadian
operation, aftermarket parts business, electronic controls for power products
and ambulatory infusion pumps had a 19.8 % sales increase for the year. The
acquisition of Patient Solutions, Thompson Rehab, GP Healthcare and M.E.R.S.
contributed 10.6% to the increase. The company's Canadian operation had a strong
year with sales up 17.2% despite tightened government reimbursement policies
introduced in 1994. This gain was offset by a flat year in sales at Dynamic
Controls, the company's electronic wheelchair controller business, due primarily
to the loss of a large customer who is also a major competitor to the company.
In early 1996, the company completed the acquisition of Frohock-Stewart Inc., a
manufacturer of personal care products with distribution primarily through mass
retailers and Healthtech, a manufacturer of nursing home beds with distribution
in the extended care institutional market. These acquisitions will open up a new
channel for growth for the company's products.
<PAGE>
17
Europe. European sales increased 30.1%, with acquisitions accounting for 12.5%
of the increase. Foreign currency translation also had a positive effect on the
reported sales increase contributing 11.2% to the improvement. Sales increased
in almost all product lines, with power wheelchairs and patient aid sales
particularly strong. Competitive pricing pressure was also experienced in
Europe, limiting the company's ability to increase prices. The sales gain was
achieved with European operations currently selling a limited line of products.
A key focus for future growth will be the introduction of product lines that
mirror North American operations.
Gross Profit. Gross profit as a percentage of net sales improved to 33.0% from
32.4% last year, despite significant pricing pressures in the marketplace and
raw material cost increases. The principal factors leading to the improvement
were productivity gains, improved manufacturability of products resulting from
design changes and cost reductions arising out of material substitutions. The
company's efforts in realigning production among its facilities and
consolidating certain processes continues to help improve productivity and
efficiency and reduce costs.
North American margins were basically flat with last year as improved
manufacturing productivity and reduced distribution costs were offset by the
competitive pricing environment, raw material cost increases and a shift in
product mix. Excluding businesses acquired, North American margins showed a
slight improvement for the year.
Gross profit in Europe improved to 33.2% from 30.3% in 1994. Increased volume,
continued manufacturing productivity improvements and a shift in product mix
contributed to the increase.
Inventory turns and service levels continued to improve in both the North
American and European operations, contributing to the gross margin improvement.
The company's focus on implementation of a global manufacturing strategy and
further consolidation of purchasing leverage will provide the cost reductions
and productivity improvements necessary for future profitability.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales was 22.3% in 1995 compared to 21.7% in 1994. The
dollar increase was $22,823,000 or 25.5%. Acquisitions increased selling,
general and administrative costs by approximately $8,000,000 for the year,
representing 9.0% of the percentage increase. The businesses acquired operated
with a significantly higher selling, general and administrative expense as a
percent of sales ratio, resulting in the overall higher percentage of sales
ratio for the company in 1995. It is expected that the ratio for the acquired
businesses will decline as they are integrated into the company.
North American operations' selling, general and administrative costs
increased as a percent of sales to 21.6% from 21.3% last year. Excluding
acquisitions, these costs were lower than last year as a percent of sales as
increased spending on sales and marketing programs were offset by administrative
cost reductions. The company believes the investments made in sales and
marketing programs, primarily related to brand strategy and clinical application
specialists, will have a positive impact on future growth opportunities.
European operations' selling, general and administrative expenses, as a
percentage of sales, increased to 24.3% from 23.4% in 1994. Acquisitions
accounted for all of the percentage increase. The dollar increase was a result
of spending required to build the infrastructure needed to implement a full-line
product strategy in Europe which caused the spending, excluding acquisitions, to
increase 16.7% for the year. The company believes the infrastructure investments
in Europe provides the organizational structure required to support future
growth as well as a full-line product strategy.
Interest. Interest income in 1995 increased to $7,276,000 from $6,373,000
last year, a 14.2% increase. The increase was due to increased financing
incurred by the company's finance subsidiary as a result of higher average
outstanding installment loans. Interest expense increased to $9,575,000, 16.3%,
primarily as a result of the additional borrowings incurred to fund the 1995
acquisition activity. The company's debt- to-equity ratio remained at .6 to 1.
It is anticipated that the company's interest expense, in the absence of
additional acquisitions or significant increases in borrowing rates, will
decline due to the company's strong cashflows from operations.
Income Taxes. The company had an effective tax rate of 38.0% in 1995
compared to 37.0% in 1994. See Income Taxes in the Notes to Consolidated
Financial Statements for further discussion.
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage . Research and
development expenditures increased to $9,002,000 from $7,651,000 in 1994. The
expenditures declined slightly as a percent of sales, principally as a result of
acquisitions. The businesses acquired spent less on research and development as
a percent to sales than the company, however future spending for these
businesses are anticipated to be more in line with the company's spending
levels. Research and development activities are focused on new and enhanced
products, as well as new designs and processes that reduce cost and improve
manufacturability.
<PAGE>
18
1994 Versus 1993
Net Sales. Net sales for 1994 increased 12.5% over 1993 with 1994 acquisition
activity accounting for less than 1% of the increase. Foreign currency
translation had a negative impact on the reported sales increase of
approximately 1% due to the relative strength of the dollar as compared to those
currencies. The sales increase was primarily the result of increased unit
volumes as the pricing environment for most product lines was extremely
competitive during the year.
North America
Rehab Group. Sales of this Group increased 10.9% over 1993 due principally to
the successful introduction of the Action Storm Series(R) of power wheelchairs,
the introduction of the Action Power Tiger(R), a pediatric power wheelchair with
tilt-in-space features and the 1993 introduction of the Action Patriot(R). Sales
of the power and custom manual wheelchair product lines increased 10.4% and
seating and positioning products over 25.0%.
Standard Products Group. Sales of this Group increased 5.3% over 1993 as sales
of beds, personal care and therapeutic support surfaces product lines were
strong. The company's bed products were favorably impacted by a shift in product
mix to semi-electric beds from manual beds. Therapeutic support surfaces showed
significant gains as a result of a full-year of sales for this product line that
was acquired in July, 1993. The sales gain for this Group was offset by lower
sales in manual wheelchairs as a result of an aggressive competitive pricing
environment, and to a lesser extent, tightening Medicare reimbursement
guidelines.
Respiratory Group. Sales of the Group increased 53.9% for the year due primarily
to the ongoing success of new products, principally the SensO2 (TM) oxygen
concentrator and the introduction of liquid oxygen systems.
Other Group. Sales of this Group increased 23.5% primarily due to the first full
year of sales for Dynamic Controls, a manufacturer of electronic controllers for
power wheelchairs, that was acquired in June, 1993. The increase was offset by a
4.8% decline in sales for the company's Canadian operations, as strict
government reimbursement policies were implemented due to a sluggish economy.
The weak Canadian dollar also negatively impacted sales, as reported in U. S.
dollars, by 5.8%.
Europe. European sales increased 8.6% over 1993, as a result of increased market
focus, new and expanded product offerings and the improving economy. The success
of the Action 2000LT manual wheelchair, the European version of the Action
Patriot(R), and increased volume in patient aids marketed under the OPALE name
contributed significantly to the sales increase. Significant competition,
especially in power wheelchairs, played an important role in limiting price
increases. European currencies, when compared to the dollar, negatively impacted
European sales by less than 1%.
Gross Profit. Gross profit as a percentage of net sales was 32.4% in 1994 and
1993. The gross profit percentage was maintained as competitive pricing
pressures and inflationary cost increases were offset by increased manufacturing
efficiencies resulting from productivity improvements and capital expenditures
to modernize equipment and processes. Increasing volumes and the effect of style
and design changes made to major product groups contributed to margin to a
lesser extent.
North American gross profit declined in 1994. Improved inventory management and
increased manufacturing efficiency and productivity were offset by a shift in
product mix and the continued competitive pricing environment for most of our
product categories. Sluggish sales for the company's Canadian operations and the
weak Canadian dollar also had a negative impact on North American margins for
1994.
The gross profit in Europe improved from 29.3% in 1993 to 30.3% in 1994. A focus
on manufacturing process improvements coupled with the production of the Action
2000LT in our European operations contributed to the increase.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales was 21.7% for 1994 compared to 22.3% for 1993, as a
result of a focus on productivity and cost containment. The 9.4% dollar increase
was a result of spending required to support increased sales volume and expanded
operations and relates principally to increased wages, benefits and
administrative costs associated with a larger workforce.
<PAGE>
19
North American selling, general and administrative costs decreased as a percent
of sales in 1994 due to cost containment efforts. Actual spending increased, in
part due to a full year effect of prior year acquisitions which occurred mid
year during 1993 and additional costs incurred to complete the realignment of
several operating units during 1994.
European selling, general and administrative expenses increased slightly as a
percentage of sales mainly as a result of increased sales activity.
Interest. Interest income in 1994 increased 21.3% over 1993, principally
due to increased financing income from the company's financing subsidiary as a
result of greater installment loan volumes. Interest expense decreased from 1993
as a result of lower borrowing costs offset somewhat by increased borrowing
levels. The increased borrowings were a result of the above mentioned financing
activity and the funding of acquisitions during 1994.
Income Taxes. The company had an effective tax rate of 37.0% in 1994 compared to
an effective rate of 34.0% in 1993, primarily because of the aggregate impact of
adoption of the liability method in 1993.
Research and Development. Research and development expenditures increased
11.9% to $7,651,000 in 1994 compared to $6,840,000 in 1993.
INFLATION
Although the company cannot determine the precise effects of inflation,
management believes that inflation does continue to have an influence on the
cost of materials, salaries and benefits, utilities and outside services. The
company attempts to minimize or offset the effects through increased sales
volume, capital expenditure programs designed to improve productivity,
alternative sourcing of material and other cost control measures. In 1995 and
1994, the company was able to offset most of the impact of price increases from
suppliers by productivity improvements and other cost reduction activities.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain an adequate liquidity position through its
unused bank lines of credit (see Long-Term Obligations in the Notes to
Consolidated Financial Statements) and working capital management. The company
maintains various bank lines to finance its worldwide operations. In 1994, the
company completed a $200,000,000 multi-currency long-term financial agreement
which expires in December, 2000. Additionally, the company maintains various
other demand lines of credit representing a U.S. dollar equivalent for these
demand lines approximating $27,000,000 as of December 31, 1995. The facilities
have been and will continue to be used to fund the company's domestic and
foreign working capital, capital expenditures and acquisition requirements. As
of December 31, 1995, the company had approximately $145,000,000 available under
its various lines of credit.
The company's borrowing arrangements contain covenants with respect to net
worth, dividend payments, working capital, funded debt to capitalization,
interest coverage and leverage, as defined in the company's bank agreements and
agreements with its note holders. The company is in compliance with all covenant
requirements. Under the most restrictive covenant of the company's borrowing
arrangements, the company may borrow up to an additional $258,000,000.
CAPITAL EXPENDITURES
Although there are no material capital expenditure commitments outstanding as of
December 31, 1995, the company expects to invest in capital projects at a rate
equal to at least depreciation and amortization of capital. The company believes
that its balances of cash and cash equivalents, together with funds generated
from operations and existing borrowing capabilities, will be sufficient to meets
its operating cash requirements and fund required capital expenditures in the
foreseeable future.
CASH FLOWS
Cash flows provided by operating activities were $43,721,000, compared to
$31,514,000 last year. The 38.7% improvement was provided principally from the
increased profitability for the year.
<PAGE>
20
Improved inventory management and the increase in accrued expenses were offset
by higher receivables and lower accounts payable balances. The changes in
operating assets and liabilities are not apparent from the face of the balance
sheet as funds expended for assets acquired through business acquisitions are
accounted for in the investing activities section of the Consolidated Statement
of Cash Flows.
Cash flows required for investing activities increased by $17,924,000 or
47.0%. Acquisition activity resulted in increased cash used by $22,414,000. The
increase was offset primarily by lower net installment contracts written and
lower other investment activity.
Cash flows provided by financing activities were $8,594,000 in 1995 compared to
$4,161,000 in 1994. The increase resulted from higher net borrowings required to
support the heightened acquisition activity.
In addition to acquisition activities, the effect of foreign currency
translation results in amounts being shown for cash flows in the Consolidated
Statements of Cash Flows that are different from the changes reflected in the
respective balance sheet captions.
STOCK SPLIT
On August 21, 1995, the board of directors declared a two for one stock split to
be distributed in the form of a 100% stock dividend. Shareholders of record on
October 2, 1995 received one additional Common Share for each Common Share held
on that date. The additional shares were distributed on October 16, 1995.
DIVIDEND POLICY
It is the company's policy to pay a nominal dividend in order for its stock to
be more attractive to a broader range of investors. The current annual dividend
rate remains at $.05 per Common Share and it is not anticipated that this will
change materially as the company continues to have available significant growth
opportunities through internal development and acquisitions. For the year,
$.0375 dividends per Common Share were declared, adjusted for the two for one
stock split.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the Report of Independent Auditors, Consolidated
Balance Sheet, Consolidated Statement of Earnings, Consolidated Statement of
Cash Flows, Consolidated Statement of Shareholders' Equity, Notes to
Consolidated Financial Statements and Financial Statement Schedules which appear
on pages FS-1 to FS-17 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 as to the Directors of the company is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the company's definitive Proxy Statement for the 1996
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company's fiscal year pursuant to Regulation 14A. Information required by
Item 10 as to the Executive Officers of the company is included in Part I of
this Report on Form 10-K.
<PAGE>
21
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
information set forth under the caption "Compensation of Executive Officers and
Directors" in the company's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.
Item. 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to the
information set forth under the caption "Share Ownership of Principal Holders
and Management" in the company's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the company's
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders, since
such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the company's fiscal year pursuant to
Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Financial Statements
The following financial statements of the company are included in Part II, Item
8:
(a)(1) Financial Statements.
Consolidated Statement of Earnings - years ended December 31, 1995, 1994
and 1993
Consolidated Balance Sheet - December 31, 1995 and 1994
Consolidated Statement of Cash Flows - years ended December 31,
1995, 1994 and 1993
Consolidated Statement of Shareholders' Equity - years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2)Financial Statement Schedules.
The following financial statement schedule of the company is included in
Part II, Item 8:
Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or
not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits.
See Exhibit Index at page number I-19 of this Report on Form 10-K.
(b) Reports on Form 8-K.
None
<PAGE>
22
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 on March 26, 1996.
INVACARE CORPORATION
By /S/ A. Malachi Mixon, III
-------------------------------
A. Malachi Mixon, III Chairman of the Board of
Directors, President and Chief Executive Officer
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 on March 26, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- ---------
<S> <C>
/S/ A. Malachi Mixon, III Chairman of the Board of Directors, President and
- - -------------------------- Chief Executive Officer (Principal Executive Officer)
A. Malachi Mixon, III
/S/ Thomas R. Miklich Chief Financial Officer, General Counsel, Treasurer
- - -------------------------- and Corporate Secretary
Thomas R. Miklich
/S/ Francis J. Callahan, Jr. Director
- - --------------------------
Francis J. Callahan, Jr.
/S/ Frank B. Carr Director
- - --------------------------
Frank B. Carr
Director
- - --------------------------
Michael F. Delaney
Director
- - --------------------------
Whitney Evans
/S/ Dan T. Moore, III Director
- - --------------------------
Dan T. Moore, III
/S/ E. P. Nalley Director
- - --------------------------
E. P. Nalley
/S/ Joseph B. Richey, II Director
- - --------------------------
Joseph B. Richey, II
/S/ William M. Weber Director
- - --------------------------
William M. Weber
</TABLE>
<PAGE>
23
INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended
December 31, 1995.
<TABLE>
<CAPTION>
Exhibit Index
-------------
Official
Exhibit No Description Sequential Page No.
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3(a) - Amended and Restated Articles of Incorporation, as amended (A)
through May 29, 1987
3(b) - Code of Regulations, as amended on April 7, 1984 (B)
4(a) - Specimen Share Certificate for Common Shares, as revised (H)
4(b) - Specimen Share Certificate for Class B Common Shares (H)
4(d) - Rights agreement between Invacare Corporation and Rights Agent (T)
dated as of July 7, 1995
10(a) - Stock Option Plan, adopted in February 1984 (B)*
10(b) - Amendment to Stock Option Plan, adopted in May 1987 (C)*
10(c) - Amendment to Stock Option Plan, adopted in May 1988 (D)*
10(d) - Amendment to Stock Option Plan, adopted in May 1991 (I)*
10(h) - Assignment of Patent Application and License of Know-how dated (E)
January 14, 1981, and an amendment thereto dated October 12, 1981, with
respect to certain royalty payments to be made to the former owners of the
company's home care bed subsidiary
10(l) - Interest Rate Swap Agreement dated as of July 6, 1989 (F)
10(p) - Form of Indemnity Agreement entered into by and between the company (H)
and certain of its Directors and officers and Schedule of all such
Agreements with current Directors and officers
10(r) - Master Note, between Invacare Corporation and Sanwa Bank, Limited (J)
10(s) - Employees' Stock Bonus Trust and Plan as amended and restated effective (G) *
January 1, 1988 and as amended on April 13, 1988, April 3, 1990, and May 24, 1991.
10(t) - Profit Sharing and Savings Trust and Plan effective as of January 1, 1988 (G) *
and as amended on November 28, 1988, September 12, 1990, October 9, 1990,
and May 24, 1991.
10(u) - Agreement between Invacare Corporation and Weber, Wood, Medinger, Inc. (J)
10(v) - Real Property Purchase Agreement by and between Invacare Corporation and (N)
Taylor Street limited partnership.
</TABLE>
<PAGE>
24
<TABLE>
<S> <C> <C> <C>
10(z) - Note Agreement dated February 1, 1993 among Invacare Corporation and five (P)
purchasers of an aggregate of $25,000,000, 7.45% Senior Notes due February 1, 2003.
10(aa) - Amendments to Stock Option Plan adopted in May 1992. (M) *
10(ab) - 1992 Non-Employee Directors Stock Option Plan adopted in May 1992. (K)
10(ac) - Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992. (L)
10(ad) - Shares Purchase and Contribution Agreement dated July 27, 1992. (O)
10(af) - Invacare Corporation 1994 Performance Plan approved January 28, 1994. (Q) *
10(ag) - Real Property Purchase Agreement between Mobilite Building
Corporation (a newly (S) formed subsidiary of Invacare Corporation as (R)
of February 15, 1994) and I-M Associates,
LTD. dated February 28, 1994.
10(an) - Loan Agreement dated as of December 20, 1994 among Invacare Corporation and (S)
certain subsidiaries and NBD Bank, N.A., as agent.
21 - Subsidiaries of the company.
23 - Consent of Independent Accountants.
27 - Financial data schedule.
99(a) - Executive Liability and Defense Coverage Insurance Policy. (H)
</TABLE>
* Management contract, compensatory plan or arrangement
(A) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 28, 1987, which exhibit is incorporated herein by
reference.
(B) Reference is made to the appropriate exhibit of the company's Report on
Form 10-K for the fiscal year ended December 31, 1984, which exhibit is
incorporated herein by reference.
(C) Reference is made to the appropriate exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1987, which exhibit is
incorporated herein by reference.
(D) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 25, 1988, which exhibit is incorporated herein by
reference.
(E) Reference is made to the appropriate exhibit of the company's Form 8
Amendment No. 1 (filed on September 23, 1987) to its Registration
Statement on Form 8-A (Reg. No. 0-12938, effective as of October 21,
1986), which exhibitis incorporated herein by reference.
(F) Reference is made to the appropriate exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1989, which exhibit is
incorporated herein by reference.
(G) Reference is made to the appropriate exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1990, as amended,
which is incorporated herein by reference.
<PAGE>
25
(H) Reference is made to the appropriate exhibit of the company's
Registration Statement on Form S-3 (Reg. No. 33-40168), effective
as of April 26, 1991, which exhibit is incorporated herein by
reference.
(I) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 24, 1991, which exhibit is incorporated herein by
reference.
(J) Reference is made to the appropriate exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1991, as amended,
which is incorporated herein by reference.
(K) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which exhibit is incorporated by reference.
(L) Reference is made to Exhibit B of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which exhibit is incorporated by reference.
(M) Reference is made to Exhibit C of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which exhibit is incorporated by reference.
(N) Reference is made to the appropriate exhibit of the company's report on
Form 10-Q for the quarter ended June 30, 1992, which is incorporated
herein by reference.
(O) Reference is made to Exhibit 2 of the company's report on Form 8-K,
dated October 29, 1992, which is incorporated herein by reference.
(P) Reference is made to the appropriate exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1992, which exhibit is
incorporated herein by reference.
(Q) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 23, 1994, which Exhibit is incorporated by reference.
(R) Reference is made to the appropriate Exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1993, which Exhibit is
incorporated herein by reference.
(S) Reference is made to the appropriate Exhibit of the company's report on
Form 10-K for the fiscal year ended December 31, 1994, which Exhibit is
incorporated herein by reference.
(T) Reference is made to Exhibit 1 of the company's report on Form 8-A,
dated July 18, 1995, which is incorporated herein by reference.
<PAGE>
26
Report of Independent Auditors
Shareholders and Board of Directors
Invacare Corporation
We have audited the accompanying consolidated balance sheet of Invacare
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, cash flows, and shareholders' equity for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a)(2).
These financial statements and schedule are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Invacare Corporation and subsidiaries at December 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Cleveland, Ohio
February 1, 1996
<PAGE>
27
CONSOLIDATED STATEMENT OF EARNINGS
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
--------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales $504,032 $411,123 $365,457
Cost of products sold 337,719 278,041 246,953
------- ------- -------
Gross Profit 166,313 133,082 118,504
Selling, general and administrative expense 112,169 89,346 81,634
------- ------ ------
Income from Operations 54,144 43,736 36,870
Interest income 7,276 6,373 5,255
Interest expense (9,575) (8,232) (8,615)
--------- ------- -------
Earnings before Income Taxes 51,845 41,877 33,510
Income taxes 19,680 15,500 11,400
------ ------ ------
Net Earnings $ 32,165 $ 26,377 $ 22,110
======== ======== ========
Net Earnings per Share $ 1.07 $ .89 $ .75
========= ========= =========
Weighted Average Shares Outstanding 30,077 29,696 29,475
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
28
CONSOLIDATED BALANCE SHEET
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1995 1994
-------------------------
(In thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 4,132 $ 7,359
Marketable securities 2,437 3,044
Trade receivables, net 93,592 76,280
Installment receivables, net 37,074 33,723
Inventories 54,468 49,982
Deferred income taxes 6,831 4,088
Other current assets 6,151 5,959
---------------------------
Total Current Assets 204,685 180,435
Other Assets 36,581 28,840
Property and Equipment, net 65,078 55,919
Goodwill, net 102,406 72,915
---------------------------
Total Assets $408,750 $338,109
===========================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 33,805 $ 29,882
Accrued expenses 45,097 34,234
Accrued income taxes 5,821 3,225
Current maturities of long-term obligations 213 326
---------------------------
Total Current Liabilities 84,936 67,667
Long-Term Obligations 122,456 105,528
Deferred Income Taxes 39 907
Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) 0 0
Common Shares (Authorized 50,000 shares; 24,589 and
22,289 issued in 1995 and 1994, respectively) 6,148 5,573
Class B Common Shares (Authorized 12,000 shares;
4,973 and 7,068, issued and outstanding in
1995 and 1994, respectively) 1,243 1,767
Additional paid-in-capital 66,890 63,671
Retained earnings 130,100 99,086
Adjustments to shareholders' equity 993 (2,196)
Treasury shares (311 and 303 shares in
1995 and 1994, respectively) (4,055) (3,894)
---------------------------
Total Shareholders' Equity 201,319 164,007
---------------------------
Total Liabilities and Shareholders' Equity $408,750 $338,109
=============================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
29
CONSOLIDATED STATEMENT OF CASH FLOWS
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net earnings $ 32,165 $ 26,377 $ 22,110
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 14,159 12,686 12,280
Provision for losses on trade and installment receivables 1,379 1,461 386
Provision for deferred income taxes (3,321) 19 (775)
Contribution of stock to employee benefit plan 0 0 451
Changes in operating assets and liabilities:
(Increase)/decrease in trade receivables (10,028) (10,248) 3,879
(Increase)/decrease in inventories 3,102 (3,219) 4,204
Increase in other current assets (2,681) (7) (1,673)
Increase/(decrease) in accounts payable (1,427) 4,126 (9,046)
Increase/(decrease) in accrued expenses 10,373 319 (1,257)
-----------------------------------------------
Net Cash Provided by Operating Activities 43,721 31,514 30,559
Investing Activities
Purchases of property and equipment, net (11,173) (10,881) (11,978)
Proceeds from sale of property and equipment 146 60 17
Installment contracts written (50,908) (49,492) (42,344)
Payments received on installment contracts 40,705 33,012 29,908
Marketable securities purchased (4,307) (350) (2,102)
Marketable securities sold 4,927 1,440 480
Business acquisitions, net of cash acquired (31,019) (8,605) (11,693)
Increase in other investments (2,246) (4,143) (4,849)
Increase in other long term assets (3,865) (1,155) 0
Other 1,689 1,987 (2,280)
-----------------------------------------------
Net Cash Required by Investing Activities (56,051) (38,127) (44,841)
Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 67,057 26,128 92,345
Principal payments on revolving lines of credit,
long-term debt and capital lease obligations (58,942) (23,442) (76,469)
Proceeds from exercise of stock options 1,447 1,830 300
Payment of dividends (968) (355) 0
----------------------------------------------
Net Cash Provided by Financing Activities 8,594 4,161 16,176
Effect of exchange rate changes on cash 509 419 (683)
----------------------------------------------
Increase/(decrease) in cash and cash equivalents (3,227) (2,033) 1,211
Cash and cash equivalents at beginning of year 7,359 9,392 8,181
----------------------------------------------
Cash and cash equivalents at end of year $ 4,132 $ 7,359 $ 9,392
===============================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
30
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands) ---- ---- ----
Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Balance at beginning of year 22,289 $ 5,573 20,766 $ 5,192 20,015 $ 5,004
Conversion of Class B Common Shares
to Common Shares 2,095 524 1,268 317 563 141
Issuance of Common Shares for acquisition 77 19 0 0 0 0
Exercise of stock options 128 32 255 64 188 47
---------------------------------------------------------------------------
Balance at end of year 24,589 $ 6,148 22,289 $ 5,573 20,766 $ 5,192
===========================================================================
Class B Common Shares:
Balance at beginning of year 7,068 $ 1,767 8,337 $ 2,084 8,900 $ 2,225
Conversion of Class B Common Shares
to Common Shares (2,095) (524) (1,269) (317) (563) (141)
--------------------------------------------------------------------------
Balance at end of year 4,973 $ 1,243 7,068 $ 1,767 8,337 $ 2,084
===========================================================================
Additional Paid-In Capital:
Balance at beginning of year $ 63,671 $ 61,709 $ 59,666
Exercise of stock options 1,415 1,962 1,946
Contribution of Common Shares
to employee benefit plans 0 0 97
Issuance of Common Shares for acquisition 1,804 0 0
---------------------------------------------------------------------------
Balance at end of year $ 66,890 $ 63,671 $ 61,709
===========================================================================
Retained Earnings:
Balance at beginning of year $ 99,086 $ 73,242 $ 51,132
Net earnings 32,165 26,377 22,110
Dividend of $.0375 and $.01875 per Common
Share in 1995 and 1994, respectively (1,078) (533) 0
Redemption of 1991 rights plan (73) 0 0
--------------------------------------------------------------------------
Balance at end of year $ 130,100 $ 99,086 $ 73,242
==========================================================================
Adjustments to Shareholders' Equity:
Balance at beginning of year $ (2,196) $ (3,570) $ (1,671)
Foreign currency translation adjustment 2,965 2,044 (1,899)
Marketable securities holding gain(loss), net of tax 224 (670) 0
---------------------------------------------------------------------------
Balance at end of year $ 993 $ (2,196) $ (3,570)
===========================================================================
Treasury Shares:
Balance at beginning of year (303) $ (3,894) (289) $ (3,695) (202) $ (2,356)
Repurchase of treasury shares (8) (161) (14) (199) (123) (1,693)
Contribution of Common Shares
to employee benefit plans 0 0 0 0 36 354
----------------------------------------------------------------------------
Balance at end of year (311) $ (4,055) (303) $ (3,894) (289) $ (3,695)
============================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES
Nature of Operations: Invacare Corporation and its subsidiaries (the "company")
is the leading home medical equipment manufacturer in the world based on its
distribution channels, the breadth of its product line and sales. The company
designs, manufactures and distributes an extensive line of medical equipment for
the home health care and extended care markets. The company's products include
standard manual wheelchairs, motorized and lightweight prescription wheelchairs,
motorized scooters, patient aids, home care beds, low air loss therapy products,
home respiratory, ambulatory infusion pumps and seating and positioning
products.
Principles of Consolidation: The consolidated financial statements include the
accounts of the company and are prepared in conformity with generally accepted
accounting principles which requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from these estimates. Certain
foreign subsidiaries are consolidated using a November 30 fiscal year end. All
significant intercompany transactions are eliminated.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the presentation used for the year ended
December 31, 1995.
Marketable Securities: Current marketable securities are stated at market value,
which approximates cost, and consist of short-term investments in repurchase
agreements, government securities and certificates of deposit. Marketable
securities with original maturities of less than three months are treated as
cash equivalents.
Effective January 1, 1994, the company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). The company has classified their marketable securities
as available for sale in accordance with SFAS 115. The securities are carried at
their fair value and net unrealized holding gains and losses, net of tax, are
carried as a component of shareholders' equity.
Inventories: Inventories are at the lower of cost or market with cost
principally determined for domestic manufacturing inventories by the last-in,
first-out (LIFO) method. Market costs are based on the lower of replacement cost
or estimated net realizable value. Non - domestic inventories and domestic
finished products purchased for resale ($39,704,000 and $26,617,000 at December
31, 1995 and 1994 respectively) are stated at the lower of cost or market with
cost determined by the first-in, first-out (FIFO) method.
Property and Equipment: Property and equipment are stated on the basis of cost.
The company principally uses the straight-line method of depreciation for
financial reporting purposes based on annual rates sufficient to amortize the
cost of the assets over their estimated useful lives. Accelerated methods of
depreciation are used for federal income tax purposes. Expenditures for
maintenance and repairs are charged to expense as incurred.
Estimated Liability for Future Warranty Cost: Certain of the company's products
are covered by warranties against defects in material and workmanship for
periods up to five years from the date of sale to the customer. A non-renewable
warranty is also offered on certain products for a maximum period of five years.
Components of certain products carry a lifetime warranty. A provision for
estimated warranty cost is recorded at the time of sale and is periodically
adjusted to reflect actual experience.
Research and Development: Research and development costs are expensed as
incurred. The company's annual expenditures for product development and
engineering were approximately $9,002,000, $7,651,000 and $6,840,000 for 1995,
1994 and 1993 respectively.
Revenue Recognition: The company recognizes revenue when the product is
shipped and provides an appropriate allowance for estimated returns and
adjustments.
Income Taxes: The company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities in the
balance sheet. The liability method requires that deferred income taxes reflect
the tax consequences of currently enacted rates for differences between the tax
and financial reporting bases of assets and liabilities.
Net Earnings Per Share and Stock Split: On August 21, 1995, the board of
directors of the company declared a two-for-one stock split to be distributed in
the form of a 100% stock dividend on October 16, 1995 to shareholders of record
on October 2, 1995. As a
<PAGE>
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES--Continued
result, all references to per share amounts, number of shares and market prices
of the Common Shares have been adjusted to reflect the stock split.
Common Shares, Slass B Common Shares and the effects of dilutive stock
options are included in calculating the weighted average shares outstanding.
Foreign Currency Translation: Substantially all of the assets and
liabilities of the company's foreign subsidiaries are translated into U.S.
dollars at year end exchange rates. Revenues and expenses are translated at
weighted average exchange rates. Gains and losses resulting from translation are
included in the balance sheet caption "Adjustments to shareholders' equity".
Goodwill: The excess of the aggregate purchase price over the fair value of net
assets acquired is amortized by use of the straight line method for periods from
20 to 40 years. The accumulated amortization was $7,094,000 and $4,418,000 at
December 31, 1995 and 1994, respectively. The carrying value of goodwill is
reviewed at each balance sheet date to determine whether goodwill has been
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the company's carrying value of the goodwill
would be reduced by the estimated shortfall of cash flows at such time an
impairment in value of goodwill has occurred. Based on the company's review as
of December 31, 1995, no impairment of goodwill was evident.
Advertising: Advertising costs are expensed as incurred and included in
"Selling, general and administrative expenses". Advertising expenses amounted to
$8,972,000, $5,487,000 and $6,304,000 for 1995, 1994 and 1993, respectively.
RECEIVABLES
Trade receivables are net of allowances for doubtful accounts of $3,551,000
and $3,251,000 in 1995 and 1994, respectively.
Installment receivables as of December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
Long- Long-
Current Term Total Current Term Total
------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Installment receivables $42,001 $21,698 $63,699 $38,224 $15,537 $53,761
Less:
Unearned interest (4,153) (1,637) (5,790) (3,590) (1,021) (4,611)
Allowance for doubtful accounts (774) (446) (1,220) (911) (378) (1,289)
------------------------------------------------------------------------------
$37,074 $19,615 $56,689 $33,723 $14,138 $47,861
==============================================================================
</TABLE>
The company adopted Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" (SFAS 114) effective January 1, 1995. The
new standard requires that impaired loans within the scope of SFAS 114 be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. Adoption of SFAS 114 did not have a material
impact on the company's financial condition or results of operations.
<PAGE>
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INVENTORIES
Inventories as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------ ------
(In thousands)
<S> <C> <C>
Raw materials $ 20,045 $ 17,272
Work in process 10,898 9,093
Finished goods 23,525 23,617
------ ------
$ 54,468 $ 49,982
======== ========
</TABLE>
Current cost exceeds the LIFO value of inventories by approximately
$572,000 and $777,000 at December 31, 1995 and 1994, respectively.
PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Land, buildings and improvements $ 33,501 $ 26,442
Machinery and equipment 84,662 72,815
Furniture and fixtures 8,636 7,478
Leasehold improvements 6,674 5,696
----- -----
133,473 112,431
Less allowance for depreciation 68,395 56,512
------ ------
$ 65,078 $ 55,919
======= ========
</TABLE>
CURRENT LIABILITIES
Accrued expenses as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Accrued salaries and wages $ 16,330 $ 12,882
Accrued warranty cost 5,745 4,554
Accrued product liability, current portion 896 823
Other accrued items 22,126 15,975
------ ------
$ 45,097 $ 34,234
======= ======
</TABLE>
ACQUISITIONS
In December, 1994 the company purchased the remaining outstanding shares of
Beram AB, a Swedish marketer and distributor of prescription wheelchairs and
rehab products. The company previously held a minority interest in Beram. In
May, 1995 the company purchased the assets of PinDot Products, Inc., a
manufacturer and distributor of custom seating systems and purchased all the
outstanding shares of Patient Solutions, Inc., a manufacturer and distributor of
an ambulatory infusion pump that accommodates intravascular feeding,
intermittent antibiotic therapy, patient-controlled analgesia and chemotherapy.
In June, 1995 the company purchased the outstanding shares of Bencraft Limited,
a United Kingdom manufacturer of manual and power wheelchairs and supplier of
specialty seating systems and purchased the assets and business of Thompson
Rehab from Salmond Smith Biolab Limited. Thompson Rehab is New Zealand's leading
manufacturer of manual and power wheelchairs. In September, 1995 the company
purchased the outstanding shares of Group Pharmaceutical Limited, a New Zealand
marketer and distributor of prescription wheelchairs and other products for
people with disabilities and purchased the outstanding shares of Medical
Equipment Repair Service, Inc., a supplier of aftermarket parts and repair
services for the respiratory equipment market. In September, 1995 for cash
<PAGE>
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
and company stock, the company also acquired the outstanding shares of Paratec
AG, a Swiss company that manufactures manual wheelchairs which are sold under
the Kuschall trademark. In November, 1995 the company purchased the outstanding
shares of Special Health Systems Ltd., a Canadian designer and manufacturer of
seating and positioning systems for wheelchairs.
In August 1994, the company purchased all the outstanding shares of Rehadap
S.A., a Spanish marketer and distributor of precision wheelchairs and other
rehab products for people with disabilities. In November 1994, the company
purchased all the outstanding shares of Genus Medical, Inc., a manufacturer of
power positioning seating systems for motorized wheelchairs, and electric three
and four wheeled scooters.
In March 1993, the company purchased the assets of Top End, a manufacturer of
specialty products for sports and recreational use for people with disabilities.
The company acquired for cash all the shares of Dynamic Controls Limited, a
manufacturer of control systems for power drive wheelchairs in June 1993, and in
July 1993 acquired Geomarine Systems, Inc., a manufacturer of low air loss
therapy systems.
The operating results of all acquisitions are included in the company's
consolidated results of operations from the respective dates of acquisition. The
above transactions have been accounted for by the purchase method of accounting
and the pro forma effects are not material.
LEASES AND COMMITMENTS
The company leases a substantial portion of its facilities, transportation
equipment, data processing equipment and certain other equipment. These leases
have terms of up to 10 years and provide for renewal options. Generally, the
company is required to pay taxes and normal expenses of operating the facilities
and equipment. As of December 31, 1995, the company is committed under
non-cancelable operating leases which have initial or remaining terms in excess
of one year and expire on various dates through 2005. Lease expenses were
approximately $4,725,000 in 1995, $4,458,000 in 1994, and $4,867,000 in 1993.
Future minimum operating lease commitments as of December 31, 1995, including
minimum payments described in the Related Party Transactions Note, are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
(In thousands)
<S> <C>
1996 $ 4,282
1997 3,226
1998 2,039
1999 1,035
2000 535
Thereafter 1,837
--------
Total Future Minimum Lease Payments $ 12,954
========
</TABLE>
The amount of buildings and equipment capitalized in connection with capital
leases was $3,191,000 and $3,551,000 at December 31, 1995 and 1994,
respectively. At December 31, 1995 and 1994, accumulated amortization was
$1,009,000 and $1,107,000, respectively.
RETIREMENT AND BENEFIT PLANS
Substantially all full-time salaried and hourly domestic employees are included
in two profit sharing plans sponsored by the company. The company's
contributions to the domestic plans are based on an annual resolution of the
Board of Directors and the company has no requirement to make a contribution.
The contributions can either be in the form of cash or property to the Profit
Sharing Plan or in the form of cash, Common Shares or property to the Employee
Stock Bonus Trust and Plan. Cash contributions to the Employee Stock Bonus Trust
are used to purchase the company's Common Shares on the open market.
<PAGE>
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
The company introduced a 401(k) Benefit Equalization Plan effective March 1,
1994 covering certain employees, which provide for retirement payments so that
the total retirement payments equal amounts that would have been payable from
the Corporation's principal retirement plans if it were not for limitations
imposed by income tax regulations.
Contribution expense for the above plans in 1995, 1994 and 1993 was
$2,406,000, $1,455,000 and $930,000, respectively.
In 1995, the company introduced a non-qualified Supplemental Executive
Retirement Plan (SERP) effective May 1, 1995 for certain key executives. The
projected benefit obligation related to this unfunded plan was $14,643,000 at
December 31, 1995. Pension expense for the plan was $400,532 in 1995.
The company utilizes a Voluntary Employee Benefit Association (VEBA) to provide
for the payment of self-funded employee health benefits for current employees.
The contribution for 1995 and 1994 was $1,400,000 each year. No VEBA
contribution was made in 1993.
SHAREHOLDERS' EQUITY TRANSACTIONS
At December 31, 1995, the company had 50,000,000 authorized Common Shares,
without par value, and 12,000,000 authorized Class B Common Shares, without par
value. In general, the Class B Common Shares and the Common Shares have
identical rights, terms and conditions and vote together as a single class on
most issues, except that the Class B Common Shares have ten votes per share,
carry a 10% lower cash dividend rate and, in general, can only be transferred to
family members. Holders of Class B Common Shares are entitled to convert their
shares into Common Shares at any time on a share-for-share basis.
As of December 31, 1995, the company had 300,000 shares of Serial Preferred
Shares authorized, none of which were issued or outstanding. Serial Preferred
Shares are entitled to one vote per share.
During 1994, the Board of Directors adopted and the Shareholders approved the
1994 Performance Plan (the "1994 Plan"). The 1994 Plan provides for the issuance
of up to 2,000,000 Common Shares in connection with stock options and other
awards granted under the plan. The 1994 Plan allows the Compensation Committee
to grant incentive stock options, non-qualified stock options, stock
appreciation rights, and stock awards (including the use of restricted stock).
The Committee has the authority to determine the employees that will receive
awards, the amount of the awards and the other terms and conditions of the
awards. Payments of the stock appreciation rights may be made in cash, Common
Shares or a combination thereof. There were no stock appreciation rights
outstanding at December 31, 1995, 1994 or 1993. During 1995, the Committee,
under the 1994 Plan, granted 407,600 non-qualified stock options at 100% of the
fair market value of the underlying shares on the date of grant and for a term
of ten years.
The company also has a Stock Option Plan for non-employee Directors. The plan
was approved May 27, 1992 and provides for the granting of up to a maximum of
100,000 options to eligible Directors. Directors will receive grants based on
the market value of the company's stock at the date of grant and have a term of
ten years. To date, no grants have been made under this plan.
The Plans have provisions for the cashless exercise of options. Under these
provisions the company acquired 8,350 treasury shares for $161,000 in 1995,
14,270 treasury shares for $199,000 in 1994, and 123,222 treasury shares for
$1,693,000 in 1993.
<PAGE>
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
As of December 31, 1995, an aggregate of 10,798,084 shares were reserved for
conversion of Class B Common Shares, future rights (as defined below) and
exercise and future grant of options.
The following summarizes the stock option transactions under the company's stock
option plans:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Options outstanding at January 1, 2,357,304 2,349,848 2,175,402
Granted 487,600 342,000 375,400
Exercised (127,973) (255,114) (188,004)
Canceled (25,029) (79,430) (12,950)
Options outstanding at December 31, 2,691,902 2,357,304 2,349,848
Options price range at December 31, $ 1.56 $ 1.56 $ 1.56
to to to
$ 25.25 $ 15.13 $ 14.00
Options exercisable at December 31, 1,651,406 1,352,542 1,096,954
Options available for grant at December 31, 1,462,897 1,844,500 416,108
</TABLE>
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued and becomes
effective for fiscal years beginning after December 15, 1995. Under the new
rules, companies will be required to provide additional footnote disclosures
relating to stock-based awards. Additionally, companies are encouraged, but not
required, to recognize expense for stock-based awards based on their fair value
on the date of grant. In accordance with SFAS 123, the company has elected to
continue to apply Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees ("APB 25") and related interpretations in accounting
for its employee stock options. Under APB 25, if the option is fixed and the
exercise price of the underlying stock equals the market price on the date of
the grant, no compensation expense is recognized. The adoption of the new
standard will not have an effect on the company's financial condition or results
of operations.
On July 7, 1995, the company adopted a Rights Plan whereby each holder of a
Common Share and Class B Common Share received one purchase right (the "Rights")
for each share owned. Under certain conditions, each Right may be exercised to
purchase one-tenth of one Common Share at a price of $8 per one-tenth of a
share. The Rights may only be exercised 10 days after a third party has acquired
30% or more of the company's outstanding voting power or 10 days after a third
party commences a tender offer for 30% or more of the voting power (an
"Acquiring Party"). In addition, if an Acquiring Party merges with the company
and the company's Common Shares are not changed or exchanged, or if an Acquiring
Party engages in one of a number of self-dealing transactions, each holder of a
Right (other than the Acquiring Party) will have the right to receive that
number of Common Shares or similar securities of the resulting entity having a
market value equal to two times the exercise price of the Right. The company may
redeem the Rights at a price of $.005 per right at any time prior to 10 days
following a public announcement that an Acquiring Party has acquired beneficial
ownership of 30% or more of the company's outstanding voting power, and in
certain other circumstances as approved by the Board of Directors. The Rights
will expire on July 7, 2005. Coincident with adoption of the Plan, the company
redeemed Rights outstanding under a prior plan at the price of $.005 per Right.
<PAGE>
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
LONG-TERM OBLIGATIONS
Long-term obligations as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
$25,000,000 senior notes at 7.45%, matures in February 2003 $ 25,000 $ 25,000
Revolving credit agreement ($200,000,000 multi-currency) at 1/4 to
1% above local interbank offered rates, expires December 2000 78,534 62,345
Notes payable to banks under credit facilities 3,853 3,900
Notes and mortgages payable, secured by buildings and equipment 6,614 4,903
Capitalized lease obligations 2,254 2,445
Product liability 3,269 2,781
Other 3,145 4,480
------ ------
122,669 105,854
Less current maturities of long-term obligations 213 326
------ ------
$122,456 $105,528
======== =======
</TABLE>
In 1993, the company completed a private placement of $25,000,000 in senior
notes at 7.45% which contain covenants similar to the revolving credit agreement
described below. At December 31, 1995, $63,382,000 of retained earnings is
available for dividends. The notes are due in 2003 and require principal
payments of $3.6 million per year beginning in 1997.
During 1994, the company entered into a $200,000,000 multicurrency long-term
credit agreement. The borrowing rates are determined based on the leverage
ratios of the company, as defined in the agreement and range from 1/4 to 1%
above the various interbank offered rates. The agreement requires the company to
maintain certain conditions with respect to net worth, funded debt to
capitalization and interest coverage as defined per the agreement.
Notes payable to banks under credit facilities consist of borrowings under
various arrangements by the company and its foreign subsidiaries and consists of
a $10,000,000 demand line, a 10,000,000 Canadian dollar demand line, 2,000,000
New Zealand dollar demand line, 650,000 British pound demand line, 1,200,000
deutsche mark demand line, 27,700,000 French franc demand line, 40,000,000
Spanish peseta demand line, 350,000 Swiss franc demand line and a 1,500,000
Swedish krona demand line. Borrowings under these lines are considered long-term
to the extent that unused borrowing capacity is available under the $200,000,000
revolving credit agreement. Interest on amounts borrowed under the various
credit facilities is at the respective bank's base rate or an interbank offered
rate. Certain borrowings from foreign banks are secured by the assets of foreign
subsidiaries or by guarantees of the company.
In May 1995, the company fixed the interest rate on $10,000,000 of its U.S.
dollar borrowing through two interest rate swap agreements. Each agreement is
for $5,000,000 U.S. dollars. The effect of the swaps is to exchange a short-term
floating interest rate for a fixed rate of 6.1725% for a three year term in one
agreement and 6.38% for a five year term in the other agreement.
Also in May 1995, the company fixed the interest rate on 7,500,000 of its
Canadian dollar borrowing through an interest rate swap agreement. The effect of
the swap is to exchange a short-term floating interest rate for a fixed rate of
7.245% for a three year term. As of December 31, 1995 the weighted average
variable interest rate on Canadian debt was 6.7%.
<PAGE>
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
In March 1993, the company fixed the interest rate on 100,000,000 of the
outstanding French franc debt through two interest rate swap agreements. Each
agreement is for 50,000,000 French francs. The effect of the swap is to exchange
short term floating interest rates for a fixed rate of 7.48% for a five-year
term in one agreement and 7.81% for a three-year term in the other agreement. As
of December 31, 1995 and 1994 the weighted average variable interest rate on the
French franc debt was 7.1% and 7.2%, respectively.
In July 1989, the company entered into a seven-year interest rate swap agreement
which effectively fixed the interest rate on $5,000,000 of the company's various
domestic variable rate borrowings at 8.89% under revolving credit agreements and
notes payable to banks under credit facilities. The weighted average variable
interest rate on the domestic debt was 6.4% and 6.8% as of December 31, 1995 and
1994, respectively.
The secured promissory notes financed the purchase of certain buildings and
equipment which secure the notes. The notes bear interest at rates from 4.8% to
10.4 % and mature through 2001 .
The capital leases at December 31, 1995 are principally for a manufacturing
facility and computer systems, with payments due through 2007.
The company is self-insured for a portion of its product liability and certain
other liability exposures. Product liability for domestically manufactured
products is insured through the company's captive insurance company, which
insures the first $2,000,000 per claim of the company's product liability
exposure. The company also has additional layers of coverage insuring up to
$50,000,000 in annual aggregate losses arising from individual losses that
exceed $2,000,000.
The aggregate minimum combined maturities of long-term obligations are
approximately $213,000 in 1996, $4,897,000 in 1997, $4,718,000 in 1998,
$4,239,000 in 1999, $94,428,000 in 2000, and $14,174,000 thereafter. Interest
paid on borrowings was $8,982,000, $6,625,000 and $7,665,000 in 1995, 1994 and
1993, respectively.
INCOME TAXES
Earnings before income taxes consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Domestic $46,062 $38,871 $31,505
Foreign 5,783 3,006 2,005
----- ----- -----
$51,845 $41,877 $33,510
======= ======= =======
</TABLE>
The company has provided for income taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $16,340 $12,115 $ 8,675
State 3,490 2,580 2,075
Foreign 2,980 1,170 1,425
----- ----- -----
22,810 15,865 12,175
Deferred:
Federal (1,300) (635) (25)
Foreign (1,830) 270 (750)
======= ======= =======
(3,130) (365) (775)
$19,680 $15,500 $11,400
======== ======= =======
</TABLE>
At December 31, 1995, the company has available foreign tax loss carryforwards
of approximately $4,440,000 of which $3,025,000 are non expiring and $1,415,000
expire between 1998 and 2001.
<PAGE>
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INCOME TAXES--Continued
The company made income tax payments of $19,528,000, $16,606,000 and
$12,264,000 during the years ended December 31, 1995, 1994 and 1993,
respectively.
A reconciliation to the effective income tax rate from the federal statutory
rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C>
Statutory federal income tax rate 35.0 % 35.0 % 35.0 %
State and local income taxes, net of
federal income tax benefit 4.4 4.0 4.0
Tax credits (1.9) (2.0) (2.3)
Other, net 0.5 - (2.7)
---- ----- -----
38.0 % 37.0 % 34.0 %
==== ===== =====
</TABLE>
Significant components of deferred income tax assets and liabilities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Current deferred income tax assets (net): 1995 1994
---- ----
(In thousands)
<S> <C> <C>
Bad Debt $ 1,101 $ 1,017
Warranty 1,224 972
Inventory 850 356
Other accrued expenses and reserves 1,986 826
State and local taxes 973 1,031
Loss carryforward 720 142
Other, net (23) (256)
---- ----
$ 6,831 $ 4,088
Long-term deferred income tax liabilities (net):
Depreciation $(1,646) $(1,745)
Loss carryforward 878 490
Other, net 729 348
----- -----
$ (39) $ (907)
======= =====
</TABLE>
RELATED PARTY TRANSACTIONS
The company leased a facility from a partnership (I-M Associates, Ltd.,
"Partnership") comprised of certain officers, directors and shareholders of the
company. The General Partner of the Partnership is also the director and
chairman of the company. In March 1994, the company, through a newly formed
subsidiary, exercised its option to acquire the entire facility (land and
building) for $3,800,000. As part of the purchase, the company assumed
approximately $1,400,000 in indebtedness of industrial development revenue bonds
issued by the Sanford Airport Authority. The purchase price was based upon an
independent appraisal of the fair market value of the facility. Lease payments
during 1994 and 1993 were $98,000 and $544,000, respectively.
<PAGE>
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
(In thousands, except per share data)
1995 March 31, June 30, September 30, December 31,
---------------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 107,729 $ 122,301 $ 130,547 $ 143,455
Gross profit 33,402 40,084 43,904 48,923
Earnings before income taxes 7,737 12,432 14,618 17,058
Net earnings 4,797 7,712 9,068 10,588
Net earnings per share .16 .26 .30 .35
<CAPTION>
1994 March 31, June 30, September 30, December 31,
---------------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 87,902 $ 98,894 $ 108,977 $ 115,350
Gross profit 26,577 31,499 35,740 39,266
Earnings before income taxes 5,790 9,890 11,867 14,330
Net earnings 3,650 6,230 7,477 9,020
Net earnings per share .12 .21 .25 .30
</TABLE>
BUSINESS SEGMENTS
The company operates in one business segment, home medical equipment. Geographic
information for each of the three years ended December 31 is as follows:
<TABLE>
<CAPTION>
Other Total
North North
Domestic America America Europe Total
-------------------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C> <C>
1995
Net sales $353,340 $ 34,154 $ 387,494 $ 116,538 $ 504,032
Earnings before income taxes 46,930 (2,842) 44,088 7,757 51,845
Assets 227,003 56,974 283,977 124,773 408,750
Liabilities 96,129 43,718 139,847 67,584 207,431
1994
Net sales $293,790 $ 27,774 $ 321,564 $ 89,559 $ 411,123
Earnings before income taxes 39,742 (885) 38,857 3,020 41,877
Assets 204,715 31,582 236,297 101,812 338,109
Liabilities 87,691 28,566 116,257 57,845 174,102
1993
Net sales $261,337 $ 21,638 $ 282,975 $ 82,482 $ 365,457
Earnings before income taxes 31,681 1,057 32,738 772 33,510
Assets 173,235 25,186 198,421 87,946 286,367
Liabilities 73,880 19,604 93,484 57,921 151,405
</TABLE>
<PAGE>
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
The operations of the company's Mexican facility are treated as Domestic for
segment reporting purposes. Substantially all of the products manufactured at
the Mexican facility are sold to customers located in the United States.
The results of the company's Canadian and New Zealand operations are included in
Other North America for segment reporting purposes. A significant portion of the
New Zealand operations are components for products manufactured by the company's
North American facilities.
Eliminated from above net sales for 1995, 1994 and 1993 were $11,296,000,
$6,922,000, and $6,128,000 respectively, of sales by North American subsidiaries
to European subsidiaries and $1,005,000, $576,000 and $761,000, respectively,
of sales by European subsidiaries to North American subsidiaries. Sales between
geographic areas are based on the costs to manufacture plus a reasonable profit
element.
CONCENTRATION OF CREDIT RISK
The company manufactures and distributes durable medical equipment and supplies
to the home health care and extended care markets. The company performs credit
evaluations of its customers' financial condition and on a case by case basis
may require a security position in the form of UCC filings, purchase money
security interests and/or personal guarantees. Substantially all of the
company's receivables are due from home health care and medical equipment
dealers located throughout the United States, Canada, and Europe. A significant
portion of products sold to dealers, both foreign and domestic, are ultimately
funded through government reimbursement programs such as Medicare and Medicaid.
As a consequence, changes in these programs can have an adverse impact on dealer
liquidity and profitability. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the company in estimating its
fair value disclosures for financial instruments:
Cash, cash equivalents and marketable securities: The carrying amount reported
in the balance sheet for cash, cash equivalents and marketable securities
approximates its fair value.
Installment receivables: The carrying amount reported in the balance sheet
for installment receivables approximates its fair value. The majority of the
portfolio contains receivables with terms less than three years of which a large
concentration is due in less than one year. The interest rates associated with
these receivables have not varied significantly over the past three years.
Management believes that after consideration of the credit risk, the net book
value of the installment receivables approximates market value.
Long-term debt: The carrying amounts of the company's borrowings under its
long-term revolving credit agreements approximate their fair value. Fair values
for the company's senior notes are based on pricing models using current
assumptions.
Interest Rate Swaps: The company is a party to interest rate swap agreements
with off-balance sheet risk which are entered into in the normal course of
business to reduce exposure to fluctuations in interest rates. The agreements
are with major financial institutions which are expected to fully perform under
the terms of the agreements thereby mitigating the credit risk from the
transactions. The agreements are contracts to exchange variable rate payments
with fixed rate payments over the life of the agreements without the exchange of
the underlying notional amounts. The notional amounts of such agreements are
used to measure interest to be paid or received and do not represent the amount
of exposure to credit loss. The amounts to be paid or received under the
interest rate swap agreements are accrued consistent with the terms of the
agreements and market interest rates. Fair value for the company's interest rate
swaps are based on pricing models or formulas using current assumptions.
<PAGE>
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
FAIR VALUES OF FINANCIAL INSTRUMENTS - (continued)
The carrying amounts and fair values of the company's financial instruments at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----- ----
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,132 $ 4,132 $ 7,359 $ 7,359
Marketable securities 2,437 2,437 3,044 3,044
Installment receivables 56,689 56,689 47,861 47,861
Long-term debt (including current 116,255 118,322 98,323 97,884
maturities)
Interest rate swaps (fair value liability) - 1,136 - 62
</TABLE>
Forward Contracts: The company operates internationally and as a result is
exposed to foreign currency fluctuations. Specifically, the exposure includes
firm or anticipated intercompany trade accounts, intercompany loans, and third
party sales or payments. In an attempt to reduce this exposure, foreign currency
forward contracts are utilized and accounted for as effective hedging
instruments. The company does not use derivative financial instruments for
speculative purposes.
The gains and losses that result from the forward contracts are deferred and
recognized when the offsetting gains and losses for the identified transactions
are recognized. At December 31, 1995, the gain resulting from forward contracts
was not material to the financial statements.
The following table represents the fair value of all outstanding forward
currency contracts at December 31, 1995. The valuations are based on quotes from
brokers. All contracts noted below mature before March 1996. No contracts were
outstanding at December 31, 1994.
<TABLE>
<CAPTION>
December 31, 1995
(Buy)/Sell Market Value
U.S. dollar (In thousands)
-------------------------------------
<S> <C> <C>
Deutsche mark $ 156 $ 6
French franc 78 3
Spanish peseta 95 (5)
New Zealand dollar (1,391) (1)
</TABLE>
<PAGE>
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL.E
----------- --------- ----------- ------------ --------
ADDITIONS
---------
Balance Charged Charged To Balance
At To Other At
Beginning Cost And Accounts Deductions- End Of
Description Of Period Expenses Describe Describe Period
------------- ----------- --------- ----------- ------------ --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
- - ----------------------------
Deducted from asset accounts
Allowance for doubtful
accounts $4,540 $3,419 $ 163(C) $3,351(A) $4,771
Inventory obsolescence
reserve 3,491 4,158 510(C) 2,885(B) 5,274
Product warranty liability 4,554 4,689 64(C) 3,562(B) 5,745
Year Ended December 31, 1994
- - ----------------------------
Deducted from asset accounts
Allowance for doubtful
accounts $4,093 $2,804 $ 159(C) $2,516(A) $4,540
Inventory obsolescence
reserve 4,114 1,692 53(C) 2,368(B) 3,491
Product warranty liability 3,539 3,560 112(C) 2,657(B) 4,554
Year Ended December 31, 1993
- - ----------------------------
Deducted from asset accounts
Allowance for doubtful
accounts $3,841 $ 2,490 $21(C) $2,259(A) $4,093
Inventory obsolescence
reserve 3,736 1,244 1,253(C) 2,119(B) 4,114
Product warranty liability 2,957 2,530 521(C) 2,469(B) 3,539
</TABLE>
NOTE (A)--Uncollectible accounts written off, net of recoveries.
NOTE (B)--Amounts written off or payments incurred.
NOTE (C)--Amounts recorded due to acquisition of subsidiaries.
<PAGE>
1
Exhibit 21
1. Canyon Products Corporation, an Ohio corporation and wholly owned
subsidiary.*
2. Carters (J & A) Ltd., an English corporation and wholly owned
subsidiary, except for one share registered in the name of Mr. Kevin
Crumpler as nominee for Invacare Holdings Corporation.
3. Invacare Canada Inc., an Ontario corporation and wholly owned
subsidiary.
4. Invacare Deutschland GmbH, a German corporation and wholly owned
subsidiary.
5. Invacare France S.A.R.L., a French corporation and wholly owned
subsidiary.
6. Invacare Holdings Corporation, an Ohio corporation and wholly
owned subsidiary.
7. Invacare International Corporation, an Ohio corporation and wholly
owned subsidiary.
8. Invacare Respiratory Corporation, an Ohio corporation and wholly
owned subsidiary.
9 . Invacare Trading company, Inc., a United States Territory of the
Virgin Islands corporation and wholly owned subsidiary.
10. Invamex, S.A. de C.V., a Mexican corporation and wholly owned
subsidiary.
11. Invacare Credit Corporation, an Ohio corporation and wholly owned
subsidiary.
12. Invatection Insurance company, a Vermont corporation and wholly
owned subsidiary.
13. Mobilife Corporation, a Missouri corporation and wholly owned
subsidiary.
14. Mobilite Corporation, a Florida corporation and wholly owned
subsidiary.
15. Option 5 Inc., a Quebec corporation and wholly owned subsidiary.
16. Etablissements Poirier S.A., a French corporation and wholly owned
subsidiary.
17. POK - Rollstuhle GmbH, a German corporation and wholly owned
subsidiary.
18. Poirier Holdings Inc., a Delaware corporation and wholly woned
subsidiary.
19. Dynamic Controls Ltd., a New Zealand corporation and wholly
owned subsidiary.
20. Quantrix consultants Ltd., a New Zealand corporation and wholly
owned subsidiary.
21. Controls Dynamic Ltd., an English corporation and wholly owned
subsidiary.
22. Geomarine Systems Inc., a New York corporation and wholly
owned subsidiary.
<PAGE>
2
23. Sci Des Hautes Roches, a French partnership and wholly owned
subsidiary.
24. Sci Des Roches, a French partnership and wholly owned subsidiary.
25. Mobilite Building Corporation, a Florida corporation and wholly
owned subsidiary.
26. Rehadap, S.A., a Spanish corporation and wholly owned subsidiary.
27. Genus Medical, Inc., a Canadian corporation and wholly
owned subsidiary.
28. Beram, AB, a Swedish corporation and wholly owned subsidiary.
29. Patient Solutions, Inc., a Delaware corporation and wholly owned
subsidiary.
30. Medical Equipment Repair Services. Inc., a Florida corporation and
wholly owned subsidiary.
31. Thompson Rehab Limited., a New Zealand corporation and wholly
owned subsidiary.
32. Group Pharmaceutical Ltd., a New Zealand corporation and wholly
owned subsidiary.
33. Equipment for Independence Limited, a New Zealand corporation and
wholly owned subsidiary.
34. Equipment Management Services Limited, a New Zealand corporation
and wholly owned subsidiary.
35. Bencraft Limited, an English corporation and wholly owned
subsidiary.
36. Paratec AG, a Switzerland corporation and wholly owned subsidiary.
- - ---------------------
* "Wholly owned subsidiary" refers to indirect, as well as direct, wholly
owned subsidiaries.
<PAGE>
1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the (I) Registration
Statements (Forms S-8, No. 33-24619 dated October 10, 1988, and No. 33-87052
dated December 5, 1994) pertaining to the Invacare Corporation Stock Option
Plan, and (ii) Registration Statement (Form S-3, No. 33-57967) and related
prospectus, of our report dated February 1, 1996, with respect to the
consolidated financial statements and schedule of Invacare Corporation and
Subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1995.
ERNST & YOUNG LLP
Cleveland, Ohio
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,132
<SECURITIES> 2,437
<RECEIVABLES> 93,592
<ALLOWANCES> 4,771
<INVENTORY> 54,468
<CURRENT-ASSETS> 204,685
<PP&E> 133,473
<DEPRECIATION> (68,395)
<TOTAL-ASSETS> 408,750
<CURRENT-LIABILITIES> 84,936
<BONDS> 0
0
0
<COMMON> 7,391
<OTHER-SE> 193,928
<TOTAL-LIABILITY-AND-EQUITY> 408,750
<SALES> 504,032
<TOTAL-REVENUES> 504,302
<CGS> 337,719
<TOTAL-COSTS> 337,719
<OTHER-EXPENSES> 112,169
<LOSS-PROVISION> 1,379
<INTEREST-EXPENSE> 2,299
<INCOME-PRETAX> 51,845
<INCOME-TAX> 19,680
<INCOME-CONTINUING> 32,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,165
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
