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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, 1996
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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, 1997, 28,488,077 Common Shares and 1,441,467 Class B Common
Shares were outstanding. At that date, the aggregate market value of the
23,497,677 Common Shares of the Registrant held by non-affiliates was
$569,818,667 and the aggregate market value of the 99,547 Class B Common Shares
of the Registrant held by non-affiliates was $2,414,015 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, 1997, which was $24.25. For purposes of this
information, the 4,990,400 Common Shares and 1,341,920 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
-----------------------------------
Part of Form 10-K Document Incorporated By Reference
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Part III (Items 10, 11, Portions of the Registrant's
12 and 13) definitive Proxy Statement to
be used in connection with
its 1997 Annual Meeting of
Shareholders.
Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 1996.
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PART I
Item 1. Business.
(a) General Development of Business.
Invacare is the leading home medical equipment (HME) 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, retail 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 provider locations in the U.S., Australia,
Canada, New Zealand and Europe, 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 retailchannel through a dedicated sales and
marketing structure;
* managing the extended and acute care market with separate
sales and distribution;
* continuous advancement/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 1996, Invacare reached $619 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
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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 believed to be
conducive to improved patient outcomes. Healthcare professionals, public
payors 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 as current hospital procedures
often allow for earlier patient discharge, thereby lengthening recuperation
periods outside of the traditional 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 1995, it was estimated that spending
on health care in the U.S. surpassed $990 billion dollars, which is
approximately 14.0% of Gross Domestic Product (GDP). Spending for 1996 was
projected to reach $1 trillion, and estimated to reach 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 has gained wide-spread acceptance among
health care providers and public policy makers as a cost effective,
clinically appropriate and patient preferred alternative to facility based
care for a variety of acute and long-term illnesses and disabilities. Thus
the company believes that home health care and home medical equipment will
play a significant role in reducing health care costs.
Society's mainstreaming of people with disabilities. People with
disabilities are part of the fabric 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
providers and extended care facilities but retail drug stores, surgical
supply houses, rental, hospital and HMO-based stores, home health agencies,
mass merchandisers and direct sales.
Europe
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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. The European
health care industry is more heavily socialized and is therefore more influenced
by government regulation and fiscal policy. 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.
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OPERATING UNITS
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North America
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North American operations are aligned into three primary operating groups, which
manufacture and market products in all of the major home medical equipment
categories. In Australia, the company manufactures and markets custom power
wheelchairs for Australasia. In Canada, the company principally sells Invacare
products manufactured in the U.S. In New Zealand, the company principally
produces components used in other Invacare products, as well as manufactures and
distributes products for the New Zealand market. The company also sells standard
wheelchairs and seating and positioning products manufactured in Canada and
certain patient aids manufactured in Europe.
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,
among others, the Storm SeriesTM, a technologically advanced series of
power wheelchairs. Action Virtual ServiceSM technology was introduced in
1996 on the Power MK IV series controllers. This innovative technology
allows technicians to access power chair controllers via modem so that
in-depth diagnostics and performance adjustments can be done from any
location where a phone line is available. Additionally, the economical
Action P7E series was recently introduced to meet basic transportation and
mobility needs.
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 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 various
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 both outdoor and
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 include the Tarsys(TM)
product of electronic and mechanical tilting and reclining devices for use
on power wheelchairs.
STANDARD PRODUCTS GROUP
Manual wheelchairs. For use in the home, institutional setting or public
places (e.g. airports, malls, etc. ) 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 product lines. Both standard and
prescription manual wheelchairs are designed to accommodate the diverse
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.
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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, , trapeze bars and traction equipment.
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 are immobile and therefore spend a great
deal of time in bed.
Patient transport. Invacare manufactures and markets products for use in
the home 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.
Extended care bed and furniture. Invacare, operating as Invacare Health
Care Furnishings (IHCF), manufactures and distributes beds and furnishings
for facility based care focusing on the extended and acute care markets.
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
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The company's European operations operate as a "common market" company with
sales throughout western Europe. The European operation currently sells a
limited line of products providing significant room for growth as Invacare
continues to broaden its product line offerings to mirror that of the North
American operations. The expansion of respiratory products remains a major focus
in order to capitalize on the progress made in 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, 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 Community European (CE) mark. The
Action Storm Series, which is very successful in the U.S., was also redesigned
for European markets and launched as scheduled during 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 six of its European facilities - Bencraft Ltd. and Invacare (UK)
Ltd.in the U.K., Poirier Groupe Invacare S.A. in France, Invacare Deutschland
GmbH in Germany, Fabriorto Lda in Portugal and Kuschall Design AG, formerly
Paratec AG, assembles the Kuschall line of manual wheelchairs in Switzerland.
Motorized scooters are manufactured in Germany. Self care products and patient
lifts and slings are manufactured in the United.Kingdom. and France. Oxygen
products are imported from Invacare's U.S operations.
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WARRANTY
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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. Specific components of the
company's manual, custom manual and power wheelchair carry a lifetime warranty.
COMPETITION
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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.
North America
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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 its "One Stop
Shoppingsm" 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 HME manufacturers will not attempt
to implement such aggressive pricing again.
Europe
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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, some of them becoming
regional leaders in specific product lines.
MARKETING AND DISTRIBUTION
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North America
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Sales and Marketing. Invacare's products are marketed in the United States
primarily to HME providers that in turn sell or rent these products directly to
the end user or to health care institutions, including hospital and nursing home
facilities. Although the company's primary customer in the past has been the HME
provider, the company also markets its home health products using a
"pull-through" marketing method to medical professionals, including physical,
and occupational therapists, who refer their patients to HME providers to obtain
specific types of home medical equipment.
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As a result of the superior service provided by the company's "One Stop
Shoppingsm" program, the company has been able to increase its large national
account business as well as business with small-to-medium size providers. "One
Stop Shoppingsm" offers the HME provider the broadest range of products and
services at the total lowest cost. The products of "One Stop Shoppingsm" include
a full HME product line, including HME retail merchandising; a dedicated
territory business manager with specialist support; account services which
include: every day low pricing; InvatelTM Electronic Data Interchange (EDI)
Systems; Invacare Credit Corporation; distribution; and technical training. In
some cases, Invacare sells directly to government agencies such as the
Department of Veterans Affairs (V.A.) or the Department of Defense.
The company continues to make improvements to existing sales and marketing
programs to generate greater consumer awareness of Invacare and its products, as
witnessed by enhancements made to its consumer marketing program in 1996 through
its sponsorship of a variety of wheelchair activities and support of various
charitable causes which benefit users of its products. At the 1996 Atlanta
Paralympic Games, athletes sponsored by Invacare's Action brand won 89 medals,
more than twice the medals of our nearest competitor, competing in the company's
high-performance racing and sports chairs marketed under the Action Top End(R)
name. Invacare also continued as a National Corporate Sponsor of the National
Easter Seal Society, one of the most recognizable charities in the United States
that annually meets the needs of over one million children and adults who have
various types of disabilities.
In 1996, the company continued the implementation of its new brand strategy in
order to effectively communicate to home health care providers and consumers the
wide variety of products which Invacare manufactures. The Invacare(R) brand is
the company's primary brand for home health care and respiratory equipment, or
"stock" products, preferred by professional HME providers. The Action brand is
the primary brand for high-tech mobility and sports equipment, or "custom"
products preferred by health care professionals and consumers. The PinDot(R)
brand represents the company's various seating and positioning products
preferred by providers and health care professionals. Launched in 1996, the
Aurora(TM) brand was developed to serve the newly emerging mass-retail channels
of distribution for home medical equipment which is considered to be "off-the-
shelf" as it does not require the expertise of a medical professional in the
purchasing process.
Invacare's domestic sales and marketing organization consists primarily of a
home care sales force which markets and sells Invacare(R), Pindot(R) and Action
branded products to the HME providers. A dedicated manufacturer's
representatives' sales force markets and sells the Invacare brand through the
company's IHCF subsidiary to the extended and acute care markets; and a separate
manufacturer's representatives' sales force markets and sells the Aurora(TM)
brand to the mass retail channels of distribution, including home centers, mass
merchants and chain drug stores. Each member of Invacare's home care sales force
functions as a Territory Business Manager (TBM) and handles all product and
service needs for an account, saving the customer valuable time. The TBM also
provides training and servicing information to providers, as well as product
catalogs, point-of-sale display materials and advertising and merchandising
aids. In Canada, a wholly owned subsidiary also sells products through a direct
sales force. Products are distributed through regional distribution centers in
British Columbia, Ontario and Quebec and health care dealers throughout Canada.
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(R), PinDot(R), and Action brand products. Initially, a clinical staff
of 11 physical and occupational therapists were hired and trained to provide
valuable services to medical professionals in the facility-based rehab setting.
These specialists assist peer professionals with in-service education on
relevant topics of seating and positioning; provide a broad spectrum of product
education on the products' clinical applications; assist in clinical evaluations
for mobility; provide assistance on documentation for reimbursement entities;
offer continuing education programs; and furnish selected products for patient
evaluation purposes.
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In 1996, Invacare continued refining its strategic advertising campaign in home
health care magazines and trade publications which complements the company's new
brand strategy. The company also contributed extensively to editorial coverage
in trade publications on articles concerning products it manufactures, and its
representatives attended trade shows and similar conventions to display its
products to providers, medical professionals and consumers.
The company's top ten customers and buying groups accounted for approximately
30% of 1996 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 company's 1996 net sales. Dealers
that are part of a buying group generally make individual purchasing decisions
and are invoiced directly by the company.
Customer Service. As part of "One Stop Shoppingsm", 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 needs 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 distribution center or receive freight-free delivery (with minimum
order levels), generally within 24 hours of the company's receipt of an order
for any standard or stock 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 four regional repair centers where
Invacare products can be repaired promptly by factory technicians. Invacare has
a network of 21 independent dealers that can provide factory authorized service.
Factory training is provided throughout the United States 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 majority of these transactions are secured with a UCC-1 filing, a
purchase money security and/or a personal guarantee. The company also introduced
a revolving credit agreement, known as Invacard, which provides an additional
financing option to HME dealers. Currently, all note obligations are serviced
and managed by the company and are not sold to third parties.
The company devotes significant time and resources in training 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 1996, additional programming
enhancements were made which resulted in an increase in the number of customers
utilizing EDI as well as an increase in related EDI sales.
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The company believes 1997 holds additional opportunities as Invacare continues
to expand its two new distribution channels as a result of acquisitions made
during the first quarter of 1996. The acquisition of Frohock-Stewart provided
Invacare entry into the retail distribution channel, utilizing the Aurora(TM)
brand name and the acquisition of Healthtech, operating as IHCF, a nursing home
bed manufacturer and marketer, provided access into the extended and acute care
market.
Europe
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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 United Kingdom., France, Germany,
Portugal, 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. The company
continues to focus on the implementation of the "One Stop Shoppingsm" concept in
Europe.
PRODUCT LIABILITY COSTS
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Invacare supports its dealers by 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 $73
million in annual aggregate losses arising from individual losses that exceed $2
million. There can be no assurance that Invacare's current insurance levels will
continue to be adequate or available at an affordable rate.
PRODUCT DEVELOPMENT AND ENGINEERING
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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 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; a 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
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New product development remains a key component of Invacare's strategy to grow
market share and maintain competitive advantage. Important new technologies were
added, as well as many line extensions and refinements to existing categories.
The most significant introductions included:
Action A-4(TM) Chair - A custom manual wheelchair with a proprietary hand
adjustable camber-bar system.
Action Virtual Servicesm - Allows programming and diagnostic service to be
performed via modem over telephone lines.
Invacare(R) Tracer(R) Titan(TM) - Developed as an economy lightweight
wheelchair within the Tracer Series of wheelchairs.
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Invacare(R) 9000(TM)XDT - Developed as a heavy duty wheelchair designed
for individuals who demand an extra-wide, heavy duty chair and features an
extended range of seat to floor height offerings. It also features a 350
lb. capacity (versus 250 lb. capacity on all other 9000 series chairs), a
variety of seat widths and depths and a full complement of arms and front
riggings.
Invacare(R) Tracer(R) LX Recliner - Designed for both short (i.e. rental)
and long-term use. Reclines from 5 to 35 degrees and has a 16" removable
headrest extension. The wheels are set back to assure proper balance.
Invacare(R) Reliant 450 Lift - Developed for use primarily in extended
care facilities, but can be used in the home setting as well. Features an
increased weight capacity of 450 lbs. versus the old capacity of 350 lbs.,
and a vastly improved series of slings.
Action Ranger II(TM) Power Chair - Newly designed power wheelchair
available in standard and basic models. Both models are equipped with
Storm Series(R) styling, adjustable angle back, telescoping rigging
attachment and MKIV RII electronics.
Action P7E - An economically priced power chair equipped with a single
battery box standard and a 200 lb. weight limit. Dual battery boxes are
available.
Invacare(R) Envoy(TM) Compressor - A nebulizer compressor, provides a
lower cost for short-term inhalation therapy.
Invacare(R) Alternating Pressure Mattress - A lower cost method of
pressure sore treatment/prevention.
Invacare(R) Next Generation bath safety products - Products include
transfer benches, shower chairs and bath boards.
Europe
- - - ------
During 1996, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 1996 included the Storm and Phoenix power
wheelchairs, liquid oxygen systems and the European version of the U.S.
concentrator.
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 1996, the worldwide consolidation of purchasing continued thereby
taking advantage of significant leverage opportunities available to the company
for certain commodity raw materials and allowed the company 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 $46 million in capital
improvements and acquisition of facilities.
<PAGE>
12
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 costs 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
assembly and finishing . 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 1997.
<PAGE>
13
ACQUISITIONS
- - - ------------
During 1996, the company made five acquisitions for $24.9 million in cash which
extended or added new product lines as well as expanded distribution
capabilities. As a result of our unending search for opportunities, coupled with
the industry trend toward consolidation, numerous acquisition opportunities were
evaluated in 1996. The company focuses on acquisitions which fulfill the
following objectives:
Tactical. Grow market share or extend current product lines.
Production Research Corp. (United States), a distributor of after-
market parts for the home medical equipment market.
Strategic. Enter new market segments that complement existing businesses
or utilize our distribution strength.
Frohock-Stewart, Inc.(United States), a manufacturer of personal care
products, designed for the retail market.
Healthtech Products, Inc. (United States), operating as IHCF,
a manufacturer of extended care beds and patient furniture.
Geographic. Enables rapid entry into new foreign markets.
Fabriorto, Lda (Portugal), a manufacturer and distributor of manual
and power wheelchairs, beds and patient furniture.
Roller Chair Pty. Ltd. (Australia), a manufacturer and distributor
of custom power wheelchairs.
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.
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 changes in federal
programs are often 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 $100.7 billion over a five year period. The cuts proposed would
affect oxygen reimbursement and the elimination of cost of living increases in
reimbursement levels for all home medical equipment. 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 record keeping 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.
<PAGE>
14
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, 1996, the company had approximately 4,470 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.
<PAGE>
15
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
North American Operations Square Feet Date of Lease Options Use
- - - ------------------------- ----------- ------------- ------- ---
<S> <C> <C> <C> <C>
Adelaide, Australia 11,500 June 1998 none Manufacturing, warehouse
and offices
Atlanta, Georgia 45,866 May 1997 one (3 yr.) Warehouse
Auckland, New Zealand 11,244 March 1997 none 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
Belle, Missouri 39,200 Own - Manufacturing and offices
Beltsville, Maryland 33,329 March 1997 one (2 yr.) Manufacturing and offices
Chesterfield, Missouri 8,466 December 1998 two (1 yr.) Offices
Christchurch, New Zealand 48,178 April 1998 one (2 yr.) Manufacturing and offices
Delta, British Columbia 6,900 January 2000 none Warehouse & offices
Edison, New Jersey 48,400 October 2001 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 13,241 month to month - Manufacturing, warehouse
and offices
LaPalma, California 78,000 June 1999 one (3 yr.) Warehouse
</TABLE>
<PAGE>
16
<TABLE>
<CAPTION>
Ownership Renewal
North American Operations Square Feet or Expiration Options Use
- - - ------------------------- ----------- ------------- ------- -------------
<S> <C> <C> <C> <C>
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
Northboro, MA 22,000 June 2002 none Manufacturing
Northboro, MA 25,000 July 1997 one (1 yr.) Manufacturing
Northbrook, Illinois 27,458 June 1999 two (3 yr. & 2 yr.) Manufacturing and offices
Pinellas Park, Florida 12,000 June 1997 two (1 yr.) Manufacturing and offices
Reynosa, Mexico 70,400 Own - Manufacturing and offices
Sacramento, California 26,900 February 1998 none Manufacturing, warehouse
and offices
San Diego, California 5,940 May 1997 one (3 yr.) Manufacturing and offices
Sanford, Florida 19,913 August 1997 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 Sublet for remainder of
term.
Worchester, MA 5,000 month to month - Manufacturing/Storage
</TABLE>
<PAGE>
17
<TABLE>
<CAPTION>
Ownership Renewal
North American Operations Square Feet or Expiration Options Use
Date of Lease
- - - ------------------------- ------------ ------------- -------- --------------
<S> <C> <C> <C> <C>
Worchester, MA 6,000 Own - Manufacturing
Wright City, Missouri 173,975 Own - Manufacturing and offices
European Operations
Basel, Switzerland 36,000 Own - Manufacturing and offices
Antony, France 7,126 April 2000 one (3 yr.) Warehouse and offices
Askersund, Sweden 10,000 November 1998 - Warehouse
Bad Oeynhausen, 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
Tours, France 86,000 November 2007 none Manufacturing
Tours, France 104,500 Own - Manufacturing, warehouse
and offices
Girona, Spain 13,600 November 2004 one (1 yr.) Warehouse and offices
Spanga, Sweden 2,000 November 1998 one (1 yr.) Offices
Oporto, Portugal 27,800 November 2003 - Manufacturing and offices
Lisbon, Portugal 1,500 May 1997 - Offices
Lisbon, Portugal 1,100 May 1997 - Warehouse
</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 $73 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>
18
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 56 Chairman of the Board of Directors and
Chief Executive Officer
Gerald B. Blouch 50 President and Chief Operating Officer
Joseph B. Richey, II 60 President - Invacare Technologies & Invacare Senior Vice
President - Total Quality Management
Thomas R. Miklich 49 Chief Financial Officer, General Counsel, Treasurer and
Corporate Secretary
Benoit Juranville 48 President - Invacare Europe
Louis F.J. Slangen 49 Senior Vice President - Sales & Marketing
M. Louis Tabickman 52 Group Vice President - Rehab Products
Thomas J. Buckley 48 Group Vice President - Standard Products
Donald P. Andersen 46 Group Vice President - Respiratory Products
</TABLE>
A. Malachi Mixon, III has been Chief Executive Officer and a Director of
the company since December 1979 and Chairman of the Board since September 1983.
Mr. Mixon had been President of the company from December 1979 until November
1996.
Gerald B. Blouch was named President of the company in November, 1996. Mr.
Blouch has been Chief Operating Officer since December 1994 and Chairman -
Invacare International since December 1993. Previously, Mr. Blouch was President
- - - - Home Care Division from March 1994 to December 1994 and Senior Vice President
- - - - Home Care 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.
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>
19
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.
Donald P. Andersen was named Group Vice President - Respiratory Products in
February 1996. Previously, Mr. Andersen was Senior Director and General Manager
- - - - Cryogenics of Nellcor Puritan Bennett from 1987 to 1996. Prior to that
position, he was regional manager of Puritan Bennett's Medical Gas business.
* 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, 1997 was 3,777
and 38 , respectively. The closing sale price for the Common Shares on February
28, 1997 as reported by NASDAQ, was $24.25 . 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>
1996 1995*
----------------------------------------------
High Low High Low
----- ----- ------ ----
<S> <C> <C> <C> <C>
December 31 $29.25 $25.00 $29.75 $21.25
September 30 32.00 23.13 24.00 19.25
June 30 28.75 23.50 21.88 17.63
March 31 29.50 24.50 18.13 16.13
</TABLE>
*Share prices are adjusted to reflect the 2 for 1 stock split which
occurred on October 16, 1995.
During 1996, the Board of Directors for Invacare Corporation declared dividends
of $.05 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. 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>
20
Item 6. Selected Financial Data.
- - - ---------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------
(In thousands except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C>
Earnings
Net Sales $619,498 $504,032 $411,123 $365,457 $305,171 $263,181
Income from Operations 65,393 54,144 43,736 36,870 27,567 23,628
Net Earnings 38,918 32,165 26,377 22,110 17,739 14,128
Earnings per Share 1.28 1.07* .89* .75* .63* .53*
Dividends per Common Share .05000 .03750* .01875* - - -
Balance Sheet
Current Assets $258,720 $204,685 $180,435 $156,191 $151,934 $119,814
Total Assets 509,628 408,750 338,109 286,367 262,412 162,349
Current Liabilities 97,768 84,936 67,667 60,913 68,226 42,056
Working Capital 160,952 119,749 112,768 95,278 83,708 77,758
Long-Term Obligations 173,263 122,456 105,528 90,351 78,648 31,795
Shareholders' Equity 238,597 201,319 164,007 134,962 114,000 86,710
Other Data
Research and Development
Expenditures $ 11,060 $ 9,002 $ 7,651 $ 6,840 $ 5,251 $ 4,518
Capital Expenditures, net of
Disposals 22,465 11,027 12,217 11,961 17,301 11,396
Depreciation and Amortization 17,896 14,159 12,686 12,280 10,008 8,073
Key Ratios
Return on Sales 6.3% 6.4% 6.4% 6.0% 5.8% 5.4%
Return on Average Assets 8.5% 8.6% 8.4% 8.1% 8.4% 9.4%
Return on
Beginning 19.3% 19.6% 19.5% 19.4% 20.5% 33.7%
Shareholders' Equity
Current Ratio 2.6:1 2.4:1 2.7:1 2.6:1 2.2:1 2.8:1
Debt-to-Equity Ratio .7:1 .6:1 .6:1 .7:1 .7:1 .4:1
</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>
21
RESULTS OF OPERATIONS
1996 Versus 1995
Net Sales. Net sales for 1996 increased 22.9% for the year with the net effect
of acquisitions and currency translation accounting for 10.9% of the increase.
The sales increase of 12.0%, excluding acquisitions and the impact of foreign
currency translation, was due to increased unit volumes as competitive pressures
caused prices to decline for most product lines again in 1996. All product
lines, with the exception of therapeutic support surfaces, liquid and Dynamic
Control had sales gains for the year with personal care products, custom
wheelchairs (power and custom manual), standard wheelchairs and concentrators
posting the largest dollar and percentage increases. The company believes its
sales growth was aided by its cost effective "One Stop Shoppingsm" distribution
system that is supported by the company's broad range of products and services.
The company sales goals are to increase sales at a level that is 50% greater
than the overall market growth rate and to reach $1 billion in sales by the year
2000.
North American Operations
- - - -------------------------
Rehab Products Group. Sales of the Rehab Products Group, which consists of the
power wheelchairs, custom manual wheelchairs and seating and positioning
business units, increased 20.0% for the year, with 4.5% of the increase due to
the acquisitions of PinDot Products in mid 1995 and Special Health Systems in
late 1995. The gain was due principally to unit volume growth although prices
for certain product lines were increased slightly during the year. Power
wheelchairs continued to lead the way as sales for the power business unit
increased 17.0% with over 90% of the improvement due to increased unit sales.
Sales of custom manual wheelchairs also showed double digit growth as the
success of the company's "Team Action" athletes in the 1996 Atlanta Paralympic
Games helped to enhance sales of our everyday Action chairs that incorporate
many of the high-tech design features and materials used in the high performance
sports wheelchairs. Seating and positioning sales increased 81.6% principally as
a result of the acquisitions made to complete this product line in 1995.
Excluding acquisitions, sales of seating and positioning products achieved
double-digit levels in units, however the increase in dollars was limited to
9.0% due to the pricing pressures experienced during the year.
Standard Products Group. Sales of the Standard Products Group, which
consists of the manual wheelchairs/patient transport, personal care, beds, low
air loss therapy and Invacare Health Care Furnishings business units, increased
23.2%. The acquisition of Invacare Health Care Furnishings, a manufacturer and
distributor of beds and furnishings for the extended and acute care markets,
contributed approximately 9.0% to the increase. The group's unit volume increase
was greater than the reported dollar increase as, again in 1996, the product
lines within this group experienced significant competitive pricing pressure.
The personal care product line posted a sales increase of over 45.0%, while
standard wheelchairs sales increased 15.0% for the year. Sales of low air loss
therapy products declined significantly for the year as changes in governmental
reimbursements policies caused the overall market for those products to shrink
dramatically from 1995.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, liquid oxygen, aerosol therapy and
associated respiratory products business units, increased 14.2% for the year.
Volume increases were significantly greater than the overall sales dollar
increases significant pricing pressure continued in 1996. The products within
the group, primarily oxygen concentrators, experienced the largest price decline
of any of the company's product categories. The company still managed to
increase its market share position to become the leader in oxygen concentrators
during 1996, as sales to both national accounts and independent providers
increased at a rate greater than the overall market growth rate.
Other. Other, consisting primarily of the company's Canadian, New Zealand and
Australian operations, retail, aftermarket parts business and ambulatory
infusion pumps, had a 59.7% sales increase for the year, with almost all of the
increase due to acquisitions. The company's Canadian operation had another
strong year with sales up 10.8%, including a .7% positive impact from foreign
currency translation. This gain was offset by a down year in sales at Dynamic
Controls, the company's electronic wheelchair controller business, due primarily
to the loss of a large customer during 1995 who is also a major competitor to
the company. The acquisitions made in 1996 that positively impacted sales growth
include Frohock-Stewart, a manufacturer of personal care products with
distribution through mass retailers, Production Research Company, a supplier of
aftermarket parts for the home medical equipment market and Rollerchair Pty.
Ltd., a manufacturer and distributor of custom power wheelchairs in Australia.
<PAGE>
22
European Operations
- - - -------------------
European sales increased 15.6%, with acquisitions accounting for 9.6% of the
increase. Foreign currency translation had a negative effect on the reported
sales of 1.9%. Sales increased in almost all product lines, with power
wheelchairs and patient aid sales posting the largest dollar increases.
Competitive pricing pressure intensified in Europe in 1996, resulting in higher
unit volume growth than the reported increase in dollars. The European sales
growth was enhanced by a significant percentage increase in the sales of beds
and respiratory products. The absolute level of sales for these products is
still relatively small as they represent new product categories in the European
market. The introduction of these product lines support the company's goal of
mirroring the product lines of our North American operations in Europe.
Gross Profit. Gross profit as a percentage of net sales decreased to 32.5% from
33.0% last year, due primarily to businesses acquired that had lower gross
margins than the company's existing businesses. Despite ongoing intense price
competition, excluding businesses acquired, gross margins were basically flat
with last year. The company's continued focus on cost reductions in all of its
business processes was the principal reason margins were held level in the
ongoing competitive environment. The company intends to continue to focus on
improving productivity, redesigning products to lower manufacturing costs while
improving quality and reliability and implement other spending reductions to
remain competitive. The company is continuing its initiative of realigning
production among locations and consolidating certain facilities in order to
achieve improved productivity, efficiency and reduction of costs.
North American Operations gross profit, excluding businesses acquired, increased
from last year as a result of improved manufacturing productivity, reduced
distribution costs and improved purchasing synergies which were only partially
affected by the negative effects of the competitive pricing environment and a
shift in product mix.
Gross profit in Europe declined significantly to 30.0% from 33.4% in 1995. The
decline was due in part to increased pricing competition in Europe but primarily
was the result of internal operating difficulties. Poor implementation of the
manufacturing and purchasing improvement plans for the year as well as a lack of
control over freight and distribution costs were the major factors contributing
to the decline. The company believes that it has plans in place so that these
problems do not reoccur in 1997.
Inventory turns declined in 1996 in both the North American and European
operations, negatively impacting gross margins for the year. The company expects
that turns will improve in 1997 as the realignment of manufacturing facilities
is implemented. As stated above, the company believes its focus on reducing
costs in all of its business processes and improving productivity will allow for
future competitiveness and profitability.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales was 22.0% in 1996 compared to 22.3% in 1995. The
dollar increase was $23,911,000 or 21.3%. Acquisitions increased selling,
general and administrative costs by approximately $16,000,000 for the year,
representing approximately 14.0% of the percentage increase. The businesses
acquired operate with a significantly higher selling, general and administrative
expense as a percent of sales ratio, however, tight expense control in the
company's existing businesses resulted in a reduction in the overall percentage
of sales ratio in 1996. It is expected that the ratio for the company as well as
the acquired businesses, will decline in the future as the company focuses on
improved productivity and activity based management.
North American operations' selling, general and administrative costs increased
as a percent of sales by approximately 1.0% from last year. Excluding
acquisitions, these costs were lower than last year as the focus on continued
expense control intensified during 1996 as a result of the competitive pricing
environment. The company also refocused its efforts on activity based budgeting
during the year to ensure that the expense dollars spent were allocated to the
programs that most effectively supported the company's business strategy. The
company made substantial investments in 1996, primarily related to brand
strategy and clinical application specialists, that it believes had a positive
impact on growth in 1996 and will also favorably impact growth opportunities in
the future.
European operations' selling, general and administrative expenses, as a
percentage of sales, increased to 25.6% from 24.3% in 1995, with the dollar
increase amounting to $6,173,000 or 21.8%. Acquisitions accounted for over
one-half of the dollar increase. The balance of the increase was a result of
spending required to build the infrastructure needed to implement a full-line
product strategy in Europe which began during 1995, resulting in increased
spending of 10% for the year, excluding acquisition impact. The company believes
the infrastructure investments in Europe will provide the organizational
structure required to support future growth as well as a full-line product
strategy.
<PAGE>
23
Interest. Interest income in 1996 increased to $9,661,000 from $7,276,000 last
year, a 32.8% increase, due primarily to increased financing activity by the
company's finance subsidiary that resulted in higher average outstanding
installment loans. Interest income was also favorably impacted by a profitable
currency translation in 1996. Interest expense increased to $11,286,000 or
17.9%, primarily as a result of the additional borrowings incurred to fund the
1996 acquisition and other investing activity. The company's debt-to-equity
ratio increased marginally to .7:1 from .6:1. 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 cash flows from operations offset to some extent by additional capital
expenditures planned for 1997.
Income Taxes. The company had an effective tax rate of 39.0% in 1996
compared to 38.0% in 1995. 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. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $11,060,000 from
$9,002,000 in 1995. The expenditures, as a percent of sales, remained at 1.8% as
businesses acquired spent less on research and development as a percent of sales
than the company. For certain of the acquired businesses, future spending is
anticipated to be more in line with the company's overall spending levels.
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 prices declined 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.
North American Operations
- - - -------------------------
Rehab Products Group. Sales of the Rehab Products Group increased 38.4% for the
year, with 9.3% of the increase due to acquisitions. All of the gain was due to
unit volume growth as prices for the group's products declined slightly during
the year. The 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 acquisitions.
Standard Products Group. Sales of the Standard Products Group 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 Products Group. Sales of the Respiratory Products Group 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. Continued growth of
business with large national accounts, as well as independent providers, led to
the increase.
Other. The company's other businesses had a 19.8 % sales increase for the year.
Acquisitions 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 during 1995 who is also
a major competitor to the company.
<PAGE>
24
European Operation
- - - ------------------
European sales increased 30.1%, with acquisitions accounting for 12.5% of the
increase and a positive foreign currency translation impact 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.
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 33.4% 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 improved in both the North American and
European operations, contributing to the gross margin improvement.
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 represented 9.0% of the
percentage increase. The businesses acquired operate 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.
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 was offset by administrative cost
reductions.
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 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.
Interest. Interest income in 1995 increased to $7,276,000 from $6,373,000 last
year, a 14.2% increase, due to increased financing activity by the company's
finance subsidiary that resulted in higher average outstanding installment
loans. Interest expense increased to $9,575,000 or 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.
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. Research and development activities focused on new and enhanced
products, as well as new designs and processes that reduce cost and improve
manufacturability.
<PAGE>
25
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 1996 and
1995, 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 financing agreement
which expires in July, 2001. Additionally, the company maintains various
other demand lines of credit representing a U.S. dollar equivalent for these
demand lines approximating $32,000,000 as of December 31, 1996. 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, 1996, the company had approximately $91,000,000 available under
its various lines of credit.
Subsequent to year end, the company completed a $200,000,000 acquisition
facility for use in conjunction with the potential acquisition of Healthdyne
Technologies Inc. The facility expires the earlier of: two years from the date
of first funding under the facility or October 31, 1999.
The company's borrowing arrangements contain covenants with respect to net
worth, dividend payments, working capital, funded debt to capitalization, and
interest coverage, as defined in the company's bank agreements and agreement
with its note holders. The company is in compliance with all covenant
requirements. Under the most restrictive covenant of the company's borrowing
arrangements with its banks, the company may borrow up to an additional
$279,000,000.
CAPITAL EXPENDITURES
- - - --------------------
Although there are no material single capital expenditure commitments
outstanding as of December 31, 1996, the company expects to invest approximately
$35,000,000 in capital projects in 1997. The increase in spending is due
principally to the construction of a new corporate headquarters building and the
continuing implementation of a worldwide facilities plan which began in 1996.
The company expects that capital expenditures will be at a rate equal to
depreciation and amortization of capital, beginning in 1998. 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 $34,323,000, compared to
$44,449,000 last year. The 22.8% decline is primarily the result of increased
inventory levels for most product categories partially due to the addition of
new distribution channels and the anticipation of planned new product
introductions offset by improved net earnings and increased accounts payable.
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 $19,599,000 or 34.5%.
The increase was a result of increased property and equipment purchases and a
higher level of outstanding installment contracts. In addition, the $5,200,000
used to purchase 4.8% of the outstanding common stock of Healthdyne (see
Subsequent Event in the Notes to Consolidated Financial Statements for further
discussion) impacted investing activities during 1996.
Cash flows provided by financing activities were $42,556,000 in 1996 compared to
$8,594,000 in 1995. The increase resulted mainly from higher net borrowings
required as a result of increased operating assets, a higher level of investment
in property and equipment and the increased level of installment receivables
outstanding, as previously discussed.
In addition to acquisition activities, the effect of foreign currency
translation results in amounts being shown for cash flows in the Consolidated
Statement of Cash Flows that are different from the changes reflected in the
respective balance sheet captions.
<PAGE>
26
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, $.05
dividends per Common Share were declared and paid.
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 32 to 51
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 1997
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.
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 1997 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 1997 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 1997 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, 1996, 1995
and 1994
Consolidated Balance Sheet - December 31, 1996 and 1995
Consolidated Statement of Cash Flows - years ended December 31, 1996,
1995 and 1994
Consolidated Statement of Shareholders' Equity - years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
<PAGE>
27
(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 29 of this Report on Form 10-K.
(b) Reports on Form 8-K.
- - - ---------------------------
None
<PAGE>
28
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
INVACARE CORPORATION
By /S/ A. Malachi Mixon, III
---------------------------------------------
A. Malachi Mixon, III Chairman of the Board of
Directors 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 27,1997.
<TABLE>
<CAPTION>
Signature Title
- - - --------- ---------
<S> <C>
/S/ A.Malachi Mixon, III Chairman of the Board of Directors and
- - - ------------------------ Chief Executive Officer (Principal Executive Officer)
A. Malachi Mixon, III
/S/ Gerald B. Blouch President, Chief Operating Officer and
- - - ------------------------ Director
Gerald B. Blouch
/S/ Thomas R. Miklich Chief Financial Officer, General Counsel, Treasurer and Corporate Secretary (Principal
- - - ------------------------ Financial and Accounting Officer)
Thomas R. Miklich
/S/ Francis J. Callahan Director
- - - ------------------------
Francis J. Callahan
/S/ Frank B. Carr Director
- - - ------------------------
Frank B. Carr
/S/ Michael F. Delaney Director
- - - ------------------------
Michael F. Delaney
/S/ Whitney Evans 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
/S/ Bernadine P. Healy Director
- - - ------------------------
Bernadine P. Healy
</TABLE>
<PAGE>
29
INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended
December 31, 1996.
Exhibit Index
-------------
<TABLE>
<CAPTION>
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 May 22, 1996. (V)
3(c) - Amended and Restated Articles of Incorporation, as amended (U)
through February 2 1996.
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.
<PAGE>
30
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 (R) formed subsidiary of Invacare Corporation as
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.
10(ao) - First Amendment to loan agreement dated as of July 31, 1996. (V)
21 - Subsidiaries of the company.
23 - Consent of Independent Auditors.
27 - Financial data schedule.
99(a) - Executive Liability and Defense Coverage Insurance Policy. (H)
99(b) - Supplemental executive retirement plan.
</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 exhibit is 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>
31
(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.
(U) Reference is made to the appropriate Exhibit of the company's
Definitive Proxy Statement used in connection with the Annual Meeting
of Shareholders held on May 22, 1996, which Exhibit is incorporated by
reference.
(V) Reference is made to appropriate exhibit of the company's report on
Form 10-Q for the quarter ended September 30, 1996, which is
incorporated by reference.
<PAGE>
32 PART II
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, 1996 and 1995, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1996. 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, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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
January 28, 1997
<PAGE>
33
CONSOLIDATED STATEMENT OF EARNINGS
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
----------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales $619,498 $504,032 $411,123
Cost of products sold 418,025 337,719 278,041
---------- --------- ---------
Gross Profit 201,473 166,313 133,082
Selling, general and administrative expense 136,080 112,169 89,346
---------- ---------- ---------
Income from Operations 65,393 54,144 43,736
Net interest expense 1,625 2,299 1,859
----------- ----------- ---------
Earnings before Income Taxes 63,768 51,845 41,877
Income taxes 24,850 19,680 15,500
----------- ----------- ---------
Net Earnings $ 38,918 $ 32,165 $ 26,377
=========== =========== =========
Net Earnings per Share $ 1.28 $ 1.07 $ .89
=========== =========== =========
Weighted Average Shares Outstanding 30,393 30,077 29,696
=========== ============ =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
34
CONSOLIDATED BALANCE SHEET
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
---------------------------------
(In thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 4,431 $ 4,132
Marketable securities 3,569 2,437
Trade receivables, net 105,432 93,592
Installment receivables, net 51,995 37,074
Inventories 78,934 54,468
Deferred income taxes 7,181 6,831
Other current assets 7,178 6,151
-------- --------
Total Current Assets 258,720 204,685
Other Assets 49,459 36,581
Property and Equipment, net 77,830 65,078
Goodwill, net 123,619 102,406
-------- --------
Total Assets $509,628 $408,750
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 40,723 $ 33,805
Accrued expenses 50,900 45,097
Accrued income taxes 1,563 5,821
Current maturities of long-term obligations 4,582 213
----------- ----------
Total Current Liabilities 97,768 84,936
Long-Term Obligations 173,263 122,456
Deferred Income Taxes 0 39
Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) 0 0
Common Shares (Authorized 100,000 shares; 28,408 and
24,589 issued in 1996 and 1995, respectively) 7,103 6,148
Class B Common Shares (Authorized 12,000 shares;
1,442 and 4,973, issued and outstanding in
1996 and 1995, respectively) 360 1,243
Additional paid-in-capital 71,143 66,890
Retained earnings 167,561 130,100
Adjustments to shareholders' equity (833) 993
Treasury shares (418 and 311 shares in
1996 and 1995, respectively) (6,737) (4,055)
------------ -----------
Total Shareholders' Equity 238,597 201,319
------------ -----------
Total Liabilities and Shareholders' Equity $509,628 $408,750
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
35
CONSOLIDATED STATEMENT OF CASH FLOWS
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
----------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net earnings $ 38,918 $ 32,165 $ 26,377
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 17,896 14,159 12,686
Provision for losses on trade and installment receivables 1,546 1,379 1,461
Provision for deferred income taxes (596) (3,321) 19
Provision for other deferred liabilities 2,658 728 382
Changes in operating assets and liabilities:
Increase in trade receivables (5,937) (10,028) (10,248)
(Increase)/decrease in inventories (16,395) 3,102 (3,219)
Increase in other current assets (714) (2,681) (7)
Increase/(decrease) in accounts payable 2,487 (1,427) 4,126
Increase/(decrease) in accrued expenses (5,540) 10,373 319
---------------------------------------------
Net Cash Provided by Operating Activities 34,323 44,449 31,896
Investing Activities
Purchases of property and equipment (22,553) (11,173) (10,881)
Proceeds from sale of property and equipment 88 146 60
Installment contracts written (65,241) (50,908) (49,492)
Payments received on installment contracts 47,742 40,705 33,012
Marketable securities purchased (3,416) (4,307) (350)
Marketable securities sold 2,274 4,927 1,440
Business acquisitions, net of cash acquired (24,860) (31,019) (8,605)
Increase in other investments (6,986) (2,246) (4,143)
Increase in other long term assets (3,945) (3,865) (1,155)
Other 519 961 1,605
---------------------------------------------
Net Cash Required for Investing Activities (76,378) (56,779) (38,509)
Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 103,872 67,057 26,128
Principal payments on revolving lines of credit,
long-term debt and capital lease obligations (61,831) (58,942) (23,442)
Proceeds from exercise of stock options 4,222 1,447 1,830
Payment of dividends (1,457) (968) (355)
Purchase of treasury stock (2,250) 0 0
---------------------------------------------
Net Cash Provided by Financing Activities 42,556 8,594 4,161
Effect of exchange rate changes on cash (202) 509 419
---------------------------------------------
Increase/(decrease) in cash and cash equivalents 299 (3,227) (2,033)
Cash and cash equivalents at beginning of year 4,132 7,359 9,392
---------------------------------------------
Cash and cash equivalents at end of year $ 4,431 $ 4,132 $ 7,359
=============================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
36
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
---- ---- ----
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Balance at beginning of year 24,589 $ 6,148 22,289 $ 5,573 20,766 $ 5,192
Conversion of Class B Common Shares
to Common Shares 3,531 883 2,095 524 1,268 317
Issuance of Common Shares for acquisition 0 0 77 19 0 0
Exercise of stock options 288 72 128 32 255 64
---------------------------------------------------------------------------
Balance at end of year 28,408 $ 7,103 24,589 $ 6,148 22,289 $ 5,573
==========================================================================
Class B Common Shares:
Balance at beginning of year 4,973 $ 1,243 7,068 $ 1,767 8,337 $ 2,084
Conversion of Class B Common Shares
to Common Shares (3,531) (883) (2,095) (524) (1,269) (317)
--------------------------------------------------------------------------
Balance at end of year 1,442 $ 360 4,973 $ 1,243 7,068 $ 1,767
==========================================================================
Additional Paid-In-Capital:
Balance at beginning of year $ 66,890 $ 63,671 $ 61,709
Issuance of Common Shares for acquisition 0 1,804 0
Exercise of stock options 4,253 1,415 1,962
--------------------------------------------------------------------------
Balance at end of year $ 71,143 $ 66,890 $ 63,671
==========================================================================
Retained Earnings:
Balance at beginning of year $ 130,100 $ 99,086 $ 73,242
Net earnings 38,918 32,165 26,377
Dividend of $.05000, $.03750 and $.01875 per Common
Share in 1996, 1995 and 1994, respectively (1,457) (1,078) (533)
Redemption of 1991 rights plan 0 (73) 0
--------------------------------------------------------------------------
Balance at end of year $167,561 $130,100 $ 99,086
==========================================================================
Adjustments to Shareholders' Equity:
Balance at beginning of year $ 993 $ (2,196) $ (3,570)
Foreign currency translation adjustment (2,256) 2,965 2,044
Marketable securities holding gain (loss), net of tax 430 224 (670)
Balance at end of year $ (833) $993 $ (2,196)
==========================================================================
Treasury Shares:
Balance at beginning of year (311) $ (4,055) (303) $ (3,894) (289) $ (3,695)
Repurchase of treasury shares (107) (2,682) (8) (161) (14) (199)
---------------------------------------------------------------------------
Balance at end of year (418) $ (6,737) (311) $ (4,055) (303) $ (3,894)
==========================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
37
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, retail and extended care markets. The company's products
include standard manual wheelchairs, motorized and lightweight prescription
wheelchairs, seating and positioning, motorized scooters, patient aids, home
care beds, low air loss therapy products, home respiratory and ambulatory
infusion pumps.
Principles of Consolidation: The consolidated financial statements include the
accounts of the company and are prepared in conformity with generally accepted
accounting principles which require 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, 1996.
Marketable Securities: Current marketable securities are stated at market value,
which approximates cost, and consist of short-term investments in repurchase
agreements, government and corporate securities and certificates of deposit.
Marketable securities with original maturities of less than three months are
treated as cash equivalents. The company has classified their marketable
securities as available for sale. 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 stated 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 ($52,188,000 and $39,704,000 at December
1996 and 1995, 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: Generally, 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. Certain
components carry a lifetime warranty. A non-renewable warranty is also offered
on various products for a maximum period of five years. A provision for
estimated warranty cost is recorded at the time of sale. The provision is an
estimation based upon 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 $11,060,000, $9,002,000 and $7,651,000 for 1996,
1995 and 1994, 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: Common Shares, Class B Common Shares and
the effects of dilutive stock options are included in calculating the weighted
average shares outstanding.
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. As a result, all share and per share information has been adjusted to
reflect the stock split.
<PAGE>
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES--Continued
Foreign Currency Translation: Substantially all 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
ranging from 20 to 40 years. The accumulated amortization was $10,743,000 and
$7,094,000 at December 31, 1996 and 1995, 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, 1996, 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
$12,049,000, $8,972,000 and $5,487,000 for 1996, 1995 and 1994, respectively.
RECEIVABLES
Trade receivables are net of allowances for doubtful accounts of $4,405,000
and $3,551,000 in 1996 and 1995, respectively.
Installment receivables as of December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
Long- Long-
Current Term Total Current Term Total
------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Installment receivables $57,547 $24,598 $82,145 $42,001 $21,698 $63,699
Less:
Unearned interest (4,828) (2,877) (7,705) (4,153) (1,637) (5,790)
Allowance for doubtful accounts (724) (349) (1,073) (774) (446) (1,220)
------------------------------------------------------------------------------
$51,995 $21,372 $73,367 $37,074 $19,615 $56,689
==============================================================================
</TABLE>
The company adopted Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" (SFAS 114) effective January
1, 1995. The 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>
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INVENTORIES
Inventories as of December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
(In thousands
<S> <C> <C>
Raw materials $ 25,137 $ 20,045
Work in process 12,022 10,898
Finished goods 41,775 23,525
-----------------------------------
$ 78,934 $ 54,468
===================================
</TABLE>
Current cost exceeds the LIFO value of inventories by approximately
$431,000 and $779,000 at December 31, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
(In thousands)
<S> <C> <C>
Land, buildings and improvements $ 35,779 $ 33,501
Machinery and equipment 104,297 84,662
Furniture and fixtures 10,693 8,636
Leasehold improvements 7,330 6,674
----------------------------------
158,099 133,473
Less allowance for depreciation 80,269 68,395
----------------------------------
$ 77,830 $ 65,078
===================================
</TABLE>
CURRENT LIABILITIES
Accrued expenses as of December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
(In thousands)
<S> <C> <C>
Accrued salaries and wages $ 19,715 $ 16,330
Accrued warranty cost 6,052 5,745
Accrued product liability, current portion 1,354 896
Other accrued items 23,779 22,126
----------------------------------
$ 50,900 $ 45,097
==================================
</TABLE>
ACQUISITIONS
In February, 1996 the company purchased all the outstanding shares of
Fabriorto, Lda, a Portuguese manufacturer and distributor of manual and power
wheelchairs, beds and walking aids and purchased all the outstanding shares of
Frohock-Stewart, Inc., a manufacturer of personal care products distributed
mainly through the retail channel. In March, 1996 the company purchased all the
outstanding shares of Healthtech Products, Inc., a manufacturer of extended care
beds and patient-room furniture for the institutional market. In June, 1996 the
company acquired all the outstanding shares of Production Research Corporation
(PRC). PRC is a distributor/supplier of after-market parts for the home medical
equipment market. In July, 1996 the company purchased all of the outstanding
shares of Roller Chair Pty. Ltd., an Australian manufacturer and distributor of
custom power wheelchairs.
<PAGE>
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
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, 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 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.
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, 1996, 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 $6,071,000 in 1996, $4,725,000 in 1995 and $4,548,000 in 1994.
Future minimum operating lease commitments as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Year Amount
-------------------------------
(In thousands)
<S> <C> <C>
1997 $ 4,839
1998 3,393
1999 1,980
2000 1,037
2001 753
Thereafter 1,377
-------------------------------
Total Future Minumum Lease Payments $ 13,379
===============================
</TABLE>
The amount of buildings and equipment capitalized in connection with capital
leases was $4,680,000 and $3,191,000 at December 31, 1996 and 1995,
respectively. At December 31, 1996 and 1995, accumulated amortization was
$1,545,000 and $1,009,000, respectively.
<PAGE>
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
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 makes matching
contributions up to 66.7% of the first 3% of employees contributions and may
make discretionary contributions to the domestic plans based on an annual
resolution of the Board of Directors. The company has no requirement to make the
discretionary 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 and Plan are used to purchase the company's Common
Shares on the open market.
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 1996, 1995 and 1994 was
$3,703,000, $2,406,000 and $1,455,000, respectively.
In 1995, the company introduced a non-qualified defined benefit Supplemental
Executive Retirement Plan (SERP) effective May 1, 1995 for certain key
executives to recapture benefits lost due to governmental limitations on
qualified plan contributions. The projected benefit obligation related to this
unfunded plan was $18,475,000 at December 31, 1996. Pension expense for the plan
was $748,000 in 1996 and $401,000 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.
Contribution expense for each of 1996, 1995, and 1994 was $1,400,000.
SHAREHOLDERS' EQUITY TRANSACTIONS
At December 31, 1996, the company had 100,000,000 authorized Common Shares,
without par value, and 12,000,000 authorized Class B Common Shares, without par
value. In general, the Common Shares and the Class B 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.
At December 31, 1996, 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
(the "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, 1996, 1995 or 1994. During 1996, the Committee,
under the 1994 Plan, granted 396,025 non-qualified stock options for a term of
ten years at 100% of the fair market value of the underlying shares on the date
of grant.
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. During 1996, 5,883
options were granted for a term of ten years at approximately the fair market
value as of the date of the grant.
The Plans have provisions for the cashless exercise of options. Under these
provisions the company acquired 16,430 treasury shares for $432,000 in 1996,
8,350 treasury shares for $161,000 in 1995 and 14,270 treasury shares for
$199,000 in 1994.
As of December 31, 1996, an aggregate of 8,624,198 shares was reserved for
conversion of Class B Common Shares, future rights (as defined below) and the
exercise and future grant of options.
<PAGE>
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
The following summarizes the stock option transactions under the company's stock
option plans:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Options outstanding at January 1, 2,691,902 2,357,304 2,349,848
Granted 401,908 487,600 342,000
Exercised (288,101) (127,973) (255,114)
Canceled (47,122) (25,029) (79,430)
------------------------------------
Options outstanding at December 31, 2,758,587 2,691,902 2,357,304
Options price range at December 31, $ 2.13 $ 1.56 $ 1.56
to to to
$ 26.75 $ 25.25 $ 15.13
Options exercisable at December 31, 1,793,289 1,651,406 1,352,542
Options available for grant at December 31, 1,095,239 1,462,897 1,844,500
</TABLE>
The weighted-average price of options exercised during 1996 was $7.27.
The company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation cost for the company's stock option
plans been determined based on the fair value at the grant date for awards in
1996 and 1995 consistent with the provisions of SFAS 123, the company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------ --------------------------- ----------------------------
<S> <C> <C>
Net earnings - as reported $38,918 $32,165
Net earnings - pro forma $37,725 $31,617
Earnings per share - as reported $ 1.28 $ 1.07
Earnings per share - pro forma $ 1.24 $ 1.05
------------------------------------------------ --------------------------- ----------------------------
</TABLE>
The assumption regarding the stock options issued in 1996 and 1995 was that
25% of such options vested in the year issued. The stock options awarded during
the year provided a four year vesting period whereby options vest equally in
each year. SFAS 123's pro forma disclosure is prospective, as retroactive
application is prohibited. Therefore, since compensation expense associated with
an award is recognized over the vesting period, pro forma net income may not be
representative of compensation expense in future years, when the effect of the
amortization of multiple awards would be reflected in the income statement.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 1.28%; expected
volatility of 35.4%; risk-free interest rate of 5.8%; and an expected life of
6.34 years. The weighted-average present value of options granted during the
year, per the Black-Scholes model based on the expected exercise year of 2002,
is $9.70.
The plans provide that shares granted come from the company's authorized but
unissued or reacquired common stock. Pursuant to the plan, the Committee has
established that the 1996 grants may not be exercised within one year from the
date of grant and options must be exercised within ten years from the date
granted. The weighted-average remaining contractual life of options outstanding
at December 31, 1996 is 5.98 years.
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
<PAGE>
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
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.
LONG-TERM OBLIGATIONS
Long-term obligations as of December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
(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 .14% to
.32% above local interbank offered rates, expires July 30, 2001 135,723 78,534
Notes payable to banks under credit facilities 1,474 3,853
Notes and mortgages payable, secured by buildings and equipment 3,432 6,614
Capitalized lease obligations 3,150 2,254
Product liability 4,774 3,269
Other 4,292 3,145
--------------------------------
177,845 122,669
Less current maturities of long-term obligations 4,582 213
--------------------------------
$173,263 $122,456
================================
</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, 1996, $69,138,000 of retained earnings is
available for dividends based on net worth requirements. The notes are due in
2003 and require principal payments of $3,571,000 per year beginning in 1997.
During 1994, the company entered into a $200,000,000 multicurrency long-term
revolving credit agreement with a syndicate of commercial banks. In July 1996,
the agreement was amended to lower the borrowing rates which now range from .14%
to .32% above the various interbank offered rates. In addition, the borrowing
rates are now determined based upon the interest coverage ratio of the company,
as defined in the agreement. The agreement requires the company to maintain
certain conditions with respect to net worth, funded debt to capitalization, and
interest coverage as defined in 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 $15,000,000 demand line, a 10,000,000 Canadian dollar demand line, a 2,000,000
New Zealand dollar demand line, 650,000 British pound demand lines, 1,200,000
Deutsche mark demand lines, 31,500,000 French franc demand lines, a 10,000,000
Spanish peseta demand line, a 100,000 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 August 1996, the company fixed the interest rate on 7,500,000 of its
outstanding New Zealand dollar borrowings 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 8.75% for a two year term. As of December 31, 1996, the
weighted average floating interest rate on the New Zealand dollar debt was
9.97%.
<PAGE>
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
In May 1995, the company fixed the interest rate on $10,000,000 of its U.S.
dollar borrowings 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. As of December
31, 1996 and 1995, the weighted average floating interest rate on the U.S.
dollar debt was 5.82% and 6.40%, respectively.
Also in May 1995, the company fixed the interest rate on 7,500,000 of its
outstanding Canadian dollar borrowings 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, 1996 and 1995,
the weighted average floating interest rate on the Canadian dollar debt was
5.29% and 6.70% respectively.
In March 1993, the company fixed the interest rate on 100,000,000 of its
outstanding French franc borrowings through two interest rate swap agreements.
Each agreement is for 50,000,000 French francs. The effect of the swaps is to
exchange a 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. The swap for the three-year term terminated in March 1996. As of
December 31, 1996 and 1995, the weighted average floating interest rate on the
French franc debt was 4.43% and 7.10% 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 floating rate borrowings at 8.89% under revolving credit agreements and
notes payable to banks under credit facilities. This interest rate swap
terminated in July 1996.
The secured promissory notes financed the purchase of certain buildings and
equipment which secure the notes. The notes bear interest at rates from 5.07% to
10.95 % and mature through 2003.
The capital leases at December 31, 1996 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
$73,000,000 in annual aggregate losses arising from individual losses that
exceed $2,000,000.
The aggregate minimum combined maturities of long-term obligations are
approximately $4,582,000 in 1997, $4,703,000 in 1998, $4,424,000 in 1999,
$4,719,000 in 2000, $150,907,000 in 2001, and $8,510,000 thereafter. Interest
paid on borrowings was $10,213,000, $8,982,000 and $6,625,000 in 1996, 1995 and
1994, respectively.
<PAGE>
45
INCOME TAXES
Earnings before income taxes consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
(In thousands
<S> <C> <C> <C>
United States $58,182 $46,062 $38,871
Foreign 5,586 5,783 3,006
---------------------------------------------
$63,768 $51,845 $41,877
==============================================
</TABLE>
The company has provided for income taxes as follows
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $19,840 $16,340 $12,115
State 3,800 3,490 2,580
Foreign 2,370 2,980 1,170
----------------------------------------------
26,010 22,810 15,865
Deferred:
Federal (1,330) (1,300) (635)
Foreign 170 (1,830) 270
-----------------------------------------------
(1,160) (3,130) (365)
$24,850 $19,680 $15,500
===============================================
</TABLE>
<PAGE>
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORTION AND SUBSIDIARIES
At December 31, 1996, the company had tax loss carryforwards of
approximately $4,007,000 of which $3,197,000 are non-expiring and $810,000
expire between 2000 and 2003.
The company made income tax payments of $26,686,000, $19,528,000 and
$16,606,000 during the years ended December 31, 1996, 1995 and 1994,
respectively.
A reconciliation to the effective income tax rate from the federal statutory
rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax benefit 3.9 4.4 4.0
Tax credits (1.9) (1.9) (2.0)
Other, net 2.0 0.5
----------------------------------------------
39.0% 38.0% 37.0%
===============================================
</TABLE>
Significant components of deferred income tax assets and liabilities at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------
(In thousands)
<S> <C> <C>
Current deferred income tax assets, net:
Bad debt $ 1,520 $ 1,101
Warranty 1,369 1,224
Inventory 684 850
Other accrued expenses and reserves 1,778 1,986
State and local taxes 1,305 973
Product liability 191 164
Loss carryforward 408 720
Other, net (74) (187)
----------------------
$ 7,181 $ 6,831
----------------------
Long-term deferred income tax assets (liabilities), net:
Depreciation $(1,877) $ (1,646)
Product liability 717 599
Loss carryforward 1,051 878
Other, net 421 130
------------------------
$ 312 $ (39)
------------------------
Net Deferred Income Taxes $ 7,493 $ 6,792
========================
</TABLE>
<PAGE>
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
RELATED PARTY TRANSACTIONS
The company purchased 90,000 shares of Invacare Common Stock at $25.00 per
share, which approximated the fair value at time of purchase, from a charitable
trust in which the Chairman and Chief Executive Officer of the company has a
reversionary interest. The total cost of the shares was $2,250,000 and were
added to the treasury shares of the company.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
(In thousands, except per share data)
1996 March 31, June 30, September 30, December 31,
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 134,461 $ 159,169 $ 158,146 $ 167,722
Gross profit 41,627 51,355 53,204 55,287
Earnings before income taxes 9,937 15,898 17,446 20,487
Net earnings 6,062 9,698 10,646 12,512
Net earnings per share .20 .32 .35 .41
<CAPTION>
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
</TABLE>
BUSINESS SEGMENTS
The company operates in one business segment, durable medical equipment.
Geographic information for each of the three years ended December 31, is as
follows:
<TABLE>
<CAPTION>
Other Total
North North
Domestic American American European Total
------------------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 435,171 $ 49,557 $ 484,728 $ 134,770 $ 619,498
Earnings before income taxes 56,603 3,507 63,768
60,110 3,658
Assets 325,978 60,759 386,737 122,891 509,628
Liabilities 47,864 203,371 67,660
155,507 271,031
1995
Net sales $ 353,340 $ 34,154 $ 387,494 $ 116,538 $ 504,032
Earnings before income taxes 46,930 51,845
(2,842) 44,088 7,757
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
</TABLE>
<PAGE>
48
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, New Zealand and Australian operations are
included in Other North American operations for segment reporting purposes. A
significant portion of the New Zealand operations represent components used in
products manufactured by the company's North American facilities.
Eliminated from above net sales for 1996, 1995 and 1994 were $13,122,000,
$11,296,000 and $6,922,000, respectively, of sales by North American
subsidiaries to European subsidiaries and $883,000, $1,005,000 and $576,000,
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, retail and extended care markets. The company performs
credit evaluations of its customers' financial condition. To further assist
dealers in reducing their cash requirements for inventory and rental equipment,
the company provides various financing options for certain types of products
through Invacare Credit Corporation ICC. 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. In addition, the majority of these transactions are secured
with a UCC-1 filing and/or purchase money securities and/or personal guarantees.
At this time, all ICC note obligations are serviced and managed by the company.
The note obligations are not sold to third parties. Substantially all of the
company's receivables are due from health care and medical equipment dealers
located throughout the United States, Australia, Canada, New Zealand 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 have been consistently 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 estimated using discounted cash flow
analyses, based on the company's current incremental borrowing rate for similar
borrowing arrangements.
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 floating 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>
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Other investments: The company has made other investments in limited
partnerships and non-marketable equity securities. These investments were
acquired in private placements and there are no quoted market prices or stated
rates of return. It is not practicable to estimate the fair value of these
investments because of the limited information available and because of the
significance of the cost to obtain an outside appraisal. The investments are
carried at their original cost of $10,384,000 in 1996 and $8,197,000 in 1995 and
are accounted for using the cost method.
The carrying amounts and fair values of the company's financial instruments at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ -----
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,431 $ 4,431 $ 4,132 $ 4,132
Marketable securities 9,642 9,642 2,954 2,954
Installment receivables 73,367 73,367 56,689 56,689
Long-term debt (including current 165,629 165,622 114,001 114,736
maturities)
Interest rate swaps (fair value liability - 768 - 1,136
</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, 1996 and 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
contracts at December 31, 1996 and 1995. The valuations are based on quotes from
brokers. All forward contracts noted below mature before March, 1997 and 1996
respectively.
<TABLE>
<CAPTION>
December 31, 1996
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Australian dollar 36 - 36
British pound 86 4 90
New Zealand dollar 1,000 12 1,012
New Zealand dollar (1,881) 2 (1,879)
<CAPTION>
December 31, 1995
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deutsche mark $ 150 $ 6 $ 156
French franc 75 3 78
Spanish peseta 100 (5) 95
New Zealand dollar (1,390) (1) (1,391)
</TABLE>
<PAGE>
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SUBSEQUENT EVENT
Subsequent to year end, the company, through a wholly owned subsidiary,
commenced a cash tender offer of $13 per share for all of the outstanding shares
of common stock of Healthdyne Technologies, Inc. The offer will expire April 7,
1997 with the option to extend. The company has committed bank facilities in
place sufficient to fund the proposed transaction.
The company currently holds 600,000 shares of Healthdyne's common stock,
representing approximately 4.8% of Healthdyne's outstanding shares based on
available public information.
Healthdyne Technologies designs, manufactures, and markets advanced medical
devices primarily for home use, as well as for use in specialized clinical
settings. Healthdyne's products include diagnostic and therapeutic devices for
the evaluation and treatment of sleep and respiratory disorders, medication
nebulizers and monitoring devices for infants at risk of Sudden Infant Death
Syndrome (SIDS).
<PAGE>
51
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, 1996
Deducted from asset accounts --
Allowance for doubtful accounts $4,771 $2,397 $ 183(C) $1,873(A) $5,478
Inventory obsolescence reserve 5,274 2,883 689(C) 3,883(B) 4,963
Accrued warranty cost 5,745 5,154 363(C) 5,210(B) 6,052
Accrued product liability 4,165 5,181 70(C) 3,288(D) 6,128
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
Accrued warranty cost 4,554 4,689 64(C) 3,562(B) 5,745
Accrued product liability 3,604 2,080 - 1,519(D) 4,165
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
Accrued warranty cost 3,539 3,560 112(C) 2,657(B) 4,554
Accrued product liability 3,488 1,353 - 1,237(D) 3,60
</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.
NOTE (D)--Loss and loss adjustment expense.
<PAGE>
1
Exhibit 21
1. Canyon Products Corporation, an Ohio corporation and wholly owned
subsidiary.*
2. Invacare (UK) 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 Holdings Corporation, an Ohio corporation and wholly owned
subsidiary.
6. Invacare International Corporation, an Ohio corporation and wholly
owned subsidiary.
7. Invacare Respiratory Corporation, an Ohio corporation and wholly
owned subsidiary.
8. Invacare Trading company, Inc., a United States Territory of the
Virgin Islands corporation and wholly owned subsidiary.
9. Invamex, S.A. de C.V., a Mexican corporation and wholly owned
subsidiary.
10. Invacare Credit Corporation, an Ohio corporation and wholly owned
subsidiary.
11. Invatection Insurance company, a Vermont corporation and wholly
owned subsidiary.
12. Mobilife Corporation, a Missouri corporation and wholly owned
subsidiary.
13. Mobilite Corporation, a Florida corporation and wholly owned
subsidiary.
14. Option 5 Inc., a Quebec corporation and wholly owned subsidiary.
15. Poirier Groupe Invacare, a French corporation and wholly owned
subsidiary.
16. POK - Rollstuhle GmbH, a German corporation and wholly owned
subsidiary.
17. Dynamic Controls Ltd., a New Zealand corporation and wholly owned
subsidiary.
18. Quantrix Consultants Ltd., a New Zealand corporation and wholly
owned subsidiary.
19. Controls Dynamic Ltd., an English corporation and wholly owned
subsidiary.
20. Geomarine Systems Inc., a New York corporation and wholly owned
subsidiary.
21. Sci Des Hautes Roches, a French partnership and wholly owned
subsidiary.
22. Sci Des Roches, a French partnership and wholly owned subsidiary.
23. Mobilite Building Corporation, a Florida corporation and wholly
owned subsidiary.
24. Rehadap, S.A., a Spanish corporation and wholly owned subsidiary.
25. Genus Medical, Inc., a New York corporation and wholly owned
subsidiary.
<PAGE>
2
26. Beram, AB, a Swedish corporation and wholly owned subsidiary.
27. Invacare Florida, a Delaware corporation and wholly owned subsidiary.
28. Patient Solutions, Inc., a Delaware corporation and wholly owned
subsidiary.
29. Medical Equipment Repair Services, Inc., a Florida corporation and
wholly owned subsidiary.
30. Invacare New Zealand Limited, a New Zealand corporation and wholly
owned subsidiary.
31. Bencraft Limited, an English corporation and wholly owned subsidiary.
32. Kuschall Design AG, a Switzerland corporation and wholly owned
subsidiary.
33. Healthtech, Inc., a Missouri corporation and wholly owned
subsidiary.
34. Frohock Stewart, Inc., a Massachusetts corporation and wholly owned
subsidiary
35. Fabriorto Lda, a Portugal company and wholly owned subsidiary.
36. Production Research Corporation, a Maryland 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, No. 33-45993 dated February 24,
1992 and No. 33-87052 dated December 5, 1994) pertaining to the Invacare
Corporation Stock Option Plans, and (ii) Registration Statement (Form S-3, No.
33-57967) and related prospectus, of our report dated January 28, 1997, 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, 1996.
ERNST & YOUNG LLP
Cleveland, Ohio
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,431
<SECURITIES> 3,569
<RECEIVABLES> 105,432
<ALLOWANCES> (5,478)
<INVENTORY> 78,934
<CURRENT-ASSETS> 258,720
<PP&E> 158,099
<DEPRECIATION> (80,269)
<TOTAL-ASSETS> 509,628
<CURRENT-LIABILITIES> 97,768
<BONDS> 0
0
0
<COMMON> 7,463
<OTHER-SE> 231,134
<TOTAL-LIABILITY-AND-EQUITY> 509,628
<SALES> 619,498
<TOTAL-REVENUES> 619,498
<CGS> 418,025
<TOTAL-COSTS> 418,025
<OTHER-EXPENSES> 136,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,625
<INCOME-PRETAX> 63,768
<INCOME-TAX> 24,850
<INCOME-CONTINUING> 38,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,918
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
<PAGE>
1
Invacare Corporation Supplemental Executive Retirement Plan
1 Purpose of the
Plan..........................................................................2
2
Definitions...................................................................2
3 Administration and Interpretation of the Plan...............................5
4 Eligibility and
Enrollment....................................................................5
5 Determination of Plan Benefits..............................................6
6 Payment of Plan
Benefits......................................................................8
7 Disqualification and Reduction, Loss, Forfeiture or Denial of Benefits.....10
8
Miscellaneous................................................................10
<PAGE>
2
Invacare Corporation Supplemental Executive Retirement Plan
1 PURPOSE OF THE PLAN
1.1 The purpose of the Invacare Corporation Supplemental Executive
Retirement Plan is to attract, retain, motivate, and provide financial security
to executive officers who participate in the Plan. The Plan is intended to
supplement other retirement and savings plans offered by the Company to provide
a specific level of replacement of compensation into retirement.
1.2 The actual amount of retirement income a Participant may receive will
vary by factors such as retirement age, the value of the benefits received from
other plans, and the manner in which the Participant elects to receive benefits
under this Plan.
1.3 The Plan is a nonqualified Plan, and benefits accrued under this plan
are subject to the claims of the Company's general creditors in the event of the
Company's bankruptcy.
2 DEFINITIONS
2.1 "Agreement" means a written agreement between an Employee and the
Company, wherein the Employee is designated eligible to become a Participant,
and the Employee and the Company agree to be bound by the terms and conditions
of the Plan.
2.2 "Beneficiary" means the person, persons, or entities designated by the
Participant to receive proceeds in the event of death, if any are due.
2.3 "Bonus Plan" means the Management Incentive Plan of Invacare
Corporation.
2.4 "Change in Control" shall have the same meaning as under the 401(k)
Plus Benefit Equalization Plan.
2.5 "Company" means Invacare Corporation and its successors or assigns.
2.6 "Company Contribution Offset" means the value of contributions made by
the Company on behalf of the Participant to the 401(k) Plan, 401(k) Plus Plan,
and the Profit Sharing Plan, as determined in Article 5.
2.7 "Date of Employment" means the date the Participant began service with
the Company.
2.8 "Date of Enrollment" means the date the Participant began participation
in this Plan.
2.9 "Death" means Termination of Employment by reason of death of the
Participant.
2.10 "Disability" shall have the same meaning as under the Invacare Group
Long Term Disability Plan.
2.11 "Early Retirement" means Termination of Employment on or after the
Participant attains age 55 and after the Participant has attained 10 years of
Employment Service, unless such Termination of Service is defined as a Normal
Retirement, pursuant to Section 2.18.
<PAGE>
3
2.12 "Earnings" means the Participant's annual base salary in effect the
immediately preceding April 1st or on the date of the Participant's Termination
of Employment, if such termination occurs on April 1st, plus the Participant's
Target Bonus.
2.13 "Effective Date" means May 1, 1995.
2.14 "Employee" means an individual who receives salary for personal
services rendered to the Company.
2.15 "Employment Service" means the Participant's number of years of
continuous employment with the Company, including periods of Disability,
beginning at the Participant's Date of Employment, rounded to the nearest whole
number.
2.16 "Final Earnings" means the Participant's Earnings in effect on his/her
Termination of Employment, except in the case of Disability, where the Final
Earnings are the Earnings in effect on the last day preceding the disability.
2.17 "IRC" means the Internal Revenue Code of 1986, as amended.
2.18 "Normal Retirement" means Termination of Employment on or after the
Participant attains age 62 with at least 15 years of Employment Service or age
65.
2.19 "Participant" means an Employee of the Company who is designated
eligible to participate in the Plan and who has met all applicable eligibility
requirements provided in article 4 of the Plan.
2.20 "Plan" means Invacare Corporation Supplemental Executive Retirement
Plan.
2.21 "Plan Administrator" means the Compensation Committee of the Board of
Directors of Invacare Corporation.
2.22 "Plan Committee" means the members of the senior management nominated
to administer the Plan by the Plan Administrator.
2.23 "Prior Distribution Offset" means the annual value of the sum of
benefit payments previously distributed under the plan as provided in Article 5.
2.24 "Salary" means a Participant's annual base salary, before any
deductions for taxes, salary reduction agreements, and before inclusion of other
benefits.
2.25 "SERP Benefit" means the benefit payable under the Plan, as determined
in Article 5.
2.26 "Service Ratio" means the lesser of 1 or the ratio of Employment
Service to 15, unless otherwise provided in Appendix A.
2.27 "Social Security Offset" means 50% of the projected primary insurance
amount ("PIA") for which the Participant would be eligible under Social Security
at the earliest age benefits would commence under Social Security.
2.28 "Target Bonus" means the annual base salary in effect on the
immediately preceding April 1st or on the date of a Participant's Termination of
Employment, if any such termination occurs on April 1st, times the target bonus
percentage in effect on that same under the Company's Bonus Plan.
2.29 "Target Replacement Ratio" means 50% of a Participant's Final
Earnings.
2.30 "Termination" means a Termination of Employment not caused by death,
Disability, Normal Retirement, or Early Retirement, and not within 2 years
following a Change in Control.
2.31 "Termination of Employment" means the Participant ceasing his/her
employment with the Company for any reason whatsoever, whether voluntary,
including by reason of retirement, death, or disability.
2.32 "Vesting Service" means the Participant's number of years elapsed
since his/her Date of Enrollment in the Plan, rounded to the nearest whole
number. In exception of the foregoing, if a Participant's number of years of
elapsed since his/her Date of Employment in the Plan, rounded to the nearest
whole number is at least 2, Vesting Service shall be the number of years elapsed
since his/her Date of Employment, rounded to the nearest whole number.
<PAGE>
4
3 ADMINISTRATION AND INTERPRETATION OF THE PLAN
3.1 Plan Administration. Except as otherwise provided in the Plan, the Plan
Administrator shall have control over the administration and interpretation of
the Plan, with all powers necessary to enable it to carry out its duties in that
respect. The Plan Administrator may adopt such rules and regulations relating to
the Plan as the Plan administrator may deem necessary or advisable for the
administration of the Plan. The Plan Administrator may delegate administrative
responsibilities to advisors or to other persons and may rely on the information
or opinions of legal counsel or experts selected to render advice with respect
to the Plan.
3.2 Actuarial Valuation for Mortality. Where necessary, actuarial
valuations that require adjustments for mortality shall use the 1983 Group
Annuity Mortality Table.
3.3 Actuarial Valuation for Interest Rate. Where necessary, actuarial
valuations that require adjustments for interest shall use the greater of 8% or
the prior year's Moody's Corporate Bond Yield Average.
4 ELIGIBILITY AND ENROLLMENT
4.1 Eligibility to Participate in the Plan. To become a Participant in the
Plan, an Employee must meet all the following requirements:
4.1.1 Be designated eligible to participate in the Plan by the Plan
Committee; and
4.1.2 Sign all documents presented by the Plan Administrator necessary or
appropriate to carry out the intent of the Plan.
4.2 Date of Enrollment in the Plan. An Employee who is designated eligible
to participate in the plan, and meets the criteria for eligibility described in
Section 4.1, will enter the plan at the first day of the month following the
date the Employee completes the requirements for eligibility pursuant to section
4.1.
5 DETERMINATION OF PLAN BENEFITS
5.1 Eligibility for Plan Benefits. A Participant shall be eligible for
benefits under the following events:
5.1.1 Normal Retirement.
5.1.2 Early Retirement.
5.1.3 Disability.
5.1.4 Death.
5.1.5 Termination.
5.1.6 Voluntary or involuntary Termination of Service
within 2 years following a Change in Control.
5.2 Annual Benefits as Annuities. All benefit determinations in Article 5
relate to annual single-life annuity payments. Benefits may be distributed in
other forms, pursuant to article 6, subject to any applicable actuarial
adjustments relating to the form of the benefit payment.
5.3 Value of Company Contributions. The Company's contributions on behalf
of a Participant, and any earnings thereon, under the plans listed below shall
be used to determine the Company Contribution Offset under the Plan.
5.3.1 Contributions by the Company to the 401(k) plan.
5.3.2 Contributions by the Company to the 401(k) Plus plan.
5.3.3 Contributions by the Company to the Profit Sharing plan.
<PAGE>
5
5.4 Company Contribution Offset. The amount, if any, under Section 5.3
shall be multiplied by the appropriate factors for mortality and the interest,
as provided in Article 3, to determine the annual value of the Company's
Contribution. This annual value shall be the Company Contribution Offset.
5.5 Offset for Prior Distributions. Any distributions or payments under
this Plan made on behalf of a Participant prior to an event creating an
entitlement to benefits under Section 5.1, the annual value of the cumulative
amount of prior benefits, calculated using appropriate factors for morality and
interest pursuant to Article 3, shall be the Prior Distribution Offset. In
amplification, but not in limitation, of the foregoing, if a Participant
receives benefits from the Plan for Disability, subsequently ends Disability,
and is eligible for benefits under Section 5.1 for benefits from the Plan,
amounts previously distributed for Disability shall constitute an offset to
subsequent benefit payments.
5.6 Vesting of Plan Benefits. The vested portion of a Participant's benefit
will be lesser of 100% or 20% times the years of Vesting Service.
Notwithstanding the foregoing, a Participant's benefit is 100% vested at age 65
if the attainment of age 65 occurs prior to a Termination of Employment
5.7 Formula for SERP Benefit. The formula used for determining the SERP
Benefit shall be: Final Earnings times Target Replacement Ratio times Service
Ratio less Social Security Offset less Company Contribution Offset less Prior
Distribution Offset. 5.8 Normal Retirement Benefit. The annual SERP Benefit,
payable to a Participant who is eligible to receive benefits pursuant to Section
5.1.1 shall be the amount calculated under Section 5.7. This benefit is subject
to vesting under Section 5.6.
5.8 Normal Retirement Benefit. The annual SERP Benefit, payable to a
Participant who is eligible to recieve benefits pursuant to Section 5.1.1 shall
be the amount calculated under Section 5.7. This benefit is subject to vesting
under Section 5.6.
5.9 Early Retirement Benefit. The annual SERP Benefit, payable to a
Participant who is eligible to receive benefits pursuant to Section 5.1.2 shall
be the SERP Benefit calculated under Section 5.7 less 6% of this amount for each
year prior to qualification for Normal Retirement if the Participant had
remained in full service with the Company. This benefit is subject to vesting
under Section 5.6.
5.10 Disability Benefit. The annual SERP Benefit payable to a Participant
who is eligible to receive benefits pursuant to Section 5.1.3 shall be the
annual SERP Benefit payable under Section 5.7. This benefit is not subject to
vesting under Section 5.6.
5.11 Death Benefit. If a Participant is eligible for benefits pursuant to
Section 5.1.4, the amount of death benefit payable to the Participant's
Beneficiary shall be 1 times the Participant's Final Earnings. Notwithstanding
Section 5.2, this amount shall be a lump sum. This benefit is not subject to
vesting under Section 5.6.
5.12 Termination Benefit. The annual SERP Benefit payable under the Plan to
a Participant who is eligible for benefits pursuant to Section 5.1.5 shall be
the amount calculated under Section 5.7. This benefit is subject to vesting
under Section 5.6, and reduction for benefit commencement prior to Participant's
Normal Retirement under Section 5.9.
5.13 Change in Control Benefit. The SERP Benefit payable to a Participant
who is eligible for benefits pursuant to Section 5.1.6 shall be the actuarial
equivalent of an annual SERP Benefit payable under Section 5.7 calculated using
a Service Ratio equal to 1. Notwithstanding Section 5.2, this amount shall be a
lump sum. This benefit is not subject to vesting under Section 5.6.
5.14 Retirement with Permission. The Plan Committee, at its sole
discretion, may elect to waive age and service requirements for Normal
Retirement and treat any Termination of Employment, for reason other than Death
or Change in Control, as a Normal Retirement. Benefits under a retirement with
permission are calculated pursuant to Section 5.8.
<PAGE>
6
6 PAYMENT OF PLAN BENEFITS
6.1 Events Triggering Distribution. Benefits shall be payable from this
Plan to a Participant eligible for benefits pursuant to Section 5.1 beginning
upon the occurrence of one of the following events:
6.1.1 Normal Retirement, if a Participant is eligible for benefits pursuant
to Section 5.1.1.
6.1.2 Early Retirement, if a Participant is eligible for benefits pursuant
to Section 5.1.2.
6.1.3 Disability, if a Participant is eligible for benefits pursuant to
Section 5.1.3.
6.1.4 Death, if a Participant is eligible for benefits pursuant to Section
5.1.4.
6.1.5 The earliest date the Participant's Normal Retirement or Early
Retirement, based on the Participant's years of Employment Service at his/her
termination of service with the Company, if a Participant is eligible for
benefits pursuant to Section 5.1.5.
6.1.6 Termination of Service, if a Participant is eligible for benefits
pursuant to Section 5.1.6.
6.2 Commencement of Benefit Payments. Benefit payments shall commence on
the first day of the month following the later of notification of the Plan
Committee of an event triggering distributions pursuant to Section 6.1, or the
occurrence of such event., Subsequent payments, if any, shall be paid on the
first day of each month. Benefit payments, if any are payable under the form of
benefit payment, shall continue as long as the Participant remains eligible for
benefits under section 5.1.
6.3 Normal Form of Payment of Benefits. Benefits other than pursuant to
Section 5.1.4 and Section 5.1.6 shall be paid monthly in amount equal to 1/12 of
the SERP Benefit for the life of the Participant.
6.4 Alternate Benefit Payment Forms-Retirement, Early Retirement, and
Disability Benefits. Subject to an election made by the Participant prior to an
event triggering distribution, amounts payable under Section 5.8, Section 5.9,
Section 5.1, and Section 5.12 may be paid in a lump sum, a 10 year certain
annuity, a joint and 75% survivor annuity, or a joint and 50% survivor annuity.
The Benefit payments shall be subject to actuarial adjustment for mortality and
interest rate, as provided under Article 3, including any adjustments for the
age of the joint annuitant, if applicable.
6.5 Withholding for Taxes. To the extent required by law in effect at the
time payments are made, the Company shall withhold from benefit payments made
pursuant to the Plan any taxes required to be withheld by the Federal or any
state or local government.
6.6 Recipients of Benefit Payments. All benefit payments made under this
Plan shall be made by the Company to the Participant during his/her lifetime.
All subsequent payments, if any, under the Plan shall be made by the Company to
the Participant's designated Beneficiary.
<PAGE>
7
7 DISQUALIFICATION AND REDUCTION, LOSS, FORFEITURE OR DENIAL OF BENEFITS
7.1 Participants are General Creditors. Participants under this Plan are
general creditors of the Company with respect to benefits accrued under the
Plan.
7.2 No claim on Assets. The benefits due under this plan are general
obligations of the Company, and Participants have no claim to any assets of the
Company, including, but not limited to, assets used by the Company to informally
fund its obligations under the Plan.
7.3 Benefits may not be used as Collateral. Benefits due from the Plan may
not be used by the Participant as collateral in any form to obtain or secure
personal debt.
8 MISCELLANEOUS
8.1 Employment not Guaranteed by the Plan. Neither this plan nor any action
taken hereunder shall be construed as giving a Participant a right to be
retained as an Employee by the Company for any period.
8.2 Governing Law. The Plan shall be constructed according to the laws of
the state of Ohio.
8.3 Form of Communication. Any election, application, claim, notice, or
other communication required or permitted to be made by a Participant to the
Plan Administrator shall be made in writing and in such form as the Plan
Administrator shall prescribe. Such communication shall be effective upon
mailing if sent by first-class mail, postage prepaid and addressed to the
Company's office at 899 Cleveland Street, Elyria, OH 44036-2125.
8.4 Amendment and Termination. The Board of Directors may, at any time,
amend or terminate the Plan.
8.5 Agent for Service of Process. The Plan Administrator is designated as
the agent to receive service of the legal process on behalf of the Plan.
8.6 Constructional Rules. When appropriate, the singular used in this Plan
shall include the plural, and vice versa, and the masculine shall include the
female, and vice versa.
IN WITNESS WHEREOF, the Company has adopted the Invacare Corporation
Supplemental Executive Retirement Plan as of May 1, 1995.
Invacare Corporation
/S/ Thomas R. Miklich
------------------------------
(Signature)
Thomas R. Miklich
------------------------------
(Print Name)
Chief Financial Officer
------------------------------
(Title)
------------------------------
(Date)
<PAGE>
8
Appendix A
Supplemental Executive Retirement Plan
In recognition of valuable service rendered to Invacare Corporation, the
following Participants in the Invacare Supplemental Executive Retirement Plan
shall, upon remaining fully employed with the Company through May 1, 1997, be
granted a Service Ratio of one ("1"):
Richard Sayers
Thomas Miklich
Louis Slangen
Gerald Blouch
This Appendix shall be effective beginning May 1, 1996.
Invacare Corporation
/S/ Thomas R. Miklich
------------------------------
(Signature)
Thomas R. Miklich
------------------------------
(Print Name)
Chief Financial Officer
------------------------------
(Title)
------------------------------
(Date)
