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INVACARE CORP - 10-K - 20050311 - PART_I
PART I
Item 1. Business.
GENERAL
Invacare Corporation is the world's leading manufacturer and distributor of
non-acute health care products based upon its distribution channels, the breadth
of its product line and its net sales. The company designs, manufactures and
distributes an extensive line of health care products for the non-acute care
environment, including the home health care, retail and extended care markets.
Invacare continuously revises and expands its product lines to meet changing
market demands and currently offers over two dozen product lines. The company's
products are sold principally to over 25,000 home health care and medical
equipment provider locations in the U.S., Australia, Canada, Europe and New
Zealand, with the remainder of its sales being primarily to government agencies
and distributors. Invacare's products are sold through its worldwide
distribution network by its sales force, telesales associates and various
organizations of independent manufacturers' representatives and distributors.
The company also distributes medical equipment and related supplies manufactured
by others.
Invacare is committed to design, manufacture and deliver the best value in
medical products, which promote recovery and active lifestyles for people
requiring home and other non-acute health care. Invacare pursues this vision by:
* designing and developing innovative and technologically superior
products;
* ensuring continued focus on our primary market - the non-acute
health care market;
* marketing our broad range of products;
* providing the industry's most professional and cost-effective
sales, customer service and distribution organization;
* supplying superior and innovative provider support and aggressive
product line extensions;
* building a strong referral base among health care professionals;
* building brand preference with consumers;
* continuous advancement and 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 of our current officers and Directors, it had $19.5 million in
net sales and a limited product line of standard wheelchairs and patient aids.
In 2004, Invacare reached $1.403 billion in net sales, representing a 19%
compound average sales growth rate since 1979, and currently is the leading
company in the industry that manufactures, distributes and markets products in
each of the following major, non-acute, medical equipment categories: power and
manual wheelchairs, patient aids, home care beds, home respiratory products, low
air loss therapy products, seating and positioning products, bathing equipment
and distributed products.
The company operates in a single industry, the home medical equipment (HME)
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.
The company's executive offices are located at One Invacare Way, Elyria, Ohio
and its telephone number is (440) 329-6000. In this report, Invacare and the
company refer to Invacare Corporation and, unless the context otherwise
indicates, its consolidated subsidiaries.
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THE HOME MEDICAL EQUIPMENT INDUSTRY
North America
The home medical equipment market includes home health care products, physical
rehabilitation products and other non-disposable products used for the recovery
and long-term care of patients. The company believes that sales of domestic home
medical equipment products will continue to grow during the next decade and
beyond as a result of several factors, including:
Growth in population over age 65. The nation's overall life expectancy
continues to increase. A recent report from the U.S. Department of Health
and Human Services (DHHS) states that the average life expectancy for men
and women who reach the age of 65 is now 81 and 84, respectively and life
expectancy at birth is now 74 for men and almost 80 for women. The DHHS
also reports that people age 65 or older represent the vast majority of
home health care patients and will increase from 12% of the population in
2000 to 20% of the population by the year 2050. A significant percentage of
people using home and community-based health care services are 65 years of
age and older.
Treatment trends. Many medical professionals and patients prefer home
health care over institutional care because they believe that home health
care results in greater patient independence, increased patient
responsibility and improved responsiveness to treatment because familiar
surroundings are conducive to improved patient outcomes. Health care
professionals, public payers and private payers 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 an 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. 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 lives of adults and children, thus
increasing the demand for home medical care equipment.
Health care cost containment trends. In 2002, health care expenditures in
the U.S. totaled $1.5 trillion dollars or approximately 14.9% of the Gross
Domestic Product (GDP), the highest among industrialized countries. In
2013, the nation's health care spending is projected to increase to $3.4
trillion, growing at an average annual rate of 7.3%. Over this same period,
spending on health care is expected to increase to approximately 18.4% as a
share of GDP. The rising cost of health care has caused many payers of
health care expenses to look for ways to contain costs. Home health care
has gained widespread 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 1991 Americans with Disabilities Act (ADA). This
legislation provides mainstream opportunities to people with disabilities.
The ADA 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, direct sales and the Internet.
Europe/Asia/Pacific
The company believes that, while many of the market factors influencing demand
in the U.S. are also present in Europe and Asia/Pacific - aging of the
population, technological trends and society's acceptance of people with
disabilities - each of the major national markets within Europe and in
Asia/Pacific have distinctive characteristics. The health care industry is more
heavily socialized and, therefore, is 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 national market. Management believes that as the
European markets become more homogeneous and the company continues to refine its
distribution channels, the company can more effectively penetrate these markets.
Likewise, the company expects to increase its sales in the highly fragmented
Australian, New Zealand and Asian markets.
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GEOGRAPHICAL SEGMENTS AND PRODUCT CATEGORIES
North America
North American operations are aligned into five primary product groups, which
manufacture and market products in all of the major home medical equipment
categories. In Canada, the company primarily sells Invacare products
manufactured in the U.S.
REHAB PRODUCTS
Power wheelchairs. Invacare manufactures a complete line of power
wheelchairs for individuals who require independent powered mobility. The
range includes products that can be significantly customized to meet an
individual's specific needs, as well as products that are inherently
versatile and meet a broad range of individual requirements. Power
wheelchair lines are marketed under the Invacare(R) Storm Series(R) and
Xterra(TM) brand names and include a full range of powered mobility
products. The Storm Series(R) was expanded in 2004 with the introduction of
the TDX(TM) line of power wheelchairs which offer an unprecedented
combination of power, stability and maneuverability. The Pronto(TM) Series
Power Wheelchairs with SureStep(TM), introduced in 2002, feature
center-wheel drive performance for exceptional maneuverability and
intuitive driving. The power tilt and recline systems are now offered also
as a result of the company's acquisition of Motion Concepts, Inc.
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 Invacare(R) and Invacare Top
End(R) brand names. The chairs provide mobility for people with moderate to
severe disabilities in their everyday activities as well as for use in
various sports such as basketball, racing, skiing and tennis.
Personal Mobility. In 2003, Invacare introduced the HMV(TM) (Highly
Maneuverable Vehicle) product, which in 2004 replaced the three and
four-wheeled motorized scooters, including rear-wheel drive models for both
outdoor and indoor use, marketed under the Invacare(R) brand name that
include scooters under the Lynx(TM) and Panther(TM) product names.
Seating and positioning products. Invacare markets seat cushions, back
supports and accessories under three series. Invacare(R) Essential(TM)
Series provides simple seating solutions for comfort, fit and function.
Invacare Infinity(TM) Series includes versatile modular seating, providing
optimal rehab solutions. Invacare PinDot(R) Series offers custom seating
solutions personalized for the most challenged clients. The company has
also expanded its product line of seating products and wheelchairs for the
pediatric market with the acquisition of Freedom Designs, Inc.
STANDARD PRODUCTS
Manual wheelchairs. Invacare's manual wheelchairs are sold for use inside
and outside the home, institutional settings, or public places (e.g.,
airports, malls, etc.). Our clients include people who are chronically or
temporarily disabled and require basic mobility performance with little or
no frame modification. Examples of Invacare manual wheelchair lines, which
are marketed under the Invacare(R) brand name, include the 9000 and
Tracer(R) product lines. These lines offer wheelchairs that are designed to
accommodate the diverse capabilities and unique needs of the individual
from petite to bariatric sizes.
Personal care. Invacare manufactures and/or distributes a full line of
personal care products, including ambulatory aids such as crutches, canes,
walkers and wheeled walkers. This line also features one of Invacare's
latest product innovations, the Rollite(TM) Rollator, a truly unique
solution in patient mobility. Also available are safety aids such as tub
transfer benches, shower chairs and grab bars, and patient care products
such as commodes and other toilet assist aids.
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 bedside rails,
mattresses, overbed tables, trapeze bars and traction equipment. Also
available are the new bariatric beds and accompanying accessories to serve
the special needs of bariatric patients.
Low air loss therapy products. Invacare manufactures and markets a complete
line of mattress overlays and replacement products, under the Invacare(R)
brand name. These products, which use air flotation to redistribute weight
and move moisture away from patients, assist in the total care of those who
are immobile and spend a great deal of time in bed.
Patient Transport. Invacare manufactures and markets products needed to
assist in transferring individuals from surface to surface (bed to chair)
or transporting from room to room. Designed for use in the home and
institutional settings, these products include patient lifts and slings,
and a new series of mobile, multi-functional recliners.
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RESPIRATORY PRODUCTS
Home respiratory products. Invacare manufactures and/or distributes home
respiratory products, including oxygen concentrators, nebulizer compressors
and respiratory disposables, sleep therapy products and portable compressed
oxygen systems. Invacare home respiratory products are marketed
predominantly under the Invacare(R) brand name. The Invacare Venture
HomeFill(TM) II Oxygen Compressor enables people to safely and easily make
compressed oxygen in their home and store it in cylinders for future use.
DISTRIBUTED PRODUCTS
Distributed products. Invacare distributes numerous lines of branded
medical supplies including ostomy, incontinence, diabetic, wound care and
miscellaneous home medical products, as well as HME aids for daily living.
In 2004, Invacare introduced its own private label brand of certain medical
supplies.
CONTINUING CARE
Health Care Furnishings. Invacare, operating as Invacare Continuing Care
Group, is a manufacturer and distributor of beds and furnishings for the
long-term care markets. In addition, certain home medical equipment also is
sold through this channel.
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.
Asia/Pacific
The company's Asia/Pacific operations consist of Invacare Australia, which
imports and distributes the Invacare range of products and manufactures and
distributes the Rollerchair range of custom power wheelchairs and Pro Med lifts;
Dynamic Controls, a New Zealand manufacturer of electronic operating components
used in power wheelchairs and scooters; Invacare New Zealand, a manufacturer of
wheelchairs and beds and a distributor of a wide range of home medical
equipment; and Invacare Asia Sales, which imports and distributes home medical
equipment to the Asia markets.
Europe
The company's European operations operate as a "common market" company with
sales throughout Europe. The European operations currently sell a line of
products providing significant room for growth as Invacare continues to broaden
its product line offerings to more closely resemble that of the North American
operations.
Most wheelchair products sold in Europe are designed locally to meet specific
market requirements. The company manufactures and/or assembles both manual and
power wheelchair products at the following European facilities: Invacare (UK)
Ltd. in the United Kingdom, Invacare Poirier S.A.S. in France, and Invacare
Deutschland GmbH in Germany. Manual wheelchair products are also manufactured
and/or assembled at Invacare Lda. in Portugal, Invacare AG in Switzerland (the
Kuschall Range), and Invacare Rea AB in Sweden. Beds and patient lifts are
manufactured at Invacare Hong A/S in Denmark. A range of patient lifts is also
assembled at Invacare (UK) Ltd. in the United Kingdom. Oxygen products are
imported from Invacare U.S. operations. In addition to distributing the Invacare
range of products, Invacare Mecc San SrL in Italy manufactures beds, patient
lifts and commodes specifically for the local market.
With the acquisition in September 2004 of WP Domus GmbH (Domus), the European
product range has been enhanced and market share increased. Domus is a
European-based holding company that manufactures several complementary product
lines to Invacare's product lines, including power add-on products, bath lifts
and walking aids. Domus has three divisions: Alber, Aquatec and Dolomite.
For information relating to net sales by product group, see Business Segments in
Notes to the Consolidated Financial Statements.
WARRANTY
Generally, the company's products are covered by warranties against defects in
material and workmanship for periods up to six years from the date of sale to
the customer. Certain components carry a lifetime warranty.
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North America and Asia/Pacific
The home medical equipment market is highly competitive and Invacare 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 products, the range of products offered, the technical expertise of
the sales force, the effectiveness of the company distribution system, the
strength of the dealer and distributor network and the availability of prompt
and reliable service for its products. Various manufacturers, from time to time,
have 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 in the future.
Europe
As a result of the differences encountered in the European marketplace,
competition generally varies from one country 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
North America and Asia/Pacific
Invacare's products are marketed in the United States and Asia/Pacific primarily
to providers who in turn sell or rent these products directly to consumers
within the non-acute care setting. Invacare's primary customer is the home
medical equipment (HME) provider. The company also employs a "pull-through"
marketing strategy to medical professionals, including physical and occupational
therapists, who refer their patients to HME providers to obtain specific types
of home medical equipment, as well as to consumers, who express a product or
brand preference.
Invacare's domestic sales and marketing organization consists primarily of a
home care sales force, which markets and sells Invacare(R)-branded products to
HME providers. 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, thus saving customers valuable time. The TBM also provides training
and servicing information to providers, as well as product literature,
point-of-sale materials and other advertising and merchandising aids. In Canada,
products are sold by a sales force and distributed through regional distribution
centers in British Columbia, Ontario and Quebec to health care providers
throughout Canada. Manufacturers' representatives market and sell Invacare
products through the company's Invacare Continuing Care Group to the non-acute
care market.
The Inside Sales Department provides increased sales coverage of smaller
accounts and complements the efforts of the field sales force. Inside Sales
offers cost-effective sales coverage through a targeted telesales effort, and
has delivered excellent sales growth in each of its five years of existence.
The Invacare Service and Parts Division (ISP) focuses on improving operations
and enhancing overall service to its customers. Recent initiatives included the
pre-packaging of parts and adding a bar code to the label, the kitting of
upholstery with associated hardware, and introducing 15 new power wheelchair and
scooter accessories. ISP's Technical Education department recently consolidated
its Power Wheelchair and Respiratory schools into a four-day format and
continued its emphasis on improving providers repair technicians' productivity.
The Service Referral Network includes over 600 providers who honor Invacare's
product warranties regardless of where the product was purchased. This network
of servicing providers helps ensure that all consumers using Invacare products
receive quality service and support that is consistent with the Invacare brand
promise.
The company sells distributed products, primarily soft goods and disposable
medical supplies, through the Invacare Supply Group (ISG). ISG is an important
component of Invacare's "Total One Stop Shopping" program, through which
Invacare offers HME providers of all sizes a broader range of products and
services at a lower total cost. ISG products include ostomy, incontinence, wound
care and diabetic supplies, as well as other soft goods and disposables which
complement other Invacare products that are purchased by many of the same
customers who buy Invacare equipment. ISG markets its products through an inside
telesales and customer service department, the Internet and Invacare's HME field
sales force. ISG also markets a Home Delivery Program to HME providers through
which ISG drop-ships supplies in the provider's name to the customer's address.
Thus, providers have no products to stock, no minimum order requirements and
delivery is made within 24 to 48 hours nationwide. In 2004, ISG completed the
purchase and integration of ACS, a home infusion company, opening up a new
market for ISG. ISG also added more than 150 SKUs to its Invacare-branded
consumable line. The company opened a new state-of-the-art distribution facility
in Jamesburg, New Jersey and closed its existing Edison, New Jersey facility.
The move more than doubled available space, while also enhancing Invacare Supply
Group's ability to effectively pick, pack and ship customer orders.
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In 2004, Invacare, through its co-op advertising program, continued to offer
direct response television commercials designed to generate demand for Invacare
Power Chairs, Scooters and the HomeFill Oxygen System sold by the HME provider.
These commercials feature Arnold Palmer, Invacare's worldwide spokesperson, who
has become an integral part of Invacare's "Yes, you can(TM)" promotional and
marketing efforts. This program encourages consumers to achieve personal
independence and participate in the activities of life, facilitated by the home
health care products, which Invacare manufactures, distributes and/or markets
throughout the world. The company signed an extended agreement with Arnold
Palmer through the end of 2006. Mr. Palmer, serving as Invacare's spokesperson,
is helping accomplish three objectives: (i) creating attention and awareness for
the category of home health care products, (ii) accelerating the acceptance of
these products as lifestyle enhancing so that consumers want these products and
don't just need them, and (iii) establishing the Invacare brand as the consumer
category-brand for home health care products. Mr. Palmer is featured throughout
Invacare's marketing communications, including Invacare direct-response
television commercials, print advertising, point-of-purchase displays, and other
merchandising and marketing materials.
Invacare continues to enhance www.invacare.com, maintaining its position as the
leader in e-commerce in the HME industry. In 2004, Invacare's website
utilization continued to increase. Thirty-two-percent of all standard domestic
orders were placed over the web. Another 14% of orders were EDI, for a total of
46% of all orders being placed electronically, resulting in a significant cost
savings. New online offerings in 2004 included online financing for Invacare
providers, resulting in additional transactional cost savings for the company. A
full transactional web site for Invacare Canada went live in March. Major
enhancements to the administration tools for the online Product Catalog were
developed. A web version of the tool makes updating the online catalog quicker
and easier. Users can make faster updates to product PDF documents in the online
product catalog, streamlining the content management process. The integration of
Invacare's website with the new Oracle ERP system began in 2004 and will
continue into 2005. Increasing web transactions are reducing the number of calls
to the customer service call center, which also results in significant cost
savings. This integration is expected to further improve the online customer
experience by adding additional website features such as contract pricing,
financing options, coupons and product security.
In 2004, Invacare continued its strategic advertising campaign in key trade
publications that reach the providers of home medical equipment. The company
also contributed extensively to editorial coverage in trade publications
concerning the products it manufactures. Company representatives attended
numerous trade shows and conferences on a national and regional basis in which
Invacare products were displayed to providers, health care professionals and
consumers.
Invacare continues to generate greater consumer awareness of the company and its
products. This was evidenced by enhancements made to its consumer-marketing
program in 2004 through sponsorships of a variety of wheelchair sporting events
and support of various philanthropic causes benefiting the consumers of its
products. For the eleventh consecutive year, Invacare continued as a National
Corporate Partner with Easter Seals, one of the most recognized charities in the
United States that meets the needs of both children and adults with various
types of disabilities. The company continued its sponsorships of 75 individual
wheelchair athletes and teams, including several of the top-ranked male and
female racers, hand cyclists, and wheelchair tennis players in the world.
Invacare was the title sponsor for the ninth year in a row of the Invacare World
Team Cup of Wheelchair Tennis Tournament, which took place in January in
Christchurch, New Zealand. The company also continued its support of disabled
veterans through its sponsorship of the 24th National Veterans Wheelchair Games,
the largest annual wheelchair sports event in the world, which was held in St.
Louis, Missouri. The games bring a competitive and recreational sports
experience to military service veterans who use wheelchairs for their mobility
needs due to spinal cord injury, neurological conditions or amputation. The year
2004 also was a Paralympic year. Team Invacare had more than 30 athletes
participating in the competition who brought home more than 30 gold, silver and
bronze medals at the games, which were held in September in Athens, Greece,
following the Olympic Games.
The company's top 10 customers accounted for approximately 14% of 2004 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 5% of the company's 2004 net sales. Providers, who are
part of a buying group, generally make individual purchasing decisions and are
invoiced directly by the company.
Europe
The company's European operations consist primarily of manufacturing, marketing
and distribution operations in Western Europe and export sales activities
through local distributors elsewhere in the world. The company has a sales force
and where appropriate, distribution centers, in the United Kingdom, France,
Germany, Belgium, Portugal, Spain, Italy, Denmark, Sweden, Switzerland, Norway
and the Netherlands, 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 agencies. 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.
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PRODUCT LIABILITY COSTS
The company's captive insurance company, Invatection Insurance Co., currently
has a policy year that runs from September 1 to August 31 and insures annual
policy losses of $10,000,000 per occurrence and $11,000,000 in the aggregate of
the company's North American product liability exposure. The company also has
additional layers of external insurance coverage insuring $100,000,000 in annual
aggregate losses arising from individual claims anywhere in the world that
exceed the captive insurance company policy limits. There can be no assurance
that Invacare's current insurance levels will continue to be adequate or
available at affordable rates.
Product liability reserves are recorded for individual claims based upon
historical experience, industry expertise and indications from the third-party
actuary. Additional reserves, in excess of the specific individual case
reserves, are provided for incurred but not reported claims based upon
third-party actuarial valuations at the time such valuations are conducted.
Historical claims experience and other assumptions are taken into consideration
by the third-party actuary to estimate the ultimate reserves. For example, the
actuarial analysis assumes that historical loss experience is an indicator of
future experience, the distribution of exposures by geographic area and nature
of operations for ongoing operations is expected to be very similar to
historical operations with no dramatic changes and that the government indices
used to trend losses and exposures are appropriate. Estimates made are adjusted
on a regular basis and can be impacted by actual loss award settlements on
claims. While actuarial analysis is used to help determine adequate reserves,
the company accepts responsibility for the determination and recording of
adequate reserves in accordance with accepted loss reserving standards and
practices.
PRODUCT DEVELOPMENT AND ENGINEERING
Invacare is committed to continuously improving, expanding and broadening its
existing product lines. In 2004, new product development continued to receive an
even stronger emphasis as part of Invacare's strategy to gain market share and
maintain competitive advantage. To this end, the company introduced 53 new
products. The following are some of the most significant product introductions:
North America
The At'm Take Along Chair, Invacare's newest power wheelchair, provides
consumers a light-weight and compact chair to fit in the trunk of a car and
assemble easily in just 60 seconds. The consumer's caregiver can open the
seat, snap it on the lightweight base, and add the battery. Assembly
requires absolutely no tools.
Formula(TM) Powered Seating, combines three systems: the Formula(TM) PTO
Plus, the Formula(TM) Invisible Super Low(TM) Tilt, and Formula(TM) TRE to
meet the rehab positioning needs of consumers from simple to complex. This
all-new Formula Powered Seating package offers the best integration of
powered seating upon the number-one bases with the number-one electronics
in the HME industry, all from a single company, Invacare.
The Zoom 220 HMV(TM), the newest entrant to the Zoom family of HMVs (Highly
Maneuverable Vehicles), is compact, portable, lightweight and economical
for active consumers. The Zoom line combines the power wheelchair
technology of center-wheel drive with the aesthetics of traditional scooter
products for indoor maneuverability and outdoor performance.
The HomeFill(TM) II Patient Convenience Pack ML4, is an all-new portable
oxygen supply system that is lightweight -- 3 1/2 pounds - and easy to
transport for oxygen patients. The HomeFill Oxygen System offers HME
providers 3-to-1 cost savings in servicing their ambulatory oxygen patients
since the patient can fill cylinders themselves in their own home, which
gives them freedom and independence - they no longer have to wait for
cylinder deliveries.
The Polaris(TM) EX(TM) with SoftX(TM) Technology and the Polaris(TM) EX(TM)
Heated Humidifier have been integrated as one product rather than two
separate units. The Polaris EX CPAP features Invacare's SoftX technology,
which tracks the patient's breathing pattern and reduces the patient's work
of breathing during exhalation, providing effortless exhalation for the
patient.
Web Ox is a PC-based, high-tech solution to the oxygen qualification
problem facing the industry today. For a minimal quarterly fee, Web Ox
allows providers to subscribe to an unlimited number of tests, allowing
faster Medicare billing for oxygen patients, thus improving the provider's
cash flow.
A new Bariatrics Program offers a complete solutions approach for the
bariatric provider and their clients, and features the full line of
Invacare bariatric products. Making it easy to find the right product, the
bariatric catalog employs color-coding to sort products by weight capacity.
The catalog also offers cross-selling or complementary product suggestions
to help educate providers, clinicians and consumers about additional
product they may need, and at the same time establishes Invacare as the
leading manufacturer offering bariatric solutions.
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Court-Side Glides(TM) for Invacare walkers are an innovative product that
takes the homemade tennis ball solution for walker glide tips a step
further. For years, consumers and therapists have been slashing tennis
balls, sometimes injuring themselves in the process, to create makeshift
walker glide tips that are durable for indoor and outdoor use and safe for
flooring surfaces. Invacare has enhanced the homemade tennis ball solution
to create a walker glide tip that is longer lasting, easy to install and
replace.
The Invacare Full Electric Low Bed is ideal for circumstances where rails
are not desirable or appropriate, but injuries from falling out of bed are
still a concern. It is the newest split-spring low bed available on the
market today, allowing easy, one-person delivery to home or long-term care
locations. The split-spring design, which Invacare pioneered, combines
easy, one-person delivery with the benefits of a low bed.
Asia/Pacific
Dynamic Controls continued various range extensions and design improvements to
products during 2004. Additionally, design work was continued on a New
Generation Scooter Controller to be introduced in late 2005 and extending
functionality in the "Shark" wheelchair controller, which was introduced in
2004.
Europe
During 2004, European operations introduced less new products than in 2003, but
updated a number of existing products as required by the market. Key
introductions and updates in 2004 included:
The Invacare(R) Dragon is a rear wheel drive power wheelchair designed and
manufactured in Europe. It is a solid and cost efficient power wheelchair
that provides excellent indoor and outdoor mobility in the suburban
environment. It is easy to drive, and the seat can be adjusted to the
physical requirements of the user.
The Invacare(R) Robin is a ceiling hoist designed in Europe. It provides
the most innovative way of transfer with care for nursing staff. Ensuring
excellent personal contact, the two-strap design offers comfort and
efficiency in a safe patient handling environment. Without the need for a
spreader bar, a secure and dignified transfer can be achieved.
The Invacare(R) Clematis is a manual wheelchair primarily for use in the
French market. Excellent comfort, quality and elegance describe this
folding chair equipped with pneumatic actuators. The seat positioning of
the Clematis offers the user a real sensation of relaxation and wellbeing.
The Invacare(R) Mistral3 power wheelchair is an updated folding chair with
seat positioning. It replaces the Mistral and Mistral Plus.
The Invacare(R) Mistral3 Junior power wheelchair is a version of the
Mistral3 with a reclining rigid seat base which is width and length
adjustable from 30cm to 36cm and provides ultimate comfort to children or
younger teenagers whether they are installed in a shell or not.
The Invacare(R) Action3 manual wheelchair, which was released in 2002 has
been improved with the following; new locking pin on hanger and elevating
leg-rest, folding backrest, reclining backrest with gas spring, leg-rest
adaptor, angle adjustable backrest and hemi motion armrest.
The Invacare(R) Action 2000 & MB2 manual wheelchairs have been improved
with the following; new arm-pads - short and long and shorter brake shoe.
MANUFACTURING AND SUPPLIERS
The company's objective is to be the highest quality and lowest-cost
manufacturer in its industry. The company believes that it can achieve this
objective not only through improved product design, but also by taking a number
of steps to lower manufacturing costs. During 2004, the company opened
manufacturing locations in China at Suzhou Industrial Park and Kunshan City,
both of which are near Shanghai, to manufacture components, including bases for
consumer power wheelchairs. The company has plans to further utilize its Hong
Kong office to increase local sourcing of components in China in order to lower
costs. With these actions, Invacare expects to regain its position as one of the
lowest cost producers of standard products in the industry.
Of the many opportunities to reduce overall costs, the short-term emphasis will
be on building the professional disciplines in the areas of sourcing, quality
and logistics, with particular focus on sourcing components and finished goods
for each of the business segments.
I-10
North America / Asia/Pacific
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.
The company continues to make investments in manufacturing automation. The
company has initiated lean manufacturing programs to reduce manufacturing lead
times, shorten production cycles, increase associate training, encourage
employee involvement in decision-making and improve manufacturing quality.
Associate involvement teams participate in engineering, production and
processing strategies and associates have been given responsibility for their
own quality assurance.
The manufacturing of wheelchairs, replacement parts, patient aids and home care
beds consists of a variety of metal fabricating procedures, electronics
production, coating, plating and assembly operations. Manufacturing of oxygen
concentrators, nebulizer compressors, and seating and positioning products
consists primarily of assembly operations. The company purchases raw materials,
fabricated components and services from a variety of suppliers. Where
appropriate, Invacare does employ long-term contracts with its suppliers, both
domestically and from the Far East. In those situations in which long-term
contracts are not advantageous, the company believes that its relationships with
those suppliers are satisfactory and that alternative sources of supply are
readily available.
Europe
As in other areas, manufacturing and operational issues faced in the U.S. are
also present in Europe. The European manufacturing operations have streamlined,
allowing for the realization of significant synergies and additional cost
reductions and improved efficiencies are planned going forward. This process
will continue and will now include the integration of the Domus businesses.
ACQUISITIONS
In 2004, Invacare acquired for cash the following six businesses at a total cost
of $343,554,000:
o The assets of ACS, a New York distributor of medical supplies
with a focus on infusion therapy.
o The assets of Decpac, an Australian company that designs and
manufactures portable folding access ramps for use with
wheelchairs and scooters.
o Freedom Designs, Inc., a California-based company that designs
and manufactures seating products and wheelchairs with a
particular focus on the pediatric marketplace.
o WP Domus GmbH, a European-based holding company which
manufactures several complementary product lines to Invacare's
product lines.
o Champion Manufacturing, LLC , an Indiana company that designs and
manufactures medical recliners.
o The assets of Premier Designs, a California company from which
Invacare acquired assets and designs for a lightweight, easily
transportable power wheelchair.
On September 9, 2004 the company finalized the acquisition of 100% of the shares
of WP Domus GmbH, a European-based holding company that manufactures several
complementary product lines to Invacare's product lines, including power add-on
products, bath lifts and walking aids, from WP Domus LLC. Domus has three
divisions: Alber, Aquatec and Dolomite. The acquisition allows the company to
expand its product line and reach new markets. The preliminary purchase price
was $227,382,000 including acquisition costs of $3,670,000, which was paid in
cash, and is subject to final determination of the estimated costs of possible
office closures, sales agency transfers and other consolidation efforts expected
to be finalized by the end of the third quarter of 2005. The acquisition was
consummated after satisfaction of certain conditions, including receipt of all
requisite regulatory approvals. Invacare entered into a 100,000,000 Euro bridge
loan agreement and utilized its existing revolving credit line to fund the
acquisition. Invacare's reported results reflect the operating results of Domus
since the date of the acquisition.
Carroll Healthcare, Inc. was purchased in 2003 and as part of the purchase
agreement, the company agreed to pay additional consideration based upon
earnings before interest, taxes, depreciation and amortization from September 1,
2003 through August 31, 2004 calculated under Canadian generally accepted
accounting principles (U.S. GAAP has been used for company reporting purposes)
in accordance with the purchase agreement, with no defined maximum amount. The
payment amount was finalized and paid in October 2004 at 74,667,000 Canadian
Dollars, or $60,992,335 U.S. Dollars, which increased goodwill.
I-11
Motion Concepts, Inc. ("Motion") also was purchased in 2003 and pursuant to the
Motion purchase agreement, the Company agreed to pay contingent consideration
based upon earnings before interest and taxes over the three years subsequent to
the acquisition up to a maximum of approximately $16,000,000. Based upon 2004
results, no additional consideration was paid. When the contingency calculations
are completed in 2005 and 2006 related to the acquisition, any additional
consideration paid will increase the purchase price and reported goodwill.
As a result of the company's ongoing search for opportunities, coupled with the
industry trend toward consolidation, other acquisitions were evaluated in 2004.
The company focuses on acquisitions intended to fulfill the following
objectives:
Tactical. Grow market share or extend current product lines.
Strategic. Enter new market segments that complement existing businesses
or utilize the company's distribution strengths.
Geographic. Enable rapid entry into new foreign markets.
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 some countries,
most notably the U.S., Australia 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 several decades. A number
of efforts to control the federal deficit have impacted reimbursement levels for
government sponsored health care programs and private insurance companies often
imitate changes made in federal programs. 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 the company's customers who are the HME providers.
The company continues its pro-active efforts to shape public policy that impacts
home and community-based, non-acute health care. We are currently very active
with federal legislation and regulatory policy makers. Invacare believes that
these efforts give the company a competitive advantage in two ways. First,
customers frequently express appreciation for our efforts on behalf of the
entire industry. Second, sometimes we have the ability to anticipate and plan
for changes in public policy, unlike most other HME manufacturers who must react
to change after it occurs.
The Safe Medical Devices Act of 1990 and Medical Device Amendments of 1976 to
the Federal Food, Drug and Cosmetics Act of 1938 (the Acts) provide for
regulation by the United States Food and Drug Administration (the FDA) of the
manufacture and sale of medical devices. Under the Acts, medical devices are
classified as Class I, Class II or Class III devices. The company 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 must comply with product design and manufacturing controls
established by the FDA. Domestic and foreign manufacturers of medical devices
distributed commercially in the U.S. 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. During the
past year, the company was inspected by the FDA at multiple locations and found
to be acceptable, with only minor inspectional findings needing attention. From
time to time, the company may undertake voluntary recalls of its products to
maintain ongoing customer relationships and to enhance its reputation for
adhering to high standards of quality and safety. The company continues to
strengthen its programs to better ensure compliance with applicable regulations
for which the failure to comply would have a material adverse effect.
Although there are a number of reimbursement related issues in most of the
countries in which Invacare competes, the issues of primary importance are
currently in the United States. There are two critical issues for Invacare:
eligibility for reimbursement of power wheelchairs for elderly patients and the
provisions of the legislation related to prescription drug coverage under
Medicare. With regard to power wheelchairs, there has been a regulatory push by
the Centers for Medicare and Medicaid Services (CMS) towards limiting
eligibility to patients who cannot take a single step on their own. This
limitation has confined many elderly patients, who could be mobile in power
wheelchairs, to their beds. Invacare and the home care industry are working hard
to convince CMS and the Bush administration that this change does not benefit
the elderly and is leading to less active patients who could end up in costly
nursing homes and hospitals, and thereby would counteract any cost savings
attributable to limiting the eligibility for power wheelchairs. The
Administration is scheduled to soon issue new power wheelchair eligibility
criteria, which we expect to provide more predictability and improved access to
this benefit.
I-12
In November of 2003, Congress passed legislation related to providing
prescription drug coverage for the elderly under the Medicare program. As part
of funding the costs of this new program, a number of changes to Medicare home
care reimbursement rules will take effect over the next few years. First, the
home care provider, who is Invacare's customer, did not receive a cost-of-living
adjustment in 2004 and will not receive an update in 2005 and 2006. Second, in
2005, Medicare reimbursement for oxygen, along with certain types of home care
beds, wheelchairs, nebulizers and supplies, will be lowered to the median
reimbursement levels in the Federal Employee Health Benefit Plans. Third,
starting in 2007, Congress has authorized competitive bidding in ten of the
largest metropolitan regions of the U.S. for home medical items and services. In
2009, the program would be extended to eighty of the largest metropolitan
regions.
Although none of these changes are beneficial to the home care industry,
Invacare believes that it can still grow and thrive in this environment. The
home care industry has not received any cost-of-living adjustments over the last
few years and will try to respond with improved productivity to address the lack
of support from Congress. In terms of the 2005 price reductions, although we do
not yet know what price reduction will be applied to oxygen reimbursement, it is
anticipated that the blended cut for all items will be approximately 8%. If we
estimate the impact that the 2005 cuts could have on our revenue stream, they
are expected to be around 1% of consolidated net sales.
However, Invacare's new products (for example, the low cost oxygen delivery
system of HomeFill(TM)), can help address the cuts the home care provider has to
endure. We will continue to focus on developing products that help the provider
improve profitability. With such products, Invacare believes that it can grow
and offset the risks. Additionally, Invacare will accelerate its activities in
China to make sure that we are one of the lowest cost manufacturers and
distributors to the home care provider.
In terms of competitive bidding, Invacare has strong positions with the likely
consolidators who will probably gain share as we approach 2007 and enter the new
reimbursement environment. We believe that we are well positioned to combat
pricing pressures with volume gains and productivity improvements. Nevertheless,
there will be ongoing uncertainty in the industry over the extent and depth of
these cuts to the home care industry. Invacare is concerned that, once
implemented, competitive bidding will likely generate poorer service in the home
care arena as providers look to remain profitable. Likewise, it will likely lead
to further consolidation of the provider base as small entrepreneurs may look to
exit a less profitable business model. Invacare will keep a close watch on its
extension of credit in this environment and will work with the industry to
pressure Congress to reconsider its actions. We believe that home care is the
least costly and most preferred environment in which an individual can recover
from an operation or illness and that government actions should encourage home
care rather than lead to more expensive alternatives.
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 product nor does it believe that backlog is
a significant factor for its business.
EMPLOYEES
As of December 31, 2004, the company had approximately 6,100 employees.
FOREIGN OPERATIONS AND EXPORT SALES
The company also markets its products for export to other foreign countries. The
company had product sales in over 80 countries worldwide. For information
relating to net sales, operating income and identifiable assets of the company's
foreign operations, see Business Segments in the Notes to the Consolidated
Financial Statements.
AVAILABLE INFORMATION
The company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and any amendments thereto, as well as proxy
statements and other documents with the Securities and Exchange Commission
(SEC). The public may read and copy any material that the company files with the
SEC at the SEC's Public Reference Room located at 450 Fifth Street, NW,
Washington D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website, www.sec.gov, that contains all reports, proxy statements
and other information filed by the company with the SEC.
Additionally, Invacare's filings with the SEC are available on or through the
company's website, www.invacare.com, as soon as reasonably practicable after
they are filed electronically with, or furnished to, the SEC. Copies of the
company's filings also can be requested, free of charge, by writing to:
Shareholder Relations Department, Invacare Corporation, One Invacare Way, P.O.
Box 4028, Elyria, OH 44036-2125.
I-13
Item 2. Properties.
The company owns or leases its warehouses, offices and manufacturing facilities
and believes that these facilities are well maintained, adequately insured and
suitable for their present and intended uses. Information concerning certain
leased facilities of the company as of December 31, 2004 is set forth in Leases
and Commitments in the Notes to the Consolidated Financial Statements of the
company and in the table below:
Ownership
Or Expiration Renewal
North American Operations Square Feet Date of Lease Options Use
------------------------- ----------- ------------- ------- ---
Alexandria, Virginia 230 September 2005 None Office
Apharetta, Georgia 9,000 June 2006 None Warehouse and Offices
Atlanta, Georgia 137,284 February 2008 One (3 yr.) Warehouse and Offices
Atlanta, Georgia 48,000 August 2006 None Sublet
Beltsville, Maryland 33,329 February 2005 One (3 yr.) Manufacturing, Offices, and
Warehouse
Delta, British Columbia 12,000 January 2008 One (3 yr.) Warehouse and Offices
Deer Park, New York 5,100 January 2006 None Warehouse and Offices
Edison, New Jersey 105,014 March 2010 None Warehouse and Offices
Elyria, Ohio
- Taylor Street 251,656 Own - Manufacturing and Offices
- Cleveland Street 107,052 November 2007 One (3 yr.) Warehouse
- One Invacare Way 50,000 Own - Headquarters
- 1320 Taylor Street 30,000 January 2010 One (5 yr.) Offices
- 1160 Taylor Street 4,800 Own - Warehouse and Offices
Fresno, California 2,500 August 2005 - Warehouse and Offices
Grand Prairie, Texas 43,754 April 2008 One (3 yr.) Warehouse and Offices
Holliston, Massachusetts 57,420 August 2006 None Warehouse and Offices
Kirkland, Quebec 26,196 November 2010 One (5 yr.) Manufacturing, Warehouse and
Offices
Jamesburg, New Jersey 83,200 November 2009 One (5 yr.) Warehouse and Offices
Kunshan City, China 4,800 May 2006 One (2 yr.) Manufacturing and Offices
Longmont, Colorado 2,400 December 2006 - Offices
London, Ontario 103,200 Own - Manufacturing and Offices
Marlboro, New Jersey 2,100 June 2005 None Office
Mississauga, Ontario 81,004 January 2005 One (5 yr.) Sublet
Mississauga, Ontario 26,530 November 2011 Two (5 yr.) Warehouse and Offices
North Ridgeville, Ohio 152,861 Own - Manufacturing, Warehouses and
Offices
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I-14
Ownership
Or Expiration Renewal
North American Operations Square Feet Date of Lease Options Use
------------------------- ----------- ------------- ------- ---
North Ridgeville, Ohio 66,724 September 2007 Two (3 yr.) Office
Overland, Missouri 67,500 May 2007 Two (3 yr.) Manufacturing, Warehouses and
Offices
Pharr, Texas 2,672 Month to Month - Warehouse
Pinellas Park, Florida 11,400 July 2005 Three (1 yr.) Manufacturing and Offices
Rancho Cucamonga, California 55,890 June 2009 One (60 day) Warehouse
Reynosa, Mexico 129,690 Own - Manufacturing and Offices
Sacramento, California 26,900 May 2008 One (3 yr.) Manufacturing, Warehouse
and Offices
Sanford, Florida 117,108 Own - Manufacturing and Offices
Sanford, Florida 100,000 Own - Manufacturing and Offices
Scarborough, Ontario 5,428 February 2005 None Manufacturing and Offices
Simi Valley, California 38,501 February 2009 Two (5 yr.) Manufacturing, Warehouse and
Offices
South Bend, Indiana 48,000 September 2008 Two (5 yr.) Warehouse
Spicewood, Texas 6,500 Month to Month None Manufacturing and Offices
Suzhou, China 5,000 May 2006 None Manufacturing and Offices
Tonawanda, New York 7,515 March 2008 None Warehouse and Offices
Traverse City, Michigan 15,850 April 2006 None Manufacturing and Offices
Vaughan, Ontario 12,000 June 2008 None Manufacturing and Offices
Asia/Pacific Operations
-----------------------
Adelaide, Australia 21,668 April 2006 One (5 yr.) Manufacturing, Warehouse and
Offices
Adelaide, Australia 24,000 August 2007 One (5 yr.) Manufacturing, Warehouse and
Offices
Auckland, New Zealand 27,000 September 2008 Two (3 yr.) Manufacturing, Warehouse and
Offices
Birmingham, United Kingdom 15,845 July 2013 None Warehouse and Offices
Christchurch, New Zealand 57,682 December 2005 Two (3 yr.) Manufacturing and Offices
Hong Kong, China 600 February 2007 None Offices
Hong Kong, China 600 April 2007 None Offices
|
I-15
Ownership
Or Expiration Renewal
Asia/Pacific Operations Square Feet Date of Lease Options Use
------------------------- ----------- ------------- ------- ---
Melbourne, Australia 19,629 July 2006 One (2 yr.) Manufacturing, Warehouse and
Offices
Napier, New Zealand 4,844 March 2009 Two (3 yr.) Warehouse and Offices
North Olmsted, Ohio 2,280 October 2008 None Warehouse and Offices
Sydney, Australia 16,000 February 2009 Two (3 yr.) Warehouse and Offices
European Operations
-------------------
Albstadt-Tailfi, Germany 78,495 January 2018 Two (5 yr.) Manufacturing, Warehouse and
Offices
Allschwil, Switzerland 36,000 Own - Manufacturing, Warehouse and
Offices
Anderstorp, Sweden 47,527 Own - Manufacturing, Warehouse and
Offices
Bergen, Norway 1,000 May 2009 One (5 yr.) Warehouse and Offices
Bridgend, Wales 131,522 Own - Manufacturing, Warehouse and
Offices
Brondby, Denmark 16,142 December 2005 One (1 yr.) Warehouse and Offices
Dio, Sweden 107,600 Own - Manufacturing and Offices
Dublin, Ireland 5,000 December 2009 Three (5 yr.) Warehouse and Offices
Ede, The Netherlands 16,000 May 2009 One (5 yr.) Warehouse and Offices
Fondettes, France 106,412 November 2007 None Manufacturing, Warehouse, and
Offices
Girona, Spain 13,600 November 2005 One (1 yr.) Warehouse and Offices
Gland, Switzerland 4,306 September 2007 One (5 yr.) Offices
Gland, Switzerland 1,173 September 2007 One (4 yr.) Offices
Goteberg, Sweden 7,500 June 2006 One (3 yr.) Warehouse and Offices
Hong, Denmark 155,541 Own - Manufacturing, Warehouse and
Offices
Isny, Germany 197,581 Own - Manufacturing, Warehouse and
Offices
Loppem, Belgium 6,000 December 2009 One (3 yr.) Warehouse and Offices
Landskrona, Sweden 3,099 April 2005 One (3 yr.) Warehouse
Mondsee, Austria 1,505 March 2005 Unlimited Warehouse and Offices
Munchen, Germany 2,022 July 2005 None Offices
|
I-16
Ownership
Or Expiration Renewal
European Operations Square Feet Date of Lease Options Use
------------------------- ----------- ------------- ------- ---
Ontario, Canada 14,394 May 2007 None Offices
Oporto, Portugal 27,800 Own - Manufacturing, Warehouse and
Offices
Oskarshamn, Sweden 3,551 December 2005 One (1 yr.) Warehouse
Oslo, Norway 30,650 September 2006 None Warehouse and Offices
Porta Westfalica, Germany 134,563 October 2021 None Manufacturing, Warehouse and
Offices
Spanga, Sweden 3,228 June 2007 One (3 yr.) Warehouse and Offices
Spanga, Sweden 16,140 Own - Warehouse and Offices
Thiene, Italy 21,520 Own - Warehouse and Offices
Marano, Italy 21,528 May 2005 One (6 yr.) Manufacturing
Fondettes, France 106,412 November 2007 None Manufacturing, Warehouse, and
Offices
Trondheim, Norway 3,000 December 2007 One (3 yr.) Services and Offices
Venissieux, France 1,409 October 2006 None Offices
Witterswil, Switzerland 40,301 March 2015 Various (5 year) Manufacturing, Warehouse, and
Offices
Wurenlos, Switzerland 3,935 June 2009 One (to be determined) Offices
|
Item 3. Legal Proceedings.
In the ordinary course of its business, Invacare is a defendant in a number of
lawsuits, primarily product liability actions in which various plaintiffs seek
damages for injuries allegedly caused by defective products. All of the product
liability lawsuits have been referred to the company's insurance carriers and
are being contested vigorously. Coverage territory is worldwide with the
exception of those countries with respect to which, at the time the product is
sold for use or at the time a claim is made, the U.S. government has suspended
or prohibited diplomatic or trade relations. 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.
During the fourth quarter of 2004, no matter was submitted to a vote of our
security holders.
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.
Name Age Position
---- --- --------
A. Malachi Mixon, III 64 Chairman of the Board of Directors and Chief Executive Officer
Gerald B. Blouch 58 President, Chief Operating Officer and Director
Gregory C. Thompson 49 President - HME Group and Chief Financial Officer
|
I-17
Name Age Position
---- --- --------
Joseph B. Richey, II 68 President - Invacare Technologies, Senior Vice
President - Electronics and Design Engineering and Director
Louis F.J. Slangen 57 Senior Vice President - Global Market Development
Joseph Usaj 53 Senior Vice President - Human Resources
|
A. Malachi Mixon, III has been a Director since 1979. Mr. Mixon has been Chief
Executive Officer since 1979 and Chairman of the Board since 1983 and also
served as President until 1996, when Gerald B. Blouch, Chief Operating Officer,
was elected President.
Gerald B. Blouch has been President and a Director of Invacare since November
1996. Mr. Blouch has been Chief Operating Officer since December 1994 and
Chairman-Invacare International since December 1993. Previously, Mr. Blouch was
President-Homecare Division from March 1994 to December 1994 and Senior Vice
President-Homecare Division from September 1992 to March 1994. Mr. Blouch served
as Chief Financial Officer of Invacare from May 1990 to May 1993 and Treasurer
of Invacare from March 1991 to May 1993. Mr. Blouch is also a director of
NeuroControl Corporation, Cleveland, Ohio, a privately held company, which
develops and markets electromedical stimulation systems for stroke patients.
Gregory C. Thompson was named Senior Vice President and Chief Financial Officer
in November 2002. In January 2005, he was assigned the additional position of
President - Home Medical Equipment Group. Before coming to Invacare, Mr.
Thompson served as Senior Vice President and Chief Financial Officer of
Sensormatic Electronics Corporation, a global manufacturer of electronic
security products, from October 2000 to January 2002 and was Vice President and
Controller from February 1997 to October 2000. Previously, Mr. Thompson was Vice
President and Corporate Controller for Wang Laboratories from August 1994 to
February 1997 and Assistant Corporate Controller from October 1990 to August
1994.
Joseph B. Richey, II has been a Director since 1980 and in September 1992 was
named President - Invacare Technologies and Senior Vice President - Electronics
and Design Engineering. Previously, Mr. Richey was Senior Vice President of
Product Development from July 1984 to September 1992 and Senior Vice President
and General Manager of North American Operations from September 1989 to
September 1992. Mr. Richey is also a director of NeuroControl Corporation,
Cleveland, Ohio, a privately held company, which develops and markets
electromedical stimulation systems for stroke patients.
Louis F. J. Slangen was named Senior Vice President - Global Market Development
in June 2004. Previously, Mr. Slangen was Senior Vice President - Sales &
Marketing from December 1994 to June 2004 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.
Joseph Usaj has been the Senior Vice President - Human Resources since May 2004.
Before coming to Invacare, Mr. Usaj served as Vice President - Human Resources
for Ferro Corporation, a global manufacturer of performance materials in the
electronics, automotive, consumer products and pharmaceutical industries, from
August 2002 to December 2003. Previously, Mr. Usaj was Vice President - Human
Resources for Phillips Medical Systems from 1998 to 2002.
* The description of executive officers is included pursuant to Instruction 3
to Section (b) of Item 401 of Regulation S-K.
I-18
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Repurchases of Equity Securities.
Invacare Common Shares, without par value, trade on the New York Stock Exchange
(NYSE) under the symbol IVC. Ownership of the company Class B Common Shares
(which are not listed on NYSE) 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 Common Shares and Class B Common Shares at February 24, 2005 was 4,813
and 27, respectively. The closing sale price for the Common Shares on February
24, 2005 as reported by NYSE, was $46.57. 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 were as follows:
2004 2003
---- ----
Quarter Ended: High Low High Low
------------- ---- --- ---- ---
December 31 $52.00 $43.72 $43.74 $38.78
September 30 47.16 39.74 40.00 32.99
June 30 46.50 39.34 34.00 30.29
March 31 46.50 39.63 34.15 30.02
|
During 2004 and 2003, the Board of Directors declared dividends of $0.05 per
Common Share and $0.045 per Class B Common Share. For information regarding
limitations on the payment of dividends in the company loan and note agreements,
see Long Term Debt 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.
Information regarding the securities authorized for issuance under equity
compensation plans is incorporated by reference to the information set forth
under the captions Compensation of Executive Officers and Compensation of
Directors in the company's definitive Proxy Statement for the 2005 Annual
Meeting of Shareholders.
I-19
Item 6. Selected Financial Data
2004 2003 2002 2001* 2000
---- ---- ---- ---- ----
(In thousands, except per share and ratio data)
Earnings
Net Sales $1,403,327 $1,247,176 $1,089,161 $1,053,639 $1,013,162
Net Earnings ** 75,197 71,409 64,770 35,190 59,911
Net Earnings per Share - Basic 2.41 2.31 2.10 1.15 1.99
Net Earnings per Share -
Assuming Dilution 2.33 2.25 2.05 1.11 1.95
Dividends per Common Share 0.05000 0.05000 0.05000 0.05000 0.05000
Dividends per Class B Common Share 0.04545 0.04545 0.04545 0.04545 0.04545
2004 2003 2002 2001* 2000
---- ---- ---- ---- ----
Balance Sheet
Current Assets $565,151 $474,722 $398,812 $ 428,401 $432,408
Total Assets 1,628,124 1,108,213 906,703 914,537 951,855
Current Liabilities 258,141 223,488 168,226 167,453 197,387
Working Capital 307,010 251,234 230,586 260,948 235,021
Long-Term Debt 547,974 232,038 234,134 342,724 384,316
Shareholders' Equity 753,438 618,304 480,312 381,550 349,773
Other Data
Research and Development
Expenditures $21,638 $19,130 $17,934 $17,394 $16,231
Capital Expenditures, net of
Disposals 41,400 30,129 19,718 19,486 26,268
Depreciation and Amortization 32,316 27,235 26,638 33,448 31,469
Key Ratios
Return on Sales 5.4% 5.7% 5.9% 3.3% 5.9%
Return on Average Assets 5.5% 7.1% 7.1% 3.8% 6.3%
Return on Beginning
Shareholders' Equity 12.2% 14.9% 17.0% 10.1% 18.8%
Current Ratio 2.2:1 2.1:1 2.4:1 2.6:1 2.2:1
Debt-to-Equity Ratio 0.7:1 0.4:1 0.5:1 0.9:1 1.1:1
|
* Reflects non-recurring and unusual charge of $31,950 ($25,250 after
tax or $0.80 per share assuming dilution).
** Amortization of goodwill ceased in 2002, net earnings in 2001 and 2002
include amortization expense of $8,972 and $8,899, respectively.
The comparability of the Selected Financial Data provided in the above table is
limited as acquisitions made, in particular, the Domus acquisition in 2004,
materially impacted the company's reported results. See Acquisitions in the
Notes to the Consolidated Financial Statements, which provides pro-forma
results.
I-20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OUTLOOK
Uncertainty related to Medicare's reimbursement policies for power wheelchairs
is now expected to continue throughout 2005. The new proposed criteria from CMS
require public comment before implementation. The resulting ambiguity that is
impacting the consumer power wheelchair market likely will not be clarified
until late 2005, although CMS has recently indicated it will try and finalize
the new criteria in the first half of 2005. Adding to the problems arising from
the reimbursement difficulties, there will be additional confusion resulting
from Medicare's plan to expand coding of the power wheelchair reimbursement
system from 4 codes to 49 codes in January 2006. Despite the reimbursement
pressures, the Company believes that it will have a net sales increase of
between 18% and 20%, with acquisitions contributing between 11% and 13% and
currency translation contributing a minimal amount. Earnings per share is
expected to be between $2.75 and $2.90 in 2005, excluding the impact from the
stock option accounting standard recently announced by the Financial Accounting
Standards Board.
Invacare believes it can still grow and thrive despite the fact that the home
care industry has not received any cost-of-living adjustments over the last few
years and government regulatory landscape is uncertain. The company expects that
the blended cut for the items affected by recent government regulations will be
around 8%, which should negatively affect consolidated net sales by around 1%.
However, Invacare's new products, (for example, the low cost oxygen delivery
system of HomeFill(TM)), can help address the cuts the home care provider has to
endure. We will continue to focus on developing products that help the provider
improve profitability. With such products, Invacare believes it can grow and
offset the risks. Additionally, Invacare will accelerate its activities in China
to make sure that we are one of the lowest cost manufacturers and distributors
to the home care provider.
RESULTS OF OPERATIONS
2004 Versus 2003
Reclassifications. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations reflect certain reclassifications
made to the prior years' consolidated financial statements to conform to the
presentation used for the year ended December 31, 2004.
Net Sales. Consolidated net sales for 2004 increased 13% for the year, to
$1,403,327,000 from $1,247,176,000. Acquisitions accounted for 8 percentage
points of the net sales increase while foreign currency translation contributed
an additional 3 percentage points. The overall growth was primarily driven by
volume increases in North America.
North American Operations
North American net sales, increased 12% over the prior year, with acquisitions
accounting for 8% of the increase and currency translation having less than a
one percentage point impact. These sales consist of Rehab (power wheelchairs,
custom manual wheelchairs, personal mobility and seating and positioning),
Standard (manual wheelchairs, personal care, home care beds, low air loss
therapy and patient transport), Continuing Care (beds and furniture),
Respiratory (oxygen concentrators, aerosol therapy, sleep, homefill and
associated respiratory) and Distributed (ostomy, incontinence, diabetic, wound
care and other medical supplies) products.
For the year, the net sales increase was attributable to volume increases in:
Respiratory products (37%), largely due to continued strong performance in the
Homefill(TM) oxygen system product line; Distributed products (26%), with
acquisitions contributing 15 percentage points of the improvement; and
Continuing Care products (59%) with acquisitions contributing 52 percentage
points of the improvement. These were partially offset by declines in Standard
products (6%) as a result of reduced pricing and flat Rehab product sales. Sales
of Rehab products were negatively impacted by Medicare and Medicaid related
reimbursement pressures. In particular, CMS was expected to release new
guidelines for power chairs in the fourth quarter of 2004, it instead circulated
proposed criteria that required public comment before implementation. While the
proposed criteria are favorable and are based on CMS' own medical study, the
ambiguity that is impacting the power wheelchair market has resulted in
significant declines in this market segment.
Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had a 10% net sales increase principally as a result of volume
increases.
European Operations
European net sales increased 20% over the prior year to $336,792,000 from
$279,782,000. Acquisitions contributed 12 percentage points of the increase and
foreign currency accounted for 10 percentage points of the increase. The decline
in organic growth was primarily due to reduced volumes in the Nordic countries
and continued reimbursement pressures in Germany.
I-21
Asia/Pacific Operations
Asia/Pacific net sales declined 8% from the prior year to $64,262,000 from
$70,186,000. Excluding the impact of foreign exchange, net sales declined 18%
for the year. The decline was primarily the result of reduced volumes of
microprocessor controllers, resulting from the global slowdown in the production
of power wheelchairs caused in large part by the Medicare reimbursement
challenges in the United States described above. The Asia/Pacific segment
transacts a substantial amount of its business with customers outside of their
region in various currencies other than their functional currency, the New
Zealand Dollar. As a result, changes in exchange rates particularly with the
Euro and U.S. Dollar can have a significant impact on sales and cost of sales.
Gross Profit. Consolidated gross profit as a percentage of net sales was 29.8%
in 2004 and 30.0% in 2003. The margin decline was attributable to continued
competitive pricing pressures and increased freight costs partially offset by
continued cost reduction initiatives.
North American gross profit as a percentage of net sales was 30.2% in 2004
versus 30.3% in 2003. The decline was primarily attributable to reduced pricing
in Standard products partially offset by continued cost reduction efforts.
Gross profit in Europe as a percentage of net sales declined .7 of a percentage
point from the prior year. The decline is attributable to unfavorable sales mix
toward lower margin products and additional costs related to new product
introductions.
Gross profit in Asia/Pacific as a percentage of net sales decreased by 3.5
percentage points from the prior year. The decline was due in part to increased
sales of lower margin products in the company's Dynamic Controls subsidiary,
reduced volumes and unfavorable foreign currency associated with normal
operating transactions.
Selling, General and Administrative. Consolidated selling, general and
administrative expenses as a percentage of net sales were 21.2% in 2004 and
21.0% in 2003. The overall dollar increase was $35,109,000 or 13%, with
acquisitions increasing selling, general and administrative costs by
approximately $20,263,000 or 8% and currency translation by $9,409,000 or 4%.
Selling, general and administrative expenses also increased as a result of
increased distribution and commission costs related to increased volumes,
continued investments in marketing and branding programs, and increased legal
costs. These were partially offset by reduced bad debt expense and management
bonuses as a result of reduced profitability from plan.
Selling, general and administrative expenses for North American operations
increased 9% or $16,562,000 compared to 2003 with acquisitions accounting for 7
percentage points of the increase. The remaining increase is primarily
attributable to continued investments in marketing and branding programs,
increased distribution and commission costs related to increased volume and
higher legal costs. These increases were partially offset by reduced bad debt
expense and management bonuses.
European operations' selling, general and administrative expenses increased 26%
or $17,290,000 from the prior year. European selling, general and administrative
expenses increased due to acquisitions and foreign currency translation.
Increases, primarily for acquisitions, were $7,791,000 or 12% and for currency
translation totaled $7,305,000 or 11%. The remaining increase was primarily
attributable to additional programs to re-establish sales growth.
Asia/Pacific operations' selling, general and administrative expenses increased
16% or $1,257,000 with foreign currency increasing the expense by $961,000 or
12%. The remaining increase was primarily attributable to additional systems
costs related to an Enterprise Resource Planning (ERP) implementation and sales
and marketing costs associated with the development of the Asia market.
Interest. Interest expense increased to $16,282,000 in 2004 from $11,710,000 in
2003, representing a 39% increase. This increase was attributable to increased
borrowings under the Company's revolving credit facility, and to new borrowings
under an interim bridge loan financing facility. The company's debt-to-equity
ratio increased to 0.7:1 as of December 31, 2004 from 0.4:1 as of the end of the
prior year. Interest income in 2004 was $5,186,000, which was comparable to
$5,473,000 in the prior year. Since December 2000, Invacare customers primarily
utilize the third-party financing arrangement with DLL, a subsidiary of Rabo
Bank of the Netherlands, to provide financing.
Income Taxes. The company had an effective tax rate of 31.9% in 2004 and 32.9%
in 2003. The effective tax rate declined due to a change in the mix of earnings
and permanent deductions. The Company's effective tax rate is lower than the
federal statutory rate primarily due to tax credits and earnings abroad being
taxed at rates lower than the federal statutory rate.
I-22
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. The company
dedicates dollars to applied research activities to ensure that new and enhanced
design concepts are available to its businesses. Research and development
expenditures, which are included in costs of products sold, increased to
$21,638,000 in 2004 from $19,130,000 in 2003. The expenditures, as a percentage
of net sales, were 1.5% in 2004 and 1.5% in the prior year.
2003 Versus 2002
Net Sales. Consolidated net sales for 2003 increased 15% for the year, to
$1,247,176,000 from $1,089,161,000, with net sales increasing in all business
segments on a reported basis. Foreign currency translation accounted for 6% of
the net sales increase, while acquisitions contributed an additional 3%. The
overall growth was primarily driven by volume increases in North America and
Asia/Pacific.
North American Operations
North American net sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, personal mobility and seating and positioning), Standard (manual
wheelchairs, personal care, home care beds, low air loss therapy and patient
transport), Continuing Care (beds and furniture), Respiratory (oxygen
concentrators, aerosol therapy, sleep, homefill and associated respiratory) and
Distributed (ostomy, incontinence, diabetic, wound care and other medical
supplies) products increased 13% over the prior year, with currency translation
having less than a one percentage point impact and acquisitions accounting for
3%.
For the year, the net sales increase was attributable to increases in
Respiratory products (43%), Rehab products (30%), Distributed products (11%) and
Continuing Care products (20%), which were partially offset by declines in
Standard products (6%). Excluding acquisitions, Rehab product net sales
increased by 26% and Continuing Care product net sales declined by 4%. The net
sales improvements were led by strong sales growth in oxygen concentrators, the
HomeFill(TM) product line and consumer power products. Declines were primarily
attributable to continued pricing pressures in Standard products and weaker
sales to nursing homes through Invacare Continuing Care Group as a result of the
continued uncertainty surrounding government reimbursement programs.
Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had an 8% net sales increase primarily as a result of volume
increases.
European Operations
European net sales increased 11% over the prior year to $279,782,000 from
$251,443,000. Foreign currency and acquisitions contributed 16 percentage points
and 3 percentage points, respectively, of the net sales increase. The organic
decline of 8% was primarily due to slower than expected sales in the Nordic
region and reimbursement pressures in Germany.
Asia/Pacific Operations
Asia/Pacific net sales increased 59% from the prior year to $70,186,000 from
$44,254,000. Excluding the impact of foreign exchange, net sales increased 27%
for the year. The increase was primarily the result of sales at Dynamic Controls
due in part to a significant increase in sales to a non-healthcare customer.
Gross Profit. Consolidated gross profit as a percentage of net sales were 30.0%
in 2003 and 30.1% in 2002. Margins remained relatively flat, as the company was
able to offset pricing pressures with improved manufacturing performance.
North American gross profit as a percentage of net sales was 30.3% in 2003
versus 30.0% in 2002. The increase was primarily attributable to continued cost
reduction efforts and improved product and customer mix.
Gross profit in Europe as a percentage of net sales improved 1.0 percentage
point from the prior year. The improvement is attributable to favorable sales
mix towards higher margin products and cost reduction efforts.
Gross profit in Asia/Pacific as a percentage of net sales decreased by 6.1
percentage points from last year. The decline was due in part to increased sales
of lower margin products in the company's Dynamic Controls subsidiary and
increased costs to support the growth in the business.
I-23
Selling, General and Administrative. Consolidated selling, general and
administrative expenses as a percentage of net sales were 21.0% in 2003 and
20.2% in 2002. The overall dollar increase was $41,719,000 or 19% with currency
translation increasing selling, general and administrative costs by
approximately $13,103,000 or 6% and acquisitions by $6,800,000 or 3%. Selling,
general and administrative expenses also increased as a result of accruals for
management bonuses as a result of improved profitability, increased distribution
and commission costs related to increased volumes, continued investments in
marketing and branding programs, and increased insurance costs.
North American operations selling, general and administrative expenses increased
15% or $21,789,000 compared to 2002. The increase is primarily attributable to
acquisitions, continued investments in marketing and branding programs,
additional provisions for bad debt and increases in insurance costs.
European operations selling, general and administrative expenses increased 30%
or $15,721,000 from the prior year. European selling, general and administrative
expenses were negatively impacted by foreign currency translation and
acquisitions, which increased expenses, reported in dollars by $9,993,000 or 19%
and $1,547,000 or 3%, respectively. The remaining increase was primarily
attributable to additional programs to re-establish sales growth.
Asia/Pacific operations' selling, general and administrative expenses increased
40% or $2,264,000 with foreign currency increasing the expense by $1,522,000 or
27%. Asia/Pacific selling, general and administrative costs grew at a slower
rate than sales principally as a result of aggressive expense control.
Interest. Interest expense decreased to $11,710,000 in 2003 from $15,122,000 in
2002, representing a 23% decrease. This decrease was attributable to the
continued favorable interest rate environment in 2003 and to a decrease in the
company's average borrowings outstanding under the company's revolving credit
facility. The company's debt-to-equity ratio decreased to 0.4:1 as of December
31, 2003 from 0.5:1 as of the end of the prior year. Interest income increased
in 2003 to $5,473,000 from $4,550,000 in the prior year, primarily attributable
to an increase in loan origination fees received from De Lage Landen Inc. (DLL).
Since December 2000, Invacare customers primarily utilize the third-party
financing arrangement with DLL, a subsidiary of Rabo Bank of the Netherlands, to
provide financing.
Income Taxes. The company had an effective tax rate of 32.9% in both 2003 and
2002, which is lower than the United States federal statutory rate as a
significant portion of the company earnings are outside of the United States and
taxed at lower rates.
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. The company
dedicates dollars to applied research activities to ensure that new and enhanced
design concepts are available to its businesses. Research and development
expenditures, which are included in costs of products sold, increased to
$19,130,000 in 2003 from $17,934,000 in 2002. The expenditures, as a percentage
of net sales, were 1.5% in 2003 and 1.6% in the prior year.
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 2004 and
2003, the company was able to offset the majority 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 Debt in the Notes to Consolidated
Financial Statements) and working capital management. The company maintains
various bank lines of credit to finance its worldwide operations. In 2003, the
company issued $100,000,000 in senior notes, which are due between 2007 and
2010. In 2001, the company completed a $325,000,000 multi-currency, long-term
revolving credit agreement, which was replaced on January 14, 2005, along with a
100,000,000 Euro bridge agreement entered into in 2004, by a new $450,000,000
multi-currency, long-term revolving credit agreement. In February 2005, the new
$450,000,000 multi-currency, long-term revolving credit agreement was also used
to pay off the $20,000,000 senior notes at 6.60%. Additionally, the company
maintains various other demand lines of credit totaling a U.S. dollar equivalent
of approximately $4,229,000 as of December 31, 2004. The lines of credit along
with cash generated from operations 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, 2004, the company had
approximately $126,734,000 available under its various lines of credit,
excluding debt covenant restrictions.
I-24
The company's borrowing arrangements contain covenants with respect to, among
other items, interest coverage, net worth, dividend payments, working capital,
and funded debt to capitalization, 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, the company has the capacity to borrow up to an
additional $60,800,000 as of December 31, 2004 and up to $108,000,000, effective
February 2005, pursuant to the covenants of the company's new $450,000,000
multi-currency, long-term revolving credit agreement.
While there is general concern about the potential for rising interest rates,
exposure to interest rate fluctuations is manageable given that a portion of the
debt is at fixed rates through 2010. In addition, the ability to terminate
existing swaps that exchange fixed rate debt to variable and to utilize interest
rate swaps to fix a higher percentage of the company's debt coupled with free
cash flow should allow Invacare to absorb the expected modest rate increases in
the months ahead without any material impact on our liquidity or capital
resources. As of December 31, 2004, the weighted average floating interest rate
on U.S. borrowings was 3.36%.
CAPITAL EXPENDITURES
There are no individually material capital expenditure commitments outstanding
as of December 31, 2004. The company estimates that capital investments for 2005
could approximate up $37,000,000, compared to actual capital expenditures of
$41,403,000 in 2004. The company believes that its balances of cash and cash
equivalents, together with funds generated from operations and existing
borrowing facilities, will be sufficient to meet its operating cash requirements
and fund required capital expenditures for the foreseeable future.
CASH FLOWS
Cash flows provided by operating activities were $98,324,000 in 2004, compared
to $116,204,000 last year. The decrease is due primarily to increases in
installment receivables and inventory and a decline in accrued expenses
primarily related to reduced customer rebates. These were partially offset by an
increase in accounts payable.
Cash flows used for investing activities were $389,022,000 in 2004, compared to
$101,558,000 in 2003. The increase was primarily attributable to costs
associated with acquired businesses with the Domus acquisition being the most
significant. In addition, purchases of property and equipment activity in 2004
was higher compared to the prior year as the company is in the process of
implementing Enterprise Resource Planning Systems in North America, Europe and
Asia/Pacific.
Cash flows provided by financing activities in 2004 were $307,051,000, compared
to cash flows required of $13,955,000 in 2003. Financing activities for 2004
were impacted by an increase in the company's borrowings of $303,188,000
primarily related to acquisitions. In addition to acquisition activities, the
effect of foreign currency translation results in amounts being shown in the
Consolidated Statement of Cash Flows that are different from the changes
reflected in the respective balance sheet captions.
During 2004, the company generated free cash flow of $56,921,000 compared to
free cash flow of $85,544,000 in 2003. The decrease was primarily attributable
to additional capital expenditures made in 2004, primarily for enterprise
resource planning systems as well as increases in installment receivables and
inventory coupled with a decline in accrued expenses, primarily related to
reduced customer rebates. Free cash flow is a non-GAAP financial measure that is
comprised of net cash provided by operating activities less purchases of
property and equipment. Management believes that this financial measure provides
meaningful information for evaluating the overall financial performance of the
Company and its ability to repay debt or make future investments (including
acquisitions, etc.). The non-GAAP financial measure is reconciled to the GAAP
measure as follows (in thousands):
Twelve Months Ended
December 31,
2004 2003
----------------------------------------------------------------------------
Net cash provided by operating activities $98,324 $116,204
Adjusted for:
Purchases of property and equipment (41,403) (30,660)
------- -------
Free Cash Flow $56,921 $85,544
======= =======
|
I-25
CONTRACTUAL OBLIGATIONS
-----------------------
(In thousands) Payments due by period
Total Less than 1 year 1-3 years 3-5 years More than 5 years
-------- ---------------- --------- --------- -----------------
Long-term debt obligations
Senior Notes $234,595 $8,054 $68,065 $116,629 $41,847
Revolving credit agreements 382,755 10,647 20,648 20,648 330,812
Other notes 1,415 162 324 324 605
Operating lease obligations 37,354 15,680 14,909 5,050 1,715
Capital lease obligations 21,539 1,751 3,285 3,064 13,439
Purchase obligations
(primarily computer systems 6,975 6,468 507 - -
contracts)
Other long-term obligations
Product liability 17,045 2,595 7,263 3,227 3,960
SERP 13,371 424 1,658 1,559 9,730
Other, principally deferred
compensation 16,680 339 3,068 612 12,661
-------- ------- -------- -------- ---------
Total $731,729 $46,120 $119,727 $151,113 $414,769
======== ======= ======== ======== ========
|
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 $0.05 per Common Share and $0.045 per Class B Common Share. 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 2004, dividends of $0.05 per Common Share and $0.045 per Class
B Common Share were declared and paid.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements include accounts of the company and all
majority-owned subsidiaries. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. In preparing these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. However,
application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.
Revenue Recognition
Invacare's revenues are recognized when products are shipped to unaffiliated
customers. The Securities and Exchange Commission's Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition," as updated by SAB No. 104, provides
guidance on the application of generally accepted accounting principles to
selected revenue recognition issues. The company has concluded that its revenue
recognition policy is appropriate and in accordance with generally accepted
accounting principles and SAB No. 101.
Sales are only made to customers with whom the company believes collection is
reasonably assured based upon a credit analysis, which may include obtaining a
credit application, a signed security agreement, personal guarantee and/or a
cross corporate guarantee depending on the credit history of the customer.
Credit lines are established for new customers after an evaluation of their
credit report and/or other relevant financial information. Existing credit lines
are regularly reviewed and adjusted with consideration given to any outstanding
past due amounts.
The company offers discounts and rebates, which are accounted for as reductions
to revenue in the period in which the sale is recognized. Discounts offered
include: cash discounts for prompt payment, base and trade discounts based on
contract level for specific classes of customers. Volume discounts and rebates
are given based on large purchases and the achievement of certain sales volumes.
Product returns are accounted for as a reduction to reported sales with
estimates recorded for anticipated returns at the time of sale. The company does
not sell any goods on consignment.
Distributed products sold by the company are accounted for in accordance with
EITF 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The
company records Distributed product sales gross as a principal since the company
takes title to the products and has the risks of loss for collections, delivery
and returns.
I-26
Product sales that give rise to installment receivables are recorded at the time
of sale when the risks and rewards of ownership are transferred. In December
2000, the company entered into an agreement with DLL, a third party financing
company, to provide the majority of future lease financing to Invacare
customers. As such, interest income is recognized based on the terms of the
installment agreements. Installment accounts are monitored and if a customer
defaults on payments, interest income is no longer recognized. All installment
accounts are accounted for using the same methodology, regardless of duration of
the installment agreements.
Allowance for Uncollectible Accounts Receivable
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. Substantially all of the company's receivables are
due from health care, medical equipment dealers and long term care facilities
located throughout the United States, Australia, Canada, New Zealand and Europe.
A significant portion of products sold to dealers, both foreign and domestic, is
ultimately funded through government reimbursement programs such as Medicare and
Medicaid. In addition, the company has seen a significant shift in reimbursement
to customers from managed care entities. As a consequence, changes in these
programs can have an adverse impact on dealer liquidity and profitability. The
estimated allowance for uncollectible amounts is based primarily on management's
evaluation of the financial condition of the customer. In addition, as a result
of the third party financing arrangement with DLL, management monitors the
collection status of these contracts in accordance with the company's limited
recourse obligations and provides amounts necessary for estimated losses in the
allowance for doubtful accounts.
Inventories and Related Allowance for Obsolete and Excess Inventory
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 and for non-domestic inventories and domestic finished products
purchased for resale by the first-in, first-out (FIFO) method.
Inventories have been reduced by an allowance for excess and obsolete
inventories. The estimated allowance is based on management's review of
inventories on hand compared to estimated future usage and sales. A provision
for excess and obsolete inventory is recorded as needed based upon the
discontinuation of products, redesigning of existing products, new product
introductions, market changes and safety issues. Both raw materials and finished
goods are reserved for on the balance sheet.
In general, we review inventory turns as an indicator of obsolescence or slow
moving product as well as the impact of new product introductions. Depending on
the situation, the individual item may be partially or fully reserved for. No
inventory that was reserved for has been sold at prices above their new cost
basis. In 2004, individual items were both partially and fully written down. The
company continued to increase its overseas sourcing efforts, increase its
emphasis on the development and introduction of new products, and decrease the
cycle time to bring new product offerings to market. These initiatives are
sources of inventory obsolescence for both raw material and finished goods.
Goodwill, Intangible and Other Long-Lived Assets
Property, equipment, intangibles and certain other long-lived assets are
amortized over their useful lives. Useful lives are based on management's
estimates of the period that the assets will generate revenue. As a result of
the adoption of Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets in 2002, goodwill and intangible assets
deemed to have indefinite lives are subject to annual impairment tests in
accordance with the Statement. Furthermore, goodwill and other long-lived assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The company
completed the required initial analysis of goodwill as of January 1, 2002 as
well the annual impairment tests in the fourth quarter of 2002, 2003 and 2004.
The results of these analyses indicated no impairment of goodwill.
Product Liability
The company's captive insurance company, Invatection Insurance Co., currently
has a policy year that runs from September 1 to August 31 and insures annual
policy losses of $10,000,000 per occurrence and $11,000,000 in the aggregate of
the company's North American product liability exposure. The company also has
additional layers of external insurance coverage insuring $100,000,000 in annual
aggregate losses arising from individual claims anywhere in the world that
exceed the captive insurance company policy limits. There can be no assurance
that Invacare's current insurance levels will continue to be adequate or
available at affordable rates.
Product liability reserves are recorded for individual claims based upon
historical experience, industry expertise and indications from the third-party
actuary. Additional reserves, in excess of the specific individual case
reserves, are provided for incurred but not reported claims based upon
third-party actuarial valuations at the time such valuations are conducted.
Historical claims experience and other assumptions are taken into consideration
by the third-party actuary to estimate the ultimate reserves. For example, the
actuarial analysis assumes that historical loss experience is an indicator of
future experience, the distribution of exposures by geographic area and nature
of operations for ongoing operations is expected to be very similar to
historical operations with no dramatic changes and that the government indices
used to trend losses and exposures are appropriate. Estimates made are adjusted
on a regular basis and can be impacted by actual loss award settlements on
claims. While actuarial analysis is used to help determine adequate reserves,
the company accepts responsibility for the determination and recording of
adequate reserves in accordance with accepted loss reserving standards and
practices.
I-27
Warranty
Generally, the company's products are covered by warranties against defects in
material and workmanship for periods up to six years from the date of sale to
the customer. Certain components carry a lifetime warranty. A provision for
estimated warranty cost is recorded at the time of sale based upon actual
experience. The company continuously assesses the adequacy of its product
warranty accrual and makes adjustments as needed. Historical analysis is
primarily used to determine the company's warranty reserves. Claims history is
reviewed and provisions are adjusted as needed. However, the company does
consider other events, such as a product recall, which could warrant additional
warranty reserve provision. No material adjustments to warranty reserves were
necessary in the current year. See Current Liabilities in the Notes to the
Consolidated Financial Statements for a reconciliation of the changes in the
warranty accrual.
Accounting for Stock-Based Compensation
The company accounts for options under its stock-based compensation plans using
the intrinsic value method proscribed in Accounting Principles Board Opinion
(APBO) No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. The majority of the options awarded have been granted at
exercise prices equal to the market value of the underlying stock on the date of
grant; thus, no compensation cost has been reflected in the Consolidated
Statement of Earnings for these options. In addition, restricted stock awards
have been granted without cost to the recipients and are being expensed on a
straight-line basis over the vesting periods. If the company had applied the
fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for all stock options granted, net earnings per share assuming
dilution would have been reduced by $0.14 in 2004, $0.14 in 2003 and $0.15 in
2002.
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. This
statement provides guidance for those companies wishing to voluntarily change to
the fair value based method of accounting for stock-based compensation. The
statement also amends the disclosure requirements of SFAS No. 123. While
Invacare continues to utilize the disclosure-only provisions of SFAS No. 123,
the company has modified its disclosures to comply with the new statement. See
the company's Accounting Policies and Shareholders' Equity Transactions in the
Notes to the Consolidated Financial Statements.
Income Taxes
As part of the process of preparing our financial statements, we are required to
estimate income taxes in various jurisdictions. The process requires estimating
our current tax exposure, including assessing the risks associated with tax
audits, as well as estimating temporary differences due to the different
treatment of items for tax and accounting policies. The temporary differences
are reported as deferred tax assets and or liabilities. The company also must
estimate the likelihood that its deferred tax assets will be recovered from
future taxable income and whether or not valuation allowances should be
established. In the event that actual results differ from our estimates, the
company's provision for income taxes could be materially impacted.
The company does not believe that there is a substantial likelihood that
materially different amounts would be reported related to its critical
accounting policies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, FASB issued Statement of Financial Accounting Standards
("SFAS") No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"), which
requires companies to expense stock options and other share-based payments. SFAS
123R supersedes SFAS No. 123, which permitted either expensing stock options or
providing pro forma disclosure. The provisions of this Statement, which is
effective July 1, 2005, apply to all awards granted, modified, cancelled or
repurchased after July 1, 2005 as well as the unvested portion of prior awards.
The company will adopt the standard as of the effective date and estimates that
the impact to the company's reported results will be similar to the pro forma
results shown in the company's Accounting Policy Note to the Consolidated
Financial Statements.
The American Jobs Creation Act of 2004 (the Act) was signed into law in October
2004. The Act provides for a tax deduction on qualified production activities
and introduced a special one-time dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer, provided certain
criteria are met. The FASB issued FASB Staff Position 109-1 to provide guidance
on the application of SFAS No. 109, Accounting for Income Taxes, and FASB Staff
Position 109-2 to provide accounting and disclosure guidance for the
repatriation provision. The company is reviewing the implication of the new Act,
recently released treasury guidance, and the FASB staff positions but does not
intend to repatriate any foreign earnings under the Act and does not expect the
Act will have a material impact on the company's financial position, results of
operations or cash flows.
I-28
Item 7a. Quantitative and Qualitative Disclosure about Market Risk.
The company is exposed to market risk through various financial instruments,
including fixed rate and floating rate debt instruments. The company uses
interest swap agreements to mitigate its exposure to interest rate fluctuations.
Based on December 31, 2004 debt levels, a 1% change in interest rates would
impact interest expense by approximately $5,107,000. Additionally, the company
operates internationally and as a result is exposed to foreign currency
fluctuations. Specifically, the exposure includes intercompany loans, and third
party sales or payments. In an attempt to reduce this exposure, foreign currency
forward contracts are utilized. The company does not believe that any potential
loss related to these financial instruments would have a material adverse effect
on the company's financial condition or results of operations.
PRIVATE SECURITIES LITIGATION REFORM ACT
The statements contained in this Form 10-K constitute forward-looking statements
within the meaning of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Terms such as as "will," "should," "plan,"
"intend," "expect," "continue," "forecast", "believe," "anticipate" and "seek,"
as well as similar comments, are forward-looking in nature. Actual results and
events may differ significantly from those expressed or anticipated as a result
of risks and uncertainties which include, but are not limited to, the following:
pricing pressures, the success of the Company's ongoing efforts to reduce costs,
increasing raw material costs, the consolidations of health care customers and
competitors, government reimbursement issues (including those that affect the
sales of and margins on products, along with the viability of customers)both at
the federal and state level, the ability to design, manufacture, distribute and
achieve market acceptance of new products with higher functionality and lower
costs, the effect of offering customers competitive financing terms, Invacare's
ability to successfully identify, acquire and integrate strategic acquisition
candidates, the difficulties in managing and operating businesses in many
different foreign jurisdictions (including the recent Domus acquisition), the
timely completion of facility consolidations, the vagaries of any litigation or
regulatory investigations that the Company may be or become involved in at any
time (including the previously-disclosed litigation with Respironics), the
difficulties in acquiring and maintaining a proprietary intellectual property
ownership position, the overall economic, market and industry growth conditions
(including the impact that acts of terrorism may have on such growth
conditions), foreign currency and interest rate risks, Invacare's ability to
improve financing terms and reduce working capital, as well as the risks
described from time to time in Invacare's reports as filed with the Securities
and Exchange Commission. We undertake no obligation to review or update these
forward-looking statements or other information contained herein.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Report of Independent Registered Public Accounting
Firm, 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
Schedule, which appear on pages FS-1 to FS-27 of this Annual Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the company's management,
including the Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the company's disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, the
company's management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the company's disclosure controls and procedures were
effective to provide reasonable assurance that we record, process, summarize and
report the information we must disclose in reports that we file or submit under
the Securities Exchange Act of 1934, as amended, within the time periods
specified by the SEC.
I-29
(b) Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining a system of adequate
internal control over financial reporting that provides reasonable assurance
that assets are safeguarded and that transactions are authorized, recorded and
reported properly. The system includes self-monitoring mechanisms; regular
testing by the Company's internal auditors; a Code of Conduct; written policies
and procedures; and a careful selection and training of employees. Actions are
taken to correct deficiencies as they are identified. An effective internal
control system, no matter how well designed, has inherent limitations -
including the possibility of the circumvention or overriding of controls - and
therefore can provide only reasonable assurance that errors and fraud that can
be material to the financial statements are prevented or would be detected on a
timely basis. Further, because of changes in conditions, internal control system
effectiveness may vary over time.
Management's assessment of the effectiveness of the company's internal control
over financial reporting is based on the Internal Control -Integrated Framework
published by the Committee of Sponsoring Organizations of the Treadway
Commission and was limited as explained in the Scope of Management's Report,
which follows this report.
In management's opinion, internal control over financial reporting is effective
as of December 31, 2004.
The Company's independent registered public accounting firm, Ernst & Young LLP,
audited management's assessment of internal control over financial reporting
and, based on that audit, issued their report included in this Annual Report.
Scope of Management's Report
Management's assessment of the effectiveness of internal control over financial
reporting excludes the WP Domus GmbH acquisition, which was finalized on
September 9, 2004. WP Domus GmbH represents approximately 19% of the total
assets and approximately 2% of the net sales, respectively, of the consolidated
financial statements as of December 31, 2004 and the year ended December 31,
2004.
(c) Changes in Internal Control Over Financial Reporting
There have been no significant changes in the company's internal control over
financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
company's internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant.
We have adopted a Code of Business Conduct and Ethics that applies to all
Directors, officers and employees. We also have adopted a separate Financial
Code of Ethics that applies to our Chief Executive Officer (our principal
executive officer) and our Chief Financial Officer (our principal financial
officer and principal accounting officer). You can find both codes on our
website at www.invacare.com by clicking on the link for Investor Relations. We
will post any amendments to the codes, as well as any waivers that are required
to be disclosed pursuant to the rules of the Securities and Exchange Commission
and the New York Stock Exchange, on our website.
Our Board of Directors has adopted Corporate Governance Guidelines and charters
for the Audit Committee, Compensation, Management Development and Corporate
Governance Committee, Nominating Committee and Investment Committee of the Board
of Directors. These documents can be found on our website at www.invacare.com by
clicking on the link for Investor Relations.
You also can obtain printed copies of any of the materials referred to above,
free of charge, by writing to: Shareholder Relations Department, Invacare
Corporation, One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125.
We submitted the New York Stock Exchange ('NYSE') Section 12(a) Annual CEO
Certification as to our compliance with the NYSE corporate governance listing
standards to the NYSE in June 2004. In addition, we have filed the
certifications of our Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality
of our public disclosures as exhibits to this Annual Report on Form 10-K.
Information required by Item 10 as to the executive officers of the company is
included in Part I of this Annual Report on Form 10-K, the other 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 2005 Annual Meeting of
Shareholders.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
information set forth under the captions "Compensation of Executive Officers"
and "Compensation of Directors" in the company's definitive Proxy Statement for
the 2005 Annual Meeting of Shareholders.
I-30
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 2005 Annual
Meeting of Shareholders.
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 "Compensation Committee Interlocks and
Insider Participation" in the company's definitive Proxy Statement for the 2005
Annual Meeting of Shareholders.
Item 14. Principal Accounting Fees and Services.
The information required by Item 14 is incorporated by reference to the
information set forth under the caption "Independent Auditors" in the company's
definitive Proxy Statement for the 2005 Annual Meeting of Shareholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The following financial statements of the company are included in Part II, Item
8:
Consolidated Statement of Earnings - years ended December 31, 2004,
2003 and 2002
Consolidated Balance Sheet - December 31, 2004 and 2003
Consolidated Statement of Cash Flows - years ended December 31, 2004,
2003, and 2002
Consolidated Statement of Shareholders' Equity - years ended December
31, 2004, 2003, and 2002
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following financial statement schedule of the company is included
in Part II, Item 8:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in
the Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits.
See Exhibit Index at page number I-33 of this Report on Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized as of March 11, 2005.
INVACARE CORPORATION
By: /S/ A. Malachi Mixon, III
-------------------------------------
A. Malachi Mixon, III Chairman of the Board of
Directors and Chief Executive Officer
|
I-31
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated as of March 11, 2005.
Signature Title
--------- -----
/s/ A. Malachi Mixon, III Chairman of the Board of Directors and
------------------------------ Chief Executive Officer
A. Malachi Mixon, III (Principal Executive Officer)
/s/ Gerald B. Blouch President, Chief Operating Officer and
------------------------------ Director
Gerald B. Blouch
/s/ Gregory C. Thompson Chief Financial Officer
------------------------------ (Principal Financial and Accounting Officer)
Gregory C. Thompson
/s/ James C. Boland Director
------------------------------
James C. Boland
/s/ Michael F. Delaney Director
------------------------------
Michael F. Delaney
/s/ Whitney Evans Director
------------------------------
Whitney Evans
/s/ C. Martin Harris, M.D. Director
------------------------------
C. Martin Harris, M.D.
/s/ Bernadine P. Healy, M.D. Director
------------------------------
Bernadine P. Healy, M.D.
/s/ John R. Kasich Director
------------------------------
John R. Kasich
/s/ Dan T. Moore, III Director
------------------------------
Dan T. Moore, III
/s/ Joseph B. Richey, II Director
------------------------------
Joseph B. Richey, II
/s/ William M. Weber Director
------------------------------
William M. Weber
|
I-32
INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2004.
Exhibit Index
Official Sequential
Exhibit No Description Page No.
---------- ----------- ----------
2.1 Sale and Purchase Agreement Regarding the Sale and Purchase of All Shares in WP Domus GmbH by (A)
and among WP Domus LLC, Mr. Peter Schultz and Mr. Wilhelm Kaiser, Invacare GmbH & Co. KG and
Invacare Corporation dated as of July 31, 2004
2.2 Guarantee Letter Agreement of Warburg, Pincus Ventures, L.P. and Warburg, Pincus International, (A)
L.P. dated as of September 9, 2004
3(a) ** Amended and Restated Articles of Incorporation, as amended through February 2, 1996
3(b) ** Code of Regulations, as amended on May 22, 1996
4(a) Specimen Share Certificate for Common Shares, as revised (B)
4(b) Specimen Share Certificate for Class B Common Shares (B)
4(c) Rights agreement between Invacare Corporation and Rights Agent dated as of July 7, 1995 (C)
10(a) Assignment of Patent Application and License of Know-how dated January 14, 1981, and an (D)
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(b) ** 1992 Non-Employee Directors Stock Option Plan adopted in May 1992
10(c) ** Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992
10(d) ** Invacare Corporation 1994 Performance Plan approved January 28, 1994
10(e) Amendment No. 3 to the Invacare Corporation 1994 Performance Plan (H)*
10(f) ** Note Purchase Agreement dated as of February 27, 1998 for $80,000,000 6.71% Series A Senior
Notes Due February 27, 2008 and $20,000,000 6.60% Series B Senior Notes Due February 27, 2005
10(g) ** Amendment No. 1 to the Invacare Corporation 1994 Performance Plan approved May 28, 1998 *
10(h) Amendment No. 2 to the Invacare Corporation 1994 Performance Plan approved May 24, 2000 (E)*
10(i) Invacare Retirement Savings Plan, effective January 1, 2001 (F)
10(j) Employment Agreement entered into by and between the company and Chief Operating Officer (G)*
10(k) Amendment No. 1 to Invacare Corporation 401(K) Plus Benefit Equalization Plan (L)
10(l) Invacare Corporation 401(K) Plus Benefit Equalization Plan (As amended and restated effective (L)
January 1, 2003)
10(m) Invacare Corporation Note Purchase Agreement dated as of October 1, 2003 for $50,000,000 3.97% (J)
Series A Senior Notes Due October 1, 2007; $30,000,000 4.74% Series B Senior Notes Due October
1, 2009 and $20,000,000 5.05% Series C Senior Notes Due October 1, 2010
|
I-33
Official Sequential
Exhibit No Description Page No.
---------- ----------- ----------
10(n) First Amendment, dated as of October 1, 2003, to Note Purchase Agreement dated as of February (K)
27, 1998 for $80,000,000 6.71% Series A Senior Notes Due February 27, 2008 and $20,000,000 6.60%
Series B Senior Notes Due February 27, 2005
10(o) Invacare Corporation 2003 Performance Plan (I)*
10(p) Form of Change of Control Agreement entered into by and between the company and certain of (G)*
its executive officers and Schedule of all such agreements with current executive officers
10(q) Form of Indemnity Agreement entered into by and between the company and certain of its Directors (G)*
and executive officers and Schedule of all such Agreements with current Directors and executive
officers
10(r) Employment Agreement entered into by and between the company and Chief Financial Officer (G)*
10(s) Credit Agreement dated as of January 14, 2005 among Invacare Corporation and Certain Borrowing (M)
Subsidiaries, the Banks named therein, and JPMorgan Chase Bank, N.A. as Agent, Keybank National
Association as Syndication Agent, J.P. Morgan Securities, Inc. and Keybank National Association,
as Co-Lead Arrangers.
10(t)** Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005 *
10(u)** Invacare Corporation Death Benefit Only Plan, effective January 1, 2005 *
10(v)** A. Malachi Mixon, III 10b5-1 Plan, effective February 14, 2005 *
10(w)** Gerald B. Blouch 10b5-1 Plan, effective February 22, 2005 *
10(x)** Gregory C. Thompson 10b5-1 Plan, effective February 21, 2005 *
10(y) ** Supplemental Executive Retirement Plan (As amended and restated effective February 1, 2000) *
10(z)** Form of Director Stock Option Award under Invacare Corporation 1994 Performance Plan *
10(aa)** Form of Director Stock Option Award under Invacare Corporation 2003 Performance Plan *
10(ab)** Form of Director Deferred Option Award under Invacare Corporation 2003 Performance Plan *
10(ac)** Form of Restricted Stock Option Award under Invacare Corporation 2003 Performance Plan *
10(ad)** Form of Stock Option Award under Invacare Corporation 2003 Performance Plan *
10(ae)** Director Compensation Schedule *
21 Subsidiaries of the company
23 Consent of Independent Registered Public Accounting Firm
31.1 ** Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 ** Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
|
I-34
Official Sequential
Exhibit No Description Page No.
---------- ----------- ----------
32.1 ** Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 ** Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
* Management contract, compensatory plan or arrangement
** Filed herein.
(A) Reference is made to the appropriate Exhibit to the company report on Form
8-K, dated September 9, 2004, which Exhibit is incorporated herein by
reference.
(B) Reference is made to the appropriate Exhibit of the company Registration
Statement on Form S-3 (Reg. No. 33-40168), effective as of April 26, 1991,
which Exhibit is incorporated herein by reference.
(C) Reference is made to Exhibit 1 of the company report on Form 8-A, dated
July 18, 1995, which Exhibit is incorporated herein by reference.
(D) Reference is made to the appropriate Exhibit of the company 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.
(E) Reference is made to the appropriate Exhibit of the company report on Form
S-8, dated March 30, 2001, which Exhibit is incorporated herein by
reference.
(F) Reference is made to Exhibit 10.1 of the company report on Form 10-Q, dated
September 30, 2002, which Exhibit is incorporated herein by reference.
(G) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 2002, which Exhibit is
incorporated herein by reference.
(H) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended March 31, 2003, which Exhibit is incorporated
herein by reference.
(I) Reference is made to Exhibit 4.5 of Invacare Corporation Form S-8 filed on
October 17, 2003.
(J) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended September 30, 2003, which Exhibit is
incorporated herein by reference.
(K) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 2003, which Exhibit is
incorporated herein by reference.
(L) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended June 30, 2004, which Exhibit is incorporated
herein by reference.
(M) Reference is made to the appropriate Exhibit of the company report on Form
8-K, dated January 14, 2005, which is incorporated herein by reference.
I-35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Invacare Corporation
We have audited the accompanying consolidated balance sheets of Invacare
Corporation and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2004. Our audits also
included the financial statement schedule listed in the Index at Item 15 (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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with U.S.
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.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Invacare
Corporation's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 4, 2005 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 4, 2005
|
FS-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Invacare Corporation
We have audited management's assessment, included in the accompanying Management
Report on Internal Control Over Financial Reporting, that Invacare Corporation
maintained effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Invacare Corporation's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As indicated in the accompanying Management Report on Internal Control Over
Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of WP Domus GmbH, which is included in the 2004 consolidated
financial statements of Invacare Corporation and constituted 19% of total assets
as of December 31, 2004 and 2% of net sales for the year then ended. Our audit
of internal control over financial reporting of Invacare Corporation also did
not include an evaluation of the internal control over financial reporting of WP
Domus GmbH.
In our opinion, management's assessment that Invacare Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Invacare Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Invacare Corporation as of December 31, 2004 and 2003 and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2004 of Invacare
Corporation and our report dated March 4, 2005 expressed an unqualified opinion
thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 4, 2005
FS-2
|
CONSOLIDATED STATEMENT OF EARNINGS
INVACARE CORPORATION AND SUBSIDIARIES
Years Ended December 31,
2004 2003 2002
---- ---- ----
(In thousands, except per share data)
Net sales $1,403,327 $1,247,176 $1,089,161
Cost of products sold 984,735 872,515 761,763
------- ------- -------
Gross Profit 418,592 374,661 327,398
Selling, general and administrative expenses 297,124 262,015 220,296
Interest expense 16,282 11,710 15,122
Interest income (5,186) (5,473) (4,550)
------- ------- -------
Earnings before Income Taxes 110,372 106,409 96,530
Income taxes 35,175 35,000 31,760
------- ------- -------
Net Earnings $75,197 $71,409 $64,770
======= ======= =======
Net Earnings per Share - Basic $2.41 $2.31 $2.10
======= ======= =======
Weighted Average Shares Outstanding - Basic 31,153 30,862 30,867
======= ======= =======
Net Earnings per Share - Assuming Dilution $2.33 $2.25 $2.05
======= ======= =======
Weighted Average Shares Outstanding -
Assuming Dilution 32,347 31,729 31,664
======= ======= =======
|
See notes to consolidated financial statements.
FS-3
CONSOLIDATED BALANCE SHEETS
INVACARE CORPORATION AND SUBSIDIARIES
December 31, December 31,
2004 2003
------- -------
(In thousands)
Assets
------
Current Assets
Cash and cash equivalents $32,567 $16,074
Marketable securities 199 214
Trade receivables, net 287,950 255,534
Installment receivables, net 13,422 7,755
Inventories, net 175,883 130,979
Deferred income taxes 21,730 24,573
Other current assets 33,400 39,593
------- -------
Total Current Assets 565,151 474,722
Other Assets 55,634 53,263
Other Intangibles 98,212 14,678
Property and Equipment, net 191,163 150,051
Goodwill 717,964 415,499
------- -------
Total Assets $1,628,124 $1,108,213
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Accounts payable $149,413 $110,178
Accrued expenses 98,850 92,032
Accrued income taxes 7,816 19,107
Current maturities of long-term debt 2,062 2,171
------- -------
Total Current Liabilities 258,141 223,488
Long-Term Debt 547,974 232,038
Other Long-Term Obligations 68,571 34,383
Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) - -
Common Shares (Authorized 100,000 shares; 31,209 and
30,739 issued in 2004 and 2003, respectively) - par $0.25 7,803 7,686
Class B Common Shares (Authorized 12,000 shares; 1,112, issued and
outstanding) - par $0.25 278 278
Additional paid-in-capital 123,793 109,015
Retained earnings 550,753 477,113
Accumulated other comprehensive earnings 104,629 51,057
Unearned compensation on stock awards (1,557) (1,458)
Treasury shares (934 and 770 shares in
2004 and 2003, respectively) (32,261) (25,387)
------- -------
Total Shareholders' Equity 753,438 618,304
------- -------
Total Liabilities and Shareholders' Equity $1,628,124 $1,108,213
========== ==========
|
See notes to consolidated financial statements.
FS-4
CONSOLIDATED STATEMENT OF CASH FLOWS
INVACARE CORPORATION AND SUBSIDIARIES
Years Ended December 31,
2004 2003 2002
---- ---- ----
(In thousands)
Operating Activities
Net earnings $75,197 $71,409 $64,770
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 32,316 27,235 26,638
Provision for losses on trade and installment receivables 11,222 13,760 10,792
Provision for deferred income taxes 4,250 3,205 (3,050)
Provision for other deferred liabilities 4,091 2,587 3,342
Changes in operating assets and liabilities:
Trade receivables (19,978) (37,122) 19,740
Installment sales contracts, net (2,911) 6,678 11,435
Inventories (15,781) (4,607) 6,208
Other current assets (516) (3,447) (4,193)
Accounts payable 19,718 13,351 2,576
Accrued expenses (11,281) 17,943 (2,534)
Other long-term liabilities 1,997 5,212 (108)
------- ------- -------
Net Cash Provided by Operating Activities 98,324 116,204 135,616
Investing Activities
Purchases of property and equipment (41,403) (30,660) (22,109)
Proceeds from sale of property and equipment 3 531 2,391
Marketable securities - 1,130 (43)
Business acquisitions, net of cash acquired (343,554) (70,555) -
Increase in other investments (603) (64) (317)
Increase in other long-term assets (3,133) (1,898) (1,834)
Other (332) (42) 1,079
------- ------ -------
Net Cash Required for Investing Activities (389,022) (101,558) (20,833)
Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 844,432 474,583 254,512
Payments on revolving lines of credit and
long-term borrowings (541,244) (483,725) (377,582)
Proceeds from exercise of stock options 9,850 5,063 6,154
Payment of dividends (1,557) (1,531) (1,567)
Purchase of treasury stock (4,430) (8,345) (1,674)
------- ------- -------
Net Cash Provided (Required) by Financing Activities 307,051 (13,955) (120,157)
Effect of exchange rate changes on cash 140 2,297 1,777
------- ------- -------
Increase (decrease) in cash and cash equivalents 16,493 2,988 (3,597)
Cash and cash equivalents at beginning of year 16,074 13,086 16,683
------- ------- -------
Cash and cash equivalents at end of year $32,567 $16,074 $13,086
======= ======= =======
|
See notes to consolidated financial statements.
FS-5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INVACARE CORPORATION AND SUBSIDIARIES
(In thousands)
Accumulated
Additional Other
Common Class B Paid-in- Retained Comprehensive Unearned Treasury
Stock Stock Capital Earnings Earnings(Loss) Compensation Stock Total
------ ------- ---------- -------- -------------- ------------ --------- ---------
January 1, 2002 Balance $7,466 $278 $87,980 $344,032 $(48,129) $(771) $(9,306) $381,550
Exercise of stock options, including
tax benefit 105 9,834 (2,863) 7,076
Restricted stock awards 9 1,181 (1,190) -
Restricted stock award expense 757 757
Net earnings 64,770 64,770
Foreign currency translation
adjustments 28,214 28,214
Unrealized gains on cash flow hedges 1,349 1,349
Marketable securities holding loss (163) (163)
-----
Total comprehensive income 94,170
Dividends (1,567) (1,567)
Purchase of treasury shares (1,674) (1,674)
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 Balance 7,580 278 98,995 407,235 (18,729) (1,204) (13,843) 480,312
Exercise of stock options, including
tax benefit 99 9,130 (3,199) 6,030
Restricted stock awards 7 890 (897) -
Restricted stock award expense 643 643
Net earnings 71,409 71,409
Foreign currency translation
adjustments 66,185 66,185
Unrealized gains on cash flow hedges 3,506 3,506
Marketable securities holding gain 95 95
-----
Total comprehensive income 141,195
Dividends (1,531) (1,531)
Purchase of treasury shares (8,345) (8,345)
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2003 Balance 7,686 278 109,015 477,113 51,057 (1,458) (25,387) 618,304
Exercise of stock options, including
tax benefit 112 13,872 (2,444) 11,540
Restricted stock awards 5 906 (911) -
Restricted stock award expense 812 812
Net earnings 75,197 75,197
Foreign currency translation
adjustments 57,903 57,903
Unrealized losses on cash flow hedges (4,322) (4,322)
Marketable securities holding loss (9) (9)
-----
Total comprehensive income 128,769
Dividends (1,557) (1,557)
Purchase of treasury shares (4,430) (4,430)
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 Balance $7,803 $278 $123,793 $550,753 $104,629 $(1,557) $(32,261) $753,438
====== ==== ======== ======== ======== ======= ======= ========
|
See notes to consolidated financial statements.
FS-6
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
Nature of Operations: Invacare Corporation and its subsidiaries ("Invacare" or
the "company") is the leading home medical equipment manufacturer in the world
based on its distribution channels, the breadth of its product line and net
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 systems, motorized
scooters, patient aids, home care beds, low air loss therapy products,
respiratory products and distributed products.
Principles of Consolidation: The consolidated financial statements include the
accounts of the company and its majority owned subsidiaries. Certain foreign
subsidiaries, represented by the European segment, are consolidated using a
November 30 fiscal year end. No material subsequent events have occurred related
to the European segment, which would require disclosure or adjustment to the
company's financial statements. All significant intercompany transactions are
eliminated.
Use of Estimates: The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States,
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.
Marketable Securities: Marketable securities consist of short-term investments
in repurchase agreements, government and corporate securities, certificates of
deposit and equity securities. Marketable securities with original maturities of
less than three months are treated as cash equivalents. The company has
classified its 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 accumulated other comprehensive earnings
(loss).
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 method and for non-domestic inventories and domestic finished products
purchased for resale ($138,845,000 and $99,607,000 at December 2004 and 2003,
respectively) by the first-in, first-out method. Market costs are based on the
lower of replacement cost or estimated net realizable value. The value of
inventory on the LIFO method is approximately equal to its current cost as of
December 31, 2004 and 2003. Inventories have been reduced by an allowance for
excess and obsolete inventories. The estimated allowance is based on
management's review of inventories on hand compared to estimated future usage
and sales.
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.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. The asset
would be considered impaired when the future net undiscounted cash flows
generated by the asset are less than its carrying value. An impairment loss
would be recognized based on the amount by which the carrying value of the asset
exceeds its fair value.
Goodwill and Other Intangibles: Effective January 1, 2002, Invacare adopted SFAS
No. 142, Goodwill and Other Intangible Assets, and accordingly, discontinued
amortization of goodwill. SFAS No. 142 changed the accounting for goodwill from
an amortization approach to a non-amortization approach requiring periodic
testing for impairment. For purposes of the impairment test, the fair value of
each reporting unit is estimated by forecasting cash flows and discounting those
cash flows using appropriate discount rates. The fair values are then compared
to the carrying value of the net assets of each reporting unit. The company
completed the required initial analysis as of January 1, 2002 as well as the
annual impairment tests in the fourth quarter of 2002, 2003 and 2004. The
results of these tests indicated no impairment of goodwill.
FS-7
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACCOUNTING POLICIES--Continued
Accrued Warranty Cost: Generally, the company's products are covered by
warranties against defects in material and workmanship for periods up to six
years from the date of sale to the customer. Certain components carry a lifetime
warranty. A provision for estimated warranty cost is recorded at the time of
sale based upon actual experience. The company continuously assesses the
adequacy of its product warranty accrual and makes adjustments as needed.
Historical analysis is primarily used to determine the company's warranty
reserves. Claims history is reviewed and provisions are adjusted as needed.
However, the company does consider other events, such as a product recall, which
could warrant additional warranty reserve provision. No material adjustments to
warranty reserves were necessary in the current year. See Current Liabilities in
the Notes to the Consolidated Financial Statements for a reconciliation of the
changes in the warranty accrual.
Product Liability Cost: The company's captive insurance company, Invatection
Insurance Co., currently has a policy year that runs from September 1 to August
31 and insures annual policy losses of $10,000,000 per occurrence and
$11,000,000 in the aggregate of the company's North American product liability
exposure. The company also has additional layers of external insurance coverage
insuring $100,000,000 in annual aggregate losses arising from individual claims
anywhere in the world that exceed the captive insurance company policy limits.
There can be no assurance that Invacare's current insurance levels will continue
to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon
historical experience, industry expertise and indications from the third-party
actuary. Additional reserves, in excess of the specific individual case
reserves, are provided for incurred but not reported claims based upon
third-party actuarial valuations at the time such valuations are conducted.
Historical claims experience and other assumptions are taken into consideration
by the third-party actuary to estimate the ultimate reserves. For example, the
actuarial analysis assumes that historical loss experience is an indicator of
future experience, the distribution of exposures by geographic area and nature
of operations for ongoing operations is expected to be very similar to
historical operations with no dramatic changes and that the government indices
used to trend losses and exposures are appropriate. Estimates made are adjusted
on a regular basis and can be impacted by actual loss award settlements on
claims. While actuarial analysis is used to help determine adequate reserves,
the company accepts responsibility for the determination and recording of
adequate reserves in accordance with accepted loss reserving standards and
practices.
Revenue Recognition: Invacare's revenues are recognized when products are
shipped to unaffiliated customers. The Securities and Exchange Commission's
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," as updated by
SAB No. 104, provides guidance on the application of generally accepted
accounting principles to selected revenue recognition issues. The company has
concluded that its revenue recognition policy is appropriate and in accordance
with generally accepted accounting principles and SAB No. 101.
Sales are only made to customers with whom the company believes collection is
reasonably assured based upon a credit analysis, which may include obtaining a
credit application, a signed security agreement, personal guarantee and/or a
cross corporate guarantee depending on the credit history of the customer.
Credit lines are established for new customers after an evaluation of their
credit report and/or other relevant financial information. Existing credit lines
are regularly reviewed and adjusted with consideration given to any outstanding
past due amounts.
The company offers discounts and rebates, which are accounted for as reductions
to revenue in the period in which the sale is recognized. Discounts offered
include: cash discounts for prompt payment, base and trade discounts based on
contract level for specific classes of customers. Volume discounts and rebates
are given based on large purchases and the achievement of certain sales volumes.
Product returns are accounted for as a reduction to reported sales with
estimates recorded for anticipated returns at the time of sale. The company does
not sell any goods on consignment.
Distributed products sold by the company are accounted for in accordance with
EITF 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The
company records Distributed product sales gross as a principal since the company
takes title to the products and has the risks of loss for collections, delivery
and returns.
FS-8
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACCOUNTING POLICIES--Continued
Product sales that give rise to installment receivables are recorded at the time
of sale when the risks and rewards of ownership are transferred. In December
2000, the company entered into an agreement with DLL, a third party financing
company, to provide the majority of future lease financing to Invacare
customers. As such, interest income is recognized based on the terms of the
installment agreements. Installment accounts are monitored and if a customer
defaults on payments, interest income is no longer recognized. All installment
accounts are accounted for using the same methodology, regardless of duration of
the installment agreements.
Research and Development: Research and development costs are expensed as
incurred and included in cost of products sold. The company's annual
expenditures for product development and engineering were approximately
$21,638,000, $19,130,000, and $17,934,000 for 2004, 2003, and 2002,
respectively.
Advertising: Advertising costs are expensed as incurred and included in selling,
general and administrative expenses. The company has a co-op advertising program
in which the company reimburses customers up to 50% of their costs of qualifying
advertising expenditures. Invacare product, brand logos and corporate
spokesperson, Arnold Palmer, must appear in all advertising. Invacare requires
customers to submit proof of advertising with their claims for reimbursement.
Invacare receives advertising and in return reimburses customers for a portion
of their advertising costs. The company's cost of the program is included in
SG&A expense on the consolidated statement of earnings at the time the liability
is estimated. Reimbursement is made on an annual basis and within 3 months of
submission and approval of the documentation. The company receives monthly
reporting from those in the program of their qualified advertising dollars spent
and accrues based upon information received. Advertising expenses amounted to
$24,999,000, $22,806,000 and $20,905,000 for 2004, 2003 and 2002, respectively.
Stock-Based Compensation Plans: The company accounts for options under its
stock-based compensation plans using the intrinsic value method proscribed in
APBO No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. The majority of the options awarded have been granted at
exercise prices equal to the market value of the underlying stock on the date of
grant, thus no compensation cost has been reflected in the consolidated
statement of earnings for these options. In addition, restricted stock awards
have been granted without cost to the recipients and are being expensed on a
straight-line basis over the vesting periods. Invacare continues to utilize the
disclosure-only provisions of SFAS No. 123, Accounting for Stock Based
Compensation. If the company had applied the fair value recognition provisions
of SFAS No. 123, the company's net earnings and earnings per share in 2004, 2003
and 2002 would have been reduced to the pro forma amounts indicated below (in
thousands except per share data):
2004 2003 2002
---- ---- ----
Net earnings - as reported * $75,197 $71,409 $64,770
Less: compensation expense determined based on the
fair-value method for all awards granted at
market value, net of related tax effects 4,226 4,529 4,504
------- ------- -------
Net earnings - pro forma $70,971 $66,880 $60,266
======= ======= =======
Earnings per share as reported - basic $2.41 $2.31 $2.10
Earnings per share as reported - assuming dilution $2.33 $2.25 $2.05
Pro forma earnings per share - basic $2.28 $2.17 $1.95
Pro forma earnings per share - assuming dilution $2.19 $2.11 $1.90
* Includes stock compensation expense, net of tax, on
restricted awards granted without cost of: $528 $418 $492
|
Income Taxes: The company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities on 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. Undistributed earnings
of the company's foreign subsidiaries are considered to be indefinitely
reinvested and, accordingly, no provision for United States federal income taxes
has been provided.
FS-9
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACCOUNTING POLICIES--Continued
Derivative Instruments: The company recognizes its derivative instruments as
assets or liabilities in the consolidated balance sheet measured at fair value.
A majority of the company's derivative instruments are designated and qualify as
cash flow hedges. Accordingly, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income
and reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the fair value of
the hedged item, if any, is recognized in current earnings during the period of
change. The derivatives designated as fair value hedges are perfectly effective;
thus, the entire gain or loss associated with the derivative instrument directly
affects the value of the debt by increasing or decreasing its carrying value.
The company has entered into interest rate swap agreements that qualify as fair
value hedges and effectively convert $180,000,000 of fixed-rate debt to
floating-rate debt, so the company can avoid paying higher than market interest
rates. The company also had interest rate swap agreements, which expired in
2004, that qualified as cash flow hedges and effectively converted $20,000,000
of its floating-rate debt to a fixed-rate basis, thus reducing the impact of
interest-rate changes on future interest expense. The company recognized net
gains of $4,577,000, $2,872,000 and $773,000, respectively, related to its swap
agreements in 2004, 2003 and 2002, which is reflected in interest expense on the
consolidated statement of earnings.
To protect against decreases/increases in forecasted foreign currency cash flows
resulting from inventory purchases/sales over the next year, the company
utilizes cash flow hedges to hedge portions of its forecasted purchases/sales
denominated in foreign currencies. The company recognized net gains in 2004,
2003 and 2002 of $6,961,000, $1,410,000 and $1,252,000, respectively on foreign
currency cash flow hedges. The gains are included in cost of products sold and
selling, general and administrative expenses on the consolidated statement of
earnings.
The company has used forward contracts that do not qualify for special hedging
treatment, but do effectively limit the company's exposure to foreign currency
fluctuations between the Mexican Peso and U.S. Dollar. During 2003 and 2002, the
company recognized losses of $118,000 and $68,000 related to these forward
contracts, which are included in costs of products sold on the consolidated
statement of earnings. No Mexican Peso forward contracts were entered into in
2004.
The company recognized no gain or loss related to hedge ineffectiveness or
discontinued cash flow hedges. If it is later determined that a hedged
forecasted transaction is unlikely to occur, any gains or losses on the forward
contracts would be reclassified from other comprehensive income into earnings.
The company does not expect this to occur during the next twelve months.
Foreign Currency Translation: The functional currency of the company's
subsidiaries outside the United States is the applicable local currency. 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 accumulated other comprehensive earnings (loss).
Net Earnings Per Share: Basic earnings per share are computed based on the
weighted-average number of Common Shares and Class B Common Shares outstanding
during the year. Diluted earnings per share are computed based on the
weighted-average number of Common Shares and Class B Common Shares outstanding
plus the effects of dilutive stock options outstanding during the year.
Reclassifications: Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the presentation used for the
year ended December 31, 2004.
Recently Issued Accounting Pronouncements: In December 2004, FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"), which requires companies to expense stock
options and other share-based payments. SFAS 123R supersedes SFAS No. 123, which
permitted either expensing stock options or providing pro forma disclosure. The
provisions of this Statement, which is effective July 1, 2005, apply to all
awards granted, modified, cancelled or repurchased after July 1, 2005 as well as
the unvested portion of prior awards. The company will adopt the standard as of
the effective date and estimates that the impact to the company's reported
results will be similar to the pro forma results shown in the company's
Accounting Policy Note to the Consolidated Financial Statements.
FS-10
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACCOUNTING POLICIES--Continued
The American Jobs Creation Act of 2004 (the Act) was signed into law in October
2004. The Act provides, among other things, for a tax deduction on qualified
domestic production activities and introduced a special one-time dividends
received deduction on the repatriation of certain foreign earnings to a U.S.
taxpayer, provided certain criteria are met. The FASB issued FASB Staff
Positions 109-1 to provide guidance on the application of SFAS No. 109,
Accounting for Income Taxes, and FASB Staff Positions 109-2 to provide
accounting and disclosure guidance for the repatriation provision. The company
is reviewing the implication of the new Act, recently released treasury
guidance, and the FASB staff positions but does not intend to repatriate any
foreign earnings under the Act and does not expect the Act will have a material
impact on the company's financial position, results of operations or cash flows.
RECEIVABLES
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. Substantially all of the company's receivables are
due from health care, medical equipment dealers and long term care facilities
located throughout the United States, Australia, Canada, New Zealand and Europe.
A significant portion of products sold to dealers, both foreign and domestic, is
ultimately funded through government reimbursement programs such as Medicare and
Medicaid. In addition, the company has seen a significant shift in reimbursement
to customers from managed care entities. As a consequence, changes in these
programs can have an adverse impact on dealer liquidity and profitability. The
estimated allowance for uncollectible amounts ($9,857,000 in 2004 and
$16,775,000 in 2003) is based primarily on management's evaluation of the
financial condition of the customer. The decrease in the allowance for
uncollectible accounts in 2004 compared to 2003 is primarily attributable to
significant write-offs of accounts previously reserved for as all collection
efforts were exhausted in 2004.
Installment receivables as of December 31, 2004 and 2003 consist of the
following (in thousands):
2004 2003
---- -----
Current Long-Term Total Current Long-Term Total
------- ---------- ------- ------- --------- -------
Installment receivables $19,576 $1,324 $20,900 $18,930 $578 $19,508
Less:
Unearned interest (435) - (435) (246) (54) (300)
Allowance for doubtful accounts (5,719) - (5,719) (10,929) - (10,929)
------- ------ ------- ------ ------ ------
$13,422 $1,324 $14,746 $7,755 $524 $8,279
======= ====== ======= ====== ===== ======
|
In addition, as a result of the third party financing arrangement with DLL,
management monitors the collection status of these contracts in accordance with
the company's limited recourse obligations and provides amounts necessary for
estimated losses in the allowance for doubtful accounts. See the "Concentration
of Credit Risk" footnote for a description of the financing arrangement.
Long-term installment receivables are included in "Other Assets" on the
consolidated balance sheet.
INVENTORIES
Inventories as of December 31, 2004 and 2003 consist of the following (in
thousands):
2004 2003
------ -------
Raw materials $60,548 $41,573
Work in process 16,156 18,711
Finished goods 99,179 70,695
------ -------
$175,883 $130,979
======= ========
|
PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2004 and 2003 consist of the following
(in thousands):
2004 2003
------ -------
Machinery and equipment $243,335 $216,459
Land, buildings and improvements 95,041 67,364
Furniture and fixtures 27,494 20,737
Leasehold improvements 14,275 14,946
------- -------
380,145 319,506
Less allowance for depreciation (188,982) (169,455)
------ -------
$191,163 $150,051
======= =======
FS-11
|
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACQUISITIONS
In 2004, Invacare acquired for cash the following six businesses at a total cost
of $343,554,000:
o The assets of ACS, a New York distributor of medical supplies
with a focus on infusion therapy.
o The assets of Decpac, an Australian company that designs and
manufactures portable folding access ramps for use with
wheelchairs and scooters.
o Freedom Designs, Inc., a California-based company that designs
and manufactures seating products and wheelchairs with a
particular focus on the pediatric marketplace.
o WP Domus GmbH, a European-based holding company which
manufactures several complementary product lines to Invacare's
product lines.
o Champion Manufacturing, LLC , an Indiana company that designs and
manufactures medical recliners.
o The assets of Premier Designs, a California company from which
Invacare acquired assets and designs for a lightweight, easily
transportable power wheelchair.
Carroll Healthcare, Inc. was purchased in 2003 and as part of the purchase
agreement, the company agreed to pay additional consideration based upon
earnings before interest, taxes, depreciation and amortization from September 1,
2003 through August 31, 2004 calculated under Canadian generally accepted
accounting principles (U.S. GAAP used for company reporting purposes) in
accordance with the purchase agreement with no defined maximum amount. The
payment amount was finalized and paid in October 2004 at 74,667,000 Canadian
Dollars, $60,992,000 U.S. Dollars, which increased goodwill.
Motion Concepts, Inc. ("Motion") was also purchased in 2003 and pursuant to the
Motion purchase agreement, the Company agreed to pay contingent consideration
based upon earnings before interest and taxes over the three years subsequent to
the acquisition up to a maximum of approximately $16,000,000. Based upon 2004
results, no additional consideration was paid. When the contingency related to
the acquisitions is settled, any additional consideration paid will increase the
purchase price and reported goodwill.
On September 9, 2004 the company finalized the acquisition of 100% of the shares
of WP Domus GmbH, a European-based holding company that manufactures several
complementary product lines to Invacare's product lines, including power add-on
products, bath lifts and walking aids, from WP Domus LLC. Domus has three
divisions: Alber, Aquatec and Dolomite. The acquisition allows the company to
expand its product line and reach new markets. The preliminary purchase price
was $227,382,000 including acquisition costs of $3,670,000, which was paid in
cash, and is subject to final determination of the estimated costs of possible
office closures, sales agency transfers and other consolidation efforts expected
to be finalized by the end of the third quarter of 2005. The acquisition was
consummated after satisfaction of certain conditions, including receipt of all
requisite regulatory approvals. Invacare entered into a 100,000,000 Euro bridge
loan agreement and utilized its existing revolving credit line to fund the
acquisition. Invacare's reported results reflect the operating results of Domus
since the date of the acquisition.
Supplemental pro forma information is presented below as though the business
combination had been completed as of the beginning of the period being reported
on. The pro forma information does not necessarily reflect the results of
operations that would have occurred if Domus had been a wholly owned entity of
Invacare as of the beginning of the periods presented (in thousands).
Years Ended December 31
2004 2003
---------- ----------
Net sales $1,490,140 $1,363,763
Net earnings 80,410 75,859
Earnings per share - assuming
dilution $2.49 $2.39
|
The pro forma results for 2004 included non-recurring stock option plan expense
of $1,410,000. The pro forma results for 2003 included non-recurring stock
option plan expense of $2,208,000 and a one-time shipment to a Japanese
distributor of approximately $9,512,000.
FS-12
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACQUISITIONS--Continued
The following summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition (in thousands):
Trade receivables $10,845
Inventories 8,470
Other current assets 5,380
Other intangibles 68,965
Property and equipment 17,673
Goodwill 161,486
-------
Total assets acquired 272,819
Accounts payable (3,985)
Accrued expenses (17,655)
Long-term debt (7,771)
Other long-term obligations (16,026)
--------
Total liabilities assumed (45,437)
--------
Net assets acquired $227,382
========
|
GOODWILL
The carrying amount of goodwill by operating segment is as follows (in
thousands):
2004 2003
---------------------------------------------------- ----------------------------------------------------
North North
America Europe Asia/Pacific Consolidated America Europe Asia/Pacific Consolidated
-------- ------ ------------ ------------ ------- ------ ------------ ------------
Balance as of
January 1 $210,047 $192,508 $12,944 $415,499 $153,683 $157,325 $10,110 $321,118
Acquisitions 95,344 161,486 71 256,901 49,723 3,397 - 53,120
Foreign
currency
translation 7,936 36,617 1,011 45,564 6,641 31,786 2,834 41,261
-------- -------- -------- -------- -------- -------- -------- --------
Balance as of
December 31 $313,327 $390,611 $14,026 $717,964 $210,047 $192,508 $12,944 $415,499
======== ======== ======= ======== ======== ======== ======= ========
|
Of the $256,901,000 in goodwill recorded from acquisitions, $67,557,000 is
expected to be deductible for tax purposes, of which $53,716,000 is deductible
related to the acquisition of Domus.
All of the company's other intangible assets have definite lives and continue to
be amortized over their useful lives, except for $27,732,000 related to
trademarks, which have indefinite lives. The company's intangibles consist of
the following (in thousands):
December 31, 2004 December 31, 2003
----------------- -----------------
Accumulated Accumulated
Historical Cost Amortization Historical Cost Amortization
--------------- ------------ --------------- ------------
Customer Lists $57,788 $2,737 $6,105 $ 936
Trademarks 27,732 - 4,268 -
License agreements 6,518 5,051 6,455 4,464
Developed Technology 5,842 80 - -
Patents 4,137 1,443 2,180 1,109
Other 7,348 1,842 3,406 1,227
------- ------- ------- ------
$109,365 $11,153 $22,414 $7,736
======= ======= ======= ======
|
FS-13
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
OTHER INTANGIBLES
The intangibles recorded on the date of acquisition due to the Domus acquisition
were as follows (in thousands):
Weighted Average
Fair Value Amortization Period
---------- -------------------
Customer relationships $ 42,731 13 years
Trademarks - Indefinite lives 20,521 Indefinite
Developed Technology 5,311 17 years
Other 402 5 years
---------
Total $ 68,965 13 years
=========
|
Amortization expense related to other intangibles was $3,417,000 and $1,506,000
for 2004 and 2003, respectively. Estimated amortization expense for each of the
next five years is expected to be $7,333,000 for 2005, $6,591,000 in 2006,
$6,427,000 in 2007, $6,128,000 in 2008 and $5,868,000 in 2009.
INVESTMENT IN AFFILIATED COMPANY
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46), which was revised in December 2003 and,
which among other things, deferred the implementation date of FIN 46 until
periods after March 15, 2004. This interpretation requires consolidation of an
entity if the company is subject to a majority of the risk of loss from the
variable interest entity's (VIE) activities or entitled to receive a majority of
the entity's residual returns, or both. A company that consolidates a VIE is
known as the primary beneficiary of that entity.
As of December 31, 2004, the company had an investment in a development stage
company, which is currently pursuing FDA approval to market a product focused on
the treatment of post-stroke shoulder pain in the United States. The amount of
net advances and investment recorded on the company's books is approximately
$3,000,000 at December 31, 2004. Certain of the Company's officers and directors
have small minority equity ownership positions in this company. Based on the
provisions of FIN 46 and the company's preliminary analysis, the company does
not believe that its investment is a VIE as of December 31, 2004. Subsequent to
December 31, 2004, the company's board of directors approved an additional
funding commitment. Accordingly, the company will be required to consolidate
this investment on a prospective basis for the quarter ended March 31, 2005 as
the company will be deemed the primary beneficiary of this variable interest
entity.
CURRENT LIABILITIES
Accrued expenses as of December 31, 2004 and 2003 consist of the following (in
thousands):
2004 2003
------ ------
Accrued salaries and wages $35,280 $31,960
Accrued warranty cost 13,998 12,688
Accrued rebates 7,427 13,595
Accrued taxes other than income taxes 6,419 3,661
Accrued interest 5,274 3,998
Accrued legal and professional 4,761 2,029
Accrued freight 2,894 4,524
Accrued insurance 2,656 2,470
Accrued product liability, current portion 2,595 2,245
Other accrued items 17,546 14,862
------ ------
$98,850 $92,032
====== ======
|
Accrued rebates relate to several volume incentive programs the company offers
its customers. The company accounts for these rebates as a reduction of revenue
when the products are sold in accordance with the guidance in EITF 01-09:
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products). The company has experienced significant
pricing pressure in the U.S. market for standard products in recent years and
has partially reduced prices to our customers in the form of a volume rebate
such that the rebates would typically apply only if customers increased their
standard product purchases from the company. The decrease in rebates from
December 31, 2003 to December 31, 2004 is attributable to the fact that rebate
programs in place at December 31, 2003 targeted at Standard Products customers
in the U.S. expired during 2004 and were not renewed.
FS-14
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CURRENT LIABILITIES --Continued
Changes in accrued warranty costs were as follows (in thousands):
2004 2003
------ ------
Balance as of January 1 $12,688 $11,448
Warranties provided during the period 8,665 8,557
Settlements made during the period (7,977) (8,288)
Changes in liability for pre-existing
warranties during the period,
including expirations 622 971
------ ------
Balance as of December 31 $13,998 $12,688
====== ======
|
LONG-TERM DEBT
Long-term debt as of December 31, 2004 and 2003 consist of the following (in
thousands):
2004 2003
------ ------
$80,000,000 senior notes at 6.71%, due in February 2008 $83,304 $85,462
$20,000,000 senior notes at 6.60%, due in February 2005 20,000 20,000
$50,000,000 senior notes at 3.97%, due in October 2007 50,081 50,560
$30,000,000 senior notes at 4.74%, due in October 2009 30,485 30,532
$20,000,000 senior notes at 5.05%, due in October 2010 20,433 20,386
Revolving credit agreement ($325,000,000 multi-currency), at 0.675% to
1.40% above local interbank offered rates, expires October 17, 2006 230,382 20,002
Bridge Credit Agreement 100,000 -
Other notes 15,351 7,267
------ ------
550,036 234,209
Less current maturities (2,062) (2,171)
------ ------
$547,974 $232,038
======== ========
|
The carrying values of the senior notes have been increased by the gains on the
interest rate swaps accounted for as fair value hedges.
On January 14, 2005, Invacare Corporation entered into a $450,000,000
multi-currency revolving credit agreement, which expires on January 14, 2010.
The facility provides that Invacare, may, upon consent of its lenders, increase
the amount of the facility by an additional $100,000,000. The borrowing rates
under the revolving credit agreement are determined based on the ratio of debt
to earnings before interest, taxes, depreciation and amortization (EBITDA) of
the company as defined in the agreement, and ranges from LIBOR plus 0.35% to
0.675%.
On September 1, 2004, Invacare Corporation entered into a 364-day,
multi-currency bridge credit agreement with a group of commercial banks, with an
expiration date of August 31, 2005 or such later date as mutually agreed upon by
the company and the banks. Pursuant to the agreement, the company borrowed
100,000,000 Euros in order to provide funds for the company's general corporate
purposes, including financing the Domus acquisition and expenses incurred in
connection therewith.
In October 2003, Invacare Corporation issued $100,000,000 in senior notes,
maturing between 2007 and 2010. In 2001, the company entered into a $325,000,000
5-year, multi-currency revolving credit agreement with a group of commercial
banks. The multi-currency revolving credit agreement was to expire on October
17, 2006 or such later date as mutually agreed upon by the company and the
banks.
In January 2005, amounts outstanding under both the $325,000,000 revolving
credit agreement and the 100,000,000 Euro bridge credit agreement were paid off
with the $450,000,000 multi-currency revolving credit agreement described above.
In addition, the $20,000,000 senior notes at 6.60%, due in February 2005 were
paid off with the new $450,000,000 facility and thus were classified as
long-term as of December 31, 2004 as the company had the intent and the ability
to pay-off the notes with long-term debt.
Borrowings denominated in foreign currencies aggregated $179,084,000 at December
31, 2004 and $872,000 at December 31, 2003. The borrowing rates under the
revolving credit agreement are determined based on the ratio of debt to EBITDA
of the company as defined in the agreement and range from 0.675% to 1.40% above
the various interbank offered rates. As of December 31, 2004 and 2003, the
weighted average floating interest rate on U.S. borrowings was 3.36% and 2.69%,
respectively.
FS-15
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
LONG-TERM DEBT --Continued
The revolving credit agreement, as amended, bridge credit agreement and senior
notes all require the company to maintain certain conditions with respect to net
worth, funded debt to capitalization, and interest coverage as defined in the
agreements. Under the most restrictive covenants of the company's borrowing
arrangements, the company has the capacity to borrow up to an additional
$60,800,000 as of December 31, 2004 and up to $108,000,000, effective February
2005, pursuant to the covenants of the new $450,000,000 multi-currency,
long-term revolving credit agreement.
In October 2003, the company exchanged the fixed rates of 3.97%, 4.74% and 5.05%
on the $50,000,000, $30,000,000 and $20,000,000 Senior Notes due in October
2007, October 2009 and October 2010 for variable rates based on LIBOR plus
0.01%, LIBOR plus 0.14% and LIBOR plus 0.26%, respectively. The effect of these
swaps is to exchange fixed rates for the lower floating rates currently
available.
In December 2001, the company exchanged the fixed rate of 6.71% on $50,000,000
of the $80,000,000 in Senior Notes due in February 2008. The three agreements
for $25,000,000, $15,000,000 and $10,000,000 exchanged the fixed rate for
variable rates equal to LIBOR plus 1.9%, 1.71% and 1.62%, respectively. In
January 2002, the company exchanged the fixed rate of 6.71% on the remaining
$30,000,000 of the $80,000,000 in Senior Notes due in February 2008. The two
agreements for $10,000,000 and $20,000,000 exchanged the fixed rate for variable
rates equal to LIBOR plus 1.05% and 1.08%, respectively. The effect of these
swaps is to exchange a fixed rate of 6.71% for the lower floating rates
currently available.
The aggregate minimum maturities of long-term debt for each of the next five
years are as follows: $2,062,000 in 2005, $1,308,000 in 2006, $217,578,000 in
2007, $81,089,000 in 2008, and $31,108,000 in 2009. Interest paid on borrowings
was $15,348,000, $9,450,000 and $13,465,000 in 2004, 2003 and 2002,
respectively.
Other long-term obligations as of December 31, 2004 and 2003 consist of the
following (in thousands):
2004 2003
------ ------
Supplemental Executive Retirement Plan liability $12,947 $11,048
Product liability 14,450 9,664
Deferred federal income taxes 24,833 2,337
Other, principally deferred compensation 16,341 11,334
------ ------
Total long-term obligations $68,571 $34,383
======= =======
|
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 18 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, 2004, 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 2014. Lease expenses were
approximately $18,663,000 in 2004, $15,803,000 in 2003, and $12,575,000 in 2002.
The amount of buildings and equipment capitalized in connection with capital
leases was $16,545,000 and $7,767,000 at December 31, 2004 and 2003,
respectively. At December 31, 2004 and 2003, accumulated amortization was
$3,590,000 and $3,003,000, respectively.
Future minimum operating and capital lease commitments as of December 31, 2004,
are as follow (in thousands):
Year Capital Leases Operating Leases
---- -------------- ----------------
2005 $1,751 $15,680
2006 1,699 9,039
2007 1,586 5,870
2008 1,538 3,178
2009 1,526 1,872
Thereafter 13,439 1,715
------- -------
Total future minimum lease payments 21,539 $37,354
=======
Amounts representing interest (8,262)
Present value of minimum lease payments $13,277
=======
FS-16
|
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
RETIREMENT AND BENEFIT PLANS
Substantially all full-time salaried and hourly domestic employees are included
in the Invacare Retirement Savings Plan sponsored by the company. The company
makes matching cash contributions up to 66.7% of employees' contributions up to
3% of compensation, quarterly contributions based upon 4% of qualified wages and
may make discretionary contributions to the domestic plans based on an annual
resolution by the Directors.
The company also sponsors a non-qualified 401(k) Plus Benefit Equalization Plan
covering certain employees, which provides for employee elective deferrals and
company retirement deferrals so that the total retirement deferrals equal
amounts that would have been contributed to the company's principal retirement
plans if it were not for limitations imposed by income tax regulations.
Contribution expense for the plans in 2004, 2003 and 2002 was $5,860,000,
$5,619,000, and $5,444,000, respectively.
The company also sponsors a non-qualified defined benefit Supplemental Executive
Retirement Plan for certain key executives. The projected benefit obligation
related to this unfunded plan was $30,631,000 and $27,618,000 at December 31,
2004 and 2003, respectively, of which approximately $13,371,000 and $11,517,000,
at December 31, 2004 and 2003, respectively, has been accrued. Expense for the
plan in 2004, 2003, and 2002 was $2,278,000, $2,108,000, and $2,147,000,
respectively.
In conjunction with these non-qualified plans, the company has invested in life
insurance policies related to certain employees to satisfy certain of these
future obligations. The current cash surrender value of the policies
approximates the current benefit obligations. In addition, the projected policy
benefits exceed the projected benefit obligations.
SHAREHOLDERS' EQUITY TRANSACTIONS
The Common Shares and the Class B Common Shares generally 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.
The 2003 Performance Plan (the "2003 Plan") allows the Compensation Committee of
the Board of Directors (the "Committee") to grant up to 2,000,000 Common Shares
in connection with incentive stock options, non-qualified stock options, stock
appreciation rights and stock awards (including the use of restricted stock).
The 1994 Performance Plan (the "1994 Plan"), as amended, expired in 2004 and
allowed the Compensation Committee of the Board of Directors (the "Committee")
to grant up to 5,500,000 Common Shares. The Committee has the authority to
determine which employees and directors will receive awards, the amount of the
awards and the other terms and conditions of the awards. During 2004, the
Committee granted 615,450 and 11,000 non-qualified stock options for a term of
ten years at the fair market value of the company's Common Shares on the date of
grant under the 2003 Plan and the 1994 Plan, respectively. There were no stock
appreciation rights outstanding at December 31, 2004, 2003 or 2002.
Restricted stock awards for 20,510, 28,894 and 37,289 shares were granted in
years 2004, 2003 and 2002 without cost to the recipients. Under the terms of the
restricted stock awards, which were initially granted in 2001, 104,213 of the
shares granted vest ratably over the four years after the award date and 6,500
of the shares granted vest ratably over the 2 years after the award date.
Unearned restricted stock compensation of $911,000 in 2004, $897,000 in 2003 and
$1,190,000 in 2002, determined as the market value of the shares at the date of
grant, is being amortized on a straight-line basis over the vesting period.
Compensation expense of $812,000, $643,000 and $757,000 was recognized in 2004,
2003 and 2002, respectively, related to restricted stock awards granted since
2001.
The 1994 Plan and the 2003 Plan have provisions that allow employees to exchange
mature shares to pay the exercise price and surrender shares for the options to
cover the minimum tax withholding obligation. Under these provisions, the
company acquired approximately 53,000 treasury shares for $2,444,000 in 2004,
110,000 treasury shares for $3,199,000 in 2003 and 85,000 treasury shares for
$2,863,000 in 2002.
FS-17
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SHAREHOLDERS' EQUITY TRANSACTIONS--(Continued)
As of December 31, 2004, an aggregate of 10,389,393 Common Shares were reserved
for conversion of Class B Common Shares, future rights (as defined below) and
the exercise and future grant of options.
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2004 Price 2003 Price 2002 Price
---- ----- ---- ----- ---- -----
Options outstanding at January 1 4,518,890 $27.34 4,257,422 $25.23 4,201,943 $23.27
Granted 626,450 43.89 704,617 36.73 619,868 33.59
Exercised (449,374) 24.13 (340,665) 19.08 (418,432) 18.28
Canceled (57,561) 34.75 (102,484) 33.02 (145,957) 27.32
--------- ------ --------- ------ --------- ------
Options outstanding at December 31 4,638,405 $29.81 4,518,890 $27.34 4,257,422 $25.23
========= ====== ========= ====== ========= ======
Options price range at December 31 $16.03 to $15.13 to $11.88 to
$47.35 $43.37 $36.84
Options exercisable at December 31 2,963,385 2,796,100 2,347,721
Options available for grant at December 31* 1,033,858 1,670,600 296,860
|
* Options available for grant as of December 31, 2004 reduced by net
restricted stock award activity of 108,713.
The following table summarizes information about stock options outstanding at
December 31, 2004:
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Average Number
Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices At 12/31/04 Contractual Life Exercise Price At 12/31/04 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
$16.03 - $19.50 513,873 3.8 years $18.25 513,873 $18.25
$20.06 - $24.75 1,266,484 3.9 $23.67 1,066,484 $23.72
$25.13 - $29.85 723,042 4.4 $25.30 723,042 $25.30
$30.02 - $34.54 694,753 7.4 $32.54 387,718 $32.82
$36.10 - $37.70 823,891 8.3 $37.29 272,268 $37.06
$40.07 - $47.35 616,362 9.7 $44.29 - -
--------- --- ------ --------- ------
Total 4,638,405 6.0 $29.41 2,963,385 $25.57
|
The company utilizes the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plans, except the expense recorded related to the 110,713 restricted stock
awards granted in years 2001 through 2004.
The assumption regarding the stock options issued in 2004, 2003 and 2002 was
that 25% of such options vested in the year following issuance. The stock
options awarded during such years provided a four-year vesting period whereby
options vest equally in each year. Current and prior years' pro forma
disclosures may be adjusted for forfeitures of awards that will not vest because
service or employment requirements have not been met.
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:
2004 2003 2002
---- ---- ----
Expected dividend yield .63% .75% .80%
Expected stock price volatility 28.8% 29.6% 31.4%
Risk-free interest rate 3.67% 3.31% 3.26%
Expected life (years) 5.6 5.5 5.4
|
The weighted-average fair value of options granted during 2004, 2003 and 2002,
based upon an expected exercise year of 2010, was $13.58, $11.03 and $10.71,
respectively.
FS-18
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SHAREHOLDERS' EQUITY TRANSACTIONS --Continued
The plans provide that shares granted come from the company's authorized but
unissued Common Shares or treasury shares. Pursuant to the plans, the Committee
has established that the 2004 grants may not be exercised within one year from
the date granted and options must be exercised within ten years from the date
granted. The weighted-average remaining contractual life of options outstanding
at December 31, 2004 is 6.0 years.
On July 7, 1995, the company adopted a Rights Plan whereby each holder of a
Common Share and a 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 $8.00 per
one-tenth of a share. The Rights may only be exercised 10 days after a third
party has acquired 30% or more of the company's outstanding voting power or 10
days after a third party commences a tender offer for 30% or more of the voting
power (an "Acquiring Party"). In addition, if an Acquiring Party merges with the
company and the company's Common Shares are not changed or exchanged, or if an
Acquiring Party engages in one of a number of self-dealing transactions, each
holder of a Right (other than the Acquiring Party) will have the right to
receive that number of Common Shares or similar securities of the resulting
entity having a market value equal to two times the exercise price of the Right.
The company may redeem the Rights at a price of $0.005 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.
CAPITAL STOCK
Capital stock activity for 2004, 2003 and 2002 consisted of the following (in
thousands of shares):
Common Stock Class B Treasury
Shares Shares Shares
----------------------------------------
January 1, 2002 Balance 29,838 1,112 (249)
Exercise of stock options 419 - (85)
Stock awards 37 - -
Repurchase of treasury shares - - (53)
--------------------------------------------------------------------------------------------------------------
December 31, 2002 Balance 30,294 1,112 (387)
Exercise of stock options 416 - (110)
Stock awards 29 - -
Repurchase of treasury shares - - (273)
--------------------------------------------------------------------------------------------------------------
December 31, 2003 Balance 30,739 1,112 (770)
Exercise of stock options 449 - (53)
Stock awards 21 - -
Repurchase of treasury shares - - (111)
--------------------------------------------------------------------------------------------------------------
December 31, 2004 Balance 31,209 1,112 (934)
====== ===== =====
|
Stock option exercises in 2003 include deferred share activity, which increased
common shares by 75,000 shares and treasury shares by 5,000 shares.
FS-19
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
OTHER COMPREHENSIVE EARNINGS (LOSS)
The components of other comprehensive earnings (loss) are as follows (in
thousands):
Unrealized Gain
Unrealized Gain (Loss) on
Currency (Loss) on Derivative
Translation Available-for-Sale Financial
Adjustments Securities Instruments Total
---------------------------------------------------------------
Balance at January 1, 2002 $(47,832) $ 743 $(1,040) $(48,129)
Foreign currency translation adjustments 28,214 28,214
Unrealized loss on available for sale securities (251) (251)
Deferred tax benefit relating to unrealized loss on available
for sale securities 88 88
Current period unrealized gain on cash flow hedges, net of
reclassifications 2,074 2,074
Deferred tax expense relating to unrealized gain on derivative
financial instruments (725) (725)
---------------------------------------------------------------
Balance at December 31, 2002 (19,618) 580 309 (18,729)
Foreign currency translation adjustments 66,185 66,185
Unrealized gain on available for sale securities 146 146
Deferred tax liability relating to unrealized gain on available
for sale securities (51) (51)
Current period unrealized gain on cash flow hedges, net of
reclassifications 5,394 5,394
Deferred tax expense relating to unrealized gain on derivative
financial instruments (1,888) (1,888)
---------------------------------------------------------------
Balance at December 31, 2003 46,567 675 3,815 51,057
Foreign currency translation adjustments 57,903 57,903
Unrealized loss on available for sale securities (14) (14)
Deferred tax benefit relating to unrealized loss on available
for sale securities 5 5
Current period unrealized loss on cash flow hedges, net of
reclassifications (6,649) (6,649)
Deferred tax benefit relating to unrealized loss on derivative
financial instruments 2,327 2,327
---------------------------------------------------------------
Balance at December 31, 2004 $104,470 $666 $(507) $104,629
===============================================================
|
Net gains of $6,650,000 and $500,000 and a net loss of $402,000 were
reclassified into earnings related to derivative instruments designated and
qualifying as cash flow hedges in 2004, 2003 and 2002, respectively.
INCOME TAXES
Earnings before income taxes consist of the following (in thousands):
2004 2003 2002
------- ------- -------
Domestic $57,557 $59,027 $51,512
Foreign 52,815 47,382 45,018
------- ------- -------
$110,372 $106,409 $96,530
======= ======= ======
|
FS-20
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
INCOME TAXES --Continued
The company has provided for income taxes as follows (in thousands):
2004 2003 2002
------- ------- -------
Current:
Federal $14,075 $16,635 $21,415
State 2,800 3,200 2,200
Foreign 14,050 11,960 11,195
------- ------- -------
30,925 31,795 34,810
Deferred:
Federal 2,225 1,625 (4,620)
Foreign 2,025 1,580 1,570
------- ------- -------
4,250 3,205 (3,050)
------- ------- -------
Income Taxes $35,175 $35,000 $31,760
======= ======= =======
|
A reconciliation to the effective income tax rate from the federal statutory
rate follows:
2004 2003 2002
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax benefit 1.6 2.0 1.5
Tax credits (1.6) (1.4) (2.3)
Foreign taxes at less than the federal
statutory rate (2.1) (2.9) (2.6)
Other, net (1 0) .2 1.3
---- ---- ----
31.9% 32.9% 32.9%
==== ==== ====
|
Significant components of deferred income tax assets and liabilities at December
31, 2004 and 2003 are as follows (in thousands):
2004 2003
----- -----
Current deferred income tax assets, net:
Loss carryforwards $7,620 $1,162
Bad debt 4,366 7,773
Warranty 3,157 3,094
State and local taxes 3,048 2,422
Other accrued expenses and reserves 2,219 2,118
Inventory 1,816 1,931
Litigation reserves - 2,177
Compensation and benefits 1,240 968
Product liability 292 291
Other, net (2,028) 2,637
----- -----
$21,730 $24,573
|
FS-21
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
INCOME TAXES --Continued
2004 2003
----- -----
(In thousands)
Long-term deferred income tax assets
(liabilities), net:
Goodwill & intangibles (35,431) (3,310)
Fixed assets (15,169) (11,003)
Compensation and benefits 9,642 8,219
Loss carryforwards 6,429 1,001
Product liability 3,391 1,282
State and local taxes 2,400 2,400
Valuation reserve - (1,001)
Other, net 3,905 75
----- -----
$ (24,833) $ (2,337)
----- -----
Net Deferred Income Taxes $(3,103) $22,236
====== ======
|
At December 31, 2004, the company had federal foreign tax loss carryforwards of
approximately $47,625,000 of which $43,990,000 are non-expiring, $890,000 are
expiring in 2009 and $2,745,000 are expiring in 2010. At December 31, 2004 the
company also has $17,550,000 of local foreign tax loss carryforwards, which are
non-expiring. The loss carryforward amounts include $43,200,000 of federal and
$17,550,000 of local loss carryforwards acquired in 2004 acquisitions. The
company made income tax payments of $30,180,000, $25,173,000 and $28,769,000
during the years ended December 31, 2004, 2003 and 2002, respectively.
NET EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net earnings
per common share.
2004 2003 2002
---- ---- ----
(In thousands except per share data)
Basic
Average common shares outstanding 31,153 30,862 30,867
Net earnings $75,197 $71,409 $64,770
Net earnings per common share $2.41 $2.31 $2.10
Diluted
Average common shares outstanding 31,153 30,862 30,867
Stock options 1,194 867 797
---- ---- ----
Average common shares assuming dilution 32,347 31,729 31,664
Net earnings $75,197 $71,409 $64,770
Net earnings per common share $2.33 $2.25 $2.05
|
At December 31, 2004 and 2003, 21,167 and 501,067 shares, respectively were
excluded from the average common shares assuming dilution, as they were
anti-dilutive. In 2004, the majority of the anti-dilutive shares were granted at
an exercise price of $47.35, which was higher than the average fair market value
price of $44.39 for 2004. In 2003, the majority of the anti-dilutive shares were
granted at an exercise price of $37.70, which was higher than the average fair
market value price of $35.29 for 2003.
FS-22
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Prior to December
2000, the company financed equipment to certain customers for periods ranging
from 6 to 39 months. In December 2000, Invacare entered into an agreement with
DLL, a third party financing company, to provide the majority of future lease
financing to Invacare's customers. The DLL agreement provides for direct leasing
between DLL and the Invacare customer. The company retains a limited recourse
obligation ($50,010,000 at December 31, 2004) to DLL for events of default under
the contracts (total balance outstanding of $104,447,000 at December 31, 2004).
Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, requires the company to record a guarantee
liability as it relates to the limited recourse obligation. As such, the company
has recorded a liability for this guarantee obligation. The company monitors the
collections status of these contracts and has provided amounts for estimated
losses in its allowances for doubtful accounts in accordance with SFAS No. 5,
Accounting for Contingencies. Credit losses are provided for in the financial
statements.
Substantially all of the company's receivables are due from health care, medical
equipment dealers and long term care facilities located throughout the United
States, Australia, Canada, New Zealand and Europe. A significant portion of
products sold to dealers, both foreign and domestic, is ultimately funded
through government reimbursement programs such as Medicare and Medicaid. In
addition, the company has also seen a significant shift in reimbursement to
customers from managed care entities. As a consequence, changes in these
programs can have an adverse impact on dealer liquidity and profitability. In
addition, reimbursement guidelines in the home health care industry have a
substantial impact on the nature and type of equipment an end user can obtain as
well as the timing of reimbursement and, thus, affect the product mix, pricing
and payment patterns of the company's customers.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The company in estimating its fair value disclosures for financial instruments
used the following methods and assumptions:
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, which are due in less than one year. The
interest rates associated with these receivables have not varied significantly
since inception. Management believes that after consideration of the credit
risk, the net book value of the installment receivables approximates market
value.
Long-term debt: 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,
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 fixed rate payments for floating 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
independent pricing models.
Other investments: The company has made other investments in limited
partnerships and non-marketable equity securities, which are accounted for using
the cost method, adjusted for any estimated declines in value. These investments
were acquired in private placements and there are no quoted market prices or
stated rates of return.
FS-23
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FAIR VALUES OF FINANCIAL INSTRUMENTS --Continued
The carrying amounts and fair values of the company's financial instruments at
December 31, 2004 and 2003 are as follows (in thousands):
2004 2003
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
------- ------ ------- ------
Cash and cash equivalents $32,567 $32,567 $16,074 $16,074
Marketable securities 199 199 214 214
Other investments 8,213 8,213 7,642 7,642
Installment receivables 14,746 14,746 8,279 8,279
Long-term debt (including
current maturities) 550,036 551,431 234,209 237,584
Interest rate swaps 4,302 4,302 6,615 6,615
Forward contracts (780) (780) 6,196 6,196
|
Forward Contracts: The company operates internationally and as a result is
exposed to foreign currency fluctuations. Specifically, the exposure includes
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 hedging instruments. The forward contracts are entered into to hedge the
following currencies: USD, NZD, CAD, EUR, SEK, DKK and AUD. The company does not
use derivative financial instruments for speculative purposes.
The gains and losses that result from the majority of the forward contracts are
deferred and recognized when the offsetting gains and losses for the identified
transactions are recognized. The company recognized gains of $6,961,000 in 2004,
$1,292,000 in 2003, and $1,184,000 in 2002, which were recognized in cost of
products sold and selling, general and administrative expenses.
BUSINESS SEGMENTS
The company operates in three primary business segments based on geographical
area: North America, Europe and Asia/Pacific. The three reportable segments
represent operating groups, which offer products to different geographic
regions.
The North America segment sells each of five primary product lines, which
includes: standard, rehab, distributed, respiratory, and continuing care
products. Europe and Asia/Pacific sell the same product lines with the exception
of distributed products. Each business segment sells to the home health care,
retail and extended care markets.
The company evaluates performance and allocates resources based on profit or
loss from operations before income taxes for each reportable segment. The
accounting policies of each segment are the same as those described in the
summary of significant accounting policies for the company's consolidated
financial statements. Intersegment sales and transfers are based on the costs to
manufacture plus a reasonable profit element. Therefore, intercompany profit or
loss on intersegment sales and transfers is not considered in evaluating segment
performance. Intersegment revenue for reportable segments are $83,135,000,
$74,835,000 and $61,178,000 for the years ended December 31, 2004, 2003 and
2002, respectively.
FS-24
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
BUSINESS SEGMENTS--Continued
The information by segment is as follows (in thousands):
2004 2003 2002
----------------------------------------------------------------------------
Revenues from external customers
North America $1,002,273 $897,208 $793,464
Europe 336,792 279,782 251,443
Asia/Pacific 64,262 70,186 44,254
--------- --------- ---------
Consolidated $1,403,327 $1,247,176 $1,089,161
========= ========= =========
Depreciation and amortization
North America $20,644 $18,551 $19,232
Europe 8,687 6,315 5,699
Asia/Pacific 2,911 2,261 1,623
All Other (1) 74 108 84
--------- --------- ---------
Consolidated $32,316 $27,235 $26,638
========= ========= =========
Net interest expense (income)
North America $8,940 $7,780 $11,910
Europe 4,924 4,220 5,256
Asia/Pacific (664) (602) (282)
All Other (1) (2,104) (5,161) (6,312)
--------- --------- ---------
Consolidated $11,096 $6,237 $10,572
========= ========= =========
Earnings (loss) before income taxes
North America $95,883 $88,299 $76,548
Europe 18,705 19,132 19,020
Asia/Pacific 1,430 5,997 5,740
All Other (1) (5,646) (7,019) (4,778)
--------- --------- ---------
Consolidated $110,372 $106,409 $96,530
========= ========= =========
Assets
North America $778,820 $616,352 $510,135
Europe 710,510 348,063 295,085
Asia/Pacific 69,685 56,403 41,185
All Other (1) 69,109 87,395 60,298
--------- --------- ---------
Consolidated $1,628,124 $1,108,213 $906,703
========= ========= =========
Long-lived assets
North America $428,308 $307,736 $252,624
Europe 548,843 236,591 194,212
Asia/Pacific 31,797 24,492 15,831
All Other (1) 53,905 64,672 45,224
--------- --------- ---------
Consolidated $1,062,853 $633,491 $507,891
========= ========= =========
Expenditures for assets
North America $14,897 $12,513 $11,172
Europe 20,064 11,933 7,956
Asia/Pacific 6,441 6,203 2,381
All Other (1) 1 11 600
--------- --------- ---------
Consolidated $41,403 $30,660 $22,109
========= ========= =========
|
(1) Consists of the domestic export unit, un-allocated corporate selling,
general and administrative costs, the Invacare captive insurance unit and
inter-company profits, which do not meet the quantitative criteria for
determining reportable segments.
FS-25
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
BUSINESS SEGMENTS--Continued
Net sales by product, are as follows (in thousands):
North America 2004 2003 2002
------------- --------- -------- --------
Standard $257,668 $274,959 $282,627
Rehab 280,339 273,063 211,096
Distributed 205,130 162,645 146,573
Respiratory 161,247 118,115 82,528
Continuing Care 76,578 48,321 40,452
Other 21,311 20,105 30,188
--------- -------- --------
$1,002,273 $897,208 $793,464
========= ======== ========
Europe 2004 2003 2002
------ --------- -------- --------
Standard $200,064 $142,777 $130,617
Rehab 128,316 129,167 113,162
Respiratory 8,412 7,838 7,664
--------- -------- --------
$336,792 $279,782 $251,443
========= ======== ========
Asia/Pacific 2004 2003 2002
------------ --------- -------- --------
Rehab $34,273 $46,832 $32,752
Respiratory 8,162 6,584 4,207
Standard 7,721 6,427 4,680
Other 14,106 10,343 2,615
--------- -------- --------
$64,262 $70,186 $44,254
========= ======== ========
Total Consolidated $1,403,327 $1,247,176 $1,089,161
========= ========= =========
|
No single customer accounted for more than 5% of the company's sales.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED
-------------
(In thousands, except per share data)
2004 March 31, June 30, September 30, December 31,
---- --------- --------- --------- ---------
Net sales $321,343 $339,288 $349,507 $393,189
Gross profit 93,379 102,124 106,076 117,013
Earnings before income taxes 21,041 26,698 32,614 30,019
Net earnings 14,201 18,023 22,529 20,444
Net earnings per share - basic .46 .58 .72 .65
Net earnings per share - assuming
dilution .44 .56 .70 .63
2003 March 31, June 30, September 30, December 31,
---- --------- --------- --------- ---------
Net sales $276,673 $300,114 $327,366 $343,023
Gross profit 80,451 87,834 98,452 107,924
Earnings before income taxes 18,267 23,022 29,812 35,308
Net earnings 12,257 15,447 20,007 23,698
Net earnings per share - basic .40 .50 .65 .76
Net earnings per share - assuming
dilution .39 .49 .63 .74
|
FS-26
INVACARE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In thousands) COL A. COL B. COL C. COL D.
------ ------ ------ ------
Balance Charged To Balance
At Beginning Cost And Deductions At End
Of Period Expenses Describe Of Period
Year Ended December 31, 2004 ------------ -------- ---------- ---------
----------------------------
Deducted from asset accounts -
Allowance for doubtful accounts $27,704 $11,222 $(23,350)(A) $15,576
Inventory obsolescence reserve 8,715 2,609 (1,792)(B) 9,532
Investments and related notes 29,540 - - 29,540
receivable
Accrued warranty cost 12,688 9,287 (7,977)(B) 13,998
Accrued product liability 11,909 8,202 (3,066)(C) 17,045
Year Ended December 31, 2003
----------------------------
Deducted from asset accounts -
Allowance for doubtful accounts $32,732 $13,760 $(18,788)(A) $27,704
Inventory obsolescence reserve 5,337 6,623 (3,245)(B) 8,715
Investments and related notes 29,000 540 - 29,540
receivable
Accrued warranty cost 11,448 9,528 (8,288)(B) 12,688
Accrued product liability 8,272 8,058 (4,421)(C) 11,909
Year Ended December 31, 2002
----------------------------
Deducted from asset accounts -
Allowance for doubtful accounts $28,797 $10,792 $(6,857)(A) $32,732
Inventory obsolescence reserve 5,463 2,137 (2,263)(B) 5,337
Investments and related notes 29,000 - - 29,000
receivable
Accrued warranty cost 7,607 11,695 (7,854)(B) 11,448
Accrued product liability 5,816 5,086 (2,630)(C) 8,272
|
Note (A) - Uncollectible accounts written off, net of recoveries.
Note (B) - Amounts written off or payments incurred.
Note (C) - Loss and loss adjustment.
FS-27
Exhibit 21
Invacare Corporation Subsidiaries
1. 2030604 Ontario, Inc., an Ontario corporation and wholly owned subsidiary.
2. 3080359 Nova Scotia Company, a Nova Scotia corporation and wholly owned
subsidiary.
3. 6123449 Canada, Inc., a Canadian corporation and wholly owned subsidiary.
4. Adaptive Switch Laboratories, Inc., a Texas corporation and wholly owned
subsidiary.
5. Alber GmbH, Wurenlos, a Swiss corporation and wholly owned subsidiary.
6. Aquatec GmbH, Isny, a German limited liability company.
7. Carroll Healthcare (USA) Inc., a Nevada corporation and wholly owned
subsidiary.
8. Carroll Healthcare Inc. (Chile) Limitada, a Chilean corporation and wholly
owned subsidiary.
9. Carroll Healthcare, Inc., an Ontario corporation and wholly owned
subsidiary.
10. Champion Manufacturing Inc., a Delaware corporation.
11. Dolomite AB, Gislaved, a Swedish corporation and wholly owned subsidiary.
12. Dolomite Holding AB, Gislaved, a Swedish corporation and wholly owned
subsidiary.
13. Dynamic Controls, a New Zealand corporation and wholly owned subsidiary.
14. Dynamic Europe Limited, a U.K. corporation and wholly owned subsidiary.
15. EC-Hong AS, a Danish corporation and wholly owned subsidiary.
16. Freedom Designs, Inc., a California corporation and wholly owned subsidiary
17. Garden City Medical Inc., a Delaware corporation and wholly owned
subsidiary.
18. Groas A/S, a Norwegian corporation and wholly owned subsidiary.
19. Healthtech, Inc., a Missouri corporation and wholly owned subsidiary.
20. Invacare AB, a Swedish corporation and wholly owned subsidiary.
21. Invacare AG, a Swiss corporation and wholly owned subsidiary.
22. Invacare AS, a Danish corporation and wholly owned subsidiary.
23. Invacare AS, a Norwegian corporation and wholly owned subsidiary.
24. Invacare Australia Pty Limited, an Australian corporation and wholly owned
subsidiary.
25. Invacare Bencraft, a U.K. corporation and wholly owned subsidiary.
26. Invacare BV, a Netherlands corporation and wholly owned subsidiary.
27. Invacare Canada Holdings, Inc., a Canadian corporation and wholly owned
subsidiary.
I-36
Invacare Corporation Subsidiaries
28. Invacare Canada Inc., an Ontario corporation and wholly owned subsidiary.
29. Invacare Canadian Holdings, Inc., a Delaware corporation and wholly owned
subsidiary.
30. Invacare Credit Corporation, an Ohio corporation and wholly owned
subsidiary.
31. Invacare Deutschland GmbH, a German corporation and wholly owned
subsidiary.
32. Invacare Florida Corporation, a Delaware corporation and wholly owned
subsidiary.
33. Invacare Germany Holding GmbH, a German corporation and wholly owned
subsidiary
34. Invacare GmbH and Co. KG, a German corporation and wholly owned subsidiary.
35. Invacare Holding AB, a Swedish corporation and wholly owned subsidiary.
36. Invacare Holding BV, a Netherlands corporation and wholly owned subsidiary.
37. Invacare Holding Two AB, a Swedish corporation and wholly owned subsidiary.
38. Invacare Holdings AS, a Norwegian corporation and wholly owned subsidiary.
39. Invacare Holdings CV, a Netherlands wholly owned partnership subsidiary.
40. Invacare Holdings LLC, an Ohio limited liability corporation and wholly
owned subsidiary.
41. Invacare Holdings New Zealand, a New Zealand corporation and wholly owned
subsidiary.
42. Invacare Holdings Two BV, a Netherlands corporation and wholly owned
subsidiary.
43. Invacare International Corporation, an Ohio corporation and wholly owned
subsidiary.
44. Invacare International SARL, a Swiss corporation and wholly owned
subsidiary.
45. Invacare Ltd., a U.K. corporation and wholly owned subsidiary.
46. Invacare Mauritius Holdings, a Republic of Mauritius Company and wholly
owned subsidiary.
47. Invacare MeccSan SrL, an Italian corporation and wholly owned subsidiary.
48. Invacare Medical Equipment (Kunshan) Company, Ltd., a Chinese company and
wholly owned subsidiary.
49. Invacare Medical Equipment (Suzhou) Company, Ltd., a Chinese company and
wholly owned subsidiary.
50. Invacare New Zealand, a New Zealand corporation and wholly owned
subsidiary.
51. Invacare NV, a Belgium corporation and wholly owned subsidiary.
52. Invacare Poirier SAS, a French corporation and wholly owned subsidiary.
53. Invacare Rea AB, a Swedish corporation and wholly owned subsidiary.
54. Invacare Supply Group, Inc. (formerly Suburban Ostomy Supply Company,
Inc.), a Massachusetts corporation and wholly owned subsidiary.
55. Invacare Trading Company, Inc., a United States Territory of the Virgin
Islands corporation and wholly owned subsidiary.
I-37
Invacare Corporation Subsidiaries
56. Invacare Verwaltungs GmbH, a German corporation and wholly owned
subsidiary.
57. Invacare(Portugual) - Sociedade Industrial e Comercial de Ortopedia., Lda.,
a Portugal company and wholly owned subsidiary.
58. Invacare, S.A., a Spanish corporation and wholly owned subsidiary.
59. Invamex S.A. de R.L. de C.V., a Mexican corporation and wholly owned
subsidiary.
60. Invatection Insurance Company, a Vermont corporation and wholly owned
subsidiary.
61. Medbloc, Inc., a Delaware corporation and wholly owned subsidiary.
62. Mobilite Building Corporation, a Florida corporation and wholly owned
subsidiary.
63. Mobitec Mobilitatshilfen Ges.m.b.H., Tiefgraben, an Austrian corporation
and wholly owned subsidiary.
64. Mobitec Rehab AG, Wurenlos, a Swiss corporation and wholly owned
subsidiary.
65. Mobitec S.a.r.l., Venissieux, A French corporation and wholly owned
subsidiary.
66. Motion Concepts, L.P., an Ontario wholly owned partnership.
67. Perpetual Motion Enterprises Inc., an Ontario corporation and wholly owned
subsidiary.
68. Pro-Med Australia Pty. Limited., an Australian corporation and wholly owned
subsidiary.
69. Pro-Med Equipment Pty. Limited, an Australian corporation and wholly owned
subsidiary.
70. Roller Chair Pty. Limited, an Australian corporation and wholly owned
subsidiary.
71. Samarite B.V., a Netherlands corporation and wholly owned subsidiary.
72. Scandinavian Mobility GmbH, a German corporation and wholly owned
subsidiary.
73. Scandinavian Mobility International AS, a Danish corporation and wholly
owned subsidiary.
74. Sci Des Hautes Roches, a French partnership and wholly owned subsidiary.
75. Silcraft Corporation, a Michigan corporation and wholly owned subsidiary.
76. The Aftermarket Group, Inc., a Delaware corporation and wholly owned
subsidiary.
77. Ulrich Alber GmbH, Albstadt, a German limited liability company.
78. WP Domus GmbH, a German corporation and wholly owned subsidiary.
79. WP Gesundheits Verwaltungs GmbH, a German limited liability company .
Note, "Wholly owned subsidiary" refers to indirect, as well as direct, wholly
owned subsidiaries.
I-38
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 33-45993 dated February 24, 1992, No. 33-87052 dated December 5,
1994, No. 33-57978 dated March 30, 2001 and No. 333-109794 dated October 17,
2003) pertaining to the Invacare Corporation stock option plans of our reports
dated March 4, 2005, with respect to the consolidated financial statements and
schedule of Invacare Corporation and subsidiaries, Invacare Corporation
management's assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of
Invacare Corporation, included in this Annual Report (Form 10-K) for the year
ended December 31, 2004.
/S/ ERNST & YOUNG LLP
Cleveland, Ohio
March 4, 2005
|
I-39
Exhibit 3(a)
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
INVACARE CORPORATION
A. MALACHI MIXON, III, President, and DALE C. LaPORTE, Secretary, of
INVACARE CORPORATION, an Ohio corporation (the "Corporation"), do hereby certify
that at a meeting of shareholders duly called and held on May 28, 1987, at which
meeting a quorum of shareholders was present in person or by proxy, the
following resolutions to amend and restate the Articles of Incorporation of the
Corporation as set forth in Exhibit A to the Company's Definitive Proxy
Statement dated April 30, 1987 and as attached hereto as Exhibit A, were duly
adopted by the affirmative vote of holders of shares entitling them to exercise
a majority of the voting power of the Corporation.
RESOLVED: That the Articles of Incorporation of Invacare Corporation be
amended and restated to restate Article IV as set forth in Subdivisions
A and B to Article IV in Exhibit A to the Company's Definitive Proxy
Statement dated April 30, 1987, and that it be
FURTHER RESOLVED: That the President and Secretary of Invacare
Corporation be and they are hereby authorized and directed to execute
and file in the Office of the Secretary of State of Ohio an appropriate
Certificate of Amendment in order to carry out the intent and purposes
of the preceding resolution and render effective said amendment and
restatement of the Articles of Incorporation; and
RESOLVED: That the Articles of Incorporation of Invacare Corporation be
amended and restated to add a new provision to Article IV as set forth
in Subdivision C to Article IV in Exhibit A to the Company's Definitive
Proxy Statement dated April 30, 1987, and that it be
FURTHER RESOLVED: That the President and Secretary of Invacare
Corporation be and they are hereby authorized and directed to execute
and file in the Office of the Secretary of State of Ohio an appropriate
Certificate of Amendment in order to carry out the intent and purposes
of the preceding resolution and render effective said amendment and
restatement of the Articles of Incorporation.
IN WITNESS WHEREOF, said A. Malachi Mixon, III, President and Dale C.
LaPorte, Secretary, acting for and on behalf of the Corporation, have hereunto
subscribed their names this 28th day of May, 1987.
INVACARE CORPORATION
By: /s/ A. Malachi Mixon, III
------------------------
A. Malachi Mixon,
III, President
And: /s/ Dale C. LaPorte
-----------------------
Dale C. LaPorte, Secretary
|
2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INVACARE CORPORATION
ARTICLE I
The name of the Corporation shall be Invacare Corporation.
ARTICLE II
The principal office of the Corporation shall be located in Elyria, Lorain
County, Ohio.
ARTICLE III
The purposes of the Corporation shall be:
(1) To manufacture, assemble, sell, lease, and distribute wheelchairs,
patient aids and other health care products of every kind and nature; and
(2) To enter into, promote or conduct any other kind of business,
contract or undertaking permitted to corporations for profit organized under the
General Corporation Law of the State of Ohio, to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Revised Code of Ohio. and, in connection therewith, to
exercise all express and incidental powers normally permitted such corporations.
ARTICLE IV
The authorized number of shares of capital stock of the Corporation
shall be Thirty Million Three Hundred Thousand (30,300,000), of which Eighteen
Million (18,000,000) shall be Common Shares, without par value, Twelve Million
(12,000,000) shall be Class S Common Shares, without par value, and Three
Hundred Thousand (300,000) shall be Serial Preferred Shares, without par value.
SUBDIVISION A
Provisions Applicable to Serial Preferred Shares
The Serial Preferred Shares may be issued, from time to time, in one or
more series, with such designations. preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors. The Board of Directors, in such resolution or resolutions (a copy of
which shall be filed and recorded as required by law), is also expressly
authorized to fix:
(a) The distinctive serial designations and the division of such shares
Into series and the number of shares of a particular series, which may be
Increased or decreased, but not below the number of shares thereof then
outstanding, by a certificate made. Signed, filed and recorded as required by
law;
3
(b) The annual dividend rate for the particular series, and the date or
dates from which dividends on all shares of such series shall be cumulative, if
dividends on shares of the particular series shall be cumulative.
(c) The redemption price or prices, if any, for the particular series:
(d) The right, if any, of the holders of a particular series to convert
such stock into other classes of shares (except for Class B Common Shares), and
the terms and conditions of such conversions: and
(e) The obligation, if any, of the Corporation to purchase and retire
and redeem shares of a particular series as a sinking fund or redemption or
purchase account, the terms thereof and the redemption price or prices per share
for such series redeemed pursuant to the sinking fund or redemption or purchase
account.
All shares of any one series of Serial Preferred Shares shall be alike
in every particular and all series shall rank equally and be identical in all
respects except insofar as they may vary with respect to the matters which the
Board of Directors is hereby expressly authorized to determine in the resolution
or resolutions providing for the issue of any series of the Serial Preferred
Shares.
In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, then before any distribution or payment shall have
been made to the holders of the Common Shares or me Class Es Common Shares, the
holders of the Serial Preferred Shares of each series shall be entitled to be
paid, or to have set apart in trust for payment, an amount from the net assets
of the Corporation equal to that stated and expressed in the resolution or
resolutions adopted by the Board of Directors which provide for the issue of
such series, respectively. The remaining net assets of the Corporation shall be
distributed solely among the holders of the Common Shares and the Class B Common
Shares according to their respective shares.
The holders of Serial Preferred Shares shall be entitled to one vote
for each Serial Preferred Share upon all matters presented to the shareholders,
and, except as otherwise provided by these Amended and Restated Articles of
Incorporation or required by law, the holders of Serial Preferred Shares, the
holders of Common Shares and the holders of Class B Common Shares shall vote
together as one class on all matters. No adjustment of the voting rights of
holders of Serial Preferred Shares shall be made in the event of an increase or
decrease in the number of Common Shares or Class B Common Shares authorized or
issued or in the event of a stock split or combination of the Common Shares or
Class B Common Shares or in the event of a stock dividend on any class of stock
payable solely in Common Shares or Class B Common Shares.
The affirmative vote of the holders of at least two-thirds of the
Serial Preferred Shares at the time outstanding, given in person or by proxy at
a meeting called for the purpose at which the holders of Serial Preferred Shares
shall vote separately as a class, shall be necessary to adopt any amendment to
4
the Amended and Restated Articles of Incorporation (but so far as the holders of
Serial Preferred Shares are concerned, such amendment may be adopted with such
vote) which:
(i) changes issued shares of Serial Preferred Shares of all
series then outstanding into a lesser number of shares of the
Corporation of the same class and series or into the same or a
different number of shares of the Corporation of any other class or
series; or
(ii) changes the express terms of the Serial Preferred Shares
in any manner substantially prejudicial to the holders of all series
thereof then outstanding; or
(iii) authorizes shares of any class, or any security
convertible into shares of any class, or authorizes the conversion of
any security into shares of any class, ranking prior to the Serial
Preferred Shares; or
(iv) changes the express terms of issued shares of any class
ranking prior to the Serial Preferred Shares in any manner
substantially prejudicial to the holders of all series of Serial
Preferred Shares then outstanding:
and the affirmative vote of the holders of at least two-thirds of the shares of
each affected series of Serial Preferred Shares at the time outstanding, given
in person or by proxy at a meeting called for the purpose at which the holders
of each affected series of Serial Preferred Shares shall vote separately as a
series, shall be necessary to adopt any amendment to the Amended and Restated
Articles of Incorporation (but so far as the holders of each such series of
Serial Preferred Shares are concerned, such amendment may be adopted with such
vote) which:
(i) changes issued shares of Serial Preferred Shares of one or
more but not all series then outstanding into a lesser number of shares
of the Corporation of the same series or into the same or a different
number of shares of the Corporation of any other class or series; or
(ii) changes the express terms of any series of the Serial
Preferred Shares in any manner substantially prejudicial to the holders
of one or more but not all series thereof then outstanding; or
(iii) changes the express terms of issued shares of any class
ranking prior to the Serial Preferred Shares in any manner
substantially prejudicial to the holders of one or more but not all
series of Serial Preferred Shares then outstanding.
Whenever reference is made herein to shares "ranking prior to the Serial
Preferred Shares," such reference shall mean and include all shares of the
Corporation in respect of which the rights of the holders thereof either as to
the payment of dividends or as to distributions in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation are given
preference over the rights of the holders of Serial Preferred Shares; whenever
reference is made to shares "on a parity with the Serial Preferred Shares," such
reference shall mean and include all shares of the Corporation in respect of
which the rights of the holders thereof (i) neither as to the payment of
dividends nor as to distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation are given preference
5
over the rights of the holders of Serial Preferred Shares and (ii) either as to
the payment of dividends or as to distributions in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation rank on an
equality (except as to the amounts fixed therefor) with the rights of the
holders of Serial Preferred Shares; and whenever reference is made to shares
"ranking junior to the Serial Preferred Shares," such reference shall mean and
include all shares of the Corporation in respect of which the rights of the
holders thereof both as to the payment of dividends and as to distributions in
the event of a voluntary or involuntary liquidation, dissolution or winding up
of the Corporation are junior and subordinate to the rights of the holders of
the Serial Preferred Shares.
Subdivision B
Provisions Applicable to Common Shares and Class a Common Shares
In this Subdivision B of Article IV, any reference to a section or
paragraph, without further attribution, within a provision relating to a
particular class of shares is intended to refer solely to the specified section
or paragraph of the other provisions relating to the same class of shares.
The Common Shares and Class B Common Shares shall be subject to the
express terms of the Serial Preferred Shares and of any series thereof and shall
have the following voting powers, designations, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations or restrictions thereof:
1. Dividends.
1.1 Whenever the full dividends upon any outstanding Serial Preferred
Shares for all past dividend periods shall have been paid and the full dividends
thereon for the then current respective dividend periods shall have been paid,
or declared and a sum sufficient for the respective payments thereof set apart,
the holders of the Common Shares and Class B Common Shares shall be entitled to
receive such dividends and distributions, payable in cash or otherwise, as may
be declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor, provided that no cash
dividend shall be declared and paid on the Class B Common Shares unless,
simultaneously therewith, a cash dividend per share of at least one hundred and
ten percent (110% of the amount per share of the dividend on the Class B Common
Shares is declared and paid on the Common Shares. Notwithstanding the foregoing,
in the event that any dividend shall be declared in Common Shares or Class B
Common Shares, such dividend shall be declared at the same rate per share on
Common Shares and Class B Common Shares, but the dividend payable on Common
Shares shall be payable in Common Shares and the dividend payable on Class B
Common Shares shall be payable in Class B Common Shares. If the Corporation
shall in any manner split, subdivide or combine the outstanding Common Shares or
Class B Common Shares, the outstanding shares of the other such class of shares
shall be split, subdivided or combined in the same manner proportionately and on
the same basis per share.
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2. Issuance of the Class B Common Shares.
2.1 The Board of Directors may authorize by resolution the manner in
which Class B Common Shares shall initially be issued (the "Initial Issuance")
and may set such terms and conditions (including the determination of the record
date for the Initial Issuance and to "Initial Issuance Date" for all purposes
hereunder) as it deems appropriate or advisable with respect thereto, without
any vote or other action by the shareholders, except as otherwise required by
law.
2.2 Following the Initial Issuance, the Board of Directors may only
issue Class B Common Shares in the form of a distribution or distributions
pursuant to a stock dividend on or split-up of the Class B Common Shares and
only to the then holders of the outstanding Class B Common Shares et conjunction
with and in the same ratio as a stock dividend on or split-up of the Common
Shares.
3. Rights on Liquidation.
In the event of any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, after the payment or setting
apart for payment to the holders of any outstanding Serial Preferred Shares of
the full preferential amounts to which such holders are entitled as herein
provided or referred to, all of the remaining assets of the Corporation shall
belong to and be distributable in equal amounts per share to the holders of the
Common Shares and the holders of Class B Common Shares, as if such classes
constituted a single class. For purposes of this paragraph 3, a consolidation or
merger of the Corporation with any other corporation, or the sale, transfer or
lease of all or substantially all its assets shall not constitute or be deemed a
liquidation, dissolution or winding up of the Corporation.
4. Conversion of Class B Common Shares.
4.1 The holders of Class B Common Shares shall have the right, at their
option, to convert any or all such shares into Common Shares of the Corporation
on the following terms and conditions:
(i) Each Class B Common Share shall be convertible, at any
time, at the office of any transfer agent for the Common Shares of the
Corporation, and at such other place or places, if any, as the Board of
Directors may determine, into one fully paid and nonassessable Common
Share of the Corporation upon surrender at such office or other place
of the certificate or certificates representing the Class B Common
Shares so to be converted. In no event, upon conversion of any Class B
Common Shares into Common Shares, shall any allowance or adjustment be
made in respect of dividends on the Class B Common Snares or the Common
Shares.
(ii) Class B Common Shares shall be deemed to have been
converted and the person converting the same shall become a holder of
Common Shares for the purpose of receiving dividends and for all other
purposes whatsoever as of the date when the certificate or certificates
for the Class B Common Shares to be converted are surrendered to the
Corporation as provided in paragraph 4.1(v).
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(iii) A number of Common Shares sufficient to provide, upon
the basis hereinbefore set forth, for the conversion of all Class B
Common Shares outstanding shall at all times be reserved by the
Corporation for the exercise of the conversion rights of the holders of
Class B Common Shares.
(iv) If the Corporation shall, at any time, be consolidated or
merged with, or shall sell its property as an entirety or substantially
as an entirety to, any other corporation or corporations, or in the
event of any recapitalization or reclassification of its shares, proper
provisions shall be made as a part of the terms of each such
consolidation., merger, sale, recapitalization or reclassification so
that the holder of any of the Class B Common Shares outstanding
immediately prior to such consolidation, merger, sale, recapitalization
or reclassification shall thereafter be entitled to and only entitled
to conversion rights upon the terms and with respect to such securities
of the consolidated, merged or purchasing corporation, or with respect
to such securities issued upon such recapitalization or
reclassification, as such holder would have been entitled to receive
upon such consolidation, merger, sale, recapitalization or
reclassification if such holder had exercised the conversion privilege
immediately prior thereto. The provisions of this paragraph 4.1(iv)
shall similarly apply to successive consolidations, mergers, sales,
recapitalizations or reclassifications.
(v) Before any holder of Class B Common Shares shall be
entitled to convert the same into Common Shares, he shall surrender his
certificate or certificates for such Class B Common Shares to the
Corporation at the office of a transfer agent for the Common Shares, or
at such other piece or places, if any, as the Board of Directors may
determine, duly endorsed or accompanied if appropriate by duly executed
instruments of transfer and shall give written notice to the
Corporation at said office or place that he elects so to convert the
Class B Common Shares represented by _____ certificate or certificates
so surrendered. Unless the Common Shares are to be issued in the name
of the registered owner of the certificates surrendered, the holder
shall state in writing the name or names in which he wishes the
certificate or certificates for Common Shares to be issued, and shall
furnish all requisite stock transfer and stock issuance tax stamps, or
funds therefor. The Corporation shall as soon as practicable after such
deposit of certificates for Class B Common Shares, accompanied by the
written notice above prescribed, issue and deliver, at the office or
place at which such certificates were deposited, to the person for
whose account Class B Common Shares were so surrendered, or to his
assignee or assignees, certificates for the number of full Common
Shares to which he shall be entitled as aforesaid.
4.2 All outstanding Class B Common Shares shall automatically, without
any act or deed on the part of the Corporation or any other person, be converted
into Common Shares on a share-for-share basis (i) if at any time the Board of
Directors, in its sole discretion, determines that there has been a material
adverse change in the liquidity, marketability or market value of the
outstanding Common Shares due to an actual or threatened delisting of the Common
Shares from a national securities exchange or a national over-the-counter
listing or due to requirements under applicable state securities laws in any
such case attributable to the existence of the Class B Common Shares; or (ii) if
the Board of Directors, in its sole discretion, elects to effect a conversion in
connection with its approval of any sale or lease of all or substantially all of
the Corporation's assets or any merger, consolidation, liquidation or
8
dissolution of the Corporation. In the event of any such automatic conversion,
each stock certificate theretofore representing Class B Common Shares will
thereafter represent the same number of Common Shares.
4.3 The provisions of this paragraph 4 shall be in addition to the
provisions of paragraphs 6.1(i) (A) (4), 6.1 (ii) and 6.1 (iv), which require
automatic conversion of Class B Common Shares in the circumstances provided
therein.
4.4 The Class B Common Shares converted into Common Shares as provided
in paragraph 4 or paragraph 6 shall resume the status of authorized but unissued
Class B Common Shares. Upon the automatic conversion of Class B Common Shares
into Common Shares pursuant to paragraph 4.2, the Class B Common Shares shall no
longer be authorized for issuance.
5. Voting.
5.1 Each Common Share shall entitle the holder thereof to one vote.
5.2 Each Class B Common Share shall entitle the holder thereof to ten
votes. Except as otherwise provided herein or required by law, holders of Common
Shares, Class B Common Shares and Serial Preferred Shares shall at all times
vote on all matters (including the election of directors) together as one class
and together with the holders of any other series or class of shares of the
Corporation accorded such class voting right.
5.3 The affirmative vote of the holders of a majority of the
outstanding Common Shares and of Class B Common Shares, each voting separately
as a class, shall be required to:
(i) authorize additional Class B Common Shares;
(ii) modify or eliminate paragraph 2 above; or
(iii) adopt any other amendment hereof that alters or changes
the designations or powers or the preferences, qualifications,
limitations, restrictions or the relative or special rights of either
the Common Shares or the Class B Common Shares so as to affect holders
of shares of such class adversely; provided, that an increase in the
number of authorized Common Shares shall not be deemed to affect the
holders of Common Shares adversely for purposes of this paragraph
5.3(iii).
6. Limitations on Transfer and issuance of Class B Common Shares.
6.1 (i) Subject to the provisions of paragraph 6.5, no person holding
any Class B Common Share may transfer, and the Corporation shall not register
the transfer of, such Class B Common Share or any interest therein, whether by
sale, assignment, gift, bequest, appointment or otherwise, except to a
"Permitted Transferee" of such person. The term "Permitted Transferee" shall
mean only,
9
(A) In the case of a holder of Class B Common Shares (a "Holder") who
is a natural person and the holder of record and beneficial owner of shares
subject to a proposed transfer, "Permitted Transferee" means:
(1) The Holder, the spouse of such Holder, any lineal
descendant of a grandparent of such Holder, or any spouse of such
lineal descendant (herein collectively referred to as "such Holder's
Family Members");
(2) The trustee of a trust solely for the benefit of such
Holder or such Holder's Family Members, provided that such trust may
also grant a general or special power of appointment to one or more of
such Holder's Family Members and may permit trust assets to be used to
pay taxes, legacies and other obligations of the trust or of the
estates of one or more of such Holder's Family Members payable by
reason of the death of any of such Family Members;
(3) The trustee of a trust which is not solely for the benefit
of such Holder or such Holder's Family Members so long as such Holder
and/or one or more of such Holder's Permitted Transferees (determined
under this paragraph 6.1 (i) (A)) possess the power to vote or direct
the vote of the Class B Common Shares held by such trustee:
(4) A corporation if all of the outstanding capital stock of
such corporation is beneficially owned by, or a partnership if all of
the partners are and all of the partnership interests are beneficially
owned by, the Holder and his Permitted Transferees determined under
this paragraph 6.1(1)(A). provided that if by reason of any change in
the ownership of such stock or partners or partnership interests, such
corporation or partnership would no longer qualify as a Permitted
Transferee of such Holder or his Permitted Transferees, all Class B
Common Shares then held by such corporation or partnership shall
immediately and automatically, without further act or deed on the part
of the Corporation or any other person, be converted into Common Shares
on a share-for-share basis, and stock certificates formerly
representing such Class B Common Shares shall thereupon and thereafter
be deemed to represent the like number of Common Shares;
(5) An organization established by the Holder or such Holder's
Family Members, contributions to which are deductible for federal
income, estate or gift tax purposes; or
(6) The executor, administrator or personal representative of
the estate of such Holder or the guardian or conservator of such Holder
adjudged disabled by a court of competent jurisdiction, acting in his
capacity as such.
(B) In the case of a Holder holding the shares subject to a proposed
transfer as trustee pursuant to a trust (ether than a trust described in
paragraph 6.1(i) (C) below or a trust for an employee benefit or employee stock
ownership plan), "Permitted Transferee" means (1) the person who established
such trust and (2) any Permitted Transferee of any such person determined
pursuant to paragraph 6.1(i) (A) above.
(C) In the case of a Holder holding shares subject to a proposed
transfer as trustee pursuant to a trust which was irrevocable on the Initial
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Issuance Date, "Permitted Transferee" means (1) any person to whom or for whose
benefit principal may be distributed either during or at the end of the term of
such trust whether by power of appointment or otherwise (excluding beneficiaries
of any employee benefit plan) and (2) any Permitted Transferee of any such
person determined pursuant to paragraph 6.1(i) (A) above.
(D) In the case of a Holder which is a partnership holding shares
subject to a proposed transfer, "Permitted Transferee" means (i) any partner
owning more than ten percent (10%) of the equity of such partnership as of the
Initial Issuance Date and (ii) any Permitted Transferee of such partner.
(E) In the case of a Holder which is a corporation (other than an
organization described in subsection 6.1 (i) (A) (5) above) holding shares
subject to a proposed transfer, "Permitted Transferee" means (1) any stockholder
owning more than ten percent (10%) of the equity of such corporation as of the
Initial Issuance Date, (2) any Permitted Transferee of such stockholder, (3) the
survivor of a merger or consolidation of such corporation or (4) any person who
transferred to such corporation the Class B Common Shares that are the subject
of the proposed transfer.
(F) In the case of a Holder which is an employee benefit or employee
stock ownership plan or a trustee therefor, "Permitted Transferee" shall include
any beneficiary of such plan (or the Permitted Transferee of such beneficiary)
but only as to shares distributable to such beneficiary pursuant to the plan.
(G) In the case of a Holder who is the executor, administrator or
personal representative of the estate of a deceased Holder, guardian or
conservator of the estate of a disabled Holder or who is a trustee of the estate
of a bankrupt or insolvent Holder, "Permitted Transferee" means a Permitted
Transferee of such deceased, disabled, bankrupt or insolvent Holder as
determined pursuant to this paragraph 6.1(i).
(ii) Notwithstanding anything to the contrary set forth
herein, any holder of Class B Common Shares may pledge his Class B
Common Shares to a pledgee pursuant to a bona fide pledge of such
shares as collateral security for indebtedness due to the pledgee,
provided that such shares may not be transferred to or registered in
the name of the pledgee unless such pledgee is a Permitted Transferee.
In the event of foreclosure or other similar action by the pledgee.
such pledged Class B Common Shares shall automatically, without any act
or deed on the part of the Corporation or any other person, be
converted into Common Shares on a share-for-share basis, unless within
five business days after such foreclosure or similar event such pledged
shares are returned to the pledger or transferred to a Permitted
Transferee of the pledger.
(iii) For purposes of this paragraph 6.1.
(A) The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.
(B) Each joint owner of Class B Common Shares shall be considered a
Holder of such shares.
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(C) A minor for whom Class B Common Shares are held pursuant to a
Uniform Gifts to Minors Act or similar law shall be considered a Holder of such
shares.
(D) Unless otherwise specified, the term "person" means both natural
persons and legal entities.
(E) The giving of a proxy in connection with a solicitation of proxies
subject to the provisions of Section 14 of the Securities Exchange Act of 1934
(or any successor provision thereof) and the rules and regulations promulgated
thereunder shall not be deemed to constitute the transfer of an interest in the
Class B Common Shares which are the subject of such proxy.
(iv) Any purported transfer of Class B Common Shares other
than to a Permitted Transferee shall automatically, without any further
act or deed on the part of the Corporation or any other person, result
in the conversion of such shares into Common Shares on a
share-for-share basis, effective on the date of such purported
transfer. The Corporation may, as a condition to transfer or
registration of transfer of Class B Common Shares to a purported
Permitted Transferee, require that the record holder establish to the
satisfaction of the Corporation, by filing with the transfer agent an
appropriate affidavit or certificate or such other proof as the
Corporation shall deem necessary, that such transferee is a Permitted
Transferee.
6.2 Anything in this Article IV to the contrary notwithstanding but
subject to the provisions of paragraph 6.5, no Class B Common Share may be held
of record but not beneficially by a broker or dealer in securities, a bank or
voting trustee or a nominee of any such, or otherwise held of record but not
beneficially by a nominee of the beneficial owner of such share other than (i)
by an employee benefit or employee stock ownership plan or a trustee therefor or
(ii) by a trustee of a trust which would be a Permitted Transferee pursuant to
paragraph 6.1(i) (A) (2) or 6.1(i) (A) (3) (any such form of prohibited holding
being referred to herein as holding in "street" or nominee name); provided,
however, that if any person establishes to the satisfaction of the Corporation
in accordance with this paragraph 6.2 that he is the beneficial owner of any
such Class B Common Shares, the Corporation shall issue such share in the name
of such beneficial owner. Any such beneficial owner who desires to have Class B
Common Shares issued in his name in the circumstances described in this
paragraph 6.2 shall file an affidavit or certificate with the Secretary of the
Corporation setting forth the name and address of such beneficial owner and
certifying that he is the beneficial owner of the Class B Common Shares in
question.
6.3 The Corporation shall note on the certificates representing the
Class B Common Shares that there are restrictions on transfer and registration
of transfer to the extent imposed by paragraph 6.1.
6.4 (i) For purposes of this paragraph 6, "beneficial ownership" shall
mean possession of the power to vote or to direct the vote or to dispose of or
to direct the disposition of the Class B Common Share in question, and a
beneficial owner" of a Class B Common Share shall be the person having
beneficial ownership thereof.
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(ii) The Board of Directors may, from time to time, establish
practices and procedures and promulgate rules and regulations, in
addition to those set forth in this Article IV, and amend or revoke any
such, regarding the evidence necessary to establish entitlement of any
transferee or purported transferee of Class B Common Shares to be
registered as a Permitted Transferee. Should tee transferee or
purported transferee of any share wish to contest any decision of the
Corporation on the question whether the transferee or purported
transferee has established entitlement to be registered as a Permitted
Transferee of Class B Common Shares, then the Board of Directors shall
in its sole discretion make the final determination.
6.5 The restrictions on transfer set forth in paragraph 6.1 and the
remaining provisions of paragraph 6 (other than this paragraph 6.5) shall
automatically, without any act or deed on the part of the Corporation or any
other person, be cancelled (as to all but not less than all Class B Common
Shares then outstanding or thereafter issued) and of no further force and effect
if at any time the Board of Directors, in its sole discretion, determines that
the restrictions oil transfer set forth in paragraph 6.1 have a material adverse
effect on the liquidity, marketability or market value of the outstanding Common
Shares. Such cancellation shall be effective as of the date of such
determination by the Board of Directors or as of such later date as the Board
may determine. Written notice of such determination and rescission shall be
given to all holders of Class B Common Shares as of such date as shown on the
records of the Company or its transfer agent. No such determination by the Board
of Directors shall affect the validity of any act or the effect of any provision
of this Article IV which occurred prior to the effective date of such
cancellation. In the event that a holder of Class B Common Shares transfers such
shares after the effective date of such cancellation to a non-Permitted
Transferee, such transfer shall presumptively be deemed to be an election by
such holder to convert such Class B Common Shares into Common Shares immediately
prior to the effectiveness of such transfer unless the transferring holder or
his agent shall give written notice to the Company or its transfer agent at the
time of delivery of the certificates representing the Class B Common Shares to
be transferred that the holder and the transferee of such Class B Common Shares
intend to transfer the Class B Common Shares and that no such conversion is
intended.
7. Other Matters.
7.1 In case the Corporation shall at any time issue to the holders of
its Common Shares as such options or rights to subscribe for Common Shares
(including shares held in the Corporation's treasury) or any other security
(whether of the Corporation or otherwise), the Corporation shall issue such
options or rights to the holders of the Class B Common Shares in the respective
amounts equal to the amounts that such holders would have been entitled to
receive had their respective Class B Common Shares been converted into Common
Shares on the day prior to the date for the determination of the holders of
Common Shares entitled to receive such options or rights.
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Subdivision C
Cumulative Voting
Notwithstanding the respective voting rights of the holders of the
Common Shares, Class B Common Shares and Serial Preferred Shares, no holder of
shares of any class shall have the right to vote cumulatively in the election of
Directors.
ARTICLE V
The Corporation may purchase, from time to time, and to the extent
permitted by the laws of Ohio, shares of any class of stock issued by it. Such
purchases may be made either in the open market or at private or public sale, in
such manner and amount, from such holder or holders and at such prices as the
Board of Directors of the Corporation shall from time to time determine, and the
Board of Directors is hereby empowered to authorize such purchases from time to
time without any vote of the holders of any class of shares now or hereafter
authorized and outstanding at the time of any such purchase.
ARTICLE VI
(a) Notwithstanding any provisions of the laws of the State of Ohio now
or hereafter in force requiring, for any purpose, the vote of the holders of
shares entitling them to exercise two-thirds or any other proportion (but less
than all) of the voting power of the Corporation or of any class or classes of
shares thereof and subject to the provisions of Article VI (b) hereof, such
action (unless otherwise expressly prohibited by statute) may be taken by a vote
of the holders of shares entitling them to exercise a majority of the voting
power of the Corporation or of such class or classes.
(b) If a shareholder vote is required by law, then except as provided
in the last paragraph of this Article VI (b) the affirmative vote of the holders
of shares entitling them to exercise at least two-thirds of the voting power of
the Corporation, given in person or by proxy at a meeting called for the
purpose, shall be necessary:
(i) to approve the lease, sale, exchange, transfer or other
disposition by the Corporation of all, or substantially all, of its
assets or business to a Related Person (as hereinafter defined ), an
affiliate of a Related Person or an associated person of a Related
Person; or the lease, sale, exchange, transfer or other disposition to
the Corporation or a subsidiary of the Corporation of all, or
substantially all, of the assets of a Related Person, an affiliate of a
Related Person or an associated person of a Related Person: or the
consolidation of the Corporation with or its merger into a Related
Person, an affiliate of a Related Person or an associated person of a
Related Person; or the merger into the Corporation or a subsidiary of
the Corporation of a Related Person, an affiliate of a Related Person
or an associated person of a Related Person; or a combination or a
majority share acquisition in which the Corporation is the acquiring
corporation and its voting shares are issued or transferred to a
Related Person, an affiliate of a Related Person, shareholders of a
Related Person or an associated person,
14
(ii) to approve any agreement, contract or other arrangement
with a Related Person or an affiliate of a Related Person or an
associated person of a Related Person providing for any of the
transactions described in subparagraph (i) above;
(iii) to adopt any amendment of the Amended and Restated
Articles of Incorporation of the Corporation which changes the
provisions of this Article VI (b ).
For the purpose of this Article VI (b), a "Related Person" in respect
of a given transaction shall be any person, partnership, corporation or firm
which, together with its affiliates and associated persons, owns of record or
beneficially, directly or indirectly, ten percent (10%) or more of the shares of
any outstanding class of shares of the Corporation entitled to vote upon such
transaction, as of the record date used to determine the shareholders of the
Corporation entitled to vote upon such transactions; and "affiliate" of a
Related Person shall be any person, individual, joint venture, trust,
partnership or corporation which, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Related Person; and "associated person" of a Related Person shall be any
officer or Director or any beneficial owner, directly or indirectly, of ten
percent (10%) or more of any class of equity security of such Related Person or
any of its affiliates; and the terms "persons," "combinations," "majority share
acquisition" and "acquiring corporation" shall have the same meaning as that
contained in Section 1701.01 of the Ohio General Corporation Law or any similar
provision hereafter Mooted. The determination of the Board of Directors of the
Corporation, based on information known to the Board of Directors and made in
good faith, shall be conclusive as to whether any person, partnership,
corporation or firm is a Related Person or affiliate or associated person as
defined in this Article VI (b).
The provisions of this Article VI(b) shall not apply to any proposal
submitted to shareholders if (i) such proposal has been approved and recommended
by written resolution of the Board of Directors of the Corporation adopted prior
to the acquisition of the ten percent (10%) interest in shares of the
Corporation, as aforesaid, by the Related Person or its affiliates or associated
persons, and (ii) the terms of any inducements made to officers or Directors of
the Corporation, if any, which are not made available to an shareholders have
been disclosed to all shareholders.
ARTICLE VII
The preemptive right to purchase additional shares or any other securities of
the Corporation is hereby expressly denied to holders of shares of all classes.
ARTICLE VIII
These Amended and Restated Articles of Incorporation shall supersede
the existing Articles of Incorporation of the Corporation.
15
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INVACARE CORPORATION
A. MALACHI MIXON III, Chairman, President and Chief Executive Officer,
and DALE C. LaPORTE, Secretary, of INVACARE CORPORATION, an Ohio corporation
(the "Company"), do hereby certify that at a meeting of the Company's
shareholders duly called and held on May 24, 1991, at which meeting a quorum of
shareholders was present in person or by proxy, the following resolutions to
amend the Amended and Restated Articles of Incorporation of the Company were
duly adopted by the affirmative vote of holders of shares entitling them to
exercise a majority of the voting power of the Company:
RESOLVED, That Article IV of the Company's Amended and Restated
Articles of Incorporation is hereby amended to increase the number of
authorized Common Shares, without par value, of the Company from
Eighteen Million (18,000,000) to Twenty-Five Million (25,000,000) by
deleting in its entirety the current first full, introductory paragraph
of Article IV and replacing it with the following:
"The authorized number of shares of capital stock of the Corporation
shall be Thirty-Seven Million Three Hundred Thousand (37,300,000), of
which Twenty-Five Million (25,000,000) shall be Common Shares, without
par value, Twelve Million (12,000,000) shall be Class B Common Shares,
without par value, and Three Hundred Thousand (300,000) shall be Serial
Preferred Shares, without par value."
RESOLVED FURTHER, That the President and Secretary of the Company be
and they are hereby authorized and directed to execute and file in the
office of the Secretary of State of Ohio an appropriate Certificate of
Amendment, pay any filing fees and take any and all other actions in
order to carry out the intent and purposes of the preceding resolution
and render effective such amendment to the Amended and Restated
Articles of Incorporation.
IN WITNESS WHEREOF, said A. Malachi Mixon III, Chairman, President and
Chief Executive Officer, and Dale C. LaPorte, Secretary, acting for and on
behalf of the Corporation, have hereunto subscribed their names this 24th day of
May, 1991.
16
INVACARE CORPORATION
By: /s/ A. Malachi Mixon, III
--------------------------------
A. Malachi Mixon, III, Chairman,
President and Chief Executive
Officer
And: /s/ Dale C. LaPorte
--------------------------------
Dale C. LaPorte, Secretary
|
17
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
INVACARE CORPORATION
A. MALACHI MIXON III, Chairman, President and Chief Executive Officer,
and DALE C. LaPORTE, Secretary, of INVACARE CORPORATION, an Ohio corporation
(the "Company"), do hereby certify that at a meeting of the Company's
shareholders duly called and held on May 27, 1992, at which meeting a quorum of
shareholders was present in person or by proxy, the following resolutions to
amend the Amended and Restated Articles of Incorporation of the Company were
duly adopted by the affirmative vote of holders of shares entitling them to
exercise a majority of the voting power of the Company:
RESOLVED, That Article IV of the Company's Amended and Restated
Articles of Incorporation is hereby amended to increase the number of
authorized Common Shares, without par value, of the Company from
Twenty-Five Million (25,000,000) to Fifty Million (50,000,000) by
deleting in its entirety the current first full, introductory paragraph
of Article IV and replacing it with the following:
"The authorized number of shares of capital stock of the Corporation
shall be Sixty-Two Million Three Hundred Thousand (62,300,000), of
which Fifty Million (50,000,000) shall be Common Shares, without par
value, Twelve Million (12,000,000) shall be Class B Common Shares,
without par value, and Three Hundred- Thousand (300,000) shall be
Serial Preferred Shares, without par value."
RESOLVED FURTHER, That the President and Secretary of the Company be
and they are hereby authorized and directed to execute and file in the
office of the Secretary of Ste of Ohio an appropriate Certificate of
Amendment, pay any filing fees and take any and all other actions in
order to carry out the intent and purposes of the preceding resolution
and render effective such amendment to the Amended and Restated
Articles of Incorporation.
IN WITNESS WHEREOF, said A. Malachi Nixon III, Chairman, President and
Chief Executive Officer, and Dale C. LaPorte, Secretary, `acting for and on
behalf of the Corporation, have hereunto subscribed their names this 27th day of
May, 1992.
18
INVACARE CORPORATION
By: /s/ A. Malachi Mixon, III
--------------------------------
A. Malachi Mixon, III, Chairman,
President and Chief Executive
Officer
And: /s/ Dale C. LaPorte
-------------------------------
Dale C. LaPorte, Secretary
|
19
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INVACARE CORPORATION
A. MALACHI MIXON III, Chairman, President and Chief Executive Officer,
and THOMAS R. MIKLICH, Secretary, of INVACARE CORPORATION, an Ohio corporation
(the "Company"), do hereby certify that at a meeting of the Company's
shareholders duly called and held on May 22, 1996, at which meeting a quorum of
shareholders was present in person or by proxy , the following resolutions to
amend the Amended and Restated Articles of Incorporation of the Company were
duly adopted in accordance with the Ohio Revised Code by the affirmative vote of
holders of shares entitling them to exercise a majority of the voting power of
the Company:
RESOLVED, that Article IV of the Company's Amended and Restated
Articles of Incorporation is hereby amended to increase the number of
authorized Common Shares, without par value, of the Company from Fifty
Million (50,000,000) to One Hundred Million (100,000,000) by deleting
in its entirety the current first full, introductory paragraph of
Article IV and replacing it with the following:
"The authorized number of shares of capital stock of the Corporation
shall be One Hundred Twelve Million Three Hundred Thousand
(112,300,000), of which One Hundred Million (100,000,000) shall be
Common Shares, without par value, Twelve Million (12,000,000) shall be
Class B Common Shares, without par value, and Three Hundred Thousand
(300,000) shall be Serial Preferred Shares, without par value."
RESOLVED FURTHER, that the President and Secretary of the Company be
and they are hereby authorized and directed to execute and file in the
office of the Secretary of State of Ohio an appropriate Certificate of
Amendment, pay any filing fees and take any and all other actions in
order to carry out the intent and purposes of the preceding resolution
and render effective such amendment to the Amended and Restated
Articles of Incorporation.
IN WITNESS WHEREOF, said A. Malachi Mixon III, Chairman, President and
Chief Executive Officer, and Thomas R. Miklich, Secretary, acting for and on
behalf of the Corporation, have hereunto subscribed their names this 10th day of
June, 1996.
INVACARE CORPORATION
By: /s/ A. Malachi Mixon, III
---------------------------------
A. Malachi Mixon, III, Chairman,
President and Chief Executive
Officer
And: /s/ Thomas R. Miklich
---------------------------------
Thomas R. Miklich, Secretary
|
20
Exhibit 3(b)
CODE OF REGULATIONS
OF
INVACARE CORPORATION
Adopted December 28, 1979
Amended and Restated as of April 7, 1984
Amended May 22, 1996
ARTICLE I
Fiscal Year
The fiscal year of the Corporation shall be the calendar year,
or such other period as the Board of Directors may designate by resolution.
ARTICLE II
Shareholders
Section 1. Meetings of Shareholders.
(a) Annual Meeting. The annual meeting of the Shareholders of
this Corporation, for the election of Directors, the consideration of financial
statements and other reports, and the transaction of such other business as may
properly be brought before such meeting, shall be held at such time on such date
within six (6) months after the close of the Corporation's fiscal year as the
Board of Directors shall designate by appropriate notice. Upon due notice there
may also be considered and acted upon at an annual meeting any matter which
could properly be considered and acted upon at a special meeting, in which case
and for which purpose the annual meeting shall also be considered as, and shall
be, a special meeting. In the event that the annual meeting is not held or if
Directors are not elected thereat, a special meeting may be called and held for
that purpose. (1701.39, 1701.38(A))
(b) Special Meeting. Special meetings of the Shareholders may be held on
any business day when called by any person or persons who may be authorized by
law to do so. Calls for special meetings shall specify the purpose or purposes
thereof, and no business shall be considered at any such meeting other than that
specified in the call therefor. (1701.40(A), 1701.41)
(c) Place of Meetings. Any meeting of Shareholders may be held at such
place within or without the State of Ohio as may be designated in the Notice of
said meeting. (1701.40(B))
(d) Notice of Meeting and Waiver of Notice.
(1) Notice. Written notice of the time, place and purposes of any meeting
of Shareholders shall be given to each Shareholder entitled thereto not less
than seven (7) days nor more than sixty (60) days before the date fixed for the
meeting and as prescribed by law. Such notice shall be given either by personal
delivery or mailed to each Shareholder entitled to notice of or to vote at such
meeting. If
Page 2 of 10
such notice is mailed, it shall be directed, postage prepaid, to the
Shareholders at their respective addresses as they appear upon the records of
the Corporation, and notice shall be deemed to have been given on the day so
mailed. If any meeting is adjourned to another time or place, no notice as to
such adjourned meeting need be given other than by announcement at the meeting
at which such an adjournment is taken. No business shall be transacted at any
such adjourned meeting except as might have been lawfully transacted at the
meeting at which such adjournment was taken. (1701.41(A), 1701.02)
(2) Notice to Joint Owners. All notices with respect to any shares to which
persons are entitled by joint or common ownership may be given to that one of
such persons who is named first upon the books of this Corporation, and notice
so given shall be sufficient notice to all the holders of such shares.
(3) Waiver. Notice of any meeting, however, may be waived in writing by any
Shareholder either before or after any meeting of Shareholders, or by attendance
at such meeting without protest prior to the commencement thereof. (1701.42)
(e) Shareholders Entitled to Notice and to Vote. If a record date shall not
be fixed or the books of the Corporation shall not be closed against transfers
of shares pursuant to statutory authority, the record date for the determination
of Shareholders entitled to notice of or to vote at any meeting of Shareholders
shall be the close of business on the twentieth day prior to the date of the
meeting and only Shareholders of record at such record date shall be entitled to
notice of and to vote at such meeting. Such record date shall continue to be the
record date for all adjournments of such meeting unless a new record date shall
be fixed and notice thereof and of the date of the adjourned meeting be given to
all Shareholders entitled to notice in accordance with the new record date so
fixed. (1701.45(A)(C)(E))
(f) Quorum. At any meeting of Shareholders, the holders of shares entitling
them to exercise a majority of the voting power of the Corporation, present in
person or by proxy, shall constitute a quorum for such meeting; provided,
however, that no action required by law, the Articles, or these Regulations to
be authorized or taken by the holders of a designated proportion of the shares
of the Corporation may be authorized or taken by a lesser proportion. The
Shareholders present in person or by proxy, whether or not a quorum be present,
may adjourn the meeting from time to time without notice other than by
announcement at the meeting. (1701.51)
(g) Organization of Meetings:
(1) Presiding Officer. The Chairman of the Board, or in his absence, the
President, or in the absence of both of them, a Vice President of the
Corporation shall call all meetings of the Shareholders to order and shall act
as Chairman thereof. If all are absent, the Shareholders shall select a
Chairman.
(2) Minutes. The Secretary of the Corporation, or, in his absence, an
Assistant Secretary, or, in the absence of both, a person appointed by the
Chairman of the meeting, shall act as Secretary of the meeting and shall keep
and make a record of the proceedings thereat.
(h) Order of Business. The order of business at all meetings of the
Shareholders, unless waived or otherwise determined by a vote of the holder or
holders of the majority of the number of shares entitled to vote present in
person or represented by proxy, shall be as follows:
Page 3 of 10
1. Call meeting to order.
2. Selection of Chairman and/or Secretary, if necessary.
3. Proof of notice of meeting and presentment of affidavit thereof.
4. Roll call, including filing of proxies with Secretary.
5. Upon appropriate demand, appointment of inspectors of election (1701.50)
6. Reading, correction and approval of previously unapproved minutes.
7. Reports of officers and committees.
8. If annual meeting, or meeting called for that purpose, election of
Directors.
9. Unfinished business, if adjourned meeting.
10. Consideration in sequence of all other matters set forth in the call
for and written notice of the meeting.
11. Adjournment.
(i) Voting. Except as provided by statute or in the Articles, every
Shareholder entitled to vote shall be entitled to cast one vote on each proposal
submitted to the meeting for each share held of record by him on the record date
for the determination of the Shareholders entitled to vote at the meeting. At
any meeting at which a quorum is present, all questions and business which may
come before the meeting shall be determined by a majority of votes cast, except
when a greater proportion is required by law, the Articles, or these
Regulations. (1701.44(A))
(j) Proxies. A person who is entitled to attend a Shareholders' meeting, to
vote thereat, or to execute consents, waivers and releases, may be represented
at such meeting or vote thereat, and execute consents, waivers, and releases,
and exercise any of his rights, by proxy or proxies appointed by a writing
signed by such person, or by his duly authorized attorney, as provided by the
laws of the State of Ohio. (1701.48)
(k) List of Shareholders. At any meeting of Shareholders a list of
Shareholders, alphabetically arranged, showing the number and classes of shares
held by each on the record date applicable to such meeting shall be produced on
the request of any Shareholder. (1701.37(B))
Section 2. Action of Shareholders Without a Meeting.
Any action which may be taken at a meeting of Shareholders may be taken
without a meeting if authorized by a writing or writings signed by all of the
holders of shares who would be entitled to notice of a meeting for such purpose,
which writing or writings shall be filed or entered upon the records of the
Corporation. (1701.54)
Page 4 of 10
ARTICLE III
Directors
Section 1. General Powers.
The business, power and authority of this Corporation shall be exercised,
conducted and controlled by a Board of Directors, except where the law, the
Articles or these Regulations require action to be authorized or taken by the
Shareholders. (1071.59)
Section 2. Number, Classification, Election and Qualification of Directors.
(a) Number. The Board of Directors shall consist of not less than five nor
more than fifteen members. At any Shareholders meeting called for the purpose of
electing Directors, the Shareholders, by a vote of the holders of a majority of
the voting power represented at the meeting, may fix or change the total number
of Directors within the above limitation. In the event that the Shareholders
fail to fix or change the number of Directors, the number of Directors then
serving in office shall constitute the total number of Directors until further
changed in accordance with this Section. In addition to the authority of the
Shareholders to fix or change the number of Directors, the total number of
Directors so determined may be increased or decreased by not more than two
between Shareholders' meetings by the Board of Directors at a meeting or by
action without a meeting, and the total number of Directors as so changed shall
be the total number of Directors until further changed in accordance with this
Section. In the event that the Directors increase the total number of Directors,
the Directors who are then in office may fill any vacancy created thereby. No
reduction in the total number of Directors shall of itself have the effect of
shortening the term of any incumbent Director.
(b) Classification. The Directors shall be classified in
respect of the time for which they shall severally hold office by dividing them
into three classes, each class to be as nearly equal in number as possible.
Subject to the preceding sentence, in the event the total number of Directors
(whether determined by the Shareholders or by the Directors in accordance with
Section 2(a)) is not divisible by three (3), the extra Director or Directors
shall be assigned to a particular class or classes, at the time of election of
such Director or Directors, by the Shareholders or by the Directors, whichever
have elected the new Director or Directors. The term of any Director elected to
fill a vacancy in a class, however created, shall end at the expiration of the
term of such class and upon the election and qualification of the successor of
such Director.
(c) Election. Subject to the rights of Directors to elect additional
Directors in accordance with Section 2(a) or Section 3(d), the Directors of the
appropriate class shall be elected at the Annual Meeting of Shareholders, or if
not so elected, at a Special Meeting of Shareholders called for that purpose.
The Directors to be elected at each such Annual or Special Meeting of
Shareholders shall be the class whose term of office then expires; provided,
however that the Shareholders may, in their discretion, also elect Directors to
fill any vacancies in other classes without regard to how such vacancies were
created. At any meeting of Shareholders at which Directors are to be elected,
only persons nominated as candidates shall be eligible for election, and the
candidates receiving the greatest number of votes shall be elected.
Page 5 of 10
(d) Qualification. Directors need not be Shareholders of the Corporation.
Section 3. Term of Office of Directors.
(a) Term. The term of office of each class of Directors shall be three (3)
years (so that the term of one class of Directors shall expire each year), and
the Directors shall hold office for the respective terms to which elected and
until their respective successors are elected and qualified, subject only to
prior resignation, death or removal by the Directors as provided by law, and
subject to the provisions of the Articles.
(b) Removal. Other than as heretofore stated, no Director may be removed
from office except for cause. With prior notice thereof, all the Directors or
all the Directors of a particular class, or any individual Director may be
removed for cause by a majority vote at any Special Meeting of Shareholders
properly called for that purpose, provided that unless all the Directors, or all
the Directors of a particular class, are removed, no individual Director shall
be removed in case the votes of a sufficient number of shares are cast against
his removal which, if cumulatively voted at an election of all the Directors, or
all the Directors of a particular class, as the case may be, would be sufficient
to elect at least one Director.
(c) Resignation. A resignation from the Board of Directors shall be deemed
to take effect immediately or at such other time as the Director may specify.
(d) Vacancy. If any vacancy shall occur in the Board of Directors by death,
resignation or as provided by law, the Articles or these Regulations, the
remaining Directors shall constitute the Board of Directors until such vacancy
is filled. The remaining Directors may fill any vacancy in the Board for the
unexpired term.
Section 4. Meetings of Directors.
(a) Regular Meetings. A regular meeting of the Board of Directors shall be
held immediately following the adjournment of the annual meeting of the
Shareholders or a special meeting of the Shareholders at which Directors are
elected. The holding of such Shareholders' meeting shall constitute notice of
such Directors' meeting and such meeting may be held without further notice.
Other regular meetings shall be held at such other times and places as may be
fixed by the Directors. (1701.61)
(b) Special Meetings. Special meetings of the Board of Directors may be
held at any time upon call of the Chairman of the Board, the President, any Vice
President, or any two Directors. (1701.61(A))
(c) Place of Meeting. Any meeting of Directors may be held at any place
within or without the State of Ohio in person and/or through any communications
equipment if all persons participating in the meeting can hear each other.
(1701.61(B))
(d) Notice of Meeting and Waiver of Notice. Notice of the time and place of
any regular or special meeting of the Board of Directors (other than the regular
meeting of Directors following the adjournment of the annual meeting of the
Shareholders or following any special meeting of the
Page 6 of 10
Shareholders at which Directors are elected) shall be given to each Director by
personal delivery, telephone, mail, telegram or cablegram at least forty-eight
(48) hours before the meeting, which notice need
not specify the purpose of the meeting. Such notice, however, may be waived in
writing by any Director either before or after any such meeting, or by
attendance at such meeting (including attendance (presence) by means of
participation through any communications equipment as above provided) without
protest prior to the commencement thereof.
(1701.61(B)(C), 1701.42)
Section 5. Quorum and Voting.
At any meeting of Directors, not less than one-half of the whole authorized
number of Directors is necessary to constitute a quorum for such meeting, except
that a majority of the remaining Directors in office constitutes a quorum for
filling a vacancy in the Board. At any meeting at which a quorum is present, all
acts, questions and business which may come before the meeting shall be
determined by a majority of votes cast by the Directors present at such meeting,
unless the vote of a greater number is required by the Articles, Regulations or
By-Laws. (1701.62)
Section 6. Committees.
(a) Appointment. The Board of Directors may from time to time
appoint certain of its members (but in no event less than three) to act as a
committee or committees in the intervals between meetings of the Board and may
delegate to such committee or committees powers to be exercised under the
control and direction of the Board. Each such committee and each member thereof
shall serve at the pleasure of the Board.
(b) Executive Committee. In particular, the Board of Directors may create
from its membership and define the powers and duties of an Executive Committee.
During the intervals between meetings of the Board of Directors the Executive
Committee shall possess and may exercise all of the powers of the Board of
Directors in the management and control of the business of the Corporation to
the extent permitted by law. All action taken by the Executive Committee shall
be reported to the Board of Directors at its first meeting thereafter.
(c) Committee Action. Unless otherwise provided by the Board of Directors,
a majority of the members of any committee appointed by the Board of Directors
pursuant to this Section shall constitute a quorum at any meeting thereof and
the act of a majority of the members present at a meeting at which a quorum is
present shall be the act of such committee. Action may be taken by any such
committee without a meeting by a writing signed by all its members. Any such
committee shall prescribe its own rules for calling and holding meetings and its
method of procedure, subject to any rules prescribed by the Board of Directors,
and shall keep a written record of all action taken by it. (1701.63)
Section 7. Action of Directors Without a Meeting.
Any action which may be taken at a meeting of Directors may be taken
without a meeting if authorized by a writing or writings signed by all the
Directors, which writing or writings shall be filed or entered upon the records
of the Corporation. (1701.54)
Page 7 of 10
Section 8. Compensation of Directors.
The Board of Directors may allow compensation for attendance at meetings or
for any special services, may allow compensation to members of any committee,
and may reimburse any Director for his expenses in connection with attending any
Board or committee meeting. (1701.60)
Section 9. Attendance at Meetings of Persons Who Are Not Directors.
Unless waived by a majority of Directors in attendance, not less than
twenty-four (24) hours before any regular or special meeting of the Board of
Directors any Director who desires the presence at such meeting of not more than
one person who is not a Director shall so notify all other Directors, request
the presence of such person at the meeting, and state the reason in writing.
Such person will not be permitted to attend the Directors' meeting unless a
majority of the Directors in attendance vote to admit such person to the
meeting. Such vote shall constitute the first order or business for any such
meeting of the Board of Directors. Such right to attend, whether granted by
waiver or vote, may be revoked at any time during any such meeting by the vote
of a majority of the Directors in attendance.
ARTICLE IV
Officers
Section 1. General Provisions.
The Board of Directors shall elect a President, a Secretary and a
Treasurer, and may elect a Chairman of the Board, one or more Vice-Presidents,
and such other officers and assistant officers as the Board may from time to
time deem necessary. The Chairman of the Board, if any, and the President shall
be Directors, but no one of the other officers need be a Director. Any two or
more offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required to be executed, acknowledged or verified by two or more
officers. (1701.64(A))
Section 2. Powers and Duties.
All officers, as between themselves and the Corporation, shall respectively
have such authority and perform such duties as are customarily incident to their
respective offices, and as may be specified from time to time by the Board of
Directors, regardless of whether such authority and duties are customarily
incident to such office. In the absence of any officer of the Corporation, or
for any other reason the Board of Directors may deem sufficient, the Board of
Directors may delegate for the time being, the powers or duties of such officer,
or any of them, to any other officer or to any Director. The Board of Directors
may from time to time delegate to any officer authority to appoint and remove
subordinate officers and to prescribe their authority and duties. Since the
lawful purposes of this Corporation include the acquisition and ownership of
real property, personal property and property in the nature of patents,
copyrights, and trademarks and the protection of the Corporation's property
rights in its patents, copyrights and trademarks, each of the officers of this
Corporation is empowered to execute any power of attorney necessary to protect,
secure, or vest the Corporation's interest in and to real property, personal
property and its property protectable by patents, trademarks and copyright
registration and to secure such patents, copyrights and trademark registrations.
(1701.64(B)(1))
Page 8 of 10
Section 3. Term of Office and Removal.
(a) Term. Each officer of the Corporation shall hold office during the
pleasure of the Board of Directors, and unless sooner removed by the Board of
Directors, until the meeting of the Board of Directors following the date of
their election and until his successor is elected and qualified. (1701.64(A))
(b) Removal. The Board of Directors may remove any officer at any time,
with or without cause by the affirmative vote of a majority of Directors in
office. (1701.64(B)(2))
Section 4. Compensation of Officers.
Unless compensation is otherwise determined by a majority of the Directors
at a regular or special meeting of the Board of Directors, or unless such
determination is delegated by the Board of Directors to another officer or
officers, the President of the Corporation from time to time shall determine the
compensation to be paid to all officers and other employees for services
rendered to the Corporation. (1701.60)
ARTICLE V
Indemnification of Directors, Officers, Employees, and Others
(a) Right of Indemnification. The Corporation shall indemnify any Director,
officer, employee or other person, to the fullest extent provided by, or
permissible under, Section 1701.13(E), Ohio Revised Code; and the Corporation is
hereby specifically authorized to take any and all further action to effectuate
any indemnification of any person which any Ohio corporation may have power to
take (permissible under Section 1701.13(E)(6) or under any other statute or
under general law), by any vote of the Shareholders, vote of disinterested
Directors, by any Agreement, or otherwise. This Section of the Code of
Regulations of the Corporation shall be interpreted in all respects to expand
such power to indemnify to the maximum extent permissible to any Ohio
Corporation with regard to the particular facts of each case, and not in any way
to limit any statutory or other power to indemnify, or right of any individual
to indemnification.
(b) Insurance for Indemnification. The Corporation may purchase and
maintain insurance for protection of the Corporation and for protection of any
Director, officer, employee and/or any other person for whose protection, and to
the fullest extent, such insurance may be purchased and maintained under Section
1701.13(E)(7), Ohio Revised Code, or otherwise. Such policy or policies of
insurance may provide such coverage and be upon such terms and conditions as
shall be authorized or approved from time to time by the Board of Directors or
the Shareholders of the Corporation.
Page 9 of 10
ARTICLE VI
Securities Held by the Corporation
Section 1. Transfer of Securities Owned by the Corporation.
All endorsements, assignments, transfers, stock powers, share powers or
other instruments of transfer of securities standing in the name of the
Corporation shall be executed for and in the name of the Corporation by the
President, by a Vice President, by the Secretary or by the Treasurer or by any
other person or persons as may be thereunto authorized by the Board of
Directors.
Section 2. Voting Securities Held by the Corporation.
The Chairman of the Board, President, any Vice President,Secretary or
Treasurer, in person or by another person thereunto authorized by the Board of
Directors, in person or by proxy or proxies appointed by him, shall have full
power and authority on behalf of the Corporation to vote, act and consent with
respect to any securities issued by other corporations which the Corporation may
own. (1701.47(A))
ARTICLE VII
Share Certificates
Section 1. Transfer and Registration of Certificates.
The Board of Directors shall have authority to make such rules and
regulations, not inconsistent with law, the Articles or these Regulations, as it
deems expedient concerning the issuance, transfer and registration of
certificates for shares and the shares represented thereby and may appoint
transfer agents and registrars thereof. (1701.14(A), 1701.26)
Section 2. Substituted Certificates.
Any person claiming that a certificate for shares has been lost, stolen or
destroyed, shall make an affidavit or affirmation of that fact and, if required,
shall give the Corporation (and its registrar or registrars and its transfer
agent or agents, if any) a bond of indemnity, in such form and with one or more
sureties satisfactory to the Board, and, if required by the Board of Directors,
shall advertise the same in such manner as the Board of Directors may require,
whereupon a new certificate may be executed and delivered of the same tenor and
for the same number of shares as the one alleged to have been lost, stolen or
destroyed. (1701.27, 1308.35)
Page 10 of 10
ARTICLE VIII
Seal
The Directors may adopt a seal for the Corporation which shall be in such
form and of such style as is determined by the Directors. Failure to affix any
such corporate seal shall not affect the validity of any instrument.
(1701.13(B))
ARTICLE IX
Consistency with Articles of Incorporation
If any provision of these Regulations shall be inconsistent with the
Corporation's Articles of Incorporation (and as they may be amended from time to
time), the Articles of Incorporation (as so amended at the time) shall govern.
ARTICLE X
Section Headings
The headings contained in this Code of Regulations are for reference
purposes only and shall not be construed to be part of and/or shall not affect
in any way the meaning or interpretation of this Code of Regulations.
ARTICLE XI
Amendments
This Code of Regulations of the Corporation (and as it may be amended from
time to time) may be amended or added to by the affirmative vote or the written
consent of the Shareholders of record entitled to exercise a majority of the
voting power on such proposal; provided, however, that if an amendment or
addition is adopted by written consent without a meeting of the Shareholders, it
shall be the duty of the Secretary to enter the amendment or addition in the
records of the Corporation, and to mail a copy of such amendment or addition to
each Shareholder of record who would be entitled to vote thereon and did not
participate in the adoption thereof. (1701.11)
Exhibit 10(b)
1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Invacare Corporation, hereinafter called the "Company," hereby adopts a
stock option plan for eligible Directors of the Company pursuant to the
following terms and provisions:
1. Purpose of the Plan. The purpose of this plan, hereinafter called the
"Plan," is to provide additional incentive to those Directors of the Company who
are not employees of the Company or any of its subsidiaries or affiliates and
who have not received options to purchase the Company's Common Shares, without
par value (the "Common Shares"), under any other option plan of the Company, by
encouraging them to acquire a new or an additional share ownership in the
Company, thus increasing their proprietary interest in the Company's business
and providing them with an increased personal interest in the Company's
continued success and progress. These objectives will be promoted through the
grant of options to acquire Common Shares of the Company pursuant to the terms
of the Plan. Only those Directors who meet the qualifications stated above are
eligible for and shall receive options under this Plan.
2. Effective Date of the Plan. The Plan shall become effective on May 27,
1992, subject to approval by holders of shares representing a majority of the
outstanding votes of the Company present at the shareholders meeting called for
that purpose. In the event that such shareholder approval has not occurred on or
before March 2, 1993, the Plan and any options granted hereunder shall be null
and void.
3. Shares Subject to the Plan. The shares to be issued upon the exercise of
the options granted under the Plan shall be Common Shares of the Company. Either
treasury or authorized and unissued Common Shares, or both, as the Board of
Directors shall from time to time determine, may be so issued. Common Shares
which are the subject of any lapsed, expired or terminated options may be made
available for reoffering under the Plan. If an option granted under this Plan is
exercised pursuant to the terms and conditions of subsection 5(b), any Common
Shares which are the subject thereof shall not thereafter be available for
reoffering under the Plan.
Subject to the provisions of the next succeeding paragraph of this Section
3, the aggregate number of Common Shares for which options may be granted under
the Plan shall be Fifty Thousand (50,000) Common Shares.
In the event that subsequent to the date of adoption of the Plan by the
Board of Directors the Common Shares should, as a result of a stock split, stock
dividend, combination or exchange of shares, exchange for other securities,
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization or other such change, be increased or decreased or changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation, then (i) there shall
automatically be substituted for each Common Share subject to an unexercised
option (in whole or in part) granted under the Plan, each Common Share available
for additional grants of options under the Plan and each Common Share made
available for grant to each eligible Director pursuant to Section 4 hereof, the
number and kind of shares of stock or other securities into which each
outstanding Common Share shall be changed or for which each such Common Share
shall be exchanged, (ii) the option price per Common Share or unit of securities
shall be increased or decreased proportionately so that the aggregate purchase
price for the securities subject to the option shall remain the same as
immediately prior to such event, and (iii) the Board shall make such other
adjustments as may be appropriate and equitable to prevent enlargement or
dilution of option rights. Any such adjustment may provide for the elimination
of fractional shares.
4. Grant of Options. Subject to the terms of the Plan, a one-time option
automatically shall be granted to each person who (i) becomes a Director of the
Company for the first time from and after the effective date of the Plan and
(ii) is eligible under the Plan. The option shall be exercisable for that number
of Common Shares (rounded to the nearest whole share) determined by dividing
$150,000 by the fair market value of one Common Share on the date of grant. The
date of grant of such option shall be the date that such optionee is elected or
appointed to the Board as an eligible Director. The option shall be granted at
an option price per share equal to the fair market value of a Common Share of
the Company on the date said option is granted. Subject to the provisions of
paragraph 5(c), each such option granted shall be exercisable for a period of
ten (10) years from the date of grant but shall not be exercisable during the
first year of said period. Thereafter, during each succeeding year each such
option may be exercised for up to a maximum of thirty three and one-third
percent (33/3%) of the total number of Common Shares subject to the option,
which annual rights of exercise shall be cumulative.
5. Option Provisions.
a. Limitation on Exercise and Transfer of Options. Only the Director
to whom the option is granted may exercise the same except where a guardian
or other legal representative has been duly appointed for such Director and
except as otherwise provided in the case of such Director's death. No
option granted hereunder shall be transferable otherwise than by the Last
Will and Testament of the Director to whom it is granted or, if the
Director dies intestate, by the applicable laws of descent and
distribution. No option granted hereunder may be pledged or hypothecated,
nor shall any such option be subject to execution, attachment or similar
process.
b. Exercise of Option. Each option granted hereunder may be exercised
in whole or in part (to the maximum extent then exercisable) from time to
time during the option period, but this right of exercise shall be limited
to whole shares. Options shall be exercised by the optionee giving written
notice to the Treasurer of the Company at its principal business office, by
certified mail, return receipt requested, of the optionee's intention to
exercise the same and the number of shares with respect to which the option
is being exercised (the "Notice of Exercise of Option") accompanied by full
payment of the purchase price in cash or in whole or in part in Common
Shares having a fair market value on the date the option is exercised equal
to that portion of the purchase price for which payment in cash is not
made. Such Notice of Exercise of Option shall be deemed delivered upon
deposit into the mails.
c. Termination of Directorship. If the optionee ceases to be a
Director of the Company, his or her option shall terminate three (3) months
after the effective date of termination of his or her directorship and
neither he nor she nor any other person shall have any right after such
date to exercise all or any part of such option. If the termination of the
directorship is due to death, then the option may be exercised within one
(1) year after the optionee's death by the optionee's estate or by the
person designated in the optionee's Last Will and Testament or to whom
transferred by the applicable laws of descent and distribution (the
"Personal Representative"). Notwithstanding the foregoing, in no event
shall any option be exercisable after the expiration of the ten-year option
period and no option shall be exercisable to any greater extent than the
optionee would have been entitled to exercise the option at the time of
termination or death.
d. Acceleration of Exercise of Options in Certain Events.
Notwithstanding anything to the contrary described in the Plan, in the
event of a "change in control," the eligible Director shall have the
immediate right and option (notwithstanding the provisions of paragraph 4
hereof) to exercise the option with respect to all Common Shares covered by
the option, which exercise, if made, shall be irrevocable. The term "change
in control" shall include, but not be limited to: (i) the first purchase of
shares pursuant to a tender offer or exchange (other than a tender offer or
exchange by the Company) for all or part of the Company's common shares of
any class or any securities convertible into such common shares; (ii) the
receipt by the Company of a Schedule 13D or other advice indicating that a
person is the "beneficial owner" (as that term is defined in Rule 13d-3
under the Securities Exchange Act of 1934) of twenty percent (20%) or more
of the voting power of the Company; (iii) the date of the approval by
shareholders of the Company of an agreement providing for any consolidation
or merger of the Company in which the Company will not be the continuing or
surviving corporation or pursuant to which shares of capital stock of any
class, or any securities convertible into such capital stock, of the
Company would be converted into cash, securities, or other property, other
than a merger of the Company in which the holders of shares of all classes
of the Company's capital stock immediately prior to the merger would own at
least a majority of the voting power of the surviving corporation (or the
parent company of the surviving corporation) immediately after the merger;
(iv) the date of the approval by shareholders of the Company of any sale,
lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company
(other than a sale, lease, exchange or other transfer of such assets to an
affiliate of the Company): or (v) the adoption of any plan or proposal for
the liquidation (but not a partial liquidation) or dissolution of the
Company.
e. Option Agreements. Options granted under the Plan shall be subject
to the further terms and provisions of an Option Agreement, a copy of which
is attached hereto as Exhibit A, the execution of which by each optionee
shall be a condition to the receipt of an option.
6. Investment Representation; Approvals and Listing. The options to be
granted hereunder shall be further conditioned upon receipt of the following
investment representation from the optionee:
"I further agree that any Common Shares of Invacare
Corporation which I may acquire by virtue of this option shall
be acquired for investment purposes only and not with a view
to distribution or resale; provided, however, that this
restriction shall become inoperative in the event that the
said Common Shares subject to this option shall be registered
under the Securities Act of 1933, as amended, or in the event
that the offer or sale of the Common Shares subject to this
option may be lawfully made without registration of the said
Common Shares under the Securities Act of 1933, as amended."
The Company shall not be required to issue any certificate or certificates for
Common Shares upon the exercise of an option granted under the Plan prior to (i)
the obtaining of any approval from any governmental agency which the Company
shall, in its sole discretion, determine to be necessary or advisable, (ii) the
admission of such Common Shares to listing on any national securities exchange
on which the Common Shares may be listed, (iii) the completion of any
registration or other qualification of the Common Shares under any state or
federal law or ruling or regulations of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable or the
determination by the Company, in its sole discretion, that any registration or
other qualification of the Common Shares is not necessary or advisable and (iv)
the obtaining of an investment representation from the optionee in the form
stated above or in such other form as the Company, in its sole discretion, shall
determine to be adequate.
7. General Provisions. For all purposes of this Plan, the fair market value
of a Common Share shall be determined as follows: so long as the Common Shares
of the Company are listed upon an established stock exchange or exchanges or
contained in the NASDAQ National Market System, such fair market value shall be
determined to be the highest closing sale price of such Common Shares on such
stock exchange or exchanges on the day the option is granted (or the date the
Common Shares are tendered as payment, in the case of determining fair market
value for that purpose) or if no sale of such Common Shares shall have been made
on any stock exchange on that day, then on the closest preceding day on which
there was a sale of such Common Shares; and during any period of time as such
Common Shares are not listed upon an established stock exchange or contained in
the NASDAQ National Market System, the fair market value per share shall be the
mean between dealer "Bid" and "Ask" prices of such Common Shares in the
over-the-counter market on the day the option is granted (or the day the Common
Shares are tendered as payment, in the case of determining fair market value for
that purpose), as reported by the National Association of Securities Dealers,
Inc.
The liability of the Company under the Plan and any distribution of Common
Shares made hereunder is limited to the obligations set forth herein with
respect to such distribution and no term or provision of the Plan shall be
construed to impose any liability on the Company in favor of any person with
respect to any loss, cost or expense which the person may incur in connection
with or arising out of any transaction in connection with the Plan, including,
but not limited to, any liability to any Federal, state, or local tax authority
and/or any securities regulatory authority.
Nothing in the Plan or in any option agreement shall confer upon any
optionee any right to continue as a Director of the Company, or to be entitled
to any remuneration or benefits not set forth in the Plan or such option.
Nothing contained in the Plan or in any option agreement shall be construed
as entitling any optionee to any of the rights of a shareholder as a result of
the grant of an option until such time as Common Shares are actually issued to
such optionee pursuant to the exercise of an option.
The Plan may be assumed by the successors and assigns of the Company.
The Plan shall not be amended more than once every six months, other than
to comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder.
The cash proceeds received by the Company from the issuance of Common
Shares pursuant to the Plan will be used for general corporate purposes or in
such other manner as the Board of Directors deems appropriate.
The expense of administering the Plan shall be borne by the Company.
The captions and section numbers appearing in the Plan are inserted only as
a matter of convenience. They do not define, limit, construe or describe the
scope or intent of the provisions of the Plan.
8. Termination of the Plan. The Plan shall terminate ten (10) years from
the date of its adoption by the Board of Directors of the Company and thereafter
no options shall be granted hereunder. All options outstanding at the time of
termination of the Plan shall continue in full force and effect in accordance
with and subject to their terms and the terms and conditions of the Plan.
9. Taxes. Appropriate provisions shall be made for all taxes required to be
withheld and for paid in connection with the Options or the exercise thereof,
and the transfer of Common Shares pursuant thereto, under the applicable laws or
other regulations of any governmental authority, whether federal, state, or
local and whether domestic or foreign. In its discretion, the Company may permit
the optionee to satisfy such withholding requirements by (a) the Company
withholding from issuance to the optionee such number of Common Shares
other-wise issuable upon exercise of the option as the Company and the optionee
may agree, provided, however, that the optionee must have had on file with the
Committee, for at least six (6) months prior thereto, an effective standing
election to satisfy said optionee's tax withholding obligations in such a
fashion, which election form by its terms shall not be revocable or amendable
for at least six (6) months, or (b) with the consent of the Board, in whole or
in part, in Common Shares having a fair market value on the date the option is
exercised equal to that portion of the withholding obligation for which payment
in cash is not made.
10. Changes in Governing Rules and Regulations. All references herein to
the Internal Revenue Code of 1986, as amended, or sections thereof, or to rules
and regulations of the Department of Treasury or of the Securities and Exchange
Commission, shall mean and include the Code sections thereof and such rules and
regulations as are now in effect or as they may be subsequently amended,
modified, substituted or superseded.
IN WITNESS WHEREOF, INVACARE CORPORATION, by its appropriate officers duly
authorized, has executed this instrument this _____ day of ________________,
1992.
INVACARE CORPORATION
By:
And:
Exhibit 10(c)
INVACARE CORPORATION
DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
(effective January 1, 1993)
(1)
Purpose of the Plan
The purpose of the Invacare Corporation Deferred Compensation Plan for
Nonemployee Directors is to provide any Director of the Company with the option
to defer receipt of the compensation payable to him or her for services as a
Director and to help build loyalty through increased investment in Company
stock.
(2)
Definitions
As used herein, the following words shall have the meanings stated
after them unless otherwise specifically provided.
(A) "Committee" shall mean the Administrative Committee described in Section 7.1
hereof.
(B) "Company" shall mean Invacare Corporation.
(C) "Director" shall mean any director of the Company that is not an employee of
the Company or any of its subsidiaries or affiliates.
(D) "Trust Agreement" shall mean the Trust Agreement dated as of
___________________, 1992 entered into between the Company and the Trustee in
connection with the Plan.
(E) "Trustee" shall mean ______________________________ any corporate successor
to a majority of its trust business, or any successor Trustee hereunder.
(3)
Elections by Directors
(A) Election to Defer. No later than June 30 of any year, a Director may elect
to defer payment, of all or any specified portion of the compensation payable to
him or her for future services as a Director commencing January 1 of the
following year. If a Director becomes a Director after the beginning of any
calendar year, the Director may elect to defer payment of the compensation
payable to him or her for future services as a Director occurring at least six
(6) months following the date of such election. Such election must be made
within ninety (90) days after he or she becomes a Director and shall be made on
an election form specified by the Committee (the "Election Form"). Once an
election becomes effective pursuant to this Article, the election shall be
irrevocable and remain in effect until the electing Director amends or
terminates the election in accordance with Section 3.3.
(B) Effectiveness of Elections. Elections shall be effective six months after
the delivery of an Election Form to the Committee except for elections made
prior to the effective date of this Plan, which shall be effective as of January
1, 1993. Subject to the provisions of Article V, amounts deferred pursuant to
such elections shall be distributed at the time and in the manner set forth in
such election.
(C) Amendment and Termination of Elections. A Director may terminate or amend
his or her election to defer payments of compensation in a written notice
delivered to the Committee. Either a termination or amendment shall apply to all
compensation payable for services as a Director after the expiration of six (6)
months from the date such amendment or termination was made. Amendments which
serve only to change the beneficiary designation shall be permitted to be
effective immediately. Amounts credited to a Director's account pursuant to
Section 4.2 hereof prior to the effective date of any termination or amendment
shall not be affected thereby and shall be paid at the time and in the manner
specified in the election form in effect when the deferral occurred.
(4)
Accounts and Investments
(A) Contributions. The Company shall transfer an amount equal to one hundred
percent (100%) of the compensation deferred pursuant to this Plan to the Trustee
if the Director elects to have such compensation invested in a money market
fund. In the event that a Director elects to have his or her compensation
invested in Company stock then the Company shall transfer an amount equal to one
hundred twenty five percent (125%) of such compensation to the Trustee. Such
transfer shall be made within thirty days after such deferred amounts would
otherwise have been paid to the Director.
(B) Establishment of Accounts. The Trustee shall establish a separate "Deferred
Compensation Account" for any Director who defers compensation pursuant to the
Plan. Amounts deferred by each Director shall be paid in cash to the Trustee by
the Company and credited to such Director's Deferred Compensation Account.
(C) Adjustment of Accounts. As of December 31 of each year and on such other
dates as the Committee directs, the fair market value of the assets of the Trust
allocated to all Deferred Compensation Accounts (the "Trust Fund") shall be
determined by the Trustee.
(D) Investment of Assets. The assets of the Trust Fund shall be held by the
Trustee in the name of the Trust. As amounts are received by the Trustee, it
shall invest the funds pursuant to the Trust Agreement.
(E) Assets Held in Cash. The Trustee may, in its sole discretion, maintain in
cash such amounts as it deems necessary. Amounts maintained in cash by the
Trustee shall be kept to a minimum consistent with the duties and obligations of
the Trustee as set forth in the Trust Agreement and shall not be required to be
invested at interest.
(5)
Payment of Accounts
(A) Time and Payment. Distribution of a Director's account shall commence upon
the earlier of: ( i ) a date within thirty days after the date the Director
attains either age fifty-five, age sixty, age sixty-five or age seventy, as
specified by the Director on the Election Form, or (ii) a date within thirty
days after the Director's termination as a Director due to resignation,
retirement, death or otherwise.
(B) Method of Distribution. Each deferred Compensation Account shall be
distributed to the Director either in a lump sum or in equal annual installments
over a period of not more than ten years as specified in each Director's
Election Form. Deferred Compensation Accounts shall be distributed in kind.
(C) Hardship Distributions. Prior to the time a Director's account becomes
payable, the Committee, in its sole discretion, may elect to distribute all or a
portion of a Director's account in the event that such Director requests a
distribution on account of severe financial hardship. For purposes of this Plan,
severe financial hardship shall be deemed to exist in the event that the
Committee determines that a Director needs a distribution to meet immediate and
heavy financial needs resulting from a sudden or unexpected illness or accident
of the Director or a member of his or her family, loss of the Director's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Director.
A distribution based on financial hardship shall not exceed the amount required
to meet the immediate financial need created by the hardship.
(D) Designation of Beneficiary. Upon the death of a Director, his or her account
shall be paid to the beneficiary or beneficiaries designated by him or her. If
there is no designated beneficiary, or no designated beneficiary surviving at a
Director's death, payment of a Director's account shall be made to his or her
estate. Beneficiary designations shall be made in writing. A Director may
designate a new beneficiary or beneficiaries at any time by notifying the
Committee in writing.
(E) Taxes. In the event that taxes are required by law to be withheld or paid
from any payments made pursuant to the Plan, the Trustee shall deduct such
amounts from such payments and shall transmit the withheld amounts to the
appropriate taxing authority.
(6)
Creditors and Insolvency
(A) Claims of the Company's Creditors. All assets held in trust pursuant to the
provisions of this Plan, and any payment to be made by the Trustee pursuant to
the terms and conditions of the Trust, shall be subject to the claims of general
creditors of the Company, including judgment creditors and bankruptcy creditors.
The rights of a Director or his or her beneficiaries to any assets of the Trust
Fund shall be no greater than the rights of an unsecured creditor of the
Company.
(B) Notification of Insolvency. In the event that the Company becomes insolvent,
the Board of Directors of the Company and the chief executive officer of the
Company shall immediately notify the Trustee of that fact. The Trustee shall not
make any payments from the Trust Fund to any Director or any beneficiary under
the Plan after such notification is received or at any time after the Trustee
has knowledge of such insolvency. Under any circumstance, the Trustee shall
deliver any property held in the Trust Fund only as a court of competent
jurisdiction may direct to satisfy the claims of the Company's creditors. For
purposes of this Plan, the Company shall be deemed to be insolvent if the
Company is subject to a pending or involuntary proceeding as a debtor under the
United States Bankruptcy Code, as amended, or is unable to pay its debts as they
mature.
(7)
Administration
(A) Appointment of Committee. The Plan shall be administered by an
Administrative Commit-tee consisting of the President and the Chief Financial
Officer, unless additional or different persons are appointed by the Board of
Directors. Members of the Committee shall hold office at the pleasure of the
Board of Directors and may be dismissed at any time with or without cause. Such
persons serving on the Committee need not be members of the Board of Directors
of the Company.
(B) Powers of the Committee. The Committee shall administer the Plan and resolve
all questions of interpretation arising under the Plan with the help of legal
counsel, if necessary. Whenever directions, designations, applications, requests
or other notices are to be given by a Director under the Plan, they shall be
filed with the Committee. The Committee shall have no discretion with respect to
the Plan contributions or distributions but shall act in an administrative
capacity only.
(8)
Miscellaneous
(A) Term of Plan. The Company reserves the right to amend or terminate the Plan
at any time; provided, however, that no amendment or termination shall affect
the rights of Directors to amounts previously credited to their accounts
pursuant to Section 4.2. The Trust shall remain in effect until such time as the
entire corpus of the Trust Fund has been distributed pursuant to the terms of
the Plan.
(B) Assignment. No right or interest of any Director (or any person claiming
through or under such Director) other than the surviving spouse of such Director
after he or she is deceased in any benefit or payment herefrom shall be
assignable or transferable in any manner or be subject to alienation,
anticipation, sale, pledge, encumbrance or other legal process or in any manner
be liable for or subject to the debts or liabilities of such Director. If any
Director or any such person (other than the surviving spouse of such Director
after he or she is deceased) shall attempt to or shall transfer, assign,
alienate, anticipate, sell, pledge or otherwise encumber his or her benefits
hereunder or any part thereof, or if by reason of his or her bankruptcy or other
event happening at any time such benefits would devolve upon anyone else or
would not be enjoyed by him or her, then the Committee, in its sole discretion,
may terminate his or her interest in any such benefit to the extent the
Committee considers necessary or advisable in order to prevent or limit the
effects of such occurrence. Termination shall be effected by filing a written
"termination declaration" with the Committee records and making reasonable
efforts to deliver a copy to such Director or his or her legal representative.
As long as any Director is alive, any benefits affected by that
termination pursuant to this Section 8.2 shall be retained by the Trust and, in
the Committee's sole and absolute judgment, may be paid to or expended for the
benefit of such Director, his or her spouse, his or her children or any other
person or persons in fact dependent upon him or her in such manner as the
Committee shall deem proper. Upon the death of any Director, all benefits
withheld from him or her and not paid to others in accordance with the preceding
sentence shall be distributed to such Director's estate or to his or her
creditors and if such Director shall have descendants, including adopted
children, then living, distribution shall be made to such Director's then living
descendants, including adopted children, per stirpes.
In addition, a Director or beneficiary shall have no rights against or
security interest in the assets of the Trust Fund and shall have only the
Company's unsecured promise to pay benefits. All assets of the Trust Fund shall
remain subject to the claims of the Company's general creditors.
(C) Taxes. This Plan is intended to be treated as an unfunded deferred
compensation plan under the Internal Revenue Code. It is the intention of the
Company that the amounts deferred pursuant to this Plan shall not be included in
the gross income of the Directors or their beneficiaries until such time as the
deferred amounts are distributed from the Plan. If, at any time, it is
determined that amounts deferred pursuant to the Plan are currently taxable to
the Directors or their beneficiaries, the Trust shall terminate and .any amounts
held in the Trust Fund shall be distributed immediately to the Directors or
their beneficiaries. (D) Effective Date of Plan. The Plan shall be effective as
of January 1, 1993, subject to prior approval by the shareholders of the
Company.
(D) Effecitve Date of Plan. The Plan shall be effective as of January 1, 1993,
subject to prior approval by the shareholders of the company.
Exhibit 10(d)
INVACARE CORPORATION
1994 PERFORMANCE PLAN
1. Purpose
The Invacare Corporation 1994 Performance Plan, as the same may be amended
(the "Plan"), is designed to foster the long-term growth and performance of the
Company by: (a) enhancing the Company's ability to attract and retain highly
qualified employees and (b) motivating employees to serve and promote the
long-term interests of the Company and its shareholders through stock ownership
and performance-based incentives. To achieve this purpose, the Plan provides
authority for the grant of Stock Options, Restricted Stock, Stock Equivalent
Units, Stock Appreciation Rights, and other stock and performance-based
incentives.
2. Definitions
(a) "Affiliate" -- means the same definition as under Rule 12b-2 under the
Exchange Act.
(b) "Award" -- means the grant of Stock Options, Restricted Stock, Stock
Equivalent Units, Stock Appreciation Rights, Cash Awards, and other stock and
performance-based incentives under this Plan.
(c) "Award Agreement" -- means any agreement between the Company and a
Participant that sets forth terms, conditions, and restrictions applicable to an
Award.
(d) "Board of Directors" -- means the Board of Directors of the Company.
(e) "Cash Award" -- is defined in Section 6(b) (iv).
(f) "Change in Control" -- means, at any time after the date of the
adoption of this Plan, the occurrence of any one or more of the following:
(i) Any Person (other than any employee benefit plan or employee
stock ownership plan of the Company, or any Person organized,
appointed, or established by the Company, for or pursuant to the
terms of any such plan), alone or together with any of its
Affiliates or Associates, becomes the Beneficial Owner of 30% or
more of the total outstanding voting power of the Company, as
reflected by the power to vote in connection with the election of
Directors, or commences or publicly announces an intent to
commence a tender offer or exchange offer the consummation of
which would result in the Person becoming the Beneficial Owner of
30% or more of the total outstanding voting power of the Company
as reflected by the power to vote in connection with the election
of Directors. For purposes of this Section 2 (f) (i), the terms
"Affiliates," "Associates," and "Beneficial Owner," will have the
meanings given to them in the Rights Agreement, dated as of April
2, 1991, between Invacare Corporation and National City Bank, as
Rights Agent, as amended from time to time.
(ii) At any time during a period of 24 consecutive months, individuals
who were Directors at the beginning of the period no longer
constitute a majority of the members of the Board of Directors,
unless the election, or the nomination for election by the
Company's shareholders, of each Director who was not a Director
at the beginning of the period is approved by at least a majority
of the Directors who are in office at the time of the election or
nomination and were either Directors at the beginning of the
period or are Continuing Directors.
(iii)A record date is established for determining shareholders
entitled to vote upon (A) a merger or consolidation of Invacare
Corporation with another corporation (which is not an affiliate
of Invacare Corporation) in which Invacare Corporation is not the
surviving or continuing corporation or in which all or part of
the outstanding Common Shares are to be converted into or
exchanged for cash, securities, or other property, (B) a sale or
other disposition of all or substantially all of the assets of
Invacare Corporation, or (C) the dissolution or liquidation (but
not partial liquidation) of Invacare Corporation.
(g) "Class B Common Shares" -- means Class B Common Shares, without par
value, of Invacare Corporation, including authorized and unissued Common Shares.
(h) "Code" -- means the Internal Revenue Code of 1986, or any law that
supersedes or replaces it, as amended from time to time.
(i) "Committee" -- means the Compensation Committee of the Board of
Directors, or any other committee of the Board of Directors that the Board of
Directors authorizes to administer this Plan. The Committee will be constituted
in a manner that satisfies the disinterested administration standard set forth
in Rule 16b-3.
(j) "Common Shares" -- means Common Shares, without par value, of Invacare
Corporation, including authorized and unissued Common Shares and treasury Common
Shares.
(k) "Company" -- means Invacare Corporation, an Ohio corporation, and its
direct and indirect subsidiaries.
(l) "Continuing Director" -- means a Director who was a Director prior to a
Change in Control or was recommended or elected to succeed a Continuing Director
by a majority of the Continuing Directors then in office.
(m) "Director" -- means a director of Invacare Corporation.
(n) "Exchange Act" -- means the Securities Exchange Act of 1934, and any
law that supersedes or replaces it, as amended from time to time.
(o) "Fair Market Value" of Common Shares -- means the value of the Common
Shares determined by the Committee, or pursuant to rules established by the
Committee on a basis consistent with regulations under the Code.
(p) "Incentive Stock Option" -- means a Stock Option that meets the
requirements of Section 422 of the Code.
(q) "Notice of Award" -- means any notice by the Committee to a Participant
that advises the Participant of the grant of an Award or sets forth terms,
conditions, and restrictions applicable to an Award.
(r) "Participant" -- means any person to whom an Award has been granted
under this Plan.
(s) "Person" -- means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a governmental authority.
(t) "Restricted Stock" -- means an Award of Common Shares that are subject
to restrictions or risk of forfeiture.
(u) "Rule 16b-3" -- means Rule 16b-3 under the Exchange Act, or any rule
that supersedes or replaces it, as amended from time to time.
(v) "Stock Appreciation Right" -- is defined in Section 6(b) (ii).
(w) "Stock Award" -- is defined in Section 6(b) (ii).
(x) "Stock Equivalent Unit" -- means an Award that is valued by reference
to the value of Common Shares.
(y) "Stock Option" -- is defined in Section 6(b) (iii).
3. Eligibility
All employees of the Company and its Affiliates, whether or not Directors,
are eligible for the grant of Awards. The selection of any such employees to
receive Awards will be within the discretion of the Committee. More than one
Award may be granted to the same employee.
Notwithstanding the foregoing, any individual that renounces in writing any
right that he or she may have to receive Awards under the Plan shall not be
eligible to receive any Awards hereunder.
4. Common Shares Available for Awards; Adjustment
(a) Number of Common Shares. The aggregate number of Common Shares that may
be subject to Awards, including Stock Options, granted under this Plan during
the term of this Plan will be equal to One Million (1,000,000) Common Shares,
subject to any adjustments made in accordance with the terms of this Section 4.
The assumption of obligations in respect of awards granted by an
organization acquired by the Company, or the grant of Awards under this Plan in
substitution for any such awards, will not reduce the number of Common Shares
available in any fiscal year for the grant of Awards under this Plan.
Common Shares subject to an Award that is forfeited, terminated, or
canceled without having been exercised (other than Common Shares subject to a
Stock Option that is canceled upon the exercise of a related Stock Appreciation
Right) will again be available for grant under this Plan, without reducing the
number of Common Shares available in any fiscal year for grant of Awards under
this Plan, except to the extent that the availability of those Common Shares
would cause this Plan or any Awards granted under this Plan to fail to qualify
for the exemption provided by Rule 16b-3. In addition, any Common Shares which
are retained to satisfy a Participant's withholding tax obligations or which are
transferred to the Company by a Participant to satisfy such obligations or to
pay all or any portion of the exercise price of the Award in accordance with the
terms of the Plan, the Award Agreement or the Notice of Award, may be made
available for reoffering under the Plan to any Participant, except to the extent
that the availability of those Common Shares would cause this Plan or any Awards
granted under this Plan to fail to qualify for the exemption provided by Rule
16b-3.
(b) No Fractional Common Shares. No fractional Common Shares will be
issued, and the Committee will determine the manner in which the value of
fractional Common Shares will be treated.
(c) Adjustment. In the event of any change in the Common Shares by reason
of a merger, consolidation, reorganization, recapitalization, or similar
transaction, including any transaction described under Section 424(a) of the
Code, or in the event of a stock dividend, stock split, or distribution to
shareholders (other than normal cash dividends), the Committee will have
authority to adjust, in any manner that it deems equitable, the number and class
of Common Shares that may be issued under this Plan, the number and class of
Common Shares subject to outstanding Awards, the exercise price applicable to
outstanding Awards, and the Fair Market Value of the Common Shares and other
value determinations applicable to outstanding Awards, including as may be
allowed or required under Section 424(a) of the Code.
5. Administration
(a) Committee. This Plan will be administered by the Committee. The
Committee will, subject to the terms of this Plan, have the authority to: (i)
select the eligible employees who will receive Awards, (ii) grant Awards, (iii)
determine the number and types of Awards to be granted to eligible employees,
(iv) determine the terms, conditions, vesting periods, and restrictions
applicable to Awards, including timing and price, (v) adopt, alter, and repeal
administrative rules and practices governing this Plan, (vi) interpret the terms
and provisions of this Plan and any Awards granted under this Plan, including,
where applicable, determining the method of valuing any Award and certifying as
to the satisfaction of such Awards, (vii) prescribe the forms of any Notices of
Award, Award Agreements, or other instruments relating to Awards, and (viii)
otherwise supervise the administration of this Plan.
(b) Delegation. The Committee may delegate any of its authority to any
other person or persons that it deems appropriate, provided the delegation does
not cause this Plan or any Awards granted under this Plan to fail to qualify for
the exemption provided by Rule 16b-3 or for the exemption from Section 162(m) of
the Code for performance-based compensation.
(c) Decisions Final. All decisions by the Committee, and by any other
Person or Persons to whom the Committee has delegated authority, to the extent
permitted by law, will be final and binding on all Persons.
(d) No Liability. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
6. Awards
(a) Grant of Awards. The Committee will determine the type or types of
Awards to be granted to each Participant and will set forth in the related
Notice of Award or Award Agreement the terms, conditions, vesting periods, and
restrictions applicable to each Award. Awards may be granted singly or in
combination or tandem with other Awards. Awards may also be granted in
replacement of, or in substitution for, other awards granted by the Company,
whether or not granted under this Plan; without limiting the foregoing, if a
Participant pays all or part of the exercise price or taxes associated with an
Award by the transfer of Common Shares or the surrender of all or part of an
Award (including the Award being exercised), the Committee may, in its
discretion, grant a new Award to replace the Common Shares that were transferred
or the Award that was surrendered. The Company may assume obligations in respect
of awards granted by any Person acquired by the Company or may grant Awards in
replacement of, or in substitution for, any such awards.
(b) Types of Awards. Awards may include, but are not limited to, the
following:
(i) Stock Appreciation Right -- means a right to receive a payment,
in cash or Common Shares, equal to the excess of (A) the Fair
Market Value, or other specified valuation, of a specified number
of Common Shares on the date the right is exercised over (B) the
Fair Market Value, or other specified valuation, of such Common
Shares on the date the right is granted, all as determined by the
Committee. The right may be conditioned upon the occurrence of
certain events, such as a Change in Control of the Company, or
may be unconditional, as determined by the Committee.
(ii) Stock Award -- means an Award that is made in Common Shares,
Restricted Stock, or Stock Equivalent Units or that is otherwise
based on, or valued in whole or in part by reference to, the
Common Shares. All or part of any Stock Award may be subject to
conditions, restrictions, and risks of forfeiture, as and to the
extent established by the Committee. Stock Awards may be based on
the Fair Market Value of the Common Shares, or on other specified
values or methods of valuation, as determined by the Committee.
(iii)Stock Option -- means a right to purchase a specified number of
Common Shares, during a specified period, and at a specified
exercise price, all as determined by the Committee. A Stock
Option may be an Incentive Stock Option or a Stock Option that
does not qualify as an Incentive Stock Option. In addition to the
terms, conditions, vesting periods, and restrictions established
by the Committee, Incentive Stock Options must comply with the
requirements of Section 422 of the Code. The exercise price of a
Stock Option that does not qualify as an Incentive Stock Option
may be more or less than the Fair Market Value of the Common
Shares on the date the Stock Option is granted.
(iv) Cash Award -- An Award denominated in cash. All or part of any
Cash Award may be subject to conditions established by the
Committee, including but not limited to future service with the
Company or the achievement of specific performance objectives.
(c) Limits on Awards. The maximum aggregate number of Common Shares (i) for
which Stock Options may be granted, and (ii) with respect to which Stock
Appreciation Rights may be granted, to any particular employee during any
calendar year during the term of this Plan is 200,000 Common Shares, subject to
adjustment in accordance with Section 4(c).
7. Deferral of Payment
With the approval of the Committee, the delivery of the Common Shares,
cash, or any combination thereof subject to an Award may be deferred, either in
the form of installments or a single future delivery. The Committee may also
permit selected Participants to defer the receipt of some or all of their
Awards, as well as other compensation, in accordance with procedures established
by the Committee to assure that the recognition of taxable income is deferred
under the Code. Deferred amounts may, to the extent permitted by the Committee,
be credited as cash or Stock Equivalent Units. The Committee may also establish
rules and procedures for the crediting of interest on deferred cash payments and
dividend equivalents on Stock Equivalent Units.
8. Payment of Exercise Price
The exercise price of a Stock Option (other than an Incentive Stock Option)
and any Stock Award for which the Committee has established an exercise price
may be paid in cash, by the transfer of Common Shares, by the surrender of all
or part of an Award (including the Award being exercised), or by a combination
of these methods, as and to the extent permitted by the Committee. The exercise
price of an Incentive Stock Option may be paid in cash, by the transfer of
Common Shares, or by a combination of these methods, as and to the extent
permitted by the Committee but may not be paid by the surrender of all or part
of an Award. The Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purpose of
this Plan.
In the event Common Shares that are Restricted Stock are used to pay the
exercise price of a Stock Award, that number of the Common Shares issued upon
the exercise of the Award equal to the number of Common Shares that are
Restricted Stock that have been used to pay the exercise price will be subject
to the same restrictions as the Restricted Stock.
9. Taxes Associated with Award
Prior to the payment of an Award or upon the exercise or release thereof,
the Company may withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any Federal, state, and local taxes associated with the
Award. The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to pay any or all taxes associated
with the Award (other than an Incentive Stock Option) in cash, by the transfer
of Common Shares, by the surrender of all or part of an Award (including the
Award being exercised), or by a combination of these methods. The Committee may
permit a Participant to pay any or all taxes associated with an Incentive Stock
Option in cash, by the transfer of Common Shares, or by a combination of these
methods or by any other method which does not disqualify the option as an
Incentive Stock Option under applicable provisions of the Code.
10. Termination of Employment
If the employment of a Participant terminates for any reason, all
unexercised, deferred, and unpaid Awards may be exercisable or paid only in
accordance with rules established by the Committee or as specified in the
particular Award Agreement or Notice of Award. Such rules may provide, as the
Committee deems appropriate, for the expiration, continuation, or acceleration
of the vesting of all or part of the Awards.
11. Termination of Awards Under Certain Conditions
The Committee may cancel any unexpired, unpaid, or deferred Awards at any
time if the Participant is not in compliance with all applicable provisions of
this Plan or with any Notice of Award or Award Agreement or if the Participant,
without the prior written consent of the Company, engages in any of the
following activities:
(i) Renders services for an organization, or engages in a business,
that is, in the judgment of the Committee, in competition with
the Company.
(ii) Discloses to anyone outside of the Company, or uses for any
purpose other than the Company's business any confidential
information or material relating to the Company, whether acquired
by the Participant during or after employment with the Company,
in a fashion or with a result that the Committee, in its
judgment, deems is or may be injurious to the best interests of
the Company.
The Committee may, in its discretion and as a condition to the exercise of
an Award, require a Participant to acknowledge in writing that he or she is in
compliance with all applicable provisions of this Plan and of any Notice of
Award or Award Agreement and has not engaged in any activities referred to in
clauses (i) and (ii) above.
12. Change in Control
In the event of a Change in Control of the Company, unless and to the
extent otherwise determined by the Board of Directors, (i) all Stock
Appreciation Rights and Stock Options then outstanding will become fully
exercisable as of the date of the Change in Control, (ii) all restrictions and
conditions applicable to Restricted Stock and other Stock Awards will be deemed
to have been satisfied as of the date of the Change in Control, and (iii) all
Cash Awards will be deemed to have been fully earned as of the date of the
Change in Control. Any such determination by the Board of Directors that is made
after the occurrence of a Change in Control will not be effective unless a
majority of the Directors then in office are Continuing Directors and the
determination is approved by a majority of the Continuing Directors.
13. Amendment, Suspension, or Termination of this Plan; Amendment of
Outstanding Awards
(a) Amendment, Suspension, or Termination of this Plan. The Board of
Directors may amend, suspend, or terminate this Plan at any time; provided,
however, that in no event, without the approval of the Company's shareholders,
shall any action of the Committee or the Board of Directors result in:
(i) Increasing, except as provided in Section 4(c) hereof, the
maximum number of Common Shares that may be subject to Awards
granted under the Plan;
(ii) Making any change which would cause any option granted under the
Plan as an Incentive Stock Option not to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code; or
(iii)Making any change which would eliminate the exemption provided
by Rule 16b-3 for this Plan and for Awards granted under this
Plan.
(b) Amendment of Outstanding Awards. The Committee may, in its discretion,
amend the terms of any Award, prospectively or retroactively, but no such
amendment may impair the rights of any Participant without his or her consent.
The Committee may, in whole or in part, waive any restrictions or conditions
applicable to, or accelerate the vesting of, any Award.
14. Awards to Foreign Nationals and Employees Outside the United States
To the extent that the Committee deems appropriate to comply with foreign
law or practice and to further the purpose of this Plan, the Committee may,
without amending this Plan, (i) establish special rules applicable to Awards
granted to Participants who are foreign nationals, are employed outside the
United States, or both, including rules that differ from those established under
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
15. Nonassignability
Unless otherwise determined by the Committee, (i) no award granted under
the Plan may be transferred or assigned by the Participant to whom it is granted
other than by will, pursuant to the laws of descent and distribution, and (ii)
an Award granted under this Plan may be exercised, during the Participant's
lifetime, only by the Participant or by the Participant's guardian or legal
representative; except that, no Incentive Stock Option may be transferred or
assigned pursuant to a qualified domestic relations order or exercised, during
the Participant's lifetime, by the Participant's guardian or legal
representative.
16. Governing Law
The interpretation, validity, and enforcement of this Plan will, to the
extent not otherwise governed by the Code or the securities laws of the United
States, be governed by the laws of the State of Ohio.
17. No Rights as Employees/Shareholders
Nothing in the Plan or in any Award Agreement or Notice of Award shall
confer upon any Participant any right to continue in the employ of the Company
or an Affiliate, or to serve as a member of the Board of Directors or to be
entitled to receive any remuneration or benefits not set forth in the Plan or
such Award Agreement or Notice of Award, or to interfere with or limit either
the right of the Company or an Affiliate to terminate the employment of such
Participant at any time or the right of the shareholders of the Company to
remove him or her as a member of the Board of Directors with or without cause.
Nothing contained in the Plan or in any Award Agreement or Notice of Award shall
be construed as entitling any Participant to any rights of a shareholder as a
result of the grant of an Award until such time as Common Shares are actually
issued to such Participant pursuant to the exercise of a Stock Option, Stock
Appreciation Right or other Stock Award.
18. Effective and Termination Dates
(a) Effective Date. This Plan was approved by the Board of Directors on
January 28, 1994 and becomes effective upon adoption by the affirmative vote of
the holders of a majority of the voting power of the Company represented by the
Class A and Class B Common Shares, represented in person or by proxy, at any
annual or special meeting of shareholders at which a quorum is present. The Plan
shall be deemed to be adopted on the date of such shareholder meeting.
(b) Termination Date. This Plan will continue in effect until midnight on
May 23, 2004; provided, however, that Awards granted on or before that date may
extend beyond that date and restrictions and other terms and conditions imposed
on Restricted Stock or any other Award granted on or before that date may extend
beyond such date.
IN WITNESS WHEREOF, the undersigned by its duly authorized officer, has
hereunto set forth its signatures as of the effective date of the Plan.
INVACARE CORPORATION
By: /s/ A.M. Mixon
--------------------------------------------
A.M. Mixon, Chairman, Chief Executive Officer and
President
By: /s/ Thomas R. Miklich
-------------------------------------------
Thomas R. Miklich, Chief Financial Officer and
Treasurer
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Exhibit 10(f)
INVACARE CORPORATION
Note Purchase Agreement
DATED AS OF FEBRUARY 27, 1998
$80,000,000 6.71% SERIES A SENIOR NOTES DUE FEBRUARY 27, 2008
$20,000,000 6.60% SERIES B SENIOR NOTES DUE FEBRUARY 27, 2005
TABLE OF CONTENTS
PAGE
1. AUTHORIZATION OF NOTES.............................................. 1
2. SALE AND PURCHASE OF NOTES.......................................... 2
3. CLOSING............................................................. 2
4. CONDITIONS TO CLOSING............................................... 2
4.1 Representations and Warranties............................. 2
4.2 Performance; No Default.................................... 2
4.3 Compliance Certificates.................................... 3
4.4 Opinions of Counsel........................................ 3
4.5 Purchase Permitted By Applicable Law, etc.................. 3
4.6 Sale of Other Notes........................................ 4
4.7 Payment of Special Counsel Fees............................ 4
4.8 Private Placement Numbers.................................. 4
4.9 Changes in Structure....................................... 4
4.10 Proceedings and Documents.................................. 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 4
5.1 Organization; Power and Authority.......................... 4
5.2 Authorization, etc......................................... 5
5.3 Disclosure................................................. 5
5.4 Organization and Ownership of Shares of Subsidiaries;
Affiliates............................................... 6
5.5 Financial Statements....................................... 6
5.6 Compliance with Laws, Other Instruments, etc............... 7
5.7 Governmental Authorizations, etc........................... 7
5.8 Litigation; Observance of Agreements, Statutes and Orders.. 7
5.9 Taxes...................................................... 8
5.10 Title to Property; Leases.................................. 8
5.11 Licenses, Permits, etc..................................... 8
5.12 Pension Plans.............................................. 9
5.13 Private Offering by the Company............................ 10
5.14 Use of Proceeds; Margin Regulations........................ 10
5.15 Existing Debt; Future Liens................................ 10
5.16 Foreign Assets Control Regulations, etc.................... 11
5.17 Status under Certain Statutes.............................. 11
5.18 Environmental Matters...................................... 11
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6. REPRESENTATIONS OF THE PURCHASER.................................... 12
6.1 Purchase for Investment.................................... 12
6.2 Source of Funds............................................ 12
7. INFORMATION AS TO COMPANY........................................... 13
7.1 Financial and Business Information......................... 13
TABLE OF CONTENTS (cont.)
7.2 Officer's Certificate...................................... 16
7.3 Inspection................................................. 16
8. PREPAYMENT OF THE NOTES............................................. 17
8.1 Required Prepayments....................................... 17
8.2 Optional Prepayments of Notes with Make-Whole Amount....... 17
8.3 Allocation of Note Partial Prepayments..................... 18
8.4 Notes; Maturity; Surrender, etc............................ 18
8.5 Purchase of Notes.......................................... 19
8.6 Offer to Prepay upon Change in Control, etc................ 19
8.7 Make-Whole Amount.......................................... 21
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9. INTEREST ON THE NOTES............................................... 22
9.1 Series A Notes............................................. 22
9.2 Series B Notes............................................. 22
10. AFFIRMATIVE COVENANTS............................................... 22
10.1 Compliance with Law........................................ 23
10.2 Insurance.................................................. 23
10.3 Maintenance of Properties.................................. 23
10.4 Payment of Taxes and Claims................................ 23
10.5 Corporate Existence, etc................................... 24
10.6 Pari Passu Obligations..................................... 24
11. NEGATIVE COVENANTS.................................................. 24
11.1 Transactions with Affiliates............................... 24
11.2 Merger, Consolidation, etc................................. 24
11.3 Maximum Amount of Consolidated Debt........................ 25
11.4 Incurrence of Priority Debt................................ 26
11.5 Consolidated Net Worth..................................... 26
11.6 Liens...................................................... 27
11.7 Sale of Assets, etc........................................ 30
11.8 Line of Business........................................... 32
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12. EVENTS OF DEFAULT................................................... 32
13. REMEDIES ON DEFAULT, ETC............................................ 34
13.1 Acceleration............................................... 34
13.2 Other Remedies............................................. 35
13.3 Rescission................................................. 35
13.4 No Waivers or Election of Remedies, Expenses, etc.......... 36
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14. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES....................... 36
14.1 Registration of Notes...................................... 36
TABLE OF CONTENTS (cont.)
14.2 Transfer and Exchange of Notes............................. 36
14.3 Replacement of Notes....................................... 37
15. PAYMENTS ON NOTES................................................... 37
15.1 Place of Payment........................................... 37
15.2 Home Office Payment........................................ 37
16. EXPENSES, ETC....................................................... 38
16.1 Transaction Expenses....................................... 38
16.2 Survival................................................... 38
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT........ 38
18. AMENDMENT AND WAIVER................................................ 39
18.1 Requirements............................................... 39
18.2 Solicitation of Holders of Notes........................... 39
18.3 Binding Effect, etc........................................ 39
18.4 Notes held by Company, etc................................. 40
19. NOTICES............................................................. 40
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20. REPRODUCTION OF DOCUMENTS........................................... 40
21. CONFIDENTIAL INFORMATION............................................ 41
22. SUBSTITUTION OF PURCHASER........................................... 42
23. ADDITIONAL NOTE PROVISIONS.......................................... 43
24. MISCELLANEOUS....................................................... 43
24.1 Successors and Assigns..................................... 43
24.2 Payments Due on Non-Business Days.......................... 43
24.3 Severability............................................... 43
24.4 Construction............................................... 43
24.5 Counterparts............................................... 43
24.6 Governing Law.............................................. 44
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SCHEDULES:
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE C -- Payment Instructions at Closing
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Ownership of the Company; Affiliates
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Licenses, Permits, etc.
SCHEDULE 5.12(g) -- Certain Pension Plans
SCHEDULE 5.14 -- Use of Proceeds; Margin Stock
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 11.6 -- Existing Liens
SCHEDULE B-C -- Competitors
SCHEDULE B-MT -- Management Team
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EXHIBITS:
EXHIBIT 1A -- Form of 6.71% Series A Senior Note due
February 27, 2008
EXHIBIT 1B -- Form of 6.60% Series B Senior Note due
February 27, 2005
EXHIBIT 4.4(a) -- Form of Opinion of General Counsel of the
Company
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EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the
Company
INVACARE CORPORATION
One Invacare Way
Elyria, Ohio 44035
$80,000,000 6.71% SERIES A SENIOR NOTES DUE FEBRUARY 27, 2008
$20,000,000 6.60% SERIES B SENIOR NOTES DUE FEBRUARY 27, 2005
Dated as of February 27, 1998
[Separately addressed to each of
the Purchasers identified on Schedule A]
Ladies and Gentlemen:
INVACARE CORPORATION, an Ohio corporation (together with its permitted
successors, the "Company"), hereby agrees with you as follows:
1. AUTHORIZATION OF NOTES
The Company will authorize the issue and sale of
(a) $80,000,000 aggregate principal amount of its 6.71%
Series A Senior Notes due February 27, 2008 (the
"Series A Notes") and
(b) $20,000,000 aggregate principal amount of its 6.60%
Series B Senior Notes due February 27, 2005 (the
"Series B Notes").
The term "Series A Notes" as used in this Agreement shall include each Series A
Note delivered pursuant to this Agreement and the Other Agreements (as
hereinafter defined) and any such notes issued in substitution therefor pursuant
to Section 14 of this Agreement or the Other Agreements, and the term "Series B
Notes" as used in this Agreement shall include each Series B Note delivered
pursuant to this Agreement and the Other Agreements and any such notes issued in
substitution therefor pursuant to Section 14 of this Agreement or the Other
Agreements. The term "Notes" as used in this Agreement shall include each Series
A Note and each Series B Note. The Series A Notes and the Series B Notes shall
be substantially in the forms set out in Exhibits 1A and 1B, respectively, with
such changes therefrom, if any, as may be approved by you, the Other Purchasers
(as hereinafter defined) and the Company. Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
2. SALE AND PURCHASE OF NOTES
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount and of the Series
specified below your name in Schedule A at the purchase price of 100% of the
principal amount thereof. Contemporaneously with entering into this Agreement,
the Company is entering into separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement with each of the other purchasers
named in Schedule A (the "Other Purchasers"), providing for the sale at such
Closing to each of the Other Purchasers of Notes in the principal amount and of
the Series specified below its name in Schedule A. Your obligation hereunder and
the obligations of the Other Purchasers under the Other Agreements are several
and not joint obligations and you shall have no obligation under any Other
Agreement and no liability to any Person for the performance or non-performance
by any Other Purchaser thereunder.
3. CLOSING
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Chapman and Cutler, at 10:00 a.m.,
local time, at a closing (the "Closing") on March 4, 1998 or on such other
Business Day thereafter as may be agreed upon by the Company and you and the
Other Purchasers. At the Closing the Company will deliver to you the Notes of
the Series to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $500,000 as you may request), dated
the date of the Closing and registered in your name (or in the name of your
nominee), against delivery by you to the Company or its order of immediately
available funds in the amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company as indicated on
Schedule C. If at the Closing the Company shall fail to tender such Notes to you
as provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to your satisfaction, you shall, at your
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights you may have by reason of such failure or such
nonfulfillment.
4. CONDITIONS TO CLOSING
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1 Representations and Warranties
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
4.2 Performance; No Default
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and, after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14 ) no Default or Event of Default shall have occurred and be
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continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
Sections 11.1 through 11.3 or Sections 11.5 through 11.8 had such Sections
applied since such date and, with respect to Section 11.4, a Subsidiary shall be
able to borrow at least One Dollar of Debt under said Section 11.4 as of the
date of Closing.
4.3 Compliance Certificates
(a) Officer's Certificates. The Company shall have delivered
to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Section 4.1, Section 4.2
and Section 4.9 have been fulfilled.
(b) Secretary's Certificates. The Company shall have delivered
to you a certificate of its Secretary or one of its Assistant
Secretaries, dated the date of the Closing, certifying as to the
resolutions attached thereto and other proceedings relating to the
authorization, execution and delivery of the Notes, this Agreement and
the Other Agreements.
4.4 Opinions of Counsel
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing,
(a) from Thomas R. Miklich, General Counsel of the Company,
substantially in the form set out in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you
or your counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to you),
(b) from Hebb & Gitlin, special counsel for the Company,
substantially in the form set out in Exhibit 4.4(b) and covering such
other matters incident to the transactions contemplated hereby as you
or your counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to you) and
(c) from Chapman and Cutler, your special counsel in
connection with the transactions contemplated hereby.
4.5 Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of Notes shall (a) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (b) not
violate any applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal Reserve System)
and (c) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date of your execution and delivery of this Agreement. If requested by you,
you shall have received an Officer's Certificate certifying as to such matters
of fact as you may reasonably specify to enable you to determine whether such
purchase is so permitted.
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4.6 Sale of Other Notes
Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Notes to be purchased by
them at the Closing, as specified in Schedule A.
4.7 Payment of Special Counsel Fees
Without limiting the provisions of Section 16.1, the Company shall have
paid on or before the Closing, the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the date of the Closing.
4.8 Private Placement Numbers
A Private Placement Number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for each Series
of the Notes.
4.9 Changes in Structure
Except as specified in Schedule 4.9, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
4.10 Proceedings and Documents
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to you, as of the date of this
Agreement, that:
5.1 Organization; Power and Authority
The Company is a corporation, duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
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Agreement, the Other Agreements and the Notes and to perform the provisions
hereof and thereof.
5.2 Authorization, etc.
This Agreement, the Other Agreements and the Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law or
in respect of specific performance).
5.3 Disclosure
(a) The Company, through the Placement Agents, has delivered
to you and each Other Purchaser a copy of a Confidential Private
Placement Memorandum, dated January 1998 (the "Memorandum"), relating
to the transactions contemplated hereby. The Memorandum fairly
describes, in all material respects, the general nature of the business
and principal properties of the Company and its Subsidiaries. Except as
disclosed in Schedule 5.3, this Agreement, the Memorandum, the
documents, certificates or other writings delivered to you by or on
behalf of the Company in connection with the transactions contemplated
hereby and the financial statements listed in Schedule 5.5, taken as a
whole, do not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein
(taken as a whole) not misleading in light of the circumstances under
which they were made. Except as disclosed in the Memorandum or as
expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since December 31, 1996, there has
been no change in the financial condition, operations, business,
properties or prospects of the Company and its Subsidiaries except
changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to a
Senior Financial Officer that could re |
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