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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 0-12938
INVACARE CORPORATION
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(Exact name of Registrant as specified in its charter)
Ohio 95-2680965
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Invacare Way, P. O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (440) 329-6000
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which Registered
- ------------------- ------------------------------------
Common Shares, without par value New York Stock Exchange
Rights to Purchase Commons Shares New York Stock Exchange
of Invacare, without par value
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and (2) has been subject
to the filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
1
As of February 28, 2001, 29,127,281 Common Shares and 1,371,623 Class B Common
Shares were outstanding. At that date, the aggregate market value of the
26,092,904 Common Shares of the Registrant held by non-affiliates was
$948,313,980 and the aggregate market value of the 32,063 Class B Common Shares
of the Registrant held by non-affiliates was $1,165,290. While the Class B
Common Shares are not listed for public trading on any exchange or market
system, shares of that class are convertible into Common Shares at any time on a
share-for-share basis. The market values indicated were calculated based upon
the last sale price of the Common Shares as reported by New York Stock Exchange
on February 28, 2001, which was $36.34. For purposes of this information, the
3,034,377 Common Shares and 1,339,560 Class B Common Shares which were held by
Executive Officers and Directors were deemed to be the Common Shares and Class B
Common Shares held by affiliates.
Documents Incorporated By Reference
Part of Form 10-K Document Incorporated By Reference
Part III (Items 10, 11, Portions of the Registrant's
12 and 13) definitive Proxy Statement to
be used in connection with
its 2001 Annual Meeting of
Shareholders.
Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 2000.
2
PART I
Item 1. Business.
(a) General Development of Business.
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 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 10,000 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 manufacturer's representatives and distributors.
The company also distributes medical equipment and related supplies manufactured
by others.
Invacare is committed to design, manufacture and distribute the best value in
mobility products and medical equipment for people with disabilities and those
requiring care in the non-acute environment. Invacare intends to achieve 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 under the "Total One
Stop Shoppingsm" strategy;
* 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;
* handling the retail channel through a dedicated sales and
marketing structure;
* continuous advancement/recruitment of top management
candidates;
* empowering all employees;
* providing a performance-based reward environment; and
* continually striving for total quality throughout the
organization.
When the company was acquired in December 1979 by a group of investors,
including certain members of management and the Board of Directors, it had $19.5
million in net sales and a limited product line of standard wheelchairs and
patient aids. In 2000, Invacare reached $1,013 million in net sales,
representing a 21% compound average sales growth rate since 1979, and currently
is the leading company in the industry which 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 and bathing equipment.
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.
(b) Financial Information About Industry Segments.
The company operates predominantly in the home medical equipment industry
segment. For information relating to net sales, operating income, identifiable
assets and other information for this industry segment, see the Consolidated
Financial Statements of the company.
(c) Narrative Description of Business.
3
THE HOME MEDICAL EQUIPMENT INDUSTRY
North America and Australasia
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 as a
result of several factors, including:
Growth in population over age 65. The nation's overall life expectancy
increases with every passing year reaching its current all time high of
approximately 76.5 years. Based on a 1999 U.S. government report, 13% of
the U.S. population in 1997 was 65 or older, this percentage is expected to
increase to 20% by 2030. The over 65 age group represents the vast majority
of home health care patients and continues to grow. A significant
percentage of people using home and community-based health care services
are also 65 years of age and older.
Treatment trends. Many medical professionals and patients prefer home
health care over institutional care because they believe that it results in
greater patient independence, increased patient responsibility and improved
responsiveness to treatment as familiar surroundings are believed to be
conducive to improved patient outcomes. Health care professionals, public
payors and private payors agree that home care is a cost effective,
clinically appropriate alternative to facility-based care. Recent surveys
show that approximately 70% of adults would rather recover from accident or
illness in their home, while approximately 90% of the older population
showed preference for home-based long-term care.
Technological trends. Technological advances have made medical equipment
increasingly adaptable for use in the home as current hospital procedures
often allow for earlier patient discharge, thereby lengthening recuperation
periods outside of the traditional institutional setting. In addition,
continuing medical advances prolong the lives of adults and children, thus
increasing the demand for home medical care equipment.
Healthcare cost containment trends. In 1997, spending on health care in the
U.S. was nearly $1.1 trillion dollars, which is approximately 14.0% of
Gross Domestic Product (GDP), the highest among industrialized countries.
In 2007, the nation's health care spending is projected to increase to $2.1
trillion, averaging annual increases of 7%. Over this same period, spending
on health care is expected to increase from approximately 14% to 17% as a
share of GDP in the years 1996 through 2007. The rising cost of health care
has caused many payors of health care expenses to look for ways to contain
costs. Home health care has gained wide-spread acceptance among health care
providers and public policy makers as a cost effective, clinically
appropriate and patient preferred alternative to facility-based care for a
variety of acute and long-term illnesses and disabilities. Thus, the
company believes that home health care and home medical equipment will play
a significant role in reducing health care costs.
Society's mainstreaming of people with disabilities. People with
disabilities are part of the fabric of society, and this has increased, in
large part, due to the Americans with Disabilities Act which became law in
1991. This legislation provides mainstream opportunities to people with
disabilities. The Americans with Disabilities Act imposes requirements on
certain components of society to make "reasonable accommodations" to
integrate people with disabilities into the community and the workplace.
Distribution channels. The changing home health care market continues to
provide new ways of reaching the end user. The distribution network for
products has expanded to include not only specialized home health care
providers and extended care facilities but retail drug stores, surgical
supply houses, rental, hospital and HMO-based stores, home health agencies,
mass merchandisers, direct sales and the internet.
Europe
The company believes that, while many of the market factors influencing demand
in the U.S. are also present in Europe - aging of the population, technological
trends and society's acceptance of people with disabilities - each of the major
national markets within Europe has distinctive characteristics. The European
health care industry is more heavily socialized than the United States and is
therefore more influenced by government regulation and fiscal policy. Variations
in product specifications, regulatory approvals, distribution requirements and
reimbursement policies require the company to tailor its approach to each
market. Management believes that as the European markets become more homogeneous
and the company continues to refine its distribution channels, the company can
more effectively penetrate these markets.
4
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 principally sells Invacare products
manufactured in the U.S. The company also sells standard wheelchairs and seating
and positioning products manufactured in Canada.
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 to meet a broad range of individual requirements. Power
wheelchair lines are marketed under the Invacare(R) brand name and include
a full range of powered mobility products. The Pronto M6, introduced in
2000, is a compact, maneuverable power wheelchair designed to allow elderly
consumers to be more mobile in the home and community.
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 and Invacare Top End(R)
product names. The chairs provide mobility for people with moderate to
severe disabilities in their everyday activities as well as for various
sports such as basketball, racing, skiing and tennis.
Scooters. Invacare distributes three- and four-wheeled motorized scooters,
including rear wheel drive models for both outdoor and indoor use and
markets them under the Invacare brand name. In 1999, a complete line of
scooters was introduced under the Lynx(TM) and Panther(TM) product names.
Seating and positioning products. Invacare manufactures seat cushions, back
positioners and a variety of attachments used for comfort, support,
pressure relief and posture control and markets them under the Invacare(R)
brand name. Additional seating products marketed under the Invacare brand,
include the Tarsys(TM) range of powered tilt and recline seating systems
for use on power wheelchairs. Our Invacare 2G Tilt and Recline products
continue to be successful in the market.
STANDARD PRODUCTS
Manual wheelchairs. Invacare's manual wheelchairs are sold for use in the
home, institutional setting or public places (e.g.: airports, malls, etc.)
by people who are chronically or temporarily disabled but do not require or
qualify under medical reimbursement programs for customization in terms of
size, basic performance characteristics, or frame modification. Examples of
Invacare's standard wheelchair lines, which are marketed under the
Invacare(R) brand name, include the 9000 and TracerTM product lines. Both
standard and prescription manual wheelchairs are designed to accommodate
the diverse capabilities of the individual.
Personal care. Invacare manufactures and/or distributes a full line of
patient aids, including ambulatory aids such as crutches, canes, walkers
and wheeled walkers; bath safety aids such as tub transfer benches, shower
chairs and grab bars; and patient care products such as commodes, lift-out
chairs and foam products.
Home care beds. Invacare manufactures and distributes a wide variety of
manual, semi-electric and fully-electric beds for home use under the
Invacare(R) brand name. Home care bed accessories include bedside rails,
mattresses, overbed tables, trapeze bars and traction equipment.
Low air loss therapy products. Invacare manufactures and markets a complete
line of mattress overlays and replacement products, under the Invacare(R)
brand name, which use air flotation to redistribute weight and move
moisture away from patients who are immobile and spend a great deal of time
in bed.
CONTINUING CARE / DISTRIBUTED PRODUCTS
Distributed products. Invacare distributes numerous lines of branded
medical supplies including ostomy, incontinence, diabetic and wound care
products.
Patient transport. Invacare manufactures and markets products for use in
the home and institutional settings, including patient lifts and slings,
multi-position recliners and bathing equipment.
Health Care Furnishings. Invacare, operating as Invacare Continuing Care
Group, is a manufacturer and distributor of beds and furnishings for the
non-acute care markets.
5
RESPIRATORY PRODUCTS
Home respiratory products. Invacare manufactures and/or distributes home
respiratory products including oxygen concentrators, nebulizer compressors
and respiratory disposables, sleep therapy products, portable compressed
oxygen systems and liquid oxygen systems. Invacare's home respiratory
products are marketed predominantly under the Invacare(R) brand name.
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.
Australasia
The company's Australasia 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, Dynamic Controls,
a New Zealand manufacturer of operating components used in power wheelchairs and
Invacare New Zealand, a distribution business and a manufacturer of the Thompson
line of mobility products.
Europe
The company's European operations operate as a "common market" company with
sales throughout Western Europe. The European operation currently sells a line
of products providing significant room for growth as Invacare continues to
broaden its product line offerings to mirror that of the North American
operations.
Most wheelchair products sold in Europe are designed and manufactured locally to
meet specific market requirements. However, as a result of Invacare's worldwide
development efforts, the Action 2000, a manual lightweight design that
originated in the U.S., was the first wheelchair in Europe to meet the high
standards of quality required to receive the Community European (CE) mark. In
addition, certain power wheelchair products sold in the United States are
adaptations of products originally designed for the European markets. Also, with
the acquisition of Scandinavian Mobility, Invacare not only has improved access
of such products to Nordic markets, but also has a range of premium designs
which are exported worldwide to the U.S., Far East and Southern Europe.
The company manufactures and/or assembles both manual and power wheelchair
products at six of its European facilities - Invacare Ltd. in the U.K., Invacare
Poirier S.A. in France, Invacare Deutschland GmbH in Germany, Invacare Portugal
Lda.in Portugal, Invacare AG in Switzerland, and Invacare Rea AB in Sweden.
Motorized scooters are manufactured in Germany. Beds are manufactured at
Invacare EC-Hong A/S in Denmark. Self care products, bathtubs, patient lifts and
slings are also manufactured in the United Kingdom, France, and Holland. Oxygen
products are imported from Invacare's U.S. operations.
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 non-renewable
warranty also is offered on various products for a maximum period of five years.
COMPETITION
In each of the company's major product lines, both domestically and
internationally, there are a limited number of significant national competitors
and a number of multi-national competitors. In some countries or in certain
product lines, the company may face competition from other manufacturers that
have larger market shares, greater resources or other competitive advantages.
Invacare believes that it is the leading home medical equipment manufacturer
based on its distribution channels, breadth of product line and sales.
North America and Australasia
The home medical equipment (HME) market is highly competitive, and Invacare's
products face significant competition from other well-established manufacturers.
The company believes that its success in increasing market share is dependent on
providing value to the customer based on the quality, performance and price of
the company's products, the range of products offered, the technical expertise
of the sales force, the effectiveness of the company's distribution system, the
strength of the dealer and distributor network and the availability of prompt
and reliable service for its products. The company believes that its "Total One
Stop Shoppingsm" approach provides the competitive advantage necessary for
continuing profitability and market share growth. Various manufacturers have,
from time to time, instituted price-cutting programs in an effort to gain market
share. There can be no assurance that other HME manufacturers will not attempt
to implement such aggressive pricing in the future.
6
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 Australasia
Invacare's products are marketed in the United States and Australasia 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 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.
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. Sales to the non-acute care market are conducted through the
company's Invacare Continuing Care Group (ICCG) which contracts with independent
manufacturer's sales representatives. 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-sales materials and other advertising and
merchandising aids. In Canada, products are sold by a direct sales force and
distributed through regional distribution centers in British Columbia, Ontario
and Quebec to health care providers throughout Canada.
To complement its outside direct sales force, and to support its efforts to
increase business with smaller-to-medium- sized customers, the company formed an
Inside Sales Department in 2000. The Inside Sales Department was established to
significantly grow sales to customers with annual purchases up to $50,000.
Working in tandem with the company's outside sales force, the inside sales
representatives support their customers with a targeted telesales effort.
Customer response has been very positive, resulting in a sales increase in the
targeted accounts in excess of 40%.
To ensure that all consumers using Invacare products receive quality service and
support that is consistent with the Invacare brand promise, the company
established a Service Referral Network as part of its National Service Center
Network in 2000. The goal of the Service Referral Network is to establish a
geographically dispersed network of Service Centers that are capable of proving
quality service for Invacare products regardless of where the products were
purchased. In addition, the Network provides an additional profit-revenue center
for participating providers.
The company sells distributed products, primarily soft goods and disposable
medical supplies, through the Invacare Supply Group (ISG), formerly known as
Suburban Ostomy Supply Company, Inc. The acquisition of ISG in 1998 was an
important addition to Invacare's "Total One Stop Shoppingsm" program, through
which Invacare offers HME providers of all sizes the broadest range of products
and services at the total lowest cost. Invacare Supply Group's products include
ostomy, incontinence, wound care and diabetic supplies, as well as other soft
goods and disposable products. These products are complementary to Invacare's
products and are purchased by many of the same customers that buy Invacare's
equipment products. Invacare Supply Group markets its products through the
internet, an inside telesales and customer service department, in addition to
Invacare's 100+ HME field sales force. Invacare Supply Group also markets a Home
Delivery program to HME providers through which Invacare Supply Group drop-ships
supplies in the provider's name to the customer's address. Providers have no
products to stock, no minimum orders and delivery within 24-48 hours nationwide.
In 2000, the company continued to focus on building the Invacare brand with a
multi-faceted campaign through its Marketing Advantage Partnership (MAP)
program, which is designed to increase the general public's awareness of home
medical equipment products, while at the same time seeking to establish the
Invacare brand name as the brand preferred by consumers. As part of this
multi-faceted campaign, the company launched a Direct Response Television (DRTV)
campaign which focuses on scooters and powers chairs, and is generating
qualified consumer leads which are passed on to Invacare's dealer-provider
customers. In developing its DRTV campaign, the company retained the nation's
largest advertising agency in the U.S. specializing in direct response broadcast
advertising.
7
Building on the company's leadership position in e-commerce in the HME industry,
Invacare enhanced its business-to-business site, Invacare Pro. Through Invacare
Pro, customers can access a wealth of product, pricing and inventory information
in real time. Specifically, customers can place orders for product on-line in
one simple step; obtain quick, accurate, over-the-Internet price quotes and
product availability information; and provide consumers with accurate lead and
delivery times. In addition to enhancements to Invacare Pro, the company
launched a redesign of www.invacare.com. The company also announced an agreement
with the internationally renowned Cleveland Clinic to host medical content
provided by the Cleveland Clinic on the Invacare web site, and the site of
Invacare Supply Group. In addition to accessing the content about various
diseases and medical conditions, consumers visiting the Invacare sites will be
able to access a list of products which are medically appropriate for a
particular disease or condition. Consumers who are interested in purchasing the
product will be launched to a participating Invacare providers' web site where
they can facilitate the on-line transaction.
In 2000, Invacare continued refining its strategic advertising campaign in home
health care magazines and trade publications which complement the company's
focused brand strategy. The "umbrella" HME campaign which was introduced in
1998, featuring the company's chairman and CEO, A. Malachi Mixon, III as its
spokesperson, was continued. Mr. Mixon continues to be featured in the company's
trade advertising. The company also contributed extensively to editorial
coverage in trade publications on articles concerning 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 Invacare and its
products, as evidenced by enhancements made to its consumer marketing program in
2000 through sponsorship of a variety of wheelchair activities and support of
various charitable causes which benefit the users of its products. Invacare
continued for the seventh year as a National Corporate Sponsor of Easter Seals,
one of the most recognizable charities in the United States that annually meets
the needs of over 40 million children and adults who have various types of
disabilities. The company further enhanced its sponsorship of over 75 individual
wheelchair athletes and teams, including the top-ranked women's wheelchair racer
in the world, and several of the top-ranked men's and women's wheelchair tennis
players in the world. Invacare participated for the fifth year in a row as the
title sponsor of the Invacare World Team Cup tennis tournament, which took place
during the summer in Paris, France. In addition, 39 athletes using Invacare(R)
Top End(R) wheelchairs to enhance their performance won a total of 74 medals at
the 2000 Paralympic Games in Sydney, Australia, including 30 gold medals, 26
silver and 18 bronze.
The company's top ten customers accounted for approximately 15% of 2000 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 2000 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 distribution centers in the United Kingdom, France, Germany, Belgium,
Portugal, Spain, Denmark, Sweden, Switzerland, Norway, Austria 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.
PRODUCT LIABILITY COSTS
The company's captive insurance company, Invatection Insurance Co., was formed
in 1986. Currently, it has a policy year that runs from September 1 to August 31
and insures annual aggregate policy losses of $5 million of the company's
domestic product liability exposure. In the prior two policy years, the limit of
liability was $2 million per claim and $3 million in the aggregate. The company
also has additional layers of coverage insuring $85 million in annual aggregate
losses arising from individual claims 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 an affordable rate.
PRODUCT DEVELOPMENT AND ENGINEERING
Invacare is committed to continuously improving, expanding and broadening its
existing product lines. During the past three years, new product introductions
included: major improvements in the power wheelchair line in terms of
electronics, functionality and aesthetics; new models of power wheelchairs; new
additions/enhancements to the electronic controllers for power wheelchairs; new
models of aluminum frame ultralight wheelchairs; a comprehensive new line of
innovative seating and positioning products; a complete line of home respiratory
products, including nebulizer compressors, flowmeters, aspirators, oxygen
analyzer, and respiratory disposables; and an improved line of ambulatory and
safety products.
8
New product development remains a key component of Invacare's strategy to grow
market share and maintain competitive advantage. To this end, Invacare's efforts
in 2000 continued to focus resources on innovative manufacturing concepts while
also investing significant resources in cost reduction and design improvement.
Important new technologies were added, as well as many line extensions and
refinements to existing categories. In 2000, over 30 new products were
introduced with the most significant being:
North America
The Invacare(R) 2GTR Power Elevating Legrests feature low-profile design,
yet powerful leg-elevating capacity up to 350 pounds; has durable
interlocking, non-rotational design, and swing-away access.
The Invacare(R) 9000 Jymni(TM) is a lightweight pediatric manual
wheelchair with a low seat-to-floor height, dual position axle which
allows seat-to-floor height adjustments, and an adjustable height back to
assure proper back support for any activity.
The Invacare(R) 9000 Topaz(TM) is a heavy-duty manual wheelchair with a
multi-positional frame for bariatric users up to 700 pounds. The Topaz
features variable seat widths and depths to help reduce the risk of skin
and/or tissue breakdown.
The Invacare(R) A-6S/F-6S are rigid custom manual wheelchairs for everyday
use which feature rigid suspension, telescoping wheelbase, integrated head
tubes, and an adjustable camber system. The A-6S (adjustable model) offers
a seat angle adjustment feature; the F-6S (fixed seat model) offers a
permanently fixed seat angle.
The Invacare(R) BAR600 Bariatric Bed has a heavy-duty frame with extra
bracing to provide maximum support for up to 600 pounds. It features a
wider sleep surface which can be operated by using the hand pendant to
change the position of the head and foot sections as well as the bed
height. An emergency crank is provided as well.
The Invacare(R) Envoy(TM) Jr. Aerosol Compressor is a high-quality, yet
economical compressor for aerosol treatment deliver. The Envoy features a
new aerodynamic shape and design, a reusable inlet filter, smaller
footprint, and a convenient cord wrap built into the base. It is among the
easiest of compressors to use.
The Invacare(R) Infinity(TM) AirFlo(TM) Cushion provides high-end skin
protection without sacrificing comfort, stability or support, and
demonstrates exceptional performance among a wide range of client groups.
The AirFlo cushion, available in standard and builder sizes, offers easy,
one-handed operation of the insert inflation built, and a quick
disconnection system.
With a true mid-wheel drive system, the Invacare(R) Pronto(TM) M6 provides
the ultimate in maneuverability, allowing the chair to turn within its own
footprint. It also features a comfortable van seat with 18 seating and
positioning adjustments.
Three new Invacare(R) Rollators offer performance features to serve
diverse needs. The Invacare(R) Sandstorm(TM) Rollator features a
lightweight frame, removable form-padded backrest, handbrakes, a removable
carrying basket, plastic tray, 5-inch rubber wheels, and one of the best
warranties on the market. Weight capacity is 250 pounds. The Invacare(R)
Frontier Lite Rollator, similar to the Sandstorm, also offers a push-down
brake lock which is activated when the user is in the seated position. The
Invacare(R) Stardust Rollator, similar to the Sandstorm and Frontier Lite,
features a second bar that serves as a transport handle; a footrest to use
as a curb climber, and a 300 pound weight capacity.
The Invacare(R) Spyder(TM) is a compact, high-performance manual
wheelchair that offers unprecedented versatility in a folding chair. The
Spyder also offers several choices of front riggings, an optional
suspension fork, and three choices of camber with the camber angle built
into the axle plate.
Three new Invacare(R) Top End(R) wheelchairs - the Top End(R) T-3(TM)
Tennis Adjustable, the Top End(R) Eliminator OSR, and the Top End(R)
Terminator(TM) SS 2000 - have been designed and redesigned for truly
active wheelchair users. The Top End T-3 Tennis Adjustable chair has been
redesigned and features a new rear- and front-seat height adjustment
mechanism, new swivel anti-tip system, and a new footrest system. The Top
End Eliminator OSR is a track and road-racing wheelchair with a custom
aluminum frame, wrap-around fenders, oversized rake for maximum traction,
and a relaxed head-tube angle for stability. The Top End Terminator SS
2000's redesign incorporates a quadra pivot rear suspension system with
polymer shock absorption, custom chrome-moly frame, new front suspension
casters and new rear suspension units.
Australasia
Invacare Australia has recently introduced a new mid-range power chair called
the "Roller." It is an innovative 4 wheeler available with a number of feature
options to meet customer needs. Also introduced during the year was a new
scooter controller.
9
Europe
During 2000, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 2000 included:
The Invacare(R) SB400 Bed, which addresses the customer and regulatory
needs primarily of the French market, is an example of the possible cross
selling of products related to the acquisition of Scandinavian Mobility in
1999. The Danish manufacturing plant worked closely with the French
marketing and sales team to design and manufacture a cost competitive bed
with the necessary features to gain market share in 2000.
The Invacare(R) Mistral is a new foldable, low cost power wheelchair with
features that include tilt, tension adjustable and reclining back and
improved suspension for this segment of the market. This chair is being
sold or will be sold in most of the Southern Europe countries.
The Invacare(R) Zipper II wheelchair, designed in Europe and manufactured
in the Far East, is a new standard wheelchair that has improved quality,
durability, a higher weight limit and more stability than previous models.
This wheelchair is primarily marketed for the UK.
The Invacare(R) Spectra Plus power wheelchair, designed and manufactured
in Europe, is an improved entrant into the UK market with tilt in space
(power and manual), a comfort type CAB seat option, and detachable motors.
The Invacare(R) Variable, a steel folding standard wheelchair, is an
example of the product rationalization that Invacare has undertaken and
will continue after the acquisition of SMI. This chair has replaced and
will continue to replace a number of chairs and thereby lower
manufacturing costs by allowing for greater purchasing power and longer
manufacturing runs. Meanwhile, the product rationalization has simplified
and clarified the positioning of Invacare's product line for both its
customers and salesforce.
The Invacare(R) K4 Airlite Pro, designed and manufactured in Europe, is
the world's lightest fixed frame wheelchair at less than 8 kg.
MANUFACTURING AND SUPPLIERS
The company's objective is to maintain its commitment to be the highest quality
and lowest-cost manufacturer in its industry. The company believes that it is
achieving this objective not only through improved product design, but also by
taking a number of steps to lower manufacturing costs. In 2000, the company
initiated plans to close and consolidate several distribution and manufacturing
operations, the cost of which was included in a charge taken in the fourth
quarter. These consolidations will continue into the first half of 2002. The
company also makes substantial investments in its facilities and automation in
order to increase productivity, and to improve quality and delivery. Over the
past three years, the company has invested $99.6 million in capital improvements
and acquisition of facilities.
North America / Australasia
The company has vertically integrated its manufacturing processes by
fabricating, coating, plating and assembling many of the components of each
product. The company designs and manufactures electronics for power wheelchairs,
from insertion of components into printed circuit boards to final assembly and
testing.
Invacare has focused on "value engineering" which reduces manufacturing costs by
eliminating product complexity and using common components. Value engineering
has been applied to all product introductions in the last three years, including
the latest generation of oxygen concentrators, electronic controls, wheelchairs,
patient lifts, beds and bath safety products.
Investments continue to be made in manufacturing automation. The company has
initiated 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 operations for the company's wheelchairs and replacement
parts, patient aids and home care beds consist of a variety of metal fabricating
procedures, electronics production, coating, plating and assembly operations.
Manufacturing operations for the company's oxygen concentrators, nebulizer
compressors, and seating and positioning products consist 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 its relationship with those suppliers to be satisfactory with
alternative sources of supply readily available.
10
Europe
As in other areas, manufacturing and operational issues faced in the U.S. are
also present in Europe. The European operation has challenged and rationalized
the mission of each manufacturing location allowing for the realization of
significant synergies and identified areas for further cost reductions and
improved efficiencies for 2001, including the possible elimination and
consolidation of certain facilities. In 2000, we consolidated operations and
removed four manufacturing facilities from the European operations.
ACQUISITIONS
During 1999, the company acquired Scandinavian Mobility International A/S (SMI),
a producer and distributor of rehabilitation products, mobility aids and related
products for approximately $142 million. As a result of the company's ongoing
search for opportunities, coupled with the industry trend toward consolidation,
other acquisition opportunities were evaluated in 2000. 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 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 changes in federal programs are
often imitated by private insurance companies. Reimbursement guidelines in the
home health care industry have a substantial impact on the nature and type of
equipment an end user can obtain and thus affect the product mix, pricing and
payment patterns of the company's customers who are the HME providers.
In late 2000, Congress enacted legislation (the Benefits Improvement and
Protection Act or BIPA) that provides several victories for the homecare and HME
services industries. First, Congress provided a full restoration of the annual
cost-of-living adjustment for DME for fiscal 2001. This will amount to a 3.27%
increase in the Medicare fee schedules for most Invacare products. BIPA also
provides a measure of security for home health agencies by questioning the need
for a 15% reduction in fees paid for home health services. BIPA also called for
a study of the way supplies and equipment are billed to Medicare when the
patient is enrolled in a plan of care through a home health agency.
Progress was made on getting HCFA to issue a Final Rule implementing the
consumer choice or DME Upgrade provision contained in the Balanced Budget Act of
1997. A proposed rule was published in April, open for public comment and then
put in final form by HCFA staff. Invacare anticipates the publication of a Final
Rule as soon as it can be reviewed by the incoming Bush Administration. This
provision will make it easier for consumers to choose more functional products
than the minimally medically necessary items currently paid for by Medicare.
The company continues its aggressive, pro-active efforts to shape public policy
that impacts home and community-based, non-acute health care. We are currently
working on legislation that would extend Medicare coverage to products such as
patient lifts, bath safety products and other items designed to protect the
physical safety and well being of the unpaid family caregiver. Invacare believes
these efforts give the company a competitive advantage in two ways. First is the
frequently expressed appreciation of our customers for our efforts on behalf of
the entire industry. The other is the ability to anticipate and plan for changes
in public policy, unlike most other HME manufacturers who must react to change
after it occurs.
Congress and the new Administration have once again placed Medicare reform high
on the priority list for change. Another item being discussed is prescription
drug coverage. Both these areas will provide ample opportunities to reeducate
policymakers on the fact that home care is a clinically appropriate,
cost-effective and patient preferred alternative to facility based care. As the
"graying of America" continues, homecare will play an increasingly important
role in meeting the health care needs of our citizens.
11
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's principal
products are designated as Class I or Class II devices. In general, Class I
devices must comply with labeling and record keeping requirements and are
subject to other general controls. In addition to general controls, certain
Class II devices must comply with product design and manufacturing controls
established by the FDA. Manufacturers of all medical devices are subject to
periodic inspections by the FDA. Furthermore, state, local and foreign
governments have adopted regulations relating to the manufacture and marketing
of health care products. The company believes that it is presently in material
compliance with applicable regulations promulgated by the FDA, for which the
failure to comply would have a material adverse effect.
BACKLOG
The company generally manufactures most of its products to meet near term
demands by shipping from stock or by building to order based on the specialty
nature of certain products. Therefore, the company does not have substantial
backlog of orders of any particular products nor does it believe that backlog is
a significant factor for its business.
EMPLOYEES
As of December 31, 2000, the company had approximately 5,600 employees.
(d)Financial Information about Foreign and Domestic Operations and Export Sales.
The company also markets its products for export to other foreign countries. The
company had product sales in over 80 countries worldwide.
For information relating to net sales, operating income and identifiable assets
of the company's foreign and domestic operations, see Business Segments in the
Notes to the Consolidated Financial Statements.
Item 2. Properties.
The company owns or leases its warehouses, offices and manufacturing facilities
and believes these facilities to be well maintained, adequately insured and
suitable for their present and intended uses. Information concerning certain of
the leased facilities of the company as of December 31, 2000, 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
- ------------------------- ----------- ------------- ------- ---
Ashland, Virginia 36,000 September 2003 None Warehouse and offices
Atlanta, Georgia 137,284 January 2002 One (3 yr.) Warehouse and offices
Atlanta, Georgia 48,000 August 2006 None Distribution
Belle, Missouri 39,200 Own - Manufacturing and offices
Beltsville, Maryland 33,329 August 2001 None Manufacturing, offices, and
distribution
Chesterfield, Missouri 8,466 December 2002 None Offices
Delta, British Columbia 6,900 January 2005 None Warehouse and offices
Edison, New Jersey 93,220 March 2005 None Warehouse and offices
Elyria, Ohio
- Taylor Street 251,656 Own - Manufacturing and offices
- Cleveland Street 226,998 September 2004 One (5 yr.) Manufacturing and offices
12
Ownership
or Expiration Renewal
North American Operations Square Feet Date of Lease Options Use
- ------------------------- ----------- ------------- ------- ---
Elyria, Ohio (continued)
- One Invacare Way 50,000 Own - Headquarters
- 1320 Taylor Street 30,000 January 2005 Two (5 yr.) Offices
- 1160 Taylor Street 4,800 Own - Warehouse/Office/Storage
Grand Prairie, Texas 87,508 December 2001 One (3 yr.) Warehouse and offices
Holliston, Massachusetts 59,500 August 2006 None Warehouse and offices
Kirkland, Quebec 13,241 November 2002 One (5 yr.) Manufacturing, warehouse
and offices
Mississauga, Ontario 81,004 January 2005 One (5 yr.) Manufacturing, warehouse
and offices
Mississauga, Ontario 10,881 July 2004 One (5 yr.) Warehouse and offices
Northboro, Massachusetts 22,000 June 2001 None Warehouse
North Ridgeville, Ohio 152,861 Own - Manufacturing, warehouses
and offices
Obetz, Ohio 130,377 April 2004 One (5 yr.) Warehouse
Pinellas Park, Florida 12,000 July 2001 One (1 yr.) Manufacturing and offices
Rancho Cucamonga, California 35,900 June 2005 One (60 day) Warehouse
Reynosa, Mexico 135,200 Own - Manufacturing and offices
Sacramento, California 26,900 May 2003 None Manufacturing, warehouse
and offices
Sanford, Florida 113,034 Own - Manufacturing and offices
Sanford, Florida 99,892 Own - Manufacturing and offices
Santa Fe Springs, California 151,217 April 2004 One (5yr.) Warehouse and offices
Sarasota, Florida 15,450 February 2002 None Manufacturing, warehouse
and offices
South Bend, Indiana 30,000 July 2003 None Warehouse
Spicewood, Texas 6,500 September 2002 One (3 yr.) Manufacturing and offices
Traverse City, Michigan 15,850 April 2003 One (3 yr.) Manufacturing and offices
Wright City, Missouri 17,350 July 2001 None Warehouse
13
Ownership
or Expiration Renewal
Australasia Operations Square Feet Date of Lease Options Use
- ---------------------- ----------- ------------- ------- ---
Adelaide, Australia 11,500 June 2001 One (1 yr.) Manufacturing, warehouse
and offices
Auckland, New Zealand 27,000 September 2008 Two (3yr.) Manufacturing, warehouse
and offices
Birmingham, United Kingdom 6,000 December 2003 None Warehouse and offices
Christchurch, New Zealand 57,682 December 2005 Three (3 yr.) Manufacturing and offices
Melbourne, Australia
- Capella Crescent 7,212 Month to Month None Manufacturing
- Wickham Road 3,229 February 2001 None Manufacturing
- 6-8 Commercial Road 7,320 May 2001 Month to month Manufacturing and offices
- 10 Commerical Road 4,435 June 2001 Month to month Manufacturing
Napier, New Zealand 15,490 March 2002 One (2 yr.) Warehouse and offices
North Olmsted, Ohio 2,280 October 2003 One (5 yr.) Warehouse and offices
Sydney, Australia 2,550 February 2001 None Warehouse and offices
European Operations
- -------------------
Bad Oeynhausen, Germany 76,600 June 2002 One (1 yr.) Manufacturing, warehouse
and offices
Basel/Allschwil, Switzerland 36,000 Own - Manufacturing and offices
Bergen, Norway 1,000 May 2004 One (5yr.) Warehouse and offices
Birmingham, England 19,378 Own - Manufacturing and offices
Bridgend, Wales 131,522 Own - Manufacturing and offices
Brondby, Denmark 4,132 Month to Month None Head Office
Brondby, Denmark 24,083 Month to Month None Manufacturing, warehouse
and offices
Corby, United Kingdom 19,460 April 2001 None Manufacturing and offices
Ede, The Netherlands 13,500 May 2009 One (5 yr.) Warehouse and offices
Girona, Spain 13,600 November 2004 One (1 yr.) Warehouse and offices
Goteborg, Sweden 6,470 September 2002 None Warehouse and offices
14
Ownership
or Expiration Renewal
European Operations Square Feet Date of Lease Options Use
- ------------------- ----------- ------------- ------- ---
Hannover, Germany 15,050 August 2005 One (5 yr.) Warehouse and offices
Hong, Denmark 149,375 Own - Manufacturing, warehouse
and offices
LaRochelle, France 101,718 July 2002 None Manufacturing and warehouse
Loppem, Belgium 6,000 Month to Month None Warehouse and offices
Landskrona, Sweden 2,880 April 2001 None Warehouse
Oisterwijk, The Netherlands 27,000 Own - Manufacturing, warehouse
and offices
Oisterwijk, The Netherlands 4,800 October 2004 One (5 yr.) Warehouse and offices
Oporto, Portugal 27,800 November 2003 None Manufacturing, warehouse
and offices
Oskarshamn, Sweden 6,300 December 2001 None Warehouse
Oslo, Norway 30,650 September 2001 One (5 yr.) Manufacturing, warehouse
and offices
Sandviken, Sweden 48,000 December 2001 None Manufacturing, warehouse
and offices
Saeby, Denmark 31,108 Own - Warehouse
Spanga, Sweden 8,300 October 2001 One (3 yr.) Warehouse and offices
Spanga, Sweden 16,250 Own - Warehouse and offices
Tours, France 86,000 November 2007 None Manufacturing
Tours, France 104,500 Own - Manufacturing, warehouse
and offices
Trondheim, Norway 3,000 December 2001 One (5 yr.) Services and offices
Vaxjovagen, Sweden 92,400 Own - Manufacturing and offices
Item 3. Legal Proceedings.
Invacare is a defendant in a number of product liability actions in which
various plaintiffs seek damages for injuries allegedly caused by defective
products. All of these actions have been referred to the company's insurance
carriers and are being vigorously contested. The primary carrier, Invatection
Insurance Co., is a subsidiary of the company, established in September 1986,
and provides the first layer of product liability insurance for the company.
Coverage territory is worldwide with the exception of those countries that, at
the time 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.
15
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.*
The following table sets forth the names of the executive officers and certain
other key employees 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 60 Chairman of the Board of Directors and
Chief Executive Officer
Gerald B. Blouch 54 President, Chief Operating Officer and Director
Thomas R. Miklich 53 Chief Financial Officer, General Counsel, Corporate Secretary
and Interim V.P. Human Resources
Joseph B. Richey, II 64 President - Invacare Technologies and Senior Vice
President - Electronics and Design Engineering
Louis F.J. Slangen 53 Senior Vice President - Sales & Marketing
M. Louis Tabickman 56 President - Invacare Europe
Neal J. Curran 43 Vice President - Engineering and Product Development
David A. Johnson 38 Vice President - Operations and Logistics
Michael A. Perry 46 Vice President -- Invacare Supply Group - Distributed Products
Ken Sparrow 53 Managing Director -- Asia Pacific Australasia
CORPORATE OFFICERS
A. Malachi Mixon, III has been Chief Executive Officer and a Director of the
company since December 1979 and Chairman of the Board since September 1983. Mr.
Mixon had been President of the company from December 1979 until November 1996.
Gerald B. Blouch was named President and a Director of the company in November
1996. Mr. Blouch has been Chief Operating Officer since December 1994 and
Chairman - Invacare International since December 1993. Previously, Mr. Blouch
was President - Home Care Division from March 1994 to December 1994 and Senior
Vice President - Home Care Division from September 1992 to March 1994. Mr.
Blouch served as Chief Financial Officer from May 1990 to May 1993 and Treasurer
from March 1991 to May 1993.
Thomas R. Miklich has been Chief Financial Officer and General Counsel since May
1993 and in September 1993 was named Corporate Secretary. In March 2000, he was
given the additional responsibility of Interim Vice President - Human Resources.
Mr. Miklich is a director of the OM Group, a NYSE listed company. Previously,
Mr. Miklich was Treasurer from May 1993 until October 1999, Executive Vice
President and Chief Financial Officer of Van Dorn Company from 1991 to 1993 and
Chief Financial Officer of The Sherwin-Williams Company from 1986 to 1991.
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.
16
Louis F. J. Slangen was named Senior Vice President - Sales & Marketing in
December 1994 and from September 1989 to December 1994 was Vice President -
Sales and Marketing. Mr. Slangen was previously President - Rehab Division from
March 1994 to December 1994 and Vice President and General Manager - Rehab
Division from September 1992 to March 1994.
OPERATING OFFICERS
M. Louis Tabickman was named President, Invacare Europe in July 1998. Prior to
this, Mr. Tabickman held the positions of Senior Vice President - Respiratory
Products from October 1997 to July 1998 and, from August 1995 to October 1997,
was Group Vice President Rehab Products. Previously, Mr. Tabickman was Vice
President & General Manager - Power Business Unit from December 1994 to August
1995, President, Invacare Canada from March 1994 to December 1994 and Vice
President and General Manager - Invacare Canada from September 1992 to March
1994. Mr. Tabickman was also Vice President and General Manager of Service and
Distribution from July 1985 until September 1992. Mr. Tabickman has been an
officer since July 1985.
Neal J. Curran was named Vice President of Engineering and Product Development
in August 2000. Mr. Curran has been with the company since 1983 and has
previously held positions as Vice President - Rehab Group July 1999, Vice
President - Respiratory Group July 1998 , Vice President - Seating and Custom
Mobility Products October 1997 and General Manager of the Custom Manual Business
Unit December 1994. Prior to 1994, Mr. Curran held the positions of Power
Business Unit leader September 1992 and Vice President of Rehab engineering
January 1991. Mr. Curran has a Bachelors of Mechanical Engineering.
David A.Johnson was named Vice President of Operations and Logistics in November
2000. Previous positions include Vice President - Rehab Group and Personal Care
Products from August 2000 until November 2000, and Vice President - Invacare
Continuing Care Group and Home Medical Equipment Group from November 1998 until
August 2000. Previously, Mr. Johnson had been Director Business / Systems
Integration for Herman Miller, Inc. from 1997 to November 1998. Mr. Johnson was
also General Manager of The Chattanooga Group, Inc.from 1994 to 1997. From 1990
to 1994, Mr. Johnson held various operations positions for the Stryker
Corporation-Medical Group.
Michael A. Perry was named Vice President of Distributed Products in July of
1998. Previously, Mr. Perry was General Manager of Account Services, Vice
President of National Accounts,Vice President of Retail Sales and Vice President
of Clinical Application Consumer Marketing since 1995. In 1994, Mr. Perry served
as Area Vice President of Sales.
Kenneth A. Sparrow was named Managing Director of Australasia in January 1998.
Previously, Mr. Sparrow has been the General Manager of Operations for the
Lyttelton Port Company from December 1995 to January 1998. Prior to this,
Mr. Sparrow was a Divisional General Manager for Skellerup Industries from July
1992 to November 1995.
* The description of executive officers is included pursuant to Instruction 3 to
Section (b) of Item 401 of Regulation S-K.
17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Invacare's Common Shares, without par value, began trading on the New York Stock
Exchange (NYSE) under the symbol IVC on June 25, 1999. Prior to listing the
Common Shares on the NYSE, the Common Shares were included for trading and
quotation on the NASDAQ National Market System under the symbol IVCR. Ownership
of the company's 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's Common Shares and Class B
Common Shares at February 28, 2001 was 5,851 and 31, respectively. The closing
sale price for the Common Shares on February 25, 2001 as reported by NYSE, was
$36.34. The prices set forth below do not include retail markups, markdowns or
commissions.
The range of high and low quarterly prices of the Common Shares in each of the
two most recent fiscal years are as follows:
2000 1999
---- ----
Quarter Ended: High Low High Low
December 31 $34.38 $24.19 $22.69 $17.75
September 30 32.19 22.75 26.69 18.25
June 30 27.13 24.69 26.75 22.56
March 31 28.00 18.63 25.25 21.69
During 2000, the Board of Directors of Invacare Corporation declared dividends
of $.05 per Common Share and $.045 per Class B Common Share. For information
regarding limitations on the payment of dividends in the company's loan and note
agreements, see Long Term Obligations in the Notes to the Consolidated Financial
Statements. The Common Shares are entitled to receive cash dividends at a rate
of at least 110% of cash dividends paid on the Class B Common Shares.
18
Item 6. Selected Financial Data
For the Year Ended December 31,
2000 1999* 1998 1997** 1996 1995
---- ----- ---- ------ ---- ----
(In thousands except per share and ratio data)
Earnings
Net Sales $1,013,162 $882,774 $801,189 $654,409 $620,438 $504,756
Net Earnings 59,911 41,494 45,792 1,563 38,918 32,165
Net Earnings per Share - Basic 1.99 1.38 1.53 .05 1.33 1.10
Net Earnings per Share - Assuming
Dilution 1.95 1.36 1.50 .05 1.28 1.07
Dividends per Common Share .05000 .05000 .05000 .05000 .05000 .03750
Dividends per Class B Common
Share .04545 .04545 .04545 .04545 .04545 .03409
As of December 31,
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Balance Sheet
Current Assets $432,408 $418,620 $336,742 $275,211 $258,720 $204,685
Total Assets 951,855 955,285 738,756 529,923 509,628 408,750
Current Liabilities 203,436 177,471 133,964 109,553 97,768 84,936
Working Capital 228,972 241,149 202,778 165,658 160,952 119,749
Long-Term Obligations 398,646 458,942 323,904 183,955 173,263 122,456
Shareholders' Equity 349,773 318,872 280,888 236,415 238,597 201,319
Other Data
Research and Development
Expenditures $ 16,231 $ 15,534 $ 12,980 $ 12,706 $ 11,060 $9,002
Capital Expenditures, net of
Disposals 26,268 32,155 39,505 37,962 22,465 11,027
Depreciation and Amortization 31,469 25,978 23,754 18,348 17,896 14,159
Key Ratios
Return on Sales 5.9% 4.7% 5.7% .2% 6.3% 6.4%
Return on Average Assets 6.3% 4.9% 7.2% .3% 8.5% 8.6%
Return on Beginning 18.8% 14.8% 19.4% .7% 19.3% 19.6%
Shareholders' Equity
Current Ratio 2.1:1 2.4:1 2.5:1 2.5:1 2.6:1 2.4:1
Debt-to-Equity Ratio 1.1:1 1.4:1 1.2:1 .8:1 .7:1 .6:1
* Reflects non-recurring and unusual charge of $14,800 ($9,028 or $.29 per
share assuming dilution after tax) taken in 1999.
** Reflects non-recurring and unusual charge of $61,039 ($38,839 or $1.28 per
share assuming dilution after tax) taken in 1997.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
2000 Versus 1999
Non-recurring and Unusual Items. The review of results that follows excludes the
impact of the non-recurring and unusual items recorded in 2000 and 1999. The
reasons for the charges and credits and the impact on the company's current and
future performance, as well as the utilization thereof, are explained under the
heading "Non-recurring and Unusual Items" later in this section and in the Notes
to the Financial Statements.
Net Sales. Consolidated net sales for 2000 increased 15% for the year despite a
3% negative impact from foreign currency translation. Acquisitions contributed
9% of the increase. Net sales increased in two of the three business segments
while Europe sales were flat. The overall increase was principally due to an
increase in unit volume. The Standard and Distributed operations posted the
largest dollar increases primarily as a result of increased unit volumes. The
company believes that its sales grew faster than the overall industry, resulting
in market share gains. This was due in part to additional marketing programs and
its cost-effective "Total One Stop Shoppingsm" distribution system that is
supported by the company's broad range of products and services.
North American Operations
North American sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, seating, scooters), Standard (manual wheelchairs, personal care,
retail), Beds and Continuing Care (beds, low air loss therapy, furniture,
patient transport equipment), Respiratory (oxygen concentrators, liquid oxygen,
aerosol therapy and associated respiratory) and Distributed (ostomy,
incontinence, wound care, other medical supplies) products net of acquisitions
and divestitures grew 11% over the prior year. The gain was due primarily to
Standard products up 14% as manual wheelchairs and personal care products had
strong sales increases. Distributed product sales increased 17% from the prior
year. Sales for the Rehab product line also increased 7% over the prior year and
sales of Bed products increased 13%. Respiratory sales were up approximately 4%
offset by a similar decline in Continuing Care products.
Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had a 11% sales increase for the year. Sales for the company's
Canadian operation increased 9%. The increase was a result of volume increases.
Australasia Operations
The Australasia products group consists of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand
manufacturer of operating components used in power wheelchairs and Invacare New
Zealand, a distribution business. Sales for the Australasia group increased
$12,291,000 or 48% from the prior year, excluding a negative impact from foreign
currency translation of 21% and a 4% impact from acquisitions. The increase was
due to an increase in market share in the Australasian market.
European Operations
On a pro-forma basis, European sales were flat for the year excluding a 13%
negative impact from foreign currency translation. European sales were less than
expected due to the weak Euro and the company's focus on the integration of
Scandinavian Mobility Internationl AS (SMI). Invacare expects to see a return of
sales growth in Europe in 2001 as the synergies and integration efforts related
to the acquisition of SMI are realized.
Gross Profit. Consolidated gross profit as a percentage of net sales were 31% in
2000 and 1999. This was a result of the company's continued focus on redesigning
products in order to lower manufacturing costs while improving quality and
reliability and other cost reductions made to remain competitive and improve
profitability.
North American gross profit from operations as a percentage of net sales
remained constant with the prior year as a result of a shift in product mix to
lower margin products.
Gross profit in Australasia increased as a percentage of sales to 30% from 28%
in the prior year. The $2,965,000 increase includes the continued effects of a
strong U.S. dollar which negatively impacted margins. Excluding the negative
impact of foreign currency translation and a slight impact from acquisitions,
gross profit increased $5,905,000 from the prior year.
20
Gross profit in Europe as a percent to sales increased over one percentage point
from the prior year. The increase in European profitability is primarily a
result of productivity improvements and cost containment programs introduced by
new European management put in place during the third quarter of 1998. The
management team has simplified and improved accountability while reducing costs
to be more in line with its sales levels. In addition, greater emphasis is being
placed on leveraging U.S. research and development efforts to accelerate new
product development in a cost-effective manner.
Inventory turns improved slightly for 2000, inventory control initiatives
instituted throughout the company's existing business were implemented at the
SMI locations.
Selling, General and Administrative. Consolidated selling, general and
administrative expense as a percentage of net sales were approximately 20% in
2000 and 1999. The overall dollar increase was $24,733,000 or 14%, with
acquisitions increasing selling, general and administrative costs by
approximately $21,267,000 or 12%. High distribution costs in 2000 throughout the
company resulted in the same expense as a percentage of net sales as last year.
The company believes, it can favorably impact selling, general and
administrative expense as a percentage of net sales in 2001 when cost reductions
initiated in 2000 take full effect.
North American operations' selling, general and administrative costs increased
as a percentage of net sales remained flat compared to 1999. Selling, general
and administrative costs increased $15,693,000 or 13% with acquisitions
accounting for $776,000 or 1% of the increase from the prior year. The company
utilized activity-based budgeting aimed at allocating the expense dollars to the
programs that most effectively supported the company's business strategy.
Australasia operations' selling, general and administrative expenses increased
approximately 34% from the prior year. The increase is primarily a result of the
increased growth in business in Australasia. The overall dollar increase between
years was $2,224,000. The strong dollar reduced selling, general and
administrative expense for Australasia operations by $1,479,000.
European operations' selling, general and administrative expenses increased
$6,816,000 or 15% from the prior year. The increase was primarily a result of
the acquisition of SMI which increased selling, general and administrative costs
by $20,208,000 or 44%. European selling, general and administrative expenses
were positively impacted by continued cost containment initiatives implemented
throughout 1999 and the strong dollar, which reduced selling, general and
administrative expenses reported in dollars by $5,077,000.
Interest. Interest income decreased in 2000 to $7,807,000 from $7,929,000 in the
prior year, representing a 2% decrease. The decrease was due to a 32% decrease
in new notes booked throughout 2000. Interest expense increased to $27,853,000
from $22,093,000 representing a 26% increase resulting from additional
borrowings in the first half of the year related to the Scandinavian Mobility
acquisition, and also to an increasing interest rate environment. However, as a
result of debt paydown efforts in the third and fourth quarters, the company's
debt-to-equity ratio decreased to 1.1:1 from 1.4:1 in the prior year.
Income Taxes. The company had an effective tax rate of 39% in both 2000 and
1999, including the effects of the unusual and non-recurring items recorded in
both years. See Income Taxes in the Notes to Consolidated Financial Statements
for further discussion.
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $16,231,000 from
$15,534,000 in 1999. The expenditures, as a percentage of sales, decreased to
1.6% from 1.8% in the prior year.
1999 Versus 1998
Non-recurring and Unusual Items. The review of results that follows excludes the
impact of the non-recurring and unusual charges ("the charge") taken in 1999.
The reasons for the charges and the impact on the company's current and future
performance, as well as the utilization thereof, are explained under the heading
"Non-recurring and Unusual Items" later in this section and in the Notes to the
Financial Statements.
Net Sales. Consolidated net sales for 1999 increased 10% for the year despite a
1% negative impact from foreign currency translation. Acquisitions contributed
7% of the increase. Net sales increased in each of the three business segments
with Europe and Australasia reporting significant improvement. The increase was
principally due to an overall increase in unit volume, with the exception of
Rehab products, partially offset by the effects of a continuing competitive
pricing environment throughout most product lines. European and Respiratory
operations posted the largest dollar increases primarily as a result of
increased unit volumes. The company believes that its sales grew faster than the
overall industry, resulting in market share gains. This was due in part to its
cost-effective "Total One Stop Shoppingsm" distribution system that is supported
by the company's broad range of products and services.
21
North American Operations
North American sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, seating, scooters), Standard (manual wheelchairs, personal care,
retail), Beds and Continuing Care (beds, low air loss therapy, furniture,
patient transport equipment), Respiratory (oxygen concentrators, liquid oxygen,
aerosol therapy and associated respiratory) and Distributed (ostomy,
incontinence, wound care, other medical supplies) products net of acquisitions
and divestitures grew 4% over the prior year. The gain was due primarily to
Respiratory products up 13% as concentrators, sleep therapy and aerosol products
had strong sales increases. Sales of custom manual wheelchairs also increased 9%
from the prior year due in part to continued new product introductions and the
success of the company's "Team Action" athletes, as many of the high-tech design
features in high-performance sport wheelchairs are incorporated in the everyday
Action chairs. Sales for the Personal Care product line also increased 8% over
the prior year. Sales for the Distributed products group increased 9% net of
divestitures as Invacare Supply Group (ISG), formerly Suburban Ostomy Supply
Company, Inc., a national direct marketing wholesaler of medical supplies and
related products to the home care industry acquired in January 1998, continued
to capitalize on Invacare's strong sales force. Rehab products sales were weak
in 1999 due to the tightening by The Health Care Financing Administration (HCFA)
of the requirements for Medicare beneficiaries to qualify for reimbursement for
a power wheelchair.
In late 1999, Invacare received 510(k) clearance from the U.S. Food and Drug
Administration (F.D.A.) on the Invacare(R) Venture(TM) HomeFill(TM) Complete
Home Oxygen System, which was developed in response to Medicare oxygen
reimbursement cuts. The HomeFill system is a revolutionary oxygen-filling system
that allows a patient to fill his or her own high pressure oxygen cylinders,
thus eliminating time-consuming and costly service calls by the oxygen
providers, while at the same time improving the patient's quality of life. We
expect that the receipt of this approval will help augment North American sales
growth in 2000.
Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had a 9% sales increase for the year. Sales for the company's
Canadian operation increased 12%, including a slight negative impact from
foreign currency translation. The increase was a result of volume increases as
prices remained relatively constant for the year.
Australasia Operations
The Australasia products group consists of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand
manufacturer of operating components used in power wheelchairs and Invacare New
Zealand, a distribution business. Sales for the Australasia group increased
$5,933,000 or 30% from the prior year, excluding a slight negative impact from
foreign currency translation. The increase was due to new product introductions
by Dynamic Controls as well as increased focus on the Australasian market.
European Operations
European sales increased 11%, excluding a net favorable impact of 34% from
acquisition and foreign currency translation. Sales growth improved in 1999
despite continuing governmental budget trends which resulted in pressure on
reimbursement levels.
The company acquired Scandinavian Mobility International A/S (SMI), a producer
and distributor of rehabilitation products, mobility aids and related products,
in the third quarter of 1999 for approximately $142 million in cash. Taking into
account the SMI acquisition, on a pro-forma basis, European sales advanced 11%,
excluding a 2% negative impact from foreign currency. The acquisition gives
Invacare's European operation strategic distribution capabilities in the Nordic
countries as well as an expanded product offering.
Gross Profit. Consolidated gross profit as a percentage of net sales increased
to 31% from 30% last year. The increase was a result of a company-wide
initiative focusing on redesigning products in order to lower manufacturing
costs while improving quality and reliability and implementing other spending
reductions necessary to remain competitive and improve profitability. The
increase in gross profit as a percentage of net sales was offset, to some
extent, by a shift in product mix and continued pricing pressure in the
industry.
North American gross profit from operations as a percentage of net sales
remained constant with the prior year as productivity improvements and
facilities rationalization were somewhat offset by price declines and a shift in
product mix as sales of Respiratory products increased while sales of higher
margin Rehab products decreased.
Gross profit in Australasia increased as a percentage of sales to 28% from 25%
in the prior year. The $2,001,000 increase includes the continued effects of a
strong U.S. dollar which negatively impacted margins. Excluding the negative
impact of foreign currency translation, gross profit increased $2,189,000 from
the prior year.
22
Gross profit in Europe as a percent to sales increased three percentage points
from the prior year. Excluding the impact from the acquisition of SMI, gross
profit from operations as a percentage of net sales increased to 28% from 26% in
the prior year despite the continued negative effects of a strong U.S. dollar.
The increase in European profitability is primarily a result of productivity
improvements and cost containment programs introduced by new European management
put in place during the third quarter of 1998. The management team has
simplified and improved accountability while reducing costs to be more in line
with its sales levels. In addition, greater emphasis is being placed on
leveraging U.S. research and development efforts to accelerate new product
development in a cost-effective manner.
Inventory turns decreased slightly for 1999, principally due to the effect of
businesses acquired, particularly SMI, which had inventory turns lower than the
combined overall average of the company's existing business. The company expects
turns will show improvement in 2000 as inventory control initiatives instituted
throughout the company's existing business are implemented at the SMI locations.
Selling, General and Administrative. Consolidated selling, general and
administrative expense as a percentage of net sales increased to 20% in 1999
compared to 19% in 1998. The overall dollar increase was $22,420,000 or 15%,
with acquisitions increasing selling, general and administrative costs by
approximately $14,002,000 or 9%. Higher distribution, selling and administrative
expenses in 1999 throughout the company and sluggish domestic sales growth
resulted in an increase in the overall expense as a percentage of net sales. The
company believes, with its proven ability to focus on improving productivity and
with the successful execution of the SMI acquisition integration plan, it can
favorably impact selling, general and administrative expense as a percentage of
net sales in 2000.
North American operations' selling, general and administrative costs increased
as a percentage of net sales by approximately 1% from the prior year. The
overall dollar increase was $10,456,000 or 9% with acquisitions accounting for
$1,572,000 or 1% of the increase from the prior year. The company utilized
activity-based budgeting aimed at allocating the expense dollars to the programs
that most effectively supported the company's business strategy. The company
also invested in additional sales and marketing programs to enhance North
American sales growth.
Australasia operations' selling, general and administrative expenses decreased
approximately 16% from the prior year. The decrease is primarily a result of
cost control initiatives, which began in 1998 and continued throughout 1999. The
overall dollar decrease between years was $1,242,000. The strong dollar also had
a favorable effect on the reported line of selling, general and administrative
expense for Australasia operations.
European operations' selling, general and administrative expenses increased
$13,206,000 or 40% from the prior year. The increase was primarily a result of
the acquisition of SMI which increased selling, general and administrative costs
by $12,430,000 or 37%. European selling, general and administrative expenses
were positively impacted by continued cost containment initiatives implemented
throughout 1999 and the strong dollar, which reduced selling, general and
administrative expenses reported in dollars by $789,000.
Interest. Interest income decreased in 1999 to $7,929,000 from $9,031,000 in the
prior year, representing a 12% decrease. The decrease was due to a slightly
lower yield on new notes booked throughout 1999 combined with a slight decrease
in the average term of the new notes from 12.8 months in 1998 to 10.6 months in
1999. Interest expense increased to $22,093,000 from $20,616,000 representing a
7% increase resulting from additional borrowings incurred to fund the 1999
acquisition of Scandinavian Mobility, Inc. As a result of the increased
borrowing, the company's debt-to-equity ratio increased to 1.4:1 from 1.2:1in
the prior year.
Income Taxes.The company had an effective tax rate of 39% in both 1999 and 1998,
including the effects of the unusual and non-recurring charge taken in the
current year. See Income Taxes in the Notes to Consolidated Financial Statements
for further discussion.
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $15,534,000 from
$12,980,000 in 1998. The expenditures, as a percentage of sales, increased to
1.8% from 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 2000 and
1999, the company was able to offset the majority of the impact of price
increases from suppliers by productivity improvements and other cost reduction
activities.
23
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain an adequate liquidity position through its
unused bank lines of credit (see Long-Term Obligations in the Notes to
Consolidated Financial Statements) and working capital management. The company
maintains various bank lines of credit to finance its world-wide operations. In
1997, the company completed a $425,000,000 multi-currency, long-term revolving
credit agreement, which expires on October 31, 2002, or such later date as
mutually agreed upon by the company and the banks. Additionally, the company
maintains various other demand lines of credit totaling a U.S. dollar equivalent
of approximately $24,469,000 as of December 31, 2000. The lines of credit 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, 2000, the company had approximately $176,958,000 available under
its various lines of credit.
In 1998, the company completed a private placement of $100,000,000 in senior
notes having a blended fixed coupon rate of 6.69% with $20,000,000 maturing in
the year 2005 and $80,000,000 maturing in 2008. The proceeds were used to
pay-down revolving credit debt incurred to fund the acquisition of Invacare
Supply Group (ISG), formerly Suburban Ostomy Supply Company, Inc., which was
consummated on January 28, 1998.
The company's borrowing arrangements contain covenants with respect to net
worth, dividend payments, working capital, funded debt to capitalization and
interest coverage, as defined in the company's bank agreements and agreement
with its note holders. The company is in compliance with all covenant
requirements. Under the most restrictive covenant of the company's borrowing
arrangements, the company has the capacity to borrow up to an additional
$265,262,000 as of December 31, 2000.
While there is general concern about the potential for rising interest rates,
exposure to interest fluctuations is manageable as a portion of the debt is at
fixed rates through 2001. The fixed interest debt coupled with free cash flow
ensures Invacare's ability to absorb the expected modest rate increases in the
months ahead. However, there will be a need to refinance a portion of debt
sometime during the next two years as the existing revolving credit agreement
matures in 2002.
CAPITAL EXPENDITURES
There are no individually material capital expenditure commitments outstanding
as of December 31, 2000. The company estimates that capital investments for 2001
will approximate $31,000,000. 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 $78,426,000, compared to
$72,840,000 last year. The increase is primarily the result of an increase in
income and accounts payable offset by the increase in trade receivables.
Cash flows required for investing activities decreased $170,404,000. The
decrease is primarily due to Scandinavian Mobility International AS being
acquired in the third quarter of 1999 and no sizeable acquisition occurring in
2000. The remainder if the decrease is principally due to a decrease in the
level of installment contracts written as the company continues to focus on
improving collection levels.
Cash flows required by financing activities in 2000 were $49,480,000, compared
to cash provided of $134,162,000 in 1999. The increase in cash required by
financing activities was principally a result of the company's focus on paying
down debt. In addition to acquisition activities, the effect of foreign currency
translation results in amounts being shown for cash flows in the Consolidated
Statement of Cash Flows that are different from the changes reflected in the
respective balance sheet captions.
DIVIDEND POLICY
It is the company's policy to pay a nominal dividend in order for its stock to
be more attractive to a broader range of investors. The current annual dividend
rate remains at $.05 per Common Share and $.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 2000, a dividend of $.05 per Common Share and $.045 per Class
B Common Share was declared and paid.
24
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union (the
"participating countries") established a fixed rate between their existing
sovereign currencies (the "legacy currencies") and the Euro. The legacy
currencies are scheduled to remain legal tender in the participating countries
between January 1, 1999 and July 1, 2002. Beginning January 1, 2002, the Euro
currency will be introduced and the legacy currencies withdrawn from circulation
six months later. The company believes with modifications to existing computer
software and conversion to new software, the Euro conversion issue will not pose
significant operational problems to its normal business activities. The company
does not expect costs associated with the Euro conversion project to have a
material effect on the company's results of operations or financial position.
NON-RECURRING AND UNUSUAL ITEMS
In 2000, as a result of repaying EURO and DKK denominated debt, the company
realized a non-recurring pre-tax foreign currency gain of approximately
$20,130,000. The gain was offset by charges in the fourth quarter aggregating
$8,700,000 related primarily to closing two distribution centers and a
manufacturing plant ($3,700,000), severance costs due to staff reductions (nine
individuals) primarily at the corporate office ($1,000,000) and costs associated
with the settlement of litigation ($4,000,000). During 2000, $1,064,000 was
utilized primarily for severance payments. In addition, during the fourth
quarter, the company also increased its bad debt reserve impacting selling,
general and administrative expenses by approximately $8,000,000.
In 1999, the company announced non-recurring and unusual charges of $11,500,000
in the fourth quarter primarily related to the consolidation and integration of
the operations of SMI and Invacare. The charges included reserves for employee
severance ($3,000,000) and plant shutdowns and lease terminations ($4,400,000)
and asset write-downs and other non-recurring items ($4,100,000). The personnel
reductions and shut down of facilities are related to the integration of SMI and
are required to obtain the expected synergies from the acquisition. Of these
charges $2,400,000 have been utilized related employee severance, $2,000,000
have been utilized related to plant shutdown and lease termination, and
$4,100,000 have been utilized related to asset write-downs and other
non-recurring items. In addition, during the fourth quarter of 1999, the company
also increased its bad debt reserve impacting selling, general and
administrative expenses by approximately $3,300,000.
The company anticipates all initiatives for which charges have been reported
will be substantially completed in 2001.
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, 2000 debt levels, a 1% change in interest rates would
impact interest expense by approximately $1,937,000. 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 will have a material adverse effect
on the company's financial condition or results of operations.
PRIVATE SECURITIES LITIGATION REFORM ACT
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Terms such as "will," "should," "achieve," "increase,"
"plan," "can," "expect," "pursue," "benefit," "continue," "exceed," "improve,"
"believe," "build," "strengthen," "new," "lower," "drive," "seek," "hope," and
"create," as well as similar comments, are forward-looking in nature. Actual
results and events may differ significantly from those anticipated as a result
of risks and uncertainties which include, but are not limited to the following:
pricing pressures, increasing raw material costs, the consolidations of health
care customers and competitors, government reimbursement issues including those
that affect the viability of customers, the effect in offering customers
competitive financing terms, Invacare's ability to effectively identify, acquire
and integrate strategic acquisition candidates, the difficulties in managing and
operating businesses in many different foreign jurisdictions, the timely
completion of facility consolidations, the overall economic, market and industry
growth conditions, foreign currency and interest rate risk, 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.
25
Item 8. Financial Statements and Supplementary Data.
Reference is made to the Report of Independent Auditors, Consolidated Balance
Sheet, Consolidated Statement of Earnings, Consolidated Statement of Cash Flows,
Consolidated Statement of Shareholders' Equity, Notes to Consolidated Financial
Statements and Financial Statement Schedule which appear on pages FS -1 to FS -
22 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 as to the Directors of the company is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the company's definitive Proxy Statement for the 2001
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company's fiscal year pursuant to Regulation 14A. Information required by
Item 10 as to the Executive Officers of the company is included in Part I of
this Report on Form 10-K.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
information set forth under the captions "Compensation of Executive Officers"
and "Compensation of Directors" in the company's definitive Proxy Statement for
the 2001 Annual Meeting of Shareholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the company's fiscal year pursuant to Regulation 14A.
Item. 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to the
information set forth under the caption "Share Ownership of Principal Holders
and Management" in the company's definitive Proxy Statement for the 2001 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to the
information set forth under the caption "Compensation Committee Interlocks and
Insider Participation" in the company's definitive Proxy Statement for the 2001
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company's fiscal year pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(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, 2000, 1999
and 1998
Consolidated Balance Sheet - December 31, 2000 and 1999
Consolidated Statement of Cash Flows - years ended December 31, 2000,
1999, and 1998
Consolidated Statement of Shareholders' Equity - years ended December 31,
2000, 1999, and 1998
Notes to Consolidated Financial Statements
26
(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-29 of this Report on Form 10-K.
(b) Reports on Form 8-K.
None
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 30, 2001.
INVACARE CORPORATION
By: /S/ A. Malachi Mixon, III
-------------------------------------------
A. Malachi Mixon, III Chairman of the Board
of Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 30, 2001.
Signature Title
/S/ A. Malachi Mixon, III Chairman of the Board of Directors and Chief
- ------------------------- Executive Officer (Principal Executive Officer)
A. Malachi Mixon, III
/S/ Gerald B. Blouch President, Chief Operating Officer and Director
- --------------------------
Gerald B. Blouch
/S/ Thomas R. Miklich Chief Financial Officer, General Counsel,
- -------------------------- Corporate Secretary and Interim V.P.Human Resources
Thomas R. Miklich (Principal Financial and Accounting Officer)
/S/ James C. Boland Director
- --------------------------
James C. Boland
/S/ Frank B. Carr Director
- --------------------------
Frank B. Carr
/S/ Michael F. Delaney Director
- --------------------------
Michael F. Delaney
/S/ Whitney Evans Director
- --------------------------
Whitney Evans
/S/ Bernadine P. Healy, M.D. Director
- ---------------------------
Bernadine P. Healy, M.D.
/S/ John R. Kasich Director
- --------------------------
John R. Kasich
27
/S/ Dan T. Moore, III Director
- --------------------------
Dan T. Moore, III
/S/ E. P. Nalley Director
- --------------------------
E.P. Nalley
/S/ Joseph B. Richey, II Director
- --------------------------
Joseph B. Richey, II
/S/ William M. Weber Director
- -------------------------
William M. Weber
28
INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2000.
Exhibit Index
Official
Exhibit No Description Sequential Page No.
- ---------- ----------- -------------------
3(a) - Amended and Restated Articles of Incorporation, as amended through (A)
May 29, 1987
3(b) - Code of Regulations, as amended on May 22, 1996 (V)
3(c) - Amended and Restated Articles of Incorporation, as amended through February 2, 1996 (T)
4(a) - Specimen Share Certificate for Common Shares, as revised (H)
4(b) - Specimen Share Certificate for Class B Common Shares (H)
4(d) - Rights agreement between Invacare Corporation and Rights Agent dated as of (S)
July 7, 1995
10(a) - Stock Option Plan, adopted in February 1984 (B)*
10(b) - Amendment to Stock Option Plan, adopted in May 1987 (C)*
10(c) - Amendment to Stock Option Plan, adopted in May 1988 (D)*
10(d) - Amendment to Stock Option Plan, adopted in May 1991 (I)*
10(h) - Assignment of Patent Application and License of Know-how dated January 14, 1981, and an (E)
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(p) - Form of Indemnity Agreement entered into by and between the company and certain of its (H)
Directors and officers and Schedule of all such Agreements with current Directors and
officers
10(r) - Master Note, between Invacare Corporation and Sanwa Bank, Limited (J)
10(s) - Employees' Stock Bonus Trust and Plan as amended and restated effective (G)*
January 1, 1988 and as amended on April 13, 1988, April 3, 1990, and May 24, 1991
10(t) - Profit Sharing and Savings Trust and Plan effective as of January 1, 1988 and as amended (G)*
on November 28, 1988, September 12, 1990, October 9, 1990, and May 24, 1991
10(u) - Agreement between Invacare Corporation and Weber, Wood, Medinger, Inc. (J)
10(v) - Real Property Purchase Agreement by and between Invacare Corporation and Taylor Street (N)
limited partnership
10(z) - Note Agreement dated February 1, 1993 among Invacare Corporation and five purchasers of (P)
an aggregate of $25,000,000, 7.45% Senior Notes due February 1, 2003
10(aa) - Amendments to Stock Option Plan adopted in May 1992 (M)*
10(ab) - 1992 Non-Employee Directors Stock Option Plan adopted in May 1992 (K)
10(ac) - Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992 (L)
29
10(ad) - Shares Purchase and Contribution Agreement dated July 27, 1992 (O)
10(af) - Invacare Corporation 1994 Performance Plan approved January 28, 1994 (Q)*
10(ag) - Real Property Purchase Agreement between Mobilite Building Corporation (a newly formed (R)
subsidiary of Invacare Corporation as of February 15, 1994) and I-M Associates, LTD.
dated February 28, 1994
10(ar) - First Amendment to Note Agreement among Invacare Corporation and five purchasers of (U)
Senior Notes dated March 20, 1997
10(as) - Loan Agreement by and among Invacare Corporation, the Banks, certain borrowing (F)
subsidiaries, the Banks named therein, NBD Bank, as agent for the Banks and KeyBank
National Association, as co-agent for the Banks
10(at) - Agreement and Plan of Merger, dated December 17, 1997, between Invacare Corporation, (W)
Inva Acquisition Corp. and Invacare Supply Group, formerly Suburban Ostomy Supply
Company, Inc.
10(au) - Note Purchase Agreement dated as of February 27, 1998 for $80,000,000 6.71% Series A (X)
Senior Notes Due February 27, 2008 and $20,000,000 6.60% Series B Senior Notes Due
February 27, 2005
10(av) - Amendment No. 1 to the Invacare Corporation 1994 Performance Plan approved May 28, 1998. (Z)
10(aw) - Amendment No. 2 to the Invacare Corporation 1994 Performance Plan approved May 24, 2000. (AA)
21 - Subsidiaries of the company
23 - Consent of Independent Auditors
99(a) - Executive Liability and Defense Coverage Insurance Policy (H)
99(b) - Supplemental Executive Retirement Plan (Y)
* Management contract, compensatory plan or arrangement
(A) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 28, 1987, which Exhibit is incorporated herein by
reference.
(B) Reference is made to the appropriate Exhibit of the company's Report
on Form 10-K for the fiscal year ended December 31, 1984, which
Exhibit is incorporated herein by reference.
(C) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1987, which
Exhibit is incorporated herein by reference.
(D) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 25, 1988, which Exhibit is incorporated herein by
reference.
(E) Reference is made to the appropriate Exhibit of the company's Form 8
Amendment No. 1 (filed on September 23, 1987) to its Registration
Statement on Form 8-A (Reg. No. 0-12938, effective as of October 21,
1986), which Exhibit is incorporated herein by reference.
(F) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1997, as amended,
which is incorporated herein by reference.
30
(G) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1990, as amended,
which is incorporated herein by reference.
(H) Reference is made to the appropriate Exhibit of the company's
Registration Statement on Form S-3 (Reg. No. 33-40168), effective as
of April 26, 1991, which Exhibit is incorporated herein by reference.
(I) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 24, 1991, which Exhibit is incorporated herein by
reference.
(J) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1991, as amended,
which is incorporated herein by reference.
(K) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which Exhibit is incorporated herein by
reference.
(L) Reference is made to Exhibit B of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which Exhibit is incorporated herein by
reference.
(M) Reference is made to Exhibit C of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which Exhibit is incorporated herein by
reference.
(N) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended June 30, 1992, which Exhibit is
incorporated herein by reference.
(O) Reference is made to Exhibit 2 of the company's report on Form 8-K,
dated October 29, 1992, which Exhibit is incorporated herein by
reference.
(P) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1992, which
Exhibit is incorporated herein by reference.
(Q) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 23, 1994, which Exhibit is incorporated herein by
reference.
(R) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1993, which
Exhibit is incorporated herein by reference.
(S) Reference is made to Exhibit 1 of the company's report on Form 8-A,
dated July 18, 1995, which Exhibit is incorporated herein by
reference.
(T) Reference is made to the appropriate Exhibit of the Company's
Definitive Proxy Statement used in connection with the Annual Meeting
of Shareholders held on May 22, 1996, which Exhibit is incorporated
herein by reference.
(U) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended March 31, 1997, which Exhibit is
incorporated herein by reference.
(V) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended September 30, 1996, which Exhibit
is incorporated herein by reference.
(W) Reference is made to the appropriate Exhibit to the company's report
on Form 8-K, dated January 23, 1998, which Exhibit is incorporated
herein by reference.
(X) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended March 31, 1998, which Exhibit is
incorporated herein by reference.
(Y) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1996, which
Exhibit is incorporated herein by reference.
(Z) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1999, which
Exhibit is incorporated herein by reference.
(AA) Reference is made to the appropriate Exhibit of the company's report
on Form S-8, dated March 30, 2001, which Exhibit is incorporated
herein by reference.
31
Report of Independent Auditors
Shareholders and Board of Directors
Invacare Corporation
We have audited the accompanying consolidated balance sheet of Invacare
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a)(2).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Cleveland, Ohio
January 23, 2001
32
CONSOLIDATED STATEMENT OF EARNINGS
INVACARE CORPORATION AND SUBSIDIARIES
Years Ended December 31,
2000 1999 1998
-------------------------------------------
(In thousands, except per share data)
Net sales $1,013,162 $882,774 $801,189
Cost of products sold 695,888 611,587 562,676
--------- -------- --------
Gross Profit 317,274 271,187 238,513
Selling, general and administrative expenses 201,543 170,321 151,263
Amortization of goodwill 8,899 7,258 6,332
Non-recurring and unusual items (11,430) 11,500 (5,736)
Interest expense 27,853 22,093 20,616
Interest income (7,807) (7,929) (9,031)
--------- -------- --------
Earnings before Income Taxes 98,216 67,944 75,069
Income taxes 38,305 26,450 29,277
--------- -------- --------
Net Earnings $ 59,911 $ 41,494 $ 45,792
========== ========= =========
Net Earnings per Share - Basic $ 1.99 $ 1.38 $ 1.53
========== ========= =========
Weighted Average Shares Outstanding - Basic 30,128 30,138 29,932
========== ========= =========
Net Earnings per Share - Assuming Dilution $ 1.95 $ 1.36 $ 1.50
========== ========= =========
Weighted Average Shares Outstanding -
Assuming Dilution 30,761 30,619 30,583
========== ========= =========
See notes to consolidated financial statements.
33
CONSOLIDATED BALANCE SHEET
INVACARE CORPORATION AND SUBSIDIARIES
December 31, December 31,
2000 1999
------------ ------------
(In thousands)
Assets
Current Assets
Cash and cash equivalents $ 12,357 $ 18,258
Marketable securities 845 1,593
Trade receivables, net 211,372 184,592
Installment receivables, net 56,659 67,336
Inventories, net 105,295 108,535
Deferred income taxes 31,605 26,561
Other current assets 14,275 11,745
--------- --------
Total Current Assets 432,408 418,620
Other Assets 74,305 71,316
Property and Equipment, net 134,913 137,132
Goodwill, net 310,229 328,217
-------- --------
Total Assets $951,855 $955,285
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 81,316 $ 58,367
Accrued expenses 92,453 97,156
Accrued income taxes 23,860 15,547
Current maturities of long-term obligations 5,807 6,401
-------- --------
Total Current Liabilities 203,436 177,471
Long-Term Debt 384,316 440,795
Other Long-Term Obligations 14,330 18,147
Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) 0 0
Common Shares (Authorized 100,000 shares; 29,186 and
29,125 issued in 2000 and 1999, respectively) 7,301 7,282
Class B Common Shares (Authorized 12,000 shares;
1,372 and 1,433, issued and outstanding in 2000 and 1999, respectively) 343 358
Additional paid-in-capital 79,105 79,470
Retained earnings 310,367 251,955
Accumulated other comprehensive loss (43,430) (8,976)
Treasury shares (177 and 579 shares in
2000 and 1999, respectively) (3,913) (11,217)
--------- --------
Total Shareholders' Equity 349,773 318,872
--------- --------
Total Liabilities and Shareholders' Equity $951,855 $955,285
========= =========
See notes to consolidated financial statements.
34
CONSOLIDATED STATEMENT OF CASH FLOWS
INVACARE CORPORATION AND SUBSIDIARIES
Years Ended December 31,
2000 1999 1998
--------- --------- ---------
(In thousands)
Operating Activities
Net earnings $ 59,911 $ 41,494 $ 45,792
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Non-recurring unusual charge 1,070 5,810 5,049
Depreciation and amortization 31,469 25,978 23,754
Provision for losses on trade and installment receivables 14,109 10,333 2,802
Provision for deferred income taxes (178) 4,608 6,425
Provision for other deferred liabilities 868 559 1,131
Changes in operating assets and liabilities:
Trade receivables (38,341) (22,402) (34,315)
Inventories (6,494) (7,465) (2,176)
Other current assets (3,192) (729) (2,518)
Accounts payable 24,195 3,345 2,857
Accrued expenses (4,991) 11,309 1,149
--------- --------- ---------
Net Cash Provided by Operating Activities 78,426 72,840 49,950
Investing Activities
Purchases of property and equipment (26,445) (32,808) (40,309)
Proceeds from sale of property and equipment 177 653 804
Installment contracts written (56,391) (86,833) (72,641)
Payments received on installment contracts 68,831 72,642 64,036
Marketable securities purchased (501) (623) (571)
Marketable securities sold 1,017 1,481 1,512
Business acquisitions, net of cash acquired (2,814) (141,536) (129,318)
Increase in other investments (4,257) (3,609) (3,212)
Increase in other long-term assets (8,745) (9,700) (13,123)
Other 1,377 2,178 5,051
--------- --------- ---------
Net Cash Required for Investing Activities (27,751) (198,155) (187,771)
Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 109,588 344,908 371,512
Principal payments on revolving lines of credit,
long-term debt and capital lease obligations (163,534) (208,033) (231,427)
Proceeds from exercise of stock options 5,965 1,441 3,766
Payment of dividends (1,499) (1,493) (1,487)
Purchase of treasury stock 0 (2,661) (2,517)
--------- --------- ---------
Net Cash Provided (Required) by Financing Activities (49,480) 134,162 140,835
Effect of exchange rate changes on cash (7,096) (49) 750
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (5,901) 8,798 3,764
Cash and cash equivalents at beginning of year 18,258 9,460 5,696
--------- --------- ---------
Cash and cash equivalents at end of year $ 12,357 $ 18,258 $9,460
========= ========= =========
See notes to consolidated financial statements.
35
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INVACARE CORPORATION AND SUBSIDIARIES
(In thousands) Accumulated
Additional Other
Common Class B Paid-in- Retained Comprehensive Treasury
Stock Shares Stock Shares Capital Earnings Earnings(Loss) Stock Shares Total
------ ------ ------- ------ ---------- -------- -------------- -------- ------ -----
January 1, 1998 Balance $ 7,182 28,724 $359 1,438 $74,954 $167,649 $ (6,506) $ (7,223) (438) $236,415
Conversion of shares
from Class B to Common 1 4 (1) (4) -
Exercise of stock options 84 338 4,909 4,993
Net earnings 45,792 45,792
Foreign currency
translation adjustments (561) (561)
Marketable securities
holding gain/(loss), (645) (645)
net of tax -----
Total comprehensive 44,586
income
Dividends - $.05 per (1,487) (1,487)
share
Repurchase of treasury (3,619) (169) (3,619)
shares
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Balance 7,267 29,066 358 1,434 79,863 211,954 (7,712) (10,842) (607) 280,888
Conversion of shares
from Class B to Common 1 (1) -
Exercise of stock options 15 58 (393) 2,286 148 1,908
Net earnings 41,494 41,494
Foreign currency
translation adjustments (1,561) (1,561)
Marketable securities
holding gain/(loss), 297 297
net of tax ---
Total comprehensive 40,230
income
Dividends - $.05 per (1,493) (1,493)
share
Repurchase of treasury (2,661) (120) (2,661)
shares
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 Balance 7,282 29,125 358 1,433 79,470 251,955 (8,976) (11,217) (579) 318,872
Conversion of shares
from Class B to Common 15 61 (15) (61) -
Exercise of stock options 4 (365) 7,304 402 6,943
Net earnings 59,911 59,911
Foreign currency
translation adjustments (34,793) (34,793)
Marketable securities
holding gain/(loss), 339 339
net of tax ---
Total comprehensive 25,457
income
Dividends - $.05 per (1,499) (1,499)
share
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 Balance $7,301 29,186 $343 1,372 $79,105 $310,367 $(43,430) $(3,913) (177) $349,773
See notes to consolidated financial statements.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES
Nature of Operations: Invacare Corporation and its subsidiaries (the "company")
is the leading home medical equipment manufacturer in the world based on its
distribution channels, the breadth of its product line and sales. The company
designs, manufactures and distributes an extensive line of medical equipment for
the home health care, retail and extended care markets. The company's products
include standard manual wheelchairs, motorized and lightweight prescription
wheelchairs, seating and positioning systems, motorized scooters, patient aids,
home care beds and low air loss therapy products.
Principles of Consolidation: The consolidated financial statements include the
accounts of the company and its majority owned subsidiaries. Certain foreign
subsidiaries are consolidated using a November 30 fiscal year end. 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.
Recently Issued Accounting Pronouncements: Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments and for Hedging
Activities, as amended, requires all derivative instruments to be recognized on
the balance sheet at fair value.The adoption of the statement effective January
1, 2001 did not have a material effect on the consolidated results of operations
or financial position of the company.
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 (LIFO) method and for non-domestic inventories and domestic finished
products purchased for resale ($74,878,000 and $81,841,000 at December 2000 and
1999, respectively) by the first-in, first-out (FIFO) method. Market costs are
based on the lower of replacement cost or estimated net realizable value.
Property and Equipment: Property and equipment are stated on the basis of cost.
The company principally uses the straight-line method of depreciation for
financial reporting purposes based on annual rates sufficient to amortize the
cost of the assets over their estimated useful lives. Accelerated methods of
depreciation are used for Federal income tax purposes. Expenditures for
maintenance and repairs are charged to expense as incurred.
Estimated Liability for Future Warranty Cost: Generally, the company's products
are covered by warranties against defects in material and workmanship for
periods up to six years from the date of sale to the customer. Certain parts and
components carry a lifetime warranty. A non-renewable warranty is also offered
on various products for a maximum period of five years. A provision for
estimated warranty cost is recorded at the time of sale based upon actual
experience.
Research and Development: Research and development costs are expensed as
incurred. The company's annual expenditures for product development and
engineering were approximately $16,231,000, $15,534,000, and $12,980,000 for
2000, 1999, and 1998, respectively.
Revenue Recognition: The company recognizes revenue when the product is shipped
and provides an appropriate allowance for estimated returns and adjustments.
In 2000, the Company changed its accounting policy to reflect in its
consolidated statement of earnings costs to ship products as a component of
costs of products sold and related revenue from shipping products as a component
of net sales.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES--Continued
Income Taxes: The company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities in the
balance sheet. The liability method requires that deferred income taxes reflect
the tax consequences of currently enacted rates for differences between the tax
and financial reporting bases of assets and liabilities. Undistributed earnings
of the company's foreign subsidiaries are considered to be indefinitely
reinvested and, accordingly, no provision for U.S. or state income taxes has
been provided.
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.
Foreign Currency Translation: Substantially all the assets and liabilities of
the company's foreign subsidiaries are translated into U.S. dollars at year end
exchange rates.Revenues and expenses are translated at weighted average exchange
rates. Gains and losses resulting from translation are included in accumulated
other comprehensive earnings (loss).
Goodwill: The excess of the aggregate purchase price over the fair value of net
assets acquired is amortized by use of the straight line method for periods
ranging from 20 to 40 years. The accumulated amortization was $36,187,000 and
$27,298,000 at December 31, 2000 and 1999, respectively. The carrying value of
goodwill is reviewed at each balance sheet date to determine whether goodwill
has been impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the company's carrying value of
the goodwill would be reduced by the estimated shortfall of discounted cash
flows. Based on the company's review as of December 31, 2000, no impairment of
goodwill was evident.
Advertising: Advertising costs are expensed as incurred and included in
selling, general and administrative expenses. Advertising expenses amounted to
$18,261,000, $17,391,000, and $13,386,000 for 2000, 1999, and 1998,respectively.
RECEIVABLES
Trade receivables are net of allowances for doubtful accounts of $13,048,000 and
$11,297,000 in 2000 and 1999, respectively.
Installment receivables as of December 31, 2000 and 1999 consist of the
following:
2000 1999
Long- Long-
(In thousands) Current Term* Total Current Term* Total
------- ----- ----- ------- ----- -----
Installment receivables $75,306 $15,865 $91,171 $78,701 $26,817 $105,518
Less:
Unearned interest (2,868) (1,047) (3,915) (3,380) (1,653) (5,033)
Allowance for doubtful accounts (15,779) (1,910) (17,689) (7,985) (2,152) (10,137)
-------- -------- -------- ------- ------- --------
$56,659 $12,908 $69,567 $67,336 23,012 $90,348
======== ======== ======== ======== ======= ========
* Long - term installment receivables are included in "Other Assets" on the
consolidated balance sheet.
INVENTORIES
Inventories as of December 31, 2000 and 1999 consist of the following:
2000 1999
---- ----
(In thousands)
Raw materials $29,417 $33,564
Work in process 15,039 16,825
Finished goods 60,839 58,146
------- -------
$105,295 $108,535
======== ========
The value of inventory on the LIFO method is approximately equal to its current
cost as of December 31, 2000 and as of December 31, 1999.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2000 and 1999 consist of the
following:
2000 1999
------- -------
(In thousands)
Land, buildings and improvements $55,760 $58,974
Machinery and equipment 176,885 163,717
Furniture and fixtures 13,443 14,776
Leasehold improvements 10,308 9,985
------- -------
256,396 247,452
Less allowance for depreciation 121,483 110,320
------- -------
$ 134,913 $ 137,132
========== =========
CURRENT LIABILITIES
Accrued expenses as of December 31, 2000 and 1999 consist of the following:
2000 1999
------ ------
(In thousands)
Accrued salaries and wages $29,124 $24,991
Acquisition reserves 10,286 15,267
Accrued insurance 4,452 8,259
Accrued warranty cost 7,917 7,758
Accrued rebates 4,137 5,001
Accrued interest 4,350 4,660
Accrued product liability, current portion 679 1,142
Other accrued items 31,508 30,078
------ ------
$92,453 $97,156
========= =========
ACQUISITIONS
Effective July 31, 1999, IVC Holdings Denmark A/S ("Holdings"), a wholly owned
subsidiary of Invacare Corporation, acquired substantially all of the
outstanding shares of common stock of Scandinavian Mobility International A/S
("SMI"), a Danish corporation for approximately $142 million in cash. The
acquisition was accounted for under the purchase method of accounting. The
excess of the purchase price over the estimated fair value of the common stock
acquired is being amortized over 40 years. SMI is a producer and distributor of
rehabilitation products, mobility aids and related products in Europe.
In connection with the acquisition, the purchase price allocation for Invacare's
business restructuring plan to consolidate and integrate the operations of SMI
and Invacare was completed in 2000. Accordingly, restructuring reserves
consisting of accruals for severance and other employee related costs ($9.8
million) and costs associated with the closure of facilities ($10.8 million)
were recorded. Payments charged against the SMI restructuring reserve totaled
approximately $8.5 million for severance and other employee related costs and
$3.5 million for costs associated with the closure of facilities as of December
31, 2000. The company expects that the remaining restructuring reserves will be
utilized during 2001.
The following unaudited pro forma consolidated results of operations give effect
to the SMI acquisition as though it had occurred on January 1, 1999 and includes
certain adjustments, such as additional amortization expense as a result of
goodwill and increased interest expense related to debt incurred for the
acquisition.
(In thousands, except per share data) Twelve Months Ended
December 31, 1999
-----------------
Net sales $958,754
Net income 42,017
Income per share - basic 1.39
Income per share - diluted 1.37
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
ACQUISITIONS--Continued
Pro forma net sales and net income are not necessarily indicative of the net
sales and net income that would have occurred had the acquisition been made at
the beginning of the period or the results that may occur in the future.
In January 1998, the company acquired for approximately $132 million in cash all
outstanding shares of Invacare Supply Group (ISG), formerly known as Suburban
Ostomy Supply Company, Inc., a leading national direct marketing wholesaler of
medical supplies and related products to the home care industry. The operating
results of this acquisition were included in the company's consolidated results
of operations from the date of acquisition. The transaction was accounted for by
the purchase method of accounting.
LEASES AND COMMITMENTS
The company leases a substantial portion of its facilities, transportation
equipment, data processing equipment and certain other equipment. These leases
have terms of up to 10 years and provide for renewal options. Generally, the
company is required to pay taxes and normal expenses of operating the facilities
and equipment. As of December 31, 2000, 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 2008. Lease expenses were
approximately $11,269,000 in 2000, $9,178,000 in 1999 and $7,975,000 in 1998.
Future minimum operating lease commitments as of December 31, 2000, are as
follows:
Year Amount
---- ------
(In thousands)
2001 $ 8,658
2002 6,111
2003 3,949
2004 2,342
2005 937
Thereafter 727
------
Total Future Minimum Lease Payments $22,724
=======
The amount of buildings and equipment capitalized in connection with capital
leases was $4,360,000 and $3,713,000 at December 31, 2000 and 1999,
respectively. At December 31, 2000 and 1999, accumulated amortization was
$2,033,000 and $2,172,000, respectively.
RETIREMENT AND BENEFIT PLANS
Substantially all full-time salaried and hourly domestic employees are included
in two profit sharing plans sponsored by the company. The company makes matching
contributions up to 66.7% of the first 3% of employees' contributions and may
make discretionary contributions to the domestic plans based on an annual
resolution of the Board of Directors. The contributions can either be in the
form of cash or property to the Profit Sharing Plan or in the form of cash,
Common Shares or property to the Employee Stock Bonus Trust and Plan. Cash
contributions to the Employee Stock Bonus Trust and Plan are used to purchase
the company's Common Shares on the open market.
The company sponsors a 401(k) Benefit Equalization Plan covering certain
employees, which provides for retirement payments so that the total retirement
payments equal amounts that would have been payable from the company's principal
retirement plans if it were not for limitations imposed by income tax
regulations.
Contribution expense for the above plans in 2000, 1999 and 1998 was $5,071,000,
$5,328,000, and $4,308,000, respectively.
The company also sponsors a non-qualified defined benefit Supplemental Executive
Retirement Plan (SERP) for certain key executives to recapture benefits lost due
to governmental limitations on qualified plan contributions. The projected
benefit obligation related to this unfunded plan was $25,951,000 at December 31,
2000. Pension expense for the plan in 2000, 1999 and 1998 was $1,714,000,
$1,168,000, and $1,085,000, respectively.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SHAREHOLDERS' EQUITY TRANSACTIONS
At December 31, 2000, the company had 100,000,000 authorized Common Shares,
without par value, and 12,000,000 authorized Class B Common Shares, without par
value. In general, the Common Shares and the Class B Common Shares have
identical rights, terms and conditions and vote together as a single class on
most issues, except that the Class B Common Shares have ten votes per share,
carry a 10% lower cash dividend rate and, in general, can only be transferred to
family members. Holders of Class B Common Shares are entitled to convert their
shares into Common Shares at any time on a share-for-share basis.
At December 31, 2000, the company had 300,000 shares of Serial Preferred Shares
authorized, none of which were issued or outstanding. Serial Preferred Shares
are entitled to one vote per share.
During 1994, the Board of Directors adopted and the Shareholders approved the
1994 Performance Plan (the "1994 Plan"). In May, 2000, the 1994 Plan was amended
to increase the number of Common Shares reserved for issuance by 2,000,000
Commons Shares. The 1994 Plan, as amended, provides for the issuance of up to
5,500,000 Common Shares in connection with stock options and other awards
granted under the 1994 Plan. The 1994 Plan, as amended, allows the Compensation
Committee of the Board of Directors (the "Committee") to grant incentive stock
options, non-qualified stock options, stock appreciation rights and stock awards
(including the use of restricted stock). The Committee has the authority to
determine the employees and directors that will receive awards, the amount of
the awards and the other terms and conditions of the awards. Payments of the
stock appreciation rights may be made in cash, Common Shares or a combination
thereof. There were no stock appreciation rights outstanding at December 31,
2000, 1999 or 1998. During 2000, the Committee, under the 1994 Plan, granted
1,082,056 non-qualified stock options for a term of ten years at 100% of the
fair market value of the underlying shares on the date of grant.
The company also has a Stock Option Plan for non-employee Directors. The plan
was approved May 27, 1992 and provides for the granting of up to a maximum of
100,000 options to eligible new Directors. Directors will receive grants with
exercise prices at 100% of the fair market value of the company's stock on the
date of grant. At December 31, 2000, there were 12,550 options outstanding under
this plan. During 2000, no options were granted under this plan.
The Plans have provisions for the net share settlement of options. Under these
provisions, the company settled 79,922 treasury shares for $2,663,062 in 2000,
78,433 treasury shares for $1,860,663 in 1999 and 144,489 treasury shares for
$3,120,476 in 1998.
As of December 31, 2000, an aggregate of 10,741,722 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
2000 Price 1999 Price 1998 Price
---- -------- ---- -------- ---- --------
Options outstanding at January 1, 4,059,133 $18.70 3,057,020 $16.90 2,967,762 $15.05
Granted 1,082,056 24.33 1,397,080 20.75 517,707 23.68
Exercised (659,187) 11.35 (285,575) 7.39 (337,933) 9.29
Canceled (192,239) 22.37 (109,392) 23.70 (90,516) 23.67
--------- ----- --------- ----- -------- -----
Options outstanding at December 31, 4,289,763 $21.08 4,059,133 $18.70 3,057,020 $16.90
========= ====== ========= ======= ========= ======
Options price range at December 31, $ 7.50 $ 2.19 $ 2.19
to to to
$ 31.25 $ 27.50 $ 27.50
Options exercisable at December 31, 1,965,220 2,018,674 1,906,538
Options available for grant at December 31, 1,466,643 356,460 1,644,148
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SHAREHOLDERS' EQUITY TRANSACTIONS--Continued
The company utilizes the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the company's stock option plans been
determined based on the fair value at the grant date for awards in 2000, 1999
and 1998 consistent with the provisions of SFAS 123, the company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:
(In thousands except per share data) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
Net earnings - as reported $59,911 $41,494 $45,792
Net earnings - pro forma $55,839 $38,639 $43,302
Earnings per share as reported - basic $ 1.99 $ 1.38 $ 1.53
Earnings per share as reported - assuming dilution $ 1.95 $ 1.36 $ 1.50
Pro forma earnings per share - basic $ 1.85 $ 1.28 $ 1.45
Pro forma earnings per share - assuming dilution $ 1.82 $ 1.26 $ 1.42
The assumption regarding the stock options issued in 2000, 1999 and 1998 was
that 25% of such options vested in the year following issuance. The stock
options awarded during the year 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 used for grants in 2000: dividend yield of 1.35%; expected
volatility of 29.7%; risk-free interest rate of 4.96%; and an expected life of
6.8 years. The weighted-average fair value of options granted during the year
2000, per the Black-Scholes model based on the expected exercise year of 2007,
is $8.99.
The plans provide that shares granted come from the company's authorized but
unissued common stock or treasury shares. Pursuant to the plan, the Committee
has established that the 2000 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, 2000 is 7.6 years.
On July 7, 1995, the company adopted a Rights Plan whereby each holder of a
Common Share and Class B Common Share received one purchase right (the "Rights")
for each share owned. Under certain conditions, each Right may be exercised to
purchase one-tenth of one Common Share at a price of $8 per one-tenth of a
share. The Rights may only be exercised 10 days after a third party has acquired
30% or more of the company's outstanding voting power or 10 days after a third
party commences a tender offer for 30% or more of the voting power (an
"Acquiring Party"). In addition, if an Acquiring Party merges with the company
and the company's Common Shares are not changed or exchanged, or if an Acquiring
Party engages in one of a number of self-dealing transactions, each holder of a
Right (other than the Acquiring Party) will have the right to receive that
number of Common Shares or similar securities of the resulting entity having a
market value equal to two times the exercise price of the Right. The company may
redeem the Rights at a price of $.005 per Right at any time prior to 10 days
following a public announcement that an Acquiring Party has acquired beneficial
ownership of 30% or more of the company's outstanding voting power, and in
certain other circumstances as approved by the Board of Directors. The Rights
will expire on July 7, 2005.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
NET EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted net earnings
per common share.
2000 1999 1998
---- ---- ---
(In thousands except per share data)
Basic
Average common shares outstanding 30,128 30,138 29,932
Net earnings $59,911 $41,494 $45,792
Net earnings per common share $ 1.99 $ 1.38 $ 1.53
Diluted
Average common shares outstanding 30,128 30,138 29,932
Stock options 633 481 651
------- ------- -------
Average common shares assuming dilution 30,761 30,619 30,583
Net earnings $59,911 $ 41,494 $ 45,792
Net earnings per common share $ 1.95 $ 1.36 $ 1.50
OTHER COMPREHENSIVE EARNINGS (LOSS)
The components of other comprehensive earnings (loss) are as follows:
(In thousands)
Unrealized
Currency Gain (Loss) on
Translation Available-for-Sale
Adjustments Securities Total
----------- ------------------ ---------
Balance at January 1, 1998 $ (7,575) $ 1,069 $ (6,506)
Foreign currency translation adjustments (561) (561)
Unrealized gain (loss) on available for sale securities (1,057) (1,057)
Deferred tax (expense) benefit relating to unrealized gain
(loss) on available for sale securities 412 412
----------- ------------------ ---------
Balance at December 31, 1998 (8,136) 424 (7,712)
Foreign currency translation adjustments (1,561) (1,561)
Unrealized gain (loss) on available for sale securities 487 487
Deferred tax (expense) benefit relating to unrealized gain
(loss) on available for sale securities (190) (190)
----------- ------------------ ---------
Balance at December 31, 1999 (9,697) 721 (8,976)
Foreign currency translation adjustments (34,793) (34,793)
Unrealized gain (loss) on available for sale securities 556 556
Deferred tax (expense) benefit relating to unrealized gain
(loss) on available for sale securities (217) (217)
----------- ------------------ ---------
Balance at December 31, 2000 $(44,490) $ 1,060 $(43,430)
=========== ================== =========
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
LONG-TERM OBLIGATIONS
Long-term obligations as of December 31, 2000 and 1999 consist of the following:
2000 1999
---- ----
(In thousands)
$25,000,000 senior notes at 7.45%, mature in February 2003 $10,715 $14,285
$80,000,000 senior notes at 6.71%, due in February 2008 80,000 80,000
$20,000,000 senior notes at 6.60%, due in February 2005 20,000 20,000
Revolving credit agreement ($425,000,000 multi-currency) at .185% to
.375% above local interbank offered rates, expires October 31, 2002 271,584 326,873
Notes and mortgages payable, secured by buildings and equipment 4,215 2,374
Capitalized lease obligations 2,465 1,584
Product liability 2,201 5,683
Deferred federal income taxes 2,886 1,172
Other, principally SERP 10,387 13,372
--------- ---------
404,453 465,343
Less current maturities of long-term obligations 5,807 6,401
--------- ---------
$398,646 $458,942
========= =========
In 1997, the company entered into a $425,000,000 multi-currency revolving credit
agreement with a group of commercial banks, which expires on October 31, 2002,
or such later date as mutually agreed upon by the company and the banks.
Borrowings denominated in foreign currencies aggregated $45,220,000 at December
31, 2000 and $185,349,000 at December 31, 1999. The borrowing rates under the
agreement are determined based on the funded debt to capitalization ratio of the
company as defined in the agreement and range from .185% to .375% above the
various interbank offered rates. As of December 31, 2000 and 1999, the weighted
average floating interest rate on U.S. borrowings was 6.15% and 5.68%,
respectively. The agreement requires the company to maintain certain conditions
with respect to net worth, funded debt to capitalization, and interest coverage
as defined in the agreement. At December 31, 2000, $148,499,394 of retained
earnings is available for dividends.
In March 2000, the company fixed the interest rate on $25,000,000 of its U.S.
dollar borrowings through two interest rate swap agreements. One agreement is
for $15,000,000 U.S. dollars and the other agreement is for $10,000,000 U.S.
dollars. The effect of the swaps is to exchange a short-term floating interest
rate for a fixed rate of 7.03% on one agreement and 7.04% on the other agreement
In November 1999, the company fixed the interest rate on $25,000,000 of its U.S.
dollar borrowings through an interest rate swap agreement. The effect of the
swap is to exchange a short-term floating interest rate for a fixed rate of
6.29% for a two year term.
In May 1999, the company fixed the interest rate on $20,000,000 of its U.S.
dollar borrowings through two interest rate swap agreements. Each agreement is
for $10,000,000 U.S. dollars. The effect of the swaps is to exchange a
short-term floating interest rate for a fixed rate of 5.63% for a four year term
on both agreements.
The notes and mortgages payable financed the purchase of certain buildings and
equipment which secure the obligations. The notes and mortgages payable bear
interest at rates from 5.7% to 12.3% and mature through 2021.
The capital leases are principally for manufacturing facilities with payments
due through 2009.
The company is self-insured for a portion of its product liability and certain
other liability exposures. Product liability for domestically manufactured
products is insured through the company's captive insurance company, which
insures annual aggregate policy losses of $5 million. In the prior two policy
years, the limit of liability was $2 million per claim and $3 million in the
aggregate. The company also has additional layers of coverage insuring
$85,000,000 in annual aggregate losses arising from individual claims that
exceed the captive insurance company policy limits.
The aggregate minimum combined maturities of long-term obligations are
approximately $5,807,000 in 2001, $277,722,000 in 2002, $4,621,000 in 2003,
$477,000 in 2004, $347,000 in 2005 and $101,148,000 thereafter. Interest paid on
borrowings was $29,987,000, $21,646,000 and $18,995,000 in 2000, 1999 and 1998,
respectively.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INCOME TAXES
Earnings before income taxes consist of the following:
2000 1999 1998
-------- -------- --------
(In thousands)
Domestic $ 67,730 $ 52,924 $ 69,037
Foreign 30,486 15,020 6,032
-------- -------- --------
$ 98,216 $ 67,944 $ 75,069
======== ======== ========
The company has provided for income taxes as follows:
2000 1999 1998
-------- -------- --------
(In thousands)
Current:
Federal $ 24,704 $ 10,157 $ 16,428
State 4,100 2,800 4,000
Foreign 11,134 8,755 4,642
------ -------- -------
39,938 21,712 25,070
Deferred:
Federal (2,192) 7,698 4,471
State - - -
Foreign 559 (2,960) (264)
------ -------- --------
(1,633) 4,738 4,207
------ -------- --------
Income Taxes $ 38,305 $ 26,450 $ 29,277
======== ========= ========
At December 31, 2000, the company had foreign tax loss carryforwards of
approximately $8,210,000 of which $4,100,000 are non-expiring, $1,340,000 expire
between 2001 and 2004 and $2,700,000 expire in 2005.
The company made income tax payments of $28,626,000, $13,264,000 and $13,731,000
during the years ended December 31, 2000, 1999 and 1998, respectively.
A reconciliation to the effective income tax rate from the federal statutory
rate follows:
2000 1999 1998
-------- -------- --------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
Federal income tax benefit 2.7 2.7 3.5
Tax credits (1.9) (2.1) (2.3)
Goodwill 3.2 3.8 2.9
Other, net - (.5) (.1)
-------- -------- --------
39.0% 38.9% 39.0%
======== ======== ========
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INCOME TAXES--Continued
Significant components of deferred income tax assets and liabilities at December
31, 2000 and 1999 are as follows:
2000 1999
-------- --------
(In thousands)
Current deferred income tax assets, net:
Bad debt $ 12,360 $ 7,056
Warranty 1,794 1,336
Inventory 2,102 3,313
Other accrued expenses and reserves 5,680 7,005
State and local taxes 1,932 2,019
Litigation reserves 3,730 2,367
Compensation and benefits 2,422 2,175
Product liability 254 274
Loss carryforwards 1,555 72
Other, net (224) 944
-------- --------
$ 31,605 $ 26,561
-------- --------
Long-term deferred income tax assets (liabilities), net:
Fixed assets (9,477) (7,303)
Product liability 899 1,144
Loss carryforwards 1,015 800
Compensation and benefits 4,590 3,725
State and local taxes 2,400 2,400
Valuation reserve (1,092) (848)
Other, net (1,221) (1,090)
-------- --------
$(2,886) $ (1,172)
-------- --------
Net Deferred Income Taxes $ 28,719 $ 25,389
======== ========
INTERIM FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED
(In thousands, except per share data)
2000 March 31, June 30, September 30, December 31,
---- --------- ---------- ------------- ------------
Net sales $245,593 $247,542 $251,728 $268,299
Gross profit 72,880 79,669 79,324 85,401
Earnings before income taxes 16,351 22,440 28,551 30,874
Net earnings 9,974 13,689 17,416 18,832
Net earnings per share - basic .33 .46 .58 .62
Net earnings per share - assuming dilution .33 .45 .57 .61
1999 March 31, June 30, September 30, December 31,
---- --------- ---------- ------------- -----------
Net sales $197,221 $203,323 $224,463 $257,767
Gross profit 56,737 62,085 70,507 81,858
Earnings before income taxes 13,922 19,538 23,068 11,416
Net earnings 8,492 11,914 14,077 7,011
Net earnings per share - basic .28 .39 .46 .23
Net earnings per share - assuming dilution .28 .39 .46 .23
See non-recurring and unusual items footnote for disclosure of credits/charges
taken in the fourth quarter of 2000 and 1999.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENTS
The company operates in three primary business segments based on geographical
area: North America, Europe and Australasia. The three reportable segments
represent operating groups which offer products to different geographic regions.
The North America segment consists of five operating groups which sell the
following products: wheelchairs, scooters, seating products, self care products,
home care beds, low air loss therapy products, patient transport products,
distributed products, extended care and furniture products, respiratory and
other products. The Europe segment consists of one operating group that sells
primarily wheelchairs, scooters, self care products, patient lifts and slings
and oxygen products. The Australasia segment consists of two operating groups
which sell primarily custom power wheelchairs, electronic wheelchair
controllers, oxygen products and patient aids. 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 $61,372,000,
$57,027,000 and $47,881,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
The information by segment is as follows (In thousands):
Year ended December 31, 2000
North Australia/ All
America Europe Asia Other* Consolidated
----------- ------------ ------------ --------------- ----------------
Revenues from external customers $741,255 $238,208 $ 33,699 - $1,013,162
Depreciation and amortization 21,070 8,814 1,585 - 31,469
Net interest expense 19,867 7,342 195 (7,358) 20,046
Earnings (loss) before income taxes 125,188 12,142 10,859 (49,973) 98,216
Assets 535,067 278,591 32,601 105,596 951,855
Expenditures for assets 16,884 7,922 1,639 - 26,445
Year ended December 31, 1999
North Australia/ All
America Europe Asia Other* Consolidated
----------- ------------ ------------ --------------- ----------------
Revenues from external customers $667,658 $189,371 $ 25,745 - $882,774
Depreciation and amortization 18,115 6,230 1,633 - 25,978
Net interest expense 14,792 1,605 459 (2,692) 14,164
Earnings (loss) before income taxes 109,134 (541) 8,590 (49,239) 67,944
Assets 529,397 302,465 29,679 93,744 955,285
Expenditures for assets 27,082 3,586 2,140 - 32,808
Year ended December 31, 1998
North Australia/ All
America Europe Asia Other* Consolidated
----------- ------------ ------------ --------------- ----------------
Revenues from external customers $650,788 $130,335 $ 20,066 - $801,189
Depreciation and amortization 18,283 5,327 140 4 23,754
Net interest expense 11,729 1,765 1,398 (3,307) 11,585
Earnings (loss) before income taxes 122,730 (1,002) 2,862 (49,521) 75,069
Assets 507,397 134,143 25,010 72,206 738,756
Expenditures for assets 35,219 4,997 93 - 40,309
* Consists of the Invacare captive insurance unit, domestic export unit and
corporate selling, general and administrative costs, which do not meet the
quantitative criteria for determining reportable segments.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENTS--Continued
Net sales by product, are as follows:
North America 2000 1999 1998
------------- ----------- ---------------- ---------------
Rehab $190,228 $176,022 $176,056
Standard Wheelchairs 110,101 97,108 102,468
Distributed 122,991 104,264 95,887
Personal Care/Patient Transport/Beds 162,675 138,672 129,263
Respiratory 84,074 80,021 70,724
Institutional products 30,833 32,223 31,463
Parts 19,472 18,671 17,906
Other 20,881 20,677 27,021
-------- -------- --------
$741,255 $667,658 $650,788
======== ======== ========
Europe 2000 1999 1998
------ ----------- ---------------- ---------------
Rehab $ 92,668 $50,579 $ 38,996
Standard Wheelchairs 46,401 76,705 50,188
Personal Care/Patient Transport/Beds 46,218 39,184 22,010
Respiratory 7,150 6,321 4,642
Institutional products 11,349 - -
Parts 28,714 - -
Other 5,708 16,582 14,499
-------- -------- --------
$238,208 $189,371 $130,335
======== ======== ========
Australasia 2000 1999 1998
----------- ----------- ---------------- ---------------
Rehab $ 25,652 $ 20,501 $ 20,066
Standard Wheelchairs 1,282 179 -
Distributed 221 - -
Personal Care/Patient Transport/Beds 1,138 256 -
Respiratory 4,817 4,808 -
Other 589 - -
-------- -------- --------
$ 33,699 $ 25,744 $ 20,066
======== ======== ========
Total Consolidated $1,013,162 $882,774 $801,189
========== ======== ========
No single customer accounted for more than 5% of the company's sales.
CONCENTRATION OF CREDIT RISK
The company manufactures and distributes durable medical equipment and supplies
to the home health care, retail and extended care markets. The company performs
credit evaluations of its customers' financial condition. To further assist
dealers in reducing their cash requirements for inventory and rental equipment,
the company provides various financing options for certain types of products
through Invacare Credit Corporation "ICC". In a typical financing arrangement,
the company sells the equipment on a financing contract to the dealer for
periods ranging from 6 to 48 months. The majority of these transactions are
secured with a UCC-1 filing, purchase money securities and/or personal
guarantees.
As of November 15, 2000, ICC converted its commercial purchase agreements into
leases and has contracted with DLL, a subsidiary of Robo Bank of the
Netherlands, for the sale of such leases. The company also transferred a portion
of the existing ICC portfolio to DLL for cash ($16,000,000). No gain or loss was
recognized on the transfer of the existing portfolio. The agreement for the
third party credit, as well as the transfer of receivables, is with partial
recourse to Invacare.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
CONCENTRATION OF CREDIT RISK--Continued
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, are ultimately funded
through government reimbursement programs such as Medicare and Medicaid. In
addition, the company has seen 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. Credit losses are
provided for in the financial statements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the company in estimating its
fair value disclosures for financial instruments:
Cash, cash equivalents and marketable securities: The carrying amount reported
in the balance sheet for cash, cash equivalents and marketable securities
approximates its fair value.
Installment receivables: The carrying amount reported in the balance sheet for
installment receivables approximates its fair value. The majority of the
portfolio contains receivables with terms less than three years, of which a
large concentration is due in less than one year. The interest rates associated
with these receivables have not varied significantly over the past three years.
Management believes that after consideration of the credit risk, the net book
value of the installment receivables approximates market value.
Long-term debt: The carrying amounts of the company's borrowings under its
long-term revolving credit agreements approximate their fair value. Fair values
for the company's senior notes are estimated using discounted cash flow
analyses, based on the company's current incremental borrowing rate for similar
borrowing arrangements.
Interest Rate Swaps: The company is a party to interest rate swap agreements
with off-balance sheet risk which are entered into in the normal course of
business to reduce exposure to fluctuations in interest rates. The agreements
are with major financial institutions which are expected to fully perform under
the terms of the agreements thereby mitigating the credit risk from the
transactions. The agreements are contracts to exchange floating rate payments
with fixed rate payments over the life of the agreements without the exchange of
the underlying notional amounts. The notional amounts of such agreements are
used to measure interest to be paid or received and do not represent the amount
of exposure to credit loss. The amounts to be paid or received under the
interest rate swap agreements are accrued consistent with the terms of the
agreements and market interest rates. Fair value for the company's interest rate
swaps are based on independent pricing models.
Other investments: The company has made other investments in limited
partnerships and non-marketable equity securities. These investments were
acquired in private placements and there are no quoted market prices or stated
rates of return. It is not practicable to estimate the fair value of these
investments because of the limited information available and because of the
significance of the cost to obtain an outside appraisal. The investments are
carried at their cost of $21,838,000 in 2000 and $13,651,000 in 1999 and are
accounted for using the cost method.
The carrying amounts and fair values of the company's financial instruments at
December 31, 2000 and 1999 are as follows:
2000 1999
------ ------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- ------
(In thousands)
Cash and cash equivalents $12,357 $12,357 $18,258 $18,258
Marketable securities 2,060 2,060 2,188 2,188
Installment receivables 69,567 69,567 93,390 93,390
Long-term debt (including current 386,514 381,649 443,532 430,936
maturities)
Interest rate swaps (fair value liability) - (267) 1,105
-
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
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 company does not use derivative financial
instruments for speculative purposes.
The gains and losses that result from the forward contracts are deferred and
recognized when the offsetting gains and losses for the identified transactions
are recognized. At December 31, 2000 and 1999, the gain/(loss) resulting from
forward contracts was not material to the financial statements.
The following table represents the fair value of all outstanding forward
contracts at December 31, 2000 and 1999. The valuations are based on market
rates. All forward contracts noted below mature before January, 2002 and
January, 2001 respectively.
December 31, 2000
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
---------------------------------------- --- ------------------ --------------------- ---------------------
British pound $ 502 $ 9 $ 511
New Zealand dollar (8,753) 95 (8,658)
Euro 13,035 979 14,014
Mexican Peso 3,344 (14) 3,330
December 31, 1999
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
---------------------------------------- --- ------------------ --------------------- ---------------------
British pound $(331) $ (67) $(398)
New Zealand dollar (12,054) (421) (12,475)
German Mark 3,742 208 3,950
Australian dollar 144 3 147
Canadian dollar 5,049 (109) 4,940
French franc 2,857 157 3,014
Danish Kroner (275) 16 (259)
NON-RECURRING AND UNUSUAL ITEMS
In 2000, as a result of repaying EURO and DKK denominated debt, the company
realized a non-recurring pre-tax foreign currency gain of approximately
$20,130,000. The gain was offset by charges in the fourth quarter aggregating
$8,700,000 related primarily to closing two distribution centers and a
manufacturing plant ($3,700,000), severance costs due to staff reductions (nine
individuals) primarily at the corporate office ($1,000,000) and costs associated
with the settlement of litigation ($4,000,000). During 2000, $1,064,000 was
utilized primarily for severance payments. In addition, during the fourth
quarter, the company also increased its bad debt reserve impacting selling,
general and administrative expenses by approximately $8,000,000.
In 1999, the company announced non-recurring and unusual charges of $11,500,000
in the fourth quarter primarily related to the consolidation and integration of
the operations of SMI and Invacare. The charges included reserves for employee
severance ($3,000,000) and plant shutdowns and lease terminations ($4,400,000)
and asset write-downs and other non-recurring items ($4,100,000). The personnel
reductions and shut down of facilities are related to the integration of SMI and
are required to obtain the expected synergies from the acquisition. Of these
charges $2,400,000 have been utilized related employee severance, $2,000,000
have been utilized related to plant shutdown and lease termination, and
$4,100,000 have been utilized related to asset write-downs and other
non-recurring items. In addition, during the fourth quarter of 1999, the company
also increased its bad debt reserve impacting selling, general and
administrative expenses by approximately $3,300,000.
The company anticipates all initiatives for which charges have been reported
will be substantially completed in 2001.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
Balance Charged Charged To Balance
At To Other At
Beginning Cost And Accounts Deductions- End Of
Description Of Period Expenses Describe Describe Period
(in thousands)
Year Ended December 31, 2000
- ----------------------------
Deducted from asset accounts --
Allowance for doubtful accounts $21,434 $13,731 - $4,428(A) $30,737
Inventory obsolescence reserve 10,682 3,970 - 8,419(B) 6,233
Accrued warranty cost 7,758 7,446 - 7,287(B) 7,917
Accrued product liability 6,825 7,114 - 11,058(D) 2,881
Year Ended December 31, 1999
- ----------------------------
Deducted from asset accounts --
Allowance for doubtful accounts $10,985 $ 10,139 $1,550(C) $1,240(A) $21,434
Inventory obsolescence reserve 6,296 4,606 3,875(C) 4,095(B) 10,682
Accrued warranty cost 6,619 8,056 - 6,917(B) 7,758
Accrued product liability 6,946 3,247 - 3,368(D) 6,825
Year Ended December 31, 1998
- ----------------------------
Deducted from asset accounts --
Allowance for doubtful accounts $15,179 $ 3,390 $ 860(C) $8,444(A) $10,985
Inventory obsolescence reserve 4,787 3,269 298(C) 2,058(B) 6,296
Accrued warranty cost 6,385 6,183 - 5,949(B) 6,619
Accrued product liability 6,772 2,742 - 2,568(D) 6,946
NOTE (A)--Uncollectible accounts written off, net of recoveries.
NOTE (B)--Amounts written off or payments incurred.
NOTE (C)--Amounts recorded due to acquisition of subsidiaries.
NOTE (D)--Loss and loss adjustment.
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