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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ________________
Commission file number 0-12938
INVACARE CORPORATION
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(Exact name of Registrant as specified in its charter)
Ohio 95-2680965
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
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: (216) 329-6000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
--------------------------------
(Title of Class)
Rights to purchase Common Shares of Invacare, without par value
---------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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As of February 27, 1998, 28,746,162 Common Shares and 1,433,107 Class B
Common Shares were outstanding. At that date, the aggregate market value of the
25,587,028 Common Shares of the Registrant held by non-affiliates was
$586,966,422 and the aggregate market value of the 91,187 Class B Common Shares
of the Registrant held by non-affiliates was $2,091,830. While the Class B
Common Shares are not listed for public trading on any exchange or market
system, shares of that class are convertible into Common Shares at any time on a
share-for-share basis. The market values indicated were calculated based upon
the last sale price of the Common Shares as reported by the NASDAQ National
Market System on February 27, 1998, which was $22.94. For purposes of this
information, the 3,159,134 Common Shares and 1,341,920 Class B Common Shares
which were held by Executive Officers and Directors were deemed to be the Common
Shares and Class B Common Shares held by affiliates.
Documents Incorporated By Reference
-----------------------------------
Part of Form 10-K Document Incorporated By Reference
- ------------------ ----------------------------------
Part III (Items 10, 11, Portions of the Registrant's
12 and 13) definitive Proxy Statement to
be used in connection with
its 1998 Annual Meeting of
Shareholders.
Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 1997.
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PART I
Item 1. Business.
(a) General Development of Business.
Invacare is the leading home medical equipment (HME) manufacturer in the world
based upon its distribution channels, the breadth of its product line and sales.
The company designs, manufactures and distributes an extensive line of medical
equipment for the home health care, retail and extended care markets. Invacare
continuously revises and expands its product lines to meet changing market
demands 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 world-wide
distribution network by its sales force, telemarketing employees and various
organizations of independent manufacturer's representatives. The company also
uses its extensive dealer network to distribute medical equipment and related
supplies manufactured by others.
Invacare is committed to design, manufacture and distribute the best value in
mobility products and medical equipment for people with disabilities and those
requiring home health care. Invacare will achieve this vision by:
* designing and developing innovative and technologically superior
products; * ensuring continued focus on our primary market - the home
health care market; * marketing our broad range of products under the
"One Stop Shoppingsm" strategy * providing the industry's most
professional and cost-effective sales, customer service
and distribution organization;
* providing superior and innovative dealer support and aggressive
product line extensions; * building a strong referral base among
health care professionals; * building brand preference with
consumers; * handling the retail channel through a dedicated sales
and marketing structure; * managing the extended and acute care
market with separate sales and distribution; * continuous
advancement/recruitment of top management candidates; * empowering
all employees; * providing a performance based reward environment;
and * continually striving for total quality throughout the
organization.
When the company was acquired in December 1979 by a group of investors,
including certain members of management and the Board of Directors, it had $19.5
million in net sales and a limited product line of standard wheelchairs and
patient aids. In 1997, Invacare reached $653 million in net sales, representing
a 21.5% compound average sales growth rate since 1979, and currently is one of
the only companies in the industry which manufactures, distributes and markets
products in each of the following major home medical equipment categories: power
and manual wheelchairs, patient aids, home care beds, home respiratory products,
low air loss therapy products, seating and positioning products and bathing
equipment.
The company's executive offices are located at One Invacare Way, Elyria, Ohio
and its telephone number is (216) 329-6000. In this report, "Invacare" and the
"company" refer to Invacare Corporation and, unless the context otherwise
indicates, its consolidated subsidiaries.
(b) Financial Information About Industry Segments.
The company operates predominantly in the home medical equipment industry
segment. For information relating to net sales, operating income, identifiable
assets and other information for this industry segment, see the Consolidated
Financial Statements of the company.
(c) Narrative Description of Business.
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THE HOME MEDICAL EQUIPMENT INDUSTRY
North America
The home medical equipment market includes home health care products, physical
rehabilitation products and other non-disposable products used for the recovery
and long-term care of patients. The company believes that sales of domestic home
medical equipment products will continue to grow during the next decade as a
result of several factors, including:
Growth in population over age 65. 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 65 years of age and older and it is estimated that this segment of the
population will double during the next ten years. It also has been widely
reported that by the year 2000, one American will turn 50 every nine
seconds.
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 life of adults and children, thus
increasing the demand for home medical care equipment.
Healthcare cost containment trends. In 1996, it was estimated that spending
on health care in the U.S. surpassed $1 trillion dollars, which is
approximately 14.0% of Gross Domestic Product (GDP). Spending on health
care was estimated to reach 15.9% and 17.9% of GDP in the years 2000 and
2005, respectively. The rising cost of health care has caused many payors
of health care expenses to look for ways to contain costs. Home health care
has gained wide-spread acceptance among health care providers and public
policy makers as a cost effective, clinically appropriate and patient
preferred alternative to facility-based care for a variety of acute and
long-term illnesses and disabilities. Thus, the company believes that home
health care and home medical equipment will play a significant role in
reducing health care costs.
Society's mainstreaming of people with disabilities. People with
disabilities are part of the fabric of society, and this has increased, in
large part, due to the Americans with Disabilities Act which became law in
1991. This legislation provides mainstream opportunities to people with
disabilities. The Americans with Disabilities Act imposes requirements on
certain components of society to make "reasonable accommodations" to
integrate people with disabilities into the community and the workplace.
Distribution channels. The changing home health care market continues to
provide new ways of reaching the end user. The distribution network for
products has expanded to include not only specialized home health care
providers and extended care facilities but retail drug stores, surgical
supply houses, rental, hospital and HMO-based stores, home health agencies,
mass merchandisers and direct sales.
Europe
The company believes that, while many of the market factors influencing demand
in the U.S. are also present in Europe - aging of the population, technological
trends and society's acceptance of people with disabilities - each of the major
national markets within Europe has distinctive characteristics. The European
health care industry is more heavily socialized and is, therefore, more
influenced by government regulation and fiscal policy. Variations in product
specifications, regulatory approvals, distribution requirements and
reimbursement policies require the company to tailor its approach to each
market. Management believes that as the European markets become more homogeneous
and the company continues to refine its distribution channels, the company can
more effectively penetrate these markets.
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OPERATING UNITS
North America
North American operations, which includes Australia and New Zealand operations,
are aligned into three primary operating groups, which manufacture and market
products in all of the major home medical equipment categories. In Australia,
the company manufactures and markets custom power wheelchairs for Australasia.
In Canada, the company principally sells Invacare products manufactured in the
U.S. In New Zealand, the company principally produces components used in other
Invacare products, as well as manufactures and distributes products for the New
Zealand market. The company also sells standard wheelchairs and seating and
positioning products manufactured in Canada and certain patient aids
manufactured in Europe.
REHAB PRODUCTS GROUP
Power wheelchairs. Invacare manufactures 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. Invacare's
power wheelchair lines are marketed under the "Action" trademarked brand
name and include, among others, the Storm SeriesTM, a technologically
advanced series of power wheelchairs. Action Virtual ServiceSM technology
was introduced in 1996 on the Power MK IV series controllers. This
innovative technology allows technicians to access power chair controllers
via modem so that in-depth diagnostics and performance adjustments can be
done from any location where a phone line is available.
Custom manual wheelchairs. Invacare manufactures and markets a range of
custom manual wheelchairs for everyday, sports and recreational uses. These
lightweight chairs are marketed under the Action brand and Action Top
End(R) product name. The chairs provide mobility for people with moderate
to severe disabilities in their everyday activities as well as for various
sports such as basketball, racing, skiing and tennis.
Scooters. Invacare manufactures three- and four-wheeled motorized scooters,
including rear wheel drive models for both outdoor and indoor use and
markets them under the Action brand name. This product line includes the
Action Cat(TM) and Action Flyer(TM) products.
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 PinDot(R)
brand. Seating products marketed under the Action brand, include the
Tarsys(TM) product of electronic and mechanical tilting and reclining
devices for use on power wheelchairs.
STANDARD PRODUCTS GROUP
Manual wheelchairs. 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.
Self care. Invacare manufactures and/or distributes a full line of patient
aids, including ambulatory aids such as crutches, canes, walkers and
wheeled walkers; bath safety aids such as tub transfer benches, shower
chairs and grab bars; and patient care products such as commodes, lift-out
chairs and foam products.
Home care beds. Invacare manufactures and distributes a wide variety of
manual, semi-electric and fully-electric beds for home use under the
Invacare(R) brand name. Home care bed accessories include bed side rails,
mattresses, overbed tables, 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.
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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.
Distributed products. Invacare distributes a line of personal medical care
products manufactured by others, including bedding and ostomy,
incontinence, diabetic and wound care supplies. Effective January 28, 1998,
Suburban Ostomy Supply Co., Inc., a direct marketing wholesaler of ostomy,
incontinence, diabetic and wound care products to the home health care
market, was merged with a wholly owned subsidiary of the company.
Extended care bed and furniture products. Invacare, operating as Invacare
Continuing Care Group (ICCG), manufactures and distributes beds,
furnishings, bathing equipment and patient lifts for facility based care
focusing on the extended and acute care markets.
RESPIRATORY PRODUCTS GROUP
Home respiratory products. Invacare manufactures and/or distributes home
respiratory products including oxygen concentrators, liquid oxygen systems,
nebulizer compressors, aspirators, portable compressed oxygen systems and
respiratory disposables. Invacare's home respiratory products are marketed
predominately under the Invacare(R) brand name.
OTHER PRODUCTS
Microprocessor electronic control systems. Invacare manufactures and
markets electronic control systems for power wheelchairs, scooters,
respiratory and other products.
Accessory Products. Invacare also manufactures, markets and distributes
many accessory products, including spare parts, wheelchair cushions, arm
rests, wheels and respiratory parts. In some cases, Invacare's accessory
items are built to be interchangeable so that they can be used to replace
parts on products manufactured by others.
Europe
The company's European operations operate as a "common market" company with
sales throughout western Europe. The European operation currently sells a
limited line of products providing significant room for growth as Invacare
continues to broaden its product line offerings to mirror that of the North
American operations.
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.
The company manufactures and/or assembles both manual and power wheelchair
products at six of its European facilities - Bencraft Ltd. and Invacare (UK)
Ltd. in the U.K., Poirier Groupe Invacare S.A. in France, Invacare Deutschland
GmbH in Germany, Fabriorto Lda in Portugal and Kuschall Design AG, in
Switzerland. Motorized scooters are manufactured in Germany. Self care products
and patient lifts and slings are manufactured in the United Kingdom and France.
Oxygen products are imported from Invacare's U.S operations.
WARRANTY
Generally, the company's products are covered by warranties against defects in
material and workmanship for periods up to five years from the date of sale to
the customer. Certain components carry a lifetime warranty. A non-renewable
warranty 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 regional and local competitors. In some countries or in certain
product lines, the company may face competition from other manufacturers that
have larger market shares, greater resources or other competitive advantages.
Invacare believes that it is the leading home medical equipment manufacturer
based on its distribution channels, breadth of product line and sales.
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North America
The home medical equipment market is highly competitive, and Invacare's products
face significant competition from other well-established manufacturers. The
company believes that its success in increasing market share is dependent on
providing value to the customer based on the quality, performance and price of
the company's products, the range of products offered, the technical expertise
of the sales force, the effectiveness of the company's distribution system, the
strength of the dealer and distributor network and the availability of prompt
and reliable service for its products. The company believes that its "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.
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
Sales and Marketing. Invacare's products are marketed in the United States
primarily to HME providers that in turn sell or rent these products directly to
the end user or to health care institutions, including hospital and post acute
care facilities. Although the company's primary customer in the past has been
the HME provider, the company also markets its home health products using a
"pull-through" marketing method to medical professionals, including physical and
occupational therapists, who refer their patients to HME providers to obtain
specific types of home medical equipment.
As a result of the superior service provided by the company's "One Stop
Shoppingsm" program, the company has been able to increase its large national
account business as well as business with small-to-medium size providers. "One
Stop Shoppingsm" offers the HME provider the broadest range of products and
services at the total lowest cost. The products of "One Stop Shoppingsm" include
a full HME product line, including HME retail merchandising; a dedicated
territory business manager with specialist support; account services; InvatelTM
Electronic Data Interchange (EDI) Systems; Invacare Credit Corporation;
distribution; and technical training. In some cases, Invacare sells directly to
government agencies such as the Department of Veterans Affairs (V.A.) or the
Department of Defense.
The company continues to make improvements to existing sales and marketing
programs to generate greater consumer awareness of Invacare and its products, as
witnessed by enhancements made to its consumer marketing program in 1997 through
its sponsorship of a variety of wheelchair activities and support of various
charitable causes which benefit users of its products. Invacare continued as a
National Corporate Sponsor of the National Easter Seal Society, one of the most
recognizable charities in the United States that annually meets the needs of
over 40 million children and adults who have various types of disabilities.
In 1997, the company continued the implementation of its brand strategy in order
to effectively communicate to home health care providers and consumers the wide
variety of products which Invacare manufactures. The Invacare(R) brand is the
company's primary brand for home health care and respiratory equipment, or
"stock" products, and is the preferred brand of HME professional providers. The
Action brand is the primary brand for high-tech mobility and sports equipment,
or "custom" products preferred by health care professionals and consumers. The
PinDot(R) brand represents the company's various seating and positioning
products preferred by providers and health care professionals. Launched in 1996,
the AuroraTM brand was developed to serve the newly emerging mass-retail
channels of distribution for home medical equipment which is considered to be
"off-the-shelf" as it does not require the expertise of a medical professional
in the purchasing process.
Invacare's domestic sales and marketing organization consists primarily of a
home care sales force which markets and sells Invacare(R), Pindot(R) and Action
branded products to the HME providers. A combination of direct sales and
manufacturers representatives market and sell the Invacare brand through the
company's Invacare Continuing Care Group (ICCG) to the extended care market; and
a separate manufacturer's representatives' sales force markets and sells the
Aurora(TM) brand to the mass retail channels of distribution, including home
centers, mass merchants and chain drug stores. Each member of Invacare's home
care sales force functions as a Territory Business Manager (TBM) and handles all
product and service needs for an account, saving the customer valuable time. The
TBM also provides training and servicing information to providers, as well as
product catalogs, point-of-sale display materials and advertising and
merchandising aids. In Canada products are sold through a direct sales force and
distributed through regional distribution centers in British Columbia, Ontario
and Quebec and health care dealers throughout Canada.
The North American sales and marketing group receives additional support in
order to provide focus on clinical applications for Invacare(R), PinDot(R), and
Action brand products. Eleven physical and occupational therapists provide
valuable services to medical professionals in the facility-based rehab setting.
These specialists assist peer professionals with in-service education on
relevant topics of seating and positioning; provide a broad spectrum of product
education on the products' clinical applications; assist in clinical evaluations
for mobility; provide assistance on documentation for reimbursement entities;
offer continuing education programs; and furnish selected products for patient
evaluation purposes.
In 1997, Invacare continued refining its strategic advertising campaign in home
health care magazines and trade publications which complements the company's
brand strategy. The company also contributed extensively to editorial coverage
in trade publications on articles concerning products it manufactures, and its
representatives attended trade shows and similar conventions to display its
products to providers, medical professionals and consumers.
The company's top ten customers and buying groups accounted for approximately
30% of 1997 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 1997 net sales. Dealers
that are part of a buying group generally make individual purchasing decisions
and are invoiced directly by the company.
Customer Service. As part of "One Stop Shoppingsm", the company views its
customer service activities as strategically important in its efforts to achieve
market leadership. The company's customer service strategy is directed at
meeting the needs of medical equipment dealers and is specifically designed to
focus on the dealer's inventory management, equipment financing, training and
administrative needs.
Invacare has made a significant investment in assisting dealers in minimizing
inventory requirements. For stock items, dealers can either pick up orders at
the nearest distribution center or receive freight-free delivery (with minimum
order levels) generally within 24 hours of the company's receipt of an order for
any standard or stock product. This distribution system permits dealers to
minimize their inventory levels. As an additional service, Invacare manufactures
accessories, such as upholstery and arm rests for wheelchairs, that are
interchangeable with products of other manufacturers, thereby allowing dealers
to stock only one line of accessories.
The company also maintains a network of ten regional repair centers where
Invacare products can be repaired promptly by factory technicians. Invacare also
has a network of 15 independent dealers that can provide factory authorized
service. Factory training is provided throughout the United States This service
network, when combined with the company's distribution centers, enables dealers
to minimize spare parts inventory.
To further assist dealers in reducing their cash requirements for inventory and
rental equipment, the company provides various financing options for certain
types of its products. In a typical financing arrangement, the company sells the
equipment on a financing contract to the dealer for periods ranging from 6 to 51
months. The majority of these transactions are secured with a UCC-1 filing, a
purchase money security and/or a personal guarantee. The company also introduced
a revolving credit agreement, known as Invacard, which provides an additional
financing option to HME dealers. Currently, all note obligations are serviced
and managed by the company and are not sold to third parties.
The company devotes significant time and resources in training dealers,
rehabilitation therapists and others in the sale, use, maintenance and repair of
its products. Expenditures for training are expected to increase as the
company's product lines continue to expand and as certain products, such as
power wheelchairs, become more complex.
Invacare is continuing to develop programs to assist dealers in reducing
administrative costs. One such effort is to provide customers with direct
computer-to-computer links with the company in order to provide on-line order
entry and order tracking to further expedite delivery, thereby reducing the
dealer's paperwork and inventory. During 1997, additional customers and customer
locations began utilizing EDI, which resulted in an increase in related EDI
sales.
8
Europe
The company's European operations consist primarily of manufacturing, marketing
and distribution operations in Western Europe and export sales activities
through local distributors elsewhere in the world. The company has a direct
sales force and distribution centers in the United Kingdom, France, Germany,
Portugal, Spain, Sweden and Switzerland, and sells through distributors
elsewhere in Europe. In markets where the company has its own sales force,
product sales are typically made through dealers of medical equipment and, in
certain markets, directly to government 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. The company
continues to focus on the implementation of the "One Stop Shoppingsm" concept in
Europe.
PRODUCT LIABILITY COSTS
Invacare supports its dealers by defending product liability claims in an effort
to hold down costs. The company's captive insurance company, formed in 1986,
insures the first $2 million per claim, up to annual aggregate policy losses of
$3 million, of the company's domestic product liability exposure. The company
also has additional layers of coverage insuring up to $78 million in annual
aggregate losses arising from individual losses that exceed $2 million per claim
or annual policy aggregate losses of $3 million. There can be no assurance that
Invacare's current insurance levels will continue to be adequate or available at
an affordable rate.
PRODUCT DEVELOPMENT AND ENGINEERING
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 an oxygen home fill system, nebulizers compressors,
flowmeters, aspirators, oxygen analyzer, and respiratory disposables; a new
version of the Invacare(R) microAir(R) Turn-Q(TM) automatic turning mattress
system; and an improved line of ambulatory and safety products.
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 1997 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 1997, 32 new products were introduced
with the most significant being:
North America
Invacare(R) Venture(TM) HomeFill(TM) Complete Home Oxygen System- Allows
patients to fill oxygen cylinders from an oxygen concentrator. The company
is so encouraged by the initial response to this product that the second
generation of this product is now being developed.
Action Arrow(R) and Action Ranger(TM) X Storm Series(R) Power Wheelchairs
- A mid-wheel drive offering exceptionally tight turning ability and
maneuverability, which is ideal for use in tight spaces and over firm
surfaces.
Action Orbit(TM) Pediatric Tilt-In-Space Chair - A lightweight chair which
offers significant adjustability and numerous design features.
Action Scooter line - A new, more affordable line that offers seven
different models with a wide range of standard features and three new seat
options.
Invacare(R) Reliant Stand-Up Lift - Designed to be more compact with
increased maneuverability to serve a range of dependency levels, from
fully dependent to those who just need assistance during rehabilitation.
Invacare(R) ConnectO2(TM) Telemetry System - Innovatively designed to
monitor and report information on equipment performance and patient
compliance, a product designed for improved efficiency and proactive
preventive maintenance.
Invacare(R) microAir(R) Turn-Q(TM) LTM - A powered lateral turning
mattress which is based on the accepted technology of the Invacare
Turn-Q(TM) Plus. The LTM is designed for the treatment of Stage I - Stage
IV pressure ulcers.
Invacare(R) Tracer(R) SX Wheelchair - A lightweight economy wheelchair
designed for either rental or purchase featuring a chrome-plated carbon
steel frame that is durable and easy to clean.
9
Europe
During 1997, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 1997 included the Kuschall K3, a three wheel
wheelchair and the Kuschall K4 rigid chair, the Zipper, a lightweight standard
steel wheelchair made by Bencraft Ltd. in the United Kingdom, the Storm seat
lifter, which improves the user's access to the environment and the Action 2000
Echo lightweight wheelchair aimed at providing the geriatric user with an easily
transportable chair at a very competitive price.
MANUFACTURING AND SUPPLIERS
The company's objective is to maintain its commitment to be the total
lowest-cost manufacturer in its industry, as well as the highest-quality
producer. The company believes that it is achieving this objective not only
through improved product design, but also by taking a number of steps to lower
manufacturing costs. During 1997, the company initiated plans to close and
consolidate a number of manufacturing operations, the cost of which was included
in charges in the third and fourth quarters. Also during 1997, the worldwide
consolidation of purchasing continued thereby taking advantage of significant
leverage opportunities available to the company for certain commodity raw
materials and allowed the company to achieve ongoing cost reduction objectives.
The company also makes substantial investments in its facilities and equipment
in order to increase productivity, lower costs and improve quality. Over the
past three years, the company has invested $72.2 million in capital improvements
and acquisition of facilities.
North America
The company has vertically integrated its manufacturing processes by
fabricating, coating, plating and assembling many of the components of each
product. The company designs and manufactures electronics for power wheelchairs,
from insertion of components into printed circuit boards to final assembly and
testing.
Invacare has focused on "value engineering" which reduces manufacturing costs by
eliminating product complexity and using common components. Value engineering
has been applied to all product introductions in the last three years, including
the latest generation of oxygen concentrators, electronic controls, wheelchairs,
patient lifts, beds and bath safety products.
Investments continue to be made in manufacturing automation. The company
has initiated programs to reduce manufacturing lead times, shorten production
cycles, increase employee training, encourage employee involvement in
decision-making and improve manufacturing quality. Employee involvement teams
participate in engineering, production and processing strategies and employees
have been given responsibility for their own quality assurance. The
consolidation of facilities that will be sustantially completed in 1998 will
also enhance manufacturing efficiency.
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. 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.
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 1998 including certain facilities
eliminations and consolidations.
ACQUISITIONS
During 1997, the company made two acquisitions for $4.1 million in cash which
extended or added new product lines as well as expanded distribution
capabilities. As a result of the company's ongoing search for opportunities,
coupled with the industry trend toward consolidation, numerous acquisition
opportunities were evaluated in 1997. 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
strength.
Geographic. Enables rapid entry into new foreign markets.
In addition, in January 1998, the company acquired Suburban Ostomy, a wholesaler
of medical supplies and related products to the home health care industry for
approximately $132 million.(See MD&A and Notes for further information)
10
GOVERNMENT REGULATION
The company is directly affected by government regulation and reimbursement
policies in virtually every country in which it operates. Government regulations
and health care policy differ from country to country and, within the U.S. and
Canada, from state to state or province to province. Changes in regulations and
health care policy take place frequently and can impact the size, growth
potential and profitability of products sold in each market.
In the U.S., the growth of health care costs has increased at rates in excess of
the rate of inflation and as a percentage of GDP for more than four decades. A
number of efforts to control the federal deficit have impacted reimbursement
guidelines for government sponsored health care programs and changes in federal
programs are often imitated by private insurance companies. Reimbursement
guidelines in the home health care industry have a substantial impact on the
nature and type of equipment an end user can obtain and thus affect the product
mix, pricing and payment patterns of the company's dealers.
Congress, in its effort to balance the federal budget, has continued to propose
Medicare and Medicaid cuts during 1997 to accomplish this task. Cuts in Medicare
are projected at $100.7 billion over a five year period. The proposed cuts
include a significant reduction in oxygen reimbursement and the elimination of
cost of living increases in reimbursement levels for all home medical equipment.
However, Congress is serious about reducing health care costs and is interested
in cost effective alternatives such as home care. Therefore, the company
believes that home health care is a viable solution to reducing health care
costs and also believes that home medical equipment and supplies are markets
with significant growth potential.
The company will continue its pro-active efforts to improve public policy
affecting home health care and believes that these efforts can give the company
a competitive advantage over other HME manufacturers who are forced to react to
change instead of helping to direct change.
The Safe Medical Devices Act of 1990 and Medical Device Amendments of 1976 to
the Federal Food, Drug and Cosmetics Act of 1938 (the "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 may have to comply with performance standards when established
by the FDA. Manufacturers of all medical devices are subject to periodic
inspections by the FDA. Furthermore, state, local and foreign governments have
adopted regulations relating to the manufacture and marketing of health care
products. The company believes that it is presently in material compliance with
all applicable regulations promulgated by FDA, for which the failure to comply
would have a material adverse effect.
BACKLOG
The company generally manufactures most of its products to meet near term
demands by shipping from stock or by building to order based on the specialty
nature of certain products. Therefore, the company does not have substantial
backlog of orders of any particular products nor does it believe that backlog is
a significant factor for its business.
EMPLOYEES
As of December 31, 1997, the company had approximately 4,550 employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The company also markets its products for export to other foreign countries. The
company had product sales in approximately 80 countries worldwide.
For information relating to net sales, operating income and identifiable assets
of the company's foreign and domestic operations, see Business Segments in the
Notes to the Consolidated Financial Statements.
11
Item 2. Properties.
The company owns or leases its warehouses, offices and manufacturing
facilities and believes these facilities to be well-maintained, adequately
insured and suitable for their present and intended uses. Information concerning
certain of the leased facilities of the company as of December 31, 1997, 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
- ------------------------- ----------- ------------- ------- ---
Adelaide, Australia 11,500 June 1998 none Manufacturing, warehouse
and offices
Ashland, Virginia 36,000 September 2000 none Warehouse and offices
Atlanta, Georgia 91,418 January 2000 one (3 yr.) Warehouse
Auckland, New Zealand 11,959 March 1998 none Distribution
Auckland, New Zealand 33,154 March 2003 none Manufacturing, warehouse
and offices
Auckland, New Zealand 12,000 Month to Month - Distribution
Belle, Missouri 39,200 Own - Manufacturing and offices
Beltsville, Maryland 33,329 August 1999 two (2 yr.) Manufacturing and offices
Carol Stream, Illinois 38,400 July 1998 one (5 yrs.) Warehouse (Subleased now)
Chesterfield, Missouri 8,466 December 1998 two (1 yr.) Offices
Christchurch, New Zealand 48,787 April 1998 one (2 yr.) Manufacturing and offices
Delta, British Columbia 6,900 January 2000 none Warehouse & offices
Edison, New Jersey 48,400 October 2001 one (5 yr.) Warehouse and sales office
Elyria, Ohio
- Taylor Street 240,744 Own - Manufacturing and offices
- Cleveland Street 226,998 September 1999 one (5 yr.) Manufacturing and offices
- One Invacare Way 50,000 Own - Headquarters
- Sugar Lane 20,000 February 1998 none Manufacturing
Grand Prairie, Texas 43,754 December 1998 one (3 yr.) Warehouse
Kirkland, Quebec 13,241 November 2000 one (5 yr.) Manufacturing, warehouse
and offices
12
North American Operations Square Feet Renewal Use
Ownership Options
or Expiration
Date of Lease
- ------------------------ ----------- ------------- ------------ -------------------
LaPalma, California 78,000 June 1999 one (3 yr.) Warehouse
McAllen, Texas 11,587 March 1998 none Warehouse
Mississauga, Ontario 81,004 January 2005 none Manufacturing, warehouse
and offices
North Ridgeville, Ohio 139,200 Own - Manufacturing, warehouses
and offices
Northboro, MA 22,000 June 2002 none Manufacturing
(sublet as of 1/98)
Northbrook, Illinois 27,458 June 1999 two (3 yr. & 2 yr.) Manufacturing and offices
Pharr, Texas 2,500 December 1998 one (1 yr.) Warehouse
Pinellas Park, Florida 12,000 June 1998 four (1 yr.) Manufacturing and offices
Reynosa, Mexico 135,200 Own - Manufacturing and offices
Sacramento, California 26,900 May 2003 one (3 yr.) Manufacturing, warehouse
and offices
San Diego, California 5,940 May 1998 one (2 yr.) Manufacturing and offices
Sanford, Florida 19,913 August 1998 one (1 yr.) Warehouse
Sanford, Florida 113,034 Own - Manufacturing and offices
Sanford, Florida 99,892 Own Manufacturing and offices
Sanford, Florida 23,000 February 1998 three months Warehouse
Sarasota, Florida 15,450 month to month none Manufacturing, warehouse
and offices
Traverse City, Michigan 15,000 April 2000 two (3 yr.) Manufacturing and offices
Tonawanda, New York 4,668 April 1998 none Sublet for remainder of term
13
Ownership Renewal
European Operations Square Feet or Expiration Options Use
Date of Lease
- ------------------ -------------- -------------- -------- -----
Askersund, Sweden 10,000 November 1998 - Warehouse
Bad Oeynhausen, Germany 76,600 June 2000 one (2 yr.) Manufacturing, warehouse and
offices
Basel, Switzerland 36,000 Own - Manufacturing and offices
Birmingham, England 13,000 Own - Warehouses and offices
Birmingham, England 19,378 Own - Manufacturing and offices
Bridgend, Wales 131,522 Own - Manufacturing and offices
Girona, Spain 13,600 November 2004 one (1 yr.) Warehouse and offices
Oporto, Portugal 27,800 November 2003 - Manufacturing and offices
Spanga, Sweden 2,000 March 1999 one (3 yr.) Offices
Tours, France 86,000 November 2007 none Manufacturing
Tours, France 104,500 Own - Manufacturing, warehouse
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 these actions have been referred to the company's insurance
carriers and are being vigorously contested. The primary carrier for the first
$2 million of insurance coverage per claim or annual policy aggregate losses of
$3 million is a subsidiary of the company which was established in September
1986 to provide the first layer of product liability insurance for the company.
The company has additional layers of coverage insuring up to $78 million in
annual aggregate losses arising from individual losses that exceed $2 million or
annual policy aggregate losses of $3 million of the company's domestic product
liability exposure. Management does not believe that the outcome of any of these
actions will have a material adverse effect upon its business or financial
condition.
In 1997, the company provided for potential settlements of several intellectual
property lawsuits that were diverting management's time and attention. While the
company believes it would eventually have been successful in defending itself
against these suits, the legal fees and distraction to management led to the
decision to settle these suits. At the date of this filing , the company has
settled three cases for a total of $8.4 million.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
14
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 57 Chairman of the Board of Directors and
Chief Executive Officer
Gerald B. Blouch 51 President, Chief Operating Officer and Director
Thomas R. Miklich 50 Chief Financial Officer, General Counsel, Treasurer and
Corporate Secretary
Joseph B. Richey, II 61 President - Invacare Technologies & Invacare Senior Vice
President - Total Quality Management and Director
Louis F.J. Slangen 50 Senior Vice President - Sales & Marketing
Larry E. Steward 45 Corporate Vice President - Human Resources
Thomas J. Buckley 49 Senior Vice President - Continuing Care Products
M. Louis Tabickman 53 Senior Vice President - Respiratory Products
Donald D. Campopiano 46 Vice President - Account Services, Parts and Distribution
Steven C. Clark 39 Vice President - Power Products
Neal J. Curran 40 Vice President - Seating and Custom Mobility Products
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, General Counsel and
Treasurer since May 1993 and in September 1993 was named Secretary. Previously,
Mr. Miklich was Executive Vice President and Chief Financial Officer of Van Dorn
Company from 1991 to 1993, and Chief Financial Officer of The Sherwin-Williams
Company from 1986 to 1991.
Joseph B. Richey, II has been a Director since 1980 and in September 1992 was
named President-Invacare Technologies and Senior Vice President - Total Quality
Management. Previously, Mr. Richey was Senior Vice President of Product
Development from July 1984 to September 1992, Senior Vice President and General
Manager of North American Operations from September 1989 to September 1992.
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.
15
Larry E. Steward was named Corporate Vice President of Human Resources in
April 1997. From April 1996 to April 1997, Mr. Steward was Director of Human
Resources for the Rehab Group. Previously, Mr. Steward was employed by LTV Steel
Company serving as Manager of Human Resources from November 1991 to April 1996.
Thomas J. Buckley was named Senior Vice President - Continuing Care Group
in October 1997 and from August 1995 to October 1997 was Group Vice President
Standard Products. Mr. Buckley was previously General Manager of Manual
Wheelchairs from December 1994 to August 1995. From November 1993 to December
1994, Mr. Buckley was the Business Unit Leader of the Bed Products and Pressure
Relief Business Units. Before this period, Mr. Buckley served as Director of
Distribution.
M. Louis Tabickman was named Senior Vice President - Respiratory Products in
October 1997 and, from August 1995 to October 1997, was Group Vice President
Rehab Products . Mr. Tabickman has been an officer since July 1985 and was named
President - Invacare Canada in March, 1994. Previously, Mr. Tabickman was Vice
President & General Manager - Power Business Unit from December 1994 to August
1995, Vice President and General Manager - Invacare Canada from September 1992
to March 1994 and Vice President and General Manager of Service and Distribution
from July 1985 until September 1992.
Donald D. Campopiano was named Vice President of Account Services, Parts
and Distribution in October 1997. Mr. Campopiano joined Invacare in 1993 as
Director of Distribution. Since then, he also has served as the General Manager
of the Beds Business Unit and as Vice President and General Manager of Invacare
Canada. Previously, Mr. Campopiano was employed by General Electric Lighting
Group most recently as Manager of Logistics.
Steven C. Clark was named Vice President of Power Products in October 1997. Mr.
Clark has been with the company since 1986 and was previously the General
Manager of the Manual Wheelchair Business Unit from October 1995 to October
1997. Mr. Clark served as the Director of Operations at the Maquiladora Plant in
Mexico from January 1993 to October 1995 and Manufacturing Manager of Invacare's
Sanford, Florida manufacturing plant from October 1989 to January 1993.
Neal J. Curran was named Vice President - Seating and Custom Mobility Products
in October 1997. Mr. Curran has been with the company since 1983 and was
previously the General Manager of the Custom Manual Business Unit since December
1994. From September 1992 to December 1994, Mr. Curran served as the Power
Business Unit leader and Vice President of Rehab engineering from January 1991
to September 1992.
* The description of executive officers is included pursuant to
Instruction 3 to Section (b) of Item 401 of Regulation S-K.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Invacare's Common Shares, without par value, are traded over-the-counter in the
NASDAQ National Market System under the symbol IVCR. Ownership of the company's
Class B Common Shares (which are not listed on NASDAQ) 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 27, 1998 was 6,212 and 38, respectively. The closing sale
price for the Common Shares on February 27, 1997 as reported by NASDAQ, was
$22.94 . 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:
1997 1996
---- ----
Quarter Ended: High Low High Low
---------------- ------------------------------------------------
December 31 $24.88 $20.75 $29.25 $25.00
September 30 24.88 20.13 32.00 23.13
June 30 24.00 18.13 28.75 23.50
March 31 29.00 23.00 29.50 24.50
During 1997, the Board of Directors for 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.
17
Item 6. Selected Financial Data
For the Year Ended December 31,
1997* 1996 1995 1994 1993 1992
- ----- ---- ---- ---- ---- ----
(In thousands except per share and ratio data)
Earnings
Net Sales $653,414 $619,498 $504,032 $411,123 $365,457 $305,171
Income from Operations 8,457 65,393 54,144 43,736 36,870 27,567
Net Earnings 1,563 38,918 32,165 26,377 22,110 17,739
Net Earnings per Share - Basic .05 1.33 1.10** .91 .77 .65
Net Earnings per Share -
Assuming Dilution .05 1.28 1.07** .89 .75 .63
Dividends per Common Share .05000 .05000 .03750** .01875 - -
Dividends per Class B Common
Share .04545 .04545 .03409** .01705 - -
As of December 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
Balance Sheet
Current Assets $275,211 $258,720 $204,685 $180,435 $156,191 $151,934
Total Assets 529,923 509,628 408,750 338,109 286,367 262,412
Current Liabilities 109,553 97,768 84,936 67,667 60,913 68,226
Working Capital 165,658 160,952 119,749 112,768 95,278 83,708
Long-Term Obligations 183,955 173,263 122,456 105,528 90,351 78,648
Shareholders' Equity 236,415 238,597 201,319 164,007 134,962 114,000
Other Data
Research and Development
Expenditures $ 12,706 $ 11,060 $ 9,002 $ 7,651 $ 6,840 $ 5,251
Capital Expenditures, net of
Disposals 38,485 22,465 11,027 12,217 11,961 17,301
Depreciation and Amortization 18,348 17,896 14,159 12,686 12,280 10,008
Key Ratios
Return on Sales .2% 6.3% 6.4% 6.4% 6.0% 5.8%
Return on Average Assets .3% 8.5% 8.6% 8.4% 8.1% 8.4%
Return on
Beginning .7% 19.3% 19.6% 19.5% 19.4% 20.5%
Shareholders' Equity
Current Ratio 2.5:1 2.6:1 2.4:1 2.7:1 2.6:1 2.2:1
Debt-to-Equity Ratio .8:1 .7:1 .6:1 .6:1 .7:1 .7:1
* Reflects non-recurring and unusual charge of $61,039 (38,839 or $1.28
per share assuming dilution after tax) taken in 1997.
** As adjusted for the 2-for-1 splits effected in the form of a 100%
share dividend in October 1995.
18
Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
1997 Versus 1996
Non-recurring and Unusual Charge. The review of results that follows excludes
the impact of the non-recurring and unusual charge ("the charge") taken in1997.
The reasons for the charge and the impact on the company's current and future
performance is explained below under the heading "Non-recurring and Unusual
Charge" later in this section.
Net Sales. Net sales for 1997 increased 5.5% for the year net of a 2.1%
impact from foreign currency translation. Acquisitions contributed 2.9% of the
increase. The net sales increase of 4.7%, excluding acquisitions and the impact
of foreign currency translation, was due to increased unit volumes as
competitive pressures caused prices to decline for most product lines for the
second consecutive year. Sales were also negatively impacted by 4.3% due to
reduced purchases by the company's largest customer. Despite the competitive
pricing environment, almost all product lines had sales gains for the year.
Custom wheelchairs (power and custom manual), personal care products and
standard wheelchairs posted the largest dollar increases. The company believes
that its sales growth was aided by its cost effective "One Stop Shoppingsm"
distribution system that is supported by the company's broad range of products
and services. The company's goal is to increase sales by 24% to 30% per year
with 12% to 15% internal growth and 12% to 15% growth through acquisition,
although there can be no assurance that it will be able to achieve this goal.
North American Operations
Rehab Products Group. Sales of the Rehab Products Group, which consists of the
power wheelchairs, custom manual wheelchairs and seating and positioning
business units, increased 13.8% for the year. The gain was due principally to
unit volume growth. Power wheelchairs continued to lead the way as sales for the
power business unit increased 18.5% resulting from continued strong volume
growth in low end power chairs, scooter products and from the introduction of
the new mid-wheel drive power chairs.
Sales of custom manual wheelchairs increased 7.1% due to new product
introductions and the continued 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. The new Action orbit(TM)
tilt-in-space, a pediatric product, was introduced during 1997 and has gained
widespread acceptance in the market. Unit growth exceeded the dollar increase
due to pricing pressure in this product category.
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs/patient transport, personal care, beds, low air loss
therapy, Invacare Health Care Furnishings and retail business units, increased
9.0%. Acquisitions contributed 5.4% of the sales increase including two
strategic acquisitions made during 1997. Allied Medical Supply Corporation
(acquired October 7), a distributor of soft goods and disposable products and
Silcraft Corporation (acquired May 6), a manufacturer of bathing equipment and
patient lifts, contributed .8% and 1.7% respectively. Acquisitions made in 1996
that positively impacted 1997 sales growth include Frohock-Stewart, a
manufacturer of personal care products with distribution through mass retailers
and Invacare Health Care Furnishings, a manufacturer and distributor of beds and
furnishings for the non-acute care markets. The personal care product line
posted a sales increase of over 18.0%, while standard wheelchair sales increased
modestly for the year. Sales of low air loss therapy products increased 28.3%
after showing significant decline in the prior year as changes in governmental
reimbursements policies caused the overall market for those products to shrink
dramatically from levels in 1995. The sales of this group also were impacted by
the aforementioned reduction in purchases by a major customer in 1997.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, liquid oxygen, aerosol therapy and
associated respiratory products business units, decreased .8% for the year.
Volume increases were offset as significant pricing pressure continued in 1997.
The products within this group, primarily oxygen concentrators, continue to
experience the largest price decline of any of the company's product categories.
This product category was the area most effected by the reduction in
purchases by the company's major customer.
Other. Other Products, consisting primarily of the company's Canadian,
Australian and New Zealand operations, aftermarket parts and ambulatory infusion
pumps businesses, had a 10.5% sales increase for the year, with 7.4% due to
acquisitions made in the prior year. The company's Canadian operation had
another strong year with sales up 19.9%, excluding a 1.9% negative impact from
foreign currency translation. The company's New Zealand operations, principally
Dynamic Controls, was adversely affected by the sluggish European market for
power wheelchairs, as their sales declined by 5.9% excluding a 2.0% negative
impact for foreign currency translation.
19
European Operations
European sales increased 2.7%, excluding a negative impact of 9.4% from foreign
currency translation. Acquisitions had a minimal impact on sales growth (.4%).
Sales were significantly impacted by European governmental budget trends,
especially in Germany and France, that resulted in reduced reimbursement levels
and caused providers to utilize more refurbished equipment.
Gross Profit. Gross profit as a percentage of net sales decreased to 30.8% from
32.5% last year. The decline was a result of ongoing significant pricing
pressures and a product mix shift, offset by continued productivity improvements
and the cost reduction from strategic realignment of production facilities. The
company is committed to redesigning products to lower manufacturing costs while
improving quality and reliability and implementing other spending reductions
necessary to remain competitive and improve profitability.
North American Gross profit from Operations declined slightly despite an
intensifying pricing environment. Continued manufacturing productivity
improvements were somewhat offset by the impact of reduced purchases by a major
customer in 1997. The facilities rationalization implemented during the year
also favorably impacted the company's gross profit.
Gross profit in Europe declined to 26.5% from 30.0% in 1996. Continued effects
of a strong U.S. dollar, overall price declines and product mix changes each
negatively impacted margins. A significant reduction in gross profit
(approximately $2.0 million) was the result of a failure to hedge certain
transaction exposures early in 1997.
Inventory turns improved for 1997 in both the North American and European
operations, as the plan for realignment of manufacturing facilities was
initiated and implemented. The company expects turns will continue to show
improvement in 1998 as facility consolidations continue and strategic
partnerships are formed with major suppliers.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales decreased to 20.2% in 1997 compared to 22.0% in
1996. The dollar decrease was $3,807,000 or 2.8%, despite acquisitions which
increased selling, general and administrative costs by approximately $5,000,000
or 4.0%. The businesses acquired operate with a significantly higher selling,
general and administrative expense as a percentage of net sales however, tight
expense control in the company's existing businesses resulted in a reduction in
the overall expense as a percentage of sales for 1997. The company focuses on
improved productivity and acquisition integration, which it expects can continue
to favorably impact the selling, general and administrative expense as a
percentage of net sales.
North American operations' selling, general and administrative costs decreased
as a percentage of net sales by approximately 1.8% from last year, as the focus
on expense control continued during 1997. The dollar change was minimal despite
acquisitions which increased costs by approximately $4,756,000. In an effort to
combat the competitive pricing environment, the company continued its
implementation of activity-based budgeting aimed at allocating the expense
dollars to the programs that most effectively supported the company's business
strategy. The company's bad debt expense and reserve for bad debt substantially
increased during the year due to expenses created by the balanced budget act and
general competitive market. The increase was taken as part of the non-recurring
and unusual charge. There can be no assurance that future government actions or
business conditions will not cause this to recur in the future.
European operations' selling, general and administrative expenses, as a
percentage of net sales, decreased to 24.9% from 25.6% in 1996, with the dollar
decrease amounting to $3,190,000 or 9.2%. Acquisitions had a minimal impact on
total costs. The overall decrease is a result of restructuring and cost
containment initiatives implemented throughout 1997 and the strong dollar which
reduced selling, general and administrative expenses reported in dollars by
9.2%.
Interest. Interest income decreased in 1997 to $9,321,000 from $9,661,000 last
year, representing a 3.5% decrease. The change between years was due primarily
to the introduction of several new financing programs offered by the company's
finance subsidiary. These programs included a three and six month interest free
financing period with rates at or below prime. Interest expense increased to
$12,555,000 from $11,286,000, representing a 11.2% increase resulting from
additional borrowings incurred to fund the 1997 acquisitions and other investing
activities, principally capital expenditures. As a result, the company's
debt-to-equity ratio increased to .8:1 from .7:1. It is anticipated that the
company's interest expense will increase in 1998 as a result of the acquisition
of Suburban Ostomy Supply Co., Inc. on January 28, 1998.
Income Taxes. The company had an effective tax rate of 39.0% in 1997,
excluding the effects of the unusual and non-recurring charge. Including the
effects of the charge, the effective tax rate was 70.1% compared to 39.0% in
1996 as the impact of permanent differences increase or earnings decline. See
Income Taxes in the Notes to Consolidated Financial Statements for further
discussion.
20
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 $12,706,000 from
$11,060,000 in 1996. The expenditures, as a percentage of sales, increased only
slightly because businesses acquired spent less on research and development as a
percent of sales than the company.
1996 Versus 1995
Net Sales. Net sales for 1996 increased 22.9% for the year with the net effect
of acquisitions and currency translation accounting for 10.9% of the increase.
The sales increase of 12.0%, excluding acquisitions and the impact of foreign
currency translation, was due to increased unit volumes as competitive pressures
caused prices to decline for most product lines again in 1996. All product
lines, with the exception of therapeutic support surfaces, liquid and Dynamic
Control had sales gains for the year with personal care products, custom
wheelchairs (power and custom manual), standard wheelchairs and concentrators
posting the largest dollar and percentage increases. The company believes its
sales growth was aided by its cost effective "One Stop Shoppingsm" distribution
system that is supported by the company's broad range of products and services.
The company sales goals are to increase sales at a level that is 50% greater
than the overall market growth rate and to reach $1 billion in sales by the year
2000.
North American Operations
Rehab Products Group. Sales of the Rehab Products Group, which consists of the
power wheelchairs, custom manual wheelchairs and seating and positioning
business units, increased 20.0% for the year, with 4.5% of the increase due to
the acquisitions of PinDot Products in mid 1995 and Special Health Systems in
late 1995. The gain was due principally to unit volume growth although prices
for certain product lines were increased slightly during the year. Power
wheelchairs continued to lead the way as sales for the power business unit
increased 17.0% with over 90.0% of the improvement coming from increased unit
sales.
Sales of custom manual wheelchairs also showed double digit growth as the
success of the company's "Team Action" athletes in the 1996 Atlanta Paralympic
Games helped to enhance sales of our everyday Action chairs that incorporate
many of the high-tech design features and materials used in the high performance
sports wheelchairs. Seating and positioning sales increased 81.6% principally as
a result of the acquisitions made to complete this product line in 1995.
Excluding acquisitions, sales of seating and positioning products achieved
double-digit levels in units, however the increase in dollars was limited to
9.0% due to the pricing pressures experienced during the year.
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs/patient transport, personal care, beds, low air loss
therapy and Invacare Continuing Care Group business units, increased 23.2%. The
acquisition of Invacare Continuing Care Group, a manufacturer and distributor of
beds and furnishings for the extended and acute care markets, contributed
approximately 9.0% to the increase. The group's unit volume increase was greater
than the reported dollar increase, as again in 1996 the product lines within
this group experienced significant competitive pricing pressure. The personal
care product line posted a sales increase of over 45.0%, while standard
wheelchairs sales increased 15.0% for the year. Sales of low air loss therapy
products declined significantly for the year as changes in governmental
reimbursements policies caused the overall market for those products to shrink
dramatically from 1995.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, liquid oxygen, aerosol therapy and
associated respiratory products business units, increased 14.2% for the year.
Volume increases were significantly greater than the overall sales dollar
increase as significant pricing pressure continued in 1996. The products within
the group, primarily oxygen concentrators, experienced the largest price decline
of any of the company's product categories. The company still managed to
increase its market share position to become the leader in oxygen concentrators
during 1996, as sales to both national accounts and independent providers
increased at a rate greater than the overall market growth rate.
Other. Other, consisting primarily of the company's Canadian, New Zealand and
Australian operations, retail, aftermarket parts business and ambulatory
infusion pumps, had a 59.7% sales increase for the year, with almost all of the
increase due to acquisitions. The company's Canadian operation had another
strong year with sales up 10.8%, including a .7% positive impact from foreign
currency translation. This gain was offset by a down year in sales at Dynamic
Controls, the company's electronic wheelchair controller business, due primarily
to the loss of a large customer during 1995 who is also a major competitor to
the company. The acquisitions made in 1996 that positively impacted sales growth
include Frohock-Stewart, a manufacturer of personal care products with
distribution through mass retailers, Production Research Company, a supplier of
aftermarket parts for the home medical equipment market and Rollerchair Pty.
Ltd., a manufacturer and distributor of custom power wheelchairs in Australia.
21
European Operations
European sales increased 15.6%, with acquisitions accounting for 9.6% of the
increase. Foreign currency translation had a negative effect on the reported
sales of 1.9%. Sales increased in almost all product lines, with power
wheelchairs and patient aid sales posting the largest dollar increases.
Competitive pricing pressure intensified in Europe in 1996, resulting in higher
unit volume growth than the reported increase in dollars. The European sales
growth was enhanced by a significant percentage increase in the sales of beds
and respiratory products. The absolute level of sales for these products is
still relatively small as they represent new product categories in the European
market. The introduction of these product lines support the company's goal of
mirroring the product lines of our North American operations in Europe.
Gross Profit. Gross profit as a percentage of net sales decreased to 32.5% from
33.0% last year, due primarily to businesses acquired which had lower gross
margins than the company's existing businesses. Despite ongoing intense price
competition, excluding businesses acquired, gross margins were basically flat
with last year. The company's continued focus on cost reductions in all of its
business processes was the principal reason margins were held level in the
ongoing competitive environment. The company intends to continue to focus on
improving productivity, redesigning products to lower manufacturing costs while
improving quality and reliability and implement other spending reductions to
remain competitive. The company is continuing its initiative of realigning
production among locations and consolidating certain facilities in order to
achieve improved productivity, efficiency and reduction of costs.
North American operations' gross profit, excluding businesses acquired,
increased from last year as a result of improved manufacturing productivity,
reduced distribution costs and improved purchasing synergies which were only
partially affected by the negative effects of the competitive pricing
environment and a shift in product mix.
Gross profit in Europe declined significantly to 30.0% from 33.2% in 1995. The
decline was due in part to increased pricing competition in Europe but was
primarily the result of internal operating difficulties. Poor implementation of
the manufacturing and purchasing improvement plans for the year as well as a
lack of control over freight and distribution costs were the major factors
contributing to the decline. The company believes that it has plans in place so
that these problems do not reoccur in 1997.
Inventory turns declined in 1996 in both the North American and European
Operations, negatively impacting gross margins for the year. The company expects
that turns will improve in 1997 as the realignment of manufacturing facilities
is implemented. As stated above, the company believes its focus on reducing
costs in all of its business processes and improving productivity will enhance
for future competitiveness and profitability.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales was 22.0% in 1996 compared to 22.3% in 1995. The
dollar increase was $23,911,000 or 21.3%. Acquisitions increased selling,
general and administrative costs by approximately $16,000,000 for the year,
representing approximately 14.0% of the percentage increase. The businesses
acquired operate with a significantly higher selling, general and administrative
expense as a percent of sales ratio, however, tight expense control in the
company's existing businesses resulted in a reduction in the overall percentage
of sales ratio in 1996. It is expected that the ratio for the company as well as
the acquired businesses will decline in the future as the company focuses on
improved productivity and activity-based management.
North American operations' selling, general and administrative costs increased
as a percent of sales by approximately 1.0% from last year. Excluding
acquisitions, these costs were lower than last year as the focus on continued
expense control intensified during 1996 as a result of the competitive pricing
environment. The company also refocused its efforts on activity based budgeting
during the year to ensure that the expense dollars spent were allocated to the
programs that most effectively supported the company's business strategy. The
company made substantial investments in 1996, primarily related to brand
strategy and clinical application specialists, that it believes had a positive
impact on growth in 1996 and will also favorably impact growth opportunities in
the future.
22
European operations' selling, general and administrative expenses, as a
percentage of sales, increased to 25.6% from 24.3% in 1995, with the dollar
increase amounting to $6,173,000 or 21.8%. Acquisitions accounted for over
one-half of the dollar increase. The balance of the increase was a result of
spending required to build the infrastructure needed to implement a full-line
product strategy in Europe which began during 1995, resulting in increased
spending of 10% for the year, excluding acquisition impact. The company believes
the infrastructure investments in Europe will provide the organizational
structure required to support future growth as well as a full-line product
strategy.
Interest. Interest income in 1996 increased to $9,661,000 from $7,276,000 last
year, a 32.8% increase, due primarily to increased financing activity by the
company's finance subsidiary that resulted in higher average outstanding
installment loans. Interest expense increased to $11,286,000 or 17.9%, primarily
as a result of the additional borrowings incurred to fund the 1996 acquisition
and other investing activity. The company's debt-to-equity ratio increased
marginally to .7:1 from .6:1. It is anticipated that the company's interest
expense, in the absence of additional acquisitions or significant increases in
borrowing rates, will decline due to the company's strong cash flows from
operations offset to some extent by additional capital expenditures planned for
1997.
Income Taxes. The company had an effective tax rate of 39.0% in 1996
compared to 38.0% in 1995. See Income Taxes in the Notes to Consolidated
Financial Statements for further discussion.
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $11,060,000 from
$9,002,000 in 1995. The expenditures, as a percent of sales, remained at 1.8% as
businesses acquired spent less on research and development as a percent of sales
than the company. For certain of the acquired businesses, future spending is
anticipated to be more in line with the company's overall spending levels.
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 1997 and
1996, the company was able to offset the majority of the impact of price
increases from suppliers by productivity improvements and other cost reduction
activities.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain an adequate liquidity position through its
unused bank lines of credit (see Long-Term Obligations in the Notes to
Consolidated Financial Statements) and working capital management. The company
maintains various bank lines of credit to finance its worldwide operations. In
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 $16,000,000 as of December 31, 1997. 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, 1997, the company had approximately $291,000,000 available under
its various lines of credit.
Subsequent to year end, 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 seven years and $80,000,000 maturing in ten years. The
proceeds were used to pay-down revolving credit debt incurred to fund the
acquisition of Suburban Ostomy Supply Co., 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 may borrow up to an additional $267,000,000 as of
December 31, 1997.
23
CAPITAL EXPENDITURES
There are no individually material capital expenditure commitments outstanding
as of December 31, 1997. However, the company expects to invest approximately
$26,000,000 in capital projects in 1998. The decrease in capital spending in
1998 is due principally to the expansion of three manufacturing facilities, the
completion of a new respiratory manufacturing plant and the completion of a new
corporate headquarters building in 1997. The company believes that its balances
of cash and cash equivalents, together with funds generated from operations and
existing borrowing capabilities, will be sufficient to meets its operating cash
requirements and fund required capital expenditures in the foreseeable future.
CASH FLOWS
Cash flows provided by operating activities were $37,935,000, compared to
$34,323,000 last year. The 10.5% increase is primarily the result of decreased
inventory levels from the prior year, as continued focus on inventory management
initiatives have proven effective, and an increase in accrued expenses relating
to the unpaid portion of the unusual charge taken in 1997. The improved cash
flow was offset to some extent by an increase in trade receivables. The changes
in operating assets and liabilities are not apparent from the face of the
balance sheet as funds expensed for assets acquired through business
acquisitions are accounted for in the investment activities section of the
Consolidated Statement of Cash Flows.
Cash flows required for investing activities decreased by $23,341,000 or 30.6%.
The decrease was a result of reduced acquisition activity in 1997 and the sale
of the company's investment in Healthdyne Technologies, Inc.. The decrease was
offset by an increase in capital expenditures primarily relating to investments
in computer systems, production machinery and equipment and facility expansions
associated with the continuing implementation of a worldwide facilities plan.
Cash flows provided by financing activities were $16,467,000 in 1997 compared to
$42,556,000 in 1996. The 61.3% decrease in cash provided by financing activities
was primarily a result of a reduction in net proceeds from long-term borrowings
which were used to fund acquisitions in the prior year and increased payments on
revolving lines of credit when compared to the prior year.
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 1997, a dividend of $.05 per Common Share and $.045 per Class
B Common Share were declared and paid.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using the
last two digits rather than four to define the applicable year. Thus, many
programs are unable to properly distinguish between the year 1900 and the year
2000. This is frequently referred to as the "Year 2000 Problem."
The company has developed a plan to modify its existing information technology
in order to recognize the year 2000 and has begun converting its critical data
processing systems. The plan is designed to ensure that there is no adverse
effect on the company's core business operations and that transactions with
customers, suppliers and financial institutions are fully supported. The company
is well under way with these efforts and believes its planning and
implementation efforts will be adequate to address its year 2000 concerns.
Currently, the project is expected to be substantially completed by early 1999
and to cost between $4.0 and $6.0 million. This estimate includes internal costs
and excludes the costs to upgrade and replace systems in the normal course of
business. The company does not expect this project to have a significant effect
on the company's results of operations or financial position.
For the year ended December 31, 1997, approximately $600,000 was incurred
and expensed related to this activity. The company will continue to implement
systems with strategic long term value as it has undertaken a long-term systems
improvement program that will result in a global Enterprise Resource Planning
(ERP) system utilizing certain of the Oracle ERP product modules. While the
review of the project has been revised from the original plan, the company still
plans to spend significant funds over the next several years implementing its
new systems plan. This program is expected to cost approximately $40.0 million
over the next four years including internal costs.
24
NON-RECURRING AND UNUSUAL CHARGE
In 1997, the company recorded a non-recurring and unusual charge of
$61,039,000 ($38,839,000 or $1.28 diluted per share after tax) for the
acceleration of certain strategic initiatives and other items. The charge
impacted cost of products sold by approximately $3,391,000 and selling, general
and administrative expenses by approximately $27,787,000. During the fourth
quarter, the company reviewed the charge and its related estimates and
components. The review resulted in certain changes to the components of the
charge. In addition, while reviewing the technical requirements of Financial
Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) 94-3 and all
relevant accounting pronouncements, it was determined that part of the charge
related to the fourth quarter rather than the third quarter and the company
restated the quarters to reflect this change. There was no significant impact on
results recorded for the year. The charge includes $20,337,000 for the
acceleration of global manufacturing facility consolidations and the elimination
of certain non-strategic product lines, $7,456,000 for certain accelerated
global systems' initiatives, $10,293,000 for an increase in the company's bad
debt reserve and $22,953,000 for asset write-downs and an increase in reserves
for litigation. The portion of the charge identified for certain global systems
initiatives relates to the write-off of assets that will not benefit future
periods due to new systems replacements or the change in scope of the original
project. There were no year 2000 costs charged to the reserve as these costs are
expensed as incurred pursuant to the requirements of the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force (EITF) 96-14. The company
initiatives included in the charge are anticipated to be substantially completed
in 1998. During 1997, approximately $8,480,000 of the reserve amount was
utilized for facility consolidations and business exits, $7,456,000 for systems
related costs, $4,423,000 for the write-off of specifically identified accounts
receivable and an increase in the general reserve for bad debts and $14,371,000
for asset write-downs and litigation. The remaining accrual balance at December
31, 1997 in the amount of $26,309,000 relates primarily to facility
consolidations, business exits, litigation and bad debt.
PRIVATE SECURITIES LITIGATION REFORM ACT
This management's discussion contains forward-looking statements based on
current expectations which are covered under the "safe harbor" provision within
the Private Securities Litigation Reform Act of 1995. Actual results and events,
including the acceleration of certain strategic initiatives for which a
non-recurring and unusual charge has been reported, may differ significantly
from those anticipated as a result of risks and uncertainties which include, but
are not limited to, pricing pressures, the consolidations of health care
customers and competitors, the availability of strategic acquisition candidates
successfully completing its project to resolve its year 2000 issues and
Invacare's ability to effectively integrate acquired companies, the timely
completion of facility consolidations and other strategic initiatives provided
for, the completion of year 2000 compliance programs and the overall economic,
market and industry conditions, as well as the risks described from time to time
in Invacare's reports as filed with the Securities and Exchange Commission.
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 -
21 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 1998
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.
25
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
information set forth under the caption "Compensation of Executive Officers and
Directors" in the company's definitive Proxy Statement for the 1998 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 1998 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the company's
definitive Proxy Statement for the 1998 Annual Meeting of Shareholders, since
such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the company's fiscal year pursuant to
Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Financial Statements
The following financial statements of the company are included in Part II, Item
8:
(a)(1) Financial Statements.
Consolidated Statement of Earnings - years ended December 31, 1997, 1996
and 1995
Consolidated Balance Sheet - December 31, 1997 and 1996
Consolidated Statement of Cash Flows - years ended December 31, 1997,
1996 and 1995
Consolidated Statement of Shareholders' Equity - years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(a)(2)Financial Statement Schedules.
The following financial statement schedule of the company is included in
Part II, Item 8:
Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or
not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits.
See Exhibit Index at page number I-27 of this Report on Form 10-K.
(b) Reports on Form 8-K.
None
26
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 31, 1998.
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 31, 1998.
Signature Title
/S/ A. Malachi Mison, III Chairman of the Board of Directors and
- -------------------------- Chief Executive Officer (Principal Executive
A. Malachi Mixon, III Officer)
/S/ Gerald B. Blouch President, Chief Operating Officer and Director
- ------------------------
Gerald B. Blouch
/S/ Thomas R. Miklich Chief Financial Officer, General Counsel,
- ----------------------- Treasurer and Corporate Secretary (Principal
Thomas R. Miklich Financial and Accounting Officer)
/S/ Francis J. Callahan
- -------------------------- Director
Francis J. Callahan
/S/ Frank B. Carr
- -------------------------- Director
Frank B. Carr
/S/ Michael F. Delaney
- -------------------------- Director
Michael F. Delaney
/S/ Whitney Evans
- --------------------------- Director
Whitney Evans
/S/ Dan T. Moore, III
- -------------------------- Director
Dan T. Moore, III
/S/ E.P. Nalley
- -------------------------- Director
E. P. Nalley
/S/ Joseph B. Richey
- ------------------------- Director
Joseph B. Richey, II
/S/ William M. Weber
- ------------------------- Director
William M. Weber
/S/ Dr. Bernadine P. Healy
- -------------------------- Director
Dr. Bernadine P. Healy
27
INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended
December 31, 1997.
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)
28
10(ac) - Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992 (L)
10(ad) - Shares Purchase and Contribution Agreement dated July 27, 1992 (O)
10(af) - Invacare Corporation