-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OGzUqrHiEnB/LlP4kK1+3i6w9+FJgqsW8wwGejJdLONAesXDDiEu1U06enzaZBPM 58purU7a1DIHFaG+2TjxkQ== 0000742112-04-000024.txt : 20040805 0000742112-04-000024.hdr.sgml : 20040805 20040805153157 ACCESSION NUMBER: 0000742112-04-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVACARE CORP CENTRAL INDEX KEY: 0000742112 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 952680965 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15103 FILM NUMBER: 04954687 BUSINESS ADDRESS: STREET 1: ONE INVACARE WAY STREET 2: P O BOX 4028 CITY: ELYRIA STATE: OH ZIP: 44036 BUSINESS PHONE: 4403296000 10-Q 1 q20410q.txt IVC Q2 2004 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2004 ---------------------------------------------------------- Commission File Number 0-12938 --------------------------------------------------------- Invacare Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 95-2680965 - ------------------------------- -------------------------------- (State or other jurisdiction of (IRS Employer Identification No) incorporation or organization) One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036 - -------------------------------------------------------------------------------- (Address of principal executive offices) - -------------------------------------------------------------------------------- (440)329-6000 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if change since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange Act") 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 such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: As of August 3, 2004, the company had 30,058,906 Common Shares and 1,111,977 Class B Common Shares outstanding. INVACARE CORPORATION INDEX Part I. FINANCIAL INFORMATION: Page No. - ------------------------------ -------- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheet - June 30, 2004 and December 31, 2003.........................3 Condensed Consolidated Statement of Earnings - Three and Six Months Ended June 30, 2004 and 2003...........4 Condensed Consolidated Statement of Cash Flows - Six Months Ended June 30, 2004 and 2003.....................5 Notes to Condensed Consolidated Financial Statements - June 30, 2004..................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............11 Item 3. Quantitative and Qualitative Disclosure of Market Risk...............20 Item 4. Controls and Procedures..............................................20 Part II. OTHER INFORMATION: - --------------------------- Item 2. Change in Securities and Use of Proceeds.............................21 Item 4. Result of Votes of Security Holders..................................21 Item 6. Exhibits and Reports on Form 8-K.....................................21 SIGNATURES....................................................................22 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheet June 30, December 31, 2004 2003 ---- ---- (unaudited) ASSETS (In thousands) - ------ CURRENT ASSETS ..........Cash and cash equivalents $6,078 $16,074 ..........Marketable securities 1,155 214 ..........Trade receivables, net 262,559 255,534 ..........Installment receivables, net 6,703 7,755 ..........Inventories, net 143,644 130,979 ..........Deferred income taxes 25,499 24,573 ..........Other current assets 27,743 39,593 ------- ------- .......... TOTAL CURRENT ASSETS 473,381 474,722 OTHER ASSETS 56,634 53,263 OTHER INTANGIBLES 19,988 14,678 PROPERTY AND EQUIPMENT, NET 156,863 150,051 GOODWILL 436,924 415,499 ------- ------- .......... TOTAL ASSETS $1,143,790 $1,108,213 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES ..........Accounts payable $123,171 $110,178 ..........Accrued expenses 85,890 97,148 ..........Accrued income taxes 19,284 19,107 ..........Current maturities of long-term obligations 1,863 2,171 ------- ------- .......... TOTAL CURRENT LIABILITIES 230,208 228,604 LONG-TERM DEBT 230,388 232,038 OTHER LONG-TERM OBLIGATIONS 39,113 34,383 SHAREHOLDERS' EQUITY ..........Preferred shares - - ..........Common shares - par $0.25 7,742 7,686 ..........Class B common shares - par $0.25 278 278 ..........Additional paid-in-capital 116,407 109,015 ..........Retained earnings 508,559 477,113 ..........Accumulated other comprehensive earnings 44,214 45,941 ..........Unearned compensation on stock awards (1,982) (1,458) ..........Treasury shares (31,137) (25,387) ------- ------- .......... TOTAL SHAREHOLDERS' EQUITY 644,081 613,188 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,143,790 $1,108,213 ========== ==========
See notes to condensed consolidated financial statements. 3 INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended Six Months Ended (In thousands except per share data) June 30, June 30, 2004 2003 2004 2003 ------- ------- ------- ------- Net sales $339,288 $300,114 $660,631 $576,787 Cost of products sold 237,164 212,280 465,128 408,502 ------- ------- ------- ------- Gross profit 102,124 87,834 195,503 168,285 Selling, general and administrative expense 74,201 63,589 144,984 124,109 Interest expense 2,295 2,656 5,054 5,356 Interest income (1,070) (1,433) (2,274) (2,469) ------- ------- ------- ------- Earnings before Income Taxes 26,698 23,022 47,739 41,289 Income taxes 8,675 7,575 15,515 13,585 ------- ------- ------- ------- NET EARNINGS $ 18,023 $ 15,447 $ 32,224 $ 27,704 ======== ======== ======== ======== DIVIDENDS DECLARED PER COMMON SHARE .0125 .0125 .0250 .0250 ======== ======== ======== ======== Net Earnings per Share - Basic $ 0.58 $ 0.50 $ 1.04 $ 0.90 ======== ======== ======== ======== Weighted Average Shares Outstanding - Basic 31,145 30,799 31,119 30,815 ======== ======== ======== ======== Net Earnings per Share - Assuming Dilution $ 0.56 $ 0.49 $ 1.00 $ 0.88 ======== ======== ======== ======== Weighted Average Shares Outstanding - Assuming Dilution 32,239 31,507 32,259 31,527 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 4
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows - (unaudited) Six Months Ended June 30, 2004 2003 ---- ---- OPERATING ACTIVITIES (In thousands) Net earnings $ 32,224 $ 27,704 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 15,019 13,697 Provision for losses on trade and installment receivables 4,945 6,200 Provision for deferred income taxes 209 891 Provision for other deferred liabilities 1,367 1,319 Changes in operating assets and liabilities: Trade receivables (8,544) (13,745) Inventories (7,524) (5,257) Other current assets 4,818 2,816 Accounts payable 9,953 8,395 Accrued expenses (12,657) 2,277 Other deferred liabilities 5,979 979 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 45,789 45,276 INVESTING ACTIVITIES Purchases of property and equipment (18,333) (9,884) Installment sales contracts, net (1,160) 5,780 Other long term assets (2,467) (3,416) Business acquisitions, net of cash acquired (32,713) (5,808) Other (1,891) (1,526) ------- ------- NET CASH USED FOR INVESTING ACTIVITIES (56,564) (14,854) FINANCING ACTIVITIES Proceeds from revolving lines of credit and long-term borrowings 297,789 207,374 Payments on revolving lines of credit, long-term debt and capital lease obligations (295,700) (238,453) Proceeds from exercise of stock options 4,366 1,244 Purchases of treasury stock (4,430) (8,345) Payment of dividends (778) (745) ------- ------- NET CASH PROVIDED (USED) FOR FINANCING ACTIVITIES 1,247 (38,925) Effect of exchange rate changes on cash (468) 3,156 ------- ------- Decrease in cash and cash equivalents (9,996) (5,347) Cash and cash equivalents at beginning of period 16,074 13,086 ------- ------- Cash and cash equivalents at end of period $ 6,078 $ 7,739 ======= =======
See notes to condensed consolidated financial statements. 5 INVACARE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 2004 Nature of Operations - Invacare Corporation and its subsidiaries ("Invacare" or the "company") is the leading home medical equipment manufacturer in the world based on its distribution channels, the breadth of its product line and net sales. The company designs, manufactures and distributes an extensive line of medical equipment for the home health care, retail and extended care markets. The company's products include standard manual wheelchairs, motorized and lightweight prescription wheelchairs, seating and positioning systems, motorized scooters, patient aids, home care beds, low air loss therapy products, respiratory products and distributed products. Principles of Consolidation - The consolidated financial statements include the accounts of the company and its majority owned subsidiaries and include all adjustments, which were of a normal recurring nature, necessary to present fairly the financial position of the company as of June 30, 2004 and the results of its operations for the three and six months ended June 30, 2004 and 2003, respectively, and changes in its cash flows for the six months ended June 30, 2004 and 2003, respectively. Certain foreign subsidiaries, represented by the European segment, are consolidated using a May 31 quarter end. The results of operations for the three and six months ended June 30, 2004, respectively, are not necessarily indicative of the results to be expected for the full year. All significant intercompany transactions are eliminated. Use of Estimates - The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. Business Segments - The company reports its results of operations through three primary business segments based on geographical area: North America, Europe and Australasia. The three reportable segments represent operating groups that sell products in different geographic regions. The North America segment includes net sales from the following five primary product lines: Standard, Rehab, Distributed, Respiratory, and Continuing Care Products. The Europe and Australasia segments include net sales from the same product lines with the exception of distributed products. Each business also includes net sales from the home health care, retail and extended care markets. The company evaluates performance and allocates resources based on profit or loss from operations before income taxes for each reportable segment. The accounting policies of each segment are the same as those for the company's consolidated financial statements. Intersegment net sales and transfers are based on the costs to manufacture plus a reasonable profit element. Therefore, intercompany profit or loss on intersegment net sales and transfers are not considered in evaluating segment performance. Intersegment net sales for reportable segments was $21,036,000 and $40,379,000 for the three and six months ended June 30, 2004, respectively, and $18,863,000 and $34,592,000 for the same periods in the preceding year. 6 The information by segment is as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------ ------ ------ ------ Revenues from external customers North America $249,040 $212,990 $486,323 $413,373 Europe 75,406 68,742 144,744 131,181 Australasia 14,842 18,382 29,564 32,233 ------ ------ ------ ------ Consolidated $339,288 $300,114 $660,631 $576,787 ======== ======== ======== ======== Earnings (loss) before income taxes North America $25,713 $17,356 $45,763 $33,464 Europe 3,303 4,295 4,443 6,615 Australasia 240 2,012 677 3,278 All Other * (2,558) (641) (3,144) (2,068) ------- ----- ------- ------- Consolidated $26,698 $23,022 $47,739 $41,289 ======= ======= ======= =======
* Consists of the domestic export unit, unallocated corporate selling, general and administrative costs, the Invacare captive insurance unit, and intercompany profits which do not meet the quantitative criteria for determining reportable segments. Net Earnings Per Common Share - The following table sets forth the computation of basic and diluted net earnings per common share for the periods indicated.
Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------ ------ ------ ------ (In thousands, except per share data) Basic Average common shares outstanding 31,145 30,799 31,119 30,815 Net earnings $18,023 $15,447 $32,224 $27,704 Net earnings per common share $ .58 $ .50 $ 1.04 $ .90 Diluted Average common shares outstanding 31,145 30,799 31,119 30,815 Stock options and awards 1,094 708 1,140 712 ------ ------ ------ ------ Average common shares assuming dilution 32,239 31,507 32,259 31,527 Net earnings $18,023 $15,447 $32,224 $27,704 Net earnings per common share $ .56 $ .49 $ 1.00 $ .88
7 Concentration of Credit Risk - The company manufactures and distributes durable medical equipment and supplies to the home health care, retail and extended care markets. The company performs credit evaluations of its customers' financial condition. Prior to December 2000, the company financed equipment to certain customers for periods ranging from 6 to 39 months. In December 2000, Invacare entered into an agreement with DLL, a third party financing company, to provide the majority of future lease financing to Invacare's customers. The DLL agreement provides for direct leasing between DLL and the Invacare customer. The company retains a limited recourse obligation ($37,833,000 at June 30, 2004) to DLL for events of default under the contracts (total balance outstanding of $84,674,000 at June 30, 2004). Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires the company to record a guarantee liability as it relates to the limited recourse obligation. As such, the company has recorded a liability for this guarantee obligation. The company monitors the collections status of these contracts and has provided amounts for estimated losses in its allowances for doubtful accounts in accordance with FASB Interpretation No. 5, Accounting for Contingencies. Substantially all of the company's receivables are due from health care, medical equipment dealers and long term care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to dealers, both foreign and domestic, is ultimately funded through government reimbursement programs such as Medicare and Medicaid. In addition, the company has seen a significant shift in reimbursement to customers from managed care entities. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability. Credit losses are provided for in the financial statements. Goodwill and Other Intangibles - The change in goodwill reflected on the balance sheet from December 31, 2003 to June 30, 2004 was the result of current year acquisitions representing an increase in goodwill of $18,921,000 in North America with the balance attributable to currency translation. The total cost for two of the 2003 acquisitions excludes certain contingent consideration that has not yet been determined. As part of the Carroll Healthcare, Inc. purchase agreement, the company agreed to pay additional consideration based upon earnings before interest, taxes, depreciation and amortization from September 1, 2003 through August 31, 2004 calculated under Canadian generally accepted accounting principles with no defined maximum amount. This amount will be determined in the fourth quarter of 2004 and is currently estimated to be between $45,000,000 and $50,000,000. Pursuant to the Motion Concepts, Inc. purchase agreement, the company agreed to pay contingent consideration based upon earnings before interest and taxes over the three years subsequent to the acquisition up to a maximum of approximately $16,000,000. Based on the current and projected results for the first year, no contingent consideration is expected to be paid for the first year portion of the earn-out. The contingent consideration related to both acquisitions is not deemed to be compensation expense as the consideration was a product of the negotiation process, represents a dollar amount in excess of typical compensation agreements in place prior to the acquisition, is payable in direct proportion to their ownership interest and is not dependent upon future employment by the seller during the contingency period. When the contingencies related to both of the acquisitions are settled, any additional consideration paid will increase the respective purchase price and reported goodwill. 8 All of the company's other intangible assets have definite lives and are amortized over their useful lives, except for $4,767,000 related to trademarks, which have indefinite lives. As of June 30, 2004 and December 31, 2003, other intangibles consisted of the following (in thousands): June 30, 2004 December 31, 2003 ------------- ----------------- Historical Accumulated Historical Accumulated Cost Amortization Cost Amortization ---------- ------------ ---------- ------------ License agreements $6,450 $4,755 $6,455 $4,464 Customer lists 9,741 1,314 6,105 936 Trademarks 4,767 - 4,268 - Patents 3,432 1,230 2,180 1,109 Other 4,361 1,464 3,406 1,227 ----- ----- ----- ----- $28,751 $8,763 $22,414 $7,736 ======= ====== ======= ====== Amortization expense related to other intangibles was $490,000 in the second quarter of 2004, $1,027,000 for the six months ended June 30, 2004 and is estimated to be $2,305,000 in 2005, $1,789,000 in 2006, $1,481,000 in 2007, $1,388,000 in 2008 and $1,602,000 in 2009. Accounting for Stock-Based Compensation - The company utilizes the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Accordingly, the company has not recognized compensation cost for non-qualified stock options. The company does record, however, compensation cost on restricted common shares based on the vesting periods. Had compensation cost for the company's stock option plans been determined based on the fair value at the grant date for awards in 2004 and 2003 consistent with the provisions of SFAS No. 123, the company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------ ------ ------ ------ Net earnings - as reported * $18,023 $15,447 $32,224 $27,704 Less: compensation expense determined based on the fair-value method for all awards granted at market value, net of related tax effects 854 1,163 1,806 2,304 ------ ------ ------ ------ Net earnings - pro forma $17,169 $14,284 $30,418 $25,400 ======= ======= ======= ======= Earnings per share as reported - basic $.58 $.50 $1.04 $.90 Earnings per share as reported - assuming dilution $.56 $.49 $1.00 $.88 Pro forma earnings per share - basic $.55 $.46 $.98 $.82 Pro forma earnings per share - assuming dilution $.53 $.45 $.94 $.81 * Includes stock compensation expense, net of tax, on restricted awards granted without cost of: $138 $114 $252 $191
9 Warranty Costs - Generally, the company's products are covered by warranties against defects in material and workmanship for periods up to six years from the date of sale to the customer. Certain components carry a lifetime warranty. A provision for estimated warranty cost is recorded at the time of sale based upon actual experience. The company continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily used to determine the company's warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However, the company does consider other events, such as a product recall, which could warrant additional warranty reserve provision. No material adjustments to warranty reserves were necessary in the current year. The following is a reconciliation of the changes in accrued warranty costs for the reporting period (in thousands): Balance as of January 1, 2004 $ 12,688 Warranties provided during the period 4,053 Settlements made during the period (5,208) Changes in liability for pre-existing warranties during the period, including expirations 291 ------ Balance as of June 30, 2004 $ 11,824 ====== Comprehensive Earnings - Total comprehensive earnings were as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------ ------ ------ ------ Net earnings $18,023 $15,447 $32,224 $27,704 Foreign currency translation gain (loss) (9,701) 25,833 623 47,392 Unrealized gain (loss) on available for sale securities (7) 154 3 133 Current period unrealized loss on cash flow hedges (1,298) (61) (2,353) (913) ------ ------ ------ ------ Total comprehensive earnings $ 7,017 $ 41,373 $30,497 $74,316 ====== ====== ====== ======
Inventories - Inventories consist of the following components (in thousands): June 30, December 31, 2004 2003 ------ ------ Raw materials $ 49,760 $ 41,573 Work in process 14,242 18,711 Finished goods 79,642 70,695 ------ ------ $143,644 $130,979 ======= ======= The final inventory determination under the LIFO method is made at the end of each fiscal year based on the inventory levels and cost at that point; therefore, interim LIFO determinations are based on management's estimates of expected year-end inventory levels and costs. 10 Property and Equipment - Property and equipment consist of the following (in thousands): June 30, December 31, 2004 2003 ------ ------ Land, buildings and improvements $ 67,922 $ 67,364 Machinery and equipment 229,851 216,459 Furniture and fixtures 23,322 20,737 Leasehold improvements 15,744 14,946 ------ ------ 336,839 319,506 Less allowance for depreciation (179,976) (169,455) ------ ------ $156,863 $150,051 ======= ======= Subsequent Event - On August 2, 2004, the company signed a definitive agreement to purchase WP Domus GmbH ("Domus") for 190,000,000 Euros or approximately $230,000,000 at recent exchange rates. A European-based holding company, Domus designs and manufactures several complementary product lines to the company's existing product lines, including power add-on products, bath lifts and walking aids. Domus currently has three divisions, Alber, Aquatec and Dolomite, which are operated on an independent basis and are branded separately. The definitive agreement is subject to German and Norwegian regulatory approvals, which are expected to be received no later than the fourth quarter of 2004, and other customary conditions. Domus is forecast to have sales in 2004 of approximately 96,000,000 Euros or $116,000,000 at recent exchange rates. The three Domus companies are expected to be operated as independently run units of Invacare under each of the units' current management teams. In markets where Alber, Aquatec or Dolomite does not have their own direct sales forces, the company's sales forces are expected to provide opportunities to expand sales for such units. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Current Report on Form 8-K filed on July 15, 2004. OUTLOOK The company reached the top end of its guidance on earnings growth in the first half of this year primarily due to the benefits from ongoing cost reduction programs and accretive acquisitions along with increased volumes in North America. Although in March, Centers for Medicare and Medicaid Services (CMS) retracted the December 2003 bulletins restricting Medicare coverage of power wheelchairs for seniors and people with disabilities, this change in the rules has not led to more stability and predictability in the power wheelchair market. Additionally, although European sales in the second quarter improved from the first quarter, it was not to the degree expected. Despite slower than expected sales growth excluding foreign currency and acquisitions, gross margin was stronger than expected as a result of the continuing cost reduction programs and should continue to remain strong for the year. 11 As a result of these factors, the company believes that for the second half of 2004, it will have a net sales increase of between 9% and 11% compared to the prior year. Excluding foreign currency and acquisitions, the net sales increase is expected to be between 3% and 5%. The improvement in margins as forecasted should result in the company achieving net earnings per share of between $2.48 and $2.55 for the year, which is toward the top end of its previous guidance. For the third quarter, the company expects a net sales increase of between 8% and 10% and net earnings per share of between $0.68 and $0.72. We expect minimal addition to EPS in 2004 related to the recent WP Domus acquisition due to the timing of regulatory approval. See Subsequent Event footnote. RESULTS OF OPERATIONS NET SALES Net sales for the three months ended June 30, 2004 were $339,288,000, compared to $300,114,000 for the same period a year ago, representing a 13% increase. For the six months ended June 30, 2004, net sales increased 15% to $660,631,000, compared to $576,787,000 for the same period a year ago. For the quarter, foreign currency translation and acquisitions accounted for 3% and 7% of the net sales increase, respectively. For the first six months, foreign currency translation and acquisitions accounted for 4% and 8% of the net sales increase, respectively. Excluding the impact of currency and acquisitions, net sales growth was driven primarily by volume increases in North America. North American Operations North American net sales, consisting of Rehab (power wheelchairs, custom manual wheelchairs, personal mobility and seating and positioning), Standard (manual wheelchairs, personal care, home care beds, low air loss therapy and patient transport), Continuing Care (beds and furniture), Respiratory (oxygen concentrators, aerosol therapy, sleep, homefill and associated respiratory) and Distributed (ostomy, incontinence, diabetic, wound care and other medical supplies) products, increased 17% for the quarter and 18% for the first six months. For the quarter, acquisitions accounted for 10% of the net sales increase with currency translation having a less than 1% impact on net sales. For the first six months, foreign currency translation and acquisitions accounted for 1% and 10% of the net sales increase, respectively. The increase for the quarter was principally due to net sales increases in Respiratory products (16%), Rehab products (19%), Continuing Care products (76%) and Distributed products (31%), which were partially offset by declines in Standard products (1%). Excluding acquisitions, Rehab product net sales increased by 5%, Continuing Care product net sales increased by 1% and Distributed products increased by 13% for the quarter. The increase for the first six months was principally due to net sales increases in Respiratory products (26%), Rehab products (21%), Continuing Care products (85%) and Distributed products (32%), which were partially offset by declines in Standard products (6%). Excluding acquisitions, Rehab product net sales increased by 7%, Continuing Care product net sales increased by 3% and Distributed products increased by 16%. Respiratory growth in the quarter and first six months was largely due to strong performance in the HomeFill(TM) oxygen system product line. Rehab growth in the quarter and first six months was driven by increased sales of custom power products led by the Storm Series(R) TDX(TM) power wheelchair, which were offset 12 by slower sales of consumer power products, resulting from continuing challenges with our customers obtaining Medicare reimbursement from CMS. Net sales of Standard products rebounded in the second quarter due to increased unit volumes, which were more than offset by continued pricing reductions. European Operations European net sales increased 10% for the quarter to $75,406,000 as compared to $68,742,000 for the same period a year ago. For the quarter, foreign currency translation and acquisitions accounted for 9% and 1% of the net sales increase, respectively. European net sales for the first six months increased 10% to $144,744,000 as compared to $131,181,000 for the same period a year ago. For the first six months, foreign currency translation and acquisitions accounted for 12% and 3% of the net sales increase, respectively. The slower growth in the quarter and the first six months is attributable to continued pricing pressures in Germany and reduced funding in other key markets. Australasia Operations The Australasia operations consists of Invacare Australia, which imports and distributes the entire line of Invacare products and manufactures and distributes the Rollerchair line of custom power wheelchairs and Pro Med lifts; Dynamic Controls, a New Zealand manufacturer of electronic operating components used in power wheelchairs and scooters; and Invacare New Zealand, a manufacturer of wheelchairs and beds and a distributor of a wide range of home medical equipment. Australasian net sales decreased 19% to $14,842,000 from $18,382,000 in the second quarter and 8% to $29,564,000 from $32,233,000 year to date. Adjusting for the impact of foreign currency translation, Australasian net sales decreased 28% for the quarter and 22% for the first half of the year, when compared to the same periods a year ago. This sales decline was primarily due to lower sales of microprocessor controllers, resulting from a global slowdown in the production of power wheelchairs principally due to Medicare reimbursement challenges in the United States. The Australasia segment transacts a substantial amount of its business with customers outside of their region in various currencies other than their functional currency, the New Zealand Dollar. As such, changes in exchange rates particularly with the Euro and U.S. Dollar can have a significant impact on sales and cost of sales. GROSS PROFIT Gross profit as a percentage of net sales for the three and six-month periods ended June 30, 2004 were 30.1% and 29.6%, respectively, compared to 29.3% and 29.2%, respectively, in the same periods last year. The improvement in margins for both periods was due to continuing cost reduction initiatives and improved sales of higher margin products, particularly Rehab products, driven by custom power, continuing care and HomeFill(TM) product lines. Margin improvements were partially offset by ongoing competitive pricing pressures, especially in Standard products. For the first six months, North American margins as a percentage of net sales improved to 30.3% compared with 29.1% in the same period last year principally as a result of an increase in higher margin Rehab products and continued cost reductions. While pricing pressures are expected to continue due to foreign sourcing, especially in the Standard products category, the company expects to offset these price declines by lowering costs to produce with our own wholly owned foreign entities based in Asia. 13 Gross margin in Europe declined year to date by 0.8 of a percentage point primarily due to unfavorable sales mix towards lower margin products and additional costs related to new product introductions. Margins are expected to improve as new product sales increase. Gross margin in Australasia declined year to date by 8.6 percentage points largely due to unfavorable sales mix towards lower margin products in the company's Dynamic Controls subsidiary, reduced volumes and unfavorable foreign currency associated with normal operating transactions. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense as a percentage of net sales for the three and six months ended June 30, 2004 was 21.9% in both periods, compared to 21.2% and 21.5% in the same periods a year ago. The dollar increase was $10,612,000 and $20,875,000, or 16.7% and 16.8%, respectively for the quarter and first half of the year. Acquisitions increased expenses by $4,340,000 in the quarter and $8,642,000 in the first half while foreign currency translation increased expenses by $1,766,000 in the quarter and $5,498,000 in the first half compared to the same periods a year ago. Commissions, bonus and distribution costs, which are largely variable expenses dependent on results, combined to increase costs by $1,748,000 and $4,867,000. Sales and marketing expenses, which are a result of higher revenues and program spending, increased by $1,039,000 and $1,934,000 for the second quarter and the full year, respectively. Excluding the impact of foreign currency translation and acquisitions, selling, general and administrative expense increased 7.1% for the quarter and 5.4% compared to the same period a year ago. North American selling, general and administrative cost increased $8,790,000 or 19.8% for the quarter and $15,448,000 or 17.7% in the first half compared to the same periods a year ago. Acquisitions accounting for approximately 9.0% of the increase in each period, while the additional costs incurred on a consolidated basis, described above, were primarily related to North America. European selling, general and administrative cost increased $1,890,000 or 10.9% for the quarter and $5,917,000 or 18.0% for the first half compared to the same periods a year ago. Excluding the impact of foreign currency translation, selling, general and administrative cost increased 2.6% for the quarter and 4.8% in the first half compared to the same periods a year ago. The remaining increase was primarily attributable to additional programs to re-establish sales growth. Australasian selling, general and administrative cost declined $68,000 or 3.6% for the quarter and $490,000 or 12.0% in the first half compared to the same periods a year ago. Excluding the impact of foreign currency translation, selling, general and administrative cost declined by 13.1% for the quarter and 25.3% in the first half compared to the same periods a year ago. The decline is principally as a result of continued expense control. INTEREST For the quarter and first half of the year, interest expense and interest income were comparable to the same periods a year ago. 14 INCOME TAXES The company had an effective tax rate of 32.5% for the three and six-month month periods ended June 30, 2004, compared with 32.9% for the same periods a year ago. LIQUIDITY AND CAPITAL RESOURCES The company's reported level of long-term debt decreased $1,650,000 to $230,388,000 for the six months ended June 30, 2004. The company continues to maintain an adequate liquidity position to fund its working capital and capital requirements through its bank lines of credit and working capital management. As of June 30, 2004, the company had approximately $306,313,000 available under its lines of credit. Under the most restrictive covenant of the company's borrowing arrangements, the company has the capacity to borrow up to an additional $272,152,000 as of June 30, 2004. The company's borrowing arrangements contain covenants with respect to interest coverage, net worth, dividend payments, working capital, and funded debt to capitalization, as defined in the company's bank agreements and agreement with its note holders. As of June 30, 2004, the company was in compliance with all covenant requirements. CAPITAL EXPENDITURES The company had no material capital expenditure commitments outstanding as of June 30, 2004. The company expects to invest in capital projects in 2004 at a rate that exceeds depreciation and amortization in order to maintain and improve the company's competitive position. The company estimates that capital investments for 2004 will be approximately $35,000,000. The company believes that its balances of cash and cash equivalents, together with funds generated from operations and existing borrowing facilities will be sufficient to meet its operating cash requirements and to fund required capital expenditures for the foreseeable future. CASH FLOWS Cash flows provided by operating activities were $45,789,000 for the first half of 2004 compared to $45,276,000 in the first half of 2003. The increase in operating cash flows for the first six months of the year was largely due to improved profits and a lower increase in accounts receivable principally offset by decreased accrued expenses and higher inventory levels resulting from increased revenues compared to the first six months of 2003. Cash used for investing activities was $56,564,000 for the first half of 2004 compared to $14,854,000 in the first half of 2003. The increase was primarily due to acquisitions during the first half of 2004 and increased capital expenditures. The company is in the process of implementing Enterprise Resource Planning Systems in North America, Europe and Australasia, which has contributed to the increase in capital investments over the prior year levels. Cash provided by financing activities was $1,247,000 in for the first half of 2004 compared to cash used of $38,925,000 for the first half of 2003. Financing activities for the first six months of 2004 were impacted by a decrease in the company's net long-term borrowings of $2,089,000 as a result of continued debt payments that were lower than the first half of 2003 as a result of acquisitions made in the first half of 2004. 15 The effect of foreign currency translation and acquisitions may result in amounts being shown for cash flows in the Condensed Consolidated Statement of Cash Flows that are different from the changes reflected in the respective balance sheet captions. DIVIDEND POLICY On May 26, 2004, the company's Board of Directors declared a quarterly cash dividend of $0.0125 per Common Share to shareholders of record as of July 1, 2004, which was paid on July 19, 2004. At the current rate, the cash dividend will amount to $0.05 per Common Share on an annual basis. CRITICAL ACCOUNTING POLICIES The consolidated financial statements include accounts of the company and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. Revenue Recognition - ------------------- Revenues are recognized when products are shipped to unaffiliated customers. The Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," as updated by SAB No. 104, provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101. Sales are only made to customers with whom the company believes collection is reasonably assured based upon a credit analysis, which may include obtaining a credit application, a signed security agreement, personal guarantee or a cross corporate guarantee depending on the credit history of the customer. Credit lines are established for new customers after an evaluation of their credit report and or other relevant financial information. Existing credit lines are regularly reviewed and adjusted with consideration given to any outstanding past due amounts. The company offers discounts and rebates, which are accounted for as reductions to revenue in the period in which the sale is recognized. Discounts offered include: cash discounts for prompt payment, base and trade discounts based on contract level for specific classes of customers. Volume discounts and rebates are given based on large purchases and the achievement of certain sales volumes. Product returns are accounted for as a reduction to reported sales with estimates recorded for anticipated returns at the time of sale. The company does not sell any goods on consignment. Distributed products sold by the company are accounted for in accordance with EITF 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The company records Distributed product sales gross as a principal since the company takes title to the products and has the risks of loss for collection, delivery and returns. 16 Product sales that give rise to installment receivables are recorded at the time of sale when the risks and rewards of ownership are transferred. In December 2000, the company entered into an agreement with DLL, a third party financing company, to provide the majority of future lease financing to Invacare customers. As such, interest income is recognized based on the terms of the installment agreements. Installment accounts are monitored and if a customer defaults on payments, interest income is no longer recognized. All installment accounts are accounted for the same, regardless of duration of the installment agreements. Allowance for Uncollectible Accounts Receivable - ----------------------------------------------- Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all of the company's receivables are due from health care, medical equipment dealers and long term care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to dealers, both foreign and domestic, is ultimately funded through government reimbursement programs such as Medicare and Medicaid. In addition, the company has seen a significant shift in reimbursement to customers from managed care entities. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability. The estimated allowance for uncollectible amounts is based primarily on management's evaluation of the financial condition of the customer. In addition, as a result of the third party financing arrangement with DLL, management monitors the collection status of these contracts in accordance with the company's limited recourse obligations and provides amounts necessary for estimated losses in the allowance for doubtful accounts. Inventories and Related Allowance for Obsolete and Excess Inventory - ------------------------------------------------------------------- Inventories are stated at the lower of cost or market with cost principally determined for domestic manufacturing inventories by the last-in, first-out (LIFO) method and for non-domestic inventories and domestic finished products purchased for resale by the first-in, first-out (FIFO) method. Inventories have been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on management's review of inventories on hand compared to estimated future usage and sales. Inventory turns are monitored as a possible indicator of obsolescence or slow moving product. A provision for excess and obsolete inventory is recorded as needed based upon the discontinuation of products, redesigning of existing products, new product introductions, market changes and safety issues. Both raw materials and finished goods are reserved for on the balance sheet. Goodwill, Intangible and Other Long-Lived Assets - ------------------------------------------------ Property, equipment, intangibles and certain other long-lived assets are amortized over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue. As a result of the adoption of Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets in 2002, goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests in accordance with the Statement. Furthermore, goodwill and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The company completed the required initial analysis of goodwill as of January 1, 2002 as well the annual impairment tests in the fourth quarter of 2002 and 2003. The results of these analyses indicated no impairment of goodwill. 17 Product Liability - ----------------- The company's captive insurance company, Invatection Insurance Co., currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $10,000,000 in the aggregate of the company's North American product liability exposure. The company also has additional layers of external insurance coverage insuring $90,000,000 in annual aggregate losses arising from individual claims that exceed the captive insurance company policy limits. Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the independent actuary. Additional reserves in excess of the specific individual case reserves for incurred but not reported claims are recorded based upon independent actuarial valuations at the time such valuations are conducted. Historical claim experience and other assumptions are taken into consideration by the independent actuary to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss award settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company accepts responsibility for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices. There can be no assurance that Invacare's current insurance levels will continue to be adequate or available at affordable rates. Warranty - -------- Generally, the company's products are covered by warranties against defects in material and workmanship for periods up to six years from the date of sale to the customer. Certain components carry a lifetime warranty. A provision for estimated warranty cost is recorded at the time of sale. Historical analysis of claims history is primarily used to determine the company's warranty reserves with consideration given to any recent events, which could affect the provision required. The company continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. See Warranty Costs in the Notes to the Consolidated Financial Statements for a reconciliation of the changes in the warranty accrual. Accounting for Stock-Based Compensation - --------------------------------------- The company accounts for options under its stock-based compensation plans using the intrinsic value method proscribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The majority of the options awarded have been granted at exercise prices equal to the market value of the underlying stock on the date of grant; thus, no compensation cost has been reflected in the Consolidated Statement of Earnings for these options. In addition, restricted stock awards have been granted without cost to the recipients and are being expensed on a straight-line basis over the vesting periods. See Accounting for Stock-Based Compensation in the Notes to the Consolidated Financial Statements. Income Taxes - ------------ As part of the process of preparing our financial statements, we are required to estimate income taxes in various jurisdictions. The process requires estimating our current tax exposure, including assessing the risks associated with tax audits, as well as estimating temporary differences due to the different treatment of items for tax and accounting policies. The temporary differences our reported as deferred tax assets and or liabilities. The company also must estimate the likelihood that its deferred tax assets will be recovered from 18 future taxable income and whether or not valuation allowances should be established. In the event that actual results differ from our estimates, the company's provision for income taxes could be materially impacted. The company does not believe that there is a substantial likelihood that materially different amounts would be reported related to its critical accounting policies. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. RECENTLY ADOPTED ACCOUNTING POLICIES Accounting for Variable Interest Entities - ----------------------------------------- In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which was revised in December 2003 and, which among other things, deferred the implementation date of FIN 46 until periods after March 15, 2004. This interpretation requires consolidation of an entity if the company is subject to a majority of the risk of loss from the variable interest entity's (VIE) activities or entitled to receive a majority of the entity's residual returns, or both. A company that consolidates a VIE is known as the primary beneficiary of that entity. As of June 30, 2004, the company had an investment in a development stage company, which is currently pursuing FDA approval to market a product focused on the treatment of post-stroke shoulder pain in the United States. The net advances and investment recorded on the company's books is approximately $3,000,000 at June 30, 2004. Based on the provisions of FIN 46 and the company's analysis, it has determined that it is not currently the primary beneficiary of this development stage company. The company will re-evaluate whether or not it is the primary beneficiary if and when changes occur with the VIE or the company's association with the VIE as outlined by FIN 46. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The company is exposed to market risk through various financial instruments, including fixed rate and floating rate debt instruments. The company uses interest rate swap agreements to mitigate its exposure to interest rate fluctuations. Based on June 30, 2004 debt levels, a 1.0% change in interest rates would impact interest expense by approximately $2,030,000 over the next twelve months. Additionally, the company operates internationally and as a result is exposed to foreign currency fluctuations. Specifically, the exposure includes intercompany loans and third party sales or payments. In an attempt to reduce this exposure, foreign currency forward contracts are utilized. The company does not believe that any potential loss related to these financial instruments would have a material adverse effect on the company's financial condition or results of operations. FORWARD-LOOKING STATEMENTS The statements contained in this Form 10-Q constitute forward-looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Terms such as "will," "should," "plan," "intend," "expect," "continue," "believe," "anticipate" and "seek," as well as similar comments, are forward-looking in nature. Actual results and events may differ significantly from those expressed or anticipated as a result of risks and uncertainties which include, but are not limited to, the following: pricing pressures, the success of the company's ongoing efforts to reduce costs, increasing raw material costs, the consolidations of health care customers and competitors, government reimbursement issues (including those that affect the 19 sales of and margins on product, along with the viability of customers), the ability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs, the company's ability to successfully implement major enterprise resource planning systems, the effect of offering customers competitive financing terms, Invacare's ability to successfully identify, acquire and integrate acquisition candidates, the difficulties in managing and operating businesses in many different foreign jurisdictions, the timely completion of facility consolidations, the vagaries of any litigation or regulatory investigations that the company may be or become involved in at any time, the difficulties in acquiring and maintaining a proprietary intellectual property ownership position, the overall economic, market and industry growth conditions (including, the impact that acts of terrorism may have on such growth conditions), foreign currency and interest rate risks, Invacare's ability to improve financing terms and reduce working capital, as well as the risks described from time to time in Invacare's reports as filed with the Securities and Exchange Commission. We undertake no obligation to review or update these forward-looking statements or other information contained herein. Item 3. Quantitative and Qualitative Disclosure of Market Risk. The information called for by this item is provided under the same caption under Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 4. Controls and Procedures. As of June 30, 2004, an evaluation was performed, under the supervision and with the participation of the company's management, including the CEO and CFO, of the effectiveness of the design and operation of the company's disclosure controls and procedures. Based on that evaluation, the company's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2004 in ensuring that information required to be disclosed by the company in the reports it files and submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There were no changes in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting. 20 Part II. OTHER INFORMATION Item 2. Change in Securities and Use of Proceeds On August 17, 2001, the Board of Directors authorized the company to purchase up to 2,000,000 Common Shares. To date, the company has purchased 637,100 shares, including 110,800 shares in the second quarter of 2004, with authorization remaining to purchase 1,362,900 more shares.
Total Number of Shares Maximum Number of Purchased as Part of Shares that May Yet Be Total Number of Shares Average Price Paid per Publicly Announced Purchased Under the Period Purchased Share Plans or Programs Plans or Programs - --------------------------- ------------------------ ------------------------ ------------------------ ----------------------- April 7,200 $40.23 7,200 1,466,500 May 103,600 $39.96 103,600 1,362,900 June - - - 1,362,900 - --------------------------- ------------------------ ------------------------ ------------------------ ----------------------- Total 110,800 $39.98 110,800 1,362,900 - --------------------------- ------------------------ ------------------------ ------------------------ -----------------------
Item 4. Results of Votes of Security Holders On May 26, 2004, the company held its 2004 Annual Meeting of Shareholders to act on proposals to: 1) elect four directors to the class whose three-year term will expire in 2007 and 2) ratify the appointment of Ernst & Young LLP as our independent auditors for our 2004 fiscal year. Gerald B. Blouch, John R. Kasich, Dan T. Moore, III and Joseph B. Richey, II were each re-elected for a three-year term of office expiring in 2007 with 39,117,906, 39,229,533, 38,075,991 and 38,901,750 affirmative votes and 335,565, 223,938, 1,377,480 and 551,721 votes withheld, respectively. James C. Boland, Whitney Evans, William M. Weber, Michael F. Delaney, C. Martin Harris, M.D., Bernadine P. Healy, M.D., and A. Malachi Mixon, III are directors with continuing terms. The proposal to ratify the appointment of Ernst & Young LLP as our independent auditors for our 2004 fiscal year received 37,683,539 affirmative votes, 1,730,467 negative votes and 39,465 abstained votes. Item 6. Exhibits A Exhibits: Official Exhibit No. -------------------- 10.1 Invacare Corporation 401(K) Plus Benefit Equalization Plan (As amended and restated effective January 1, 2003) 10.2 Amendment No. 1 to Invacare Corporation 401(K) Plus Benefit Equalization Plan 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 21 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). B Reports on Form 8-K: A Form 8-K was furnished on April 15, 2004 under Item 12, Results of Operations and Financial Condition. The Form 8-K contained Invacare's earnings release, dated April 15, 2004, which disclosed the company's 2004 first quarter results. SIGNATURES Pursuant to the requirements 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. INVACARE CORPORATION By:/s/ Gregory C. Thompson ----------------------------------------- Gregory C. Thompson Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 5, 2004 22 EX-10 2 plusplan.txt EXHIBIT 10.1 Exhibit 10.1 INVACARE CORPORATION 401(K) PLUS BENEFIT EQUALIZATION PLAN (As amended and restated effective January 1, 2003) INVACARE CORPORATION 401(K) PLUS BENEFIT EQUALIZATION PLAN (As amended and restated effective January 1, 2003) Table of Contents Page Article I INTRODUCTION........................................................1 1.1 Name of Plan......................................................1 1.2 Purposes of Plan..................................................1 1.3 "Top Hat" Pension Benefit Plan....................................1 1.4 Plan Unfunded.....................................................1 1.5 Effective Date....................................................1 1.6 Administration....................................................1 Article II DEFINITIONS AND CONSTRUCTION.......................................2 2.1 Definitions.......................................................2 2.2 Number and Gender.................................................5 2.3 Headings..........................................................5 Article III PARTICIPATION AND ELIGIBILITY.....................................6 3.1 Participation.....................................................6 3.2 Commencement of Participation.....................................6 3.3 Cessation of Active Participation.................................6 Article IV DEFERRALS, MATCHING & PROFIT SHARING CONTRIBUTIONS.................7 4.1 Deferrals by Participants.........................................7 4.2 Effective Date of Participation and Deferral Election Form........7 4.3 Modification or Revocation of Election by Participant.............7 4.4 Matching Contributions............................................8 4.5 Make Whole Contributions..........................................8 4.6 Discretionary Contributions.......................................8 4.7 Hardship Distribution Under 401(k) Plan...........................8 Article V VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS....................9 5.1 Vesting...........................................................9 5.2 Deferral Periods..................................................9 5.3 Earnings Elections................................................9 Article VI ACCOUNTS..........................................................10 6.1 Establishment of Bookkeeping Accounts............................10 6.2 Subaccounts......................................................10 6.3 Hypothetical Nature of Accounts..................................10 Article VII PAYMENT OF ACCOUNT...............................................11 7.1 Timing of Distribution of Benefits...............................11 7.2 Adjustment for Investment Gains and Losses Upon a Distribution...12 7.3 Form of Payment or Payments......................................12 7.4 Accelerated Distribution.........................................12 7.5 Designation of Beneficiaries.....................................13 7.6 Amendments.......................................................13 7.7 Change in Marital Status.........................................13 7.8 No Beneficiary Designation.......................................14 7.9 Unclaimed Benefits...............................................14 7.10 Hardship Withdrawals.............................................14 7.11 Withholding......................................................14 Article VIII ADMINISTRATION..................................................15 8.1 Committee........................................................15 8.2 General Powers of Administration.................................15 8.3 Indemnification of Committee.....................................15 Article IX DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND ADMINISTRATION....16 9.1 Claims...........................................................16 9.2 Claim Decision...................................................16 9.3 Request for Review...............................................16 9.4 Review of Decision...............................................17 9.5 Discretionary Authority..........................................18 Article X MISCELLANEOUS......................................................19 10.1 Plan Not a Contract of Employment................................19 10.2 Non-Assignability of Benefits....................................19 10.3 Amendment and Termination........................................19 10.4 Unsecured General Creditor Status Of Employee....................20 10.5 Severability.....................................................20 10.6 Governing Laws...................................................20 10.7 Binding Effect...................................................20 10.8 Entire Agreement.................................................20 10.9 No Guaranty of Tax Consequences..................................20 INVACARE CORPORATION 401(K) PLUS BENEFIT EQUALIZATION PLAN (As amended and restated effective January 1, 2003) Article I INTRODUCTION 1.1 Name of Plan. Invacare Corporation (the "Company") hereby amends in its entirety and restates the Invacare Corporation 401(k) Plus Benefit Equalization Plan (the "Plan"). 1.2 Purposes of Plan. The purposes of the Plan are to provide deferred compensation for a select group of management or highly compensated Employees of the Company and to provide eligible Employees the opportunity to maximize their elective contributions to the Invacare Retirement Savings Plan (the "401(k) Plan") notwithstanding certain limitations in the Code. 1.3 "Top Hat" Pension Benefit Plan. The Plan is an "employee pension benefit plan" within the meaning of ERISA Section 3(2). The Plan is maintained, however, for a select group of management or highly compensated employees and, therefore, is exempt from Parts 2, 3 and 4 of Title 1 of ERISA. The Plan is not intended to qualify under Code Section 401(a). 1.4 Plan Unfunded. The Plan is unfunded. All benefits will be paid from the general assets of the Company, which will continue to be subject to the claims of the Company's creditors. No amounts will be set aside for the benefit of Plan Participants or their Beneficiaries. 1.5 Effective Date and Restatement Date. The Plan was originally effective as of March 1, 1994. The amended and restated Plan is effective as of the Restatement Date. 1.6 Administration. The Plan shall be administered by the Committee or its delegates, as set forth in Section 8.1. 1 Article II DEFINITIONS AND CONSTRUCTION 2.1 Definitions. For purposes of the Plan, the following words and phrases shall have the respective meanings set forth below, unless their context clearly requires a different meaning: (a) "Account" means the bookkeeping account maintained by the Company on behalf of each Participant pursuant to Section 6.1. (b) "Base Salary" means the base rate of cash compensation, including commissions, paid by the Company to or for the benefit of a Participant for services rendered or labor performed while a Participant, including base pay a Participant could have received in cash in lieu of (A) deferrals pursuant to Section 4.1 and (B) contributions made on his behalf to any qualified plan maintained by the Company or to any cafeteria plan under Section 125 of the Code maintained by the Company. (c) "Base Salary Deferral" means the amount of a Participant's Base Salary which the Participant elects to have withheld on a pre tax basis and credited to his Account pursuant to Section 4.1. (d) "Beneficiary" means the person or persons designated by the Participant in accordance with Section 7.5 or, in the absence of an effective designation, the person or entity described in Section 7.8. (e) "Board" means the Board of Directors of the Company. (f) "Bonus Compensation" means the amount awarded to a Participant for a Plan Year under any bonus arrangement maintained by the Company. (g) "Bonus Deferral" means the amount of a Participant's Bonus Compensation which the Participant elects to have withheld on a pre tax basis and credited to his Account pursuant to Section 4.1. (h) "Change In Control" means the happening of any of the following events: (i) Any person or entity (other than any employee benefit plan or employee stock ownership plan of Invacare Corporation, or any person or entity organized, appointed, or established by Invacare Corporation, for or pursuant to the terms of any such plan), alone or together with any of its Affiliates or Associates, becomes the Beneficial Owner of thirty percent (30%) or more of the total outstanding voting power of Invacare Corporation, as reflected by the power to vote in connection with the election of directors, or commences or publicly announces an intent to commence a tender offer or exchange offer the consummation of which would result in the Person becoming the Beneficial Owner of thirty percent (30%) or more of the total outstanding voting power of Invacare Corporation as reflected by the power to vote in connection with the election of directors. For purposes of this Section 2.1(h)(i), the terms "Affiliates," "Associates," and "Beneficial Owner" will have the meanings given them in the Rights Agreement, dated as of April 2, 1991, between Invacare Corporation and National City Bank, as Rights Agent, as amended from time to time. 2 (ii) At any time during a period of twenty-four (24) consecutive months, individuals who were directors at the beginning of the period no longer constitute a majority of the members of the Board, unless the election, or the nomination for election by the Invacare Corporation's shareholders, of each director who was not a director at the beginning of the period is approved by at least a majority of the directors who are in office at the time of the election or nomination and were either directors at the beginning of the period or are continuing directors. (iii) A record date is established for determining shareholders entitled to vote upon: (A) A merger or consolidation of the Invacare Corporation with another corporation (which is not an affiliate of Invacare Corporation) in which Invacare Corporation is not the surviving or continuing company or in which all or part of the outstanding common shares are to be converted into or exchanged for cash, securities, or other property; (B) a sale or other disposition of all or substantially all of the assets of Invacare Corporation; or (C) the dissolution or liquidation (but not partial liquidation) of Invacare Corporation. (i) "Code" means the Internal Revenue Code of 1986, as amended. (j) "Committee" means the administrative committee named to administer the Plan pursuant to Section 8.1. (k) "Company" means Invacare Corporation and any successor thereto. (l) "Deferral Period" means the period of time for which a Participant elects to defer receipt of the Base Salary Deferrals and Bonus Deferrals credited to such Participant's Account. Deferral Periods shall be measured on the basis of Plan Years, beginning with the Plan Year that commences immediately following the Plan Year for which the applicable Base Salary Deferrals and Bonus Deferrals are credited to the Participant's Account. (m) "Directors" means the Board of Directors of the Company. (n) "Discretionary Contribution" means the Company's contribution, if any, made pursuant to Section 4.6. (o) "Restatement Date" means January 1, 2003, except where a different date is specifically set forth. In addition, Section 4.7 and Article IX are each effective January 1, 2002. (p) "Employee" means any common-law employee of the Company. 3 (q) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (r) "401(k) Plan" means the Invacare Retirement Savings Plan, as amended from time to time. (s) "IQC Quarterly Employer Contribution" means a contribution equal to the contribution that would have been made to the 401(k) Plan for a Participant but for the limitation on compensation contained in Section 401(a)(17) of the Code. Make Whole Contributions commenced as of January 1, 2001. (t) "Matching Contribution" means the amount, as determined by the Company on an annual basis, that would be credited to the Participant's Base Salary Deferrals and Bonus Deferrals if such deferrals had been deferred by the Participant into the 401(k) Plan, which is credited by the Company to the Account of each Participant based on such Participant's Base Salary and Bonus Deferrals. (u) "Participant" means each Employee who has been selected for participation in the Plan and who has become a Participant pursuant to Article III. (v) "Participation and Deferral Election Form" means the written agreement pursuant to which the Participant elects the amount of his Base Salary and/or his Bonus Compensation to be deferred pursuant to the Plan, the Deferral Period, if any, the deemed investment of amounts deferred and the time and form of payment of such amounts and such other matters as the Committee shall determine from time to time. (w) "Plan" means the Invacare Corporation 401(k) Plus Benefit Equalization Plan, as in effect on the Restatement Date and as amended from time to time hereafter. (x) "Plan Year" means the twelve-consecutive month period commencing January 1 of each year ending on the following December 31. (y) "Profit Sharing Contribution" means the amount, if any, as determined by the Company of non-elective non-matching contribution which would have been made for or allocated to a Participant under the 401(k) Plan for a Plan Year, but which is not made or allocated because of the limitation on compensation which may be taken into account under Code Section 401(a)(17) and/or the Participant's participation in this Plan. Annual Profit Sharing Contributions ceased as of December 31, 2000. "Retirement" means the termination of employment after the attainment of age fifty-five (55) and upon completion of ten (10) or more years of service. (z) "Retirement" means the termination of employment after the attainment of age fifty-five (55) and upon completion of ten (10) or more years of service. (aa) "Valuation Date" means the last business day of each calendar month and each special valuation date designated by the Committee. (bb) "Years of Service" shall have the same meaning as in the 401(k) Plan. 2.2 Number and Gender. 4 Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 2.3 Headings. The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the rest of the Plan, the text shall control. 5 Article III PARTICIPATION AND ELIGIBILITY 3.1 Participation. Participants in the Plan are those Employees who are (a) subject to the income tax laws of the United States, (b) members of a select group of highly compensated or management Employees of the Company, and (c) selected by the Committee or its delegates, in its sole discretion, as Participants. The Committee shall notify each Participant of his selection as a Participant. 3.2 Commencement of Participation. Except as provided in the following sentence, an Employee shall become a Participant effective as of the first day of the Plan Year following the date on which his Participation and Deferral Election Form becomes effective. A newly hired Employee who completes a Participation and Deferral Election Form within 30 days of the date on which his employment commences shall become a Participant as of the date on which his Participation and Deferral Election Form becomes effective under Section 4.2. 3.3 Cessation of Active Participation. Notwithstanding any provision herein to the contrary, an individual who has become a Participant in the Plan shall cease to be a Participant hereunder effective as of any date designated by the Committee. In the event of such cessation, the last four sentences of Section 4.1 shall apply as if such cessation had been a termination of employment. Any such Committee action shall be communicated to such Participant prior to the effective date of such action. 6 Article IV DEFERRALS, MATCHING & PROFIT SHARING CONTRIBUTIONS 4.1 Deferrals by Participants. Before the first day of each Plan Year, a Participant may file with the Committee a Participation and Deferral Election Form pursuant to which such Participant elects to make Base Salary Deferrals and/or Bonus Deferrals. Any such Participant election shall be subject to a maximum of fifty percent (50%) of Base Salary and one hundred percent (100%) of Bonus Compensation, an annual minimum of two thousand dollars ($2000), and to any other rules prescribed by the Committee in its sole discretion. Base Salary Deferrals will be credited to the Account of each Participant as of the last day of each calendar month, if and to the extent that the Participant earned such Base Salary as an Employee in such calendar month. Bonus Deferrals will be credited to the Account of each Participant as of the last day of the month in which such Bonus Compensation otherwise would have been paid to the Participant in cash, provided that the Participant is an Employee at the time such Bonus Compensation would have been paid. A Participant whose employment terminates prior to or during the calendar month in which his Bonus Compensation would have been paid to him in cash will be paid his Bonus Deferral in cash. Such termination of employment shall not affect Base Salary Deferrals and Bonus Deferrals previously credited to the Account of a Participant whose employment terminates. 4.2 Effective Date of Participation and Deferral Election Form. A Participant's annual Participation and Deferral Election Form shall become effective on the first day of the Plan Year to which it relates. The Participation and Deferral Election Form of Employees who are first employed by the Company during a Plan Year shall become effective as of the first 401(k) Plan enrollment date following his date of employment on which the Employee is eligible to participate in the 401(k) Plan provided the Participation and Deferral Election Form is completed prior to that date. If a Participant fails to complete a Participation and Deferral Election Form before the first day of the Plan Year in which Participant shall earn the compensation to which the Participation and Deferral Election Form relates or if a newly hired Employee fails to complete the Participation and Deferral Election Form prior to the first 401(k) Plan enrollment date following his date of hire, the Participant or Employee, as the case may be, shall be deemed to have elected not to make Base Salary Deferrals and/or Bonus Deferrals for such Plan Year. 4.3 Modification or Revocation of Election by Participant. A Participant may change the amount of his Base Salary or Bonus Deferrals during a Plan Year as of the first day of each calendar quarter provided that such change is made no later than the day immediately preceding the first day of the calendar quarter or unless the Committee determines that he has suffered a severe, sudden and unforeseeable hardship as is more fully described in Section 7.10. Under no circumstances may a Participant's Participation and Deferral Election Form be made, modified or revoked retroactively. 7 4.4 Matching Contributions. Each Participant who elects to make Base Salary and/or Bonus Deferrals to the Plan and who has completed at least six (6) months of service will receive a Matching Contribution equal to a certain percentage of the sum of Participant's Base Salary and Bonus Deferrals. The Matching Contribution percentage to be contributed to the Plan shall be equal to the matching contribution percentage provided in the 401(k) Plan. Matching Contributions will be credited to the Participant's Account as of the last day of the calendar month in which the Base Salary and/or Bonus Deferrals to which the Matching Contributions relate are credited to the Participant's Account. 4.5 IQC Quarterly Employer Contributions. For each calendar quarter, the Account of each Participant shall be credited with such Make Whole Contribution, if any, to which he is entitled under Section 2.1(s). 4.6 Discretionary Contributions. For each Plan Year, the Account of each Participant shall be credited with such Discretionary Contribution, if any, as is determined by the Company for such Plan Year. 4.7 Hardship Distribution Under 401(k) Plan. If required by the terms of the 401(k) Plan, a Participant who receives a hardship distribution under the 401(k) Plan shall not be eligible to make deferrals for a six (6) month period after receipt of the hardship distribution. 8 Article V VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS 5.1 Vesting. A Participant shall be 100% vested at all times in the amount of his Account which is attributable to Base Compensation Deferrals and Bonus Deferrals. Matching Contributions, IQC Quarterly Employer Contributions and Profit Sharing Contributions shall vest in accordance with the terms of the 401(k) Plan. Discretionary Contributions shall vest in accordance with the Company's determination which shall be made when such contributions are made. Notwithstanding the foregoing, all Matching Contributions, Profit Sharing Contributions, Discretionary Contributions and IQC Quarterly Employer Contributions shall be 100% vested immediately upon a Change in Control. Any provisions of the Plan relating to the distribution of a Participant's Account shall mean only the vested portion of such Account. Since the Plan is unfunded, the portion of a Participant's Account which is not vested and therefore not distributed with the vested portion of his Account shall remain property of the Company and not be allocated to Accounts of other Participants or otherwise inure to their benefit. 5.2 Deferral Periods. A Deferral Period may be (a) for any period of five (5) years or more but may not end later than the year in which the Participant would attain age 70 or (b) until a Participant's termination of employment. A Participant must specify on the Participation and Deferral Election Form the Deferral Period for the Base Salary Deferrals and Bonus Deferrals to be made to the Plan for the Plan Year to which the Participation and Deferral Election Form relates, subject to the provisions of Section 7.1(a) and rules determined by the Committee from time to time. In the event a Participant does not elect a Deferral Period for any Base Salary Deferrals or Bonus Deferrals for a Plan Year, such Participant shall be deemed to have elected a Deferral Period of five (5) years. If the Participant elects a period of years (option (a)) and is entitled to a distribution pursuant to such election prior to the events listed in Sections 7.1(b)(i), 7.1(b)(ii), and 7.1(b)(iii), distribution pursuant to such election shall not include Matching Contributions, Profit Sharing Contributions, Discretionary Contributions and Make Whole Contributions and earnings on those amounts. Any such distribution must be in a lump sum. 5.3 Earnings Elections. Amounts credited to a Participant's Account shall be credited or charged with earnings and losses based on hypothetical investments elected by the Participant. A Participant may elect different investment allocations for new contributions (contributions made by the Participant and by the Company) and existing Account balances. Only whole percentages may be elected, and the total elections must allocate 100% of all new contributions and 100% of all existing Account balances. Investment elections may be changed once per calendar quarter, effective as of the first day of such quarter, by written direction given at least seven days before the start of such quarter. The hypothetical investment alternatives and the procedures relating to the election of such investments, other than those set forth in this Section 5.3, shall be determined by the Committee from time to time. A Participant's Account shall be adjusted as of each Valuation Date to reflect investment gains and losses. 9 Article VI ACCOUNTS 6.1 Establishment of Bookkeeping Accounts. A separate bookkeeping Account shall be maintained for each Participant. Such account shall be credited with the Base Salary Deferrals and Bonus Deferrals made by the Participant pursuant to Section 4.1, Matching Contributions made by the Company pursuant to Section 4.4, IQC Quarterly Employer Contributions made pursuant to Section 4.5, Discretionary Contributions made pursuant to Section 4.6 and Profit Sharing Contributions, if any, made prior to January 1, 2001, credited (or charged, as the case may be) with the hypothetical investment results determined pursuant to Section 5.3, and charged with distributions made to or with respect to a Participant. 6.2 Subaccounts. Within each Participant's bookkeeping Account, separate subaccounts shall be maintained to the extent necessary for the administration of the Plan. 6.3 Hypothetical Nature of Accounts. The Account established under this Article VI shall be hypothetical in nature and shall be maintained for bookkeeping purposes only, so that Base Salary Deferrals, Bonus Deferrals, Matching Contributions, Discretionary Contributions, IQC Quarterly Employer Contributions and Profit Sharing Contributions can be credited to the Participant and so that earnings and losses on such amounts so credited can be credited (or charged, as the case may be). Neither the Plan nor any of the Accounts (or subaccounts) shall hold any actual funds or assets. The right of any person to receive one or more payments under the Plan shall be an unsecured claim against the general assets of the Company. Any liability of the Company to any Participant, former Participant, or Beneficiary with respect to a right to payment shall be based solely upon contractual obligations created by the Plan. Neither the Company, the Board, nor any other person shall be deemed to be a trustee of any amounts to be paid under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and a Participant, former Participant, Beneficiary, or any other person. 10 Article VII PAYMENT OF ACCOUNT 7.1 Timing of Distribution of Benefits. (a) Distribution of Contribution to 401(k) Plan. As soon as practicable, but in no event later than March 15 of the Plan Year following the Plan Year for which the Participant executed the Participation and Deferral Election Form, the lesser of. (i) the allowable before-tax contribution which may be made on behalf of the Participant to the 401(k) Plan for the Plan Year for which the Participant executed the Participation and Deferral Election Form, and (ii) the sum of the Base Salary Deferral and the Bonus Deferral for the Plan Year for which the Participant executed the Participation and Deferral Election Form, shall be paid directly to Participant as compensation earned in the Plan Year for which the Participant executed the Participation and Deferral Election Form, unless the Participant previously elected (in both the Participation and Deferral Election Form and his 401(k) Plan elections) to have such amount contributed to the 401(k) Plan as an elective before-tax contribution. If the Participant elected to have such amount contributed to the 401(k) Plan as an elective before-tax contribution, such amount together with an amount equal to the applicable Matching Contributions shall be transferred directly to the Participant's Account in the 401(k) Plan and the appropriate subaccounts of Participant's Account shall be charged accordingly. Notwithstanding the preceding, the Plan shall not make distributions to the Participant or the 401(k) Plan in excess of the Participant's Account balance. Distributions pursuant to this Section 7.1(a) may be made in one or more installments in the sole discretion of the Committee. (b) Distribution After Deferral Period. Distribution of that portion of a Participant's Account which is not distributed under Section 7.1(a) shall be made as soon as practicable following the date the Deferral Period for such amounts ends and following the valuation described in Section 7.2. Notwithstanding the foregoing, the Participant's entire Account shall be distributed to him (or his Beneficiary in the event of his death) as soon as practicable following the earliest to occur of the following and after the valuation described in 7.2: (i) the Participant's death; (ii) the Participant's permanent disability (as defined in the Company's long-term disability program); or (iii) the Participant's termination of employment. 11 7.2 Adjustment for Investment Gains and Losses Upon a Distribution. Upon a distributable event described in Section 7.1(b), the balance of a Participant's Account shall be determined as of the Valuation Date immediately following such event. 7.3 Form of Payment or Payments. Except as provided below, benefits as a result of death or other termination of employment shall be paid in the form elected by the Participant. The form elected shall apply to the entire Account. The election may be amended, provided that the amended election does not increase the duration of payments in the previous election. Any amendment to the form of benefits shall be effective beginning in the calendar year following the submission of the amendment. If a Participant terminates employment and qualifies as "Retirement" as defined under Section 2.1(z), the form of benefit shall be: (a) A lump sum amount which is equal to the applicable Account balance; or (b) Substantially equal installments of the Account amortized over a period of five (5), ten (10) or fifteen (15) years or sixty (60), one hundred twenty (120), or one hundred eighty (180) months. Gains and losses on the unpaid balance shall continue to be credited or charged to the Account in accordance with the provisions of Section 5.3. The amount of the installments payable may be changed periodically to reflect investment results. Notwithstanding the form elected, if a Participant terminates employment prior to qualifying for "Retirement" as defined under Section 2.1(z) or if the Participant's total Account is no more than twenty thousand dollars ($20,000) on the last Valuation Date prior to the commencement of distribution, the benefit shall be paid in a lump sum. 7.4 Accelerated Distribution. Notwithstanding any other provision of the Plan, a Participant shall be entitled to receive, upon written request to the Committee or its delegates, a lump sum distribution of his vested Account balance, subject to the following penalty: (a) If the distribution is requested within twenty-four (24) months following a Change in Control, five percent (5%) of the Account shall be forfeited and ninety-five percent (95%) of the Account paid to the Participant. (b) If the distribution is requested following termination of employment and the Account is in pay status, five percent (5%) of the previously unpaid Account shall be forfeited and ninety-five percent (95%) of the previously unpaid Account paid to the Participant. (c) If the distribution is requested at any time other than that in (a) or (b) above, five percent (5%) of the vested Account shall be forfeited and ninety-five percent (95%) of the vested Account shall be paid to the Participant. The unvested portion of the Account shall be forfeited. 12 The Account balance shall be determined as of the Valuation Date immediately following the date on which the Committee receives the written request. A Participant who receives a distribution under this section shall forfeit participation in the Plan with regard to his election to defer compensation for the remainder of the Plan Year and the following Plan Year. The amount payable under this section shall be paid in a lump sum as soon as practical following the receipt of the Participant's written request by the Committee and the valuation of his Account. 7.5 Designation of Beneficiaries. Each participant shall have the right, at any time, to designate one (1) or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of a Participant's death prior to complete distribution of the Participant's Account. Each Beneficiary designation shall be in a written form prescribed by the Committee and will be effective only when filed with the Committee during the Participant's lifetime. Designation by a married Participant of a Beneficiary other than the Participant's spouse shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation and is witnessed by a notary public, or the consent cannot be obtained because the spouse cannot be located. 7.6 Change of Beneficiary Designation. Except as provided below, any nonspousal designation of Beneficiary may be changed by a Participant without the consent of such Beneficiary by the filing of a new designation with the Committee. The filing of a new designation shall cancel all designations previously filed. 7.7 Change in Marital Status. If the Participant's marital status changes after the Participant has designated a Beneficiary, the following shall apply: (a) If the Participant is married at death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed above. (b) If the Participant is unmarried at death but was married when the designation was made: (i)The designation shall be void if the spouse was named as Beneficiary. (ii)The designation shall remain valid if a nonspouse Beneficiary was named. (c) If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed above. 13 7.8 No Beneficiary Designation. If any Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: (a) The Participant's surviving spouse; (b) The Participant's children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take by right of representation the share the parent would have taken if living; (c) The Participant's parents; (d) The Participant's estate. 7.9 Unclaimed Benefits. In the case of a benefit payable on behalf of a Participant, if the Committee is unable to locate the Participant or Beneficiary to whom such benefit is payable, such benefit may be forfeited to the Company, upon the Committee's determination. Notwithstanding the foregoing, if subsequent to any such forfeiture the Participant or Beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit shall be paid by the Company or restored to the Plan by the Company. 7.10 Hardship Withdrawals. A Participant may apply in writing to the Committee for, and the Committee may permit, a hardship withdrawal of all or any part of a Participant's Account derived from Base Salary and Bonus Deferrals if the Committee, in its sole discretion, determines that the Participant has incurred a severe financial hardship resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, as determined by the Committee, in its sole and absolute discretion. The amount that may be withdrawn shall be limited to the amount reasonably necessary to relieve the hardship or financial emergency upon which the request is based, plus the federal and state taxes due on the withdrawal, as determined by the Committee. The Committee may require a Participant who requests a hardship withdrawal to submit such evidence as the Committee, in its sole discretion, deems necessary or appropriate to substantiate the circumstances upon which the request is based. In the event of a hardship withdrawal, a Participant shall not be permitted to make deferrals for the remainder of the Plan Year and the following Plan Year 7.11 Withholding. All deferrals and distributions shall be subject to legally required income and employment tax withholding. Article VIII ADMINISTRATION 14 Article VIII ADMINISTRATION 8.1 Committee. The Plan shall be administered by a Committee, which shall include the Senior Vice President of Human Resources and the Chief Financial Officer. The Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. The Committee may delegate to others certain aspects of the management and operational responsibilities of the Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals, provided that such delegation is in writing. No member of the Committee who is a Participant shall participate in any matter relating to his status as a Participant or his rights or entitlement to benefits as a Participant. 8.2 General Powers of Administration. The Committee shall have all powers necessary or appropriate to enable it to carry out its administrative duties. Not in limitation, but in application of the foregoing, the Committee shall have discretionary authority to construe and interpret the Plan and determine all questions that may arise hereunder as to the status and rights of Employees, Participants, and Beneficiaries. The Committee may exercise the powers hereby granted in its sole and absolute discretion. The Committee may promulgate such regulations as it deems appropriate for the operation and administration of the Plan. No member of the Committee shall be personally liable for any actions taken by the Committee unless the member's action involves willful misconduct. 8.3 Indemnification of Committee. The Company shall indemnify the members of the Committee against any and all claims, losses, damages, expenses, including attorney's fees, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same is judicially determined to be attributable to their gross negligence or willful misconduct. 15 Article IX DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND ADMINISTRATION 9.1 Claims. A Participant, Beneficiary or other person who believes that he or she is being denied a benefit to which he or she is entitled (hereinafter referred to as "Claimant"), or his or her duly authorized representative, may file a written request for such benefit with the Committee setting forth his or her claim. The request must be addressed to the Committee at the Company at its then principal place of business. 9.2 Claim Decision. Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within a reasonable period of time, but ordinarily not later than ninety days, and shall, in fact, deliver such reply within such period. However, the Committee may extend the reply period for an additional ninety days for reasonable cause. If the reply period will be extended, the Committee shall advise the Claimant in writing during the initial 90-day period indicating the special circumstances requiring an extension and the date by which the Committee expects to render the benefit determination. If the claim is denied in whole or in part, the Committee will render a written opinion, using language calculated to be understood by the Claimant, setting forth: (a) the specific reason or reasons for the denial; (b) the specific references to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation as to why such material or such information is necessary; (d) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, including a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review; and (e) the time limits for requesting a review of the denial under Section 9.3 and for the actual review of the denial under Section 9.4. 9.3 Request for Review. Within sixty days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Senior Vice President of Human Resources of the Company ("Executive Officer") review the Committee's prior determination. Such request must be addressed to the Executive Officer at the Company at its then principal place of business. The Claimant or his or her duly authorized representative may submit written comments, documents, records or other information relating to the denied claim, which information shall be considered in the review under this Section without regard to whether such information was submitted or considered in the initial benefit determination. 16 The Claimant or his or her duly authorized representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which (i) was relied upon by the Committee in making its initial claims decision, (ii) was submitted, considered or generated in the course of the Committee making its initial claims decision, without regard to whether such instrument was actually relied upon by the Committee in making its decision or (iii) demonstrates compliance by the Committee with its administrative processes and safeguards designed to ensure and to verify that benefit claims determinations are made in accordance with governing Plan documents and that, where appropriate, the Plan provisions have been applied consistently with respect to similarly situated claimants. If the Claimant does not request a review of the Committee's determination within such 60-day period, he or she shall be barred and estopped from challenging such determination. 9.4 Review of Decision. Within a reasonable period of time, ordinarily not later than sixty days, after the Executive Officer's receipt of a request for review, it will review the Committee's prior determination. If special circumstances require that the sixty-day time period be extended, the Executive Officer will so notify the Claimant within the initial 60-day period indicating the special circumstances requiring an extension and the date by which the Executive Officer expects to render its decision on review, which shall be as soon as possible but not later than 120 days after receipt of the request for review. In the event that the Executive Officer extends the determination period on review due to a Claimant's failure to submit information necessary to decide a claim, the period for making the benefit determination on review shall not take into account the period beginning on the date on which notification of extension is sent to the Claimant and ending on the date on which the Claimant responds to the request for additional information. Benefits under the Plan will be paid only if the Executive Officer decides in its discretion that the Claimant is entitled to such benefits. The decision of the Executive Officer shall be final and non-reviewable, unless found to be arbitrary and capricious by a court of competent review. Such decision will be binding upon the Company and the Claimant. If the Executive Officer makes an adverse benefit determination on review, the Executive Officer will render a written opinion, using language calculated to be understood by the Claimant, setting forth: (a) the specific reason or reasons for the denial; (b) the specific references to pertinent Plan provisions on which the denial is based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which (i) was relied upon by the Executive Officer in making its decision, (ii) was submitted, considered or generated in the course of the Executive Officer making its decision, without regard to whether such instrument was actually relied upon by the Executive Officer in making its decision or (iii) demonstrates compliance by the Executive Officer with its administrative processes and safeguards designed 17 to ensure and to verify that benefit claims determinations are made in accordance with governing Plan documents, and that, where appropriate, the Plan provisions have been applied consistently with respect to similarly situated claimants; and (d) a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA following the adverse benefit determination on such review. 9.5 Discretionary Authority. The Committee and Executive Officer shall both have discretionary authority to determine a Claimant's entitlement to benefits upon his claim or his request for review of a denied claim, respectively. 18 Article X MISCELLANEOUS 10.1 Plan Not a Contract of Employment. The adoption and maintenance of the Plan shall not be or be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Nothing herein contained shall give or be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time; nor shall the Plan give or be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person's right to terminate his employment at any time. 10.2 Non-Assignability of Benefits. No Participant, Beneficiary or distributee of benefits under the Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any part or all of the amounts payable hereunder, which are expressly declared to be unassignable and non-transferable. Any such attempted assignment or transfer shall be void. No amount payable hereunder shall, prior to actual payment thereof, be subject to seizure by any creditor of any such Participant, Beneficiary or other distributee for the payment of any debt, judgment, or other obligation, by a proceeding at law or in equity, nor transferable by operation of law in the event of the bankruptcy, insolvency or death of such Participant, Beneficiary or other distributee hereunder. 10.3 Amendment and Termination. The Board may from time to time, in its discretion, amend, in whole or in part, any or all of the provisions of the Plan; provided, however, that no amendment may be made which would impair the rights of a Participant with respect to amounts already credited to his Account. The Board may terminate the Plan at any time. In the event that the Plan is terminated, the balance in a Participant's Account shall be paid to such Participant or his Beneficiary in a lump sum or in equal monthly installments over the following period, unless the Committee determines otherwise: Account Balance Payout Period --------------- ------------- $50,000 or less Lump Sum More than $50,000 but less than $250,000 3 Years $250,000 or more 5 Years Gains and Losses shall continue to be credited or charged to the Account in accordance with the provisions of Section 5.3. The Company reserves the right to pay each Account in a lump sum, notwithstanding the above schedule. 19 10.4 Unsecured General Creditor Status Of Employee. The payments to a Participant, his Beneficiary or any other distributee hereunder shall be made from assets which shall continue, for all purposes, to be a part of the general, unrestricted assets of the Company; no person shall have nor acquire any interest in any such assets by virtue of the provisions of this Agreement. The Company's obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that the Participant, a Beneficiary, or other distributee acquires a right to receive payments from the Company under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Company; no such person shall have nor acquire any legal or equitable right, interest or claim in or to any property or assets of the Company. In the event that, in its discretion, the Company purchases an insurance policy or policies insuring the life of a Participant (or any other property) to allow the Company to recover the cost of providing the benefits, in whole, or in part, hereunder, neither the Participant, his Beneficiary or other distributee shall have nor acquire any rights whatsoever therein or in the proceeds therefrom. The Company shall be the sole owner and beneficiary of any such policy or policies and, as such, shall possess and may exercise all incidents of ownership therein. No such policy, policies or other property shall be held in any trust for a Participant, Beneficiary or other distributee or held as collateral security for any obligation of the Company hereunder. 10.5 Severability. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 10.6 Governing Laws. All provisions of the Plan shall be construed in accordance with the internal laws (but not the choice of laws) of Ohio, except to the extent preempted by federal law. 10.7 Binding Effect. This Plan shall be binding on each Participant and his heirs and legal representatives and on the Company and its successors and assigns. 10.8 Entire Agreement. This document and any amendments contain all the terms and provisions of the Plan and shall constitute the entire Plan, any other alleged terms or provisions being of no effect. 10.9 No Guaranty of Tax Consequences. While the Company has established, and will maintain, the Plan, the Company makes no representation, warranty, commitment, or guaranty concerning the income, employment, or other tax consequences of participation in the Plan under federal, state, or local law. 20 IN WITNESS WHEREOF, the Company has caused this Plan to be executed on this 13th day of May, 2004. INVACARE CORPORATION By: /s/ Gregory C. Thompson --------------------------------------- Title: Senior Vice President and Chief Financial Officer --------------------------------------- By: /s/ A. Malachi Mixon, III --------------------------------------- Title: Chairman and Chief Executive Officer --------------------------------------- EX-10 3 amendment.txt EXHIBIT 10.2 Exhibit 10.2 AMENDMENT NO. 1 TO INVACARE CORPORATION 401(k) PLUS BENEFIT EQUALIZATION PLAN This Amendment No. 1 is executed as of the date set forth below by Invacare Corporation (the "Company"). WITNESSETH: WHEREAS, the Company maintains the Invacare Corporation 401(k) Plus Benefit Equalization Plan, as amended and restated effective January 1, 2003 (the "Plan"), to provide nonqualified retirement benefits for certain employees of the Company; and WHEREAS, pursuant to Section 10.3 of the Plan, the Company has retained the right to make amendments thereto; and WHEREAS, the Company desires to amend the Plan in order to permit participants to change their investment elections on a daily basis; NOW, THEREFORE, pursuant to Section 10.3 of the Plan, the Company hereby amends Section 5.3 of Article V of the Plan, effective as of December 1, 2003, by the deletion of said Section 5.3 in its entirety and the substitution in lieu thereof of a new Section 5.3 to read as follows: 5.3 Earnings Elections. Amounts credited to a Participant's Account shall be credited or charged with earnings and losses based on hypothetical investments elected by the Participant. A Participant may elect different investment allocations for new contributions and existing Account balances. Only whole percentages may be elected, the minimum percentage for any allocation is 10%, and the total elections must allocate 100% of all new contributions and 100% of all existing Account balances. Investment elections may be changed daily, by written direction. The hypothetical investment alternatives and the procedures relating to the election of such investments, other than those set forth in this Section 5.3, shall be determined by the Committee from time to time. A Participant's Account shall be adjusted as of each Valuation Date to reflect investment gains and losses." IN WITNESS WHEREOF, Invacare Corporation, by its proper officer, has caused this Amendment No. 1 to be executed as of the 30th day of April, 2004. INVACARE CORPORATION By: /s/ Gregory C. Thompson EX-31 4 exhibit311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATIONS I, A. Malachi Mixon, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Invacare Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. INVACARE CORPORATION /s/ A. Malachi Mixon, III ----------------------------------------- A. Malachi Mixon, III Chief Executive Officer (Principal Executive Officer) Date: August 5, 2004 EX-31 5 exhibit312.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATIONS I, Gregory C. Thompson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Invacare Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. INVACARE CORPORATION /s/ Gregory C. Thompson ----------------------------------------- Gregory C. Thompson Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 5, 2004 EX-32 6 exhibit321.txt EXHIBIT 32.1 Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Invacare Corporation, an Ohio corporation (the "Company"), does hereby certify, to such officer's knowledge, that: (a) The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q. Dated: August 5, 2004 /s/ A. Malachi Mixon, III ------------------------- A. Malachi Mixon, III Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Invacare Corporation and will be retained by Invacare Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 7 exhibit322.txt EXHIBIT 32.2 Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Invacare Corporation, an Ohio corporation (the "Company"), does hereby certify, to such officer's knowledge, that: (a) The Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (b) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q. Dated: August 5, 2004 /s/ Gregory C. Thompson ----------------------- Gregory C. Thompson Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Invacare Corporation and will be retained by Invacare Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----