UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
| x | ANNUAL REPORT PURSUANT TO SECTION 15(d) of the SECURITIES |
| EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2001 |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission File Number 000-26538
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
ENCORE MEDICAL CORPORATION
401(k) PROFIT SHARING PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
ENCORE MEDICAL CORPORATION
9800 METRIC BOULEVARD
AUSTIN, TEXAS 78758
To The Plan Administrative Committee
Encore Medical Corporation 401(k) Plan
We have audited the accompanying statements of net assets available for benefits of Encore Medical Corporation 401(k) Plan as of December 31, 2001 and 2000, and the related statement of changes in net assets available for benefits for the year ended December 31, 2001, as listed in the accompanying index. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in all material respects, the net assets available for benefits as of December 31, 2001 and 2000, and the changes in net assets available for benefits for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes at End of Year (December 31, 2001) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental information is the responsibility of the Plan’s management. The supplemental information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Helin, Donovan, Trubee & Wilkinson, LLP
/s/ HELIN, DONOVAN, TRUBEE & WILKINSON, LLP
Austin, Texas
August 28, 2002
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ENCORE MEDICAL CORPORATION 401(K) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2001 and 2000
| December 31, | ||||||
| 2001 | 2000 | |||||
ASSETS | ||||||
Investments, at fair value: | ||||||
Money market account, at stated value | $ | 232,042 | $ | 152,380 | ||
Collective trusts, at stated value | 326,428 | 328,295 | ||||
Mutual funds, at quoted value | 2,037,971 | 2,667,491 | ||||
Common stock of Encore Medical | ||||||
Corporation, at quoted value | 560,935 | 182,112 | ||||
Loans to participants, at stated value | 149,583 | 153,207 | ||||
| 3,306,959 | 3,483,485 | |||||
Receivables: | ||||||
Employer contribution | 8,181 | 9,319 | ||||
Participant contributions | 9,696 | 11,734 | ||||
Total receivables | 17,877 | 21,053 | ||||
TOTAL ASSETS | 3,324,836 | 3,504,538 | ||||
LIABILITIES | ||||||
Accrued liabilities | — | — | ||||
NET ASSETS AVAILABLE FOR BENEFITS | $ | 3,324,836 | $ | 3,504,538 | ||
See accompanying notes and independent auditors’ report.
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ENCORE MEDICAL CORPORATION 401(K) PLAN
STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
Year Ended December 31, 2001
ADDITIONS: | ||||
Additions to Net Assets attributed to: | ||||
Investment Income: | ||||
Net depreciation in fair value of investments | $ | (490,356 | ) | |
Interest | 23,985 | |||
Total Investment Income | (466,371 | ) | ||
Contributions | ||||
Participants | 328,131 | |||
Employer | 264,220 | |||
Total Contributions | 592,351 | |||
TOTAL ADDITIONS | 125,980 | |||
DEDUCTIONS: | ||||
Deductions from Net Assets Attributable to: | ||||
Benefits paid to Participants | 304,182 | |||
Administrative expenses | 1,500 | |||
Total Deductions | 305,682 | |||
NET DECREASE | (179,702 | ) | ||
Net Assets Available for Benefits: | ||||
BEGINNING OF YEAR | 3,504,538 | |||
END OF YEAR | $ | 3,324,836 | ||
See accompanying notes and independent auditors’ report.
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ENCORE MEDICAL CORPORATION 401(K) PLAN
NOTE A—DESCRIPTION OF PLAN
The following description of the Encore Medical Corporation (“Company”) 401(k) Plan (“Plan”) provides only general information. Participants should refer to the Plan agreement or Summary Plan Document for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution profit-sharing plan with 401(k) option covering all employees of the Company who are at least 21 years of age, who are not covered by a collective bargaining agreement and who are not non-resident aliens who receive no U.S. earned income from the Company. The Plan allows for participant entry on either January 1 or July 1 of each plan year. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
In 2002, the Plan was merged with Chattanooga Group, Inc. Employees’ Savings 401(k) and Profit Sharing Plan after Chattanooga Group, Inc. was acquired by the Company. The Plan did not change as a result of this merger, other than by increasing the number of participants and assets available for benefits.
In 2002, the Plan was amended to adopt the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The EGTRRA changes provided for catch-up contributions for participants over 50 years of age, increases the maximum annual deferral rate to 100% of pre-tax annual contribution, and changed the vesting schedule for matching contributions to six years.
Contributions
Each year, participants may contribute up to the lesser of 100% of their eligible compensation or the maximum amount allowed by law (currently $11,000 for 2002 and $12,000 for 2002) of pretax annual compensation, as defined in the Plan. This Plan also allows for catch-up contributions for participants over 50 years of age. Participants may also contribute amounts representing distributions (rollovers) from other qualified defined benefit or contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers thirteen mutual funds, a collective trust, a money market fund and common stock of the Company as investment options for participants.
The Company may make annual discretionary contributions in an amount determined at each plan year end by the Board of Directors. For 2002, the Company has elected to match 50% of the first 6% of each participant’s elective contributions. The Company may also make a profit sharing contribution at the direction of the Board of Directors. No profit sharing contributions were made in 2002. Contributions are subject to certain limitations.
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ENCORE MEDICAL CORPORATION 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE A—DESCRIPTION OF PLAN (Continued)
Participant Accounts
Each participant’s account is credited with the participant’s contribution and allocations of (a) the Company’s contribution and, (b) Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of $50,000 or 50% of their account balance, whichever is less. The loans are secured by the balance in the participant’s account and bear interest at the prime rate plus one percent. All Plan loans must be repaid in 5 years, except those that are used for the purchase of a principal residence. In most cases repayment of the loan will be made through after-tax payroll deductions.
Vesting
Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company’s contribution portion of their accounts plus actual earnings thereon is based on years of continuous service. A participant is 100% vested after three years of credited service as summarized as follows:
Years of Service | Vested Percentage | ||
Less than one year | 0 | % | |
One year | 25 | % | |
Two years | 50 | % | |
Three years or more | 100 | % |
Participants will become fully vested in the Company’s contributions upon termination of the Plan.
Payment of Benefits
Benefits become available to participants on the earliest of three events: (1) Termination of employment, (2) Death of the Participant (benefits are payable to the participant’s spouse or beneficiary), (3) Disability of the Participant, or (4) Upon the Participant’s retirement.
Upon termination of employment, if the participant’s vested account balance is less than $5,000 the benefit will be paid in a lump sum. If the participant’s account balance exceeds $5,000 the participant may choose to keep the funds in the Plan, request a direct rollover to another qualified plan, or take a lump sum distribution.
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ENCORE MEDICAL CORPORATION 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE A—DESCRIPTION OF PLAN (Continued)
Payment of Benefits (continued)
On termination of service due to death prior to retirement the account balance is paid to the participant’s spouse or beneficiary as either a lump sum or as an annuity for the life of the spouse or beneficiary.
On termination of service due to retirement after age 59 1/2, and fulfillment of required participation time in the Plan, 100% of the Company contributions becomes immediately vested. The account balance is paid to the participant in a lump sum or as joint and survivor annuity. However, should a participant reach age 59 1/2 and not elect to terminate employment, the participant can take an in-service distribution from the vested accounts balance.
Forfeited Accounts
At December 31, 2001, forfeited non-vested accounts totaled $78,304. These accounts may be used to reduce future Plan administrative expenses and employer contributions, or may be allocated ratably to all participants. In 2001, forfeited non-vested were not used to reduce employer contributions.
Distributions During Employment
As a general rule, participant’s contributions will remain in the Plan as long as the participant remains employed by the Company. The Plan does provide exceptions to this rule for withdrawals of the participant’s contributions under certain circumstances (subject to the satisfaction of the Plan Administrator) that include the following:
| • | Medical expenses, |
| • | Purchase of a principal residence, |
| • | Post secondary education for participant or their dependents, or |
| • | To prevent eviction from or foreclosure on the participants principal residence. |
Plan Expenses
The expenses of operating and maintaining the Plan have been paid by the Company and through utilization of forfeited accounts. In the event the Company does not continue to pay the Plan expenses, the Plan expenses will be paid by the Plan and charged on a pro-rata basis to the value of the participants account balances.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates.
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ENCORE MEDICAL CORPORATION 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Shares of mutual funds and Company common stock are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year-end.
Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date.
NOTE C—INVESTMENTS
The following presents investments that are 5% or more of the Plan’s net assets at December 31, 2002 and 2001:
| December 31, | ||||||
| 2001 | 2000 | |||||
Collective Trusts, at Fair Value | ||||||
Wells Fargo S&P Index Fund | $ | 326,428 | $ | 328,295 | ||
Mutual Funds, at Fair Value | ||||||
Strong—Government Securities Fund | 240,368 | 187,651 | ||||
Neuberger Berman—Genesis Trust | 341,874 | 241,252 | ||||
INVESCO Strategic Portfolio Technology Fund | 467,625 | 964,132 | ||||
Corporate Common Stock of Plan Sponsor | ||||||
Encore Medical Corporation (not restricted) | $ | 560,935 | $ | 182,112 | ||
Money Market | ||||||
Wells Fargo Money Market Fund | $ | 232,042 | $ | 150,380 | ||
During 2001, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value by approximately $490,000, as follows:
Mutual Funds | $ | (726,000 | ) | |
Collective Trusts | (41,000 | ) | ||
Corporate Common Stock of Plan Sponsor | 277,000 | |||
Investments | $ | (490,000 | ) | |
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ENCORE MEDICAL CORPORATION 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE D—RELATED PARTY TRANSACTIONS
The Company paid certain Plan expenses totaling approximately $8,650 during 2001 for administrative fees and other charges from Wells Fargo, N.A. (the Plan Trustee).
Certain Plan investments are shares of mutual funds managed by the Plan Trustee. Therefore, these transactions qualify as party in interest transactions.
NOTE E—PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
NOTE F—RECONCILIATION OF FINANCIAL STATEMENTS TO SCHEDULE H OF FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2001 to Schedule H of Form 5500:
| 12/31/01 | 12/31/00 | |||||||
Net assets available for benefits per the financial statements | $ | 3,324,836 | $ | 3,504,538 | ||||
Contributions receivable from employers | (8,181 | ) | (9,319 | ) | ||||
Contributions receivable from employees | (9,696 | ) | (11,734 | ) | ||||
Net assets available for benefits per Schedule H to the Form 5500 | $ | 3,306,959 | $ | 3,483,485 | ||||
NOTE G—TAX STATUS
The Plan obtained its latest determination letter, in which the Internal Revenue Service stated that the plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan Administrator and the Plan’s third party administrator believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
NOTE H—FIDELITY BOND
The plan was covered by a $1,000,000 fidelity bond during 2001.
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ENCORE MEDICAL CORPORATION 401(K) PLAN
Supplemental Schedule-Assets Held for Investment Purposes at End of Year
December 31, 2001
| (a) | (b) Identity of issuer, borrower, lessor, or similar party | (c) Description of investment rate of interest, par, or maturity value | (d) Cost | (e) Current | ||||||
| Money Market Funds | ||||||||||
* | Wells Fargo, N.A. | Market Fund | $ | ** | 232,042 | |||||
| Collective Trusts | ||||||||||
* | Wells Fargo, N.A. S&P 500 Index Fund | 7,196 Shares | ** | 326,428 | ||||||
| Mutual Funds | ||||||||||
| AIM High Yield | 13,961 Shares | ** | 64,360 | |||||||
| Janus Global Technology Fund | 9,662 Shares | ** | 117,292 | |||||||
| INVESCO Telecommunications Fund | 5,286 Shares | ** | 87,848 | |||||||
| INVESCO Total Return Fund | 4,089 Shares | ** | 102,261 | |||||||
| American Century Income & Growth Fund | 658 Shares | ** | 18,007 | |||||||
| American AAdvantage International Equity Fund | 7,156 Shares | ** | 101,335 | |||||||
| Strong Government Securities Fund | 22,277 Shares | ** | 240,368 | |||||||
| Neuberger Berman Genesis Fund | 11,744 Shares | ** | 341,874 | |||||||
| INVESCO Strategic Portfolio Technology Fund | 14,358 Shares | ** | 467,625 | |||||||
| Scudder Growth & Income Fund | 5,535 Shares | ** | 116,567 | |||||||
| Dreyfus Founders Balanced Growth Fund | 19,340 Shares | ** | 203,653 | |||||||
* | Wells Fargo, N.A. Equity Value Fund | 11,631 Shares | ** | 116,077 | ||||||
| Janus Twenty Fund | 1,578 Shares | ** | 60,704 | |||||||
| 2,037,971 | ||||||||||
| Corporate Common Stock | ||||||||||
* | Encore Medical Corporation | 196,268 Shares | ** | 560,935 | ||||||
* | Participant Loans | 6.5% to 10.5% | 149,583 | |||||||
| Total Investments | $ | 3,306,958 | ||||||||
| * | Party in Interest |
| ** | Self-Directed Investment |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the Plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
ENCORE MEDICAL CORPORATION 401(K) PLAN
By: Plan Administrator of the Encore Medical Corporation 401 (k) Plan
| Date: June 27, 2003 | By: | /s/ HARRY ZIMMERMAN | ||||||
Harry Zimmerman Plan Administrator | ||||||||
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EXHIBIT INDEX
| Exhibit Number | Exhibit Description | |
| 23.1* | Consent of Independent Certified Public Accountants | |
| 99.1* | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Kenneth W. Davidson | |
| 99.2* | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by August Faske | |
| * | Filed herewith. |
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