UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended AUGUST 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________________ to __________________
COMMISSION FILE NUMBER 0-20212
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
ARROW INTERNATIONAL, INC. 401(K) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
Arrow International, Inc.
P. O. Box 12888
Reading, Pennsylvania 19612
ARROW INTERNATIONAL, INC. 401(K) PLAN
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TABLE OF CONTENTS
PAGE NO.
FINANCIAL STATEMENTS:
Independent Auditor's Report on the Financial Statements and
Supplementary Schedule 1
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
SUPPLEMENTARY SCHEDULE:
Schedule of Assets (Held at End of Year) 9
INDEPENDENT AUDITOR'S REPORT
ON THE FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULE
To the Administrative Committee
Arrow International, Inc. 401(k) Plan
Reading, Pennsylvania
We have audited the accompanying statements of net assets available for
benefits of the Arrow International, Inc. 401(k) Plan as of August 31, 2003 and
2002, and the related statements of changes in net assets available for benefits
for the years then ended. 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 of the
Arrow International, Inc. 401(k) Plan as of August 31, 2003 and 2002, and the
changes in net assets available for benefits for the years then ended 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 supplementary schedule of
assets (held at end of year) as of August 31, 2003 is presented for the purpose
of additional analysis and is not a required part of the basic financial
statements, but is 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. The supplementary schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ BEARD MILLER COMPANY LLP
Reading, Pennsylvania
December 23, 2003
ARROW INTERNATIONAL, INC. 401(K) PLAN
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STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AUGUST 31,
=====================================
2003 2002
---------------- ----------------
ASSETS
Investments, at fair value:
Money market funds $ 6,282,396 $ 5,294,274
Mutual funds 31,872,876 27,584,740
Arrow International, Inc. common stock 5,954,059 3,416,128
Participant loans 1,966,698 1,826,132
---------------- ----------------
46,076,029 38,121,274
---------------- ----------------
Receivables:
Participants' contributions 33,324 37,226
Employer's contributions 76,051 74,023
---------------- ----------------
109,375 111,249
---------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS $ 46,185,404 $ 38,232,523
================ ================
SEE NOTES TO FINANCIAL STATEMENTS.
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2
ARROW INTERNATIONAL, INC. 401(K) PLAN
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STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED AUGUST 31,
=========================================
2003 2002
------------------ ------------------
INVESTMENT INCOME (LOSS)
Net appreciation (depreciation) in fair value of investments $ 4,875,130 ($5,072,002)
Interest and dividends 543,319 642,320
------------------ ------------------
5,418,449 (4,429,682)
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CONTRIBUTIONS
Participant 3,748,970 4,062,624
Employer, cash 898,998 1,066,209
Employer, Arrow International, Inc. common stock 716,244 717,636
------------------ ------------------
5,364,212 5,846,469
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BENEFITS PAID TO PARTICIPANTS (2,820,130) (3,137,381)
------------------ ------------------
ADMINISTRATIVE EXPENSES (9,650) (8,820)
------------------ ------------------
NET INCREASE (DECREASE) 7,952,881 (1,729,414)
NET ASSETS AVAILABLE FOR BENEFITS - BEGINNING OF YEAR 38,232,523 39,961,937
------------------ ------------------
NET ASSETS AVAILABLE FOR BENEFITS - END OF YEAR $46,185,404 $38,232,523
================== ==================
SEE NOTES TO FINANCIAL STATEMENTS.
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3
ARROW INTERNATIONAL, INC. 401(K) PLAN
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN
The following brief description of the Arrow International, Inc.
401(k) Plan (the Plan) is provided for general purposes only.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
GENERAL
The Plan is a contributory, defined contribution plan which
was adopted on September 1, 1991 to establish a deferred
compensation arrangement under the provisions of Section
401(a) of the Internal Revenue Code (the Code). The Plan is
subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and is intended to be a qualified
plan under Section 401(a) of the Code. Effective
September 1, 2003, the Plan year of the Plan will be
December 31.
ELIGIBILITY
All employees of Arrow International, Inc. and any of its
affiliates which adopt the Plan are eligible to participate in
the Plan immediately upon hire except (i) non-resident aliens
and (ii) employees who are not scheduled to work 1,000 hours
or more annually; provided, however, any employee who does
work or is credited with at least 1,000 hours of service
during a plan year will be eligible to participate.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contributions and credited or charged with allocations of (a)
the Company's contributions and (b) Plan investment earnings
and losses, and administrative expenses, if any.
FORFEITED ACCOUNTS
As of August 31, 2003 and 2002, forfeited employer matching
non-vested accounts amounted to $11,232 and $99,018,
respectively. Forfeitures of employer matching non-vested
accounts are used to reduce the employer's matching 401(k)
contribution. During the years ended August 31, 2003 and 2002,
forfeitures of $125,563 and $-0-, respectively, were applied
against employer contributions.
VESTING
Participants are immediately vested in their voluntary
contributions plus actual earnings thereon. A participant
becomes 20% vested in the Company's discretionary
contributions to the Plan after one year of service. Vesting
increases 20% each year until the participant is fully vested
after five years of credited service.
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4
ARROW INTERNATIONAL, INC. 401(K) PLAN
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN (CONTINUED)
CONTRIBUTIONS
EMPLOYEE TAX DEFERRED CONTRIBUTIONS
Eligible participants may contribute up to 20% of their
pre-tax earnings. Participants are not permitted to
allocate more than 50% of their contribution to the Arrow
International Common Stock Fund.
EMPLOYER CONTRIBUTIONS
The Plan sponsor can make discretionary matching
contributions to the Plan. During 2003 and 2002, the
Company made this discretionary matching contribution at
the rate of 50% of every dollar contributed by employees
up to a maximum of 2% of the employee's pre-tax salary.
OTHER EMPLOYER CONTRIBUTIONS
The Plan sponsor is permitted to make a discretionary
contribution to the Plan for the benefit of all employees.
This contribution is to be made in the form of Arrow
International common stock. During 2003 and 2002, the Plan
sponsor chose to make this contribution at the rate of 1%
of each employee's monthly salary. Once this contribution
is made, participants have the ability to liquidate the
stock and move the proceeds into other Plan investment
options. Participants are immediately 100% vested in this
contribution.
PARTICIPANT LOANS
A participant may borrow from their accounts a minimum of
$1,000 up to a maximum of the lesser of $50,000 or 50% of
their vested account balance. Loan terms may not exceed five
years unless the loan is for the purchase of a primary
residence. Loans are secured by the balance in the
participant's account and bear interest at the prime rate.
Loans are repaid through regular payroll deductions.
ADMINISTRATIVE COSTS
Substantially all plan expenses are paid by the Plan sponsor.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows:
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on
the accrual basis of accounting.
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5
ARROW INTERNATIONAL, INC. 401(K) PLAN
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NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION
T. Rowe Price Trust Company is the Plan trustee and
recordkeeper.
Money market funds and mutual funds are stated at quoted
market prices. Participant loans fund are stated at their
unpaid principal balance which approximates their fair value.
The change in the difference between fair value and the cost
of investments is reflected in the statements of changes in
net assets available for benefits as a component of the net
realized and unrealized appreciation (depreciation) in fair
value of investments.
Investments of the Plan are exposed to various risks, such as
interest rate, market and credit. Due to the level of risk
associated with certain investments and the level of
uncertainty related to changes in the value of investments, it
is at least reasonably possible that changes in risks in the
near term would materially affect investment assets reported
in the statements of net assets available for benefits and the
statements of changes in net assets available for benefits.
Purchases and sales of securities are recorded on a trade date
basis. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date.
PAYMENT OF BENEFITS
Benefit payments to participants are recorded when paid.
There were distributions due participants in the amount of
$24,679 and $13,319 at August 31, 2003 and 2002, respectively.
RECLASSIFICATION
Certain items on the 2002 financial statements have been
reclassified to conform to the 2003 financial statement
presentation format.
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6
ARROW INTERNATIONAL, INC. 401(K) PLAN
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NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INVESTMENTS
The following table represents plan investments at August 31, 2003
and 2002. Investments that represent five percent or more of the Plan's
net assets are separately identified.
2003 2002
----------------------------------- ------------------------------------
INVESTMENTS COST FAIR VALUE COST FAIR VALUE
- -------------------------------------------- ---------------- ---------------- ----------------- ----------------
Money market funds, at quoted
market prices:
T. Rowe Price Prime Reserve
Fund, at quoted market prices $6,282,396 $6,282,396 $ 5,294,274 $ 5,294,274
Mutual funds, at quoted market prices:
T. Rowe Price Balanced Fund 8,975,702 8,883,877 9,072,541 8,262,346
T. Rowe Price Blue Chip Growth Fund 17,502,553 16,685,287 18,394,690 14,957,186
Other mutual funds 6,752,146 6,303,712 5,539,156 4,365,208
Common stock, at quoted market prices:
Arrow International, Inc. 4,135,739 5,954,059 3,360,749 3,416,128
Participant loan fund, stated at cost 1,966,698 1,966,698 1,826,132 1,826,132
---------------- ---------------- ----------------- ----------------
$45,615,234 $46,076,029 $43,487,542 $38,121,274
================ ================ ================= ================
During 2003 and 2002, the Plan's investments (including gains and
losses on investments bought and sold, as well as held during the year)
appreciated (depreciated) in value by $4,875,130 and ($5,072,002),
respectively, as follows:
2003 2002
---------------- -----------------
Arrow International, Inc. common stock $1,831,731 ($245,120)
Mutual funds 3,043,399 (4,826,882)
---------------- -----------------
$4,875,130 ($5,072,002)
================ =================
NOTE 4 - 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 would become 100% vested in
their employer contributions.
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7
ARROW INTERNATIONAL, INC. 401(K) PLAN
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NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INCOME TAX STATUS
The Plan obtained its latest determination letter on December 18,
2002, 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 tax counsel 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 6 - PARTIES-IN-INTEREST TRANSACTIONS
Certain Plan investments are mutual funds that are managed by T.
Rowe Price, the Plan's trustee and a party-in-interest to the Plan. The
Plan also has a common stock fund which holds shares of Arrow
International, Inc., the Plan sponsor and a party-in-interest. The Plan
held 230,777 shares and 195,208 shares of Arrow International, Inc.
common stock at August 31, 2003 and 2002, respectively.
Fees paid during the year for administrative services rendered by
parties-in-interest were based on customary and reasonable rates for
such services.
NOTE 7 - EXCESS CONTRIBUTIONS
As of August 31, 2003 and 2002, net assets available for benefits
include approximately $45,000 and $68,000, respectively, due to certain
active participants for excess deferral contributions. The 2002 excess
contributions were recorded as a reduction in contributions in 2003.
The 2003 excess contributions will be recorded as benefit payments when
distributed in 2004.
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8
ARROW INTERNATIONAL, INC. 401(K) PLAN
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SCHEDULE OF ASSETS (HELD AT END OF YEAR)
FORM 5500 - SCHEDULE H - LINE 4I
EIN: 23-1969991
PN: 004
AUGUST 31, 2003
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DESCRIPTION OF ** CURRENT
(A) IDENTITY OF ISSUE (B) INVESTMENT (C) COST (D) VALUE (E)
- ----- -------------------------------------------- --------------------- -------------- ---------------
* T. Rowe Price Prime Reserve Fund Money Market Fund N/A $ 6,282,396
* T. Rowe Price Balanced Fund Mutual Fund N/A 8,883,877
* T. Rowe Price Blue Chip Growth Fund Mutual Fund N/A 16,685,287
* T. Rowe Price International Stock Fund Mutual Fund N/A 1,160,423
* T. Rowe Price Spectrum Income Fund Mutual Fund N/A 1,385,782
* T. Rowe Price Equity Income Fund Mutual Fund N/A 1,125,586
* T. Rowe Price Equity Index 500 Fund Mutual Fund N/A 1,881,452
* T. Rowe Price Mid-Cap Value Fund Mutual Fund N/A 146,857
* T. Rowe Price Small-Cap Value Fund Mutual Fund N/A 268,285
* T. Rowe Price Mid-Cap Growth Fund Mutual Fund N/A 237,944
* T. Rowe Price Small-Cap Stock Fund Mutual Fund N/A 97,383
* Arrow International, Inc. Common Stock N/A 5,954,059
Participant loan fund 5.25% to 10.5% 0 1,966,698
----------------
$46,076,029
================
* Party-in-interest.
** Historical cost has not been presented as all investments are participant directed.
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9
SIGNATURES
THE PLAN, 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 by the undersigned hereunto duly
authorized.
ARROW INTERNATIONAL, INC. 401(k) PLAN
Date: February 25, 2004 By: /s/ John C. Long
----------------------- -----------------------------------------
John C. Long
Vice-President, Secretary and Treasurer
10
INDEX TO EXHIBIT
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Exhibit No.
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23.1 Consent of Beard Miller Company LLP, independent auditors
11