10-Q 1 q103.txt Q1 2003 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 March 31, 2003 ---------------------------------------------------------- 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 May 6, 2003, the company had 29,714,518 Common Shares and 1,112,023 Class B Common Shares outstanding. INVACARE CORPORATION INDEX Part I. FINANCIAL INFORMATION: Page No. ------------------------------ -------- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheet - March 31, 2003 and December 31, 2002........................3 Condensed Consolidated Statement of Earnings - Three Months Ended March 31, 2003 and 2002..................4 Condensed Consolidated Statement of Cash Flows - Three Months Ended March 31, 2003 and 2002..................5 Notes to Condensed Consolidated Financial Statements - March 31, 2003.................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............10 Item 3. Quantitative and Qualitative Disclosure of Market Risk...............14 Item 4. Controls and Procedures..............................................14 Part II. OTHER INFORMATION: --------------------------- Item 6. Exhibits and Reports on Form 8-K.....................................15 SIGNATURES....................................................................15 CERTIFICATIONS................................................................16 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheet March 31, December 31, 2003 2002 ---- ---- (unaudited) ASSETS (In thousands) ------ CURRENT ASSETS .........Cash and cash equivalents $5,427 $13,086 .........Marketable securities 1,319 1,350 .........Trade receivables, net 209,347 200,388 .........Installment receivables, net 16,983 20,953 .........Inventories, net 115,344 111,382 .........Deferred income taxes 27,063 26,053 .........Other current assets 18,585 25,600 ------- ------- ......... TOTAL CURRENT ASSETS 394,068 398,812 OTHER ASSETS 53,109 51,031 OTHER INTANGIBLES 3,934 4,779 PROPERTY AND EQUIPMENT, NET 131,289 130,963 GOODWILL, NET 337,548 321,118 ------- ------- ......... TOTAL ASSETS $919,948 $906,703 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES .........Accounts payable $78,614 $80,511 .........Accrued expenses 67,393 66,414 .........Accrued income taxes 19,278 16,049 .........Current maturities of long-term obligations 1,389 4,479 ------- ------- ......... TOTAL CURRENT LIABILITIES 166,674 167,453 LONG-TERM DEBT 223,626 234,134 OTHER LONG-TERM OBLIGATIONS 24,733 24,804 SHAREHOLDERS' EQUITY .........Preferred shares - - .........Common shares 7,600 7,580 .........Class B common shares 278 278 .........Additional paid-in-capital 101,020 98,995 .........Retained earnings 419,116 407,235 .........Accumulated other comprehensive earnings (loss) 1,957 (18,729) .........Treasury shares (23,074) (13,843) .........Unearned compensation on stock awards (1,982) (1,204) ------- ------- ......... TOTAL SHAREHOLDERS' EQUITY 504,915 480,312 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $919,948 $906,703 ======== ========
3 See notes to condensed consolidated financial statements. INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended March 31, 2003 2002 --------------------------------- (In thousands except per share data) Net sales $276,673 $255,081 Cost of products sold 196,222 180,447 ------- ------- Gross profit 80,451 74,634 Selling, general and administrative expense 60,520 53,417 Interest income (1,036) (929) Interest expense 2,700 4,468 ------- ------- Earnings before income taxes 18,267 17,678 Income taxes 6,010 5,810 ------- ------- NET EARNINGS $ 12,257 $ 11,868 ======= ======= DIVIDENDS DECLARED PER COMMON SHARE .0125 .0125 ======= ======= Net earnings per share - basic $ 0.40 $ 0.39 ======= ======= Weighted average shares outstanding - basic 30,830 30,738 ======= ======= Net earnings per share - assuming dilution $ 0.39 $ 0.38 ======= ======= Weighted average shares outstanding - assuming dilution 31,431 31,572 ======= =======
See notes to condensed consolidated financial statements. 4 INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows - (unaudited)
Three Months Ended March 31, 2003 2002 ---- ---- OPERATING ACTIVITIES (In thousands) Net earnings $ 12,257 $ 11,868 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 6,600 6,136 Provision for losses on trade and installment receivables 2,633 1,744 Provision for deferred income taxes 76 233 Provision for other deferred liabilities 661 694 Changes in operating assets and liabilities: Trade receivables (5,722) 6,270 Inventories (382) 7,164 Other current assets 6,377 4,654 Accounts payable (3,657) (10,502) Accrued expenses 1,032 (2,075) Other deferred liabilities (631) 687 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 19,244 26,873 INVESTING ACTIVITIES Purchases of property and equipment (3,775) (4,721) Proceeds from sale of property and equipment 13 4 Installment sales contracts, net 3,441 4,231 Marketable securities - (72) Increase in other investments (78) (82) Increase in other long term assets (2,130) (4,395) Business acquisitions, net of cash acquired (1,836) - Other (747) 566 ------ ------ NET CASH REQUIRED FOR INVESTING ACTIVITIES (5,112) (4,469) FINANCING ACTIVITIES Proceeds from revolving lines of credit and long-term borrowings 84,233 41,708 Payments on revolving lines of credit, long-term debt and capital lease obligations (98,355) (71,174) Proceeds from exercise of stock options 220 1,951 Purchases of treasury stock (8,344) - Payment of dividends (364) (394) ------ ------ NET CASH REQUIRED FOR FINANCING ACTIVITIES (22,610) (27,909) Effect of exchange rate changes on cash 819 152 ------ ------ Decrease in cash and cash equivalents (7,659) (5,353) Cash and cash equivalents at beginning of period 13,086 16,683 ------ ------ Cash and cash equivalents at end of period $5,427 $11,330 ====== ======
See notes to condensed consolidated financial statements. 5 INVACARE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2003 Nature of Operations - Invacare Corporation and its subsidiaries (the "company") is the leading home medical equipment manufacturer in the world based on its distribution channels, the breadth of its product line and 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, 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 March 31, 2003 and the results of its operations for the three months ended March 31, 2003 and 2002 and changes in its cash flows for the three months ended March 31, 2003 and 2002. Certain foreign subsidiaries are consolidated using a February 28 quarter end. The results of operations for the three months ended March 31, 2003, are not necessarily indicative of the results to be expected for the full year. All significant intercompany transactions are eliminated. Reclassifications - Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the presentation used for the period ended March 31, 2003. 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 operates in three primary business segments based on geographical area: North America, Europe and Australasia. The three reportable segments represent operating groups which offer products to different geographic regions. The North America segment sells each of five primary product lines which include: standard, rehab, distributed, respiratory, and continuing care products. Europe and Australasia sell the same product lines with the exception of distributed products. Each business segment sells to the home health care, retail and extended care markets. The company evaluates performance and allocates resources based on profit or loss from operations before income taxes for each reportable segment. The accounting policies of each segment are the same as those for the company's consolidated financial statements. Intersegment sales and transfers are based on the costs to manufacture plus a reasonable profit element. Therefore, intercompany profit or loss on intersegment sales and transfers are not considered in evaluating segment performance. Intersegment revenue for reportable segments was $15,729,000 for the period ended March 31, 2003 and $14,158,000 for the same period a year ago. 6 The information by segment is as follows (in thousands): Three Months Ended March 31, 2003 2002 -------- ------- Revenues from external customers North America $200,383 $191,769 Europe 62,439 54,335 Australasia 13,851 8,977 -------- ------- Consolidated $276,673 $255,081 ======== ======== Earnings (loss) before income taxes North America $16,108 $17,406 Europe 2,320 906 Australasia 1,266 438 All Other * (1,427) (1,072) -------- -------- Consolidated $18,267 $17,678 ======== ======== * 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 March 31, 2003 2002 ---- ---- (In thousands except per share data) Basic Average common shares outstanding 30,830 30,738 Net earnings $12,257 $11,868 Net earnings per common share $ .40 $ .39 Diluted Average common shares outstanding 30,830 30,738 Stock options and awards 601 834 ------ ------ Average common shares assuming dilution 31,431 31,572 Net earnings $12,257 $11,868 Net earnings per common share $ .39 $ .38 Goodwill and Other Intangibles - The change in goodwill reflected on the balance sheet for the quarter was the result of currency translation, except for a goodwill increase of $1,592,000 related to the North American segment for the strategic acquisition of a small company. All of the Company's other intangible assets have definite lives and are amortized over their useful lives. 7 As of March 31, 2003 and December 31, 2002, other intangibles consisted of the following (in thousands): March 31, 2003 December 31, 2002 -------------- ----------------- Historical Accumulated Historical Accumulated Cost Amortization Cost Amortization ---------- ------------ ---------- ------------ License agreements $6,090 $4,021 $6,037 $3,875 Patents 1,736 932 2,396 880 Other 2,633 1,572 2,576 1,475 ------- ------ ------- ------ $10,459 $6,525 $11,009 $6,230 ======= ====== ======= ====== Amortization expense related to other intangibles was $295,000 in the first quarter of 2003 and is estimated to be $1,041,000 in 2004, $543,000 in 2005, $229,000 in 2006, $215,000 in 2007 and $210,000 in 2008. Accounting for Stock-Based Compensation - The company utilizes the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, no compensation cost has been recognized for non-qualified stock options. However, expense was recorded for the 90,203 restricted stock awards granted since 2001. Had compensation cost for the company's stock option plans been determined based on the fair value at the grant date for awards in 2003 and 2002 consistent with the provisions of SFAS 123, the company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: Three Months Ended March 31, 2003 2002 ----- ----- (In thousands except per share data) Net earnings - as reported * $12,257 $11,868 Less: compensation expense determined based on the fair-value method for all awards granted at market value, net of related tax effects 1,141 1,042 ------- ------- Net earnings - pro forma $11,116 $10,826 ======= ======= Earnings per share as reported - basic $.40 $.39 Earnings per share as reported - assuming dilution $.39 $.38 Pro forma earnings per share - basic $.36 $.35 Pro forma earnings per share - assuming dilution $.35 $.34 * Includes stock compensation expense, net of tax, on restricted awards granted without cost of: $77 $57 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. 8 The following is a reconciliation of the changes in accrued warranty costs for the reporting period (in thousands): Balance as of January 1, 2003 $ 11,448 Warranties issued during the period 1,858 Settlements made during the period (1,751) Changes in liability for pre-existing warranties during the period, including expirations 133 ------- Balance as of March 31, 2003 $11,688 ======= Comprehensive Earnings - Total comprehensive earnings were as follows (in thousands): Three Months Ended March 31, 2003 2002 ---- ---- Net earnings $12,257 $11,868 Foreign currency translation gain (loss) 21,559 (3,095) Unrealized loss on available for sale securities (21) (3) Current period unrealized gain (loss) on cash flow hedges (852) 804 ------- ------- Total comprehensive earnings $32,943 $ 9,574 ======= ======= Statement of Cash Flows - The company made payments of (in thousands): Three Months Ended March 31, 2003 2002 ---- ---- Interest $3,769 $5,299 Income taxes 2,679 2,657 Inventories - Inventories consist of the following components (in thousands): March 31, December 31, 2003 2002 ------- ------- Raw materials $ 38,773 $ 35,457 Work in process 11,363 12,789 Finished goods 65,208 63,136 ------- ------- $115,344 $111,382 ======= ======= The final inventory determination under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs at that point; therefore, interim LIFO determinations are based on management's estimates of expected year-end inventory levels and costs. 9 Property and Equipment - Property and equipment consist of the following (in thousands): March 31, December 31, 2003 2002 ------- ------- Land, buildings and improvements $55,329 $55,232 Machinery and equipment 203,655 199,448 Furniture and fixtures 16,437 15,641 Leasehold improvements 14,185 13,874 ------- ------- 289,606 284,195 Less allowance for depreciation (158,317) (153,232) ------- ------- $ 131,289 $ 130,963 ======= ======= 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 included elsewhere in this Quarterly Report on Form 10-Q and our Current Report on Form 8-K filed on April 17, 2003. RESULTS OF OPERATIONS NET SALES Net sales for the three months ended March 31, 2003 were $276,673,000 compared to $255,081,000 for the same period a year ago, representing an 8% increase. The impact of foreign currency translation increased sales by 5%, the exit of two products lines decreased sales growth by 2% and the remaining increase of 5% was driven primarily by increases in North America and Australasia offset by sales declines in Europe. North American Operations North American sales, consisting of Rehab (power wheelchairs, custom manual wheelchairs, scooters 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 4% from the prior year. The exit of two product lines decreased sales growth by 2% for the quarter. The gain was principally due to sales volume increases in respiratory products (27%), rehab products (12%) and supplies (5%) while standard and continuing care product sales were each down 5% and 6%, respectively. Standard product sales declined primarily due to continued pricing pressures. Continuing Care product sales declined due to a difficult regulatory environment related to Medicaid reimbursement. 10 European Operations European net sales increased 15% to $62,439,000 from $54,335,000 in the first quarter last year. Adjusting for the impact of foreign currency translation, European net sales decreased 4% in the quarter versus the same period a year ago due to slower than expected sales in the Nordic region and reimbursement pressures in Germany. Australasia Operations The Australasia operations consist of Invacare Australia, which imports and distributes the Invacare range of products and manufactures and distributes the Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand manufacturer of operating components used in power wheelchairs and Invacare New Zealand, a distribution business. Australasia net sales increased 54% to $13,851,000 from $8,977,000 in the first quarter last year. Adjusting for the impact of foreign currency translation, Australasia net sales increased 22% in the quarter versus the same period a year ago. A significant amount of the increase related to larger purchases by a customer of Dynamic Controls. GROSS PROFIT Gross profit as a percentage of net sales for the three-month period ended March 31, 2003 was 29.1% compared to 29.3% for the same period last year. The overall decrease in margin as a percentage of net sales is primarily due to a sales mix toward lower margin products and pricing pressures, particularly in the North American standard products segment. North American margins declined to 29.1% compared with 30.0% in the prior year primarily as a result of a shift in product mix to lower margin respiratory products, consumer power products and supplies and continued pricing pressure in standard products as a result of increased competing low cost imports. Gross profit for Europe improved by 2.7 percentage points due to an improved gross margin related to cost reduction projects and a shift in sales mix toward higher margin products, along with a favorable impact from foreign currency translation. Gross profit in Australasia declined by 1.8 percentage points as a percent of sales, due to higher sales of lower margin products in the company's Dynamic Controls subsidiary. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense as a percentage of net sales for the three months ended March 31, 2003 was 21.9% compared to 20.9% in the same period a year ago. The dollar increase was $7,103,000 or 13%, due in part to foreign currency translation, continued investments in marketing and branding programs, a significant increase in insurance costs and additional provisions for bad debt. Excluding the impact of foreign currency, selling, general and administrative expense increased by 7.6% compared with the prior year. North American selling, general and administrative expense increased $3,862,000 or 9.9% with foreign currency having an immaterial impact. The increase was due to continued investments in marketing and branding programs, a significant increase in insurance costs and additional provisions for bad debt. European selling, general and administrative expense increased $2,959,000 or 3.4% excluding the impact of foreign currency translation. The increase was attributable to additional costs for the new European headquarters in Switzerland and supply chain initiatives. Australasian selling, general and administrative expense increased $282,000 in reported dollars for the quarter, but decreased by 8.2% excluding the impact of foreign currency translation as a result of tight controls on spending. 11 INTEREST Interest expense in the three months ended March 31, 2003 decreased by $1,768,000 as a result of reduced debt levels and lower overall rates while interest income remained relatively unchanged compared to the same period a year ago. INCOME TAXES The company had an effective tax rate of 32.9% which is the same effective tax rate for the same period a year ago. LIQUIDITY AND CAPITAL RESOURCES The company's reported overall level of long-term debt decreased $10.5 million to $223.6 million for the three months ended March 31, 2003. 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 March 31, 2003, the company had approximately $309.4 million 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 $220.7 million as of March 31, 2003. The company's borrowing arrangements contain covenants with respect to interest coverage, net worth, dividend payments, working capital, funded debt to capitalization and interest coverage, as defined in the company's bank agreements and agreement with its note holders. The company is in compliance with all covenant requirements. CAPITAL EXPENDITURES There were no material capital expenditure commitments outstanding as of March 31, 2003. The company expects to invest in capital projects at a rate that equals or exceeds depreciation and amortization in order to maintain and improve the company's competitive position. The company estimates that capital investments for 2003 will approximate $28 million. The company believes that its balances of cash and cash equivalents, together with funds generated from operations and existing borrowing facilities will be sufficient to meet its operating cash requirements and fund required capital expenditures for the foreseeable future. CASH FLOWS Cash flows provided by operating activities were $19.2 million for the first quarter of 2003 compared to $26.9 million in 2002. Operating cash flows decreased in the first quarter of 2003 compared to the same period a year ago as accounts receivable and inventory increased in the first quarter of 2003; whereas each had declined in the first quarter of last year. Cash flows required by investing activities were $5.1 million for the first quarter of 2003 compared to $4.5 million in 2002. The increase is a result of the strategic acquisition of a small business, primarily offset by decreased installment receivables, other long term assets and purchases of property, plant and equipment. 12 Cash flows required by financing activities were $22.6 million compared to cash required of $27.9 million in 2002. Financing activities for the first quarter of 2003 were impacted by the company's continued effort to pay down long-term borrowings by $14.1 million and purchases of treasury stock of $8.3 million. The effect of foreign currency translation 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 February 6, 2003, the Board of Directors for Invacare Corporation declared a quarterly cash dividend of $.0125 per Common Share to shareholders of record as of April 1, 2003, to be paid on April 7, 2003. At the current rate, the cash dividend will amount to $.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. There has been no change in the company's critical accounting policies as disclosed in Form 10-K filed for the year ended December 31, 2002. In addition, no new critical accounting policies have been adopted in the first quarter of 2003. The Company does not believe there is a great 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. Accounting for Stock-Based Compensation The company accounts for options under its stock-based compensation plans using the intrinsic value method proscribed in APB 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. If the company had applied the fair value recognition provisions of SFAS No. 123 Accounting for Stock-Based Compensation for all stock options granted, net earnings per share assuming dilution would have been reduced by $.04 in the first quarter of 2003 and by $.04 in the first quarter of 2002. In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. This statement provides guidance for those companies wishing to voluntarily change to the fair value based method of accounting for stock-based compensation. The statement also amends the disclosure requirements of SFAS No. 123. While Invacare continues to utilize the disclosure-only provisions of SFAS No. 123, the company has modified its disclosures to comply with the new statement. See Accounting for Stock-Based Compensation in the Notes to the Consolidated Financial Statements. 13 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 March 31, 2003 debt levels, a 1% change in interest rates would impact interest expense by approximately $1,828,000 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," "achieve," "increase," "plan," "can," "expect," "pursue," "benefit," "continue," "exceed," "improve," "believe," "estimate," "anticipate," "build," "strengthen," "new," "lower," "drive," "seek," "hope," and "create," as well as similar comments, are forward-looking in nature. Actual results and events may differ significantly from those expressed or anticipated as a result of risks and uncertainties which include, but are not limited to, the following: pricing pressures, increasing raw material costs, the consolidations of health care customers and competitors, government reimbursement issues (including those that affect the viability of customers), the ability to design, manufacture and distribute new products with higher functionality and lower costs, the ability to accelerate market acceptance of and transition to new products, 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 and efficient completion of facility consolidation, 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, foreign currency and interest rate risk, Invacare's ability to improve financing terms and reduce working capital, as well as the risks described from time to time in Invacare's reports as filed with the Securities and Exchange Commission. The company undertakes no obligation to review or update these forward-looking 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 March 31, 2003, 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 14 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 March 31, 2003 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 have been no significant changes subsequent to March 31, 2003 and prior to the date of this filing in the company's internal controls or in other factors that could significantly affect internal controls. Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K A Exhibits: Official Exhibit No. --------------------- 10(z)Amendment No. 3 to the Invacare Corporation 1994 Performance Plan 99.1 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 (filed herewith). 99.2 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 (filed herewith). B Reports on Form 8-K: None 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: May 9, 2003 15 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a). designed such disclosure controls and procedures 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 quarterly report is being prepared; b). evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c). presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a). all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b). any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 16 INVACARE CORPORATION By: /s/ Gregory C. Thompson ---------------------- Gregory C. Thompson Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 9, 2003 17 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a). designed such disclosure controls and procedures 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 quarterly report is being prepared; b). evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c). presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a). all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b). any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 18 INVACARE CORPORATION By: /s/ A. Malachi Mixon, III ------------------------- A. Malachi Mixon, III Chief Executive Officer (Principal Executive Officer) Date: May 9, 2003 19