-----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, P0m9ukY1kHHSGzGp1awp3JCRasMGUp1WtiBkiDREvtvtpKs5f/IrUPxBzUGuKJb5 CzYBGkyYjeuzyBfmgGqnyg== 0000742112-04-000035.txt : 20041108 0000742112-04-000035.hdr.sgml : 20041108 20041108134421 ACCESSION NUMBER: 0000742112-04-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041108 DATE AS OF CHANGE: 20041108 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: 041125099 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 q30410q.txt INVACARE Q3 2004 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 ------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------------------------------- 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 November 5, 2004, the company had 30,114,677 Common Shares and 1,111,965 Class B Common Shares outstanding. INVACARE CORPORATION INDEX Part I. FINANCIAL INFORMATION: Page No. - ------------------------------ -------- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheet - September 30, 2004 and December 31, 2003.....................3 Condensed Consolidated Statement of Earnings - Three and Nine Months Ended September 30, 2004 and 2003......4 Condensed Consolidated Statement of Cash Flows - Nine Months Ended September 30, 2004 and 2003................5 Notes to Condensed Consolidated Financial Statements - September 30, 2004..............................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............12 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........21 Item 4. Controls and Procedures..............................................21 Part II. OTHER INFORMATION: - --------------------------- Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........21 Item 6. Exhibits.............................................................21 SIGNATURES....................................................................22 2 Part I. FINANCIAL INFORMATION Item 1... Financial Statements
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheet September 30, December 31, 2004 2003 ------- ------- (unaudited) ASSETS (In thousands) - ------ CURRENT ASSETS ..........Cash and cash equivalents $2,840 $16,074 ..........Marketable securities 190 214 ..........Trade receivables, net 262,193 255,534 ..........Installment receivables, net 13,390 7,755 ..........Inventories, net 145,804 130,979 ..........Deferred income taxes 25,987 24,573 ..........Other current assets 27,703 39,593 ------- ------- .......... TOTAL CURRENT ASSETS 478,107 474,722 OTHER ASSETS 56,451 53,263 OTHER INTANGIBLES 20,519 14,678 INVESTMENT IN WP DOMUS GMBH 229,349 - PROPERTY AND EQUIPMENT, NET 161,502 150,051 GOODWILL 501,197 415,499 ------- ------- .......... TOTAL ASSETS $1,447,125 $1,108,213 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES ..........Accounts payable $123,817 $110,178 ..........Accrued expenses 143,058 97,148 ..........Accrued income taxes 21,692 19,107 ..........Current maturities of long-term obligations 43,096 2,171 ------- ------- .......... TOTAL CURRENT LIABILITIES 331,663 228,604 LONG-TERM DEBT 400,299 232,038 OTHER LONG-TERM OBLIGATIONS 41,767 34,383 SHAREHOLDERS' EQUITY ..........Preferred shares - - ..........Common shares - par $0.25 7,752 7,686 ..........Class B common shares - par $0.25 278 278 ..........Additional paid-in-capital 117,548 109,015 ..........Retained earnings 530,700 477,113 ..........Accumulated other comprehensive earnings 50,025 45,941 ..........Unearned compensation on stock awards (1,770) (1,458) ..........Treasury shares (31,137) (25,387) ------- ------- .......... TOTAL SHAREHOLDERS' EQUITY 673,396 613,188 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,447,125 $1,108,213 ========== ==========
See notes to condensed consolidated financial statements. 3
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Earnings - (unaudited) Three Months Ended Nine Months Ended (In thousands except per share data) September 30, September 30, 2004 2003 2004 2003 ------- ------- ------- ------- Net sales $349,507 $327,366 $1,010,138 $904,153 Cost of products sold 243,431 228,914 708,559 637,416 ------- ------- ------- ------- Gross profit 106,076 98,452 301,579 266,737 Selling, general and administrative expense 71,230 66,983 216,214 191,092 Interest expense 3,850 2,987 8,904 8,343 Interest income (1,618) (1,330) (3,892) (3,799) ------- ------- ------- ------- Earnings before income taxes 32,614 29,812 80,353 71,101 Income taxes 10,085 9,805 25,600 23,390 ------- ------- ------- ------- NET EARNINGS $ 22,529 $ 20,007 $ 54,753 $ 47,711 ======= ======= ======= ======= DIVIDENDS DECLARED PER COMMON SHARE .0125 .0125 .0250 .0375 ======= ======= ======= ======= Net Earnings per Share - Basic $ 0.72 $ 0.65 $ 1.76 $ 1.55 ======= ======= ======= ======= Weighted Average Shares Outstanding - Basic 31,122 30,845 31,120 30,825 ======= ======= ======= ======= Net Earnings per Share - Assuming Dilution $ 0.70 $ 0.63 $ 1.70 $ 1.51 ======= ======= ======= ======= Weighted Average Shares Outstanding - Assuming Dilution 32,283 31,752 32,272 31,602 ======= ======= ======= =======
See notes to condensed consolidated financial statements. 4
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows - (unaudited) Nine Months Ended September 30, 2004 2003 ------- ------- OPERATING ACTIVITIES (In thousands) Net earnings $ 54,753 $47,711 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 22,283 19,911 Provision for losses on trade and installment receivables 8,285 9,303 Provision for deferred income taxes - 452 Provision for other deferred liabilities 2,137 1,947 Changes in operating assets and liabilities: Trade receivables (11,622) (28,720) Inventories (8,530) (8,124) Other current assets 3,475 (414) Accounts payable 10,116 13,981 Accrued expenses (5,936) 15,093 Other deferred liabilities 2,076 1,848 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 77,037 72,988 INVESTING ACTIVITIES Purchases of property and equipment (28,924) (17,172) Installment sales contracts, net (1,857) 6,355 Other long term assets (3,354) (2,485) Business acquisitions, net of cash acquired (262,679) (70,555) Other (2,262) 1,559 ------- ------- NET CASH USED FOR INVESTING ACTIVITIES (299,076) (82,298) FINANCING ACTIVITIES Proceeds from revolving lines of credit and long-term borrowings 635,662 342,693 Payments on revolving lines of credit, long-term debt and capital lease obligations (426,220) (339,686) Proceeds from exercise of stock options 5,267 2,677 Purchases of treasury stock (4,430) (8,345) Payment of dividends (1,103) (1,130) ------- ------- NET CASH PROVIDED (USED) FOR FINANCING ACTIVITIES 209,176 (3,791) Effect of exchange rate changes on cash (371) 2,373 ------- ------- Decrease in cash and cash equivalents (13,234) (10,728) Cash and cash equivalents at beginning of period 16,074 13,086 ------- ------- Cash and cash equivalents at end of period $ 2,840 $ 2,358 ======= =======
See notes to condensed consolidated financial statements. 5 INVACARE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) September 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. The company is directly affected by government regulation and reimbursement policies in virtually every country in which it operates. Changes in regulations and heath care policy take place frequently and can impact the size, growth potential and profitability of products sold in each market. 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 September 30, 2004, the results of its operations for the three and nine months ended September 30, 2004 and 2003, respectively, and changes in its cash flows for the nine months ended September 30, 2004 and 2003, respectively. Certain foreign subsidiaries, represented by the European segment, are consolidated using an August 31 quarter end. As such, the results of WP Domus GmbH have not been consolidated as further explained in the Acquisition footnote. The results of operations for the three and nine months ended September 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, inter company profit or loss on intersegment net sales and transfers are not considered in evaluating segment performance. Intersegment net sales for reportable segments was $20,312,000 and $60,691,000 for the three and nine 6 months ended September 30, 2004, respectively, and $20,722,000 and $55,314,000 for the same periods in the preceding year. The information by segment is as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 ------ ------ ------ ------ Revenues from external customers North America $251,457 $232,829 $737,780 $646,202 Europe 79,889 73,839 224,633 205,020 Australasia 18,161 20,698 47,725 52,931 ------ ------ ------ ------ Consolidated $349,507 $327,366 $1,010,138 $904,153 ======== ======== ========== ======== Earnings (loss) before income taxes North America $27,990 $21,056 $73,753 $54,520 Europe 4,984 6,399 9,427 13,014 Australasia 874 2,695 1,551 5,973 All Other * (1,234) (338) (4,378) (2,406) ------- ----- ------- ------- Consolidated $32,614 $29,812 $80,353 $71,101 ======= ======= ======= =======
* 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 Nine Months Ended September 30, September 30, 2004 2003 2004 2003 ------ ------ ------ ------ (In thousands, except per share data) Basic Average common shares outstanding 31,122 30,845 31,120 30,825 Net earnings $22,529 $20,007 $54,753 $47,711 Net earnings per common share $ .72 $ 0.65 $ 1.76 $ 1.55 Diluted Average common shares outstanding 31,122 30,845 31,120 30,825 Stock options and awards 1,161 907 1,152 777 ------ ------ ------ ------ Average common shares assuming dilution 32,283 31,752 32,272 31,602 Net earnings $22,529 $20,007 $54,753 $47,711 Net earnings per common share $ .70 $ 0.63 $ 1.70 $ 1.51
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 ($40,287,000 at September 30, 2004) to DLL for events of default under the contracts (total balance outstanding of $92,965,000 at September 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. Credit losses are provided for in the financial statements. 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 also 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. In addition, reimbursement guidelines in the home health care industry have a substantial impact on the nature and type of equipment an end user can obtain as well as the timing of reimbursement and, thus, affect the product mix, pricing and payment patterns of the company's customers. Goodwill and Other Intangibles - The change in goodwill reflected on the balance sheet from December 31, 2003 to September 30, 2004 was the result of acquisitions representing an increase in goodwill of $78,649,000 in North America with the balance attributable to currency translation. The total cost for two of the 2003 acquisitions excluded certain contingent consideration. 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 (U.S. GAAP used for company reporting purposes) in accordance with the purchase agreement with no defined maximum amount. The payment amount was finalized in October 2004 at 74,667,000 Canadian Dollars and paid on October 29, 2004. As of September 30, 2004, the U.S. dollar equivalent amount was estimated at $59,000,000, which was reflected on the consolidated balance sheet as an increase to goodwill and an increase to accrued expenses. 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. When the contingency is settled, any additional consideration paid will increase the purchase price and reported goodwill. 8 The contingent consideration related to both acquisitions is not deemed to be compensation expense as the consideration was a product of the arms-length negotiation process, represents a dollar amount in excess of typical compensation agreements in place prior to the acquisition, is payable in direct proportion to the seller's equity ownership interests and is not dependent upon future employment by the sellers during the contingency period. All of the company's other intangible assets have definite lives and are amortized over their useful lives, except for $4,904,000 related to trademarks, which have indefinite lives. As of September 30, 2004 and December 31, 2003, other intangibles consisted of the following (in thousands):
September 30, 2004 December 31, 2003 ------------------ ----------------- Historical Accumulated Historical Accumulated Cost Amortization Cost Amortization ---------- ------------ ---------- ------------ License agreements $6,492 $4,902 $6,455 $4,464 Customer lists 10,018 1,577 6,105 936 Trademarks 4,904 - 4,268 - Patents 4,032 1,332 2,180 1,109 Other 4,496 1,612 3,406 1,227 ----- ----- ----- ----- $29,942 $9,423 $22,414 $7,736 ======= ====== ======= ======
Amortization expense related to other intangibles was $660,000 in the third quarter of 2004, $1,687,000 for the nine months ended September 30, 2004 and is estimated to be $2,261,000 in 2005, $1,840,000 in 2006, $1,728,000 in 2007, $1,662,000 in 2008 and $1,441,000 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 Nine Months Ended September 30, September 30, 2004 2003 2004 2003 ------ ------ ------ ------ Net earnings - as reported * $22,529 $20,007 $54,753 $47,711 Less: compensation expense determined based on the fair-value method for all awards granted at market value, net of related tax effects 929 1,174 2,735 3,478 ------ ------ ------ ------ Net earnings - pro forma $21,600 $18,833 $52,018 $44,233 ====== ====== ====== ====== Earnings per share as reported - basic $.72 $0.65 $1.76 $1.55 Earnings per share as reported - assuming dilution $.70 $0.63 $1.70 $1.51 Pro forma earnings per share - basic $.69 $0.61 $1.67 $1.43 Pro forma earnings per share - assuming dilution $.67 $0.59 $1.61 $1.40 * Includes stock compensation expense, net of tax, on restricted awards granted without cost of: $137 $114 $389 $304
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 5,868 Settlements made during the period (7,222) Changes in liability for pre-existing warranties during the period, including expirations 421 ------ Balance as of September 30, 2004 $ 11,755 ====== Comprehensive Earnings - Total comprehensive earnings were as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 ------ ------ ------ ------ Net earnings $22,529 $20,007 $54,753 $47,711 Foreign currency translation gain (loss) 6,842 (18,770) 7,465 28,622 Unrealized gain (loss) on available for sale securities (16) 118 (13) 251 Current period unrealized gain (loss) on cash flow hedges (1,015) 641 (3,368) (272) ------ ------ ------ ------ Total comprehensive earnings $ 28,340 $1,996 $58,837 $76,312 ====== ====== ====== ======
Inventories - Inventories consist of the following components (in thousands): September 30, December 31, 2004 2003 ------ ------ Raw materials $ 48,078 $ 41,573 Work in process 16,188 18,711 Finished goods 81,538 70,695 ------ ------ $145,804 $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): September 30, December 31, 2004 2003 ------ ------ Land, buildings and improvements $ 68,060 $ 67,364 Machinery and equipment 236,850 216,459 Furniture and fixtures 25,351 20,737 Leasehold improvements 15,142 14,946 ------ ------ 345,403 319,506 Less allowance for depreciation (183,901) (169,455) ------ ------ $ 161,502 $ 150,051 ======= ======= Acquisitions - The company completed the acquisition of WP Domus GmbH ("Domus") on September 9, 2004 for 190,000,000 euros or approximately $230,000,000 U.S. Dollars, subject to normal purchase price adjustments. A European-based holding company, Domus operates under three separate stand-alone businesses: Alber, Aquatec and Dolomite which design and manufacture several product lines complementary to Invacare's existing product lines, including power add-on products, bath lifts and walking aids. The acquisition of Domus was made by the European segment of the company, which reports its financial results on a one-month lag for financial reporting. Therefore, no operating results for Domus have been included in the company's consolidated results for the period ended September 30, 2004. The acquisition has been presented on the consolidated balance sheet to reflect the investment in Domus equal to the purchase price, as well as the corresponding long-term debt. As announced on September 9, 2004, the acquisition was partially funded by a Bridge Credit Agreement entered into on September 1, 2004. Pursuant to the agreement, the Company borrowed 100,000,000 euros, which is due on September 1, 2005, of which $42,000,000 has been classified as current indebtedness and the remainder of which has been classified as long-term indebtedness since the company has the ability and intends to refinance the remainder of the borrowed amount. The investment will be re-allocated in the fourth quarter of 2004 when the company allocates the purchase price to record the fair value of the net assets of WP Domus GmbH. In 2003, Domus had net sales of approximately 103,000,000 euros according to their historical financial statements, as reported in accordance with German accounting principles. Reported net sales for 2003 included a one-time sale in Japan of 8,400,000 euros, which is not expected to recur. The Company's North American segment also made various less significant acquisitions throughout 2004. Income Taxes - The Company had effective tax rates of 30.9% and 31.9% for the three and nine-month month periods ended September 30, 2004, respectively, compared with 32.9% for the same periods a year ago. The effective tax rate declined due to a change in estimate in the mix of earnings and permanent deductions. The Company's effective tax rate is lower than the federal statutory rate primarily due to tax credits and earnings abroad being taxed at rates lower than the federal statutory rate. 11 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 in our Current Report on Form 8-K as furnished to the Securities and Exchange Commission on October 21, 2004. OUTLOOK The company achieved earnings growth in the third quarter in the range of its previous guidance primarily due to the benefits from accretive acquisitions, ongoing cost reduction programs, increased volumes in certain segments in North America and a lower tax rate. Although the company is expected to achieve some benefit from the acquisition of Domus in the fourth quarter of this year, there are a number of items that will negatively impact performance. Centers for Medicare and Medicaid Services (CMS) has started to address some of the recent reimbursement issues, which have led to uncertainty on coverage of power wheelchairs for seniors and people with disabilities, and have negatively impacted the company's sales of those products. However, the changes will take time to be implemented and will not likely benefit the fourth quarter. Additionally, further increasing raw material costs will reduce some of the benefits of the cost reduction projects already implemented. As a result of these factors, the company believes it will achieve fully diluted earnings per share of between $0.75 and $0.80 for the fourth quarter and fully diluted earnings per share of between $2.45 and $2.50 for the year. Previously, earnings guidance for the year was between $2.48 and $2.55. For the fourth quarter, net sales are expected to increase between 13% and 15%. Excluding foreign currency and acquisitions, the sales increase is expected to be between 3% and 5%. RESULTS OF OPERATIONS NET SALES Net sales for the three months ended September 30, 2004 were $349,507,000, compared to $327,366,000 for the same period a year ago, representing a 7% increase. For the nine months ended September 30, 2004, net sales increased 12% to $1,010,138,000, compared to $904,153,000 for the same period a year ago. For the quarter, foreign currency translation and acquisitions accounted for 3% and 5% of the net sales increase, respectively. For the first nine months, foreign currency translation and acquisitions accounted for 4% and 7% of the net sales increase, respectively. Excluding the impact of currency and acquisitions, net sales growth for the first nine months was driven primarily by volume increases in North America. North American Operations North American net sales increased 8% for the quarter and 14% for the first nine months. North American net sales consist of Rehab (consumer and high-end 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. For the quarter, acquisitions 12 accounted for 7% of the net sales increase with currency translation having a less than 1% impact on net sales. For the first nine months, foreign currency translation and acquisitions accounted for 1% and 9% of the net sales increase, respectively. The increase for the quarter was principally due to net sales increases in Respiratory products (56%), Continuing Care products (66%) and Distributed products (24%), which were partially offset by declines in Standard products (7%) and Rehab products (14%). Excluding acquisitions, Continuing Care product net sales increased by 19% and Distributed products increased by 9% for the quarter; however, Rehab product net sales decreased by 23%. The increase for the first nine months was principally due to net sales increases in Respiratory products (35%), Rehab products (6%), Continuing Care products (77%) and Distributed products (29%), which were partially offset by declines in Standard products (6%). Excluding acquisitions, Continuing Care product net sales increased by 8% and Distributed products increased by 14%; however, Rehab product net sales decreased by 5%. Respiratory growth in the quarter and first nine months was largely due to strong performance in the HomeFill(TM) oxygen system product line. The net sales declines experienced in Rehab products for the quarter and first nine months is attributable to consumer power wheelchairs. Consumer power wheelchair sales were down 45%, or $15 million, compared to the third quarter last year. The difficulty and uncertainty related to customers obtaining Medicare reimbursement from CMS for these wheelchairs caused this decline in Rehab product net sales. Pricing adjustments primarily drove the net sales decline in Standard products for the quarter and first nine months. European Operations European net sales increased 8% for the quarter to $79,889,000 as compared to $73,839,000 for the same period a year ago. For the quarter, foreign currency translation accounted for all 8% of the net sales increase. European net sales for the first nine months increased 10% to $224,633,000 as compared to $205,020,000 for the same period a year ago. For the first nine months, foreign currency translation and acquisitions accounted for 10% and 2% of the net sales increase, respectively. The lower than expected sales results in the quarter and the first nine months is primarily attributable to continued pricing pressures, a shift in sales mix to lower margin product and additional costs related to the new product introductions. 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 12% to $18,161,000 from $20,698,000 for the quarter and 10% to $47,725,000 from $52,931,000 for the first nine months. Adjusting for the impact of foreign currency translation, Australasian net sales decreased 20% for the quarter and 21% for the first nine months, when compared to the same periods a year ago. This sales decline for the quarter and first nine months was principally due to lower sales of microprocessor controllers, resulting from the global slowdown in the production of power wheelchairs caused 13 in large part by the 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 a result, 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 nine-month periods ended September 30, 2004 were 30.4% and 29.9%, respectively, compared to 30.1% and 29.5%, 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 product, such as the HomeFill(TM) oxygen system product line. Margin improvements were partially offset by ongoing competitive pricing pressures, especially in Standard products. For the first nine months, North American margins as a percentage of net sales improved to 30.6% compared with 29.2% in the same period last year, principally as a result of acquisitions 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 combat these price declines by lowering costs to produce with our wholly-owned manufacturing and sourcing entities based in Asia. Gross margin in Europe declined year to date by 1.7 percentage points primarily due to unfavorable sales mix towards lower margin products and additional costs related to new product introductions. Gross margin in Australasia declined year to date by 6.7 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 ("S,G&A") expense as a percentage of net sales for the three and nine months ended September 30, 2004 was 20.4% and 21.4%, respectively, compared to 20.5% and 21.1%, respectively, in the same periods a year ago. The dollar increase was $4,247,000 and $25,122,000, or 6.3% and 13.1%, respectively, for the quarter and first nine months of the year. Acquisitions increased S,G&A expenses by $2,891,000 in the quarter and $11,533,000 in the first nine months while foreign currency translation increased S,G&A expenses by $1,673,000 in the quarter and $7,247,000 in the first nine months compared to the same periods a year ago. Excluding foreign currency translation and acquisitions, S,G&A spending declined for the quarter largely as a result of reductions in commission and bonus costs, which are largely variable expenses dependent on results, offset by increased sales and marketing expenses and distribution costs. For the nine-month period, the increase in spending, excluding foreign currency translation and acquisitions, was attributable to an increase in commissions, distribution and sales and marketing expenses as a result of program spending costs. Excluding the impact of foreign currency translation and acquisitions, S,G&A expense decreased .5% for the quarter and increased 3.3% compared to the same period a year ago. 14 North American S,G&A cost increased $2,070,000 or 4.4% for the quarter and $17,518,000 or 13.1% in the first nine months compared to the same periods a year ago. Acquisitions accounted for 6.1% of the increase in the quarter and approximately 8.0% of the increase year to date, while the additional costs incurred on a consolidated basis, described above, were primarily related to North America. European S,G&A cost increased $1,523,000 or 8.5% for the quarter and $7,440,000 or 14.6% for the first nine months compared to the same periods a year ago. Excluding the impact of foreign currency translation, selling, general and administrative cost increased 1.7% for the quarter and 1.8% in the first nine months compared to the same periods a year ago. Australasian S,G&A cost increased $654,000 or 37.5% for the quarter and $164,000 or 2.8% in the first nine months compared to the same periods a year ago. Excluding the impact of foreign currency translation, S,G&A cost increased by 25.1% for the quarter and decreased by 10.7% in the first nine months compared to the same periods a year ago. The increase is principally due to costs associated with the setup of the Asian sales office and costs related to Enterprise Resource Planning System implementation. INTEREST Interest expense increased $863,000 for the quarter and $561,000 for the first nine months of the year, compared to the same periods a year ago primarily due to increased borrowings for acquisitions. For the quarter and first nine months of the year, interest income was comparable to the same periods a year ago. INCOME TAXES The company had effective tax rates of 30.9% and 31.9% for the three and nine-month month periods ended September 30, 2004, respectively, compared with 32.9% for the same periods a year ago. The effective tax rate declined due to a change in estimate in the mix of earnings and permanent deductions. The Company's effective tax rate is lower than the federal statutory rate primarily due to tax credits and earnings abroad being taxed at rates lower than the federal statutory rate. LIQUIDITY AND CAPITAL RESOURCES The company's reported level of debt increased from the beginning of the nine month period by $209,186,000 to $443,395,000 as of September 30, 2004 as a result of the acquisition of Domus. 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 September 30, 2004, the company had approximately $92,099,000 available under its lines of credit, of which approximately $59,000,000 was needed to settle the Carroll contingent purchase price obligation, based on September 30, 2004 exchange rate. Effective September 1, 2004, the Company entered into a Bridge Credit Agreement. Pursuant to the agreement, the Company borrowed 100,000,000 euros in order to provide funds for the Company's general corporate purposes, including financing the Domus acquisition. The debt covenants for the agreement are consistent with those already applicable under the company's pre-existing borrowing arrangements. The amount borrowed is due one year from the date of the agreement with interest payable based upon the rate as determined in accordance with the pricing schedule, consistent with the Company's pre-existing borrowing 15 arrangements. As a result of the Domus acquisition, the company is working with its bank group to renew and increase to $400,000,000 its existing revolving credit facility. 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 September 30, 2004, the company was in compliance with all covenant requirements. CAPITAL EXPENDITURES The company had no material capital expenditure commitments outstanding as of September 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 $77,037,000 for the first nine months of 2004 compared to $72,988,000 in the first nine months of 2003. The increase in operating cash flows for the first nine months of the year was largely due to improved profits and a smaller increase in accounts receivable principally offset by decreased accrued expenses. Cash used for investing activities was $299,076,000 for the first nine months of 2004 compared to $82,298,000 in the first nine months of 2003. The increase was primarily due to acquisitions during the first nine months 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 $209,176,000 in for the first nine months of 2004 compared to cash used of $3,791,000 for the first nine months of 2003. Financing activities for the first nine months of 2004 were impacted by an increase in the company's net long-term borrowings of $209,442,000 as a result of acquisitions made in the first nine months of 2004, which required approximately $192,124,000 more in cash compared to the first nine months of 2003. 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. CONTRACTUAL OBLIGATIONS During the third quarter, the Company became contractually obligated to pay approximately $59,000,000 of contingent consideration related to the Caroll Healthcare acquisition as explained in the Goodwill and Other Intangibles note to the consolidated financial statements. 16 DIVIDEND POLICY On August 24, 2004, the company's Board of Directors declared a quarterly cash dividend of $0.0125 per Common Share to shareholders of record as of October 1, 2004, which was paid on October 18, 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 ac companying 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 and/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. 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 17 accounts are accounted for using the same methodology, 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. 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 $11,000,000 in the aggregate of the company's North American product liability exposure. The company also has additional layers of external insurance coverage insuring $100,000,000 in annual aggregate losses arising from individual claims any where in the world that exceed the captive insurance company policy limits. 18 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 claims 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 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 19 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 September 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 September 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 September 30, 2004 debt levels, a 1.0% change in interest rates would impact interest expense by approximately $4,171,000 over the next twelve months. Additionally, the company operates internationally and as a result is exposed to foreign currency fluctuations. Specifically, the exposure includes inter company 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 This Form 10-Q contains 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 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 (including the recently-completed Domus acquisition), the timely completion of 20 facility consolidations, the vagaries of any litigation or regulatory investigations that the company may be or become involved in at any time (including the previously disclosed litigation with Respironics, Inc.), 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 September 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 September 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. Part II. OTHER INFORMATION Item 2. Unregistered Sales of Equity 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 with authorization remaining to purchase 1,362,900 more shares. The company purchased no shares during the third quarter of 2004. Item 6. Exhibits Exhibits: Official Exhibit No. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 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). 21 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). 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: November 8, 2004 22 EX-31 2 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: November 8, 2004 EX-31 3 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: November 8, 2004 EX-32 4 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 September 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: November 8, 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 5 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 September 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: November 8, 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-----