-----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, HcFPSU3cz84a9fepxPKmGM7Nq7HwiTiQhe2ALTPWHo9K/TWltSLTvmD4OcVRae14 8K4WbHpIiMclyY5HoJ6KEg== 0000742112-97-000015.txt : 19971126 0000742112-97-000015.hdr.sgml : 19971126 ACCESSION NUMBER: 0000742112-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVACARE CORP CENTRAL INDEX KEY: 0000742112 STANDARD INDUSTRIAL CLASSIFICATION: 3842 IRS NUMBER: 952680965 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12938 FILM NUMBER: 97721882 BUSINESS ADDRESS: STREET 1: 899 CLEVELAND ST STREET 2: P O BOX 4028 CITY: ELYRIA STATE: OH ZIP: 44036 BUSINESS PHONE: 2163296000 10-Q 1 INVACARE CORP FORM 10-Q THIRD QUARTER 1 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 September 30, 1997 ---------------------------------------- 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) (216) 329-6000 -------------- (Registrant's telephone number, including area code) 899 Cleveland Street, P.O. Box 4028, Elyria, Ohio 44036 ------------------------------------------------------- (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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: As of November 12, 1997 the company had 28,242,472 Common Shares and 1,437,467 Class B Common Shares outstanding. 2 INVACARE CORPORATION INDEX Part I. FINANCIAL INFORMATION: Page No. Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheet - September 30, 1997 and December 31, 1996....................3 Condensed Consolidated Statement of Earnings - Three and Nine Months Ended September 30, 1997 and 1996.....4 Condensed Consolidated Statement of Cash Flows - Nine Months Ended September 30, 1997 and 1996...............5 Notes to Condensed Consolidated Financial Statements - September 30, 1997.............................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............7 Part II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K....................................12 SIGNATURES...................................................................12 3 Part I. FINANCIAL INFORMATION Item 1. Financial Statements
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheet - (unaudited) September 30, December 31, 1997 1996 ------------- ------------ ASSETS (In thousands) CURRENT ASSETS Cash and cash equivalents $ 5,427 $ 4,431 Marketable securities 3,141 3,569 Trade receivables, net 108,384 105,432 Installment receivables, net 51,004 51,995 Inventories 66,642 78,934 Deferred income taxes 21,873 7,181 Other current assets 6,625 7,178 -------- ------- TOTAL CURRENT ASSETS 263,096 258,720 OTHER ASSETS 51,776 49,459 PROPERTY AND EQUIPMENT, NET 78,115 77,830 GOODWILL, NET 110,698 123,619 -------- -------- TOTAL ASSETS $503,685 $509,628 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 45,726 $ 40,723 Accrued expenses 72,644 50,900 Accrued income taxes 2,457 1,563 Current maturities of long-term obligations 4,667 4,582 ------- ------ TOTAL CURRENT LIABILITIES 125,494 97,768 LONG-TERM OBLIGATIONS 163,900 173,263 DEFERRED INCOME TAXES (7,528) 0 SHAREHOLDERS' EQUITY Preferred shares 0 0 Common shares 7,154 7,103 Class B common shares 359 360 Additional paid-in-capital 73,823 71,143 Retained earnings 155,448 167,561 Adjustment to shareholders' equity (7,742) (833) Treasury shares (7,223) (6,737) ------- ------- TOTAL SHAREHOLDERS' EQUITY 221,819 238,597 -------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $503,685 $509,628 ======== ========
See notes to condensed consolidated financial statements. 4
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Earnings - (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 (In thousands, except per share data) ----------------------------------------------------- Net sales $166,144 $158,146 $482,660 $451,776 Cost of products sold 113,685 104,942 334,495 305,590 ---------------------- ----------------------- GROSS PROFIT 52,459 53,204 148,165 146,186 Selling, general and administrative expenses 34,234 35,181 100,143 101,243 Non-recurring unusual charge 61,100 61,100 - ----------------------- ----------------------- INCOME FROM OPERATIONS (42,875) 18,023 (13,078) 44,943 Net interest income (expense) (763) (577) (2,313) (1,662) ----------------------- ----------------------- EARNINGS BEFORE INCOME TAXES (43,638) 17,446 (15,391) 43,281 Income taxes (15,390) 6,800 (4,380) 16,875 ----------------------- ----------------------- NET EARNINGS $(28,248) $ 10,646 $(11,011) $ 26,406 ======================= ======================= NET EARNINGS PER SHARE $ (.93) $ .35 $ (.36) $ .87 ======================= ======================= DIVIDEND DECLARED PER COMMON SHARE $ .0125 $ .0125 $ .0375 $ .0375 ======================= ======================= WEIGHTED AVERAGE SHARES OUTSTANDING 30,362 30,453 30,355 30,387 =================== == =======================
See notes to condensed consolidated financial statements. 5
INVACARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows - (unaudited) Nine Months Ended September 30, 1997 1996 ---- ---- OPERATING ACTIVITIES (In thousands) Net earnings $(11,011) $26,406 Adjustments to reconcile net earnings to net cash required by operating activities: Non-recurring unusual charge 38,900 0 Depreciation and amortization 13,813 13,220 Provision for losses on receivables 2,018 1,507 Provision for deferred income taxes (170) (341) Provision for other deferred liabilities 2,242 1,954 Changes in operating assets and liabilities: Trade receivables (10,249) 980 Inventories 4,582 (16,607) Other current assets (390) 1,535 Accounts payable 6,367 4,884 Accrued expenses (5,311) (6,517) --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 40,791 27,021 INVESTING ACTIVITIES Purchases of property and equipment (26,698) (15,689) Proceeds from sale of property and equipment 331 102 Installment sales contracts written (54,299) (46,062) Payments received on installment sales contracts 48,563 34,779 Marketable securities purchased (3,529) (1,153) Marketable securities sold 3,990 175 Increase in other investments 4,636 (3,734) Increase in other long term assets (6,684) (2,616) Business acquisitions, net of cash acquired (1,938) (24,860) Other (415) (1,472) --------- -------- NET CASH REQUIRED BY INVESTING ACTIVITIES (36,043) (60,530) FINANCING ACTIVITIES Proceeds from revolving lines of credit and long-term borrowings 37,855 73,175 Principal payments on revolving lines of credit, long-term debt and capital lease obligations (42,877) (38,717) Proceeds from exercise of stock options 2,607 3,522 Dividends paid (1,102) (1,093) Purchase of treasury stock 0 (2,250) --------- -------- NET CASH (REQUIRED)/PROVIDED BY FINANCING ACTIVITIES (3,517) 34,637 Effect of exchange rate changes on cash (235) (209) ---------- -------- Increase (decrease) in cash and cash equivalents 996 919 Cash and cash equivalents at beginning of period 4,431 4,132 ---------- ------- Cash and cash equivalents at end of period $ 5,427 $ 5,051 ========== =======
See notes to condensed consolidated financial statements. 6 INVACARE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 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 sales. The company designs, manufactures and distributes an extensive line of medical equipment for the home health care and extended care markets. The company's products include standard manual wheelchairs, motorized and lightweight prescription wheelchairs, motorized scooters, patient aids, home care and institutional beds, low air loss therapy products, home respiratory, ambulatory infusion pumps and seating and positioning products. Principles of Consolidation -- In the opinion of the company, the accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from these estimates. The accompanying financial statements include all adjustments, which were of a normal recurring nature, necessary to present fairly the financial position of the company as of September 30, 1997 and December 31, 1996, and the results of its operations for the three and nine months ended September 30, 1997 and 1996 and changes in its cash flows for the nine months ended September 30, 1997 and 1996. The results of operations for the three and nine months ended September 30, 1997, are not necessarily indicative of the results to be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the company's annual financial statements and notes. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the presentation used for the period ended September 30, 1997. Earnings Per Share of Common Stock -- In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share." The new standard applies to entities with publicly held common stock and requires a dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. In addition, disclosure of the reconciliation of the numerator and denominator used in the computation of diluted EPS is required. Primary EPS will be simplified and replaced by basic EPS, which is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Fully diluted EPS has not been changed significantly and will be renamed diluted EPS. The standard is effective for financial statements issued for periods after December 15, 1997, and requires restatement of all prior EPS data presented. Application of the standard is expected to cause an increase in reported basic EPS over amounts reported as primary EPS, however the company has not yet determined the impact of this standard on the consolidated financial statements. 7 Statement of Cash Flows -- The company made payments (in thousands) of
Nine Months Ended September 30, 1997 1996 ------------------------------ Interest $8,559 $7,462 Income Taxes 17,522 21,330
Inventories -- Inventories consist of the following components (in thousands):
September 30, December 31, 1997 1996 -------------------------------------- Raw materials $ 20,044 $ 25,137 Work in process 10,346 12,022 Finished goods 36,252 41,775 ------------------------------------- $ 66,642 $ 78,934 =====================================
The inventory determination under the LIFO method can only be 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. Property and Equipment -- Property and equipment consist of the following (in thousands):
September 30, December 31, 1997 1996 ------------------------------------- Land, buildings and improvements $ 33,655 $ 35,779 Machinery and equipment 105,435 104,297 Furniture and fixtures 9,936 10,693 Leasehold improvements 6,883 7,330 ------------------------------------- 155,909 158,099 Less allowance for depreciation (77,794) (80,269) ------------------------------------- $ 78,115 $ 77,830 =====================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS NET SALES Net sales for the three and nine months ended September 30, 1997 increased by 5.1% and 6.8%, respectively, over the same period a year ago. For the quarter, acquisitions accounted for 1.0% of the increase while currency translation negatively impacted sales by 2.9%. Year to date, acquisitions contributed 3.2% with foreign currency having a 2.0% negative impact. Sales for the three and nine months ended September 30, 1997 were also negatively impacted by reduced sales to the Company's largest customer. The reduction in sales to this customer impacted reported sales growth by approximately 4.0% for both the quarter and year to date. 8 Power and personal care posted the largest increases for the quarter and year to date. Sales increased principally due to higher unit volumes. The volume increases were offset by the effects of a continuing competitive pricing environment primarily in the Respiratory Product Group. North American Operations Rehab Products Group. Sales of the Rehab Products Group, which consists of the power wheelchairs, custom manual wheelchairs and seating and positioning business units, increased 18.9% for the quarter. The increase was primarily a result of continued strong volume growth in low end power chairs and scooter products, offset by competitive pricing in the low end product lines. Year to date, Rehab group sales increased 16.0%. Standard Products Group. Sales of the Standard Products Group, which consists of the manual wheelchairs, patient transport, personal care, beds, low air loss therapy, Invacare Health Care Furnishings and retail business units, increased 7.4%, including an impact of 2.4% which resulted from the acquisition of Silcraft, a bathing equipment and patient lift manufacturer. The manual wheelchairs, patient transport, personal care, beds and low air loss therapy product lines each posted sales increases, with personal care sales showing significant volume gains. Year to date, Standard Products Group sales increased 10%. Respiratory Products Group. Sales of the Respiratory Products Group, which consists of the oxygen concentrator, liquid oxygen, aerosol therapy and associated respiratory products business units, increased 7.4% for the quarter and were up 1% for the nine months ended September 30, 1997. The quarter growth was a result of volume increases in oxygen concentrator and aerosol therapy offset by continued pricing pressure across the majority of the respiratory product lines. In August of the third quarter, the Balanced Budget Act of 1997 was passed finalizing a 25% cut for oxygen reimbursement effective January 1, 1998 with an additional 5% effective January 1, 1999. The uncertainty which preceded this announcement adversely impacted sales for the quarter and year to date. Other. Other, consisting primarily of the company's Canadian, Australian and New Zealand operations, aftermarket parts business and ambulatory infusion pumps had a 2.2% sales increase. Canada continues to show solid growth as a result of strong power, standard wheelchairs and respiratory product sales. For the first nine months sales for this group increased 14.8% with 10.3% coming from acquisitions. European Operations European sales increased 2.6%, excluding the negative impact of 11.5% from foreign currency translation. In the first nine months, sales for Europe increased 1.8% excluding the negative impact of 8.9% from foreign currency. Sales continue to be negatively impacted by market pressures from reduced government spending, especially in Germany. 9 GROSS PROFIT Gross profit as a percentage of net sales for the three and nine month periods ending September 30, 1997 was 31.6% and 30.7%, respectively, compared to 33.6% and 32.4% for the same periods last year. Margins for North American operations declined primarily as a result of increased freight costs and continued pricing pressure. European gross margins decreased as a result of overall price declines, mix changes in products sold and the continued effects of a strong U.S.dollar. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expense as a percentage of net sales for the three and nine months ending September 30, 1997 was 20.6% and 20.7%, respectively, compared to 22.2% and 22.4% in the same periods a year ago. The overall dollar decrease was $947,000, (2.7%) for the quarter and $1,100,000, (1.1%) for the nine months, despite acquisitions which contributed 1.5% and 3.9% in spending for the same periods. Continued strategic cost reduction activities across all areas of the business contributed to the reduction in selling, general and administrative expenses. North American selling, general and administrative costs as a percent to sales grew at a slower rate than sales for the quarter and year to date. European operations' selling, general and administrative expenses, as a percentage of sales also decrease as continued focus on cost reduction efforts along with the effects of foreign currency translation took effect. NON-RECURRING UNUSUAL CHARGE In the third quarter the company reported a non-recurring and unusual charge for the acceleration of certain strategic initiatives and other items. The charge was $61,100,000 ($38,900,000 after tax) and included $34,600,000 for the acceleration of global manufacturing facility consolidations and the elimination of certain non-strategic product lines, $9,500,000 for certain accelerated global systems' initiatives including year 2000 compliance, $6,000,000 for an increase in the company's bad debt reserve to more conservatively provide for the increased provider credit risk caused by recently enacted Medicare reimbursement cuts and $11,000,000 for asset write-downs and an increase in reserves for litigation. INTEREST Interest income in the three and nine months ended September 30, 1997 was consistent with the same periods a year ago as increased volume in installment loans were offset by an overall decline in the portfolio's effective rate. For the quarter, interest expense remained flat with the same period a year ago. Interest expense in the first nine months increased due to higher average outstanding borrowings in the first quarter of 1997 compared to the same period a year ago. 10 INCOME TAXES The company had an effective tax rate benefit for the three and nine month periods ended September 30, 1997, of (35.3%) and (28.5%) respectively, compared to a 39.0% effective tax rate charge during the same periods a year ago. The 1997 reduced benefit is principally due to the write-off certain non-deductible items, including goodwill, as part of the non-recurring and unusual charge taken during the quarter. LIQUIDITY AND CAPITAL RESOURCES The company's reported overall level of long-term obligations decreased $9,000,000 to $164,000,000 for the nine months ended September 30, 1997. Long term debt declined as a result of strong operating cash flow and the impact of foreign currency translation on the amount of debt reported in dollars. The company continues to maintain an adequate liquidity position to fund its working capital and capital requirements through its cash flow from operations and its bank lines. As of September 30, 1997, the company had approximately $310,000,000 available under its lines of credit. Pursuant to the most restrictive covenant of its debt arrangements the company could borrow an additional $401,000,000. During the three month period ended September 30, 1997, the company entered into two interest rate swap agreements effectively exchanging a short-term floating interest rate for a fixed rate. In July, 1997, the company fixed the interest rate on FRF 50,000,000 of its French franc borrowings at 4.1400%. In September, 1997, the company fixed the interest rate on NZD 7,500,000 of its New Zealand dollar borrowings at 7.3000%. The swap agreements have a three and five year term of expiration, respectively. The company's financing arrangements require it to maintain certain conditions with respect to net worth, working capital, funded debt to capitalization and interest coverage as defined. The company is in compliance with all of the conditions. CAPITAL EXPENDITURES There were no material capital expenditure commitments outstanding as of September 30, 1997. The company estimates that capital investments for 1997 will approximate $35-$40 million. The increase in spending is due principally to the construction of a new corporate headquarters building and the continuing implementation of a worldwide facilities plan. 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. 11 ACQUISITIONS In October, 1997 the company acquired for cash the stock of Allied Medical Supply Corporation, a distributor of soft goods and disposable products. The acquisition marks Invacare's entry into the medical supplies business and further strengthens its industry-leading "one stop shopping" strategy. Allied Medical Supply will become part of the company's standard products group. In January, 1997 the company commenced a cash tender offer for all of the outstanding shares of common stock of Healthdyne Technologies, Inc. The company's most recent offer expired August 1, 1997. Prior to the expiration of the offer, the company held approximately 4.8% of Healthdyne's outstanding stock. The company has subsequently sold all but 1,000 shares of the common stock of Healthdyne Technologies. The gain on the sale of the Healthdyne shares was offset by the costs associated with the Healthdyne tender offer initiative and did not have a material impact on reported results for the third quarter of 1997. CASH FLOWS Cash flows provided by operating activities were $40.8 million for the first nine months of 1997 compared to $27 million in 1996. The improved 1997 cash flows provided by operating activities resulted from improved income from operations,exclusive of the non-recurring unusual charge,and decreased inventory levels, as continued focus on inventory management initiatives have proven effective. The improve cash flow was offset to some extent by an increase in trade receivables. As of September 30, 1997, there has been no charges against the non-recurring unusual charge taken during the third quarter. Cash flows required for investing activities decreased by $24.5 million for the first nine months of 1997 when compared to 1996 mainly as a result of reduced acquisition activity in 1997 and decreased net installment receivables. The decrease was offset by an increase in investment of capital. Cash flows required by financing activities were $3.5 million for the first nine months of 1997 as compared to the $34.6 million provided in 1996. The decrease in cash provided by financing activities was primarily a result of a reduction in net proceeds from long-term borrowings which were used to fund acquisitions in the prior year. The effect of foreign currency translation may result in amounts being shown for cash flows in the Consolidated Statement of Cash Flows that are different from the changes reflected in the respective balance sheet captions. DIVIDEND POLICY On August 15, 1997, the Board of Directors for Invacare Corporation declared a quarterly cash dividend of $.0125 per Common Share to shareholders of record as of October 1, 1997, to be paid on October 15, 1997. At the current rate, the cash dividend will amount to $.05 per Common Share on an annual basis. 12 FORWARD-LOOKING STATEMENTS The statements contained in this form 10-Q constitute forward-looking statements based on current expectations which are covered under the "safe harbor" provision within the Private Securities Litigation Reform Act of 1995. Actual results and events, including the acceleration of certain strategic initiatives for which a non-recurring charge has been reported, may differ from those anticipated as a result of risks and uncertainties which include, but are not limited to, pricing pressures as a result of the impact of the consolidations of health care customers and competitors, the availability of strategic acquisition candidates and Invacare's ability to effectively integrate acquired companies, and the overall economic, market and industry conditions, as well as the risks described from time to time in Invacare's reports as filed with the Securities and Exchange Commission. Item 6. Exhibits and Reports on Form 8-K A Exhibits: Official Exhibit No. 27 Financial Data Schedule 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/ Thomas R.Miklich ------------------------ Chief Financial Officer Date: November 14, 1997 EX-27 2 INVACARE EXHIBIT 27
5 1,000 3-MOS DEC-31-1997 SEP-30-1997 5,427 3,141 116,792 (8,408) 66,642 263,096 155,909 (77,794) 503,685 125,494 0 0 0 7,513 214,306 503,685 166,144 166,144 113,685 113,685 95,334 0 763 (43,638) (15,390) (28,248) 0 0 0 (28,248) (.93) (.93)
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