SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
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Commission File Number 0-12938
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Invacare Corporation
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(Exact name of registrant as specified in its charter)
Ohio 95-2680965
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(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices)
(440) 329-6000
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(Registrant's telephone number, including area code)
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(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 May 8, 2001, the company had 29,461,881 Common Shares and 1,112,441 Class
B Common Shares outstanding.
INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
March 31, 2001 and December 31, 2000.........................3
Condensed Consolidated Statement of Earnings -
Three Months Ended March 31, 2001 and 2000...................4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2001 and 2000...................5
Notes to Condensed Consolidated Financial
Statements - March 31, 2001..................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................9
Item 3. Quantitative and Qualitative Disclosure of Market Risk...............12
Part II. OTHER INFORMATION:
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Item 6. Exhibits and Reports on Form 8-K.....................................13
SIGNATURES....................................................................14
Part I. FINANCIAL INFORMATION
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Item 1... Financial Statements (Unaudited)
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
March 31, December 31,
2001 2000
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ASSETS (In thousands)
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CURRENT ASSETS
.........Cash and cash equivalents $ 8,741 $12,357
.........Marketable securities 810 845
.........Trade receivables, net 204,263 211,372
.........Installment receivables, net 54,630 56,659
.........Inventories 117,115 105,295
.........Deferred income taxes 31,815 31,605
.........Other current assets 10,947 14,275
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......... TOTAL CURRENT ASSETS 428,321 432,408
OTHER ASSETS 75,314 74,305
PROPERTY AND EQUIPMENT, NET 133,623 134,913
GOODWILL, NET 313,976 310,229
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......... TOTAL ASSETS $951,234 $951,855
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
.........Accounts payable $88,855 $81,316
.........Accrued expenses 89,290 92,453
.........Accrued income taxes 21,379 23,860
.........Current maturities of long-term obligations 8,479 5,807
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......... TOTAL CURRENT LIABILITIES 208,003 203,436
LONG-TERM DEBT 360,930 384,316
OTHER LONG-TERM OBLIGATIONS 13,582 14,330
SHAREHOLDERS' EQUITY
.........Preferred shares 0 0
.........Common shares 7,301 7,301
.........Class B common shares 343 343
.........Additional paid-in-capital 78,939 79,105
.........Retained earnings 321,548 310,367
.........Accumulated other comprehensive earnings (38,494) (43,430)
.........Treasury shares (918) (3,913)
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......... TOTAL SHAREHOLDERS' EQUITY 368,719 349,773
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $951,234 $951,855
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See notes to condensed consolidated financial statements.
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended
March 31,
2001 2000
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(In thousands except per share data)
Net sales $254,149 $245,593
Cost of products sold 177,259 172,713
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Gross profit 76,890 72,880
Selling, general and administrative expense 51,258 49,166
Amortization of Goodwill 2,558 2,259
Interest income (2,505) (1,737)
Interest expense 6,788 6,841
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Earnings before income taxes 18,791 16,351
Income taxes 7,235 6,377
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NET EARNINGS $ 11,556 $ 9,974
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DIVIDENDS DECLARED PER COMMON SHARE .0125 .0125
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Net earnings per share - basic $ 0.38 $ 0.33
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Weighted average shares outstanding - basic 30,472 29,998
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Net earnings per share - assuming dilution $ 0.37 $ 0.33
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Weighted average shares outstanding - assuming dilution 31,575 30,503
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See notes to condensed consolidated financial statements.
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Three Months Ended
March 31,
2001 2000
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(In thousands)
OPERATING ACTIVITIES
Net earnings $ 11,556 $ 9,974
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 8,410 7,849
Provision for losses on receivables 1,527 2,256
Provision for deferred income taxes 187 1,067
Provision for other deferred liabilities (1,009) (1,172)
Changes in operating assets and liabilities:
Trade receivables 6,902 (2,666)
Inventories (11,581) (3,384)
Other current assets 3,472 561
Accounts payable 9,713 7,478
Accrued expenses (8,192) (8,179)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 20,985 13,784
INVESTING ACTIVITIES
Purchases of property and equipment (4,185) (9,009)
Proceeds from sale of property and equipment 545 61
Installment sales contracts 4,310 1,362
Marketable securities 36 21
Increase in other investments (477) (25)
Increase in other long term assets (3,229) (7,269)
Other 103 (600)
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NET CASH PROVIDED/(REQUIRED) BY INVESTING ACTIVITIES (2,897) (15,459)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings 16,597 24,194
Principal payments on revolving lines of credit, long-term debt
and capital lease obligations (38,580) (21,364)
Proceeds from exercise of stock options 2,189 452
Payment of Dividends (378) (372)
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NET CASH (REQUIRED)/PROVIDED BY FINANCING ACTIVITIES (20,172) 2,910
Effect of exchange rate changes on cash (1,532) (845)
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Increase (decrease) in cash and cash equivalents (3,616) 390
Cash and cash equivalents at beginning of period 12,357 18,258
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Cash and cash equivalents at end of period $ 8,741 $ 18,648
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See notes to condensed consolidated financial statements.
INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
March 31, 2001
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, 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, home respiratory products, bath
equipment and distributed products.
Principles of Consolidation - The consolidated financial statements include the
accounts of the company and its majority owned subsidiaries and include all
adjustments, which were of a normal recurring nature, necessary to present
fairly the financial position of the company as of March 31, 2001 and the
results of its operations for the three months ended March 31, 2001 and 2000 and
changes in its cash flows for the three months ended March 31, 2001 and 2000.
Certain foreign subsidiaries are consolidated using a one-month lagging. The
results of operations for the three months ended March 31, 2001, are not
necessarily indicative of the results to be expected for the full year.
Use of Estimates - The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States
which require management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results may differ from these estimates.
Business Segments - The company operates in three primary business segments
based on geographical area: North America, Europe and Australasia. The three
reportable segments represent operating groups which offer products to different
geographic regions.
The North America segment consists of five operating groups which sell the
following products: wheelchairs, scooters, seating products, self care patient
aids, home care beds, low air loss therapy products, patient transport products,
distributed products, extended care and furniture products, respiratory and
other products. The Europe segment consists of one operating group that sells
primarily wheelchairs, scooters, beds, seating, self care patient aids, patient
lifts and slings and respiratory products. The Australasia segment consists of
three operating groups which sell custom power wheelchairs, electronic
wheelchair components, patient aids and lifts. Each business segment sells to
the home health care, retail and extended care markets.
The company evaluates performance and allocates resources based on profit or
loss from operations before income taxes for each reportable segment. The
accounting policies of each segment are the same as those for the company's
consolidated financial statements. Intersegment sales and transfers are based on
the costs to manufacture plus a reasonable profit element. Therefore,
intercompany profit or loss on intersegment sales and transfers are not
considered in evaluating segment performance. Intersegment revenue for
reportable segments was $17,347,000 for the period ended March 31, 2001 and
$16,213,000 for the same period a year ago.
The information by segment is as follows (in thousands):
Three Months Ended
March 31,
2001 2000
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Revenues from external customers
North America $187,963 $177,402
Europe 56,511 60,540
Australia/Asia 9,675 7,651
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Consolidated $254,149 $245,593
Earnings (loss) before income taxes
North America $31,144 $28,052
Europe 351 394
Australia/Asia 2,743 2,289
All Other * (15,447) (14,384)
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Consolidated $ 18,791 $ 16,351
* Consists of the domestic export unit, corporate selling, general and
administrative costs, and the Invacare captive insurance unit, which
do not meet the quantitative criteria for determining reportable
segments.
Net Income Per Common Share - The following table sets forth the computation of
basic and diluted net earnings per common share for the periods indicated.
Three Months Ended
March 31,
2001 2000
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(In thousands except per
share data)
Basic
Average common shares outstanding 30,472 29,998
Net earnings $11,556 $ 9,974
Net earnings per common share $ .38 $ .33
Diluted
Average common shares outstanding 30,472 29,998
Stock options 1,103 505
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Average common shares assuming dilution 31,575 30,503
Net earnings $11,556 $ 9,974
Net earnings per common share $ .37 $ .33
Accounting Policy for Derivative Instruments - Financial Accounting Standards
Board Statement No. 133, Accounting for Derivatives and Hedging Activities
(Statement 133), requires companies to recognize all of its derivative
instruments as either assets or liabilities in the consolidated balance sheet at
fair value. The company adopted the statement on January 1, 2001 and,
accordingly, recognized a cumulative effect adjustment to other comprehensive
income of $802,000.
Substantially all of the company's derivative instruments are designated and
qualify as cash flow hedges. Accordingly, the effective portion of the gain or
loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of change.
To protect against decreases/increases in forecasted foreign currency cash flows
resulting from inventory purchases/sales over the next year, the company
utilizes cash flow hedges to hedge portions of its forecasted purchases/sales
denominated in foreign currencies.
The company has entered into interest rate swap agreements that effectively
convert a portion of its floating-rate debt to a fixed-rate basis, thus reducing
the impact of interest-rate changes on future interest expense. Approximately
21% ($77.5 million) of the company's outstanding debt was designated as the
hedged items to interest rate swap agreements at March 31, 2001. During the
quarter ended March 31, 2001, the company recognized an immaterial gain related
to swap agreements, which is reflected in interest expense on the statement of
earnings.
During the quarter ended March 31, 2001, the company recognized a nominal gain
related to forward contracts that do not qualify for special hedging treatment
which is included in costs of products sold on the statement of earnings. The
company recognized no gain or loss related to hedge ineffectiveness or
discontinued cash flow hedges.
Comprehensive Earnings - Total comprehensive earnings were as follows (in
thousands):
Three Months Ended
March 31,
2001 2000
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Net earnings $11,556 $9,974
Foreign currency translation (loss) 6,994 (1,890)
Unrealized gain or (loss) on
available for sale securities 275 468
Cumulative effect upon adoption of FAS 133 802 0
Current period unrealized loss on cash (3,135) 0
flow hedges
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Total comprehensive earnings $16,492 $8,552
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Statement of Cash Flows - The company made payments (in thousands) of:
Three Months Ended
March 31,
2001 2000
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Interest $12,033 $8,389
Income taxes 8,191 3,052
Inventories - Inventories consist of the following components (in thousands):
March 31, December 31,
2001 2000
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Raw materials $ 31,368 $ 29,417
Work in process 18,891 15,039
Finished goods 66,856 60,839
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$ 117,115 $ 105,295
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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.
Property and Equipment - Property and equipment consist of the following (in
thousands):
March 31, December 31,
2001 2000
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Land, buildings and improvements $ 55,610 $ 55,760
Machinery and equipment 175,876 176,885
Furniture and fixtures 14,201 13,443
Leasehold improvements 11,773 10,308
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257,460 256,396
Less allowance for depreciation (123,837) (121,483)
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$133,623 $134,913
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended March 31, 2001 were $254,149,000 compared
to $245,593,000 for the same period a year ago, representing a 3% increase.
Excluding the negative impact from currency translation, overall sales increased
7%. The increase was driven primarily by strong increases in North American and
Australasian sales principally do to higher unit volumes.
North American Operations
North American sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs and seating), Standard (manual wheelchairs, personal care, beds, low
air loss therapy and patient transport equipment), Continuing Care (beds and
furniture), Respiratory (oxygen concentrators, liquid oxygen, aerosol therapy
and associated respiratory) and Distributed (ostomy, incontinence, wound care
and other medical supplies) products, increased 6% from the prior year. The gain
was principally due to sales volume increases in Rehab and Standard Products
offset by shortfalls in Respiratory and Distributed product lines.
European Operations
European sales decreased to $56,511,000 from $60,540,000 in the first quarter
last year. Adjusting for the impact of exchange rate differences, European sales
increased 2% in the quarter versus the same period a year ago. The increased
sales were above the company's expectations for the quarter and reverses a trend
of declining sales experienced in the second half of 2000.
Australasia Operations
The Australasia products group consists of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand
manufacturer of operating components used in power wheelchairs and Invacare New
Zealand, a distribution business. Sales for the Australasia group increased 47%,
excluding the negative impact of 20% from foreign currency translation. Sales
were positively impacted by increased market share in the Australasia market.
GROSS PROFIT
Gross profit as a percentage of net sales for the three month period ended March
31, 2001 was 30.3% compared to 29.7% for the same period last year. The overall
increase in margins as a percentage of net sales is a result of the company's
improved manufacturing productivity and the positive impact from the price
increase implemented last year in North America. Margins for North American
operations improved to 28.7% compared to 28.1% reported in the prior year. Gross
profit for Europe declined approximately 1% while improving in Australasia.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense (including the amortization of
goodwill) as a percentage of net sales for the three months ended March 31, 2001
was 21.2% compared to 21.0% in the same period a year ago. The dollar increase
was $2,390,000 or 4.6%, which was primarily the result of continued investment
in programs to drive future growth. Excluding the impact of acquisitions and
foreign currency, selling, general and administrative expense as a percent of
sales increased 7.9% compared with the prior year.
North American selling, general and administrative costs as a percentage of net
sales remained flat compared to the prior year. The overall dollar increase was
$1,042,000 with foreign currency having an immaterial impact. European and
Australasia operations' selling, general and administrative costs grew at a
slower rate than sales for the quarter.
NON-RECURRING CHARGE
In 2000, the company announced non-recurring and unusual charges of $8,700,000
primarily related to closing two distribution centers and a manufacturing plant,
severance costs due to staff reductions primarily at the corporate office and
costs associated with the settlement of litigation. Of these charges, $4,023,000
has been utilized through March 31, 2001 including $2,499,000 in the first
quarter of 2001 for the settlement of litigation and $460,000 for the payment of
severance costs. The company anticipates all of the remaining charge to be
utilized in 2001.
In 1999, the company announced non-recurring and unusual charges of $11,500,000
primarily related to the acquisition of Scandinavian Mobility International AS
("SMI"). Of these charges, $8,800,000 has been utilized through March 31, 2001
including $300,000 in the first quarter of 2001 for asset writedowns and other
non-recurring items. The company anticipates all of the remaining charge to be
utilized in 2001.
INTEREST
Interest income in the three months ended March 31, 2001 increased by
approximately $768,000 compared to the same period a year ago as increased rates
positively impacted the profitability of the portfolio.
For the quarter, interest expense decreased from the same period a year ago as a
result of debt paydown efforts.
INCOME TAXES
The company had an effective tax rate of 38.5% compared to an effective tax rate
of 39.0% in the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The company's reported overall level of long-term obligations decreased $23.4
million to $360.9 million for the three months ended March 31, 2001. 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 of credit and working capital management. As of March 31, 2001, the
company had approximately $192.0 million available under its lines of credit.
Pursuant to the most restrictive covenant of its debt arrangements the company
could borrow up to an additional $324 million.
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 March
31, 2001. The company expects to invest in capital projects at a rate that
equals or exceeds depreciation and amortization in order to maintain and improve
the company's competitive position. The company estimates that capital
investments for 2001 will approximate $29 million. The company believes that its
balances of cash and cash equivalents, together with funds generated from
operations and existing borrowing facilities will be sufficient to meet its
operating cash requirements and fund required capital expenditures for the
foreseeable future.
CASH FLOWS
Cash flows provided by operating activities were $21.0 million for the first
quarter of 2001 compared to $13.8 million in 2000. Operating cash flows
increased in 2001 primarily due to a decrease in receivables and an increase in
accounts payable, resulting from the company's cash management efforts. These
increases were partially offset by an increase in inventory.
Cash flows required by investing activities were $2.9 million for the first
quarter of 2001 compared to cash flows required of $15.4 million in 2000. The
increase is a result of increased payments received on installment receivables
and lower capital expenditures.
Cash flows required by financing activities were $20.2 million compared to cash
provided of $2.9 million in 2000. Financing activities for the first quarter of
2001 were impacted by the company's continued effort to pay down long term
borrowings.
The effect of foreign currency translation may result in amounts being shown for
cash flows in the Condensed Consolidated Statement of Cash Flows that are
different from the changes reflected in the respective balance sheet captions.
DIVIDEND POLICY
On February 15, 2001, the Board of Directors for Invacare Corporation declared a
quarterly cash dividend of $.0125 per Common Share to shareholders of record as
of April 2, 2001, to be paid on April 13, 2001. At the current rate, the cash
dividend will amount to $.05 per Common Share on an annual basis.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The company is exposed to market risk through various financial instruments,
including fixed rate and floating rate debt instruments. The company uses
interest rate swap agreements to mitigate its exposure to interest rate
fluctuations. Based on March 31, 2001 debt levels, a 1% change in interest rates
would impact interest expense by approximately $1,764,000 over the next twelve
months. Additionally, the company operates internationally and as a result is
exposed to foreign currency fluctuations. Specifically, the exposure includes
intercompany loans, and third party sales or payments. In an attempt to reduce
this exposure, foreign currency forward contracts are utilized. The company does
not believe that any potential loss related to these financial instruments will
have a material adverse effect on the company's financial condition or results
of operations.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union (the
"participating countries") established a fixed rate between their existing
sovereign currencies (the "legacy currencies") and the Euro. The legacy
currencies are scheduled to remain legal tender in the participating countries
between January 1, 1999 and July 1, 2002. Beginning January 1, 2002, the Euro
currency will be introduced and the legacy currencies withdrawn from circulation
six months later. The company believes with modifications to existing computer
software and conversion to new software, the Euro conversion issue will not pose
significant operational problems to its normal business activities. The company
does not expect costs associated with the Euro conversion project to have a
material effect on the company's results of operations or financial position.
FORWARD-LOOKING STATEMENTS
The statements contained in this form 10-Q constitute forward-looking statements
within the meaning of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Terms such as "will," "should," "achieve,"
"increase," "plan," "can," "expect," "pursue," "benefit," "continue," "exceed,"
"improve," "believe," "build," "strengthen," "new," "lower," "drive," "seek,"
"hope," and "create," as well as similar comments, are forward-looking in
nature. Actual results and events may differ significantly from those
anticipated as a result of risks and uncertainties which include, but are not
limited to the following: pricing pressures, increasing raw material costs, the
consolidations of health care customers and competitors, government
reimbursement issues including those that affect the viability of customers, the
effect of offering customers competitive financing terms, Invacare's ability to
effectively identify, acquire and integrate strategic acquisition candidates,
the difficulties in managing and operating businesses in many different foreign
jurisdictions, the timely completion of facility consolidations, the
difficulties in acquiring and maintaining a proprietary intellectual property
ownership position, the overall economic, market and industry growth conditions,
foreign currency and interest rate risk, Invacare's ability to improve financing
terms and reduce working capital, as well as the risks described from time to
time in Invacare's reports as filed with the Securities and Exchange Commission.
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 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
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Thomas R. Miklich
Chief Financial Officer
Date: May 11, 2001