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, 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 November 12, 2001, the company had 29,592,039 Common Shares and 1,112,187
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 -
September 30, 2001 and December 31, 2000.....................3
Condensed Consolidated Statement of Earnings -
Three and Nine Months Ended September 30, 2001 and 2000......4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 2001 and 2000................5
Notes to Condensed Consolidated Financial
Statements - September 30, 2001..............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............10
Item 3. Quantitative and Qualitative Disclosure of Market Risk...............13
Part II. OTHER INFORMATION:
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Item 6. Exhibits and Reports on Form 8-K.....................................14
SIGNATURES....................................................................15
Part I. FINANCIAL INFORMATION
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Item 1... Financial Statements (Unaudited)
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
September 30, December 31,
2001 2000
-------- --------
ASSETS (In thousands)
- ------
<s> <c> <c>
CURRENT ASSETS
.........Cash and cash equivalents $ 10,032 $12,357
.........Marketable securities 959 845
.........Trade receivables, net 231,877 211,372
.........Installment receivables, net 42,212 56,659
.........Inventories, net 109,979 105,295
.........Deferred income taxes 32,083 31,605
.........Other current assets 14,931 14,275
-------- --------
......... TOTAL CURRENT ASSETS 442,073 432,408
OTHER ASSETS 75,441 74,305
PROPERTY AND EQUIPMENT, NET 133,418 134,913
GOODWILL, NET 307,894 310,229
-------- --------
......... TOTAL ASSETS $958,826 $951,855
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
.........Accounts payable $80,777 $81,316
.........Accrued expenses 84,081 92,453
.........Accrued income taxes 32,242 23,860
.........Current maturities of long-term obligations 5,290 5,807
-------- --------
......... TOTAL CURRENT LIABILITIES 202,390 203,436
LONG-TERM DEBT 348,091 384,316
OTHER LONG-TERM OBLIGATIONS 14,010 14,330
SHAREHOLDERS' EQUITY
.........Preferred shares 0 0
.........Common shares 7,446 7,301
.........Class B common shares 278 343
.........Additional paid-in-capital 85,533 79,105
.........Retained earnings 356,191 310,367
.........Accumulated other comprehensive earnings (48,593) (43,430)
.........Treasury shares (6,520) (3,913)
-------- --------
......... TOTAL SHAREHOLDERS' EQUITY 394,335 349,773
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$958,826 $951,855
======== ========
See notes to condensed consolidated financial statements.
<page>
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,
2001 2000 2001 2000
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Net sales $272,210 $251,728 $792,063 $744,863
Cost of products sold 188,372 172,404 550,480 512,990
-------- -------- -------- --------
Gross profit 83,838 79,324 241,583 231,873
Selling, general and administrative expense 46,147 43,473 146,499 142,530
Amortization of goodwill 2,225 2,199 6,733 6,687
Interest income 1,716 1,906 6,392 5,484
Interest expense 5,730 7,007 18,377 20,798
-------- -------- -------- --------
Earnings before income taxes 31,452 28,551 76,366 67,342
Income taxes 12,109 11,135 29,401 26,263
-------- -------- -------- --------
NET EARNINGS $ 19,343 $ 17,416 $ 46,965 $ 41,079
======== ======== ======== ========
DIVIDENDS DECLARED PER
COMMON SHARE .0125 .0125 .0375 .0375
======== ======== ======== ========
Net earnings per share - basic $ 0.63 $ 0.58 $ 1.54 $ 1.37
======== ======== ======== ========
Weighted average shares outstanding - basic 30,700 30,141 30,593 30,075
======== ======== ======== ========
Net earnings per share - assuming dilution $ 0.61 $ 0.57 $ 1.48 $ 1.34
======== ======== ======== ========
Weighted average shares outstanding -
assuming dilution 31,818 30,766 31,704 30,652
======== ======== ======== ========
</table>
See notes to condensed consolidated financial statements.
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Nine Months Ended
September 30,
2001 2000
-------- --------
(In thousands)
<s> <c> <c>
OPERATING ACTIVITIES
Net earnings $ 46,965 $ 41,079
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 24,957 23,337
Provision for losses on receivables 3,823 6,448
Provision for deferred income taxes (197) 1,248
Provision for other deferred liabilities 108 (4,617)
Changes in operating assets and liabilities:
Trade receivables (22,215) (24,955)
Inventories (4,788) (9,743)
Other current assets (538) (91)
Accounts payable (1,380) 12,677
Accrued expenses (1,569) (12,748)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 45,166 32,635
INVESTING ACTIVITIES
Purchases of property and equipment (14,458) (21,829)
Proceeds from sale of property and equipment 680 163
Installment sales contracts 19,785 8,667
Marketable securities 64 810
Increase in other investments (136) (3,831)
Increase in other long term assets (9,437) (8,567)
Other (1,736) (550)
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NET CASH REQUIRED BY INVESTING ACTIVITIES (5,238) (25,137)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings 179,928 111,107
Principal payments on revolving lines of credit, long-term debt
and capital lease obligations (214,398) (126,204)
Proceeds from exercise of stock options 8,139 3,026
Purchase of treasury stock (5,536) 0
Payment of dividends (1,141) (1,122)
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NET CASH REQUIRED BY FINANCING ACTIVITIES (33,008) (13,193)
Effect of exchange rate changes on cash (9,245) (4,056)
-------- --------
Decrease in cash and cash equivalents (2,325) (9,751)
Cash and cash equivalents at beginning of period 12,357 18,258
-------- --------
Cash and cash equivalents at end of period $ 10,032 $ 8,507
======== =======
</table>
See notes to condensed consolidated financial statements.
INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
September 30, 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 September 30, 2001 and the
results of its operations for the three and nine months ended September 30, 2001
and 2000 and changes in its cash flows for the nine months ended September 30,
2001 and 2000. Certain foreign subsidiaries are consolidated using a one-month
lag. The results of operations for the three and nine months ended September 30,
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 $18,919,000 and $53,069,000 for the three and nine
months ended September 30, 2001 respectively and $15,105,000 and $46,953,000 for
the same periods a year ago.
<page>
<table>
<caption>
The information by segment is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Revenues from external customers
North America $200,871 $184,644 $585,216 $541,088
Europe 60,128 58,865 174,303 179,610
Australasia 11,211 8,219 32,544 24,165
-------- -------- -------- --------
Consolidated $272,210 $251,728 $792,063 $744,863
======== ======== ======== ========
Earnings (loss) before income taxes
North America $ 34,767 $ 31,229 $ 98,452 $ 87,719
Europe 3,438 5,374 5,237 7,761
Australasia 3,909 2,701 10,252 7,664
All Other * (10,662) (10,753) (37,575) (35,802)
-------- -------- -------- --------
Consolidated $31,452 $28,551 $76,366 $67,342
======== ======== ======== ========
</table>
* 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 Earnings Per Common Share - The following table sets forth the computation
of basic and diluted net earnings per common share for the periods indicated.
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands except per share data)
2001 2000 2001 2000
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Basic
Weighted average common shares outstanding 30,700 30,141 30,593 30,075
Net earnings $19,343 $17,416 $46,965 $41,079
Net earnings per common share $ .63 $ .58 $ 1.54 $ 1.37
Diluted
Weighted average common shares outstanding 30,700 30,141 30,593 30,075
Stock options 1,118 625 1,111 577
-------- -------- -------- --------
Weighted average common shares assuming dilution 31,818 30,766 31,704 30,652
Net earnings $19,343 $17,416 $46,965 $41,079
Net earnings per common share $ .61 $ .57 $ 1.48 $ 1.34
</table>
<page>
Accounting Policy for Derivative Instruments - Financial Accounting Standards
Board Statement No. 133, Accounting for Derivative Instruments 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.
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
20% ($70 million) of the company's outstanding debt was designated as the hedged
items to interest rate swap agreements at September 30, 2001. During the quarter
ended September 30, 2001 and for the year, the company recognized an immaterial
loss related to swap agreements, which is reflected in interest expense on the
statement of earnings.
During the quarter ended September 30, 2001 and for the year, 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):
<table>
<caption>
Three Months Nine Months
Ended Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Net earnings $19,343 $17,416 $46,965 $41,079
Foreign currency translation (loss) 4,657 (2,837) (3,261) (11,412)
Unrealized gain (loss) on available for sale securities (226) 42 (317) 372
Cumulative effect upon adoption of FAS 133 0 0 802 0
Current period unrealized gain (loss) on cash flow
Hedges 218 0 (2,387) 0
-------- -------- -------- --------
Total comprehensive earnings $ 23,992 $ 14,621 $41,802 $30,039
======== ======== ======== =======
</table>
<page>
Recently Issued Accounting Pronouncements - In August, 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144, which supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
provides a single accounting model for long-lived assets to be disposed of.
Although retaining many of the fundamental recognition and measurement
provisions of SFAS No. 121, the statement significantly changes the criteria
that would have to be met to classify an asset as held-for-sale. The distinction
is important because assets held-for-sale are stated at the lower of their fair
values or carrying amounts and depreciation is no longer recognized. This
statement is required to be implemented by the first quarter of 2002. Management
is currently studying the potential effects of the adoption of this statement.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Accounting for Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.
During 2002, the Company will perform the first of the required impairment tests
under SFAS No. 142 of the goodwill and indefinite lived intangible assets as of
January 1, 2002. The Company's current policy for measuring goodwill impairment
is based upon an analysis of undiscounted cash flows, which does not result in
an indicated impairment. Under SFAS No. 142, goodwill must be assigned to
reporting units and measured for impairment based upon the fair value of the
reporting units.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income for the year. The Company has not yet determined its reporting
units under SFAS No. 142 and what the effect of these new impairment tests will
be on its consolidated financial position or results of operations.
Statement of Cash Flows - The company made payments (in thousands) of :
Nine Months Ended
September 30,
2001 2000
-------- --------
Interest $23,692 $23,335
Income taxes 18,632 21,390
Inventories - Inventories consist of the following components (in thousands):
September 30, December 31,
2001 2000
-------- --------
Raw materials $ 32,985 $ 29,417
Work in process 14,927 15,039
Finished goods 62,067 60,839
-------- --------
$ 109,979 $ 105,295
========= =========
<page>
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):
September 30, December 31,
2001 2000
-------- --------
Land, buildings and improvements $ 55,320 $ 55,760
Machinery and equipment 184,055 176,885
Furniture and fixtures 14,716 13,443
Leasehold improvements 11,857 10,308
-------- --------
265,948 256,396
Less allowance for depreciation (132,530) (121,483)
-------- --------
$133,418 $134,913
======== ========
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 September 30, 2001 were $272,210,000
compared to $251,728,000 the same period a year ago. Excluding the negative
impact of currency translation, consolidated sales increased 10%. North America,
Europe and Australasia posted solid sales increases, which positively impacted
net sales for the quarter. Year to date net sales increased to $792,063,000
compared to $744,863,000 the same period a year ago. Excluding the negative
impact of currency translation, sales increased 9% from the same period a year
ago. The year to date increase was driven principally by continued strong sales
increases in North America and Australasia.
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 9% for the quarter and 8% for
the first nine months of the year compared to the same periods a year ago
excluding the net negative impact of currency translation. All major product
lines showed growth in the quarter and year to date. The largest gains were
recorded in Respiratory, Rehab, Standard products and Continuing Care due
primarily to the increased sales volume of these products.
<page>
European Operations
European sales increased to $60,128,000 from $58,865,000 for the quarter but
decreased to $174,303,000 from $179,610,000 year to date due to the adverse
effect of exchange rates. Adjusting for the negative impact of exchange rates,
European sales increased 10% in the quarter and 5% for the first nine months.
The Respiratory product line posted the largest percentage increases in sales
for both the quarter and year to date, compared to the same periods a year ago.
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. Excluding the negative impact from foreign
currency translation, net sales increased 36% for the quarter and 40% for the
first nine months of the year.
GROSS PROFIT
Gross profit as a percentage of net sales for the three and nine-month periods
ended September 30, 2001 was 30.8% and 30.5%, respectively, compared to 31.5%
and 31.1% in the same periods last year. A margin improvement in North America
was more than offset by a decrease in Europe and Australasia for the three and
nine-month periods. The overall margin declines are primarily due to a change in
sales mix, the decline in the Euro and pricing pressure in the medical supplies
business. In North America, increased sales of low margin product had a negative
impact on margins which was offset by productivity improvements and cost
reductions.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales for the
three and nine months ending September 30, 2001 was 17.0% and 18.5%,
respectively, compared to 17.3% and 19.1% in the same periods a year ago.
Excluding the impact of acquisitions and foreign currency, selling, general and
administrative expense as a percent of sales declined slightly for the quarter
and year to date compared to the prior year.
North American selling, general and administrative costs, as a percent of sales,
for the three and nine months ending September 30, 2001 declined slightly for
the quarter and year to date compared to the same periods a year ago. The dollar
increase was $1,494,000 for the quarter and $4,293,000 for the year
respectively, compared to the prior year. European operations' selling, general
and administrative costs increased as a percent of sales by approximately 1.8%
for the quarter, but decreased by approximately .5% for the year compared to the
same periods a year ago. Australasia operations' costs for the quarter and first
half, as a percent of sales, declined versus the same periods a year ago.
<page>
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, $7,231,000
has been utilized through September 30, 2001 including $621,000 for the payment
of severance costs, $372,000 in facility shutdowns and $300,000 in the
settlement of litigation in the third quarter of 2001. 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, $10,705,000 has been utilized through September 30,
2001 including $135,000 in the third quarter of 2001 for the payment of
severance costs. The company anticipates all of the remaining charge to be
utilized in 2001.
INTEREST
Interest income in the three months ended September 30, 2001 decreased by
$190,000 based on decreased installment sales volume. Year to date interest
income increased by $908,000, when compared to the same periods a year ago, due
primarily to financing fess on new business written as a result of our
third-party financing arrangement with DLL, a subsidiary of Rabo Bank of the
Netherlands. For the quarter and first nine months, interest expense decreased
from the same periods a year ago as a result of decreased debt levels.
INCOME TAXES
The company had an effective tax rate of 38.5% for the three and nine months
periods ended September 30, 2001 compared to an effective tax rate of 39.0% in
the same periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The company's reported overall level of long-term obligations decreased $36.2
million to $348.1 million for the nine months ended September 30, 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. As of September 30, 2001, the company had approximately $200.2
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
$384 million.
On October 17, 2001, the Company entered into a new multi-currency credit
facility with a group of twelve banks led by Bank One and Key Bank. The facility
which is effective on October 26 includes a $325 million five year revolving
credit commitment as well as a $100 million 364 day facility and replaces the
current $425 million facility that was due to expire in October of 2002. The all
in cost of borrowing ranges from LIBOR plus 87.5 to LIBOR plus 175, depending on
the Company's leverage ratio (total debt-to-EBITDA). The current all in cost for
borrowings under the new credit facility is LIBOR plus 125.
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.
<page>
CAPITAL EXPENDITURES
There were no material capital expenditure commitments outstanding as of
September 30, 2001. The company estimates that capital investments for 2001 will
approximate $20 to $25 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 $45.2 million for the first
nine months of 2001 compared to $32.6 million in 2000. Operating cash flows
increased in 2001 due primarily to increased net earnings and the company's
continued focus on cash management.
Cash flows required for investing activities decreased by $19.9 million for the
first nine months of 2001 when compared to 2000. The decrease is principally a
result of a higher level of payments received on installment receivables. The
decrease is also attributable to reduced capital spending in the current year as
the company tightly controlled expenditures to help meet operating objectives.
Cash flows required by financing activities were $33.0 million compared to $13.2
million in 2000. The decrease is primarily attributable to the company's efforts
to pay down long term borrowings and the repurchase of treasury shares.
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 August 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 October 1, 2001, to be paid on October 15, 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 September 30, 2001 debt levels, a 1% change in interest
rates would impact interest expense by approximately $1,759,000 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.
<page>
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 Reports on Form 8-K: None
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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
-------------------------------------
Thomas R. Miklich
Chief Financial Officer
Date: November 14, 2001