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
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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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
- ------------------------------- -------------------------------
(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)
(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.
<page>
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
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
September 30, December 31,
2004 2003
<s> <c> <c>
------- -------
(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
========== ==========
</table>
See notes to condensed consolidated financial statements.
3
<page>
<table>
<caption>
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
------- ------- ------- -------
<s> <c> <c> <c> <c>
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
======= ======= ======= =======
</table>
See notes to condensed consolidated financial statements.
4
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Nine Months Ended
September 30,
2004 2003
------- -------
<s> <c> <c>
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
======= =======
</table>
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
<page>
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):
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
<s> <c> <c> <c> <c>
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
======= ======= ======= =======
</table>
* 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.
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
<s> <c> <c> <c> <c>
(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
</table>
7
<page>
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
<page>
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):
<table>
<caption>
September 30, 2004 December 31, 2003
------------------ -----------------
Historical Accumulated Historical Accumulated
Cost Amortization Cost Amortization
---------- ------------ ---------- ------------
<s> <c> <c> <c> <c>
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
======= ====== ======= ======
</table>
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):
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
<s> <c> <c> <c> <c>
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
</table>
9
<page>
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):
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
<s> <c> <c> <c> <c>
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
====== ====== ====== ======
</table>
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
<page>
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
<page>
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
<page>
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
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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.
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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
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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.
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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
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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.
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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
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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
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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).
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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
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