1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
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Commission File Number 0-12938
Invacare Corporation
(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)
899 Cleveland Street, P.O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices)
(216) 329-6000
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(Registrant's telephone number, including area code)
N/A
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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 April 18, 1996 the Company had 27,786,254 Common Shares and 1,461,767
Class B Common Shares outstanding.
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INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995..........................................3
Condensed Consolidated Statement of Earnings -
Three Months Ended March 31, 1996 and 1995....................................4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995....................................5
Notes to Condensed Consolidated Financial
Statements - March 31, 1996...................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K....................................11
SIGNATURES...................................................................11
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Part I. FINANCIAL INFORMATION
Item 1... Financial Statements
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
March 31, December 31,
1996 1995
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ASSETS (In thousands)
- - ------
CURRENT ASSETS
.........Cash and cash equivalents $ 4,283 $ 4,132
.........Marketable securities 2,699 2,437
.........Trade receivables, net 87,423 93,592
.........Installment receivables, net 44,020 37,074
.........Inventories 64,587 54,468
.........Deferred income taxes 7,761 6,831
.........Other current assets 7,432 6,151
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......... TOTAL CURRENT ASSETS 218,205 204,685
OTHER ASSETS 38,559 36,581
PROPERTY AND EQUIPMENT, NET 67,134 65,078
GOODWILL, NET 115,770 102,406
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......... TOTAL ASSETS $439,668 $408,750
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
.........Accounts payable $ 43,031 $ 33,805
.........Accrued expenses 38,410 45,097
.........Accrued income taxes 5,867 5,821
.........Current maturities of long-term obligations 248 213
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......... TOTAL CURRENT LIABILITIES 87,556 84,936
LONG-TERM OBLIGATIONS 145,755 122,456
DEFERRED INCOME TAXES 854 39
SHAREHOLDERS' EQUITY
.........Preferred shares 0 0
.........Common shares 7,000 6,148
.........Class B common shares 409 1,243
.........Additional paid-in-capital 67,805 66,890
.........Retained earnings 135,796 130,100
.........Adjustment to shareholders' equity 798 993
.........Treasury shares (6,305) (4,055)
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......... TOTAL SHAREHOLDERS' EQUITY 205,503 201,319
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......... TOTAL LIABILITIES
......... AND SHAREHOLDERS' EQUITY $439,668 $408,750
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended
March 31,
1996 1995
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......... (In thousands, except per share data)
Net sales $134,461 $107,729
Cost of products sold 92,834 74,327
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.........GROSS PROFIT 41,627 33,402
Selling, general and administrative expenses 31,398 25,146
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.........INCOME FROM OPERATIONS 10,229 8,256
Interest income 2,255 1,714
Interest expense (2,547) (2,233)
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.........EARNINGS BEFORE INCOME TAXES 9,937 7,737
Income taxes 3,875 2,940
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.........NET EARNINGS 6,062 $ 4,797
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.........NET EARNINGS PER SHARE $ .20 $ .16
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Weighted average shares outstanding 30,376 29,890
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See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Three Months Ended
March 31,
1996 1995
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OPERATING ACTIVITIES (In thousands)
.........Net earnings $6,062 $4,797
.........Adjustments to reconcile net earnings to
......... net cash required by operating activities:
......... Depreciation and amortization 4,375 2,915
......... Provision for losses on receivables 82 220
......... Provision for deferred income taxes (154) 76
......... Provision for deferred compensation 516 328
.........Changes in operating assets and liabilities:
......... (Increase)/decrease in accounts receivable 7,896 (63)
......... (Increase)/decrease in inventories (7,991) 2,336
......... (Increase)/decrease in other assets (1,168) 742
......... Increase/(decrease) in accounts payable 7,716 (705)
......... Decrease in accrued expenses (7,570) (2,714)
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......... NET CASH PROVIDED BY OPERATING ACTIVITIES 9,764 7,932
INVESTING ACTIVITIES
.........Purchases of property and equipment (3,763) (2,483)
.........Proceeds from sale of property and equipment 7 497
.........Installment sales contracts written (15,939) (11,166)
.........Payments received on installment sales contracts 9,422 10,005
.........Marketable securities purchased (262) (2,856)
.........Marketable securities sold 0 375
.........Increase in other investments (2,082) (118)
Business acquisitions, net of cash acquired (17,211) 0
.........Other (181) (765)
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......... NET CASH REQUIRED BY INVESTING ACTIVITIES (30,009) (6,511)
FINANCING ACTIVITIES
.........Proceeds from long-term borrowings 51,764 10,677
.........Principal payments on long-term borrowings (29,498) (15,542)
Proceeds from exercise of stock options 933 283
.........Dividends Paid (366) (176)
.........(Purchase) proceeds from treasury stock (2,250) 0
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......... NET CASH PROVIDED BY (USED FOR) FINANCING
......... ACTIVITIES 20,583 (4,758)
Effect of exchange rate changes on cash (187) 506
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Increase(Decrease) in cash and cash equivalents 151 (2,831)
Cash and cash equivalents at beginning of period 4,132 7,359
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Cash and cash equivalents at end of period $4,283 $4,528
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See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Nature of Operations -- Invacare Corporation and its subsidiaries (the
"company") is the leading home medical equipment manufacturer in the world based
on its distribution channels, the breadth of its product line and sales. The
company designs, manufactures and distributes an extensive line of medical
equipment for the home health care and extended care markets. The company's
products include standard manual wheelchairs, motorized and lightweight
prescription wheelchairs, motorized scooters, patient aids, home care and
institutional beds, low air loss therapy products, home respiratory, ambulatory
infusion pumps and seating and positioning products.
Principles of Consolidation -- In the opinion of the company, the accompanying
unaudited condensed consolidated financial statements are prepared in accordance
with generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results may differ from these estimates. The accompanying
financial statements include all adjustments, which were of a normal recurring
nature, necessary to present fairly the financial position of the company as of
March 31, 1996 and December 31, 1995, and the results of its operations for the
three months ended March 31, 1996 and 1995 and changes in its cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996, are not necessarily indicative of the results
to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements contained in the Company's annual financial statements and notes.
Shareholders' Equity Transactions -- In October 1995, Statement of
Financial Accounting Standards No. 123. "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued and becomes effective for fiscal years
beginning after December 15, 1995. Under the new rules companies will be
required to provide additional footnote disclosures relating to stock-based
awards. In accordance with SFAS 123, the company has elected to continue to
apply Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25") in accounting for its employee stock options. Under APB 25,
if the option is fixed and the exercise price of the underlying stock equals the
market price on the date of the grant, no compensation expense is recognized.
The adoption of the new standard will not have an effect on the company's
financial condition or results of operations. 7
Statement of Cash Flows -- The Company made payments (in thousands) of :
.........
Three Months Ended
March 31,
---------
1996 1995
......... Interest $2,267 $2,315
......... Income Taxes 2,968 3,035
Inventories -- Inventories consist of the following components (in thousands):
March 31, December 31,
1996 1995
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......... Raw materials $ 23,676 $ 20,045
......... Work in process 12,650 10,898
......... Finished goods 28,261 23,525
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$ 64,587 $ 54,468
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The inventory determination under the LIFO method can only be made at the end of
each fiscal year based on the inventory levels and cost at that point,
therefore, interim LIFO determinations are based on management's estimates of
expected year-end inventory levels and costs.
Property and Equipment -- Property and equipment consist of the following (in
thousands)
March 31, December 31,
1996 1995
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Land, buildings and improvements $ 34,456 $ 33,501
Machinery and equipment 87,815 84,662
Furniture and fixtures 9,187 8,636
Leasehold improvements 6,885 6,674
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Less allowance for depreciation (71,209) (68,395)
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$ 67,134 $ 65,078
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Item 2...Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
NET SALES
.........Net sales for the quarter ended March 31, 1996 increased by 24.8%
over the same period a year ago with acquisitions accounting for 8.9% of the
increase and a positive impact from currency translation of 1.2%. All product
lines, with the exception of low air loss therapy, had sales gains for the
quarter with respiratory, personal care products, manual and power wheelchairs
posting the largest increases. Sales increased principally due to higher unit
volumes, aided by national provider supply contracts that were completed during
1995. The volume increases were offset by the effects of a continuing
competitive pricing environment for most of our product lines.
North American Operations
Rehab Products Group. Sales of the Rehab Products Group, which consists of
the power wheelchairs, custom manual wheelchairs and seating and positioning
business units, increased 21.8% with 8.1% due to the acquisition of PinDot
Products and Special Health Systems.
Standard Products Group. Sales of the Standard Products Group, which
consists of the manual wheelchairs/patient transport, personal care, beds and
low air loss therapy business units, increased 16.1%. The personal care and
manual wheelchairs product lines each posted significant sales increases with
manual wheelchair sales increasing 18.1% supported by the successful
introduction of the Tracer IV wheelchair. The strong sales growth was dampened
by declining volumes in low air loss therapy as a result of changes in Medicare
reimbursement policies.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, liquid oxygen, aerosol therapy and
associated respiratory products business units, increases 27.2% for the quarter
ended March 31, 1996. Significant volume increases particularly for oxygen
concentrators as a result of national accounts contracts was offset by
significant pricing pressures.
Other. Other, consisting primarily of the company's Canadian and New Zealand
operations, aftermarket parts business, ambulatory infusion pumps and Invacare's
new retail division, had a 52.9% sales increase with acquisitions accounting for
47.4% which included Patient Solutions, Thompson Rehab, GP Healthcare, M.E.R.S.
and the recently acquired Frohock-Stewart
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European Operations
.........European sales increased 29.3% with acquisitions, including the
impact from the acquisition of Fabrioto, accounting for 17.4% of that increase.
Sales increased in almost all product lines with the majority in respiratory,
patient aids, and power wheelchairs. Currency translation contributed a positive
effect of 4.6% to the reported sales increase.
GROSS PROFIT
Gross profit as a percentage of net sales remained at 31.0% for the
quarter, as compared to the same period a year ago as a result of decreasing
margins experienced in North American operations as a result of competitive
pricing pressures and the initial effect of national provider contracts offset
by improvements in European gross margins as a result of increased volume and
continued manufacturing productivity improvements.
SELLING, GENERAL AND ADMINISTRATIVE
.........Selling, general and administrative expense as a percentage of net
sales increased slightly to 23.4% in the first quarter compared to 23.3% in
1995. The dollar increase was $6,252,000 or 24.9% as compare to last year with
acquisitions accounting for approximately half of the dollar increase.
.........North American selling, general and administrative costs as a
percent to sales grew at a slower rate than sales for the quarter. European
operations' selling, general and administrative expenses, as a percentage of
sales, increased due to continued investments to build the infrastructure to
support the company's strategy of expanding the European product lines to mirror
that of the North American operations.
INTEREST
.........Interest income in the quarter ended March 31, 1996 increased over
the same period a year ago mainly as a result of increased installment loan
volumes. For the quarter, interest expense increased mainly due to higher
average outstanding borrowings.
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INCOME TAXES
.........The Company had an effective tax rate of 39.0% for the quarter
ended March 31, 1996, compared to 38.0% in the same period a year ago. The
higher tax rate for the quarter ended March 31, 1996 is due in part to increased
earnings in international operations, which are taxed at higher rates.
LIQUIDITY AND CAPITAL RESOURCES
.........The Company's overall level of long-term obligations increased $23
million to $146 million for the quarter ended March 31, 1996, mainly as a result
of acquisition activity, which occurred late in the quarter, and capital
investments. 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 March 31, 1996 the Company has
approximately $115 million available under its lines of credit.
.........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 in the bank and note agreements.
The Company is in compliance with all of the conditions.
CAPITAL EXPENDITURES
.........There were no material capital expenditure commitments outstanding
as of March 31, 1996. The Company expects to invest in capital projects at a
rate that equals or exceeds depreciation and amortization in order to maintain
and improve the company's competitive position. The Company estimates that
capital investments for 1996 will be approximate $20 million. The Company
believes that its balances of cash and cash equivalents, together with funds
generated from operations and existing borrowing capabilities will be sufficient
to meet its operating cash requirements and fund required capital expenditures
for the foreseeable future.
ACQUISITIONS
.........In February, the company purchased all outstanding shares of
Fabrioto, Lda (Portugal), a manufacturer and distributor of manual and power
wheelchairs, beds and walking aids and all the outstanding shares of
Frohock-Stewart Inc., a manufacturer of personal care products with distribution
primarily through mass retailers. In March, the company completed the
acquisition of Healthtech Products, Inc., a manufacturer of nursing home beds
with distribution in the extended care institutional market. New growth channels
are expected for the company's products because of these acquisitions.
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CASH FLOWS
Cash flows provided by operating activities were $9.8 million for the first
quarter of 1996 compared to $7.9 million in 1995. The primary sources of
improved 1996 cash flows provided by operating activities were from increased
net income and and decrease in accounts receivable as a result of improved DSO
(days sales outstanding) for the quarter, was offset by increased inventory
levels required to meet increased sales activity
Cash flows required for investing activities increased by $23.5 million for
the first quarter of 1996 when compared to 1995 mainly as a result of
acquisition activity and increased installment sales activity by the Company's
financing division.
Cash flows provided by financing activities increased to $20.5 million for
the first quarter of 1996 when compared to $4.7 million required in 1995 as the
result of a increase in long-term borrowings required to fund acquisitions which
occurred late in the quarter and a repurchase of treasury stock for $2.25
million.
.........The effect of foreign currency translation results in amounts
being shown for cash flows in the Consolidated Statement of Cash Flows that are
different from the changes reflected in the respective balance sheet captions.
DIVIDEND POLICY
.........On February 1, 1996, the Board of Directors for Invacare
Corporation declared a quarterly cash dividend of $.0125 per Common Share to
shareholders of record as of April 1, 1996, to be paid on April 15, 1996. At the
current rate, the cash dividend will amount to $.05 per Common Share on an
annual basis.
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Item 6. Exhibits and Reports on Form 8-K
.........A Exhibits:
......... Official Exhibit No.
......... 27 Financial Data Schedule
.........
.........B Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INVACARE CORPORATION
By:
/S/ Thomas R. Miklich
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Thomas R. Miklich
Chief Financial Officer
Date: May 15, 1996