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 June 30, 1996
-----------------------------------
Commission File Number 0-12938
Invacare Corporation
(Exact name of registrant as specified in its charter)
Ohio 95-2680965
------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
899 Cleveland Street, P.O. Box 4028, Elyria, Ohio 44036
-------------------------------------------------------
(Address of principal executive offices)
(216) 329-6000
--------------
(Registrant's telephone number, including area code)
N/A
---
(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 August 12, 1996 the Company had 27,901,479 Common Shares and
1,461,767 Class B Common Shares outstanding.
2
INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995..........................................3
Condensed Consolidated Statement of Earnings -
Three and Six Months Ended June 30, 1996 and 1995............................4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995......................................5
Notes to Condensed Consolidated Financial
Statements - June 30, 1996...................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................7
Part II. OTHER INFORMATION:
Item 4. Results of Votes of Security Holders...............................11
Item 6. Exhibits and Reports on Form 8-K...................................11
SIGNATURES..................................................................11
3
Part I. FINANCIAL INFORMATION
Item 1... Financial Statements
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
June 30, December 31,
1996 1995
ASSETS (In thousands)
- - ------ --------------------------------
CURRENT ASSETS
.........Cash and cash equivalents $ 3,276 $ 4,132
.........Marketable securities 2,917 2,437
.........Trade receivables, net 97,119 93,592
.........Installment receivables, net 45,727 37,074
.........Inventories 69,996 54,468
.........Deferred income taxes 8,014 6,831
.........Other current assets 6,156 6,151
-------- -------
......... TOTAL CURRENT ASSETS 233,205 204,685
OTHER ASSETS 42,332 36,581
PROPERTY AND EQUIPMENT, NET 70,516 65,078
GOODWILL, NET 123,119 102,406
-------- -------
......... TOTAL ASSETS $469,172 $408,750
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
.........Accounts payable $ 42,939 $ 33,805
.........Accrued expenses 45,509 45,097
.........Accrued income taxes 2,182 5,821
.........Current maturities of long-term obligations 222 213
-------- --------
......... TOTAL CURRENT LIABILITIES 90,852 84,936
LONG-TERM OBLIGATIONS 162,541 122,456
DEFERRED INCOME TAXES 794 39
SHAREHOLDERS' EQUITY
.........Preferred shares 0 0
.........Common shares 7,060 6,148
.........Class B common shares 365 1,243
.........Additional paid-in-capital 68,937 66,890
.........Retained earnings 145,134 130,100
.........Adjustment to shareholders' equity (206) 993
.........Treasury shares (6,305) (4,055)
-------- --------
......... TOTAL SHAREHOLDERS' EQUITY 214,985 201,319
-------- --------
......... TOTAL LIABILITIES
......... AND SHAREHOLDERS' EQUITY $469,172 $408,750
======== ========
See notes to condensed consolidated financial statements.
4
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
......... (In thousands, except per share data)
Net sales $159,169 $122,301 $293,630 $230,030
Cost of products sold 107,814 82,217 200,648 156,544
------- ------ ------- -------
.........GROSS PROFIT 51,355 40,084 92,982 73,486
Selling, general and administrative expenses 34,664 27,133 66,062 52,279
------ ------ ------ ------
.........INCOME FROM OPERATIONS 16,691 12,951 26,920 21,207
Interest income 2,356 1,817 4,611 3,531
Interest expense (3,149) (2,336) (5,696) (4,569)
------- ------- ------- -------
.........EARNINGS BEFORE INCOME TAXES 15,898 12,432 25,835 20,169
Income taxes 6,200 4,720 10,075 7,660
--------- --------- ---------- ----------
.........NET EARNINGS $ 9,698 $ 7,712 $ 15,760 $ 12,509
========= ========= ========== ==========
.........NET EARNINGS PER SHARE $ .32 $ .26 $ .52 $ .42
========= ======== ========== =========
DIVIDEND DECLARED PER COMMON SHARE $ .0125 $ .0125 $ .0250 $ .0250
========= ======== ========== =========
Weighted average shares outstanding 30,327 30,036 30,351 29,966
========= ======== ========== =========
See notes to condensed consolidated financial statements.
5
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Six Months Ended
June 30,
1996 1995
---- ----
OPERATING ACTIVITIES (In thousands)
.........Net earnings $15,760 $12,509
.........Adjustments to reconcile net earnings to
......... net cash required by operating activities:
......... Depreciation and amortization 9,235 7,145
......... Provision for losses on receivables 397 451
......... Provision for deferred income taxes (386) (232)
......... Provision for other deferred liabilities 1,430 51
.........Changes in operating assets and liabilities:
......... (Increase)/decrease in accounts receivable 843 (5,738)
......... (Increase)/decrease in inventories (9,798) 3,905
......... (Increase)/decrease in other assets 82 393
......... Increase in accounts payable 5,528 1,009
......... Decrease in accrued expenses (7,610) (407)
------- -------
......... NET CASH PROVIDED BY OPERATING ACTIVITIES 15,481 19,086
INVESTING ACTIVITIES
.........Purchases of property and equipment (9,374) (6,007)
.........Proceeds from sale of property and equipment 42 127
.........Installment sales contracts written (31,384) (22,010)
.........Payments received on installment sales contracts 21,504 20,286
.........Marketable securities purchased (660) (3,182)
.........Marketable securities sold 175 3,557
.........Increase in other investments (2,441) (2,133)
Business acquisitions, net of cash acquired (23,830) (6,848)
Increase in other long term assets (2,657) (982)
.........Other (3,263) (2,644)
------- -------
......... NET CASH REQUIRED BY INVESTING ACTIVITIES (51,888) (19,836)
FINANCING ACTIVITIES
.........Proceeds from long-term borrowings 98,403 20,748
.........Principal payments on long-term borrowings (61,672) (24,772)
Proceeds from exercise of stock options 2,081 851
.........Dividends paid (727) (358)
.........Proceeds from treasury stock (2,250) (161)
------- -------
......... NET CASH PROVIDED BY (USED FOR) FINANCING
......... ACTIVITIES 35,835 (3,692)
Effect of exchange rate changes on cash (284) 662
------- -------
Decrease in cash and cash equivalents (856) (3,780)
Cash and cash equivalents at beginning of period 4,132 7,359
------- -------
Cash and cash equivalents at end of period $ 3,276 $ 3,579
======= =======
See notes to condensed consolidated financial statements.
6
INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Nature of Operations -- Invacare Corporation and its subsidiaries (the
"company") is the leading home medical equipment manufacturer in the world based
on its distribution channels, the breadth of its product line and sales. The
company designs, manufactures and distributes an extensive line of medical
equipment for the home health care and extended care markets. The company's
products include standard manual wheelchairs, motorized and lightweight
prescription wheelchairs, motorized scooters, patient aids, home care and
institutional beds, low air loss therapy products, home respiratory, ambulatory
infusion pumps and seating and positioning products.
Principles of Consolidation -- In the opinion of the company, the accompanying
unaudited condensed consolidated financial statements are prepared in accordance
with generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results may differ from these estimates. The accompanying
financial statements include all adjustments, which were of a normal recurring
nature, necessary to present fairly the financial position of the company as of
June 30, 1996 and December 31, 1995, and the results of its operations for the
three and six months ended June 30, 1996 and 1995 and changes in its cash flows
for the six months ended June 30, 1996 and 1995. The results of operations for
the three and six months ended June 30, 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 :
Six Months Ended
June 30,
1996 1995
-------------------------
......... Interest $4,532 $3,044
......... Income Taxes 20,779 10,270
Inventories -- Inventories consist of the following components (in thousands):
June 30, December 31,
1996 1995
---------------------------------
......... Raw materials $ 24,523 $ 20,045
......... Work in process 13,203 10,898
......... Finished goods 32,270 23,525
--------- --------
$ 69,996 $ 54,468
========= ========
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):
June 30, December 31,
1996 1995
-------------------------
Land, buildings and improvements $ 35,321 $ 33,501
Machinery and equipment 93,107 84,662
Furniture and fixtures 9,915 8,636
Leasehold improvements 7,052 6,674
--------- -------
145,395 133,473
--------- -------
Less allowance for depreciation (74,879) (68,395)
--------- --------
$ 70,516 $ 65,078
========= ========
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
NET SALES
Net sales for the three and six months ended June 30, 1996 increased by 30.1%
and 27.6%, respectively over the same periods a year ago. For the quarter,
acquisitions accounted for 14.7% of the increase while currency translation
negatively impacted sales by .7%. For the first half, acquisitions contributed
12.0% of the increase with foreign currency having a slight positive impact. All
product lines, with the exception of low air loss therapy, had sales gains for
the quarter and first half with personal care products, standard wheelchairs,
power products and respiratory 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 many 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 22.9% with 4.0% of the increase for the quarter due to
the acquisition of PinDot Products and Special Health Systems. All product lines
posted strong sales increases for the quarter. For the first half, Rehab group
sales increased 22.4% with acquisitions contributing 5.9% to the increase.
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 33.0%, including the impact of the long term
care bed product acquisition which accounted for 14.9% of the increase for the
quarter. The personal care, manual wheelchairs/patient transport and homecare
beds product lines each posted solid sales increases with personal care sales
showing significant volume gains. The sales growth for the group was positively
impacted by the national provider contracts entered into in late 1995. These
strong gains were offset by significantly reduced pricing due to the intense
competition across all product lines as well as a continuing decline in volumes
for the low air loss therapy product line as a result of changes in Medicare
reimbursement policies. For the first half, Standard Products Group sales
increased 24.9% with 7.7% of the increase related to acquisitions.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, aerosol therapy and associated respiratory
products and liquid oxygen business units, increased 22.5% and 24.9% for the
quarter and first six months ended June 30, 1996, respectively. The quarter and
first half growth was aided by the early first quarter introduction of the
Venture Demand Oxygen Delivery Device. Volume increases for the quarter and
first half, principally for oxygen concentrators, were substantially higher than
the reported sales gain due to the significant competitive pricing pressure
being experienced in the marketplace for this product line.
Associated Products Group. This group, consisting primarily of the company's
Canadian and New Zealand operations, aftermarket parts, ambulatory infusion pump
business and Invacare's new retail division, had a 64.2% sales increase with
acquisitions accounting for 59.2%. The acquisitions included Patient Solutions,
Thompson Rehab, GP Healthcare, M.E.R.S. and Frohock-Stewart. For the first six
months sales for this group increased 59.0% with 53.7% coming from acquisitions.
9
European Operations
European sales increased 20.4% with acquisitions accounting for 14.5% of that
increase. Sales increased in almost all product lines with patient aids and
power wheelchairs leading the way. Currency translation had a negative impact of
3.4% on the reported sales increase. The first half sales gain for Europe was
24.3% with 15.8% due to acquisitions.
Currency had a minimal impact on the reported sales gains for the first six
months.
GROSS PROFIT
Gross profit as a percentage of net sales for the three and six month periods
ending June 30, 1996 was 32.3% and 31.7%, respectively, compared to 32.8% and
31.9% for the same periods last year. Gross margins declined principally due to
the effect of businesses acquired as they had margins lower than those of the
company's existing businesses. Excluding acquisitions, gross margins improved
slightly for both the quarter and six months. Margins for North America
operations, excluding the impact of businesses acquired increased for both
periods due to a favorable shift in product mix and continued productivity
improvements offset by overall price declines due to the continued competitive
pricing environment. European margins, excluding acquisitions, declined as a
result of competitive pricing pressures and an adverse product mix shift.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales for the
three and six months ending June 30, 1996 was 21.8% and 22.5%, respectively,
compared to 22.2% and 22.7% in the same periods a year ago. The dollar increase
was $7,531,000 (28%) for the quarter and $13,783,000 (26%) for the six months.
Acquisitions accounted for more than half of the dollar increase in both
periods.
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 its North
American operations.
INTEREST
Interest income in the three and six months ended June 30, 1996 increased over
the same periods a year ago as a result of increased installment loan volumes
offset by a slight decline in the portfolio's effective rate. For the quarter
and first six months, interest expense increased due to higher average
outstanding borrowings as rates remained relatively constant for the periods
presented.
INCOME TAXES
The Company had an effective tax rate of 39.0% for the three and six months
ended June 30, 1996, compared to 38.0% in the same periods a year ago. The
higher tax rate in 1996 is due principally to a higher level of foreign taxes in
1996.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall level of long-term obligations increased $40,000,000 to
$163,000,000 for the six months ended June 30, 1996, as a result of continued
acquisition activity and increased capital expenditures. Increased working
capital needs to support the volume growth also contributed to the increase. 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 June 30, 1996 the Company has approximately $99,000,000
available under its lines of credit and under the most restrictive covenant of
its debt arrangements may borrow up to $245,500,000.
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
June 30, 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 approximate $25 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.
11
CASH FLOWS
Cash flows provided by operating activities were $15.4 million for the first
half of 1996 compared to $19 million in 1995. Operating cash flow declined in
1996 due to increased working capital requirements needed to support the
increased sales activity and a decrease in accrued expenses. These increases
were offset somewhat by increased net income.
.........
Cash flows required for investing activities increased by $32.0 million for the
first half 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 $35.8 million for the
first half of 1996 when compared to $3.7 million required in 1995 as the result
of an increase in long-term borrowings required to fund acquisitions, the
repurchase of treasury stock for $2.25 million and the increased working capital
requirements.
The effect of foreign currency translation may result in amounts being shown for
cash flows in the Consolidated Statement of Cash Flows that are different from
the changes reflected in the respective balance sheet captions.
DIVIDEND POLICY
On May 22, 1996, the Board of Directors for Invacare Corporation declared a
quarterly cash dividend of $.0125 per Common Share to shareholders of record as
of July 4, 1996, to be paid on July 15, 1996. At the current rate, the cash
dividend will amount to $.05 per Common Share on an annual basis.
12
Item 4. Results of Votes of Security Holders
.........On May 22, 1996, the Company held its 1996 Annual Meeting of
Shareholders to act on proposals to increase the number of authorized Common
Shares; to increase the maximum number of Directors of the Company from nine to
fifteen; to fix the total number of Directors at ten, subject to the prior
adoption of the proposal to increase the maximum number of Directors; and to
elect a class of Directors.
A. Malachi Mixon, III, Frank B. Carr and Michael F. Delaney were
re-elected for a three year term of office expiring in 1999, with 35,008,926,
35,013,331 and 35,013,872 affirmative votes, respectively, ( 79 percent of the
total voting power). The candidates had 180,176, 175,771 and 175,230 negative
votes, respectively, ( .4 percent of the total voting power). Dr. Bernadine P.
Healy was also elected for a three year term of office expiring in 1999, with
35,006,502 affirmative votes and 182,600 negative votes (79.4 percent and .41
percent of the total voting power, respectively).
The proposal to increase the number of authorized Common Shares
received 34,115,613 affirmative votes (77.5 percent of the total voting power
present at the meeting), 998,645 negative votes (2.3 percent of the total voting
power) and 74,843 abstained votes (.2 percent of the total voting power).
The proposal to increase the maximum number of Directors of the Company
from nine to fifteen received 33,968,854 affirmative votes (77.1 percent of the
total voting power), 546,116 negative votes (1.24 percent of the total voting
power), 101,443 abstained votes (.2 percent of the total voting power) and
572,689 broker non-votes.
The proposal to fix the total number of Directors at ten, subject to
the adoption of the prior proposal received 34,739,446 affirmative votes (78.9
percent of the total voting power present at the meeting), 340,788 negative
votes (.7 percent of the total voting power present at the meeting) and 108,867
abstained votes (.3 percent of the total voting power present at the meeting).
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
---------------------------
Thomas R. Miklich
Chief Financial Officer
Date: August 14, 1996