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 September 30, 1996
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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 November 8, 1996 the Company had 27,953,328 Common Shares and
1,441,767 Class B Common Shares outstanding.
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INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
September 30, 1996 and December 31, 1995...................................3
Condensed Consolidated Statement of Earnings -
Three and Nine Months Ended September 30, 1996 and 1995....................4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1996 and 1995..............................5
Notes to Condensed Consolidated Financial
Statements - September 30, 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)
September 30, December 31,
1996 1995
ASSETS (In thousands)
- - ------ -----------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 5,051 $ 4,132
Marketable securities 3,415 2,437
Trade receivables, net 98,541 93,592
Installment receivables, net 47,401 37,074
Inventories 79,642 54,468
Deferred income taxes 7,944 6,831
Other current assets 4,946 6,151
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TOTAL CURRENT ASSETS 246,940 204,685
OTHER ASSETS 42,953 36,581
PROPERTY AND EQUIPMENT, NET 74,911 65,078
GOODWILL, NET 123,278 102,406
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TOTAL ASSETS $488,082 $408,750
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 43,064 $ 33,805
Accrued expenses 46,351 45,097
Accrued income taxes 1,491 5,821
Current maturities of long-term obligations 228 213
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TOTAL CURRENT LIABILITIES 91,134 84,936
LONG-TERM OBLIGATIONS 168,843 122,456
DEFERRED INCOME TAXES 704 39
SHAREHOLDERS' EQUITY
Preferred shares 0 0
Common shares 7,086 6,148
Class B common shares 360 1,243
Additional paid-in-capital 70,357 66,890
Retained earnings 155,413 130,100
Adjustment to shareholders' equity 490 993
Treasury shares (6,305) (4,055)
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TOTAL SHAREHOLDERS' EQUITY 227,401 201,319
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TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $488,082 $408,750
=========== ==========
See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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(In thousands, except per share data)
Net sales $158,146 $130,547 $451,776 $360,577
Cost of products sold 104,942 86,643 305,590 243,187
----------- ---------- ---------- ----------
GROSS PROFIT 53,204 43,904 146,186 117,390
Selling, general and administrative expenses 35,181 28,236 101,243 80,515
----------- ---------- ---------- ----------
INCOME FROM OPERATIONS 18,023 15,668 44,943 36,875
Interest income 2,514 1,741 7,125 5,272
Interest expense (3,091) (2,791) (8,787) (7,360)
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 17,446 14,618 43,281 34,787
Income taxes 6,800 5,550 16,875 13,210
---------- ---------- ---------- ----------
NET EARNINGS $ 10,646 $ 9,068 $ 26,406 $ 21,577
========== ========== ========== ==========
NET EARNINGS PER SHARE $ .35 $ .30 $ .87 $ .72
========== ========== ========== ==========
DIVIDEND DECLARED PER COMMON SHARE $ .0125 $ .0125 $ .0375 $ .0375
========== ========== ========== ==========
Weighted average shares outstanding 30,453 30,104 30,387 30,012
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Nine Months Ended
September 30,
1996 1995
------ ------
OPERATING ACTIVITIES (In thousands)
Net earnings $26,406 $21,577
Adjustments to reconcile net earnings to
net cash required by operating activities:
Depreciation and amortization 13,220 10,680
Provision for losses on receivables 1,507 368
Provision for deferred income taxes (341) (53)
Provision for other deferred liabilities 1,954 356
Changes in operating assets and liabilities:
Accounts receivable 980 (10,392)
Inventories (16,607) 2,579
Other assets 1,535 1,025
Accounts payable 4,884 2,000
Accrued expenses (6,517) 1,590
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NET CASH PROVIDED BY OPERATING ACTIVITIES 27,021 29,730
INVESTING ACTIVITIES
Purchases of property and equipment (15,689) (8,602)
Proceeds from sale of property and equipment 102 139
Installment sales contracts written (46,062) (32,588)
Payments received on installment sales contracts 34,779 31,534
Marketable securities purchased (1,153) (3,682)
Marketable securities sold 175 4,427
Increase in other investments (3,734) (2,133)
Business acquisitions, net of cash acquired (24,860) (17,898)
Increase in other long term assets (2,616) (3,889)
Other (1,472) 67
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NET CASH REQUIRED BY INVESTING ACTIVITIES (60,530) (32,625)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 121,465 37,808
Principal payments on long-term borrowings (87,007) (39,285)
Proceeds from exercise of stock options 3,522 1,232
Dividends paid (1,093) (608)
Purchase of treasury stock (2,250) (161)
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NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES 34,637 (1,014)
Effect of exchange rate changes on cash (209) 693
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Increase/(decrease) in cash and cash equivalents 919 (3,216)
Cash and cash equivalents at beginning of period 4,132 7,359
---------- ---------
Cash and cash equivalents at end of period $ 5,051 $ 4,143
========== =========
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, extended care and retail 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
September 30, 1996 and December 31, 1995, and the results of its operations for
the three and nine months ended September 30, 1996 and 1995 and changes in its
cash flows for the nine months ended September 30, 1996 and 1995. The results of
operations for the three and nine months ended September 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.
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Statement of Cash Flows -- The company made payments (in thousands) of :
Nine Months Ended
September 30,
1996 1995
------ ----
Interest $ 7,462 $ 5,822
Income Taxes $ 21,330 $ 14,337
Inventories -- Inventories consist of the following components (in thousands):
September 30, December 31,
1996 1995
------------ -----------
Raw materials $ 25,912 $ 20,045
Work in process 14,838 10,898
Finished goods 38,892 23,525
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$ 79,642 $ 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):
September 30, December 31,
1996 1995
---------------------------------
Land, buildings and improvements $ 35,639 $ 33,501
Machinery and equipment 98,196 84,662
Furniture and fixtures 11,076 8,636
Leasehold improvements 7,189 6,674
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152,100 133,473
Allowance for depreciation (77,189) (68,395)
------------ ----------
$ 74,911 $ 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 three and nine months ended September 30, 1996 increased by
21.1% and 25.3%, respectively, over the same periods a year ago. For the
quarter, acquisitions accounted for over one-half of the increase while currency
translation negatively impacted sales by less than 1%. Year to date,
acquisitions contributed slightly less than one-half of the increase with
foreign currency having a minimal negative impact. All product lines, with the
exception of low air loss therapy, had sales gains for the quarter and year to
date with personal care products, power products and standard 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 mainly in the standard and respiratory product
groups.
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 22.4% with 3.6% of the increase for the quarter due to
the acquisition of Special Health Systems. All product lines posted sales
increases for the quarter. Year to date, Rehab group sales also increased 22.4%
with acquisitions contributing 3.7% 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 21.4%, including the impact of the long term
care bed product acquisition which accounted for 10.3% of the increase for the
quarter. The personal care and manual wheelchairs/patient transport product
lines each posted solid sales increases with personal care sales continuing to
show 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. Year to date, Standard Products Group sales increased
23.7% with 8.7% 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 slightly for the quarter
and 18.0% for the first nine months ended September 30, 1996. The first nine
months were aided by the early first quarter introduction of the Venture Demand
Oxygen Delivery Device. Volume increases for the nine months, principally for
oxygen concentrators and aerosal therapy 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 74.1% sales increase
primarily as a result of acquisition activity. The acquisitions included
Thompson Rehab, GP Healthcare, Rollerchair, Medical Equipment Repairs Svc. Inc.,
Frohock-Stewart and Product Research Company. For the first nine months, sales
for this group increased 64.4%.
European Operations
European sales increased 11.3% with acquisitions accounting for 5.6% 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
3.5% on the reported sales increase. For the nine months ended September 30,
1996, sales gain for Europe was 19.1% with 11.7% due to acquisitions. Currency
translation had a negative impact of 1.2% on the reported sales increase.
GROSS PROFIT
Gross profit as a percentage of net sales for the three and nine month periods
ending September 30, 1996 was 33.6% and 32.4%, respectively, compared to 33.6%
and 32.6% for the same periods last year. Gross profit was effected by
businesses acquired as they had margins lower than those of the company's
existing businesses. In addition, gross profit continues to reflect the impact
of competitive pricing pressures which was offset by productivity enhancements,
material cost management and cost containment initiatives.
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales for the
three and nine months ending September 30, 1996 was 22.2% and 22.4%,
respectively, compared to 21.6% and 22.3% in the same periods a year ago. The
dollar increase was $6,945,000 (24.6%) for the quarter and $20,728,000 (25.7%)
for the nine months. Acquisitions were the major contributors of the dollar
increase in both periods.
North American selling, general and administrative costs as a percent of sales,
excluding acquisitions, 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 ongoing investments necessary 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 nine months ended September 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 yield rate. For
the quarter and nine 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 nine months
ended September 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.
LIQUIDITY AND CAPITAL RESOURCES
The company's overall level of long-term obligations increased $46,000,000 to
$169,000,000 for the nine months ended September 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 September 30, 1996 the company has
approximately $93,000,000 available under its lines of credit and under the most
restrictive covenant of its debt arrangements may borrow up to $262,000,000.
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
September 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.
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CASH FLOWS
Cash flows provided by operating activities were $27 million for the nine months
ended September 30, 1996 compared to $30 million in 1995. Operating cash flow
declined in 1996 due to increased working capital requirements needed to support
the increased sales activity.
Cash flows required for investing activities increased by $28 million for the
nine months ended September 30, 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 million for the
nine months of 1996 when compared to $1 million required in 1995 as the result
of an increase in long-term borrowings required to fund acquisitions, increased
working capital requirements and increased capital expenditure levels.
In addition to acquisition activities, 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 August 21, 1996, the Board of Directors for Invacare Corporation declared a
quarterly cash dividend of $.0125 per Common Share to shareholders of record as
of October 1, 1996, to be paid on October 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 5. Exhibits and Reports on Form 8-K
A Exhibits:
Official Exhibit No.
27 Financial Data Schedule
B Reports on Form 8-K: None
3(b) Code of Regulations; as submitted May 22, 1996.
10(ao) First Amendment to Loan Agreement among Invacare
Corporation and certain subsidiaries and NBD, N.A.,
as agent dated July 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INVACARE CORPORATION
By: /S/ Thomas R. Miklich
--------------------------
Thomas R. Miklich
Chief Financial Officer
Date: November 14, 1996