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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, 1997
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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)
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 May 13, 1997 the Company had 28,090,522 Common Shares and 1,441,467
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 -
March 31, 1997 and December 31, 1996........................3
Condensed Consolidated Statement of Earnings -
Three Months Ended March 31, 1997 and 1996..................4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996..................5
Notes to Condensed Consolidated Financial
Statements - March 31, 1997.................................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,
1997 1996
ASSETS (In thousands)
- - ------
CURRENT ASSETS
.........Cash and cash equivalents $ 6,040 $ 4,431
.........Marketable securities 2,474 3,569
.........Trade receivables, net 102,128 105,432
.........Installment receivables, net 52,970 51,995
.........Inventories 74,557 78,934
.........Deferred income taxes 6,784 7,181
.........Other current assets 7,257 7,178
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252,210 258,720
OTHER ASSETS 54,188 49,459
PROPERTY AND EQUIPMENT, NET 78,124 77,830
GOODWILL, NET 118,057 123,619
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......... TOTAL ASSETS $502,579 $509,628
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
.........Accounts payable $ 41,476 $ 40,723
.........Accrued expenses 41,729 50,900
.........Accrued income taxes 3,610 1,563
.........Current maturities of long-term obligations 4,837 4,582
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......... TOTAL CURRENT LIABILITIES 91,652 97,768
LONG-TERM OBLIGATIONS 167,133 173,263
DEFERRED INCOME TAXES 360 0
SHAREHOLDERS' EQUITY
.........Preferred shares 0 0
.........Common shares 7,125 7,103
.........Class B common shares 360 360
.........Additional paid-in-capital 72,185 71,143
.........Retained earnings 174,414 167,561
.........Adjustment to shareholders' equity (3,427) (833)
.........Treasury shares (7,223) (6,737)
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......... TOTAL SHAREHOLDERS' EQUITY 243,434 238,597
-------- --------
......... TOTAL LIABILITIES
......... AND SHAREHOLDERS' EQUITY $502,579 $509,628
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See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended
March 31,
1997 1996
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Net sales $151,524 $134,461
Cost of products sold 107,306 92,834
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.........GROSS PROFIT 44,218 41,627
Selling, general and administrative expenses 31,693 31,398
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.........INCOME FROM OPERATIONS 12,525 10,229
Net interest expense (695) (292)
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.........
EARNINGS BEFORE INCOME TAXES 11,830 9,937
Income taxes 4,610 3,875
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.........NET EARNINGS 7,220 6,062
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DIVIDENDS DECLARED PER COMMON SHARE $ .0125 $ .0125
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.........NET EARNINGS PER SHARE $ .24 $ .20
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Weighted average shares outstanding 30,412 30,376
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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,
1997 1996
OPERATING ACTIVITIES
(In thousands)
.........Net earnings $7,220 $6,062
.........Adjustments to reconcile net earnings to
......... net cash required by operating activities:
......... Depreciation and amortization 4,855 4,375
......... Provision for losses on receivables 551 82
......... Provision for deferred income taxes (255) (154)
......... Provision for other deferred liabilities 1,190 516
.........Changes in operating assets and liabilities:
......... Trade receivables 1,358 7,896
......... Inventories 2,520 (7,991)
......... Other current assets (241) (1,168)
......... Accounts payable 1,897 7,716
......... Accrued expenses (6,816) (7,570)
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......... NET CASH PROVIDED BY OPERATING ACTIVITIES 12,279 9,764
INVESTING ACTIVITIES
.........Purchases of property and equipment (5,875) (3,763)
.........Proceeds from sale of property and equipment 66 7
.........Installment sales contracts written (16,956) (15,939)
.........Payments received on installment sales contracts 17,284 9,422
.........Marketable securities purchased (1,789) (262)
.........Marketable securities sold 2,875 0
.........Increase in other investments (328) (2,082)
Increase in other long-term assets (2,315) (679)
Business acquisitions, net of cash acquired 0 (17,211)
.........Other (1,114) 498
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......... NET CASH REQUIRED BY INVESTING ACTIVITIES (8,152) (30,009)
FINANCING ACTIVITIES
.........Proceeds from revolving lines of credit and long-term borrowings 9,581 51,764
Principal payments on revolving lines of credit, long-term
debt and capital lease obligations (12,562) (29,498)
Proceeds from exercise of stock options 941 933
Dividends paid (367) (366)
(Purchase) proceeds from treasury stock 0 (2,250)
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
(2,407) 20,583
Effect of exchange rate changes on cash (111) (187)
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Increase(Decrease) in cash and cash equivalents 1,609 151
Cash and cash equivalents at beginning of period 4,431 4,132
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Cash and cash equivalents at end of period $ 6,040 $4,283
=========== ========
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, retail 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, 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, 1997 and December 31, 1996, and the results of its operations for the
three months ended March 31, 1997 and 1996 and changes in its cash flows for the
three months ended March 31, 1997 and 1996. The results of operations for the
three months ended March 31, 1997, 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.
Statement of Cash Flows -- The Company made payments (in thousands) of :
Three Months Ended
March 31,
1997 1996
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Interest $3,337 $2,267
Income Taxes $2,306 $2,968
Inventories -- Inventories consist of the following components (in thousands):
March 31, December 31,
1997 1996
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Raw materials $ 24,290 $ 25,137
Work in process 11,265 12,022
Finished goods 39,002 41,775
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$ 74,557 $ 78,934
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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,
1997 1996
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Land, buildings and improvements $ 34,585 $ 35,779
Machinery and equipment 107,917 104,297
Furniture and fixtures 10,901 10,693
Leasehold improvements 7,371 7,330
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Subtotal 160,774 158,099
Less allowance for depreciation (82,650) (80,269)
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$ 78,124 $ 77,830
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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, 1997 increased by 12.7% over the same
period a year ago with acquisitions accounting for 7.2% of the increase and a
negative impact from currency translation of 1.0%. Power, personal care and
manual wheelchairs posted the largest increases principally due to higher unit
volumes. 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 22.4% mainly as a result of volume growth and a shift
to high-end power chairs.
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs, patient transport, personal care beds, low air loss
therapy, Invacare Health Care Furnishings and retail business units, increased
19.8%, with 13.5% due to the acquisition of Invacare Health Care Furnishings and
Frohock-Stewart (retail), which occurred during the first quarter of 1996. The
personal care, low air loss therapy and manual wheelchairs product lines each
posted sales increases which were dampened by a reduction in purchases of a
major customer and a continuing competitive pricing envoronment.
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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, declined slightly for the
quarter ended March 31, 1997. Volume decreases, particularly for oxygen
concentrators were experienced as a result of lower purchases by a major
customer and the impact of uncertainty surrounding proposed governmental budget
cuts. The volume decreases were offset by new product introductions and growth
in aerosol therapy.
Other. Other, consisting primarily of the company's Canadian, Australian and New
Zealand operations, aftermarket parts business and ambulatory infusion pumps,
had a 27.3% sales increase with acquisitions accounting for 17.3% which included
Production Research Co. and Rollerchair. Canadian operations experienced strong
growth in most major product lines as a result of focused sales and marketing
efforts.
European Operations
European sales increased 1.2% excluding the impact from the acquisition of
Fabriorto, and negative impact of 6.1% from foreign currency translation. Sales
are being negatively impacted by governmental reimbursement trends, especially
in Germany.
GROSS PROFIT
Gross profit as a percentage of net sales declined to 29.2% for the quarter
compared to 31.0% for the same period a year ago. North American margins
remained basically flat with prior year as a result of increased volume and
continued manufacturing productivity improvements offset by continuing
competitive pricing pressures and a reduction in purchases by a major customer.
European gross margins decreased as a result of lower volume, an intensifying
pricing environment in the major markets and the strong dollar.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales
decreased to 20.9% in the first quarter compared to 23.4% in 1996. The dollar
increase was $295,000, less than 1%, with acquisition spending levels exceeding
the overall dollar increase for the company.
North American selling, general and administrative costs declined as a percent
to sales as these costs grew at a slower rate than sales for the quarter.
European operations' selling, general and administrative expenses, as a
percentage of sales, decreased as a result of restructuring and cost containment
initiatives that began during 1996.
INTEREST
Interest income in the quarter ended March 31, 1997 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.
INCOME TAXES
The Company had an effective tax rate of 39.0% for the quarter ended March 31,
1997 and 1996, respectively. The tax rate has remained unchanged due in part to
the overall mix of anticipated earnings in international operations remaining
unchanged.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's overall level of long-term obligations decreased $6,000,000
to $167,000,000 for the quarter ended March 31, 1997, principally as a result of
cash from operations used to paydown borrowings. 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, 1997 the Company has approximately $291,000,000, which includes the
$200,000,000 facility related to the pending tender offer for the acquisition of
Healthdyne Technologies, Inc., available under its lines of credit and under the
most restrictive covenant of its debt arrangements could add an additional
$360,000,000.
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 March
31, 1997. The Company estimates that capital investments for 1997 will be
approximately $35 - $40 million. The increase in spending is due principally to
the construction of a new corporate headquarters building and the continuing
implementation of a worldwide facilities plan. 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 January, 1997 the company commenced a cash tender offer for all of the
outstanding shares of common stock of Healthdyne Technologies, Inc. The company
currently holds approximately 4.8% of Healthdyne's outstanding common stock. The
offer has been extended and is scheduled to expire on May 27, 1997. The current
offer is $13.50 per share.
CASH FLOWS
Cash flows provided by operating activities were $12.3 million for the first
quarter of 1997 compared to $9.8 million in 1996. The principle contributors to
the increased 1997 cash flows provided by operating activities were increased
net income and a decline in inventory levels as a result of increased sales
volume in units and focus on inventory management.
Cash flows required for investing activities decreased by $21.9 million for
the first quarter of 1997 when compared to 1996 mainly as a result of reduced
acquisition activity during the first quarter of 1997 and increased payments
received on installment sales contracts.
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Cash flows used for financing activities were $2.4 million for the first quarter
of 1997 compared to cash provided from financing of $20.6 million in 1996. The
decrease in cash required from financing activities was primarily a result of
reductions in long-term borrowings which were used to fund acquisitions in the
prior year.
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 15, 1997, 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, 1997, to be paid on April 15, 1997. 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
10(ap) Second Amendment to loan agreement among Invacare
Corporation and certain subsidiaries and NBD, N.A.,
as agent dated February 27, 1997.
10(aq) Loan Agreement dated as of February 27, 1997 among
Invacare Corporation and certain subsidiaries and NBD
Bank, as agent and Keybank National Association
as co-agent.
10(ar) First Amendment to Note Agreement among Invacare
Corporation and five purchasers of Senior Notes
dated March 20, 1997.
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, 1997