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, 1998
----------------------------------------------------
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)
One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
----------------------------------------------------
(Address of principal executive offices)
(440) 329-6000
----------------------------------------------------
(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
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 12, 1998 the company had 28,451,404 Common Shares and 1,433,007
Class B Common Shares outstanding.
2
INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
September 30, 1998 and December 31, 1997...................3
Condensed Consolidated Statement of Earnings -
Three and Nine Months Ended September 30, 1998 and 1997....4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1998 and 1997..............5
Notes to Condensed Consolidated Financial
Statements - September 30, 1998............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............9
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...................................15
SIGNATURES..................................................................15
3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
September 30, December 31,
1998 1997
(In thousands)
------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,539 $ 5,696
Marketable securities 2,589 3,501
Trade receivables, net 152,039 114,410
Installment receivables, net 55,285 49,298
Inventories 87,296 75,708
Deferred income taxes 19,478 18,855
Other current assets 5,522 7,743
-------- --------
TOTAL CURRENT ASSETS 326,748 275,211
OTHER ASSETS 64,165 56,567
PROPERTY AND EQUIPMENT, NET 104,614 90,577
GOODWILL, NET 225,521 107,568
-------- --------
TOTAL ASSETS $721,048 $529,923
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $43,576 $39,431
Accrued expenses 60,197 59,998
Accrued income taxes 13,702 1,872
Current maturities of long-term obligations and short term
debt 9,234 8,252
-------- -------
TOTAL CURRENT LIABILITIES 126,709 109,553
LONG TERM DEBT 318,623 172,459
OTHER LONG-TERM OBLIGATIONS 11,763 11,496
SHAREHOLDERS' EQUITY
Preferred shares 0 0
Common shares 7,256 7,182
Class B common shares 358 359
Additional paid-in-capital 79,661 74,954
Retained earnings 198,099 167,649
Accumulated other comprehensive earnings (10,579) (6,506)
Treasury shares (10,842) (7,223)
----------- ---------
TOTAL SHAREHOLDERS' EQUITY 263,953 236,415
----------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $721,048 $529,923
=========== =========
See notes to condensed consolidated financial statements.
4
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------------------- ---------------------------
Net sales $203,351 $166,144 $587,196 $482,660
Cost of products sold 140,986 116,574 412,690 337,384
--------- -------- -------- ---------
Gross profit 62,365 49,570 174,506 145,276
Selling, general and administrative expense 37,719 55,541 117,644 121,450
Non-recurring unusual items 21,886* (3,588)** 21,886*
--------- -------- -------- ---------
Income from operations 24,646 (27,857) 60,450 1,940
Interest income 2,207 2,354 6,957 7,105
Interest expense (5,551) (3,117) (15,674) (9,418)
--------- -------- -------- ---------
Earnings before income taxes 21,302 (28,620) 51,733 (373)
Income taxes 8,308 (9,560) 20,176 1,450
--------- -------- -------- ---------
NET EARNINGS $ 12,994 $ (19,060) $ 31,557 $ (1,823)
========= ========== ======== =========
DIVIDENDS DECLARED PER
COMMON SHARE .0125 .0125 .0375 .0375
========= ========== ======== =========
Net earnings per share - basic $ 0.43 $ (.64) $ 1.06 $ (.06)
========= ========== ======== =========
Weighted average shares outstanding - basic 29,970 29,580 29,910 29,531
========= ========== ======== =========
Net earnings per share - assuming dilution $ 0.43 $ (.63) $ 1.03 $ (.06)
========= ========== ======== =========
Weighted average shares outstanding -
assuming dilution 30,556 30,362 30,579 30,355
========= ========== ======== =========
* Exclusive of $2,889 charged to cost of products sold and $21,307 charged to
selling general and administrative expenses.
** Represents a change in the components of the charge reported in the third
quarter 1997, to reflect current estimates. Based on this change an additional
$3,588,000 was allocated to asset write-downs and litigation which is a
component of selling, general and administrative expense, with a corresponding
reduction in accelerated facilities consolidation. This reallocation had no
impact on reported net earnings.
See notes to condensed consolidated financial statements.
5
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Nine Months Ended
September 30,
1998 1997
------- -------
(In thousands)
OPERATING ACTIVITIES
Net earnings $31,557 $ (1,823)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Non-recurring unusual charge 0 29,712
Depreciation and amortization 17,844 13,813
Provision for losses on receivables (2,411) 2,018
Provision for deferred income taxes (1,648) (170)
Provision for other deferred liabilities 255 2,242
Changes in operating assets and liabilities:
Trade receivables (24,207) (10,249)
Inventories (5,742) 4,582
Other current assets 1,581 (390)
Accounts payable 52 6,367
Accrued expenses (1,395) (5,311)
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,886 40,791
INVESTING ACTIVITIES
Purchases of property and equipment (22,925) (26,698)
Proceeds from sale of property and equipment 781 331
Installment sales contracts written (51,215) (54,299)
Payments received on installment sales contracts 46,891 48,563
Marketable securities purchased (194) (3,529)
Marketable securities sold 1,000 3,990
Increase in other investments (3,181) 4,636
Increase in other long term assets (7,616) (6,684)
Business acquisitions, net of cash acquired (129,318) (1,938)
Other (362) (415)
---------- ---------
NET CASH REQUIRED BY INVESTING ACTIVITIES (166,139) (36,043)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings 350,635 37,855
Principal payments on revolving lines of credit, long-term debt
and capital lease obligations (202,099) (42,877)
Proceeds from exercise of stock options 4,540 2,607
Dividends paid (1,114) (1,102)
Purchase of treasury stock (2,517) 0
---------- ---------
NET CASH PROVIDED/(REQUIRED) BY FINANCING ACTIVITIES
149,445 (3,517)
Effect of exchange rate changes on cash (349) (235)
---------- ---------
Increase in cash and cash equivalents (1,157) 996
Cash and cash equivalents at beginning of period 5,696 4,431
---------- ---------
Cash and cash equivalents at end of period $4,539 $ 5,427
========== =========
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 products,
seating and positioning products, bathing equipment and distributed 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, 1998 and December 31, 1997, and the results of its operations for
the three and nine months ended September 30, 1998 and 1997 and changes in its
cash flows for the nine months ended September 30, 1998 and 1997. The results of
operations for the three and nine months ended September 30, 1998, 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.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the presentation used for the period ended
September 30, 1998.
Comprehensive Income -- In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, Reporting Comprehensive Income, which requires that an
enterprise classify items of other comprehensive income, as defined therein, by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. The company adopted
SFAS No. 130 in the first quarter of 1998. The company's total comprehensive
earnings were as follows (in thousands):
7
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
--------------------- --------------------
Net earnings $12,994 $(19,060) $31,557 $(1,823)
Foreign currency translation (1,511) (2,437) (3,110) (7,197)
Unrealized gain or (loss) on available
for sale securities (937) (3,133) (967) 453
--------------------- ---------------------
Total comprehensive earnings $10,546 $(24,630) $27,480 $(8,567)
===================== =====================
Net Income Per Common Share -- Net income per common share has been computed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
adopted by the company in the quarter ended December 31, 1997. All net income
per share amounts shown for periods prior to adoption have been restated to
conform to the provisions of SFAS No. 128. For the three months ended September
30, 1998 and the nine months ended September 30, 1997, there was no effect on
net income per share from SFAS No. 128. For the three months ended September 30,
1997 and the nine months ended September 30, 1998, net loss and net income per
share-basic increased by $.01 and $.03 respectively, over the previous method of
computing net income per share.
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands except per share data)
1998 1997 1998 1997
-------- -------- -------- --------
Basic
Weighted average common shares outstanding 29,970 29,580 29,910 29,531
Net income $ 12,994 $(19,060) $31,557 $(1,823)
Net income per common share $ .43 $ (.64) $ 1.06 $ (.06)
Diluted
Weighted average common shares outstanding 29,970 29,580 29,910 29,531
Stock options 586 782 669 824
-------- -------- -------- --------
Weighted average common shares assuming dilution 30,556 30,362 30,579 30,355
Net income $ 12,994 $(19,060) $31,557 $(1,823)
Net income per common share $ .43 $ (.63) $ 1.03 $ (.06)
8
Recently Issued Accounting Pronouncements -- In June 1997, the Financial
Accounting Standards Board issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This statement establishes standards for
reporting financial and descriptive information about operating segments. Under
SFAS No. 131, information pertaining to the company's operating segments will be
reported on the basis that is used internally for evaluating segment performance
and making resource allocation determinations. Management is currently
finalizing its disclosure requirements relating to the adoption of this
statement, which is required in fiscal years beginning after December 15, 1997.
Statement 131 is not required to be applied to interim financial statements in
the initial year of its application.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
statement does not change the recognition or measurement of pension and
postretirement benefit plans, but standardizes disclosure requirements for
pensions and other postretirement benefits, eliminates certain disclosures and
requires certain additional information. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and for Hedging Activities. This statement requires all derivatives
to be recorded on the balance sheet at fair value and establishes "special
accounting" for certain types of hedges. The statement is effective for years
beginning after June 15, 1999. Management is currently studying the potential
effects of the adoption of this statement.
Statement of Cash Flows -- The company made payments (in thousands) of:
Nine Months Ended
September 30,
1998 1997
----------------------------
Interest $14,977 $8,559
Income taxes 7,411 17,522
Inventories -- Inventories consist of the following components (in thousands):
September 30, December 31,
1998 1997
------------- ------------
Raw materials $ 22,006 $ 23,704
Work in process 11,050 11,676
Finished goods 54,240 40,328
------------- ------------
$ 87,296 $ 75,708
============= ============
The inventory determination under the LIFO method can only be made at the end of
each fiscal year based on the inventory levels and costs at that point,
therefore, interim LIFO determinations are based on management's estimates of
expected year-end inventory levels and costs.
9
Property and Equipment -- Property and equipment consist of the following (in
thousands):
September 30, December 31,
1998 1997
------------- -----------
Land, buildings and improvements $ 43,951 $ 40,026
Machinery and equipment 132,980 111,959
Furniture and fixtures 11,499 9,649
Leasehold improvements 7,742 6,979
------------- -----------
196,172 168,613
Less allowance for depreciation (91,558) (78,036)
------------- -----------
$ 104,614 $ 90,577
============= ===========
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
The review of results that follows excludes the impact of the non-recurring and
unusual charge ("the charge") of $.98 per share, assuming dilution, reported in
the third quarter 1997. The amount of the charge utilized during the quarter and
the remaining balance is discussed later in this section.
NET SALES
Net sales for the three and nine months ended September 30, 1998 increased by
22.4% and 21.7% respectively, over the same period a year ago. For the quarter,
acquisitions accounted for a significant portion of the increase, 16.9%, while
currency translation negatively impacted sales by 1.3%. For the first nine
months, acquisitions contributed 16.3% with foreign currency having a negative
impact of 1.8%. Sales for the three and nine months ended September 30, 1998
were also negatively impacted by continued reduced sales to the Company's
largest customer. The reduction in sales to this customer impacted reported
sales growth by approximately 1.7% for the quarter and 2.6% year to date. Power,
Invacare Health Care Furnishings and Personal Care business units posted the
largest dollar increases for the quarter primarily as a result of increased unit
volumes. The volume increases were partially offset by the effects of a
continuing competitive pricing environment.
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% for the quarter. The increase was a result of
the continued success of the new Power mid-wheel drive wheelchairs coupled with
strong volume increases in the second generation Power Storm Arrow(R) and the
Tarsys(R) Weight Shift Seating Systems. For the first nine months, Rehab group
sales increased 29.1%.
10
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs, personal care, beds, low air loss therapy and retail
business units, decreased 2.2% for the quarter. Personal care products and the
retail business posted volume increases which were more than offset by volume
declines in manual wheelchairs and beds. Pricing pressure due to intense
competition across all product lines also negatively impacted sales. For the
first nine months, Standard Products Group sales decreased 2.6% versus the same
period a year ago.
Continuing Care/Distributed Products Group. Sales of the Continuing
Care/Distributed Products Group, which consists of Invacare Health Care
Furnishings, patient transport and distributed products increased 36.2%,
excluding the impact of acquisitions. Acquisitions increased sales by
$27,777,000 for the quarter with Suburban Ostomy Supply Company accounting for
the majority of the increase. Year to date sales increased 14.2%, excluding the
impact of acquisitions which increased sales by $78,257,000.
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, increased 3.1% and 5.6% for the
quarter and year to date respectively. The increase was a result of overall
volume improvements and the successful introduction of sleep distributed
products in the second quarter of 1998. Volume increases were offset, somewhat,
by continued pricing pressure across most major product categories.
The U.S. Food and Drug Administration (F.D.A.) has indicated that 510(k)
approval is needed for the Invacare(R) Venture(TM) HomeFill(TM) product released
in the latter part of 1997. Invacare voluntarily suspended shipments of this
product during the third quarter, pending resolution of the F.D.A.'s comments.
On October 15, 1998 Invacare filed for 510(k) approval, in order to expedite
resolution of the F.D.A.'s issues. This approval process is typically completed
within ninety days.
Other. Other, consisting primarily of the company's Canadian, Australian and New
Zealand operations, and aftermarket parts business, had a 9.0% sales increase
for the quarter and a 8.2% sales increase year to date, excluding the negative
foreign currency impact of 12.6% and 9.8% respectively.
European Operations
European sales increased 2.7%, with currency translation negatively impacting
sales by .5%. In the first nine months, sales for Europe increased 4.2%
excluding the negative impact of 4.1% from foreign currency. Sales were impacted
by market pressures from reduced government spending and reimbursement trends.
11
GROSS PROFIT
Gross profit as a percentage of net sales for the three and nine month periods
ending September 30, 1998 was 30.7% and 29.7%, respectively, compared to 31.6%
and 30.7% in the same periods a year ago. Margins for North American operations
declined principally due to the effect of businesses acquired, particularly
Suburban Ostomy Supply Company, as they had margins lower than those of the
company's existing businesses. Continued pricing pressure also had a negative
effect on margins however, the impact was somewhat offset by continued cost
containment measures across all product groups. European gross margins decreased
as a result of overall price declines and the continued effects of a strong U.S.
dollar.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales for the
three and nine months ending September 30, 1998 was 18.5% and 19.4% respectively
compared to 20.7% in the same periods a year ago. The overall dollar increase
was $3,285,000 (9.5%) for the quarter and $13,913,000 (13.9%) for the nine
months, despite acquisitions which contributed $4,683,000 (13.6%) and
$15,200,000 (15.2%) for the same periods.
North American selling, general and administrative costs as a percent of sales
declined for the quarter and year to date. European operations' selling, general
and administrative costs as a percent to sales remained relatively flat with the
prior year, with increases due to the strength of the U.S. dollar and continued
investments to support the company's European strategy.
NON-RECURRING CHARGE
In 1997, the company announced non-recurring and unusual charges of $61,039,000
($38,839,000 or $1.28 diluted per share after tax). Of these charges,
$49,379,000 has been utilized through September 30, 1998 including $8,327,000 in
the third quarter of 1998 for facilities consolidation, asset write-downs and
litigation. During the second quarter of 1998, the company reviewed the charge
and its related estimates and components. While the total amount of the charge
did not materially change, its components were updated to reflect current
estimates. Based on this review an additional $3,588,000 was allocated to asset
write-downs and litigation with a corresponding reduction in accelerated
facilities consolidations. This reallocation resulted in an increase in selling,
general and administrative expense and a corresponding decrease in non-recurring
unusual items of $3,588,000. The company expects substantially all of the
remaining charge to be utilized over the next six months.
INTEREST
Interest income in the three and nine months ended September 30, 1998 increased
slightly, $147,000 and $148,000 respectively, when compared to the same periods
a year ago. The change is a result of increased volume in installment loans
during the quarter, somewhat offset by a decrease in the portfolio's effective
rate. Interest expense for the quarter and year to date increased due to higher
average outstanding borrowings resulting primarily from the acquisition of
Suburban Ostomy Supply Company on January 28, 1998.
12
INCOME TAXES
The company had an effective tax rate of 39.0% for the three and nine months
ended September 30, 1998, compared to an effective tax rate benefit and charge
for the three and nine months ended September 30, 1997, of (33.4%) and 388.7%
respectively. The 1997 rates differ from 1998 principally due to nondeductible
items included in the 1997 non-recurring charge.
LIQUIDITY AND CAPITAL RESOURCES
The company's reported overall level of long-term debt increased $146.2 million
to $318.6 million for the nine months ended September 30, 1998. Long - term debt
increased principally due to acquisition activity. 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 lines of credit. As
of September 30, 1998, the company had approximately $237.4 million available
under its lines of credit. Pursuant to the most restrictive covenant contained
in its financing arrangements, the company could borrow an additional $171.6
million.
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. The company is in compliance with all of the
required conditions.
CAPITAL EXPENDITURES
There were no material capital expenditure commitments outstanding as of
September 30, 1998. 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 1998 will approximate $26 million. 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 fund required capital expenditures for the
foreseeable future.
ACQUISITIONS
In January, 1998 the company acquired for cash all outstanding shares of
Suburban Ostomy Supply Company, Incorporated a leading national direct marketing
wholesaler of medical supplies and related products to the home care industry.
The acquisition was accounted for under the purchase method of accounting.
Suburban complements Invacare's industry-leading "One Stop Shoppingsm" strategy
and significantly strengthens our industry-leading position by adding a complete
line of medical supplies and soft goods.
In September, 1998 the company completed the sale of Peiser's Medical Supplies
and Services, a subsidiary of Suburban Ostomy Supply Company. When Suburban
Ostomy was acquired, Invacare announced it was in the process of identifying
potential purchasers for the Peiser's business. The sale of Peiser's will not
have an impact on results for the year as proceeds from the sale approximated
the net book value.
13
CASH FLOWS
Cash flows provided by operating activities were $15.8 million for the first
nine months of 1998 compared to $40.7 million in 1997. Cash flow provided by
operating activities was negatively impacted by increased receivable levels as
dealer financing continues to be a focus for our customers due to the impact of
governmental reimbursement cuts mandated by the balanced budget act.
Cash flows required for investing activities increased by $130.1 million for the
first nine months of 1998 when compared to 1997, primarily as a result of the
acquisition of Suburban Ostomy Supply Company and the continued investment in
computer systems and production machinery and equipment.
Cash flows provided by financing activities were $149.4 compared to $3.5 million
required in 1997. The increase in cash provided by financing activities was
primarily a result of an increase in net proceeds from long-term borrowings
which were used to fund the acquisition. In February 1998, the company completed
the private placement of $100 million in notes to fund the acquisition of
Suburban Ostomy Supply Company.
The effect of foreign currency translation 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.
DIVIDEND POLICY
On August 18, 1998, 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, 1998, to be paid on October 15, 1998. At the current rate, the
cash dividend will amount to $.05 per Common Share on an annual basis.
YEAR 2000 ISSUE
The company has developed a plan to modify its existing information technology
in order to recognize the year 2000 and has begun converting its critical data
processing systems. The plan is designed to ensure that there is no adverse
effect on the company's core business operations and that transactions with
customers, suppliers and financial institutions are fully supported. The company
is well under way with these efforts and believes its planning and
implementation efforts will be adequate to address its year 2000 concerns. The
following table summarizes the company's progress on the resolution phases of
this project.
14
Resolution Phases
Assessment Remediation Testing Implementation
========== =========== ======== ================
Information 100% completed 75% complete 75% complete 75% complete
Technology June 1998 Expected Expected Expected
completion date completion date completion date
March 1999 April 1999 April 1999
- ----------------------------------------------------------------------------------------------------------
Operating 100% completed 65% complete 65% complete 65% complete
Equipment June 1998 Expected Expected Expected
completion date completion date completion date
March 1999 April 1999 April 1999
- ---------------------------------------------------------------------------------------------------------
Products 100% completed 100% complete 100% complete 100% complete
January 1998 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
3rd Party 25% complete N/A N/A N/A
Estimated
completion date
March 1999
- ---------------------------------------------------------------------------------------------------------
The total cost of the Year 2000 project is estimated at $4.0 - $6.0 million and
is being funded entirely through operating cash flows. This estimate includes
the cost of a combination of existing internal and external resources and
excludes the costs to upgrade and replace systems in the normal course of
business. The company does not expect this project to have a material effect on
the company's results of operations or financial position.
Management believes it has an effective program in place to resolve the Year
2000 issue in a timely manner. However, failure to do so could have a material
adverse impact on the company's ability to conduct business including but not
limited to order entry, manufacturing, shipping, invoicing and collections. In
addition to its in house efforts, the company is currently employing the
services of several independent outside sources to evaluate its processes and
verify its assessment of risk.
The company currently has no contingency plans in place in the event it does not
complete all phases of the Year 2000 program. The company plans to evaluate the
status of completion in April 1999 and determine whether such a plan is
necessary.
FORWARD-LOOKING STATEMENTS
The statements contained in this form 10-Q constitute forward-looking statements
based on current expectations which are covered under the "safe harbor"
provision within the Private Securities Litigation Reform Act of 1995. Actual
results and events, including the acceleration of certain strategic initiatives
for which a non-recurring charge has been reported, may differ from those
anticipated as a result of risks and uncertainties which include, but are not
limited to, pricing pressures as a result of the impact of the consolidations of
health care customers and competitors, the availability of strategic acquisition
candidates and Invacare's ability to effectively integrate acquired companies,
the rate of growth for the industry, and the overall economic and market
conditions, as well as the risks described from time to time in Invacare's
reports as filed with the Securities and Exchange Commission.
15
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: November 13, 1998