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, 1995
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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
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(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
899 Cleveland Street, P.O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices)
(216) 329-6000
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if change since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
As of July 20, 1995 the Company had 11,992,139 Common Shares and 2,575,165
Class B Common Shares outstanding.
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INVACARE CORPORATION
INDEX
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Part I. FINANCIAL INFORMATION: Page No.
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994......................................... 3
Condensed Consolidated Statement of Earnings -
Three and Six Months Ended June 30, 1995 and 1994........................... 4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1995 and 1994..................................... 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1995 ................................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. 7
Part II. OTHER INFORMATION:
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Item 4. Results of Votes of Security Holders......................................... 10
Item 6. Exhibits and Reports on Form 8-K ............................................ 10
SIGNATURES .......................................................................... 10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
June 30, December 31,
1995 1994
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(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,579 $ 7,359
Marketable securities 2,633 3,044
Trade receivables, net 85,175 76,280
Installment receivables, net 32,820 33,723
Inventories 48,767 49,982
Deferred income taxes 3,635 3,444
Other current assets 5,800 5,959
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TOTAL CURRENT ASSETS 182,409 179,791
OTHER ASSETS 33,574 28,840
PROPERTY AND EQUIPMENT, NET 58,642 55,919
GOODWILL, NET 84,201 72,915
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TOTAL ASSETS $ 358,826 $337,465
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 32,579 $ 29,882
Accrued expenses 41,662 37,015
Accrued income taxes 428 3,225
Current maturities of
long-term obligations 260 326
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TOTAL CURRENT LIABILITIES 74,929 70,448
LONG-TERM OBLIGATIONS 103,851 103,010
SHAREHOLDERS' EQUITY
Preferred shares -0- -0-
Common shares 6,075 5,573
Class B common shares 1,287 1,767
Additional paid-in-capital 64,500 63,671
Retained earnings 111,237 99,086
Adjustments to shareholders'
equity 1,002 (2,196)
Treasury shares (4,055) (3,894)
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TOTAL SHAREHOLDERS' EQUITY 180,046 164,007
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TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $358,826 $337,465
======== ========
See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share data)
Net sales $122,301 $98,894 $230,030 $186,796
Cost of products sold 82,217 67,395 156,544 128,720
--------- ------- -------- -------
GROSS PROFIT 40,084 31,499 73,486 58,076
Selling, general and
administrative expenses 27,133 21,090 52,279 41,487
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INCOME FROM OPERATIONS 12,951 10,409 21,207 16,589
Interest income 1,817 1,437 3,531 2,986
Interest expense (2,336) (1,956) (4,569) (3,895)
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EARNINGS BEFORE INCOME TAXES 12,432 9,890 20,169 15,680
Income taxes 4,720 3,660 7,660 5,800
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NET EARNINGS $ 7,712 $ 6,230 $ 12,509 $ 9,880
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NET EARNINGS PER SHARE $ .51 $ .42 $ .83 $ .67
=========== ========= ======== =========
DIVIDEND DECLARED PER COMMON SHARE $ .0125 $ .0125 $ .0250 $ .0125
========== ======= ======== =======
Weighted average shares outstanding 15,018 14,820 14,983 14,821
========= ======= ======== =======
See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Six Months Ended
June 30
1995 1994
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(In Thousands)
OPERATING ACTIVITIES
Net earnings $12,509 $9,880
Adjustments to reconcile net earnings to
net cash required by operating activities:
Depreciation and amortization 7,145 6,595
Provision for losses on receivables 451 713
Provision for deferred income taxes (232) (376)
Provision for deferred compensation 51 173
Changes in operating assets and liabilities:
(Increase) in accounts receivable (5,738) (703)
(Increase)/decrease in inventories 3,905 (1,947)
Decrease in other assets 393 1,139
Increase in accounts payable 1,009 4,176
Decrease in accrued expenses (407) (4,940)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 19,086 14,710
INVESTING ACTIVITIES
Purchases of property and equipment (6,007) (6,969)
Proceeds from sale of property and equipment 127 27
Installment sales contracts written (22,010) (24,432)
Payments received on installment sales contracts 20,286 14,808
Marketable securities purchased (3,182) (350)
Marketable securities sold 3,557 680
Increase in other investments (2,133) (911)
Increase in other long term assets (982) 0
Business acquisitions net of capital cash acquired (6,848) 0
Other (2,644) (526)
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NET CASH (REQUIRED) BY INVESTING ACTIVITIES (19,836) (17,673)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 20,748 9,879
Principal payments on long-term borrowings (24,772) (8,630)
Proceeds from exercise of stock options 851 817
Dividends Paid (358) 0
Purchase of treasury shares (161) 0
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES (3,692) 2,066
Effect of exchange rate changes on cash 662 397
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Increase(Decrease) in cash and cash equivalents (3,780) (500)
Cash and cash equivalents at beginning of period 7,359 9,392
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Cash and cash equivalents at end of period $ 3,579 $ 8,892
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See notes to condensed consolidated financial statements.
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INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements - June 30, 1995
(Unaudited)
PRINCIPLES OF CONSOLIDATION -- In the opinion of the Company, the accompanying
unaudited condensed consolidated 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, 1995 and December 31, 1994,
and the results of its operations for the three and six months ended June 30,
1995 and 1994 and changes in its cash flows for the six months ended June 30,
1995 and 1994. The results of operations for the three and six months ended
June 30, 1995, 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 :
Six Months Ended
June 30,
1995 1994
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Interest $ 3,044 $3,140
Income Taxes $10,270 $5,251
INSTALLMENT RECEIVABLES -- In May 1993, the Financial Accounting Standards
Board issued Statement No. 114 "Accounting by Creditors for Impairment of a
Loan" (SFAS 114). SFAS 114 is effective for fiscal years beginning after
December 15, 1994. The Company adopted SFAS 114 effective January 1, 1995.
The new standard requires that impaired loans within the scope of SFAS 114 be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. The effect of adopting SFAS 114 was not
material to the Company's financial condition and had no impact on results of
operations.
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INVENTORIES -- Inventories consist of the following components (in
thousands):
June 30, December 31,
1995 1994
---- ----
Raw materials $16,143 $17,272
Work in process 8,608 9,093
Finished goods 24,016 23,617
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$48,767 $49,982
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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):
June 30, December 31,
1995 1994
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Land, buildings and improvements $ 27,780 $ 26,442
Machinery and equipment 79,058 72,815
Furniture and fixtures 7,786 7,478
Leasehold improvements 5,946 5,696
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120,570 112,431
Less allowance for depreciation 61,928 56,512
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$ 58,642 $ 55,919
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
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NET SALES
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Net sales for the three and six months ended June 30, 1995 increased
by 23.7 and 23.1% respectively over the same periods a year ago. Domestic net
sales increased 21.2% and 22.2% respectively, principally due to higher unit
volumes and the effects of new product introductions in the prescription power
wheelchairs, respiratory and bed product lines offset slightly by the effects of
a continuing competitive pricing environment for most of our products.
International net sales, as reported in dollars, for the three and six
months ended June 30, 1995 increased by 30.7% and 26.0%, respectively, over the
same period a year ago. European sales increased 31.1% and 27.4% for the quarter
and six months ended June 30, 1995, respectively with approximately half of the
reported increase arising as a result of the weakening dollar against most major
European currencies. The reported increase also includes the impact from the
two small acquisitions completed late in 1994 which is offset to some extent by
the continuing price competition in most European markets. Canadian sales
increased 28.5% and 13.8% for the quarter and sixth months ended June 30, 1995
respectively. Sales for the six month period were negatively impacted by 2.0%
due to the weak Canadian dollar.
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GROSS PROFIT
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Gross profit as a percentage of net sales for the three and six month
period ending June 30, 1995 increased to 32.8% and 31.9%, respectively,
compared to 31.9% and 31.1% for the same periods a year ago. The principal
factor leading to the increase was the significantly improved volume
experienced in the majority of our product lines. Focus on productivity and
cost containment initiatives continue to contribute to the improvement. The
gross profit was offset to some extent by the effects of a continuing
competitive pricing environment and rising raw material costs.
OPERATING EXPENSES
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Selling, general and administrative expense as a percentage of net
sales for the three and six months ending June 30, 1995 was 22.2% and 22.7%,
respectively, compared to 21.3% and 22.2% in the same period a year ago. The
dollar increase in selling, general and administrative expense is the result of
increased investment in additional sales personnel, product specialists and
marketing programs as well the impact of acquisitions.
INTEREST
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Interest income in the three and six months ended June 30, 1995
increased over the same period a year ago mainly as a result of increased
installment loan activity. For the quarter and first six months, interest
expense increased mainly due to an increase in interest rates.
INCOME TAXES
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The Company had an effective tax rate of 38% for the three and six
months ended June 30, 1995, compared to 37% for the same periods a year ago.
The higher tax rate is due in part to an increase in state taxes and lower
low income housing credits.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's overall level of long-term obligations remained
relatively constant at $103.9 million for the three months ended June 30, 1995,
compared to $103.0 million at December 31, 1994. 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, 1995 the Company has approximately $165 million available under its
lines of credit.
In May, 1995, the Company fixed the interest rate on $10 million of its
U.S. dollar borrowings through two interest rate swap agreements. Each
agreement is for $5 million U. S. dollars. The effect of the swaps is to
exchange a short-term floating interest rate for a fixed rate of 6.1725% for a
three year term in one agreement and 6.38% for a five year term in the other
agreement.
Also in May, 1995, the Company fixed the interest rate on $7.5 million
of its Canadian dollar borrowings through an interest rate swap agreement. The
effect of the swap is to exchange a short-term floating interest rate for a
fixed rate of 7.245% for a three year term.
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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. As of June 30, 1995, the Company is in compliance with all of
the conditions.
CAPITAL EXPENDITURES
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There were no material capital expenditure commitments outstanding as
of June 30, 1995. The Company expects to invest in capital projects at a rate
that approximates depreciation and amortization. The Company estimates that
depreciation and amortization for 1995 will be approximately $14.0 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 in the foreseeable future.
CASH FLOWS
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Cash flows provided by operating activities were $19.1 million for the
first half of 1995 compared to $14.7 million in 1994. Cash flows from operating
activities increased primarily due to an increase in net earnings and decreased
inventory levels.
Cash flows required for investing activities increased by 12.2% for the
first half of 1995 when compared to 1994 mainly as a result of business
acquisitions.
Cash flows used for financing activities were $3.7 million for the
first half of 1995 compared to cash provided from financing of $2.1 million in
1994. The decrease in cash required from financing activities was a result of
reductions in long-term borrowings in our European operations.
DIVIDEND POLICY
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On May 22, 1995, the Board of Directors for Invacare Corporation
declared a quarterly cash dividend of $.0125 per Common Share to shareholders
of record as of July 3, 1995 and to be paid on July 17, 1995. At the current
rate, the cash dividend will amount to $.05 per Common Share on an annual
basis.
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PART II. OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
On May 22, 1995, the Company held its 1995 Annual Meeting of
Shareholders at which one of its classes of Directors was re-elected. Francis
J. Callahan, Jr., Dan T. Moore, III and Joseph B. Richey, II. were re-elected
for a three year term of office expiring in 1998, with 28,421,083, 28,046,224
and 28,423,349 affirmative votes , respectively, (75 percent of the total
voting power represented at the meeting) and 187,802, 562,661 and 185,536
negative votes, respectively, (.2 percent of the total voting power present at
the meeting).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits:
Official Exhibit No.
27.0 Financial Data Schedule
B. Reports on Form 8-K: A current report on Form 8-K, dated July 17,
1995 along with Form 8-A Registration Statement, dated July 18, 1995 was
filed by the Company regarding the redemption of shareholder rights issued by
the Company in 1991 and the adoption of the 1995 Shareholders Rights Purchase
Plan.
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: August 14, 1995