<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of the Securities and Exchange Act
of 1934
Date of Report (Date of Earliest Event Reported): January 23, 1998
INVACARE CORPORATION
--------------------
(Exact Name of Registrant as Specified in its Charter)
Ohio
----
(State or other jurisdiction of incorporation or organization)
0-12938 95-2680965
--------- --------------
(Commission File Number) (I.R.S. Employer Identification Number)
One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(440) 329-6000
--------------
(Registrant's telephone number, including area code)
<PAGE>
2
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Form 8-K Report filed on January
23, 1998 as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements-
1. Audited consolidated financial statements required to be filed
pursuant to Item 7 of Form 8-K filed on January 23, 1998
reflecting the acquisition of Suburban Ostomy Supply Co., Inc..
2. Unaudited condensed consolidated interim Financial Statements
required to be filed pursuant to Item 7 of Form 8-K filed on
January 23, 1998 reflecting the acquisition of Suburban Ostomy
Supply Co., Inc..
(b) Pro Forma Financial Information-
Pro Forma financial information, required to be filed pursuant to Item
7 of Form 8-K filed on January 23, 1998 reflecting the acquisition of
Suburban Ostomy Supply Co., Inc..
(c) Exhibits- 24. Accountants' consent.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
INVACARE CORPORATION
Date: April 9, 1998 By: _______________________
Thomas R. Miklich
Chief Financial Officer
<PAGE>
3
ITEM 7(a)1.
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 30, 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE>
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Suburban Ostomy Supply Co., Inc.:
We have audited the accompanying consolidated balance sheet of Suburban Ostomy
Supply Co., Inc. (a Massachusetts corporation) and subsidiaries as of August 30,
1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Suburban Ostomy
Supply Co., Inc., and subsidiaries as of August 30, 1997 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Boston, Massachusetts
October 13, 1997 (except for the matter
discussed In Note 11, for which the date
is January 30, 1998)
<PAGE>
5
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED AUGUST 30, 1997
(IN THOUSANDS)
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,270
Accounts receivable, less allowances of $638 12,207
Merchandise inventory 6,611
Prepaid expenses and other 332
Deferred income taxes 464
---------------
Total current assets 21,884
FIXED ASSETS, AT COST: 2,967
Less--Accumulated depreciation (1,316)
Net fixed assets 1,651
Goodwill 17,312
Other assets 277
---------------
Total assets $ 41,124
===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 16
Accounts payable and accrued expenses 7,608
---------------
Total current liabilities 7,624
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 7
Deferred income taxes 21
Total long-term liabilities $ 28
===============
STOCKHOLDERS' EQUITY:
Common stock, no par value
Authorized--40,000,000 shares
Issued and outstanding--10,538,503 47,188
Accumulated deficit (13,716)
Total stockholders' equity $ 33,472
===============
Total liabilities and stockholders' equity $ 41,124
===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
6
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 30, 1997
(IN THOUSANDS)
<S> <C>
NET SALES $ 94,440
COST OF GOODS SOLD 70,615
Gross profit 23,825
OPERATING EXPENSES 14,291
DEPRECIATION AND AMORTIZATION 1,032
Operating income 8,502
INTEREST EXPENSE 437
OTHER INCOME, NET (127)
Income before income taxes 8,192
PROVISION FOR INCOME TAXES 3,599
Net income $ 4,593
===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
7
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 30, 1997
(IN THOUSANDS)
Common Stock
Total
Number Accumulated Stockholders'
of Shares Amount Deficit Equity
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1996 6,223,250 $ 162 $ (18,208) $ (18,046)
Initial public offering 4,192,500 46,016 - 46,016
Shares issued under stock option plan 11,642 10 - 10
Shares issued for acquisition of Peiser's 111,111 1,000 - 1,000
Preferred stock accretion - - (101) (101)
Net income - - 4,593 4,593
--------------- --------------- --------------- ---------------
BALANCE, AUGUST 30, 1997 10,538,503 $ 47,188 $ (13,716) $ 33,472
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
8
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED AUGUST 30, 1997
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,492
Adjustments to reconcile net income to cash provided by operating activities-
Depreciation and amortization 1,032
Provision for bad debt losses 334
Deferred income tax benefit, net (40)
Change in assets and liabilities, net of effects from Peiser's purchase-
Accounts receivable (966)
Merchandise inventory 1,115
Prepaid expenses and other 420
Accounts payable and accrued expenses (1,927)
---------------
Net cash provided by operating activities 4,460
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (232)
Purchase of Peiser's, net of cash acquired (6,960)
Other assets (206)
---------------
Net cash used in investing activities (7,398)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 46,026
Retirement of preferred stock (7,437)
Principle repayments of long-term bank debt (24,432)
Repayment of subordinated debt (10,944)
---------------
Net cash provided by financing activities 3,213
---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 275
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,995
---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,270
===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
9
SUBURBAN OSTOMY SUPPLY CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 30, 1997
(1) INITIAL PUBLIC OFFERING
On October 10, 1996, the Company sold 3,900,000 shares or 38.5% of its
common stock to the public. The Company received net proceeds of
$43,524,000, after underwriting discounts and commissions of $3,276,000.
On October 21, 1996, the underwriter elected to purchase an additional
292,500 shares, for which the Company received net proceeds of
$3,264,300, net of $245,700 in underwriting discounts and commissions.
The sales of common stock increased the outstanding number of shares to
10,415,750. Other expenditures related to the offering reduced the net
proceeds to the Company to $46,015,714.
Of the total $46,015,714 net proceeds, $42,472,000 was used to pay down
certain of the Company's indebtedness and preferred stock. The Company
(i) retired an aggregate of $2.5 million in subordinated promissory notes
issued to executive officers; (ii) repaid $24,455,000 on its Credit
Facility; (iii) redeemed its Redeemable Preferred Stock for approximately
$7,437,000; (iv) retired $6,750,000 in subordinated promissory notes
issued to Summit; and (v) repaid the St. Louis Note for $1,235,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to August 31.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable, notes payable and
debt. The carrying amounts of the Company's cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to
the short-term nature of these instruments.
<PAGE>
10
Stock Compensation Plans
At August 30, 1997, the Company has one stock-based compensation plan,
which is described in Note 8 to the financial statements. The Company
applies APB Opinion No. 25 and related interpretations in accounting for
its option grants. Accordingly, no compensation cost has been charged
against income for its stock option plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at
the grant dates for awards under the plan consistent with the method of
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, the Company's net income would have been reduced to the pro
forma amount indicated below:
1997
Net income-
As reported $ 4,853
Pro forma $ 4,384
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. The pro forma disclosure does not include
awards anticipated in future years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in fiscal 1997; dividend yield of
zero; expected volatility of 29%; a risk-free interest rate of 6.0%, and
expected lives of eight years.
Merchandise Inventory
Inventory is stated at the lower of cost or market and is accounted for
using the weighted moving-average cost method, which approximates the
first-in, first-out (FIFO) method.
Fixed Assets
The cost of property and equipment is depreciated and amortized over the
estimated useful lives of the related assets, as follows:
Equipment, computers and fixtures 5-7 years Straight-line
Leasehold improvements 4-5 years* Straight-line
*or the life of lease, whichever is shorter
Repairs and maintenance costs are expensed as incurred.
Long-Lived Assets
During 1996, the Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of. SFAS No. 121 requires, among other things, that
an entity review its long-lived assets and certain related intangibles
for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. As a result of
its review, the Company does not believe that any impairment currently
exists related to its long-lived assets.
<PAGE>
11
Goodwill
The Company has classified as goodwill, the cost in excess of fair value
of the net assets acquired in the purchase of St. Louis Ostomy,
Patient-Care and Peiser's (see Note 3). Goodwill is being amortized on a
straight-line basis over an estimated useful life not exceeding 25 years.
Accumulated amortization at August 30, 1997 was $900,000. The carrying
value of goodwill is evaluated whenever events or changes in
circumstances indicate that the current useful life has diminished. If
undiscounted cash flows over the remaining amortization period indicate
that goodwill may not be recoverable, the carrying value of goodwill will
be reduced.
Cash and Cash Equivalents
For the accompanying consolidated statements of cash flows, the Company
considers all highly liquid instruments with original maturities of three
months or less to be cash equivalents.
Income Taxes
Effective July 3, 1995, the Company's tax status changed from a
Subchapter S corporation to a C corporation, and accordingly, it is
subject to federal and state income taxes. The Company accounts for taxes
in accordance with SFAS No. 109, Accounting for Income Taxes, which is an
asset and liability method. Under the asset and liability method,
deferred taxes are established for the temporary differences between the
financial reporting and tax bases of the Company's assets and liabilities
at currently enacted tax laws and rate.
(3) ACQUISITIONS
Fiscal 1996
On January 22, 1996, the Company acquired all of the outstanding common
stock of St. Louis Ostomy, a Missouri corporation, for an aggregate
purchase price, including expenses, of approximately $12,364,000, of
which $1,235,000 was paid through the issuance of a subordinated
promissory note (see Note 4). On June 14, 1996, the Company acquired all
of the outstanding common stock of Patient-Care, a California
corporation, for an aggregate purchase price, including expenses, of
approximately $4,200,000, of which $375,000 is payable on the first
anniversary of the closing, subject to set-off (Patient-Care Deferred
Payment) (see Note 4). The acquisitions were accounted for as purchases
and, accordingly, the results of operations of St. Louis Ostomy and
Patient-Care are included in the consolidated financial statements from
January 22, 1996 and June 14, 1996, respectively. The purchase price
prices were allocated to the net assets acquired based on their estimated
fair values, which resulted in approximately $10,888,000 and $2,435,000
of goodwill for St. Louis Ostomy and Patient-Care, respectively (see Note
2). The acquisitions were financed using bank debt (see Note 4).
Fiscal 1997
On May 1, 1997, the Company acquired all of the outstanding common stock
of Peiser's, an Illinois corporation, for an aggregate purchase price,
including expenses, of approximately $8 million, of which $7 million was
paid in cash and $1 million in the Company's common stock. The
acquisition was accounted for as a purchase and the results of operations
of Peiser's are included in the consolidated financial statements from
May 1, 1997. The purchase prices were allocated to the net assets
acquired based on their estimated fair values, which resulted in
approximately $4.9 million of goodwill (see Note 2). The acquisition was
financed using cash from operations and investment accounts.
On an unaudited pro forma basis, assuming Peiser's had been acquired on
August 31, 1996, the Company's net sales and net income for fiscal 1997
would have been approximately $106.5 million and $5.1 million,
respectively.
<PAGE>
12
(4) DEBT
Debt consisted of the following on August 30, 1997:
Equipment capital leases $ 23
Less--Current maturities 16
------------
$ 7
============
On July 3, 1995, the Company entered into the Credit Facility with the
Bank for $16,000,000. Of the $13,580,000 initial drawdown by the Company,
$13,500,000 was used to repurchase certain outstanding common stock in
connection with the Recapitalization. During 1996, the Credit Facility
was increased by $9,000,000 and $5,000,000 to facilitate the Company's
acquisitions of St. Louis Ostomy and Patient-Care, respectively (see Note
3). In connection with the Credit Facility amendment, the Company
provided the Bank with warrants to purchase 86,180 shares of the
Company's common stock at $.81 per share (the Bank Warrant). The Bank
Warrant may also be converted into that number of shares of common stock
determined by multiplying the number of shares subject to the Bank
Warrant (for which the conversion right is being exercised) by a
fraction, the numerator of which is the difference between the market
price of one share of common stock and the per share exercise price of
the Bank Warrant, and the denominator of which is the market price of one
share of common stock. For the purpose of the Bank Warrant, the market
price of one share of common stock of the Company shall be determined
either according to the trading price of the common stock during the 10
days preceding the exercise of the warrant or, if the common stock does
not trade on a national securities exchange and is not quoted on the
NASDAQ National Market, by agreement between the Company and the Bank.
Should the Company prepay the outstanding borrowings and terminate the
related credit facility, the Bank may request that the Company redeem the
warrants from the Bank for $90,000. The warrants expire in January 2006.
The difference between the $1.61 fair value per share of common stock at
the grant date and the exercise price has been treated as a debt discount
and was fully amortized as of August 30, 1997. Advances made under the
credit facility bear interest at either the Bank's base rate (8.5% at
August 30, 1997) or the LIBOR rate (5.63% at August 30, 1997) plus an
applicable margin. The applicable margin for the LIBOR advances range
from 1.0% to 1.75% based on the level of the leverage ratio as defined in
the credit facility. Interest is payable monthly in arrears. The average
daily unused line bears a commitment fee of .25% per annum payable
quarterly.
The Credit Facility was fully paid down during October 1996 using a
portion of the proceeds from the public offering (see Note 1). As of
August 30, 1997, there were no borrowings outstanding under the Facility
and the Company was in full compliance with all debt covenants. The total
amount of credit available under the facility at August 30, 1997 was $30
million. Subsequent to year-end, on October 10, 1997, $3 million was
drawn on the Facility to fund the acquisition of Care Management, Inc.
(see Note 11).
On July 3, 1995, the Company issued at face value, the Summit Notes. The
proceeds were used to fund the recapitalization. Also in connection with
the recapitalization, the Company issued the Management Notes for the
repurchase of a portion of their outstanding stock. Both the Summit Notes
and the Management Notes bear interest at 12% per annum, and were repaid
during October 1996 using a portion of the proceeds from the public
offering (see Note 1).
In connection with the acquisition of St. Louis Ostomy (see Note 3),
the Company issued the St. Louis Note. The St. Louis Note was repaid
during October 1996 using a portion of the proceeds from the public
offering (see Note 1).
A portion of the Patient-Care acquisition purchase price (see Note 3) was
deferred until June 1997. The deferred payment bears interest at 8% per
annum. The payment, with interest, was made in June 1997.
<PAGE>
13
(5) INCOME TAXES
Effective July 3, 1995, the Company's tax status changed from a
Subchapter S corporation to a C corporation, and accordingly, it is
subject to federal and state income taxes. Deferred tax assets and
liabilities were not material at the conversion date. The Company
accounts for taxes in accordance with SFAS No. 109, Accounting for Income
Taxes, which is an asset and liability method. The provision (benefit)
for income taxes for the year ended August 30, 1997 consisted of the
following:
U.S. federal-
Current $ 2,610
Deferred (62)
State-
Current 1,076
Deferred (25)
$ 3,599
===============
Under SFAS No. 109, net current deferred tax assets or liabilities and
net long-term deferred tax assets or liabilities are reported separately
in the Company's balance sheets. The effect of temporary differences
which give rise to a significant portion of deferred taxes are as follows
at August 30, 1997:
Deferred tax assets-
Reserves and accruals not yet deductible for tax purposes $ 412
Inventory basis differences 65
Other 19
---------------
Total deferred tax assets 496
---------------
Deferred tax liabilities-
Property basis differences (35)
Other (18)
---------------
Total deferred tax liabilities (53)
---------------
Net deferred tax assets $ 443
===============
A reconciliation of tax on income at the federal statutory rate to the
recorded income tax provision for fiscal 1997 is presented below:
Tax provision at statutory rate $ 2,785
State tax provision, net of federal taxes 649
Book expenses not deductible for tax purposes 324
Other (159)
---------------
Recorded income tax provision $ 3,599
===============
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14
(6) RETIREMENT PLAN
The Company has adopted a qualified, noncontributory defined contribution
retirement plan that covers all employees who have completed one year of
service and who have reached age 21. Employees qualify for benefits upon
reaching the age of 62, however, an employee cannot receive benefits from
the defined contribution retirement plan until actual retirement. Vesting
begins at 20% after two years of employment and is increased by 20% each
subsequent year until full vesting occurs. Retirement plan contributions
are made at the discretion of the Company. During fiscal 1997, Company
contributions to the plan were approximately $193,000.
(7) COMMITMENTS AND CONTINGENCIES
Leases
The Company occupies six warehouse facilities and a corporate office
building (which includes a warehouse) under operating leases expiring at
various dates through 2006. Two of the warehouses and the Company's
corporate office and warehouse facility in Holliston, Massachusetts, are
leased from related parties (see Note 10).
Certain of the Company's leased premises are subject to renewal options
at their fair rental values at the time of renewal. Rent expense for
fiscal 1997, under all operating leases, including certain motor vehicle
and equipment leases, amounted to approximately $973,000.
At August 30, 1997, approximate future minimum lease payments for the
next five years and thereafter under noncancelable operating leases,
including $597,000 in each year from 1998 through 2002 and $2,042,000
thereafter, to related parties, are as follows:
Fiscal Year Amount
1998 $ 1,098
1999 877
2000 885
2001 793
2002 677
Thereafter 2,042
---------------
$ 6,372
===============
Employment Contracts
In connection with the Recapitalization, on July 3, 1995, the Company
entered into employment and noncompetition agreements (the Employment
Agreements) with five executive officers. The Employment Agreements
provide for an employment term through July 1, 2000, after which the term
will be automatically renewed on an annual basis unless written notice to
the contrary is given at least 90 days in advance by either party. The
Employment Agreements provide for an aggregate initial annual base salary
of $690,000, subject to such annual increases as may be determined by the
Board of Directors, as well as certain benefits and reimbursement of
expenses. Should employment be terminated by the Company for any reason
other than cause, as defined in the Employment Agreements, the officer
shall be entitled to receive all salary and bonus earned through the
termination date plus an additional 12 months of salary.
<PAGE>
15
Upon the acquisition of Peiser's (see Note 3), the Company executed
employment agreements with four executives of Peiser's to remain in the
employ of the Company. The agreements have three to five year terms and
provide for an annual base salary plus bonuses based on certain
performance objectives, as well as certain benefits and reimbursement of
expenses. Should employment be terminated by the Company for any reason
other than cause, as defined in the agreements, the officers are entitled
to receive all salary and bonuses earned through the termination date
plus an additional 12 months of salary.
(8) STOCK TRANSACTIONS
On July 3, 1995, in connection with the Recapitalization, the Company
adopted an incentive stock option plan (the Stock Option Plan) under
which 688,820 shares of common stock have been authorized. In July 1995,
the Company granted options to certain officers to purchase a total of
620,000 shares of common stock. In October 1995 and March 1997, the
Company granted to certain employees options to purchase 29,450 and
17,180 shares, respectively of common stock. The exercise prices of the
options granted in July 1995, October 1995 and March 1997 are $.81, $1.61
and $10.63 per share, respectively. The options vest over seven years at
rates set forth in the Stock Option Plan agreement and are exercisable
for a 10-year period.
In addition, the Company granted options to purchase 20,000 shares of
common stock in April and June 1997 to two Directors. The exercise prices
of these nonqualified stock options are $8.94 and $10.94, respectively.
These options vest over three years and are exercisable for a 10-year
period.
As part of the purchase on Peiser's on May 1, 1997 (see Note 3), the
Company issued 90,000 options to purchase shares of common stock to an
officer of Peiser's, at an exercise price of $8.97. The options vest over
five years and are exercisable for a 10-year period.
In all option grants, the exercise price is not less than estimated fair
market value on the grant date. A summary of option activity is presented
below:
<TABLE>
<CAPTION>
Shares Weighted Weighted
Average Average
Exercise Price Remaining
Contractual Life
<S> <C> <C> <C>
Outstanding, August 31, 1996 626,200 .84 8.9 years
Granted 127,180 9.32
Exercised (11,642) .85
Terminated (5,724) 3.32
------------ -----------
Outstanding, August 30, 1997 736,014 2.29 8.25 years
Options exercisable, August 30, 1997 228,299 .95
</TABLE>
The grants made during 1997 have exceeded the amount available under the
Stock Option Plan as approved by the Stockholders. At the next Annual
Meeting of Stockholders of the Company on February 11, 1998, the Board of
Directors will recommend approval of, and certain stockholders of the
Company have agreed to vote in favor of, a proposal to increase the
number of shares authorized, and to include such grants, under the Stock
Option Plan.
<PAGE>
16
(9) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash payments for interest and income taxes and certain noncash
transactions were as follows:
1997
Interest $ 437
Income taxes 3,934
Accretion of preferred stock 101
(10) OTHER RELATED PARTY TRANSACTIONS
The stockholders of the Company and, in certain cases, two of its
officers, participate in three partnerships with which the Company has
entered into certain transactions. The Company leases warehouse
facilities in Holliston, Massachusetts; Atlanta, Georgia; and South Bend,
Indiana, from related parties under 15- and 10-year leases expiring in
fiscal 2006, 2006 and 2003, respectively. Rent expense under these leases
amounted to approximately $600,000 for 1997. In the opinion of the
Company, the rent paid to related parties is not materially different
than the amounts which would be paid to third parties for comparable
space.
(11) SUBSEQUENT EVENTS
On October 10, 1997, the Company acquired all of the outstanding common
stock of Care Management, Inc., a Texas corporation, for an aggregate
purchase price of approximately $3.7 million, which was paid in cash. The
acquisition will be accounted for as a purchase and the results of
operations of Care Management will be included in the consolidated
financial statements of the Company beginning October 10, 1997. The
purchase price has been allocated to the net assets acquired based on
their estimated fair values. The acquisition was financed with cash from
operations and by borrowing $3 million from the Credit Facility.
In December 1997, the Company entered into a merger agreement with
Invacare whereby Invacare would acquire for cash all the outstanding
shares of common stock of the Company. This merger was consummated in
January 1998.
<PAGE>
17
ITEM 7(a)2.
SUBURBAN OSTOMY SUPPLY CO., INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 29, 1997
<PAGE>
18
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
NOVEMBER 29, 1997 AUGUST 30, 1997
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,202 $ 2,270
Accounts receivable, less allowances
of $729 and $638 12,748 12,207
Merchandise inventory 8,140 6,611
Prepaid expenses and other current assets 518 332
Deferred income taxes 516 464
---------- -----------
Total current assets 24,124 21,884
Fixed assets, net 1,883 1,651
Goodwill 19,166 17,312
Other long-term assets 139 277
---------- -----------
Total assets $ 45,312 41,124
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 16
Accounts payable and accrued expenses 8,692 7,608
--------- ---------
Total current liabilities 8,692 7,624
Long-term Liabilities:
Long-term debt, less current portion -- 7
Bank line of credit 2,000 --
Deferred income taxes 35 21
--------- ---------
2,035 28
Stockholders' Equity:
Common Stock, no par; 40,000,000 shares
authorized; issued and outstanding -
10,538,622 and 10,538,503 shares 47,188 47,188
Accumulated deficit (12,603) (13,716)
---------- ----------
Total stockholders' equity 34,585 33,472
Total liabilities and stockholders' equity $45,312 $41,124
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
19
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
NOVEMBER 29, 1997 NOVEMBER 30, 1996
----------------- -----------------
<S> <C> <C>
Net sales $27,490 $21,963
Cost of goods sold 19,853 16,845
-------------- -----------
Gross margin 7,637 5,118
Operating expenses 5,160 2,797
Depreciation and amortization 359 213
-------------- -----------
Operating income 2,118 2,108
Interest income 50 73
Interest expense (64) (415)
Other (expense) income (22) (26)
-------------- ------------
Income before income taxes 2,082 1,740
Provision for income taxes 969 769
-------------- ------------
Net income 1,113 971
Accretion of Preferred Stock -- 101
-------------- ------------
Net income applicable to common
stockholders $ 1,113 $ 870
============== ============
Net income per share $ 0.10
==============
Weighted average common shares
outstanding 11,189
- ----------------------------------
Supplemental Pro Forma (see Note 2):
Net income n/a $ 1,231
Net income per share n/a $ .11
Weighted average common shares
outstanding 10,919
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
20
<TABLE>
<CAPTION>
SUBURBAN OSTOMY SUPPLY CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
THREE MONTHS ENDED
NOVEMBER 29, NOVEMBER 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,113 $ 971
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization 359 213
Changes in assets and liabilities, net
of effects from acquisition of Care Management
Accounts receivable 647 841
Merchandise inventory (850) (266)
Prepaid expenses and other (108) 170
Accounts payable and accrued expenses 134 (390)
-------- --------
Net cash from operating activities 1,295 1,539
CASH FLOWS (USED BY) FROM INVESTING ACTIVITIES:
Purchase of fixed assets (133) (13)
Purchase of Care Management,
net of cash acquired (3,134) --
Other assets and goodwill (73) 49
--------- --------
Net cash used by investing activities (3,340) 36
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under line of credit 2,000 --
Issuance of common stock, net of
issuance costs -- 46,016
Retirement of preferred stock -- (7,538)
Repayments of long-term bank debt, net (23) (24,449)
Repayments of subordinated debt -- (10,485)
---------- ---------
Net cash from financing activities 1,977 3,544
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (68) 5,119
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,270 1,995
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,202 $ 7,114
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
21
SUBURBAN OSTOMY SUPPLY COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation of the
financial statements, primarily consisting of normal recurring adjustments,
have been included. Operating results for the three months ended November
29, 1997 are not necessarily indicative of the results that may be expected
for the year ending August 29, 1998 or any other interim period.
These statements should be read in conjunction with the consolidated
financial statements, notes and other information included in the Company's
latest Form 10-K. Certain reclassifications have been made to the 1997
consolidated financial statements to conform to the 1998 presentation.
(2) SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE
Supplemental pro forma net income per share for the three months ended
November 30, 1996 has been calculated, as if as of September 3, 1995, the
Company had sold the 3.9 million shares of Common Stock sufficient to fund
the July 3, 1995 Recapitalization and repay indebtedness incurred to finance
two acquisitions.
The weighted average number of shares is the actual weighted average number
of shares of Common Stock or equivalents thereof outstanding plus the 3.9
million shares of Common Stock that were sold in connection with the public
offering, assuming issuance occurred on September 3, 1995. For the period
subsequent to October 15, 1996, weighted average shares reflect actual
weighted average shares computed consistent with the treasury stock method.
QUARTER ENDED
NOVEMBER 30,1996
(in thousands, except per share amounts)
Historical income before taxes $1,740
Provision for income taxes (769)
Reversal of interest charges and amortization
of deferred financing costs relating
to debt treated as being repaid, net of tax 260
--------
Supplemental pro forma net income $1,231
Supplemental pro forma net income per share $ .11
=========
Supplemental pro forma weighted average shares outstanding 10,919
<PAGE>
22
SUBURBAN OSTOMY SUPPLY COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128).
This Statement establishes standards for computing and presenting earnings
per share and applies to entities with publicly traded common stock or
potential common stock. SFAS 128 is effective for financial statements for
both interim and annual periods ending after December 15, 1997 and early
adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will adopt this
statement for its quarter ended February 28, 1998. Assuming that SFAS 128
had been implemented, basic earnings per share would have been $0.11 and
$0.12 for the three month periods ended November 29, 1997 and November 30,
1996, respectively. Under this Statement, diluted earnings per share would
not have differed from the net income per share disclosed on the income
statement.
(4) ACQUISITION OF CARE MANAGEMENT
On October 10, 1997, Suburban Ostomy acquired all the outstanding capital
stock of Care Management, a medical supply management company, for an
aggregate consideration of approximately $3.1 million in cash. The cost of
the acquisition exceeded the estimated fair market value of the net assets
acquired by approximately $1.9 million, which has been included on the
Consolidated Balance Sheet under goodwill. The Company has accounted for the
transaction as a purchase and the Consolidated Income Statement includes
Care Management's results from October 10, 1997 through November 29, 1997.
(5) SUBSEQUENT EVENT
On December 17, 1997, Invacare of Ohio announced a tender offer for all the
outstanding common stock of Suburban Ostomy. The offer of $11.75 per common
share has been agreed to by management and a majority of Company
stockholders. The effective date of the purchase is expected to be January
31, 1998, at which time Suburban Ostomy will become a wholly owned
subsidiary of Invacare.
<PAGE>
23
ITEM 7(b)
INVACARE CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The Pro Forma Unaudited Condensed Consolidated Balance Sheet combines the
financial position of Suburban Ostomy Supply Co., Inc. ("Suburban") as of
November 29, 1997 with that of Invacare Corporation ("Invacare") as of December
31, 1997 assuming the acquisition occurred on that date.
The Pro Forma Unaudited Condensed Consolidated Statements of Income combine the
results of operations of Suburban for the twelve months ended November 29, 1997
(prepared from quarterly financial statements) with those of Invacare for the
year ended December 31, 1997.
The pro forma unaudited financial information has been prepared by Invacare and
all calculations have been made based upon assumptions deemed appropriate.
Certain of these assumptions are set forth under the Notes to Pro Forma
Unaudited Condensed Consolidated Financial Statements. The pro forma adjustments
give effect to the purchase method of accounting as described in certain of the
accompanying Notes.
The pro forma unaudited financial information does not purport to be indicative
of the results of operations or the financial position which would have actually
been obtained as if the acquisition had been consummated on the date indicated.
In addition, the pro forma financial information does not purport to be
indicative of results of operations or financial positions which may be obtained
in the future.
The pro forma unaudited financial information should be read in conjunction with
Invacare Corporation Consolidated Financial Statements and Notes thereto
contained in the Annual Report on Form 10-K for the year ended December 31,
1997.
<PAGE>
24
<TABLE>
<CAPTION>
INVACARE CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
Invacare Suburban Acquisition
12/31/97 Ostomy (5) Adjustment Pro Forma
Per Form 10-K 11/29/97 Unaudited Unaudited
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 653,414 $ 99,967 $ 0 $ 753,381
Cost of Products Sold 455,036 73,623 0 528,659
------------- ---------- ---------- ---------
Gross Profit 198,378 26,344 0 224,722
Selling, General and Administrative
Expense 141,712 16,655 0 158,367
Depreciation and Amortization of
Goodwill and Other Intangibles 18,348 1,178 2,486 (6) 22,012
Non-Recurring Unusual Items 29,861 0 0 29,861
------------- --------- ---------- ---------
Income from Operations 8,457 8,511 (2,486) 14,482
Net Interest Income (Expense) (3,234) 22 (8,569)(7) (11,781)
------------- --------- ---------- ---------
Earnings before Income Taxes 5,223 8,533 (11,055) 2,701
Income Taxes 3,660 3,798 (2,999) (8) 4,459
Net Earnings (Loss) $ 1,563 $ 4,735 $ (8,056) $ (1,758)
========= ========= =========== ===========
Net Earnings (Loss) per Share - Basic
$ 0.05 $ (0.06)
========== ===========
Weighted Average Shares Outstanding - Basic 29,569 29,569
========== ===========
Net Earnings (Loss) per Share -
Assuming Dilution $ 0.05 $ (0.06)
========== ===========
Weighted Average Shares Outstanding - 30,374 30,374
Assuming Dilution ========== ===========
</TABLE>
See accompanying Notes to Pro Forma Unaudited Condensed Consolidated Financial
Statements
<PAGE>
25
<TABLE>
<CAPTION>
INVACARE CORPORATION AND SUBSIDIARIES
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share amounts)
Suburban
Invacare Ostomy Acquisition
12/31/97 11/29/97 Adjustment Pro Forma
Per Form 10-K Unaudited Unaudited Unaudited
------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash & Equivalents $ 5,696 $ 2,202 0 $ 7,898
Marketable Securities 3,501 0 0 3,501
Trade receivables, net 114,410 12,748 0 127,599
Installment receivables, net 49,298 0 0 49,298
Inventories 75,708 8,140 0 83,848
Deferred Income Taxes 18,855 516 0 19,371
Other Current Assets 7,743 518 0 8,261
---------- --------- ---- ---------
Total Current Assets 275,211 24,124 0 299,335
Other Assets 56,567 139 0 56,706
Net Property, Plant & Equipment 90,577 1,883 0 92,460
Goodwill 107,568 19,166 99,438 (1) 226,172
---------- --------- -------- ---------
Total Assets $529,923 $ 45,312 $ 99,438 $674,673
========== ========= ======== =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $ 42,497 8,692 $ 0 $ 51,189
Accrued Expenses 59,998 0 2,197 (4) 62,195
Accrued Income Taxes 1,872 0 0 1,872
Current Maturities of Long-Term Obligations 5,186 0 0 5,186
---------- --------- --------- ---------
Total Current Liabilities 109,553 8,692 2,197 120,442
Long-Term Obligations 183,955 2,000 131,826 (2) 317,781
Deferred Income Taxes 0 35 0 35
---------- --------- --------- ---------
Total Long-Term Obligations 183,955 2,035 131,826 317,816
Total Shareholders' Equity 236,415 34,585 (34,585) (3) 236,415
Total Liabilities and Shareholders' Equity $529,923 $ 45,312 $99,438 $674,673
========== ========= ======== =========
</TABLE>
See accompanying Notes to Pro Forma Unaudited Condensed consolidated Financial
Statements
<PAGE>
26
INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) Reflects goodwill generated by the acquisition of Suburban Ostomy .
(2) Reflects debt incurred to acquire Suburban Ostomy.
(3) Reflects elimination of equity of Suburban Ostomy.
(4) Reflects the purchase adjustments for the costs of the acquisition
and reserves for certain items known as of the date of this report.
(5) Prepared from unaudited quarterly financial statements for the
quarters ended March 1, 1997, May 31, 1997, August 30, 1997 and
November 29, 1997.
(6) Recognizes amortization of goodwill over forty years on a
straight-line basis.
(7) Reflects the increase in interest expense attributable to the
portion of the acquisition consideration financed by increased
borrowings under the Company's revolving credit agreement with its
banks using a borrowing rate of 6.5%.
(8) Recognizes pro forma income taxes calculated at Federal statutory
rate for the applicable period, excluding non-deductible goodwill
from the calculation.
<PAGE>
27
ITEM 7(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 8-K of our report dated October 13, 1997. It should be
noted that we have not audited any financial statements of the company
subsequent to August 31, 1997 or performed any audit precedures subsequent to
the date of our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 7, 1998
