<PAGE>
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, 1999
---------------------------------------------------------
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 August 10, 1999, the company had 28,536,685 Common Shares and 1,432,599
Class B Common Shares outstanding.
1
<PAGE>
INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998.........................3
Condensed Consolidated Statement of Earnings -
Three and Six Months Ended June 30, 1999 and 1998...........4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1999 and 1998.....................5
Notes to Condensed Consolidated Financial
Statements - June 30, 1999..................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............9
Item 3. Quantitative and Qualitative Disclosure of Market Risk..............14
Part II. OTHER INFORMATION:
Item 4. Result of Votes of Security Holders.................................15
Item 5. Other Information...................................................15
Item 6. Exhibits and Reports on Form 8-K....................................16
SIGNATURES...................................................................16
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1... Financial Statements (Unaudited)
<TABLE>
<CAPTION>
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet - (unaudited)
June 30, December 31,
1999 1998
ASSETS (In thousands)
- ------ -------------------------------
<S> <C> <C>
CURRENT ASSETS
.........Cash and cash equivalents $ 10,131 $ 9,460
.........Marketable securities 2,327 2,634
.........Trade receivables, net 147,280 156,694
.........Installment receivables, net 65,829 60,330
.........Inventories 87,772 81,740
.........Deferred income taxes 19,300 17,331
.........Other current assets 6,966 8,553
-------------------------------
......... TOTAL CURRENT ASSETS 339,605 336,742
OTHER ASSETS 74,145 62,388
PROPERTY AND EQUIPMENT, NET 118,894 112,944
GOODWILL, NET 217,157 226,682
-------------------------------
......... TOTAL ASSETS $749,801 $738,756
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
.........Accounts payable $47,724 $47,628
.........Accrued expenses 61,089 65,505
.........Accrued income taxes 15,103 12,339
.........Current maturities of long-term obligations 7,543 8,492
-------------------------------
......... TOTAL CURRENT LIABILITIES 131,459 133,964
LONG-TERM DEBT 305,733 311,260
OTHER LONG-TERM OBLIGATIONS 13,567 12,644
SHAREHOLDERS' EQUITY
.........Preferred shares 0 0
.........Common shares 7,280 7,267
.........Class B common shares 360 358
.........Additional paid-in-capital 79,540 79,863
.........Retained earnings 231,613 211,954
.........Accumulated other comprehensive earnings (10,334) (7,712)
.........Treasury shares (9,417) (10,842)
-------------------------------
......... TOTAL SHAREHOLDERS' EQUITY 299,042 280,888
-------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $749,801 $738,756
===============================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $202,195 $202,779 $398,287 $383,845
Cost of products sold 140,110 142,091 279,465 271,704
----------------- ---------------- ----------------- -----------------
Gross profit 62,085 60,688 118,822 112,141
Selling, general and administrative expense 39,802 38,985 79,549 76,337
----------------- ---------------- ----------------- -----------------
Income from operations 22,283 21,703 39,273 35,804
Interest income 2,091 2,403 3,963 4,750
Interest expense (4,836) (6,040) (9,776) (10,123)
----------------- ---------------- ----------------- -----------------
Earnings before income taxes 19,538 18,066 33,460 30,431
Income taxes 7,624 7,045 13,054 11,868
----------------- ---------------- ----------------- -----------------
NET EARNINGS $ 11,914 $11,021 $20,406 $18,563
================= ================ ================= =================
DIVIDENDS DECLARED PER
COMMON SHARE .0125 .0125 .0250 .0250
================= ================ ================= =================
Net earnings per share - basic $ 0.39 $ 0.37 $ 0.68 $ 0.62
================= ================ ================= =================
Weighted average shares outstanding - basic 30,179 29,983 30,068 29,880
================= ================ ================= =================
Net earnings per share - assuming dilution $ 0.39 $ 0.36 $ 0.67 $ 0.61
================= ================ ================= =================
Weighted average shares outstanding -
assuming dilution 30,675 30,720 30,594 30,590
================= ================ ================= =================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Six Months Ended
June 30,
1999 1998
(In thousands)
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $20,406 $18,563
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,113 12,077
Provision for losses on receivables 726 (1,859)
Provision for deferred income taxes (1,150) (1,619)
Provision for other deferred liabilities 969 6
Changes in operating assets and liabilities:
Trade receivables 6,378 (17,714)
Inventories (6,983) (3,268)
Other current assets 1,488 811
Accounts payable 304 5,727
Accrued expenses 1,690 2,822
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,941 15,546
INVESTING ACTIVITIES
Purchases of property and equipment (10,016) (11,310)
Capitalized consulting costs (7,104) (4,568)
Proceeds from sale of property and equipment 538 69
Installment sales contracts written (44,392) (34,075)
Payments received on installment sales contracts 36,372 31,059
Marketable securities purchased (435) (95)
Marketable securities sold 660 500
Increase in other investments (404) (2,343)
Increase in other long term assets (7,254) (8,529)
Business acquisitions, net of cash acquired 0 (129,318)
Other 266 1,502
-----------------------
NET CASH REQUIRED BY INVESTING ACTIVITIES (31,769) (157,108)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings 52,874 299,529
Principal payments on revolving lines of credit, long-term debt
and capital lease obligations (58,502) (155,074)
Proceeds from exercise of stock options 2,682 4,185
Dividends paid (747) (741)
Purchase of treasury stock (470) (498)
-----------------------
NET CASH PROVIDED/(REQUIRED) BY FINANCING ACTIVITIES
(4,163) 147,401
Effect of exchange rate changes on cash 662 (15)
-----------------------
Increase in cash and cash equivalents 671 5,824
Cash and cash equivalents at beginning of period 9,460 5,696
-----------------------
Cash and cash equivalents at end of period $10,131 $11,520
=======================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
June 30, 1999
Nature of Operations - Invacare Corporation and its subsidiaries (the "company")
is the world's leading manufacturer and distributor of non-acute health care
products based upon its distribution channels, the breadth of its product line
and sales. The company designs, manufactures and distributes an extensive line
of health care products for the non-acute care environment including the home
health care, retail and extended care markets. The company's products include
standard manual wheelchairs, motorized and lightweight prescription wheelchairs,
motorized scooters, patient aids, home care and institutional beds, low air loss
therapy 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
June 30, 1999 and December 31, 1998, and the results of its operations for the
three and six months ended June 30, 1999 and 1998 and changes in its cash flows
for the six months ended June 30, 1999 and 1998. The results of operations for
the three and six months ended June 30, 1999, 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 unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements contained in the company's annual financial statements and
notes.
Business Segments - SFAS No. 131 establishes standards for reporting
financial and descriptive information about operating segments. In accordance
with SFAS No. 131, the company operates in three primary business segments based
on geographical area: North America, Europe and Australasia. The three
reportable segments represent operating groups which offer products to different
geographic regions.
The North America segment consists of five operating groups which sell the
following products: wheelchairs, scooters, seating products, self care patient
aids, home care beds, low air loss therapy products, patient transport products,
distributed products, extended care and furniture products, respiratory and
other products. The Europe segment consists of one operating group that sells
primarily wheelchairs, scooters, self care patient aids, patient lifts and
slings and oxygen products. The Australasia segment consists of two operating
groups which sell custom power wheelchairs, electronic wheelchair components and
patient aids. Each business segment sells to the home health care, retail and
extended care markets.
6
<PAGE>
The company evaluates performance and allocates resources based on profit or
loss from operations before income taxes for each reportable segment. The
accounting policies of each segment are the same as those for the company's
consolidated financial statements. Intersegment sales and transfers are based on
the costs to manufacture plus a reasonable profit element. Therefore,
intercompany profit or loss on intersegment sales and transfers are not
considered in evaluating segment performance. Intersegment revenue for
reportable segments was $15,283,000 and $28,157,000 for the three and six months
ended June 30, 1999 respectively.
The information by segment is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers
North America $159,680 $165,780 $318,533 $316,610
Europe 35,260 31,998 67,214 57,946
Australia/Asia 6,665 4,999 11,942 9,307
All Other * 590 2 598 (18)
-------------------------- -------------------------
Consolidated $202,195 $202,779 $398,287 $383,845
Earnings (loss) before income taxes
North America $ 25,531 $ 34,179 $ 49,374 $ 58,881
Europe 745 (880) (994) (3,280)
Australia/Asia 2,177 822 3,698 1,085
All Other * (8,915) (16,055) (18,618) (26,255)
-------------------------- -------------------------
Consolidated $ 19,538 $ 18,066 $ 33,460 $ 30,431
</TABLE>
* Consists of the domestic export unit, corporate selling, general and
administrative costs, and the Invacare captive insurance unit, which do not
meet the quantitative criteria for determining reportable segments.
Comprehensive Earnings - Total comprehensive earnings were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------------------- -----------------------
<S> <C> <C> <C> <C>
Net earnings $11,914 $11,021 $20,406 $18,563
Foreign currency translation (1,907) (54) (2,044) (1,599)
Unrealized gain or (loss) on available
for sale securities (26) (115) (578) (30)
----------------------- -----------------------
Total comprehensive earnings $ 9,981 $10,852 $17,784 $16,934
====================== =======================
</TABLE>
7
<PAGE>
Net Income Per Common Share - The following table sets forth the computation of
basic and diluted net earnings per common share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands except per share data)
1999 1998 1999 1998
------------------------------------------------------
<S> <C> <C> <C> <C>
Basic
Weighted average common shares outstanding 30,179 29,983 30,068 29,880
Net income $11,914 $11,021 $20,406 $18,563
Net income per common share $ .39 $ .37 $ .68 $ .62
Diluted
Weighted average common shares outstanding 30,179 29,983 30,068 29,880
Stock options 496 737 526 710
-------------------------------------------------------
Weighted average common shares assuming dilution 30,675 30,720 30,594 30,590
Net income $11,914 $11,021 $20,406 $18,563
Net income per common share $ .39 $ .36 $ .67 $ .61
</TABLE>
Recently Issued Accounting Pronouncements - In June, 1998, the Financial
Accounting Standards Board (FASB) issued SFAS 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, 2000. Management is currently studying the potential
effects of the adoption of this statement but does not anticipate a significant
impact on the company's financial position or results of operations.
Statement of Cash Flows - The company made payments (in thousands) of :
Six Months Ended
June 30,
1999 1998
--------------------------------
Interest $10,014 $ 7,566
Income taxes 8,317 5,931
Inventories - Inventories consist of the following components (in thousands):
June 30, December 31,
1999 1998
--------------------------------
Raw materials $ 23,699 $ 21,019
Work in process 11,880 14,928
Finished goods 52,193 45,793
-------------------------------
$ 87,772 $ 81,740
================================
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.
8
<PAGE>
Property and Equipment - Property and equipment consist of the following (in
thousands):
June 30, December 31,
1999 1998
-------------------------------
Land, buildings and improvements $49,099 $44,797
Machinery and equipment 146,285 140,577
Furniture and fixtures 12,973 11,950
Leasehold improvements 7,861 7,628
-------------------------------
216,218 204,952
Less allowance for depreciation (97,324) (92,008)
-------------------------------
$118,894 $112,944
===============================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended June 30, 1999 were $202,195,000 compared to
$202,779,000 the same period a year ago. Excluding the net impact from
acquisitions, divestitures and currency translation, overall net sales increased
3.5%. Net sales for the quarter were impacted by decreased North American net
sales partially offset by increased sales in Europe and Australasia. For the
first half, net sales increased 3.8% with currency having a slight negative
impact of .1%. Excluding the net impact from acquisitions, divestitures and
currency translation, overall first half net sales increased 5.3% from the same
period a year ago. The increase in the first half was driven by a strong
increase in sales in Europe and Australasia.
North American Operations
North American net sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs and seating), Standard (manual wheelchairs, personal care and
retail), Beds and Continuing Care (beds, low air loss therapy and furniture and
patient transport equipment), Respiratory (oxygen concentrators, liquid oxygen,
aerosol therapy and associated respiratory) and Distributed (ostomy,
incontinence, wound care and other medical supplies) products, decreased 3.3%
for the quarter. The decrease was due principally to unit volume decreases in
Rehab and Distributed. For the first half of the year, net sales were up .8%.
The increase was due primarily to unit volume increases in Beds and Continuing
Care (up 8.0%) and Respiratory (up 2.0%) offset by decreases in Rehab, Standard,
and Distributed.
9
<PAGE>
European Operations
European net sales increased 10.2% for the quarter, including the negative
impact of 1.6% from foreign currency translation. In the first half, net sales
increased 16.0%, including the positive impact of 1.4% from foreign currency
translation. Europe continues to report strong sales performances, a trend
established throughout the second half of 1998.
Australasia Operations
The Australasia products group consists of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs and Dynamic Controls, a New
Zealand manufacturer of operating components used in power wheelchairs. Net
sales for the Australasia group increased $1,666,000 or 33.3% for the quarter,
including a negative 1.5% impact from foreign currency translation. In the first
half, net sales increased 28.3% including a 5.6% negative impact from foreign
currency translation.
GROSS PROFIT
Gross profit as a percentage of net sales for the three and six month periods
ended June 30, 1999 was 30.7% and 29.8%, respectively, compared to 29.9% and
29.2% in the same periods last year. Margins for North American operations
decreased slightly due to increased sales of lower margin items as a percentage
of total sales. Gross profit for Europe improved, while Australasia gross profit
decreased for the three month period, and gross profit for both segments
increased for the six month period ended June 30, 1999, versus the same periods
last year. Overall, margins have increased as a percentage of net sales as a
result of the company's manufacturing productivity improvements and tight
expense control.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales for the
three and six months ending June 30, 1999 was 19.7% and 20.0%, respectively,
compared to 19.2% and 19.9% in the same periods a year ago. Higher selling and
distribution expenses in 1999 throughout the company and sluggish domestic sales
growth resulted in an increase in the overall expense as a percentage of net
sales. The dollar increase was $817,000 (2.1%) for the quarter and $3,212,000
(4.2%) for the first half. Selling, general and administrative costs were not
materially impacted by acquisitions as any negative impact was offset by
divestitures and business exits.
North American selling, general and administrative costs as a percent of sales
increased compared to the same periods a year ago. European and Australasia
operations' selling, general and administrative costs grew at a slower rate than
sales for the quarter and first half compared to the same periods a year ago.
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,
$57,931,983 had been utilized through June 30, 1999, including $824,452 in the
second quarter of 1999 for facility consolidations. The company expects
substantially all of the remaining charge to be utilized over the next few
months.
10
<PAGE>
INTEREST
Interest income in the three months ended June 30, 1999 declined by
approximately $312,000 and by approximately $787,000 for the first half, when
compared to the same periods a year ago, as increased volume in installment
loans were offset by an overall decrease in the portfolio's effective rate. For
the quarter and first half, interest expense decreased compared to the same
periods last year. The decrease was a result of principal debt payments made in
the current year.
INCOME TAXES
The company had an effective tax rate of 39.0% for the three and six months
ended June 30, 1999, compared to 39.0% in the same periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The company's reported overall level of long-term obligations decreased $5.5
million to $305.7 million for the six months ended June 30, 1999, principally as
a result of cash from operations used to pay down borrowings. The company
continues to maintain an adequate liquidity position to fund its working capital
and capital requirements through its cash flow from operations and its bank
lines. As of June 30, 1999, the company had approximately $247.2 million
available under its lines of credit. Pursuant to the most restrictive covenant
of its debt arrangements, the company could borrow up to the full amount
available under its lines of credit.
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
conditions.
CAPITAL EXPENDITURES
There were no material capital expenditure commitments outstanding as of June
30, 1999. 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 1999 will approximate $32 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.
11
<PAGE>
CASH FLOWS
Cash flows provided by operating activities were $35.9 million for the second
half of 1999 compared to $15.5 million in 1998. Operating cash flow increased in
1999 primarily due to increased net earnings and reduced trade receivables.
Cash flows required for investing activities decreased by $125.3 million for the
second half of 1999 when compared to 1998. The decrease was primarily a result
of reduced acquisition activity in 1999 as the acquisition of Suburban Ostomy
Supply Company was completed in the first quarter of 1998.
Cash flows required by financing activities were $4.2 million compared to cash
provided from financing activities of $147.4 million in 1998. Financing
activities for the second half of 1999 were impacted by the payments on long
term borrowings which exceeded the proceeds from revolving lines of credit and
long-term borrowings. The 1998 cash provided by financing activities was
primarily a result of an increase in net proceeds from long-term borrowings
which was used to fund the acquisition.
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 May 15, 1999, the Board of Directors for Invacare Corporation declared a
quarterly cash dividend of $.0125 per Common Share to shareholders of record as
of July 1, 1999, to be paid on July 15, 1999. At the current rate, the cash
dividend will amount to $.05 per Common Share on an annualized basis.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using the
last two digits rather than four to define the applicable year. Thus, many
programs are unable to properly distinguish between the year 1900 and the year
2000. This is frequently referred to as the "Year 2000 Problem."
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.
12
<PAGE>
<TABLE>
<CAPTION>
Resolution Phases
Assessment Remediation Testing Implementation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Information 100% completed 100% completed 98% completed 98% completed
Technology Expected Expected
completion date completion date
October 1999 October 1999
- ----------------------------------------------------------------------------------------------------------
Operating 100% completed 100% completed 100% completed 100% completed
Equipment
Products 100% completed 100% completed 100% completed 100% completed
- ----------------------------------------------------------------------------------------------------------
3rd Party 100% completed N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The total cost of the Year 2000 project is estimated at $4.0 million to $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 that 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 assure the reliability of its cost estimates and verify its
assessment of risk.
The company is 98% complete in developing contingency plans for each location,
in the event that it does not complete all phases of the Year 2000 program. The
company anticipates each plan will be completed by September 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The company is exposed to market risk through various financial instruments,
including fixed rate and floating rate debt instruments. The Company uses
interest rate swap agreements to mitigate its exposure to interest rate
fluctuations. Based on June 30, 1999 debt levels, a 1% change in interest rates
would impact interest expense by approximately $1,243,000 over the next twelve
months. Additionally, the company operates internationally and as a result is
exposed to foreign currency fluctuations. Specifically, the exposure includes
intercompany loans, and third party sales or payments. In an attempt to reduce
this exposure, foreign currency forward contracts are utilized. The company does
not believe that any potential loss related to these financial instruments will
have a material adverse effect on the company's financial condition or results
of operations.
13
<PAGE>
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union (the
"participating countries") established a fixed rate between their existing
sovereign currencies (the "legacy currencies") and the Euro. The legacy
currencies are scheduled to remain legal tender in the participating countries
between January 1, 1999 and July 1, 2002. Beginning January 1, 2002, the Euro
currency will be introduced and the legacy currencies withdrawn from circulation
six months later. The company believes with modifications to existing computer
software and conversion to new software, the Euro conversion issue will not pose
significant operational problems to its normal business activities. The company
does not expect costs associated with the Euro conversion project to have a
material effect on the company's results of operations or financial position.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this form 10-Q, which are not historical
in nature, constitute forward-looking statements based on current expectations
which are covered under the "safe harbor" provisions 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 and
unusual charge has been reported, may differ significantly from those
anticipated as a result of risks and uncertainties which include, but are not
limited to, pricing pressures, the consolidations of health care customers and
competitors, the availability of strategic acquisition candidates, successfully
completing its project to resolve year 2000 issues, government reimbursement
issues including those that affect the viability of customers, Invacare's
ability to effectively integrate acquired companies, the timely completion of
facility consolidations and the overall economic, market and industry
conditions, as well as the risks described from time to time in Invacare's
reports as filed with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosure of Market Risk.
The information called for by this item is provided under the same caption under
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
14
<PAGE>
Item 4. Results of Votes of Security Holders
On May 26, 1999, the company held its 1999 Annual Meeting of Shareholders
to act on a proposal to elect a class of Directors.
A. Malachi Mixon, III, Frank B. Carr, Michael F. Delaney and Dr. Bernadine P.
Healy were re-elected for a three year term of office expiring in 2002, with
38,053,500, 38,055,456, 38,062,030 and 38,058,860 affirmative votes,
respectively, (89 percent of the total voting power). The candidates had
254,512, 252,556, 245,982 and 249,152 votes withheld, respectively, (.6 percent
of the total voting power).
Item 5. Other Information
On July 1, 1999, IVC Holdings Denmark A/S ("Holdings"), a wholly owned
subsidiary of Invacare Corporation ("Invacare" or the "company"), commenced a
tender offer to all of the qualified shareholders of outstanding shares of
common stock of Scandinavian Mobility International A/S, a Danish corporation
("SMI") for DKK 105 (or approximately USD 14.58) per share in cash. SMI is a
Copenhagen Stock Exchange-listed producer and distributor of rehabilitation
products, mobility aids, and related products in Europe. On July 1, 1999,
Invacare Holdings acquired an 18.2% share in SMI via a purchase of 1,637,640
shares of stock from Kommunernes Pensionsforsikring A/S. On August 2, 1999,
Invacare acquired 3,996,350 shares or an additional 44.4% from Mr. Lars
Foghsgaard and L. Foghsgaard International ApS, Naestved, bringing Invacare's
total ownership percentage to 62.6%.
On August 3, 1999, Invacare Holdings amended its offer to acquire SMI for DKK
105 (or approximately USD 15.09) per share to DKK 115 (or approximately USD
16.52) per share. The total value of the acquisition at the amended price is
approximately USD 146,000,000. The offer is not being made to, nor will deposits
of shares be accepted from or on behalf of U.S. residents or shareholders in any
jurisdiction, including the United States, Canada or Japan, in which the making
of the offer or the acceptance thereof would not be in compliance with the laws
of such jurisdiction.
As of August 13, 1999, with the purchase of additional shares, Invacare's total
ownership percentage is 70.4%.
Funds were obtained from cash on hand and from existing credit agreements.
Invacare and certain of its subsidiaries are parties to a five year Loan
Agreement dated November 18, 1997, with a group of lenders represented by NBD
Bank, as Agent and KeyBank National Association, as Co-Agent (the "Loan
Agreement"). The Loan Agreement established a revolving credit facility
providing Invacare with a maximum availability (including letters of credit) of
$360 million. The Loan Agreement was subsequently amended as of December 23,
1997 to increase the maximum availability to $425 million.
SMI uses its equipment and other assets to market a wide range of medical
supplies and related products to the home health care industry. Invacare intends
to continue to utilize the assets acquired in this transaction in substantially
the same manner as they were employed prior to the acquisition.
15
<PAGE>
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: August 16, 1999
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,131
<SECURITIES> 2,327
<RECEIVABLES> 154,225
<ALLOWANCES> (6,945)
<INVENTORY> 87,772
<CURRENT-ASSETS> 339,605
<PP&E> 216,218
<DEPRECIATION> (97,324)
<TOTAL-ASSETS> 749,801
<CURRENT-LIABILITIES> 131,459
<BONDS> 0
0
0
<COMMON> 7,640
<OTHER-SE> 291,402
<TOTAL-LIABILITY-AND-EQUITY> 749,801
<SALES> 202,195
<TOTAL-REVENUES> 202,195
<CGS> 140,110
<TOTAL-COSTS> 140,110
<OTHER-EXPENSES> 39,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,745
<INCOME-PRETAX> 19,538
<INCOME-TAX> 7,624
<INCOME-CONTINUING> 11,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,914
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
