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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2003
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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)
One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices)
(440)329-6000
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(Registrant's telephone number, including area code)
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(Former name,former address and former fiscal year, if change since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 or 15 (d) of the Securities Exchange Act of 1934 (the
"Exchange Act") 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 by check mark if the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
As of May 6, 2003, the company had 29,714,518 Common Shares and 1,112,023 Class
B Common Shares outstanding.
INVACARE CORPORATION
INDEX
Part I. FINANCIAL INFORMATION: Page No.
- ------------------------------ --------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -
March 31, 2003 and December 31, 2002........................3
Condensed Consolidated Statement of Earnings -
Three Months Ended March 31, 2003 and 2002..................4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 2003 and 2002..................5
Notes to Condensed Consolidated Financial
Statements - March 31, 2003.................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............10
Item 3. Quantitative and Qualitative Disclosure of Market Risk...............14
Item 4. Controls and Procedures..............................................14
Part II. OTHER INFORMATION:
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Item 6. Exhibits and Reports on Form 8-K.....................................15
SIGNATURES....................................................................15
CERTIFICATIONS................................................................16
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
March 31, December 31,
2003 2002
---- ----
(unaudited)
ASSETS (In thousands)
- ------
CURRENT ASSETS
..........Cash and cash equivalents $5,427 $13,086
..........Marketable securities 1,319 1,350
..........Trade receivables, net 209,347 200,388
..........Installment receivables, net 16,983 20,953
..........Inventories, net 115,344 111,382
..........Deferred income taxes 27,063 26,053
..........Other current assets 18,585 25,600
------- -------
.......... TOTAL CURRENT ASSETS 394,068 398,812
OTHER ASSETS 53,109 51,031
OTHER INTANGIBLES 3,934 4,779
PROPERTY AND EQUIPMENT, NET 131,289 130,963
GOODWILL, NET 337,548 321,118
------- -------
.......... TOTAL ASSETS $919,948 $906,703
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
..........Accounts payable $78,614 $80,511
..........Accrued expenses 67,393 66,414
..........Accrued income taxes 19,278 16,049
..........Current maturities of long-term obligations 1,389 4,479
------- -------
.......... TOTAL CURRENT LIABILITIES 166,674 167,453
LONG-TERM DEBT 223,626 234,134
OTHER LONG-TERM OBLIGATIONS 24,733 24,804
SHAREHOLDERS' EQUITY
..........Preferred shares - -
..........Common shares 7,600 7,580
..........Class B common shares 278 278
..........Additional paid-in-capital 101,020 98,995
..........Retained earnings 419,116 407,235
..........Accumulated other comprehensive earnings (loss) 1,957 (18,729)
..........Treasury shares (23,074) (13,843)
..........Unearned compensation on stock awards (1,982) (1,204)
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.......... TOTAL SHAREHOLDERS' EQUITY 504,915 480,312
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $919,948 $906,703
======== ========
3
See notes to condensed consolidated financial statements.
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Earnings - (unaudited)
Three Months Ended
March 31,
2003 2002
---------------------------------
(In thousands except per share data)
Net sales $276,673 $255,081
Cost of products sold 196,222 180,447
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Gross profit 80,451 74,634
Selling, general and administrative expense 60,520 53,417
Interest income (1,036) (929)
Interest expense 2,700 4,468
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Earnings before income taxes 18,267 17,678
Income taxes 6,010 5,810
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NET EARNINGS $ 12,257 $ 11,868
======= =======
DIVIDENDS DECLARED PER COMMON SHARE .0125 .0125
======= =======
Net earnings per share - basic $ 0.40 $ 0.39
======= =======
Weighted average shares outstanding - basic 30,830 30,738
======= =======
Net earnings per share - assuming dilution $ 0.39 $ 0.38
======= =======
Weighted average shares outstanding - assuming dilution 31,431 31,572
======= =======
See notes to condensed consolidated financial statements.
4
INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows - (unaudited)
Three Months Ended
March 31,
2003 2002
---- ----
OPERATING ACTIVITIES (In thousands)
Net earnings $ 12,257 $ 11,868
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,600 6,136
Provision for losses on trade and installment receivables 2,633 1,744
Provision for deferred income taxes 76 233
Provision for other deferred liabilities 661 694
Changes in operating assets and liabilities:
Trade receivables (5,722) 6,270
Inventories (382) 7,164
Other current assets 6,377 4,654
Accounts payable (3,657) (10,502)
Accrued expenses 1,032 (2,075)
Other deferred liabilities (631) 687
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,244 26,873
INVESTING ACTIVITIES
Purchases of property and equipment (3,775) (4,721)
Proceeds from sale of property and equipment 13 4
Installment sales contracts, net 3,441 4,231
Marketable securities - (72)
Increase in other investments (78) (82)
Increase in other long term assets (2,130) (4,395)
Business acquisitions, net of cash acquired (1,836) -
Other (747) 566
------ ------
NET CASH REQUIRED FOR INVESTING ACTIVITIES (5,112) (4,469)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings 84,233 41,708
Payments on revolving lines of credit, long-term debt
and capital lease obligations (98,355) (71,174)
Proceeds from exercise of stock options 220 1,951
Purchases of treasury stock (8,344) -
Payment of dividends (364) (394)
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NET CASH REQUIRED FOR FINANCING ACTIVITIES (22,610) (27,909)
Effect of exchange rate changes on cash 819 152
------ ------
Decrease in cash and cash equivalents (7,659) (5,353)
Cash and cash equivalents at beginning of period 13,086 16,683
------ ------
Cash and cash equivalents at end of period $5,427 $11,330
====== ======
See notes to condensed consolidated financial statements.
5
INVACARE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
March 31, 2003
Nature of Operations - Invacare Corporation and its subsidiaries (the "company")
is the leading home medical equipment manufacturer in the world based on its
distribution channels, the breadth of its product line and net sales. The
company designs, manufactures and distributes an extensive line of medical
equipment for the home health care, retail and extended care markets. The
company's products include standard manual wheelchairs, motorized and
lightweight prescription wheelchairs, seating and positioning systems, motorized
scooters, patient aids, home care beds, respiratory products and distributed
products.
Principles of Consolidation - The consolidated financial statements include the
accounts of the company and its majority owned subsidiaries and include all
adjustments, which were of a normal recurring nature, necessary to present
fairly the financial position of the company as of March 31, 2003 and the
results of its operations for the three months ended March 31, 2003 and 2002 and
changes in its cash flows for the three months ended March 31, 2003 and 2002.
Certain foreign subsidiaries are consolidated using a February 28 quarter end.
The results of operations for the three months ended March 31, 2003, are not
necessarily indicative of the results to be expected for the full year. All
significant intercompany transactions are eliminated.
Reclassifications - Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the presentation used for the
period ended March 31, 2003.
Use of Estimates - The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States
which require management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results may differ from these estimates.
Business Segments - 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 sells each of five primary product lines which
include: standard, rehab, distributed, respiratory, and continuing care
products. Europe and Australasia sell the same product lines with the exception
of distributed products. Each business segment sells to the home health care,
retail and extended care markets.
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 $15,729,000 for the period ended March 31, 2003 and
$14,158,000 for the same period a year ago.
6
The information by segment is as follows (in thousands):
Three Months Ended
March 31,
2003 2002
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Revenues from external customers
North America $200,383 $191,769
Europe 62,439 54,335
Australasia 13,851 8,977
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Consolidated $276,673 $255,081
======== ========
Earnings (loss) before income taxes
North America $16,108 $17,406
Europe 2,320 906
Australasia 1,266 438
All Other * (1,427) (1,072)
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Consolidated $18,267 $17,678
======== ========
* Consists of the domestic export unit, unallocated corporate selling,
general and administrative costs, the Invacare captive insurance unit, and
intercompany profits which do not meet the quantitative criteria for
determining reportable segments.
Net Earnings Per Common Share - The following table sets forth the computation
of basic and diluted net earnings per common share for the periods indicated.
Three Months Ended
March 31,
2003 2002
---- ----
(In thousands except per
share data)
Basic
Average common shares outstanding 30,830 30,738
Net earnings $12,257 $11,868
Net earnings per common share $ .40 $ .39
Diluted
Average common shares outstanding 30,830 30,738
Stock options and awards 601 834
------ ------
Average common shares assuming
dilution 31,431 31,572
Net earnings $12,257 $11,868
Net earnings per common share $ .39 $ .38
Goodwill and Other Intangibles - The change in goodwill reflected on the balance
sheet for the quarter was the result of currency translation, except for a
goodwill increase of $1,592,000 related to the North American segment for the
strategic acquisition of a small company. All of the Company's other intangible
assets have definite lives and are amortized over their useful lives.
7
As of March 31, 2003 and December 31, 2002, other intangibles consisted of the
following (in thousands):
March 31, 2003 December 31, 2002
-------------- -----------------
Historical Accumulated Historical Accumulated
Cost Amortization Cost Amortization
---------- ------------ ---------- ------------
License agreements $6,090 $4,021 $6,037 $3,875
Patents 1,736 932 2,396 880
Other 2,633 1,572 2,576 1,475
------- ------ ------- ------
$10,459 $6,525 $11,009 $6,230
======= ====== ======= ======
Amortization expense related to other intangibles was $295,000 in the first
quarter of 2003 and is estimated to be $1,041,000 in 2004, $543,000 in 2005,
$229,000 in 2006, $215,000 in 2007 and $210,000 in 2008.
Accounting for Stock-Based Compensation - The company utilizes the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, no
compensation cost has been recognized for non-qualified stock options. However,
expense was recorded for the 90,203 restricted stock awards granted since 2001.
Had compensation cost for the company's stock option plans been determined based
on the fair value at the grant date for awards in 2003 and 2002 consistent with
the provisions of SFAS 123, the company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
Three Months Ended
March 31,
2003 2002
----- -----
(In thousands except
per share data)
Net earnings - as reported * $12,257 $11,868
Less: compensation expense determined based on the
fair-value method for all awards granted at
market value, net of related tax effects 1,141 1,042
------- -------
Net earnings - pro forma $11,116 $10,826
======= =======
Earnings per share as reported - basic $.40 $.39
Earnings per share as reported - assuming dilution $.39 $.38
Pro forma earnings per share - basic $.36 $.35
Pro forma earnings per share - assuming dilution $.35 $.34
* Includes stock compensation expense, net of tax, on
restricted awards granted without cost of: $77 $57
Warranty Costs - Generally, the company's products are covered by warranties
against defects in material and workmanship for periods up to six years from the
date of sale to the customer. Certain components carry a lifetime warranty. A
provision for estimated warranty cost is recorded at the time of sale based upon
actual experience. The company continuously assesses the adequacy of its product
warranty accrual and makes adjustments as needed.
8
The following is a reconciliation of the changes in accrued warranty costs for
the reporting period (in thousands):
Balance as of January 1, 2003 $ 11,448
Warranties issued during the period 1,858
Settlements made during the period (1,751)
Changes in liability for pre-existing warranties during
the period, including expirations 133
-------
Balance as of March 31, 2003 $11,688
=======
Comprehensive Earnings - Total comprehensive earnings were as follows (in
thousands):
Three Months Ended
March 31,
2003 2002
---- ----
Net earnings $12,257 $11,868
Foreign currency translation gain (loss) 21,559 (3,095)
Unrealized loss on available for sale securities (21) (3)
Current period unrealized gain (loss) on cash flow hedges (852) 804
------- -------
Total comprehensive earnings $32,943 $ 9,574
======= =======
Statement of Cash Flows - The company made payments of (in thousands):
Three Months Ended
March 31,
2003 2002
---- ----
Interest $3,769 $5,299
Income taxes 2,679 2,657
Inventories - Inventories consist of the following components (in thousands):
March 31, December 31,
2003 2002
------- -------
Raw materials $ 38,773 $ 35,457
Work in process 11,363 12,789
Finished goods 65,208 63,136
------- -------
$115,344 $111,382
======= =======
The final inventory determination under the LIFO method is made at the end of
each fiscal year based on the inventory levels and costs at that point;
therefore, interim LIFO determinations are based on management's estimates of
expected year-end inventory levels and costs.
9
Property and Equipment - Property and equipment consist of the following (in
thousands):
March 31, December 31,
2003 2002
------- -------
Land, buildings and improvements $55,329 $55,232
Machinery and equipment 203,655 199,448
Furniture and fixtures 16,437 15,641
Leasehold improvements 14,185 13,874
------- -------
289,606 284,195
Less allowance for depreciation (158,317) (153,232)
------- -------
$ 131,289 $ 130,963
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with our
Condensed Consolidated Financial Statements and related notes included elsewhere
in this Quarterly Report on Form 10-Q and our Current Report on Form 8-K filed
on April 17, 2003.
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended March 31, 2003 were $276,673,000 compared
to $255,081,000 for the same period a year ago, representing an 8% increase. The
impact of foreign currency translation increased sales by 5%, the exit of two
products lines decreased sales growth by 2% and the remaining increase of 5% was
driven primarily by increases in North America and Australasia offset by sales
declines in Europe.
North American Operations
North American sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, scooters and seating and positioning), Standard (manual
wheelchairs, personal care, home care beds, low air loss therapy and patient
transport), Continuing Care (beds and furniture), Respiratory (oxygen
concentrators, aerosol therapy, sleep, homefill and associated respiratory) and
Distributed (ostomy, incontinence, diabetic, wound care and other medical
supplies) products, increased 4% from the prior year. The exit of two product
lines decreased sales growth by 2% for the quarter. The gain was principally due
to sales volume increases in respiratory products (27%), rehab products (12%)
and supplies (5%) while standard and continuing care product sales were each
down 5% and 6%, respectively. Standard product sales declined primarily due to
continued pricing pressures. Continuing Care product sales declined due to a
difficult regulatory environment related to Medicaid reimbursement.
10
European Operations
European net sales increased 15% to $62,439,000 from $54,335,000 in the first
quarter last year. Adjusting for the impact of foreign currency translation,
European net sales decreased 4% in the quarter versus the same period a year ago
due to slower than expected sales in the Nordic region and reimbursement
pressures in Germany.
Australasia Operations
The Australasia operations consist of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand
manufacturer of operating components used in power wheelchairs and Invacare New
Zealand, a distribution business. Australasia net sales increased 54% to
$13,851,000 from $8,977,000 in the first quarter last year. Adjusting for the
impact of foreign currency translation, Australasia net sales increased 22% in
the quarter versus the same period a year ago. A significant amount of the
increase related to larger purchases by a customer of Dynamic Controls.
GROSS PROFIT
Gross profit as a percentage of net sales for the three-month period ended March
31, 2003 was 29.1% compared to 29.3% for the same period last year. The overall
decrease in margin as a percentage of net sales is primarily due to a sales mix
toward lower margin products and pricing pressures, particularly in the North
American standard products segment. North American margins declined to 29.1%
compared with 30.0% in the prior year primarily as a result of a shift in
product mix to lower margin respiratory products, consumer power products and
supplies and continued pricing pressure in standard products as a result of
increased competing low cost imports. Gross profit for Europe improved by 2.7
percentage points due to an improved gross margin related to cost reduction
projects and a shift in sales mix toward higher margin products, along with a
favorable impact from foreign currency translation. Gross profit in Australasia
declined by 1.8 percentage points as a percent of sales, due to higher sales of
lower margin products in the company's Dynamic Controls subsidiary.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense as a percentage of net sales for the
three months ended March 31, 2003 was 21.9% compared to 20.9% in the same period
a year ago. The dollar increase was $7,103,000 or 13%, due in part to foreign
currency translation, continued investments in marketing and branding programs,
a significant increase in insurance costs and additional provisions for bad
debt. Excluding the impact of foreign currency, selling, general and
administrative expense increased by 7.6% compared with the prior year.
North American selling, general and administrative expense increased $3,862,000
or 9.9% with foreign currency having an immaterial impact. The increase was due
to continued investments in marketing and branding programs, a significant
increase in insurance costs and additional provisions for bad debt. European
selling, general and administrative expense increased $2,959,000 or 3.4%
excluding the impact of foreign currency translation. The increase was
attributable to additional costs for the new European headquarters in
Switzerland and supply chain initiatives. Australasian selling, general and
administrative expense increased $282,000 in reported dollars for the quarter,
but decreased by 8.2% excluding the impact of foreign currency translation as a
result of tight controls on spending.
11
INTEREST
Interest expense in the three months ended March 31, 2003 decreased by
$1,768,000 as a result of reduced debt levels and lower overall rates while
interest income remained relatively unchanged compared to the same period a year
ago.
INCOME TAXES
The company had an effective tax rate of 32.9% which is the same effective tax
rate for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The company's reported overall level of long-term debt decreased $10.5 million
to $223.6 million for the three months ended March 31, 2003. The company
continues to maintain an adequate liquidity position to fund its working capital
and capital requirements through its bank lines of credit and working capital
management. As of March 31, 2003, the company had approximately $309.4 million
available under its lines of credit. Under the most restrictive covenant of the
company's borrowing arrangements, the company has the capacity to borrow up to
an additional $220.7 million as of March 31, 2003.
The company's borrowing arrangements contain covenants with respect to interest
coverage, net worth, dividend payments, working capital, funded debt to
capitalization and interest coverage, as defined in the company's bank
agreements and agreement with its note holders. The company is in compliance
with all covenant requirements.
CAPITAL EXPENDITURES
There were no material capital expenditure commitments outstanding as of March
31, 2003. 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 2003 will approximate $28 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.
CASH FLOWS
Cash flows provided by operating activities were $19.2 million for the first
quarter of 2003 compared to $26.9 million in 2002. Operating cash flows
decreased in the first quarter of 2003 compared to the same period a year ago as
accounts receivable and inventory increased in the first quarter of 2003;
whereas each had declined in the first quarter of last year.
Cash flows required by investing activities were $5.1 million for the first
quarter of 2003 compared to $4.5 million in 2002. The increase is a result of
the strategic acquisition of a small business, primarily offset by decreased
installment receivables, other long term assets and purchases of property, plant
and equipment.
12
Cash flows required by financing activities were $22.6 million compared to cash
required of $27.9 million in 2002. Financing activities for the first quarter of
2003 were impacted by the company's continued effort to pay down long-term
borrowings by $14.1 million and purchases of treasury stock of $8.3 million.
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 February 6, 2003, the Board of Directors for Invacare Corporation declared a
quarterly cash dividend of $.0125 per Common Share to shareholders of record as
of April 1, 2003, to be paid on April 7, 2003. At the current rate, the cash
dividend will amount to $.05 per Common Share on an annual basis.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements include accounts of the company and all
majority-owned subsidiaries. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. In preparing these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. There has
been no change in the company's critical accounting policies as disclosed in
Form 10-K filed for the year ended December 31, 2002. In addition, no new
critical accounting policies have been adopted in the first quarter of 2003. The
Company does not believe there is a great likelihood that materially different
amounts would be reported related to its critical accounting policies. However,
application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ from these estimates.
Accounting for Stock-Based Compensation
The company accounts for options under its stock-based compensation plans using
the intrinsic value method proscribed in APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. The majority of the
options awarded have been granted at exercise prices equal to the market value
of the underlying stock on the date of grant; thus, no compensation cost has
been reflected in the Consolidated Statement of Earnings for these options. In
addition, restricted stock awards have been granted without cost to the
recipients and are being expensed on a straight-line basis over the vesting
periods. If the company had applied the fair value recognition provisions of
SFAS No. 123 Accounting for Stock-Based Compensation for all stock options
granted, net earnings per share assuming dilution would have been reduced by
$.04 in the first quarter of 2003 and by $.04 in the first quarter of 2002.
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. This statement provides
guidance for those companies wishing to voluntarily change to the fair value
based method of accounting for stock-based compensation. The statement also
amends the disclosure requirements of SFAS No. 123. While Invacare continues to
utilize the disclosure-only provisions of SFAS No. 123, the company has modified
its disclosures to comply with the new statement. See Accounting for Stock-Based
Compensation in the Notes to the Consolidated Financial Statements.
13
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 March 31, 2003 debt levels, a 1% change in interest rates
would impact interest expense by approximately $1,828,000 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 would
have a material adverse effect on the company's financial condition or results
of operations.
FORWARD-LOOKING STATEMENTS
The statements contained in this Form 10-Q constitute forward-looking statements
within the meaning of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Terms such as "will," "should," "achieve,"
"increase," "plan," "can," "expect," "pursue," "benefit," "continue," "exceed,"
"improve," "believe," "estimate," "anticipate," "build," "strengthen," "new,"
"lower," "drive," "seek," "hope," and "create," as well as similar comments, are
forward-looking in nature. Actual results and events may differ significantly
from those expressed or anticipated as a result of risks and uncertainties which
include, but are not limited to, the following: pricing pressures, increasing
raw material costs, the consolidations of health care customers and competitors,
government reimbursement issues (including those that affect the viability of
customers), the ability to design, manufacture and distribute new products with
higher functionality and lower costs, the ability to accelerate market
acceptance of and transition to new products, the effect of offering customers
competitive financing terms, Invacare's ability to successfully identify,
acquire and integrate acquisition candidates, the difficulties in managing and
operating businesses in many different foreign jurisdictions, the timely and
efficient completion of facility consolidation, the vagaries of any litigation
or regulatory investigations that the company may be or become involved in at
any time, the difficulties in acquiring and maintaining a proprietary
intellectual property ownership position, the overall economic, market and
industry growth conditions, foreign currency and interest rate risk, Invacare's
ability to improve financing terms and reduce working capital, as well as the
risks described from time to time in Invacare's reports as filed with the
Securities and Exchange Commission. The company undertakes no obligation to
review or update these forward-looking or other information contained herein.
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.
Item 4. Controls and Procedures.
As of March 31, 2003, an evaluation was performed under the supervision and with
the participation of the company's management, including the CEO and CFO, of the
effectiveness of the design and operation of the company's disclosure controls
14
and procedures. Based on that evaluation, the company's management, including
the CEO and CFO, concluded that the company's disclosure controls and procedures
were effective as of March 31, 2003 in ensuring that information required to be
disclosed by the company in the reports it files and submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. There have been no significant
changes subsequent to March 31, 2003 and prior to the date of this filing in the
company's internal controls or in other factors that could significantly affect
internal controls.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A Exhibits:
Official Exhibit No.
---------------------
10(z)Amendment No. 3 to the Invacare Corporation 1994 Performance
Plan
99.1 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
99.2 Certification of the Chief Executive Officer pursuant to 18
U.S.C.Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
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/ Gregory C. Thompson
------------------------
Gregory C. Thompson
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 9, 2003
15
CERTIFICATIONS
I, Gregory C. Thompson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Invacare
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a). designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b). any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
16
INVACARE CORPORATION
By: /s/ Gregory C. Thompson
----------------------
Gregory C. Thompson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 9, 2003
17
CERTIFICATIONS
I, A. Malachi Mixon, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Invacare
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a). designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b). any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
18
INVACARE CORPORATION
By: /s/ A. Malachi Mixon, III
-------------------------
A. Malachi Mixon, III
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2003
19