Company Quick10K Filing
Invacare
Price7.75 EPS-1
Shares34 P/E-7
MCap261 P/FCF-13
Net Debt137 EBIT-7
TEV398 TEV/EBIT-61
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-03-09
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-06
10-K 2018-12-31 Filed 2019-03-07
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-07
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-03-09
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-10
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-03-03
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-08
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-07
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-06
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-07
10-K 2011-12-31 Filed 2012-02-27
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-05
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-06
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-05-21 Officers, Shareholder Vote, Exhibits
8-K 2020-05-15 Enter Agreement, Off-BS Arrangement, Other Events
8-K 2020-05-11 Officers
8-K 2020-05-06 Earnings, Exhibits
8-K 2020-04-14 Earnings, Exhibits
8-K 2020-04-13 Regulation FD, Exhibits
8-K 2020-03-27 Officers, Exhibits
8-K 2020-03-23 Regulation FD, Exhibits
8-K 2020-03-06 Enter Agreement, Regulation FD, Exhibits
8-K 2020-02-10 Earnings, Exhibits
8-K 2019-11-25 Exit Costs
8-K 2019-11-13 Enter Agreement, Regulation FD, Exhibits
8-K 2019-11-13 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-11-06 Earnings, Exhibits
8-K 2019-10-07 Enter Agreement, Off-BS Arrangement
8-K 2019-09-18 Officers, Exhibits
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-02 Exit Costs, Regulation FD, Exhibits
8-K 2019-06-19 Regulation FD
8-K 2019-05-16 Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-04-12 Regulation FD, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2018-11-26 Officers
8-K 2018-11-20 Exit Costs
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-11-01 Exit Costs
8-K 2018-10-09 Officers, Exhibits
8-K 2018-09-18 Officers
8-K 2018-09-10 Regulation FD
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-19 Officers, Exhibits
8-K 2018-05-17 Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-05-07 Earnings, Exhibits
8-K 2018-04-09 Regulation FD, Exhibits
8-K 2018-02-20 Officers, Regulation FD, Exhibits
8-K 2018-02-12 Exit Costs, Regulation FD, Exhibits
8-K 2018-02-07 Earnings, Exhibits
8-K 2018-01-11 Regulation FD
8-K 2018-01-03 Other Events

IVC 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Part I. Financial Information
Item 1. Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II Other Information
Part II. Other Information
Item 1. Legal Proceedings.
Part II Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Part II Other Information
Item 6. Exhibits
EX-10.1 exhibit101may2020.htm
EX-31.1 q12020ivcex311.htm
EX-31.2 q12020ivcex312.htm
EX-32.1 q12020ivcex321.htm
EX-32.2 q12020ivcex322.htm

Invacare Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.72.21.61.10.50.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to           
Commission File Number 001-15103
INVACARE CORPORATION
(Exact name of registrant as specified in its charter)
ivc.jpg 
 
 
 
 
 
 
 
 
 
Ohio
95-2680965
 
 
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
 
 
 
 
 
 
 
 
 
 
One Invacare Way,
 
Elyria,
 
Ohio
44035
 
 
(Address of principal executive offices)
(Zip Code)
 
(440) 329-6000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol
Name of exchange on which registered
Common Shares, without par value
IVC
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (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   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check One):    Large accelerated filer     Accelerated filer   Non-accelerated filer   Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  
As of May 4, 2020, the registrant had 34,419,472 Common Shares and 6,357 Class B Common Shares outstanding.

 
 
 
 
 




ivca01.jpg

Table of Contents
 
 
Item
Page
PART I: FINANCIAL INFORMATION
2
1
 
 
 
 
 
 
3
4
 
 
 
PART II: OTHER INFORMATION
1
1A
2
5
6
 

About Invacare Corporation

Invacare Corporation (NYSE: IVC) ("Invacare" or the "company") is a leading manufacturer and distributor in its markets for medical equipment used in non-acute care settings. At its core, the company designs, manufactures and distributes medical devices that help people to move, breathe, rest and perform essential hygiene. The company provides clinically complex medical device solutions for congenital (e.g., cerebral palsy, muscular dystrophy, spina bifida), acquired (e.g., stroke, spinal cord injury, traumatic brain injury, post-acute recovery, pressure ulcers) and degenerative (e.g., ALS, multiple sclerosis, chronic obstructive pulmonary disease (COPD), age related, bariatric) conditions. The company's products are important parts of care for people with a wide range of challenges, from those who are active and heading to work or school each day and may need additional mobility or respiratory support, to those who are cared for in residential care settings, at home and in rehabilitation centers. The company sells its products principally to home medical equipment providers with retail and e-commerce channels, residential care operators, dealers and government health services in North America, Europe and Asia Pacific. For more information about the company and its products, visit the company's website at www.invacare.com. The contents of the company's website are not part of this Quarterly Report on Form 10-Q and are not incorporated by reference herein.




MD&A
Overview
 
 
 
 


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The discussion and analysis presented below is concerned with material changes in financial condition and results of operations between the periods specified in the condensed consolidated balance sheets at March 31, 2020 and December 31, 2019, and in the condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2020 and March 31, 2019. All comparisons

 

presented are with respect to the same period last year, unless otherwise stated. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes that appear elsewhere in this Quarterly Report on Form 10-Q and the MD&A included in the company's Annual Report on Form 10-K for the year ended December 31, 2019. For some matters, SEC filings from prior periods may be useful sources of information.
OVERVIEW


OVERVIEW
Invacare is a multi-national company with integrated capabilities to design, manufacture and distribute durable medical devices. The company makes products that help people move, breathe, rest and perform essential hygiene, and with those products the company supports people with congenital, acquired and degenerative conditions. The company's products and solutions are important parts of care for people with a range of challenges, from those who are active and involved in work or school each day and may need additional mobility or respiratory support, to those who are cared for in residential care settings, at home and in rehabilitation centers. The company operates in facilities in North America, Europe and Asia Pacific, which are the result of dozens of acquisitions made over the company's forty-year history. Some of these acquisitions have been combined into integrated operating units, while others have remained relatively independent.
COVID-19 Impact
While the recent outbreak of the coronavirus (COVID-19) did not have a material adverse effect on the company’s reported results for the first quarter, the company is actively monitoring the impact of the coronavirus outbreak, which will negatively impact the company’s business and results of operations for the second quarter and likely beyond. The extent to which the company’s operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the outbreak or treat its impact, among other things.
As an “essential” business making medical devices, the company has continued to operate in nearly all of its facilities, having taken the recommended public health measures to ensure worker and workplace safety. The company has seen high demand globally for its respiratory products, beds and therapeutic support surfaces. These products are being deployed in the fight against the COVID-19 pandemic in expanded medical facilities to relieve the strain on hospital systems by providing more medical beds and
 
access to purified oxygen needed in respiratory care. The company is working to increase its capacity to produce these critical products and resolve global supply chain challenges that are compounded by the effects of the pandemic. As a result, there are practical limits to the extent the company can increase output. And, the company is taking steps to offset cost increases from pandemic-related supply chain disruptions.
The pandemic has appropriately focused the provision of healthcare to urgent non-elective care, reducing access to clinicians and healthcare facilities on which other parts of the company’s business rely to engage with customers for product trials and fittings. As a result, and combined with various stay-at-home orders, the company has begun experiencing a global decline in quotes for mobility and seating products, and the company expects a decline in orders will follow. While we believe the decline in demand for mobility and seating product is temporary in nature, the rebound of the business will be impacted by several items including government actions and policies related to the pandemic and the magnitude of the pandemic.
The company continues to optimize its balance sheet for the current environment. In the first quarter, the company preemptively drew $21,600,000 under its North America credit facility. Subsequent to the first quarter, the company borrowed an additional $9,200,000 under its credit facility. These actions were taken to preserve business flexibility and without specific planned uses of capital. In addition, the company realized gross proceeds of $14,563,000 related to its divestiture of Dynamic Controls in the first quarter. Those actions, combined with the company’s other cash balances, and the anticipated generation of Adjusted EBITDA and free cash flow, should provide the company sufficient liquidity to manage the business.
Strategy
The company had a strategy to be a leading provider of durable medical equipment to health care providers in global markets by providing the broadest portfolio available. This strategy has not kept pace with certain reimbursement changes, competitive dynamics and company-specific challenges. Since 2015, the company has made a major shift in its strategy. The company has

1

MD&A
Overview
 
 
 
 

since been aligning its resources to produce products and solutions that assist customers and end-users with their most clinically complex needs. By focusing the company's efforts to provide the best possible assistance and outcomes to the people and caregivers who use its products, the company aims to improve its financial condition for sustainable profit and growth. To execute this transformation, the company is undertaking a substantial multi-year transformation plan.
Transformation
The company is executing a multi-year transformation to return the company to profitability by focusing its resources on products and solutions that provide greater healthcare value in clinically complex rehabilitation and post-acute care. The company's transformation and growth plan balances innovative organic growth, product portfolio changes across all regions, and cost improvements in supply chain and administrative functions. Key elements of the enhanced transformation and growth plan are:
Globally, continue to drive all business segments and product lines based on their potential to achieve a leading market position and to support profitability goals;
In Europe, leverage centralized innovation and supply chain capabilities while reducing the cost and complexity of a legacy infrastructure;
In North America, adjust the portfolio to consistently grow profitability amid cost increases by adding new products, reducing costs and continuing to improve customers' experience;
In Asia Pacific, remain focused on sustainable growth and expansion in the southeast Asia region; and
Take actions globally to reduce working capital and improve free cash flow.
As it navigates the uncertain business environment resulting from COVID-19, the company continues to allocate more resources to the business units experiencing increased demand and expects to continue taking actions to mitigate the potential negative financial and operational impacts on other parts of the company's business that may decline. In the medium-term, the company still expects to execute on its transformation, such as the previously announced German plant consolidation and the global IT modernization initiative.





 
Favorable Long-term Demand
Ultimately, demand for the company's products and services is based on the need to provide care for people with certain conditions. The company's medical devices provide solutions for end-users and caregivers. Therefore, the demand for the company's medical equipment is largely driven by population growth and the incidence of certain conditions where treatment may be supplemented by the company's devices. The company also provides solutions to help equipment providers and residential care operators deliver cost-effective and high-quality care. The company believes that its commercial team, customer relationships, products and solutions, supply chain infrastructure, and strong research and development pipeline will create favorable business potential.

2

MD&A
Net Sales
 
 
 
 

RESULTS OF OPERATIONS - NET SALES


The company operates in two primary business segments: North America and Europe with each selling the company's primary product categories, which include: lifestyle, mobility and seating and respiratory therapy products. Sales in Asia Pacific are reported in All Other and include products similar to those sold in North America and Europe.
($ in thousands USD)
1Q20*
1Q19
% Change
Fav/(Unfav)
Foreign Exchange % Impact
Divestiture % Impact
Constant Currency % Change
Fav/(Unfav)
Europe
120,968

124,844

(3.1
)
(2.5
)

(0.6
)
North America
86,971

86,244

0.8

(0.2
)

1.0

All Other (Asia Pacific)
10,501

12,331

(14.8
)
(6.1
)
(11.1
)
2.4

Consolidated
218,440

223,419

(2.2
)
(1.7
)
(0.6
)
0.1

 
 
 
 
 
 
 
 
 
 
 
 
 
*Date format is quarter and year in each instance.
The table above provides net sales change as reported and as adjusted to exclude the impact of foreign exchange translation and divestitures (constant currency net sales). “Constant currency net sales" is a non-Generally Accepted Accounting Principles ("GAAP") financial measure, which is defined as net sales excluding the impact of foreign currency translation and divestitures. The current year's functional currency net sales are translated using the prior year's foreign exchange rates. These amounts are then compared to the prior year's sales to calculate the constant currency net sales change. For the divestiture impact, the company adjusted a portion of net sales as the Dynamic Controls business was divested as of March 7, 2020.
Europe - Constant currency net sales decreased in 1Q20 compared to 1Q19 as an increase in respiratory and mobility and seating product sales was more than offset by decreased sales of lifestyle products. Lower lifestyle product net sales continued to
 
be impacted by a delay in the timing of an award for a government tender.
North America - Constant currency net sales for 1Q20 increased compared to 1Q19 as an increase in mobility and seating and respiratory product sales was more than offset by decreased sales of lifestyle products. Mobility and seating product sales grew 4% on a constant currency basis driven by a 16% increase in power mobility product, including the benefit of new product introductions, offset by a decline in manual mobility product.
All Other - Constant currency net sales, which relate entirely to the Asia Pacific region, increased for 1Q20 compared to 1Q19 driven by sales of lifestyle and respiratory products and partially offset by reduced sales of mobility and seating products.

chart-93b68216138f50999af.jpg
Constant currency net sales of mobility and seating products, which comprise most of the company's clinically
 
complex product portfolio, was 40.7% of net sales in 1Q20 from 40.7% in 1Q19.


3

MD&A
Gross Profit
 
 
 
 


GROSS PROFIT

chart-4584d826105357dc82c.jpg
Gross profit increased 130 basis points to 28.8%, attributable to the company's continuous improvement initiatives driving material and freight cost savings, and reduced R&D expense partially offset by unfavorable foreign exchange.
































 

Gross profit drivers by segment:
Europe - Gross profit as a percentage of net sales for 1Q20 increased 0.9 of a percentage point, or $313,000, compared to 1Q19. The increase in gross profit was driven by favorable sales mix and lower freight and R&D costs.
North America - Gross profit as a percentage of net sales for 1Q20 increased 1.5 percentage points, or $1,759,000, compared to 1Q19. The increase in gross profit was driven by lower material and freight costs as well as improved sales mix.
All Other - Gross profit, which primarily relates to the company's Asia Pacific businesses, increased 2.7 percentage points and declined $539,000, compared to 1Q19. The decrease in gross profit dollars was primarily due to unfavorable sales mix and higher material costs offset by reduced warranty and R&D expense.

4

MD&A
SG&A
 
 
 
 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

($ in thousands USD)
1Q20
1Q19
Reported Change
Foreign Exchange Impact
Divestiture % Impact
Constant Currency Change
SG&A Expenses - $
61,738

65,241

(3,503
)
299

278

(2,926
)
SG&A Expenses - % change
 
 
(5.4
)
(0.5
)
(0.4
)
(4.5
)
% to net sales
28.3

29.2

 
 
 
 
 
 
 
 
 
 

SG&A expense excluding the impact of foreign currency translation and divestitures, which is referred to as "constant currency SG&A", decreased for 1Q20 compared to the same period last year primarily due to reduced employment costs and favorable foreign currency transactions.

The divestiture impact is related to a portion of the SG&A expenses related to the Dynamic Controls business divested as of March 7, 2020.

SG&A expense drivers by segment:

Europe - SG&A expenses for 1Q20 decreased $756,000 or 2.6% compared to 1Q19 with foreign currency translation decreasing SG&A expenses by $505,000, or 1.7%. Constant currency SG&A expenses decreased $251,000, or 0.9%. The decreased expense was primarily attributable to lower employment costs, as result of transformation initiatives, and depreciation and amortization expense.

North America - SG&A expenses for 1Q20 decreased 2.2%, or $574,000, compared to 1Q19 with foreign currency translation increasing SG&A expenses by $164,000. Constant currency SG&A expenses decreased $738,000, or 2.8%. driven primarily by transformation initiatives which lowered employment and consulting costs.

















 

All Other - SG&A expenses for 1Q20 decreased by $2,173,000 compared to 1Q19 with foreign currency translation increasing SG&A expenses by $42,000 and divestitures decreasing SG&A expenses by $278,000. All Other includes SG&A related to the Asia Pacific businesses and non-allocated corporate costs. SG&A expenses related to non-allocated corporate costs for 1Q20 decreased 1.0%, or $58,000, compared to 1Q19. The decrease was driven primarily by decreased employment costs, including stock compensation expense. Related to the Asia Pacific businesses, 1Q20 SG&A decreased 60.1%, or $2,115,000, compared to 1Q19 with foreign currency translation increasing SG&A expenses $42,000, or 1.2% and divestitures decreasing SG&A expenses by $278,000 or 7.9%. Constant currency SG&A expenses decreased $1,879,000, or 53.4%, due to favorable foreign currency transactions.



5

MD&A
Operating Income (Loss)
 
 
 
 

OPERATING INCOME (LOSS)

($ in thousands USD)
1Q20
1Q19
$ Change
% Change
Europe
6,850

5,782

1,068

18.5

North America
(2,045
)
(4,379
)
2,334

53.3

All Other
(3,555
)
(5,189
)
1,634

31.5

Gain on sale of business
9,590


9,590


Charges related to restructuring
(1,392
)
(692
)
(700
)
(101.2
)
Consolidated Operating Income (Loss)
9,448

(4,478
)
13,926

311.0

 
 
 
 
 

For 1Q20, consolidated operating profitability improved significantly due to a $9,590,000 gain from the divestiture of Dynamic Controls. Excluding the gain recognized on the divestiture, operating loss improved $4,336,000, or nearly 97%, due to reduced SG&A expenses and increased gross profit partially offset by higher restructuring costs.

Operating income (loss) by segment:
Europe - Operating income for 1Q20 improved by $1,068,000, or 18.5%, due to reduced SG&A expenses and improved gross profit, which were partially offset by lower net sales and unfavorable foreign exchange translation of $500,000.

North America - Operating loss for 1Q20 improved by $2,334,000 primarily due to reduced SG&A expenses and improved gross profit due to lower material and freight costs as well as improved product mix.

All Other - Operating loss for All Other includes the operating income of the Asia Pacific businesses, offset by unallocated SG&A expenses and intercompany eliminations, which were flat. Operating loss decreased $1,634,000 primarily driven by an improvement in the Asia Pacific businesses operating profit as a result of reduced SG&A expenses partially offset by lower gross margin.

















 

Charge Related to Restructuring Activities
Restructuring charges totaled $1,392,000 for the first quarter 2020 principally related to severance costs. Restructuring charges were incurred in the Europe ($665,000), North America ($691,000) and All Other ($36,000) segments.

Restructuring charges totaled $692,000 for the first quarter 2019 principally related to severance costs. Restructuring charges were incurred in the Europe ($320,000), North America ($553,000) and All Other $(181,000) segments.

6

MD&A
Other Items
 
 
 
 

OTHER ITEMS


Net Gain (Loss) on Convertible Debt Derivatives
($ in thousands USD)
Change in Fair Value - Gain (Loss)
 
1Q19
Convertible Note Hedge Assets
15,126

Convertible Debt Conversion Liabilities
(15,399
)
Net Loss on Convertible Debt Derivatives
(273
)
 
 
The company recognized a net loss of $273,000 in 1Q19 related to the fair value of convertible debt derivatives. As a result of the company’s receipt of shareholder approval authorizing the company to elect to settle future conversions of its convertible notes in common shares, 2Q19 was the last quarter for which the company recognized any gain or loss on the fair value of its note hedge assets and convertible debt conversion liabilities.

Interest
($ in thousands USD)
1Q20
1Q19
$ Change
% Change
Interest Expense
6,676

7,314

(638
)
(8.7
)
Interest Income
(60
)
(129
)
69

(53.5
)
 
 
 
 
 
The decrease in interest expense for 1Q20 compared to 1Q19 was the result of the repurchase and retirements of $16,000,000 in principal amount of 2021 Notes in 3Q19.























 

Income Taxes
The company had an effective tax rate of 74.2% on earnings and 16.3% on losses before tax for the three months ended March 31, 2020 and March 31, 2019, respectively, compared to an expected expense for the three months ended March 31, 2020 and an expected benefit for the three months ended March 31, 2019 of 21.0% on the pre-tax earnings and loss for each period. The company's effective tax rates for each of the three months ended March 31, 2020 and March 31, 2019 were unfavorable as compared to the U.S. federal statutory rate expected expense and benefit, respectively, principally due to the negative impact of the company not being able to record tax benefits related to the significant losses in countries which had tax valuation allowances. The effective tax rate was increased for the three months ended March 31, 2020 and March 31, 2019 by certain taxes outside the United States, excluding countries with tax valuation allowances, that were at an effective rate higher than the U.S. statutory rate, except for the gain on the disposition of the Dynamic group which was not taxable locallyIn addition, the company had accrued withholding taxes on earnings of its Chinese subsidiary based on the expectation of not permanently reinvesting those earnings.  The sale of this entity, without such distribution resulted in the reversal of this accrual in the amount of $988,000 for the three months ended March 31, 2020.

As a result of the COVID-19 pandemic and the global impact on business activity, various governments have provided programs to help offset the liquidity pressures and impact on society. The company has taken advantage of some of these programs and will continue to consider other programs as they are announced. To date, the company has determined it will benefit by: 1) deferral of U.S. payroll tax related to employer portion of social security through 2020, to be paid over 2 years, 2) a U.S. business interest limitation increase from 30% to 50% of after-tax income 3) the treatment of qualified improvement property as 15-year property in the U.S., 4) and the deferral of income and indirect tax payments over various periods in other countries around the world where the company operates. The impact on the financial statements for the quarter ended March 31, 2020 was not significant.







7

MD&A
Liquidity and Capital Resources
 
 
 
 

LIQUIDITY AND CAPITAL RESOURCES


The company continues to maintain an adequate liquidity position through its cash balances and unused bank lines of credit (see Long-Term Debt in the Notes to Condensed Consolidated Financial Statements included in this report). Key balances on the company's balance sheet and related metrics:
($ in thousands USD)
March 31, 2020
December 31, 2019
$ Change
% Change
Cash and cash equivalents
98,932

80,063

18,869

23.6

Working capital (1)
80,081

137,220

(57,139
)
(41.6
)
Total debt (2)
319,704

302,106

17,598

5.8

Long-term debt (2)
231,714

292,744

(61,030
)
(20.8
)
Total shareholders' equity
304,512

308,516

(4,004
)
(1.3
)
Credit agreement borrowing availability (3)
9,381

34,516

(25,135
)
(72.8
)
(1) 
Current assets less current liabilities.
(2) 
Long-term debt and Total debt include debt issuance costs recognized as a deduction from the carrying amount of debt liability and debt discounts classified as debt as well as long term lease obligations for both operating and financing leases.
(3) 
Reflects the combined availability of the company's North American and European asset-based revolving credit facilities. The change in borrowing availability is due to changes in the calculated borrowing base, as well as the borrowing of $21,600,000 on the North America credit facility during 1Q20. Subsequent to 1Q20, the company borrowed an additional $9,200,000 under its European credit facility.

The company's cash and cash equivalents balances were $98,932,000 and $80,063,000 at March 31, 2020 and December 31, 2019, respectively. The increase in cash was the result of normal operations, including the continued investment in our transformation strategy, as well as the borrowing of $21,600,000 on the North America credit facility under the company's credit agreement which provides for an asset-based-lending senior secured revolving credit facility and the proceeds of $14,563,000 from the sale of its former subsidiary Dynamic Controls during the quarter ended March 31, 2020. Subsequent to 1Q20, the company borrowed an additional $9,200,000 under its credit facility. Debt repayments, acquisitions, divestitures, the timing of vendor payments, the timing of customer rebate payments, the granting of extended payment terms to significant national accounts and other activity can have a significant impact on the company's cash flow and borrowings outstanding such that the cash reported at the end of a given period may be materially different than cash levels during a given period. While the company has cash balances in various jurisdictions around the world, there are no material restrictions regarding the use of such cash for dividends within the company, loans or other purposes, except in China where the cash balance, as of March 31, 2020, was $57,000.

The company's total debt outstanding, inclusive of the debt discount related to debentures included in equity as well as the debt discount and fees associated with the company's Convertible Senior Notes due 2021, 2022 and 2024, increased by $17,598,000 to $319,704,000 at March 31, 2020 from $302,106,000 as of December 31, 2019. The increase is primarily driven by borrowing of $21,600,000 on the company's credit agreement which provides for an asset-based-lending senior secured revolving credit facility.

 

The company may from time to time seek to retire or purchase its convertible senior notes, in open market purchases, privately negotiated transactions or otherwise. Such purchases, if any, will
depend on prevailing market conditions, the company’s liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. The company will access government programs to bolster short-term liquidity including the temporary delay of direct and indirect tax payments for 2Q20, with repayment beginning later in the year and into 2021, as well as government based loans, as available. 

See "Long-Term Debt" and "Leases and Commitments" in the Notes to Condensed Consolidated Financial Statements for more details regarding the company's convertible notes and credit facilities and lease liabilities, respectively.

The company is actively managing its business to maintain cash flow and liquidity. Based on the company's current expectations, the company believes that its cash balances and available borrowing capacity under its credit facilities should be sufficient to meet working capital needs, capital requirements, and commitments for at least the next twelve months. Notwithstanding the company's expectations, if the company's operating results decrease as the result of pressures on the business due to, for example, the impact of COVID-19, currency fluctuations or regulatory issues or the company's failure to execute its business plans or if the company's transformation takes longer than expected, the company may require additional financing, or may be unable to comply with its obligations under the credit facilities, and its lenders could demand repayment of any amounts outstanding under the company's credit facilities. As the company

8

MD&A
Liquidity and Capital Resources
 
 
 
 

cannot predict the duration or scope of the COVID-19 pandemic and its impact on the company’s customers and suppliers, the negative financial impact to the company’s results cannot be reasonably estimated, but could be material.

The company also has an agreement with De Lage Landen, Inc. (“DLL”), a third-party financing company, to provide lease financing to the company's U.S. customers. Either party could terminate this agreement with 180 days' notice or 90 days' notice by DLL upon the occurrence of certain events. Should this agreement be terminated, the company's borrowing needs under its credit facilities could increase.

Should interest rates increase, the company expects that it would be able to absorb modest rate increases without any material impact on its liquidity or capital resources. The weighted average interest rate on revolving credit borrowings, excluding capital leases, was 4.74% for the for the three months ended March 31, 2020 and 4.78% for the year ended December 31, 2019. See "Long-Term Debt" in the Notes to the Consolidated Financial Statements for more details regarding the company's credit facilities.

CAPITAL EXPENDITURES

The company estimates that capital investments for 2020 could be approximately $20,000,000 compared to actual capital expenditures of $10,874,000 in 2019. The anticipated increase relates primarily to the company's investments to transform the company. The company believes that its balances of cash and cash equivalents and existing borrowing facilities will be sufficient to meet its operating cash requirements and fund capital expenditures (see "Liquidity and Capital Resources"). However, because the company cannot predict the duration or scope of the COVID-19 pandemic and its impact on the company, the pandemic may cause delay or curtailment of the company’s planned capital expenditures. The Credit Agreement limits the company's annual capital expenditures to $35,000,000.


















 
DIVIDEND POLICY

On February 20, 2020, the company's Board of Directors declared a quarterly cash dividend of $0.0125 per Common Share to shareholders of record as of April 3, 2020, which was paid on April 17, 2020. The company does not pay a regular quarterly dividend on the Class B Common Shares.

9

MD&A
Cash Flows
 
 
 
 

CASH FLOWS

chart-a8c6dd39d97a5f87847.jpg
The significant reduction in cash used by operating activities for the three months ended March 31, 2020 was driven primarily by an increase to accounts payable and improvement in net loss.
chart-ae75d24e3b725dbaa5d.jpg
Cash flows provided by investing activities for the first three months of 2020 were higher compared to cash flows used in the same period last year, driven by gross proceeds of $14,563,000 from the sale of its former subsidiary Dynamic Controls in the first quarter of 2020. In addition, the company used $2,113,000 to purchase SAP licenses related to its ERP implementation in the first quarter of 2020.
 
chart-20d8a72d497d59e690f.jpg
Cash flows provided by financing activities increased in the first three months of 2020 compared to the same period last year driven primarily by borrowing of $21,600,000 on the North America credit facility under the company's credit agreement which provides for an asset-based-lending senior secured revolving credit facility.

10

MD&A
Cash Flows
 
 
 
 

Free cash flow is a non-GAAP financial measure and is reconciled to the corresponding GAAP measure as follows:
 ($ in thousands USD)
1Q20
 
1Q19
Net cash used by operating activities
(9,839
)
 
(22,588
)
Plus: Sales of property and equipment
4

 
20

Less: Purchases of property and equipment
(2,121
)
 
(1,812
)
Free Cash Flow
(11,956
)
 
(24,380
)
 
 
Free cash flow for the first three months 2020 and 2019 was negatively impacted by the same items that affected cash flows used by operating activities. Free cash flow is a non-GAAP financial measure that is comprised of net cash used by operating activities plus purchases of property and equipment less proceeds from sales of property and equipment. Management believes that this financial measure provides meaningful information for evaluating the overall financial performance of the company and
 
its ability to repay debt or make future investments (including acquisitions, etc.).
Generally, the first half of the year is cash consumptive and impacted by significant disbursements related to annual customer rebate payments which normally occur in the first quarter of the year and earned employee bonuses historically paid in the second quarter of the year. In addition, investment in inventory is typically heavy in the first half of the year with planning around the company's supply chain to fulfill shipments in the second half of the year and can be impacted by footprint rationalization projects. As a result, historically, the company realizes stronger cash flow in the second half of the year versus the first half of the year. However, because the company cannot predict the duration or scope of the COVID-19 pandemic and its negative impact on the company’s cash flow, these historic trends may not apply in 2020 or beyond.

The company's approximate cash conversion days at March 31, 2020, December 31, 2019 and March 31, 2019 were as follows:
chart-a3f2ee5b57de5af0a68.jpg
For the quarter ended March 31, 2020, days in receivables improved compared to the same period a year ago while days in inventory were substantially more favorable compared to the quarter ended March 31, 2019 due to improved inventory management. Days in accounts payable reflect the company's efforts to manage cash as a result of the business disruption due to the COVI-19 pandemic.

Days in receivables are equal to current quarter net current receivables divided by trailing four quarters of net sales multiplied by 365 days. Days in inventory and accounts payable are equal to current quarter net inventory and accounts payable, respectively, divided by trailing four quarters of cost of sales multiplied by 365
 
days. Total cash conversion days are equal to days in receivables plus days in inventory less days in accounts payable.

The company provides a summary of days of cash conversion for the components of working capital so investors may see the rate at which cash is disbursed, collected and how quickly inventory is converted and sold.

11

MD&A
Accounting Estimates and Pronouncements
 
 
 
 

ACCOUNTING ESTIMATES AND PRONOUNCEMENTS


CRITICAL ACCOUNTING ESTIMATES

The Consolidated Financial Statements included in the report 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 the financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, thus, actual results could differ from these estimates. Please refer to the Critical Accounting Estimates section within MD&A of company's Annual Report on Form 10-K for the period ending December 31, 2019 as well as the revenue recognition and warranty disclosure below.































 
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For the company’s disclosure regarding recently issued accounting pronouncements, see Accounting Policies - Recent Accounting Pronouncements in the Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.


12

MD&A
Forward-Looking Statements
 
 
 
 

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that describe future outcomes or expectations that are usually identified by words such as “will,” “should,” “could,” “plan,” “intend,” “expect,” “continue,” “forecast,” “believe,” and “anticipate” and include, for example, statements related to the expected effects on the company’s business of the COVID-19 pandemic; sales and free cash flow trends; the impact of contingency plans and SG&A and investment reductions; the company’s liquidity and working capital expectations; the company’s future financial results; and similar statements. Actual results may differ materially as a result of various risks and uncertainties, including the duration and scope of the COVID-19 pandemic and impact on the demand for the company’s products; the ability of the company to obtain needed raw materials and components from its suppliers; actions that governments, businesses and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps the company takes to reduce operating costs; the inability of the company to sustain profitable sales growth, achieve anticipated improvements in segment operating performance, convert high inventory levels to cash or reduce its costs to maintain competitive prices for its products; lack of market acceptance of the company's new product innovations; circumstances or developments that may make the company unable to implement or realize the anticipated benefits, or that may increase the costs, of its current and planned business initiatives, in particular the key elements of its enhanced transformation and growth plan such as its new product introductions, additional investments in sales force and demonstration equipment, plant consolidation in Germany, supply chain actions and global information technology outsourcing and ERP implementation activities; possible adverse effects on the company's liquidity, including the company's ability to address future debt maturities, that may result from delays in the implementation of, any failure to realize benefits from, its current and planned business initiatives; adverse changes in government and third-party payor reimbursement levels and practices in the U.S.; adverse impacts of new tariffs or increases in commodity prices or freight costs; regulatory proceedings or the company's failure to comply with regulatory requirements or receive regulatory clearance or approval for the company's products or operations; adverse effects of regulatory or governmental inspections of the company's facilities at any time and governmental investigations or enforcement actions; exchange rate fluctuations; and those other risks and uncertainties expressed in the cautionary statements and risk factors in the company's
 
annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. The company may not be able to predict and may have little or no control over many factors or events that may influence its future results and, except as required by law, shall have no obligation to update any forward-looking statements.

13

Financial Statements
Leases and Commitments
 
 
 
 

Part I.    FINANCIAL INFORMATION
Item 1.    Financial Statements.

INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Comprehensive Income (Loss) (unaudited)
 (In thousands, except per share data)
Three Months Ended March 31,
 
2020
 
2019
Net sales
$
218,440

 
$
223,419

Cost of products sold
155,452

 
161,964

Gross Profit
62,988

 
61,455

Selling, general and administrative expenses
61,738

 
65,241

Gain on sale of business
(9,590
)
 

Charges related to restructuring activities
1,392

 
692

Operating Income (Loss)
9,448

 
(4,478
)
Net loss on convertible debt derivatives

 
273

Interest expense
6,676

 
7,314

Interest income
(60
)
 
(129
)
Earnings (Loss) Before Income Taxes
2,832

 
(11,936
)
Income tax provision
2,100

 
1,950

Net Earnings (Loss)
$
732

 
$
(13,886
)
Dividends Declared per Common Share
$
0.0125

 
$
0.0125

Net Earnings (Loss) per Share—Basic
$
0.02

 
$
(0.42
)
Weighted Average Shares Outstanding—Basic
33,784

 
33,304

Net Earnings (Loss) per Share—Assuming Dilution
$
0.02

 
$
(0.42
)
Weighted Average Shares Outstanding—Assuming Dilution
33,853

 
33,317

Net Earnings (Loss)
$
732

 
$
(13,886
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
(4,194
)
 
5,102

Defined Benefit Plans:
 
 
 
Amortization of prior service costs and unrecognized(losses) gains
(169
)
 
26

Deferred tax adjustment resulting from defined benefit plan activity
18

 
(6
)
Valuation reserve associated with defined benefit plan activity
(18
)
 
6

Current period gain on cash flow hedges
(142
)
 
(509
)
Deferred tax loss related to gain on cash flow hedges

 
21

Other Comprehensive Income (Loss)
(4,505
)
 
4,640

Comprehensive Loss
$
(3,773
)
 
$
(9,246
)
(Elements as a % of Net Sales)
 
 
 
Net Sales
100.0
 %
 
100.0
 %
Cost of products sold
71.2

 
72.5

Gross Profit
28.8

 
27.5

Selling, general and administrative expenses
28.3

 
29.2

Gain on sale of business
(4.4
)
 

Charges related to restructuring activities
0.6

 
0.3

Operating Income (Loss)
4.3

 
(2.0
)
Net loss on convertible debt derivatives

 
0.1

Interest expense
3.1

 
3.3

Interest income

 
(0.1
)
Earnings (Loss) Before Income Taxes
1.3

 
(5.3
)
Income tax provision
1.0

 
0.9

Net Earnings (Loss)
0.3
 %
 
(6.2
)%
See notes to condensed consolidated financial statements.

14

Financial Statements
Leases and Commitments
 
 
 
 

INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
 
March 31,
2020
 
December 31,
2019
Assets
(In thousands)
Current Assets
 
 
 
Cash and cash equivalents
$
98,932

 
$
80,063

Trade receivables, net
110,068

 
116,669

Installment receivables, net
595

 
736

Inventories, net
118,505

 
120,500

Other current assets
48,563

 
37,909

Total Current Assets
376,663

 
355,877

Other Assets
4,346

 
4,216

Intangibles
26,217

 
26,447

Property and Equipment, net
47,095

 
46,607

Financing Lease Assets, net
26,183

 
26,900

Operating Lease Assets, net
15,619

 
18,676

Goodwill
372,911

 
373,403

Total Assets
$
869,034

 
$
852,126

Liabilities and Shareholders’ Equity
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
90,614

 
$
88,003

Accrued expenses
116,134

 
120,947

Current taxes payable
1,844

 
345

Current portion of financing lease obligations
2,466

 
2,514

Current portion of operating lease obligations
6,307

 
6,790

Short-term debt and current maturities of long-term obligations
79,217

 
58

Total Current Liabilities
296,582

 
218,657

Long-Term Debt
165,026

 
219,464

Finance Lease Long-term Obligations
25,878

 
26,480

Operating Leases Long-term Obligations
9,207

 
12,060

Other Long-Term Obligations
67,829

 
66,949

Shareholders’ Equity
 
 
 
Preferred Shares (Authorized 300 shares; none outstanding)

 

Common Shares (Authorized 150,000 shares; 38,501 and 37,609 issued and outstanding at March 31, 2020 and December 31, 2019, respectively)—no par
9,815

 
9,588

Class B Common Shares (Authorized 12,000 shares; 6 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively)—no par
2

 
2

Additional paid-in-capital
313,623

 
312,650

Retained earnings
87,550

 
87,475

Accumulated other comprehensive income
(1,377
)
 
3,128

Treasury shares (4,042 and 3,953 shares at March 31, 2020 and December 31, 2019, respectively)
(105,101
)
 
(104,327
)
Total Shareholders’ Equity
304,512

 
308,516

Total Liabilities and Shareholders’ Equity
$
869,034

 
$
852,126

See notes to condensed consolidated financial statements.

15

Financial Statements
Leases and Commitments
 
 
 
 

INVACARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (unaudited)
 
 
For the Three Months Ended March 31,
 
2020
 
2019
Operating Activities
(In thousands)
Net earnings (loss)
$
732

 
$
(13,886
)
Adjustments to reconcile net loss to net cash used by operating activities:
 
 
 
Gain on sale of business
(9,590
)
 

Depreciation and amortization
3,407

 
3,898

Amortization operating lease right of use assets
1,937

 
2,172

Provision (benefit) for losses on trade and installment receivables
(71
)
 
185

Benefit for deferred income taxes
240

 
329

Provision for other deferred liabilities
469

 
234

Provision for equity compensation
1,200

 
1,430

Loss on disposals of property and equipment
1

 
54

Amortization of convertible debt discount
2,732

 
3,099

Amortization of debt fees
475

 
615

Loss on convertible debt derivatives

 
273

Changes in operating assets and liabilities:
 
 
 
Trade receivables
1,627

 
3,535

Installment sales contracts, net
26

 
13

Inventories
(2,930
)
 
(1,588
)
Other current assets
(10,934
)
 
(3,957
)
Accounts payable
7,950

 
(4,683
)
Accrued expenses
(5,787
)
 
(12,794
)
Other long-term liabilities
(1,323
)
 
(1,517
)
Net Cash Used by Operating Activities
(9,839
)
 
(22,588
)
Investing Activities
 
 
 
Purchases of property and equipment
(2,121
)
 
(1,812
)
Proceeds from sale of property and equipment
4

 
20

Proceeds from sale of business
14,563

 

Change in other long-term assets
(135
)
 
(20
)
Other
(2,113
)
 

Net Cash Provided (Used) by Investing Activities
10,198

 
(1,812
)
Financing Activities
 
 
 
Proceeds from revolving lines of credit and long-term borrowings
21,600

 

Capital leases payments
(266
)
 
(866
)
Payment of dividends
(414
)
 
(408
)
Purchase of treasury stock
(773
)
 
(381
)
Net Cash Provided (Used) by Financing Activities
20,147

 
(1,655
)
Effect of exchange rate changes on cash
(1,637
)
 
1,074

Increase (decrease) in cash and cash equivalents
18,869

 
(24,981
)
Cash and cash equivalents at beginning of year
80,063

 
116,907

Cash and cash equivalents at end of period
$
98,932

 
$
91,926

See notes to condensed consolidated financial statements.

16

Financial Statements
Leases and Commitments
 
 
 
 

INVACARE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(In thousands)
Common
Stock
 
Class B
Stock
 
Additional
Paid-in-
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehen-sive
Earnings
 
Treasury
Stock
 
Total
January 1, 2020 Balance
$
9,588

 
$
2

 
$
312,650

 
$
87,475

 
$
3,128

 
$
(104,327
)
 
$
308,516

Exercise of stock options
90

 

 
(90
)
 

 

 
(774
)
 
(774
)
Performance awards

 

 
394

 

 

 

 
394

Restricted stock awards
137

 

 
669

 

 

 

 
806

Net earnings

 

 

 
732

 

 

 
732

Foreign currency translation adjustments

 

 

 

 
(4,194
)
 

 
(4,194
)
Unrealized gain on cash flow hedges

 

 

 

 
(142
)
 

 
(142
)
Defined benefit plans: Amortization of prior service costs and unrecognized losses and credits

 

 

 

 
(169
)
 

 
(169
)
Total comprehensive loss