Exhibit 99.1
INVACARE CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial statements are derived from the historical consolidated financial statements of Invacare Corporation (the “Company”) and give effect to the disposition of Invacare Supply Group (“ISG”). The unaudited pro forma condensed combined balance sheet at September 30, 2012 gives effect to the adjustments for the ISG disposition as if the transaction was completed on September 30, 2012. The unaudited pro forma condensed combined statements of comprehensive income (loss) for the nine-month period ended September 30, 2012 and the year ended December 31, 2011 give effect to the adjustments for the ISG disposition as if the transaction had been completed on January 1, 2011. The ISG historical amounts are presented according to accounting principles generally accepted in the United States (U.S. GAAP) and include certain pro forma adjustments. The notes to the balance sheet and statements of comprehensive income (loss) describe the transaction and adjustments applicable to each.
The purchase price allocation of the ISG disposition reflected in these unaudited pro forma condensed combined financial statements is preliminary and has been based on preliminary estimates of the book value of assets and liabilities ultimately sold. Accordingly, the gain on sale reflected in these unaudited pro forma condensed combined financial statements is preliminary and is estimated based on the pro forma balance sheet as of September 30, 2012. As a result, the unaudited pro forma condensed combined financial information presented herein is subject to change and may differ from the final results based upon the final purchase price allocation. The determination of the final purchase price allocation and resulting gain on sale will be based on the actual valuation of the assets and liabilities of ISG that exist as of the date of completion of the disposition and will be reflected and disclosed in the Company's financial statements for the quarter ended March 31, 2013.
We have made, in our opinion, all significant necessary adjustments that can be factually supported to reflect the effect of the disposition. The unaudited condensed combined pro forma financial information is presented for informational purposes only. The unaudited condensed combined pro forma financial statements do not purport to represent what the actual results of operations or financial position would have been if the disposition of ISG as described above had occurred on the dates indicated or to project our results of operations or financial position for any future period.
The following unaudited condensed combined pro forma financial information should be read in conjunction with:
| |
| (a) | Invacare Corporation's consolidated financial statements and notes thereto and management's discussion and analysis for the year ended December 31, 2011 included in Invacare Corporation's Form 10-K for the fiscal year ended December 31, 2011; |
| |
| (b) | Invacare Corporation's consolidated financial statements and notes thereto and management's discussion and analysis for the nine months ended September 30, 2012, included in Invacare Corporation's Form 10-Q for the fiscal quarter ended September 30, 2012. |
INVACARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
at September 30, 2012
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Invacare as Reported (1) | ISG Historical (2) | Pro Forma Adjustments (3) | | Pro Forma ISG | Pro Forma Eliminations (4) | | Pro Forma Invacare (5) |
| Assets | | | | | | | | |
| Current Assets | | | | | | | | |
| Cash and cash equivalents | $ | 35,282 |
| $ | 2,300 |
| $ | — |
| | $ | 2,300 |
| $ | — |
| | $ | 32,982 |
|
| Trade receivables, net | 250,059 |
| 39,222 |
| — |
| | 39,222 |
| — |
| | 210,837 |
|
| Installment receivables, net | 2,266 |
| — |
| — |
| | — |
| — |
| | 2,266 |
|
| Inventories, net | 221,619 |
| 26,147 |
| — |
| | 26,147 |
| — |
| | 195,472 |
|
| Deferred income taxes | 439 |
| — |
| — |
| | — |
| — |
| | 439 |
|
| Other current assets | 45,540 |
| 7,283 |
| — |
| | 7,283 |
| — |
| | 38,257 |
|
| Total Current Assets | 555,205 |
| 74,952 |
| — |
| | 74,952 |
| — |
| | 480,253 |
|
| Other Assets | 41,824 |
| — |
| — |
| | — |
| — |
| | 41,824 |
|
| Other Intangibles | 73,360 |
| — |
| — |
| | — |
| — |
| | 73,360 |
|
| Property and Equipment, net | 122,633 |
| 1,496 |
| — |
| | 1,496 |
| — |
| | 121,137 |
|
| Goodwill | 472,704 |
| 23,073 |
| — |
| | 23,073 |
| — |
| | 449,631 |
|
| Total Assets | $ | 1,265,726 |
| $ | 99,521 |
| $ | — |
| | $ | 99,521 |
| $ | — |
| | $ | 1,166,205 |
|
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | $ | 146,804 |
| $ | 8,630 |
| $ | 5,228 |
| (A) | $ | 13,858 |
| $ | — |
| | $ | 132,946 |
|
| Accrued expenses | 131,229 |
| 4,560 |
| 246 |
| (B) | 4,806 |
| — |
| | 126,423 |
|
| Accrued income taxes | 849 |
| — |
| 4,086 |
| (C) | 4,086 |
| 3,746 |
| (F) | 509 |
|
| Short-term debt and current maturities of long-term obligations | 739 |
| — |
| — |
| | — |
| — |
| | 739 |
|
| Total Current Liabilities | 279,621 |
| 13,190 |
| 9,560 |
| | 22,750 |
| 3,746 |
| | 260,617 |
|
| Long-Term Debt | 250,449 |
| — |
| — |
| | — |
| (146,600 | ) | (G) | 103,849 |
|
| Other Long-Term Obligations | 120,514 |
| — |
| — |
| | — |
| — |
| | 120,514 |
|
| Shareholders’ Equity | | | | | | | | |
| Preferred Shares (Authorized 300 shares; none outstanding) | — |
| — |
| — |
| | — |
| — |
| | — |
|
| Common Shares (Authorized 100,000 shares; 33,950 issued and outstanding in 2012)—no par | 8,500 |
| — |
| — |
| | — |
| — |
| | 8,500 |
|
| Class B Common Shares (Authorized 12,000 shares; 1,085 issued and outstanding in 2012)—no par | 272 |
| — |
| — |
| | — |
| — |
| | 272 |
|
| Additional paid-in-capital | 226,743 |
| 62,843 |
| (11,053 | ) | (D) | 51,790 |
| 51,790 |
| (H) | 226,743 |
|
| Retained earnings | 372,237 |
| 23,488 |
| 1,493 |
| (E) | 24,981 |
| 91,064 |
| (H) | 438,320 |
|
| Accumulated other comprehensive earnings | 100,203 |
| — |
| — |
| | — |
| — |
| | 100,203 |
|
| Treasury shares | (92,813 | ) | — |
| — |
| | — |
| — |
| | (92,813 | ) |
| Total Shareholders’ Equity | 615,142 |
| 86,331 |
| (9,560 | ) | | 76,771 |
| 142,854 |
| | 681,225 |
|
| Total Liabilities and Shareholders’ Equity | $ | 1,265,726 |
| $ | 99,521 |
| $ | — |
| | $ | 99,521 |
| $ | — |
| | $ | 1,166,205 |
|
INVACARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2012 |
| | | | | | | | | | | | | | | | | | | | | |
| | Invacare as Reported (1) | ISG Historical (2) | Pro Forma Adjustments (3) | | Pro Forma ISG | | Pro Forma Eliminations (4) | | Pro Forma Invacare (6) |
| | (In thousands, except per share data) |
| Net sales | $ | 1,341,470 |
| $ | 246,434 |
| $ | — |
|
| $ | 246,434 |
| | $ | — |
| | $ | 1,095,036 |
|
| Cost of products sold | 974,380 |
| 217,172 |
| — |
|
| 217,172 |
| | — |
| | 757,208 |
|
| Gross Profit | 367,090 |
| 29,262 |
| — |
| | 29,262 |
| | — |
| | 337,828 |
|
| Selling, general and administrative expenses | 330,589 |
| 21,874 |
| (512 | ) | (L) | 21,362 |
| | — |
| | 309,227 |
|
| Charges related to restructuring activities | 3,722 |
| (20 | ) | — |
| | (20 | ) | | — |
| | 3,742 |
|
| Loss on debt extinguishment including debt finance charges and associated fees | 312 |
| — |
| — |
| | — |
| | — |
| | 312 |
|
| Interest expense | 4,295 |
| 2,372 |
| (4,543 | ) | (I) | (2,171 | ) | (K) | — |
| | 6,466 |
|
| Interest income | (698 | ) | (88 | ) | (524 | ) | (J) | (612 | ) | | — |
| | (86 | ) |
| Earnings before Income Taxes | 28,870 |
| 5,124 |
| 5,579 |
| | 10,703 |
| | — |
| | 18,167 |
|
| Income taxes | 19,750 |
| — |
| 4,086 |
| (C) | 4,086 |
| | (3,746 | ) | (F) | 19,410 |
|
| Net Earnings (loss) | $ | 9,120 |
| $ | 5,124 |
| $ | 1,493 |
| (E) | $ | 6,617 |
| | $ | 3,746 |
| | $ | (1,243 | ) |
| Net Earnings (loss) per Share—Basic | $ | 0.29 |
| $ | 0.16 |
| $ | 0.05 |
| | $ | 0.21 |
| | $ | 0.12 |
| | $ | (0.04 | ) |
| Weighted Average Shares Outstanding—Basic | 31,838 |
| 31,838 |
| 31,838 |
| | 31,838 |
| | 31,838 |
| | 31,838 |
|
| Net Earnings (loss) per Share—Assuming Dilution | $ | 0.29 |
| $ | 0.16 |
| $ | 0.05 |
| | $ | 0.21 |
| | $ | 0.12 |
| | $ | (0.04 | ) |
| Weighted Average Shares Outstanding—Assuming Dilution | 31,847 |
| 31,847 |
| 31,847 |
| | 31,847 |
| | 31,847 |
| | 31,838 |
|
| | | | | | | | | | |
| Net Earnings | $ | 9,120 |
| $ | 5,124 |
| $ | 1,493 |
| | $ | 6,617 |
| | $ | 3,746 |
| | $ | (1,243 | ) |
| Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | (24,288 | ) | — |
| — |
| | — |
| | — |
| | (24,288 | ) |
| Defined Benefit Plans: | | | | | | | | | |
| Amortization of prior service costs and unrecognized gains (losses) | 136 |
| — |
| — |
| | — |
| | — |
| | 136 |
|
| Amounts arising during the year, primarily due to the addition of new participants | (168 | ) | — |
| — |
| | — |
| | — |
| | (168 | ) |
| Deferred tax adjustment resulting from defined benefit plan activity | 13 |
| — |
| — |
| | — |
| | — |
| | 13 |
|
| Valuation reserve (reversal) associated with defined benefit plan activity | (17 | ) | — |
| — |
| | — |
| | — |
| | (17 | ) |
| Current period unrealized gain (loss) on cash flow hedges | (276 | ) | — |
| — |
| | — |
| | — |
| | (276 | ) |
| Deferred tax benefit (loss) related to unrealized gain (loss) on cash flow hedges | (73 | ) | — |
| — |
| | — |
| | — |
| | (73 | ) |
| Other Comprehensive Income (Loss) | (24,673 | ) | — |
| — |
| | — |
| | — |
| | (24,673 | ) |
| | | | | | | | | | |
| Comprehensive Income (Loss) | $ | (15,553 | ) | $ | 5,124 |
| $ | 1,493 |
| | $ | 6,617 |
| | $ | 3,746 |
| | $ | (25,916 | ) |
INVACARE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Twelve Months Ended December 31, 2011
|
| | | | | | | | | | | | | | | | | | | | | |
| | Invacare as Reported (1) | ISG Historical (2) | Pro Forma Adjustments (3) | | Pro Forma ISG | | Pro Forma Eliminations (4) | | Pro Forma Invacare (6) |
| | (In thousands, except per share data) |
| Net sales | $ | 1,801,130 |
| $ | 299,491 |
| $ | — |
|
| $ | 299,491 |
| | $ | — |
| | $ | 1,501,639 |
|
| Cost of products sold | 1,282,652 |
| 262,157 |
| — |
|
| 262,157 |
| | — |
| | 1,020,495 |
|
| Gross Profit | 518,478 |
| 37,334 |
| — |
| | 37,334 |
| | — |
| | 481,144 |
|
| Selling, general and administrative expenses | 422,099 |
| 25,950 |
| (385 | ) | (L) | 25,565 |
| | — |
| | 396,534 |
|
| Charges related to restructuring activities | 10,593 |
| 336 |
| — |
| | 336 |
| | — |
| | 10,257 |
|
| Loss on debt extinguishment including debt finance charges and associated fees | 24,200 |
| — |
| — |
| | — |
| | — |
| | 24,200 |
|
| Asset write-downs related to goodwill, intangible assets and investments | 49,480 |
| — |
| — |
| | — |
| | — |
| | 49,480 |
|
| Interest expense | 7,963 |
| 3,277 |
| (5,639 | ) | (I) | (2,362 | ) | (K) | — |
| | 10,325 |
|
| Interest income | (1,444 | ) | (231 | ) | (700 | ) | (J) | (931 | ) | | — |
| | (513 | ) |
| Earnings before Income Taxes | 5,587 |
| 8,002 |
| 6,724 |
| | 14,726 |
| | — |
| | (9,139 | ) |
| Income taxes | 9,700 |
| — |
| 5,474 |
| (C) | 5,474 |
| | (5,154 | ) | (F) | 9,380 |
|
| Net Earnings (loss) | $ | (4,113 | ) | $ | 8,002 |
| $ | 1,250 |
| | $ | 9,252 |
| | $ | 5,154 |
| | $ | (18,519 | ) |
| Net Earnings (loss) per Share—Basic | $ | (0.13 | ) | $ | 0.25 |
| $ | 0.04 |
| | $ | 0.29 |
| | $ | 0.16 |
| | $ | (0.58 | ) |
| Weighted Average Shares Outstanding—Basic | 31,958 |
| 31,958 |
| 31,958 |
| | 31,958 |
| | 31,958 |
| | 31,958 |
|
| Net Earnings (loss) per Share—Assuming Dilution | $ | (0.13 | ) | $ | 0.25 |
| $ | 0.04 |
| | $ | 0.29 |
| | $ | 0.16 |
| | $ | (0.58 | ) |
| Weighted Average Shares Outstanding—Assuming Dilution | 31,958 |
| 31,958 |
| 31,958 |
| | 31,958 |
| | 31,958 |
| | 31,958 |
|
| | | | | | | | | | |
| Net Earnings | $ | (4,113 | ) | $ | 8,002 |
| $ | 1,250 |
| | $ | 9,252 |
| | $ | 5,154 |
| | $ | (18,519 | ) |
| Other comprehensive income (loss): | | | | | | | | | |
| Foreign currency translation adjustments | 14,440 |
| — |
| — |
| | — |
| | — |
| | 14,440 |
|
| Defined Benefit Plans: | | | | | | | | | |
| Amortization of prior service costs and unrecognized gains (losses) | (851 | ) | — |
| — |
| | — |
| | — |
| | (851 | ) |
| Amounts arising during the year, primarily due to the addition of new participants | (2,048 | ) | — |
| — |
| | �� |
| | — |
| | (2,048 | ) |
| Deferred tax adjustment resulting from defined benefit plan activity | 702 |
| — |
| — |
| | — |
| | — |
| | 702 |
|
| Valuation reserve (reversal) associated with defined benefit plan activity | (252 | ) | — |
| — |
| | — |
| | — |
| | (252 | ) |
| Current period unrealized gain (loss) on cash flow hedges | 305 |
| — |
| — |
| | — |
| | — |
| | 305 |
|
| Deferred tax benefit (loss) related to unrealized gain (loss) on cash flow hedges | (51 | ) | — |
| — |
| | — |
| | — |
| | (51 | ) |
| Other Comprehensive Income (Loss) | 12,245 |
| — |
| — |
| | — |
| | — |
| | 12,245 |
|
| | | | | | | | | | |
| Comprehensive Income (Loss) | $ | 8,132 |
| $ | 8,002 |
| $ | 1,250 |
| | $ | 9,252 |
| | $ | 5,154 |
| | $ | (6,274 | ) |
NOTES TO PRO FORMA FINANCIAL STATEMENTS
Note 1. Estimated Net Proceeds (in thousands)
|
| | | |
| Net cash purchase price per the Share Purchase Agreement | $ | 150,800 |
|
| Estimated transaction costs | (4,200 | ) |
| Estimated net proceeds on sale | $ | 146,600 |
|
Transaction costs noted above include the professional fees associated with the sale of ISG and include an estimate of expenses, primarily professional fees, to be recognized as a result of the divestiture. The Company intends to utilize the net proceeds to pay down debt.
Note 2. Preliminary Gain on Disposition (in thousands)
Based on the September 30, 2012 pro forma balance sheet for ISG, the estimated book gain on disposal is approximately $69.8 million.
|
| | | |
| Estimated Net Proceeds on Sale | $ | 146,600 |
|
| | |
| Total Assets | 99,521 |
|
| Current Liabilities | (22,750 | ) |
| Less: Estimated Net Assets | $ | 76,771 |
|
| | |
| Estimated Gain on Disposition | $ | 69,829 |
|
Note 3. Pro Forma Statements
The following are descriptions of the various columns of data, labeled (1) through (4), which have been reflected in the accompanying Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income (Loss):
| |
| 1) | Represents Invacare historical financial statements as reported in the Company's Form 10-K filing for the twelve months ended December 31, 2011 and the Form 10-Q filing for the nine months ended September 30, 2012. |
| |
| 2) | Represents ISG's historical financial results as consolidated in the Company's Form 10-K filing for the twelve months ended December 31, 2011 and the Form 10-Q filing for the nine months ended September 30, 2012. |
| |
| 3) | Represents pro forma adjustments to ISG results determined in accordance with Regulation S-X and preliminary disposition adjustments. |
| |
| 4) | Represents pro forma eliminations, considering historical elimination of investments and paid in capital. |
| |
| 5) | Represents "Invacare as Reported" less "Pro Forma ISG" plus "Pro Forma Eliminations". |
| |
| 6) | Represents "Invacare as Reported" less "Pro Forma ISG" less "Pro Forma Eliminations". |
Note 4. Pro Forma Adjustments
The following are descriptions for the pro forma disposition related adjustments, labeled (A) through (L), which have been reflected in the accompanying Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Comprehensive Income (Loss):
| |
| (A) | Transfer of outstanding ISG accounts payable balance of $5,228,000 from the Company to ISG . Offset to this transfer is charged through equity (Adjustment D). |
| |
| (B) | Transfer of ISG management bonus accrual of $246,000 from the Company to ISG. Offset to this transfer is charged to equity (Adjustment D) as the bonus expense related to the accrual was reflected in the ISG Historical results. |
| |
| (C) | Adjustment to record federal tax effect of historical and pro forma adjustments for ISG at the U.S. statutory tax rate of 35%. Tax expense of $4,086,000 is calculated on ISG's pro forma earnings before income tax of $10,703,000 for the nine months ended September 30, 2012. The pro forma earnings before income taxes for the nine months ended September 30, 2012 include the ISG historical earnings before income taxes of $5,124,000 and the earnings before income tax benefit of Adjustments (I), (J) and (L) as defined below. The 2011 tax expense of $5,474,000 is calculated on ISG's pro forma earnings before income tax of $14,726,000 for the twelve months ended December 31, 2011. The pro forma earnings before income taxes for the twelve months ended December 31, 2011 include the ISG historical earnings before income taxes of $8,002,000 and the earnings before income tax benefit of Adjustments (I), (J) and (L) as defined below. In addition, an adjustment for state tax expense applicable to ISG of $340,000 for the nine months ended September 30, 2012 and $320,000 for the twelve months ended December 31, 2011, is reflected in Income Taxes. |
| |
| (D) | Represents the offset to Adjustments (A), (B), (I), (J) and (L) which have effectively been reclassified to equity as a return of capital on the pro forma condensed balance sheet. |
| |
| (E) | Represents the net earnings impact of Adjustments (C), (I), (J) and (L) as reflected in Column 3 on the Pro Forma Condensed Combined Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2012. |
| |
| (F) | Represents an elimination entry to record the impact of income tax valuation reserves for the Company related to Adjustment (C) for federal income taxes for ISG since the Company is in a cumulative loss position and, as such, current tax expense is offset by income tax valuation reserves. |
| |
| (G) | Adjustment to reflect anticipated debt pay down with the net proceeds from disposition ($146,600,000 as described in Note 1). |
| |
| (H) | Adjustment to eliminate equity and intercompany accounts at disposition. In addition, the Company's pro forma retained earnings reflects the gain on disposition (as noted in Note 2) of $69,829,000. |
| |
| (I) | Adjustment to reverse intercompany interest expense allocation which was charged to ISG from the Company based on net assets of ISG ($4,543,000 for the nine months ended September 30, |
2012; $5,639,000 for the twelve months ended December 31, 2011). Since the Company is not contractually obligated to pay down bank debt with the proceeds from the sale, this interest allocation is reversed.
| |
| (J) | Adjustment to reflect ISG interest income recognized by the Company related to ISG's supplier payments via a credit card program which was not historically directly allocated to the reportable segment ($524,000 for the nine months ended September 30, 2012; $700,000 for the twelve months ended December 31, 2011). |
| |
| (K) | Represents supplier prompt payment discounts which the Company has historically offset against interest expense as the Company borrows the funds necessary to pay the suppliers in order to receive this discount. This income is directly attributable to ISG suppliers and on disposition of ISG, this income will be eliminated from the Company ($2,171,000 for the nine months ended September 30, 2012; $2,362,000 for the twelve months ended December 31, 2011). |
| |
| (L) | Adjustment to reverse Selling, General and Administrative expense historically allocated from the Company to ISG which will not be eliminated upon the disposition of ISG ($512,000 for the nine months ended September 30, 2012; $385,000 for the twelve months ended December 31, 2011). |
