Exhibit 99.1
Investor Inquiries:
Robert K. Gudbranson
(440) 329-6001
NEWS RELEASE
INVACARE CORPORATION REPORTS SECOND QUARTER EARNINGS IN LINE WITH PRIOR GUIDANCE
ELYRIA, Ohio - (July 17, 2003) - Invacare Corporation (NYSE: IVC) today reported
its financial results for the second quarter and first half of the year ended
June 30, 2003.
CONSOLIDATED RESULTS
Earnings per share for the quarter were $0.49 versus $0.51 last year. Net
earnings were $15.4 million. Net sales for the quarter increased 10% to $300.1
million versus $271.8 million last year. Results for the quarter benefited from
higher net sales, offset by a lower gross margin and higher selling, general and
administrative expense (SG&A).
In the quarter, the gross margin as a percentage of net sales decreased 0.4
percentage points compared to last year's quarter, primarily due to a sales mix
toward lower margin products and pricing pressures, particularly in the standard
product lines. SG&A expense increased 19% over last year's quarter due to
foreign currency translation, continued investments in marketing and branding
programs, additional provisions for bad debts, and a significant increase in
insurance costs.
Earnings per share for the first six months of this year were $0.88, flat with
last year. Net earnings were $27.7 million. Net sales for the first half of the
year increased 10% to $576.8 million versus $526.9 million last year. Adjusting
for foreign currency, net sales increased 4% for the first half and for the
second quarter. Results for the first six months benefited from higher net
sales, offset by a lower gross margin and higher SG&A.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "Invacare's
sales performance allowed us to meet the earnings per share guidance for the
quarter. Double-digit growth in North American sales of respiratory products,
rehab products and medical supplies and in Australasian sales led the improved
revenue growth. Additionally, the Company continued to generate strong free cash
flow*, totaling $20 million for the quarter. During the last twelve months,
total free cash flow of $84 million has enabled the Company to pay down debt by
approximately the same amount." Free cash flow is defined as net cash provided
by operating activities less the purchases of property and equipment.
NORTH AMERICA
For the quarter, North American net sales increased 5% to $213.0 million versus
$202.1 million last year. Respiratory products sales increased 41% due to strong
performance in oxygen concentrators and the HomeFill(TM) product line. Sales of
the rehab products line increased 15%, due largely to the continued strength of
sales of consumer power products. Invacare Supply Group sales increased 11%,
returning to the double-digit
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increases delivered during most of last year. These sales increases were offset
by declines in two product areas. Standard products sales declined 12%,
primarily due to continued pricing pressures, and sales to nursing homes through
Invacare Continuing Care Group decreased 8%, primarily due to continued
uncertainty surrounding governmental reimbursement programs.
For the quarter, earnings before income taxes decreased versus last year largely
due to a continued shift in the product mix toward lower margin respiratory
products, consumer power products and supplies, coupled with increased spending
on branding and marketing programs, bad debt expense and insurance costs.
For the six months, North American net sales increased 5% to $413.4 million
versus $393.9 million last year.
EUROPE
For the quarter, European net sales increased 16% to $68.7 million versus $59.1
million last year. Adjusting for foreign currency, European net sales decreased
4% for the quarter primarily due to slower than expected sales in the Nordic
region and reimbursement pressures in Germany. For the quarter, earnings before
income taxes increased primarily due to the favorable impact from foreign
currency translation.
For the six months, European net sales increased 16% to $131.2 million versus
$113.4 million last year. Adjusting for foreign currency, European net sales
decreased 4% for the six months.
AUSTRALASIA
For the quarter, Australasian net sales increased 72% to $18.4 million versus
$10.7 million last year. Adjusting for foreign currency, Australasian net sales
increased 43% in the quarter versus last year, due to the strong sales of
consumer power products and continued larger purchases by a customer of Dynamic
Controls. For the quarter, earnings before income taxes increased compared to
last year due in part to increased sales, a favorable impact from foreign
currency translation and tight controls on SG&A.
For the six months, Australasian net sales increased 64% to $32.2 million versus
$19.6 million last year. Adjusting for foreign currency, Australasian net sales
increased 33% for the six months.
FINANCIAL CONDITION
Total debt outstanding was $212.9 million at the end of the second quarter,
bringing debt-to-total-capitalization to 28.0% versus 33.2% at the end of last
year and 40.2% at the end of the second quarter last year. With the current
debt-to-total-capitalization level, the Company has flexibility to purchase
additional common shares and to make accretive acquisitions. During the quarter,
the Company paid down debt by $17 million. Days sales outstanding were 64 days,
improving by 2 days compared with the end of last year and improving by 4 days
compared with the end of the second quarter last year. Inventory turns were 6.0,
declining from 6.2 at the end of last year and the end of the
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second quarter last year. The decline was primarily due to inventory increases
related to new product introductions.
OUTLOOK
Despite pricing pressures, particularly in the standard products line, and
reimbursement pressures in the U.S. and much of Europe, the Company exceeded the
high end of its sales forecast for the first six months of this year. Although
pricing pressures on standard products led to continued weakness in the
Company's gross margin, cost reduction plans in North America and further
sourcing in the Far East should help to alleviate the gross margin
deterioration. In light of these plans, the Company is maintaining its guidance
of earnings per share in 2003 of between $2.10 and $2.20. Net sales for the year
are expected to be between 10% and 12% above last year. For the third quarter,
the Company expects a net sales increase of between 9% and 11% and earnings per
share of between $0.57 and $0.62.
Commenting on the Company's anticipated results, Mixon said, "The Company is
attacking its costs in order to respond to the pricing pressures from Asian
knock-offs of Invacare products. We have completed the planned move of all
remaining steel wheelchair manufacturing to Mexico. Additionally, the Company
will establish manufacturing capacity in China in 2004."
Mixon continued, "We continue to be pleased with the strong performance of
rehab, respiratory and medical supplies product lines in North America. Newly
introduced products in total accounted for 59% of North America's second quarter
equipment sales in the homecare channel, up from 48% in the first quarter. The
IVC(TM) Homecare Bed and the Storm Series(R) TDX(TM), Invacare's most advanced
customized power wheelchair, were both introduced on time during the second
quarter. In the second half of the year, the Company is also introducing a new
sleep apnea product line, including Invacare's own designed mask. With these
introductions, we believe that the Company is on track to achieve its fourth
quarter 2003 target of replacing 90% of North American equipment sales in the
homecare channel from new products introduced since October 2001. With the new
product introductions and the execution of the cost reduction programs mentioned
above, Invacare expects to return to double-digit earnings growth in the fourth
quarter of this year."
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* Free cash flow is a non-GAAP financial measure, which is reconciled to the
related GAAP financial measure in the "Reconciliation" table included after the
Condensed Consolidated Balance Sheet in this press release.
Invacare Corporation (NYSE:IVC - news), headquartered in Elyria, Ohio, is the
global leader in the manufacture and distribution of innovative home medical
products that promote recovery and active lifestyles. The Company has 5,300
associates and markets its products in 80 countries around the world. For more
information about the Company and our products, visit Invacare's website at
www.invacare.com.
This press release contains 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," "plan," "intend," "expect," "continue,"
"believe," "anticipate" and "seek," 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 strategic acquisition candidates, the difficulties in
managing and operating businesses in many different foreign jurisdictions, the
timely completion of facility consolidations, 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 risks, 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. We undertake no obligation to review or update these
forward-looking statements or other information contained herein.
<table>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2003 2002 2003 2002
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<s> <c> <c> <c> <c>
Net sales $300,114 $271,846 $576,787 $526,927
Cost of products sold 212,280 191,228 408,502 371,675
------- ------- ------- -------
Gross profit 87,834 80,618 168,285 155,252
Selling, general and administrative expense 63,589 53,631 124,109 107,048
Interest expense - net 1,223 2,995 2,887 6,534
------- ------- ------- -------
Earnings before income taxes 23,022 23,992 41,289 41,670
Income taxes 7,575 7,890 13,585 13,700
------- ------- ------- -------
Net earnings $15,447 $16,102 $27,704 $27,970
======= ======= ======= =======
Net earnings per share - basic $0.50 $0.52 $0.90 $0.91
====== ====== ====== ======
Weighted average shares outstanding - basic 30,799 30,890 30,815 30,814
====== ====== ====== ======
Net earnings per share - assuming dilution $0.49 $0.51 $0.88 $0.88
====== ====== ====== ======
Weighted average shares outstanding - assuming dilution 31,507 31,807 31,527 31,677
====== ====== ====== ======
</table>
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. Intersegment revenue for reportable segments was
$18,863,000 and $34,592,000 for the three and six months ended June 30, 2003,
respectively, and $15,494,000 and $29,652,000 for the same periods a year ago.
The information by segment is as follows:
<table>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2003 2002 2003 2002
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<s> <c> <c> <c> <c>
Revenues from external customers
North America $212,990 $202,121 $413,373 $393,890
Europe 68,742 59,061 131,181 113,396
Australasia 18,382 10,664 32,233 19,641
-------- -------- -------- --------
Consolidated $300,114 $271,846 $576,787 $526,927
======== ======== ======== ========
Earnings (loss) before income taxes
North America $ 17,356 $ 20,291 $ 33,464 $ 37,697
Europe 4,295 3,801 6,615 4,707
Australasia 2,012 1,136 3,278 1,574
All Other (641) (1,236) (2,068) (2,308)
-------- -------- -------- --------
Consolidated $23,022 $ 23,992 $ 41,289 $ 41,670
======== ======== ======== ========
</table>
"All Other" consists of the domestic export unit, un-allocated corporate
selling, general and administrative expense, the Invacare captive insurance unit
and inter-company profits, which do not meet the quantitative criteria for
determining reportable segments.
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<table>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2003 December 31, June 30, 2002
(In thousands) (unaudited) 2002 (unaudited)
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<s> <c> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $ 9,242 $ 14,436 $ 11,080
Trade receivables - net 225,368 200,388 216,560
Installment receivables - net 12,308 20,953 27,362
Inventories - net 125,539 111,382 103,744
Deferred income taxes and other current assets 50,358 51,653 38,823
------- ------- -------
Total current assets 422,815 398,812 397,569
Other Assets 60,240 55,810 53,173
Plant and equipment - net 136,518 130,963 131,013
Goodwill - net 355,991 321,118 311,122
------- ------- -------
Total assets $975,564 $906,703 $892,877
======== ======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $95,189 $80,511 $68,940
Accrued expenses 79,213 66,414 71,555
Accrued income taxes 13,662 16,049 15,059
Current maturities 2,785 4,479 6,516
------- ------- -------
Total current liabilities 190,849 167,453 162,070
Long-term debt 210,107 234,134 281,347
Other long-term obligations 26,949 24,804 21,789
Shareholders' equity 547,659 480,312 427,671
------- ------- -------
Total liabilities and shareholders' equity $975,564 $906,703 $892,877
======== ======== ========
</table>
<table>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2003 2002 2003 2002
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<c> <c> <c> <c> <c>
Net cash provided by operating activities $26,032 $35,536 $45,276 $62,409
Less:
Purchases of property and equipment (6,109) (4,474) (9,884) (9,195)
------- ------- ------- -------
Free Cash Flow $19,923 $31,062 $35,392 $53,214
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</table>
Free cash flow is a non-GAAP financial measure that is comprised of net cash
provided by operating activities, less purchases 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.) after
purchases of property and equipment.
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