Exhibit 99.1
Investor Inquiries:
Robert K. Gudbranson
(440) 329-6001
NEWS RELEASE
INVACARE CORPORATION REPORTS SECOND QUARTER EARNINGS INCREASED 17%
ELYRIA, Ohio - (July 15, 2004) - Invacare Corporation (NYSE: IVC) today reported
record financial results for the second quarter and first half of the year ended
June 30, 2004.
CONSOLIDATED RESULTS
Net earnings for the quarter grew 17% to $18.0 million versus $15.4 million last
year, and earnings per share for the quarter increased to $0.56 versus $0.49
last year. Net sales for the quarter increased 13% to $339.3 million versus
$300.1 million last year. Foreign currency accounted for three percentage points
of the net sales increase, while acquisitions contributed an additional seven
percentage points for the quarter. Results for the quarter benefited from higher
net sales and a higher gross margin, partially offset by higher selling, general
and administrative expense (SG&A expense).
Gross margin as a percentage of net sales for the second quarter increased 0.8
percentage points compared to last year's second quarter. The Company is
encouraged that it has been able to more than offset competitive price pressures
with further cost reductions while stabilizing market share. SG&A expense as a
percentage of net sales increased by 0.7 percentage points compared to last
year's second quarter. SG&A expense increased 17% over last year's second
quarter principally due to acquisitions and foreign currency translation, which
accounted for seven and three percentage points of the increase, respectively.
Earnings per share for the first six months of this year increased to $1.00
versus $0.88 last year. Net earnings grew 16% to $32.2 million versus $27.7
million last year. Net sales for the first half of the year increased 15% to
$660.6 million versus $576.8 million last year. Foreign currency accounted for
four percentage points of the net sales increase, while acquisitions contributed
an additional eight percentage points for the six months. Results for the first
six months benefited from higher net sales and a higher gross margin, partially
offset by higher SG&A expense.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "Invacare's
continued strong sales and earnings performance in North America allowed us to
meet the high end of the earnings guidance for the quarter. We also continued to
generate strong free cash flow* of $27 million for the first six months of the
year. For the second quarter, free cash flow was $5 million primarily due to the
continuing impact of reimbursement challenges and a higher level of capital
expenditures due to the timing of payments earlier in the year." Free cash flow
is defined as net cash provided by operating activities less purchases of
property and equipment.
<page>
NORTH AMERICA
For the quarter, North American net sales increased 17% to $249.0 million versus
$213.0 million last year. Acquisitions accounted for 10 percentage points of the
net sales increase.
Respiratory products sales increased 16%, largely due to continued strong
performance in the HomeFill(TM) oxygen system product line. Standard products
sales decreased by 1% in the second quarter as a result of increased sales in
unit volumes being more than offset by continued pricing reductions. As a result
of pricing adjustments and continuing cost reduction programs, the performance
in standard products improved from the decline of sales in the first quarter of
11%. Sales of rehab products increased 19%, with acquisitions accounting for 14
percentage points of the sales increase. Increased sales of custom power
products, led by the Storm Series(R) TDX(TM) power wheelchair, continue to be
robust, however they were offset by slower sales of consumer power products due
to continuing challenges with our customers obtaining Medicare reimbursement
from the Center for Medicare Services (CMS).
Invacare Supply Group sales increased 31%, with acquisitions accounting for 18
percentage points of the sales increase. The Invacare Continuing Care Group
(ICCG) sales increased by 76%, led by strong performance of the Carroll
Healthcare product line. Excluding acquisitions ICCG sales grew 1%.
For the quarter, earnings before income taxes increased to $25.7 million versus
$17.4 million last year largely due to acquisitions, the strong sales
performance in most divisions and continued cost reductions, partially offset by
increased SG&A expense.
For the six months, North American net sales increased 18% to $486.3 million
versus $413.4 million last year. Foreign currency accounted for one percentage
point of the net sales increase, while acquisitions contributed an additional 10
percentage points.
EUROPE
For the quarter, European net sales increased 10% to $75.4 million versus $68.7
million last year. Adjusting for foreign currency, European net sales increased
by 1% for the quarter. Adjusting for foreign currency and acquisitions, European
sales declined by 1%. Compared to the first quarter when sales adjusted for
foreign currency and acquisitions declined by 9%, Europe's improved sales
performance in the second quarter primarily related to shipments of 10 new
products introduced earlier this year. For the quarter, earnings before income
taxes decreased to $3.3 million versus $4.3 million last year primarily due to a
shift in sales mix to lower margin product and additional costs related to the
new product introductions.
For the six months, European net sales increased 10% to $144.7 million versus
$131.2 million last year. Adjusting for foreign currency, European net sales
decreased 2% for the six months. Adjusting for foreign currency and
acquisitions, European net sales decreased 5% for the six months.
AUSTRALASIA
For the quarter, Australasian net sales decreased 19% to $14.8 million versus
$18.4 million last year. Adjusting for foreign currency, Australasian net sales
decreased 28% for the quarter. The sales decline was primarily due to lower
sales of microprocessor controllers, resulting from a global slowdown in the
production of power wheelchairs principally due to Medicare reimbursement
challenges. For the quarter, earnings before income taxes decreased to $0.2
million versus $2.0 million last year primarily due to declining volumes, as
well as foreign currency exposures from sales in US dollars and Euros.
For the six months, Australasian net sales decreased 8% to $29.6 million versus
$32.2 million last year. Adjusting for foreign currency, Australasian net sales
decreased 22% for the six months.
FINANCIAL CONDITION
Total debt outstanding was $232.3 million at the end of the quarter, bringing
debt-to-total-capitalization down to 26.5% versus 27.6% at the end of last year
and 28% at the end of the second quarter last year. During the quarter, we
repurchased approximately 110,000 common shares totaling $4.4 million in the
open market. With the current debt-to-total-capitalization level, the Company
has the flexibility to continue to make additional accretive acquisitions or to
purchase common shares. Days sales outstanding were 67 days, compared with 64
days at the end of last year and at the end of the second quarter last year. The
increase in days sales outstanding compared to last year resulted primarily from
slower reimbursement by CMS for power wheelchair claims to home care providers.
However, the days sales outstanding did improve by three days compared to the
first quarter of this year. Inventory turns were 5.6, down from 5.9 at the end
of last year and 6.0 at the end of the second quarter last year.
OUTLOOK
The Company reached the top end of its guidance on earnings growth in the first
half of this year primarily due to the benefits from ongoing cost reduction
programs and accretive acquisitions along with increased volumes in North
America. Although in March, CMS retracted the December 2003 bulletins
restricting Medicare coverage of power wheelchairs for seniors and people with
disabilities, this change in the rules has not led to more stability and
predictability in the power wheelchair market. Additionally, although European
sales in the second quarter improved from the first quarter, it was not to the
degree expected. Despite slower than expected sales growth excluding foreign
currency and acquisitions, gross margin was stronger than expected as a result
of the continuing cost reduction programs and should continue to remain strong
for the year.
<page>
As a result of these factors, the Company believes that for the second half of
2004, it will have a net sales increase of between 9% and 11%. Excluding foreign
currency and acquisitions, the sales increase is expected to be between 3% and
5%. The improvement in margins as forecasted should result in the Company
achieving net earnings of between $2.48 and $2.55 for the year, which is toward
the top end of its previous guidance. For the third quarter, the Company expects
a net sales increase of between 8% and 10% and earnings per share of between
$0.68 and $0.72. The Company still anticipates that its free cash flow* for 2004
will be between $75 million and $85 million.
Commenting on the Company's anticipated results, Mixon said, "Invacare continues
to generate strong sales results in North America with successful execution on
its new product launches. Invacare improved its entry into the sleep apnea
marketplace with the launch in late June of the Invacare(R) Polaris EX(TM) CPAP
with SoftX(TM). Together with the January launch of the Invacare(R) Twilight(TM)
Mask, Invacare has a competitive line to offer to the home care provider."
Discussing the Company's China manufacturing projects, Mixon announced, "In
addition to the facility opened earlier this year at the Suzhou Industrial Park,
the Company is on schedule to put in place an additional manufacturing facility
in China in the third quarter. With these actions, Invacare expects to regain
its position as a low cost producer and continue to improve the performance of
the standard products line."
Mixon continued, "With the ongoing focus on the 50 new product introductions
planned for 2004 and execution of the cost reduction programs mentioned above,
we believe the earnings guidance for the year can be reconfirmed."
- --------------------------------------------------------------------------------
* 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 Sheets in this press release.
Invacare Corporation (NYSE:IVC), headquartered in Elyria, Ohio, is the global
leader in the manufacture and distribution of innovative home care and long-term
care 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 its 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, the success
of the Company's ongoing efforts to reduce costs, increasing raw material costs,
the consolidations of health care customers and competitors, government
reimbursement issues (including those that affect the sales of and margins on
product, along with the viability of customers), the ability to design,
manufacture, distribute and achieve market acceptance of new products with
higher functionality and lower costs, 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 (including the previously-disclosed litigation with Respironics), the
difficulties in acquiring and maintaining a proprietary intellectual property
ownership position, the overall economic, market and industry growth conditions
(including the impact that acts of terrorism may have on such 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>
<caption>
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) 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net sales $339,288 $300,114 $660,631 $576,787
Cost of products sold 237,164 212,280 465,128 408,502
------- ------- ------- -------
Gross profit 102,124 87,834 195,503 168,285
Selling, general and administrative expense 74,201 63,589 144,984 124,109
Interest expense - net 1,225 1,223 2,780 2,887
------- ------- ------- -------
Earnings before income taxes 26,698 23,022 47,739 41,289
Income taxes 8,675 7,575 15,515 13,585
------- ------- ------- -------
Net earnings $18,023 $15,447 $32,224 $27,704
======= ======= ======= =======
Net earnings per share - basic $0.58 $0.50 $1.04 $0.90
======= ======= ======= =======
Weighted average shares outstanding - basic 31,145 30,799 31,119 30,815
======= ======= ======= =======
Net earnings per share - assuming dilution $0.56 $0.49 $1.00 $0.88
======= ======= ======= =======
Weighted average shares outstanding - assuming dilution 32,239 31,507 32,259 31,527
======= ======= ======= =======
</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 $21,036,000
and $40,379,000 for the three and six months ended June 30, 2004 and $18,863,000
and $34,592,000 for the same periods a year ago.
The information by segment is as follows:
<table>
<caption>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Revenues from external customers
North America $249,040 $212,990 $486,323 $413,373
Europe 75,406 68,742 144,744 131,181
Australasia 14,842 18,382 29,564 32,233
-------- -------- -------- --------
Consolidated $339,288 $300,114 $660,631 $576,787
======== ======== ======== ========
Earnings (loss) before income taxes
North America $ 25,713 $ 17,356 $ 45,763 $ 33,464
Europe 3,303 4,295 4,443 6,615
Australasia 240 2,012 677 3,278
All Other (2,558) (641) (3,144) (2,068)
-------- -------- -------- --------
Consolidated $26,698 $23,022 $ 47,739 $ 41,289
======== ======== ======== ========
</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.
<page>
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2004 December 31, 2003 June 30, 2003
(In thousands) (unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $7,233 $16,288 $ 9,242
Trade receivables - net 262,559 255,534 225,368
Installment receivables - net 6,703 7,755 12,308
Inventories - net 143,644 130,979 125,539
Deferred income taxes and other current assets 53,242 64,166 50,358
------- ------- -------
Total current assets 473,381 474,722 422,815
Other Assets 76,622 67,941 60,240
Plant and equipment - net 156,863 150,051 136,518
Goodwill - net 436,924 415,499 355,991
------- ------- -------
Total assets $1,143,790 $1,108,213 $975,564
========== ========== ========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $123,171 $110,178 $95,189
Accrued expenses 85,890 97,148 79,213
Accrued income taxes 19,284 19,107 13,662
Current maturities 1,863 2,171 2,785
------- ------- -------
Total current liabilities 230,208 228,604 190,849
Long-term debt 230,388 232,038 210,107
Other long-term obligations 39,113 34,383 26,949
Shareholders' equity 644,081 613,188 547,659
------- ------- -------
Total liabilities and shareholders' equity $1,143,790 $1,108,213 $975,564
========== ========== ========
</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) 2004 2003 2004 2003
----------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net cash provided by operating activities $15,464 $26,032 $45,789 $45,276
Less:
Purchases of property and equipment (9,978) (6,109) (18,333) (9,884)
-------- -------- -------- --------
Free Cash Flow $ 5,486 $19,923 $27,456 $35,392
======== ======== ======== ========
</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.
# # #