Exhibit 99.1
Investor Inquiries:
Robert K. Gudbranson
(440) 329-6001
NEWS RELEASE
INVACARE CORPORATION REPORTS RECORD THIRD QUARTER EARNINGS WHICH INCREASED 13%
ELYRIA, Ohio - (October 21, 2004) - Invacare Corporation (NYSE: IVC) today
reported record financial results for the third quarter and nine months of the
year ended September 30, 2004.
CONSOLIDATED RESULTS
Net earnings for the quarter grew 13% to $22.5 million versus $20.0 million last
year, and earnings per share for the quarter increased to $0.70 versus $0.63
last year. Net sales for the quarter increased 7% to $349.5 million versus
$327.4 million last year. Foreign currency accounted for three percentage points
of the net sales increase, while acquisitions contributed an additional five
percentage points for the quarter. Results for the quarter benefited from higher
net sales, a higher gross margin and a reduced effective tax rate.
Gross margin as a percentage of net sales for the third quarter improved to
30.4%, an increase of 0.3 percentage points compared to last year's third
quarter. The Company is encouraged that it has been able to more than offset
competitive price pressures and rising raw material costs with further cost
reductions coupled with margin improvements from a shift in sales mix to higher
margin product. SG&A expense as a percentage of net sales decreased by 0.1
percentage points compared to last year's third quarter. SG&A expense increased
6% over last year's third quarter principally due to acquisitions and foreign
currency translation.
Earnings per share for nine months of this year increased to $1.70 versus $1.51
last year. Net earnings grew 15% to $54.8 million versus $47.7 million last
year. Net sales for nine months of the year increased 12% to $1,010.1 million
versus $904.2 million last year. Foreign currency accounted for four percentage
points of the net sales increase, while acquisitions contributed an additional
seven percentage points for nine months. Results for nine months benefited from
higher net sales, a higher gross margin and a reduced effective tax rate,
partially offset by higher SG&A expense.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "Although
the sales growth for the third quarter was below our expectations, Invacare
achieved its previous earnings guidance ($0.68 to $0.72) and generated strong
free cash flow* of $20.7 million. Net sales excluding acquisitions and foreign
currency declined 1% for the quarter primarily due to significantly restrictive
Medicare reimbursement policies, which are awaiting further clarification, on
consumer power wheelchairs. If we exclude net sales related to consumer power
wheelchairs, acquisitions and foreign currency from the third quarter sales
performance**, Invacare sales grew 4% from the third quarter last year."
<page>
Free cash flow is defined as net cash provided by operating activities less
purchases of property and equipment.
NORTH AMERICA
For the quarter, North American net sales increased 8% to $251.5 million versus
$232.8 million last year. Acquisitions accounted for seven percentage points of
the net sales increase. Excluding sales related to consumer power wheelchairs,
acquisitions and foreign currency from the third quarter sales performance**,
North American net sales increased 8%.
Respiratory products sales increased 56%, largely due to continued strong
performance in the HomeFill(TM) oxygen system product line. Standard products
sales decreased by 7% in the third quarter, primarily due to pricing
adjustments. Sales of rehab products decreased 23%, excluding the impact of
acquisitions. The difficulty and uncertainty related to customers obtaining
Medicare reimbursement from the Center for Medicare Services (CMS) for consumer
power wheelchairs caused this decrease in rehab products sales. The consumer
power wheelchairs sales were down 45% or $15 million compared to third quarter
last year.
Invacare Supply Group sales increased 24%, with acquisitions accounting for 15
percentage points of the sales increase. The Invacare Continuing Care Group
(ICCG) sales increased by 66%, led by strong performance of the Carroll
Healthcare product line. Excluding acquisitions, ICCG sales grew 19% largely due
to cross selling of Carroll products by the ICCG sales force, indicating another
benefit of the acquisition.
For the quarter, earnings before income taxes increased to $28.0 million versus
$21.1 million last year largely due to acquisitions, the strong sales
performance in respiratory products and continued cost reductions, partially
offset by increased SG&A expense. The improved earnings performance was achieved
despite a $0.9 million impact related to increased manufacturing costs in
Florida associated with the hurricanes and to increased raw materials costs
across all plants.
For nine months, North American net sales increased 14% to $737.8 million versus
$646.2 million last year. Foreign currency accounted for one percentage point of
the net sales increase, while acquisitions contributed an additional nine
percentage points.
EUROPE
For the quarter, European net sales increased 8% to $79.9 million versus $73.8
million last year. Adjusting for foreign currency, European net sales were flat
for the quarter. For the quarter, earnings before income taxes decreased to $5.0
million versus $6.4 million last year primarily due to pricing pressures, a
shift in sales mix to lower margin product and additional costs related to the
new product introductions.
<page>
For nine months, European net sales increased 10% to $224.6 million versus
$205.0 million last year. Adjusting for foreign currency, European net sales
decreased 1% for nine months. Adjusting for foreign currency and acquisitions,
European net sales decreased 3% for nine months.
AUSTRALASIA
For the quarter, Australasian net sales decreased 12% to $18.2 million versus
$20.7 million last year. Adjusting for foreign currency, Australasian net sales
decreased 20% for the quarter. The sales decline was due in part to lower sales
of microprocessor controllers, primarily resulting from the global slowdown in
the production of power wheelchairs principally due to Medicare reimbursement
challenges. For the quarter, earnings before income taxes decreased to $0.9
million versus $2.7 million last year primarily due to declining volumes.
For nine months, Australasian net sales decreased 10% to $47.7 million versus
$52.9 million last year. Adjusting for foreign currency, Australasian net sales
decreased 21% for nine months.
FINANCIAL CONDITION
Total debt outstanding increased to $443.4 million at the end of the quarter,
due to the previously announced acquisition of WP Domus GmbH (Domus), bringing
debt-to-total-capitalization up to 39.7% versus 27.6% at the end of last year.
Days sales outstanding were 65 days, compared with 64 days at the end of last
year and at the end of the third quarter last year. Inventory turns were 5.5,
down from 5.9 at the end of last year and 6.2 at the end of the third quarter
last year, largely due to lower than anticipated sales.
OUTLOOK
The Company achieved earnings growth in the third quarter in the range of its
previous guidance primarily due to the benefits from ongoing cost reduction
programs, accretive acquisitions, increased volumes in certain segments in North
America and an improved tax rate. Although the Company is expected to achieve
some benefit from the acquisition of Domus in the fourth quarter of this year,
there are a number of items that will negatively impact performance. CMS has
started to address some of the reimbursement issues, which have led to the
uncertainty on coverage of power wheelchairs for seniors and people with
disabilities. However, the changes will take time to be implemented and will not
likely benefit the fourth quarter. Additionally, further increasing raw material
costs will reduce some of the benefits of the cost reduction projects already
implemented.
As a result of these factors, the Company believes it will achieve earnings per
share of between $0.75 and $0.80 for the fourth quarter and earnings per share
of between $2.45 and $2.50 for the year. Previously, earnings guidance for the
year was between $2.48 and $2.55. Due to the slightly lower earnings
performance, the Company anticipates that its free cash flow* for 2004 will be
between $70 million and $75 million. For the fourth quarter, net sales are
expected to increase between 13% and 15%. Excluding foreign currency and
acquisitions, the sales increase is expected to be between 3% and 5%.
<page>
Commenting on the Company's anticipated results, Mixon said, "Invacare continues
to generate strong earnings improvements in North America despite the pressures
of competition from imports and of reimbursement uncertainty. In order to
address the import competition, the Company opened its second wholly-owned
manufacturing facility in China during the third quarter. We should see cost
improvements resulting from these two plants in 2005."
Mixon continued, "With the ongoing focus on the 50 new product introductions
planned for 2004 and the continuing cost reduction programs, including
manufacturing in China, we believe that the annual earnings growth of between 9%
and 11% for the 2004 year is achievable. During 2005, we expect earnings per
share of between $3.00 to $3.15, driven by a recovery in consumer power
wheelchair sales, continued cost reductions, and increased benefits from the
Domus acquisition."
- --------------------------------------------------------------------------------
* 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.
**Net sales excluding consumer power wheelchairs, acquisitions and foreign
currency 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.
<page>
Invacare Corporation (NYSE:IVC), headquartered in Elyria, Ohio, is the global
leader in the manufacture and distribution of innovative home and long-term care
medical products that promote recovery and active lifestyles. The company has
5,700 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,"
"forecast", "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
(including the recent Domus acquisition), 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>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 2004 2003 2004 2003
<s> <c> <c> <c> <c>
- ----------------------------------------------------------------------------------------------------------------------
Net sales $349,507 $327,366 $1,010,138 $904,153
Cost of products sold 243,431 228,914 708,559 637,416
------- ------- ------- -------
Gross profit 106,076 98,452 301,579 266,737
Selling, general and administrative expense 71,230 66,983 216,214 191,092
Interest expense - net 2,232 1,657 5,012 4,544
------- ------- ------- -------
Earnings before income taxes 32,614 29,812 80,353 71,101
Income taxes 10,085 9,805 25,600 23,390
------- ------- ------- -------
Net earnings $22,529 $20,007 $54,753 $47,711
======= ======= ======= =======
Net earnings per share - basic $0.72 $0.65 $1.76 $1.55
===== ===== =====
Weighted average shares outstanding - basic 31,122 30,845 31,120 30,825
====== ====== ====== ======
Net earnings per share - assuming dilution $0.70 $0.63 $1.70 $1.51
===== ===== ===== =====
Weighted average shares outstanding - assuming dilution 32,283 31,752 32,272 31,602
====== ====== ====== ======
</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 $20,312,000
and $60,691,000 for the three and nine months ended September 30, 2004 and
$20,722,000 and $55,314,000 for the same periods a year ago.
<table>
The information by segment is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2004 2003 2004 2003
<s> <c> <c> <c> <c>
- ----------------------------------------------------------------------------------------------------------------------
Revenues from external customers
North America $251,457 $232,829 $737,780 $646,202
Europe 79,889 73,839 224,633 205,020
Australasia 18,161 20,698 47,725 52,931
-------- -------- -------- --------
Consolidated $349,507 $327,366 $1,010,138 $904,153
======== ======== ======== ========
Earnings (loss) before income taxes
North America $ 27,990 $ 21,056 $ 73,753 $ 54,520
Europe 4,984 6,399 9,427 13,014
Australasia 874 2,695 1,551 5,973
All Other (1,234) (338) (4,378) (2,406)
-------- -------- -------- --------
Consolidated $32,614 $29,812 $ 80,353 $ 71,101
======== ======== ======== ========
</table>
All Other consists of the domestic export unit, unallocated 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>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2004 December 31, 2003 September 30, 2003
(In thousands) (unaudited) (unaudited)
<s> <c> <c> <c>
- ------------------------------------------------------------------------------------------------------------------
Current Assets
Cash, cash equivalents and marketable securities $3,030 $16,288 $ 3,980
Trade receivables - net 262,193 255,534 244,385
Installment receivables - net 13,390 7,755 10,038
Inventories - net 145,804 130,979 129,593
Deferred income taxes and other current assets 53,690 64,166 56,982
------ ------ ------
Total current assets 478,107 474,722 444,978
Other Assets 76,970 67,941 68,794
Investment in Domus* 229,349 - -
Plant and equipment - net 161,502 150,051 138,630
Goodwill - net** 501,197 415,499 392,902
------- ------- -------
Total assets $1,447,125 $1,108,213 $1,045,304
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $123,817 $110,178 $105,498
Accrued expenses** 143,058 97,148 87,755
Accrued income taxes 21,692 19,107 19,365
Current maturities 1,252 2,171 3,705
----- ----- -----
Total current liabilities 289,819 228,604 216,323
Long-term debt 442,143 232,038 249,012
Other long-term obligations 41,767 34,383 28,528
Shareholders' equity 673,396 613,188 551,441
------- ------- -------
Total liabilities and shareholders' equity $1,447,125 $1,108,213 $1,045,304
========== ========== ==========
</table>
* The acquisition of WP Domus GmbH was completed on September 9, 2004 by the
European segment of the Company, which reports its financial results on a
one-month lag for financial reporting. In order to fairly present the impact of
this acquisition as of September 30, 2004, the Company has presented the
investment in Domus equal to the purchase price as well as the corresponding
long-term debt. The investment will be re-allocated in the fourth quarter of
2004 when the company allocates the purchase price and consolidates the net
assets of WP Domus GmbH.
** Includes estimated contingent consideration amount of $59,000,000 pursuant to
the Carroll Healthcare, Inc. purchase agreement. Actual consideration payment is
expected to be finalized and paid out in the fourth quarter of 2004.
<table>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2004 2003 2004 2003
<s> <c> <c> <c> <c>
--------------------------------------------------------------------------------------------------
Net cash provided by operating activities $31,248 $27,712 $77,037 $72,988
Less:
Purchases of property and equipment (10,591) (7,288) (28,924) (17,172)
------- ------- ------- -------
Free Cash Flow $20,657 $20,424 $48,113 $55,816
======= ======= ======= =======
</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.
<table>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET SALES TO SALES EXCLUDING CONSUMER
POWER WHEELCHAIRS, ACQUISITIONS AND FOREIGN CURRENCY (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2004 2003 2004 2003
<s> <c> <c> <c> <c>
-------------------------------------------------------------------------------------------------------
Net Sales $349,507 $327,366 $1,010,138 $904,153
Less:
Consumer power
wheelchair sales (18,878) (34,230) (62,022) (79,621)
Acquisition sales (17,050) - (63,655) -
Foreign currency impact (8,528) - (32,382) -
-------- -------- -------- --------
Adjusted Sales $305,051 $293,136 $852,079 $824,532
======== ======== ======== ========
Net sales increase adjusted for
Consumer power wheelchairs,
acquisitions and foreign currency 4% 3%
</table>
Adjusted Net sales excluding consumer power wheelchairs, acquisitions and
foreign currency is a non-GAAP financial measure.
<table>
NORTH AMERICA SEGMENT
RECONCILIATION FROM NET SALES TO SALES EXCLUDING CONSUMER
POWER WHEELCHAIRS, ACQUISITIONS AND FOREIGN CURRENCY (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2004 2003 2004 2003
<s> <c> <c> <c> <c>
------------------------------------------------------------------------------------------------------
Net Sales $251,457 $232,829 $737,780 $646,202
Less:
Consumer power
wheelchair sales (18,878) (34,230) (62,022) (79,621)
Acquisition sales (17,050) - (60,078) -
Foreign currency impact (1,136) - (4,185) -
-------- ------- ------- -------
Adjusted Sales $214,393 $198,599 $611,495 $566,581
======== ======== ======== ========
Net sales increase adjusted for
Consumer power wheelchairs,
acquisitions and foreign currency 8% 8%
</table>
Adjusted Net sales excluding consumer power wheelchairs, acquisitions and
foreign currency is a non-GAAP financial measure.