Exhibit 99.1
Investor Inquiries:
Robert K. Gudbranson
(440) 329-6001
NEWS RELEASE
INVACARE CORPORATION REPORTS EARNINGS IN RANGE WITH GUIDANCE
ELYRIA, Ohio - (April 28, 2005) - Invacare Corporation (NYSE: IVC) today
announced that its financial results for the first quarter ended March 31, 2005
were in range with previous guidance.
CONSOLIDATED RESULTS
Earnings per share for the quarter decreased 5% to $0.42 versus $0.44 for the
first quarter last year, while net earnings for the quarter were $13.5 million
versus $14.2 million for the first quarter last year. Net sales for the quarter
increased 15% to $370.9 million versus $321.3 million for the first quarter last
year. Foreign currency accounted for two percentage points of the net sales
increase, while acquisitions contributed an additional ten percentage points for
the quarter. Results for the quarter benefited from higher net sales and a
stronger gross margin, which were partially offset by higher selling, general
and administrative expense (SG&A expense). Operating income, which grew in total
and as a percent of sales, was more than offset by higher interest expense,
primarily due to acquisitions.
Gross margin as a percentage of net sales for the first quarter was higher by
0.5 percentage points compared to last year's first quarter. During the first
quarter, cost reduction projects were ahead of schedule in most manufacturing
and sourcing locations. Additionally, WP Domus GmbH (Domus) had a higher gross
margin than that achieved historically by the Company.
SG&A expense as a percentage of net sales increased by 0.5 percentage points
compared to first quarter last year. SG&A expense increased 18% over last year's
first quarter primarily due to acquisitions and foreign currency translation.
Foreign currency accounted for two percentage points of the increase in SG&A
expense, while acquisitions contributed an additional fifteen percentage points.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "We are
pleased to report that Invacare achieved its guidance in the first quarter for
both sales and earnings. Equally important, all geographical segments of the
business have returned to sales growth in the first quarter. Despite the
stronger sales growth, the Company had a weak free cash flow quarter due to a
company-wide build in inventory and reduction in payables. With increased
shipments from the Far East, the Company had more product in transit than in
previous years. Inventory levels were temporarily inflated as the Company
consolidated previous Domus sales agencies, ramped up production in its
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factories in China and worked through a major information systems implementation
in the Asia/Pacific region. Production in the quarter was more evenly
distributed during the quarter than during previous periods, leading to a lower
payables level for quarter end. Days sales outstanding improved by four days
compared to March 31, 2004, however the negative impacts described above led
Invacare to use $12 million of free cash flow*. Despite the first quarter
result, we expect the company to generate strong free cash flow for the year."
Free cash flow is defined as net cash provided (used) by operating activities
less purchases of property and equipment net of proceeds from sales of property
and equipment.
NORTH AMERICA
For the quarter, North American net sales increased 6% to $250.9 million versus
$237.3 million last year. Foreign currency accounted for one percentage point of
the net sales increase, while acquisitions contributed an additional two
percentage points for the quarter.
Respiratory products sales increased 16%, largely due to continued strong
performance on the HomeFillTM oxygen system product line and strong sales of
oxygen concentrators. Invacare Supply Group (ISG) sales increased 7%, continuing
ISG's consistent growth pattern over the recent past. Invacare Continuing Care
Group (ICCG) sales increased by 22% for the quarter, with acquisitions
accounting for 15% of the increase.
Sales of standard products decreased by 1% for the quarter, as the benefit from
increasing unit volumes of standard products was more than offset by lower
pricing. With market-driven pricing, the Company is making progress from 2004
when the sales decline in the fourth quarter in standard products was 8%. Sales
of the rehab products line decreased 7%, excluding acquisitions, due primarily
to continued Medicare eligibility pressures and Medicaid related reimbursement
pressures. Sales of consumer power wheelchairs were down 16% for the quarter
versus last year's first quarter.
For the quarter, earnings before income taxes decreased 11% to $19.4 million
versus $21.9 million last year, largely due to continued weakness in the rehab
products line and the pricing reductions in the standard products line.
EUROPE
For the quarter, European net sales increased 47% to $102.1 million versus $69.3
million last year. Foreign currency accounted for six percentage points of the
net sales increase, while acquisitions contributed an additional forty
percentage points for the quarter. The 1% sales increase for the quarter,
excluding foreign currency and acquisitions, was due to solid performance in
most regions excluding Germany. The German decline was due to significant
reimbursement challenges for the Invacare wheelchair product lines. For the
quarter, earnings before income taxes increased to $3.9 million versus $1.1
million last year, due to the acquisition of Domus. Domus has performed to
expectation during the first quarter, while several of the other Invacare Europe
locations struggled to convert the sales increase to profitable results.
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ASIA/PACIFIC
For the quarter, Asia/Pacific net sales increased 22% to $17.9 million versus
$14.7 million last year. Foreign currency accounted for six percentage points of
the net sales increase, while acquisitions contributed an additional thirteen
percentage points for the quarter. For the quarter, earnings before income taxes
decreased to a loss of $1.7 million versus earnings of $0.4 million last year in
large part due to lower sales of microprocessor controllers related to weakness
in the consumer power wheelchair market and due to costs related to establishing
the Company's sales and support infrastructure in Asia.
FINANCIAL CONDITION
At the end of the first quarter, total debt outstanding was $554.7 million,
bringing debt-to-total-capitalization to 42.0%, slightly lower than the ratio at
the end of last year. With the current debt-to-total-capitalization level and
the Company's recently expanded revolving credit facility, the Company has the
flexibility to continue to make accretive acquisitions or to purchase common
shares. During the quarter, the company has taken action to convert in the
future $150 million of floating rate exposure, where at quarter end 100% of
outstanding debt is floating rate. Days sales outstanding were 66 days,
improving by four days compared with the first quarter of last year. Inventory
turns were 4.9, down from 5.8 at the end of last year due to the factors
previously discussed.
OUTLOOK
Reimbursement uncertainties continue to affect the core North American rehab and
standard businesses. Although the Centers for Medicare and Medicaid Services
(CMS) has released new draft guidelines on power wheelchair eligibility, the
guidelines have not been finalized or implemented yet. Even once the guidelines
are finalized, there can be up to six months for implementation, and there will
still be uncertainty regarding CMS' plan to have 49 new codes and related fees
on power wheelchairs for 2006. The uncertainty negatively affected the Company's
first quarter results for consumer power wheelchair sales, and will likely
impact results all year. In terms of Medicaid, numerous states, including
California, Ohio and New York, are challenging reimbursement on durable medical
equipment submissions, leading to slower payments and approvals for lower-priced
product, in addition to no reimbursement at all in some cases.
Additionally, European performance, excluding Domus, was weaker than expected in
the first quarter. In particular, reimbursement issues in Germany led to lower
sales of wheelchair products. The reimbursement pressures did not significantly
impact the Domus product lines, and the Company anticipates improved revenue
performance as it finalizes the assimilation of the Domus agency business.
"Invacare's first factory in China turned profitable at quarter-end. Both
factories in China are expected to contribute to profits throughout the
remainder of the year," said Mixon. "The HomeFillTM oxygen system product line
has been one of the Company's biggest successes and while it has become a major
contributor to growth, the opportunity for deeper penetration of the ambulatory
oxygen market remains substantial. Within the next two years, we expect to
increase the annual HomeFillTM sales by $100 million over current levels.
Finally, Invacare is building its Asian sales and support infrastructure and
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expects to begin seeing positive results in the months ahead as we seek to build
the market to $100 million over the next five years."
For the full year, the company believes that it will have a net sales increase
of between 17% and 19% and earnings per share of between $2.60 and $2.80. This
is consistent with current analyst's estimates but at the lower end of
Invacare's previous guidance. This guidance anticipates foreign currency and
acquisitions to account for 11% of the net sales increase. Excluding the impact
of foreign currency and acquisitions, the net sales increase is expected to be
between 6% and 8%. The Company anticipates its free cash flow* for the year will
be between $70 million and $80 million.
For the second quarter, the Company expects a net sales increase of between 18%
and 20% and earnings per share of between $0.53 and $0.58. This guidance
anticipates foreign currency and acquisitions to account for 13% of the net
sales increase. Excluding the impact of foreign currency and acquisitions, the
net sales increase would be between 5% and 7%.
Commenting on the Company's anticipated results, Mixon said, "Although
disappointed with the cash flow performance of some divisions in the first
quarter, the Company has made progress on two critical strategic goals. The
transition to increased Chinese manufacturing with local sourcing is on track
and should contribute consistent with previous guidance. Secondly, Domus has
again performed strongly this quarter, and we are pleased with the contribution
from this recent acquisition. We continue to believe that Domus is on track with
the projects to increase sales with Invacare Europe's sales forces and to lower
costs with Invacare's Hong Kong sourcing office and Chinese manufacturing
plants."
Mixon concluded, "The performance in the first quarter was gratifying in the
face of serious contractions in governmental health care support. With the
benefits from Chinese manufacturing, further penetration of the ambulatory
oxygen market with sales of the HomeFillTM oxygen system, sales in the Far East
and the Domus acquisition, the Company now projects a 12% to 20% growth in
earnings per share for 2005. We are committed to increasing shareholder value
and believe Invacare, despite the difficult reimbursement environment, can
continue to earn strong returns for its shareholders."
*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 and long-term care
medical products that promote recovery and active lifestyles. The Company has
6,100 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.
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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) both at the federal and state
level, 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.
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INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended
March 31,
(In thousands, except per share data) 2005 2004
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Net sales $370,944 $321,343
Cost of products sold 261,100 227,964
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Gross profit 109,844 93,379
Selling, general and administrative expense 83,962 71,238
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Operating income 25,882 22,141
Interest expense - net 5,992 1,100
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Earnings before income taxes 19,890 21,041
Income taxes 6,345 6,840
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Net earnings $13,545 $14,201
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Net earnings per share - basic $0.43 $0.46
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Weighted average shares outstanding - basic 31,359 31,094
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Net earnings per share - assuming dilution $0.42 $0.44
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Weighted average shares outstanding -
assuming dilution 32,534 32,272
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Business Segments - The Company operates in three primary business segments
based on geographical area: North America, Europe and Asia/Pacific. The three
reportable segments represent operating groups, which offer products to
different geographic regions. Intersegment revenue for reportable segments was
$22,758,000 for the three months ended March 31, 2005 and $19,343,000 for the
same period a year ago.
The information by segment is as follows:
Three Months Ended
March 31,
(In thousands) 2005 2004
--------------------------------------------------------------------
Revenues from external customers
North America $250,940 $237,283
Europe 102,091 69,338
Asia/Pacific 17,913 14,722
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Consolidated $370,944 $321,343
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Earnings (loss) before income taxes
North America $ 19,405 $ 21,871
Europe 3,882 1,140
Asia/Pacific (1,704) 437
All Other (1,693) (2,407)
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Consolidated $ 19,890 $ 21,041
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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.
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<caption>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2005 December 31, 2004 March 31, 2004
(In thousands) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $17,037 $ 32,766 $4,683
Trade receivables - net 282,801 287,950 263,033
Inventories - net 183,585 175,883 131,522
Deferred income taxes and other current assets 68,472 68,552 65,630
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Total current assets 551,895 565,151 464,868
Other Assets 149,762 153,846 78,713
Plant and equipment - net 191,972 191,163 154,641
Goodwill - net 723,571 717,964 442,229
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Total assets $1,617,200 $1,628,124 $1,140,451
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $130,928 $149,413 $121,863
Accrued expenses 85,332 98,850 85,296
Accrued income taxes 6,999 7,816 21,458
Current maturities 1,746 2,062 2,163
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Total current liabilities 225,005 258,141 230,780
Long-term debt 552,990 547,974 232,398
Other long-term obligations 74,285 68,571 36,530
Shareholders' equity 764,920 753,438 640,743
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Total liabilities and shareholders' equity $1,617,200 $1,628,124 $1,140,451
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INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES TO FREE CASH FLOW (UNAUDITED)
Three Months Ended
March 31,
(In thousands) 2005 2004
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Net cash provided (used) by operating activities $ (3,495) $30,284
Less:
Purchases of property and equipment - net (8,907) (8,355)
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Free Cash Flow $(12,402) $21,929
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Free cash flow is a non-GAAP financial measure that is comprised of net cash
provided (used) by operating activities less purchases of property and equipment
net of 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.).