Exhibit 99.1
Investor Inquiries:
Robert K. Gudbranson
(440) 329-6001
NEWS RELEASE
INVACARE CORPORATION REPORTS EARNINGS IN RANGE WITH GUIDANCE AND STRONG CASH
FLOW PERFORMANCE
ELYRIA, Ohio - (October 27, 2005) - Invacare Corporation (NYSE: IVC) today
announced that its earnings for the third quarter and nine months ended
September 30, 2005 were in range with guidance.
CONSOLIDATED RESULTS
Earnings per share* for the third quarter were $0.53 versus $0.70 for the third
quarter last year, excluding the impact of a pre-tax $2.8 million charge ($1.9
million after tax or $0.06 per share) related to restructuring activities that
were previously announced. For the quarter, net earnings* excluding the charge
related to restructuring activities were $17.2 million versus $22.5 million for
the third quarter last year. Including the charge, earnings per share for the
third quarter were $0.47 and net earnings were $15.3 million.
Restructuring expenses incurred during the quarter ended September 30, 2005
consisted primarily of severance costs as a result of the Company's previously
announced cost reduction and profit improvement actions. To date, the Company
has made substantial progress on its restructuring activities, including exiting
four facilities and eliminating approximately 170 positions through September
30, 2005. With additional planned actions in the fourth quarter, the Company
expects to meet or exceed its previously announced cost reduction and profit
improvement actions totaling $9 million of pre-tax benefits in the second half
of 2005 and achieve annualized pre-tax savings of at least $25 million as
Invacare enters 2006.
Net sales for the quarter increased 13% to $395.3 million versus $349.5 million
for the third quarter last year. Foreign currency did not materially impact the
net sales increase, while acquisitions contributed twelve percentage points of
the increase for the quarter. Results for the quarter benefited from higher net
sales, which were offset by a lower gross margin, higher selling, general and
administrative expense (SG&A expense) and higher interest expense.
The Company's gross margin as a percentage of net sales for the third quarter
was slightly down compared to last year's third quarter. Gross margins improved
sequentially from the second quarter due to the benefits of cost reduction
actions and a lower mix of revenues from national accounts. Higher freight costs
from fuel surcharges driven by the high price of oil continued to negatively
impact margins but were partially offset by freight auctions and modifications
to the company's freight policy.
<page>
As a percentage of net sales, SG&A expense increased one percentage point
compared to the third quarter last year. For the quarter, SG&A expense increased
21% over last year's third quarter, primarily due to acquisitions. Foreign
currency translation did not materially impact the SG&A expense increase, while
acquisitions contributed 18 percentage points of the increase. Cost reduction
actions resulted in a decrease in SG&A expense from $88.4 million in the second
quarter to $85.9 million in the third quarter.
Earnings per share* for the first nine months of this year were $1.34 versus
$1.70 last year, excluding the impact of a pre-tax $2.8 million charge ($1.9
million after tax or $0.06 per share) related to restructuring activities that
were previously announced. For the first nine months of this year, net earnings*
excluding the charge related to restructuring activities were $43.7 million
versus $54.8 million last year. Including the charge, earnings per share for the
nine months were $1.29 and net earnings were $41.8 million. Net sales for the
first nine months of the year increased 15% to $1,162.5 million versus $1,010.1
million last year. Foreign currency accounted for one percentage point of the
net sales increase, while acquisitions contributed an additional eleven
percentage points for the nine-month period. Results for the first nine months
of this year benefited from higher net sales, offset by a lower gross margin,
higher SG&A expense and higher interest expense.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "In the
third quarter, although the Company had a one percent net sales increase
excluding foreign currency and acquisitions, the net income performance was in
line with previous guidance. While this level of sales growth is disappointing,
it is clear that due to the reimbursement uncertainties and general competitive
environment, we must continue to reduce costs and expenses. Despite this
difficult environment, Invacare remained focused on its cash flow performance,
generating $24 million of free cash flow** for the quarter." Free cash flow is
defined as net cash provided 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 4% to $260.9 million versus
$251.5 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.
Sales of the rehab products line increased 14%, due primarily to stronger sales
of consumer power wheelchairs, which were up 30% for the quarter versus last
year's third quarter. Despite the improvement versus an unusually weak sales
quarter last year, this quarter's performance is not an indication of an
improved environment for consumer power wheelchairs in general in the United
States. Consumer power wheelchair revenues for the nine-month period were down
3% compared to prior year. Invacare Supply Group (ISG) sales increased 7%, in
line with ISG's growth pattern in the recent past.
<page>
Respiratory products sales declined 13% for the quarter, due to slow purchases
from national accounts for the HomeFill(TM) II oxygen system product line and
oxygen concentrators. HomeFill(TM) revenues continued to increase strongly with
local and regional providers, with a double-digit increase for the quarter.
Sales of standard products decreased by 2% for the quarter, as the benefit from
increasing unit volumes of standard products was more than offset by lower
pricing implemented in the second half of 2004. Similar to the respiratory
products, sales of standard products were negatively impacted by a significant
slow down in purchases by a large national account.
Invacare Continuing Care Group (ICCG) sales increased by 2% for the quarter.
Without acquisitions ICCG declined by 12%, due to weakness in nursing
home-related bed sales.
For the quarter, earnings before income taxes decreased to $16.1 million versus
$28.0 million last year, largely due to the higher freight costs, programs in
place to support anticipated higher growth, and continued weakness in the
standard products line.
For the first nine months of the year, North American net sales increased 5% to
$776.7 million versus $737.8 million last year. Foreign currency accounted for
one percentage point of the net sales increase, while acquisitions contributed
an additional two percentage points.
EUROPE
For the quarter, European net sales increased 40% to $111.9 million versus $79.9
million last year. Foreign currency decreased the sales performance by four
percentage points, while acquisitions contributed 43 percentage points for the
quarter. The one percentage point increase in net sales excluding acquisitions
and foreign currency was largely due to strong performance in virtually all
regions, excluding Germany.
For the quarter, earnings before income taxes increased to $10.5 million versus
$5.0 million last year, primarily due to the acquisition of WP Domus GmbH. Domus
continued to perform well in the third quarter, while performance in Invacare
Germany was below expectations.
For the first nine months of this year, European net sales increased 44% to
$324.3 million versus $224.6 million last year. Foreign currency accounted for
two percentage points of the net sales increase, while acquisitions contributed
an additional 41 percentage points for the nine-month period.
ASIA/PACIFIC
For the quarter, Asia/Pacific net sales increased 24% to $22.5 million versus
$18.2 million last year. Foreign currency accounted for one percentage point of
the net sales increase, while acquisitions contributed an additional 16
percentage points for the quarter. The increase in net sales of seven percentage
points excluding foreign currency and acquisitions was largely due to volume
increases in all locations.
<page>
For the quarter, earnings before income taxes decreased from earnings of $0.9
million last year to a loss of $0.6 million this year, in large part due to
negative currency impacts and cost increases.
For the first nine months of this year, Asia/Pacific net sales increased 29% to
$61.5 million versus $47.7 million last year. Foreign currency accounted for
seven percentage points of the net sales increase, while acquisitions
contributed an additional 16 percentage points for the nine-month period.
FINANCIAL CONDITION
At the end of the third quarter, total debt declined to $526 million, bringing
debt-to-total-capitalization to 40.7%, lower than the ratio at the end of last
year and last quarter. At the end of the third quarter, the Company announced
that it entered into a new accounts receivable securitization facility, which
increased the Company's available debt capacity and lowered its cost of
borrowing. Days sales outstanding were 63 days, improving by two days compared
with the third quarter of last year. Inventory turns were 4.8, down from 5.8 at
the end of last year. Turns were negatively impacted by building finished goods
for a sales level that failed to materialize.
OUTLOOK
Uncertainty still remains regarding the resolution of Medicare reimbursement for
power wheelchairs in particular, and equipment in general. The implementation of
new codes for power wheelchairs scheduled for the beginning of 2006 has been
postponed to a date unknown at this time. The impact is hard to determine
regarding the newly effective regulations requiring physician documentation of
medical necessity along with face-to-face meetings for a power wheelchair
prescription. Additionally, Senator Grassley's proposal to cut $900 million from
durable home medical equipment spending over five years to partially fund
Katrina relief efforts is a new development that will restrain growth if passed
by Congress.
Commenting on the Company's anticipated results, Mixon said, "The reimbursement
pressures on the industry are causing Invacare to focus even more on cost
reduction actions. During the third quarter, the Company made solid progress on
its goal to lower pre-tax costs by $9 million in the second half of 2005. With
additional actions, the Company anticipates recognizing an additional $4 million
to $5 million pre-tax charge in the fourth quarter of this year. The actions in
third quarter and fourth quarter are expected to result in annualized pre-tax
savings of at least $25 million as Invacare enters 2006."
In addition, the Company continues to review its global manufacturing and
distribution strategy and develop a multi-year plan beginning in 2006 to exit a
number of manufacturing and distribution locations, resulting in additional
annualized pre-tax savings of up to $21 million. These plans would lead to
pre-tax restructuring charges over the next two years estimated at $22 million.
While plans are not complete, the Company currently believes that the financial
benefits from the restructuring in any one year will minimize the net income
impact from the charge incurred in that year.
<page>
For the full year, in light of the continuing reimbursement pressures, the
Company is lowering guidance for earnings per share to a range of $1.90 to $2.05
and net sales growth to a range of 11% to 12%. Previous guidance had anticipated
a net sales increase of between 14% and 15% and earnings per share of between
$2.20 and $2.40. The new guidance anticipates foreign currency and acquisitions
to account for 10% of the net sales increase. Excluding the impact of foreign
currency and acquisitions, the net sales increase is now expected to be between
1% and 2%. The Company anticipates its free cash flow** for the year will be
between $55 million and $65 million, in line with previous guidance. The
earnings per share guidance does not include the impact of the $6.8 million to
$7.8 million charge on a pre-tax basis for the third and fourth quarters
mentioned above or $0.14 to $0.16 per share after tax.
For the fourth quarter, the Company expects a net sales increase of between 2%
and 4% and earnings per share of between $0.55 and $0.70. The 15 cent range for
earnings per share is due to uncertainty surrounding reimbursement, weakness in
the national accounts business, and inefficiencies resulting from the October
implementation of a new Oracle(R) enterprise resource planning system in the
Company's North American home care business. This guidance anticipates foreign
currency and acquisitions to account for 2% of the net sales increase. Excluding
the impact of foreign currency and acquisitions, the net sales increase would be
between zero and 2%. The earnings per share guidance does not include the impact
of the $4 million to $5 million fourth quarter charge on a pre-tax basis
mentioned above or $0.08 to $0.10 per share after tax.
Mixon concluded, "With the cost reduction actions detailed above, along with the
benefits from Chinese manufacturing and outsourcing, Invacare is committed to
returning to positive earnings growth and favorable quarterly comparisons in
2006. With the facility closures over the next few years, a lower cost structure
and further penetration of the ambulatory oxygen market with sales of the
HomeFillTM II oxygen system, Invacare is committed to delivering solid earnings
growth into 2006 and beyond."
- --------------------------------------------------------------------------------
*All references to financial measures that exclude the impact of the
restructuring charge are non-GAAP financial measures and are reconciled to the
related GAAP financial measure in the "Reconciliation" table included after the
Free Cash Flow reconciliation in this press release.
**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.
<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
6,200 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,"
"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 successful implementation of the Company's enterprise resource
planning system, 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) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net sales $395,270 $349,507 $1,162,481 $1,010,138
Cost of products sold 276,583 243,431 820,666 708,559
------- ------- ------- -------
Gross profit 118,687 106,076 341,815 301,579
Selling, general and administrative expense 85,909 71,230 258,223 216,214
Charge related to restructuring activities 2,760 - 2,760 -
Interest expense - net 7,526 2,232 19,492 5,012
------- ------- ------- -------
Earnings before income taxes 22,492 32,614 61,340 80,353
Income taxes 7,175 10,085 19,570 25,600
------- ------- ------- -------
Net earnings $15,317 $22,529 $41,770 $54,753
======= ======= ======= =======
Net earnings per share - basic $0.48 $0.72 $1.33 $1.76
====== ====== ====== ======
Weighted average shares outstanding - basic 31,632 31,122 31,515 31,120
====== ====== ====== ======
Net earnings per share - assuming dilution $0.47 $0.70 $1.29 $1.70
====== ====== ====== ======
Weighted average shares outstanding - assuming dilution 32,450 32,283 32,505 32,272
====== ====== ====== ======
</table>
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
$23,882,000 and $73,314,000 for the three and nine months ended September 30,
2005 and $20,312,000 and $60,691,000 for the same periods a year ago.
The information by segment is as follows:
<table>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Revenues from external customers
North America $260,871 $251,457 $776,665 $737,780
Europe 111,909 79,889 324,331 224,633
Asia/Pacific 22,490 18,161 61,485 47,725
--------- --------- --------- ---------
Consolidated $395,270 $349,507 $1,162,481 $1,010,138
========= ========= ========= =========
Earnings (loss) before income taxes
North America $ 16,098 $ 27,990 $ 49,570 $ 73,753
Europe 10,548 4,984 21,788 9,427
Asia/Pacific (551) 874 (3,855) 1,551
All Other (3,603) (1,234) (6,163) (4,378)
--------- --------- --------- ---------
Consolidated $22,492 $32,614 $ 61,340 $ 80,353
========= ========= ========= =========
</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.
<table>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2005 December 31, 2004 September 30, 2004
(In thousands) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $ 5,437 $ 32,766 $ 3,030
Trade receivables - net 287,497 287,950 262,193
Inventories - net 194,579 175,883 145,804
Deferred income taxes and other current assets 70,609 68,552 67,080
---------- ---------- ----------
Total current assets 558,122 565,151 478,107
Other Assets* 160,902 153,846 306,319
Plant and equipment - net 180,746 191,163 161,502
Goodwill 737,157 717,964 501,197
---------- ---------- ----------
Total assets $1,636,927 $1,628,124 $1,447,125
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $153,362 $149,413 $123,817
Accrued expenses 106,788 98,850 143,058
Accrued income taxes 7,060 7,816 21,692
Current maturities 77,132 2,062 43,096
---------- ---------- ----------
Total current liabilities 344,342 258,141 331,663
Long-term debt 449,016 547,974 400,299
Other long-term obligations 76,377 68,571 41,767
Shareholders' Equity 767,192 753,438 673,396
---------- ---------- ----------
Total liabilities and shareholders' equity $1,636,927 $1,628,124 $1,447,125
========== ========== ==========
</table>
* Other Assets on September 30, 2004 included $229,349,000 related to the
acquisition of WP Domus GmbH. 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 was re-allocated in the fourth
quarter of 2004 when the company allocated the purchase price and consolidated
the net assets of WP Domus GmbH.
<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) 2005 2004 2005 2004
<s> <c> <c> <c> <c>
------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 33,322 $ 30,551 $ 62,513 $ 75,180
Less:
Purchases of property and equipment, net (9,493) (10,591) (19,930) (28,924)
--------- --------- --------- ---------
Free Cash Flow $ 23,829 $ 19,960 $ 42,583 $ 46,256
========= ========= ========= =========
</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 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, for example, acquisitions).
<table>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET EARNINGS AND DILUTED EARNINGS PER SHARE
TO NET EARNINGS AND DILUTED EARNINGS PER SHARE EXCLUDING CHARGE
RELATED TO RESTRUCTURING ACTIVITIES (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net earnings $15,317 $22,529 $41,770 $54,753
Plus:
Charge related to restructuring activities - after tax 1,880 - 1,880 -
------- ------- ------- -------
Net earnings excluding charge related to restructuring activities $17,197 $22,529 $43,650 $54,753
======= ======= ======= =======
Weighted average shares outstanding - assuming dilution 32,450 32,283 32,505 32,272
Net earnings per share excluding charge related to restructuring
activities - assuming dilution $0.53 $0.70 $1.34 $1.70
======= ======= ======= =======
Total charge related to restructuring activities $ 2,760 $ - $ 2,760 $ -
Tax rate related to charge 31.9% - 31.9% -
Charge related to restructuring activities - after tax $ 1,880 $ - $1,880 $ -
======= ======= ======= =======
</table>
Net earnings excluding charge related to restructuring activities is a non-GAAP
financial measure that is comprised of GAAP net earnings plus the charge related
to restructuring activities. Net earnings per share excluding charge related to
restructuring activities is a non-GAAP financial measure that is comprised of
the non-GAAP net earnings referenced above divided by the weighted average
shares outstanding - assuming dilution. Management believes that these financial
measures provide meaningful information for evaluating the income statement
performance of the Company by excluding restructuring related expenses that are
not associated with the Company's normal operations and are not expected to
recur in future results.