Exhibit 99.1
Investor Inquiries:
Gregory C. Thompson
(440) 329-6111
NEWS RELEASE
INVACARE CORPORATION REPORTS FIRST QUARTER EARNINGS
ELYRIA, Ohio - (April 27, 2006) - Invacare Corporation (NYSE: IVC) today
announced its financial results for the first quarter ended March 31, 2006.
CONSOLIDATED RESULTS
Earnings per share* for the quarter decreased to $0.24 versus $0.42 for the
first quarter last year, excluding the impact of a pre-tax $3.5 million charge
($2.4 million after tax or $0.08 per share) related to restructuring activities.
Net earnings* for the quarter, excluding the charge related to restructuring
activities, were $7.6 million versus $13.5 million for the first quarter last
year. Including the charge, earnings per share for the first quarter were $0.16
and net earnings were $5.2 million. Net sales for the quarter decreased 2% to
$361.7 million versus $370.9 million last year.
The decline in performance was due to continuing Medicare reimbursement
pressures and uncertainties, continuing price reductions driven by low-cost
Asian product, and to the residual impact of the fourth quarter enterprise
resource planning system (ERP) implementation that adversely affected
high-margin products such as custom power and custom manual wheelchairs. In
addition, interest expense increased due to higher interest rates.
The Company remains focused on its previously announced cost reduction and
profit improvement initiatives, which are on track. In the first quarter,
restructuring expenses totaled $3.5 million and related primarily to severance
costs in North America operations. Since the Company initiated its cost
reduction actions in July 2005, it has eliminated approximately 400 positions.
In addition, we continue to accelerate our sourcing of products from Asia and
transfer manufacturing to our wholly-owned Chinese facilities.
Net sales declined on a reported basis by 2%. Acquisitions added two percentage
points to net sales for the quarter and this was offset by a two percentage
point decrease resulting from foreign currency translation.
Gross margin as a percentage of net sales for the first quarter was lower by 1.5
percentage points compared to last year's first quarter due to the sales decline
in the higher margin custom power and custom manual product segments and
continuing pricing pressures in standard products.
<page>
SG&A expense on a reported basis was $83.4 million versus $84.0 million in the
first quarter last year. Foreign currency reduced SG&A by three percentage
points while acquisitions partially offset this by increasing SG&A two
percentage points.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "The dual
pressures of increasing Asian competition along with uncertain Medicare
reimbursement changes continue to negatively impact our North American business.
As a result of these negative impacts, we continue to be focused on cost
reduction as our top priority."
NORTH AMERICA
For the quarter, North American net sales decreased slightly to $250.0 million
versus $250.9 million last year. Foreign currency accounted for less than a 1%
increase, while acquisitions contributed 1% for the quarter.
Sales of rehab products, including acquisitions, increased 5% for the quarter.
Excluding acquisitions, rehab equipment sales decreased 2% as Medicare
eligibility issues and related reimbursement pressures continued. Sales of
consumer power wheelchairs were down 1% versus last year's first quarter. Custom
power wheelchairs and custom manual wheelchairs were down 6% and 8%,
respectively, as we continued to rebuild the order pipeline adversely impacted
by the ERP implementation in the fourth quarter.
Sales of standard products decreased 7% for the quarter, with particular
weakness in manual wheelchairs and patient aids (canes, walkers, crutches) due
to continuing low-cost Asian imports driving further price reductions.
Respiratory products sales declined 5% for the quarter. Strong sales of oxygen
concentrators were offset by a decline in the HomeFill(TM) oxygen system product
line, attributable to significantly reduced purchases from National providers in
this year's first quarter versus last year. Small providers and independents
continued to increase their HomeFill purchases by 3%; however this was more than
offset by lower purchases from National providers. Recently announced
reimbursement changes and further proposed changes in President Bush's fiscal
2007 budget have created uncertainty and negatively impacted the HomeFill
revenues by causing providers to reduce capital investment in this new
technology.
Invacare Supply Group (ISG) continued to grow with a 4% sales increase as it
continues to broaden its product offering and channels of distribution. Invacare
Continuing Care Group (ICCG) sales increased by 3% for the quarter.
For the quarter, earnings before income taxes decreased to $9.2 million versus
$20.7 million last year due to the revenue declines in key sectors mentioned
above along with lower gross margins and restructuring costs.
EUROPE
For the quarter, European net sales decreased 6% to $95.5 million versus $102.1
million last year. Foreign currency accounted for nine percentage points of the
<page>
net sales decrease, while acquisitions contributed two percentage points for the
quarter. We continue to experience some weakness in our German business in the
Invacare wheelchair product lines due to reimbursement pressures, but saw strong
performance in a number of other countries. For the quarter, earnings before
income taxes declined to $3.7 million versus $3.9 million last year.
ASIA/PACIFIC
For the quarter, Asia/Pacific net sales decreased 10% to $16.2 million versus
$17.9 million last year. Foreign currency accounted for seven percentage points
of the net sales decline, while acquisitions contributed two percentage points
for the quarter. For the quarter, earnings before income taxes reflected a loss
of $1.4 million versus a loss of $1.7 million last year. Performance in this
region continues to be negatively impacted by U.S. reimbursement uncertainty in
the consumer power wheelchair market, resulting in decreased sales of
microprocessor controllers.
FINANCIAL CONDITION
At the end of the first quarter, total debt outstanding was $521 million,
bringing debt-to-total-capitalization to 40.7%, an improvement over the 41.7%
ratio at the end of last year. Days sales outstanding were 69 days versus 66
days in the first quarter of last year. Inventory turns were 4.7 versus 4.9 in
the same period last year. The Company is in the process of securing financing
to convert a portion of its floating interest rate exposure to 10-year fixed
interest rate debt and expects to finalize this in the second quarter. Once
complete, approximately 40% of the Company's debt will be at a fixed rate,
versus 10% at present. The Company generated $4 million of free cash flow** in
the quarter, an improvement of $16 million versus the same period last year.
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.
OUTLOOK
Reimbursement uncertainties continue to negatively impact the core North
American businesses. The Centers for Medicare and Medicaid Services (CMS) has
recently released new guidelines on power wheelchair eligibility, effective June
5, 2006. The guidelines affirm face-to-face physician examinations with required
documentation provided by the physician to equipment providers within 45 days
thereafter. However, there is still uncertainty regarding CMS' finalization of
new reimbursement codes and a determination of reimbursement levels. Separately,
there is no further progress in determining the level of reimbursement for
ongoing service of oxygen products as part of the recently enacted 36 month
capped rental period. Adding to the uncertainty is the suggestion that President
Bush's 2007 budget proposal contemplates possible further reduction in the
capped rental period for oxygen therapy.
As a result of these reimbursement issues, along with increasing volumes of
low-cost Asian product, the Company is reducing its estimated net sales increase
for 2006 to between 1% and 3% from its prior guidance of an increase between 4%
and 6%. The new net sales guidance excludes any impact from foreign currency and
acquisitions. The Company is reaffirming its earlier earnings per share guidance
<page>
of between $2.00 and $2.10, excluding restructuring charges and the impact of
any new acquisitions in 2006. The second quarter results are expected to be
somewhat improved sequentially over the first quarter with the bulk of the
improvement in the second half of the year as a result of the following
variables (listed from highest to lowest in impact):
>> Manufacturing cost reduction activities including headcount
reductions, transferring production to China, and engineered product
cost reductions.
>> Normal seasonal increase in International businesses in the second
half of the year.
>> Continued soft sales in the U.S. adjusted for scheduled new product
introductions and normal fourth quarter 2006 revenues as compared to
the abnormally low fourth quarter 2005 revenues due to the ERP
implementation.
This earnings per share range includes the impact from the stock option
accounting Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share Based Payment ("SFAS 123R") issued by the Financial Accounting Standards
Board. The impact of SFAS 123R on earnings per share for 2006 is estimated to be
$0.05.
The Company anticipates its free cash flow** for the year will be between $70
million and $80 million, which will be used to reduce debt and also be available
for acquisitions.
Commenting on the Company's anticipated results, Mixon said, "We are
disappointed with the sales performance in the first quarter and expect the
challenges from Medicare reimbursement and further pricing pressures from
low-cost Asian imports to continue. We remain focused on cost reduction as our
top priority including:
>> Execution of the previously communicated multi-year plan to reduce
global manufacturing and distribution costs by $30 million annually by
2008.
>> Transferring additional manufacturing to China and increasing the
Asian sourcing of products. We expect the total cost of products
coming from Asia to exceed $200 million in 2006, an increase of over
60% compared to 2005. We continue to achieve approximately 20% savings
from these transfers.
>> Continue to cost reduce the design and engineering of our products to
address the reimbursement and pricing realities.
We expect to see significant benefits starting in the second half of 2006 from
these on-going initiatives. Management is energized to accelerate these cost
reduction activities and position the Company for strong earnings growth in the
second half of the year even with little sales growth. The fundamentals of the
industry are still crystal clear with the graying of the population and cost
benefits of home care. These disruptions caused by poor policy decisions even
more poorly executed will be resolved. The problems experienced during the
fourth quarter 2005 ERP implementation are largely behind us. Our cost reduction
<page>
activities will transform us into a lean and agile company and restore our
profitability and growth trends to historical levels."
*All references to financial measures that exclude the impact of the
restructuring charges 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.
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.
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
budgetary and reimbursement issues at both the federal and state level
(including those that affect the sales of and margins on product, along with the
viability of customers), the ongoing implementation of the Company's North
American enterprise resource planning system, the ability to develop and sell
new products with higher functionality and lower costs, the effect of offering
customers competitive financing terms, the ability to successfully identify,
acquire and integrate strategic acquisition candidates, the difficulties in
managing and operating businesses in many different foreign jurisdictions , the
orderly 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>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended
March 31,
(In thousands, except per share data) 2006 2005
----------------------------------------------------------------------------------------
<s> <c> <c>
Net sales $361,704 $370,944
Cost of products sold 259,901* 261,100
------- -------
Gross profit 101,803 109,844
Selling, general and administrative expense 83,390 83,962
Charge related to restructuring activities 3,157 -
Interest expense - net 7,819 5,992
------- -------
Earnings before income taxes 7,437 19,890
Income taxes 2,230 6,345
------- -------
Net earnings $ 5,207 $13,545
======= =======
Net earnings per share - basic $0.16 $0.43
====== ======
Weighted average shares outstanding - basic 31,731 31,359
====== ======
Net earnings per share - assuming dilution $0.16 $0.42
====== ======
Weighted average shares outstanding - assuming dilution 32,190 32,534
====== ======
</table>
* Cost of products sold includes inventory markdowns resulting from
restructuring of $296 for the three month period ending March 31,
2006.
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
$24,880,000 for the three months ended March 31, 2006 and $22,758,000 for the
same period a year ago.
The information by segment is as follows:
<table>
<caption>
Three Months Ended
March 31,
(In thousands) 2006 2005
-------------------------------------------------------------------------------------
<s> <c> <c>
Revenues from external customers
North America $249,975 $250,940
Europe 95,546 102,091
Asia/Pacific 16,183 17,913
------- -------
Consolidated $361,704 $370,944
======= =======
Earnings (loss) before income taxes
North America $ 9,170 $ 20,725
Europe 3,692 3,882
Asia/Pacific (1,398) (1,704)
All Other (4,027) (3,013)
------- -------
Consolidated $ 7,437 $ 19,890
======= =======
</table>
All Other consists of unallocated corporate selling, general and administrative
expense 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
March 31, 2006 December 31, March 31, 2005
(In thousands) (unaudited) 2005 (unaudited)
- -------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $11,700 $ 25,876 $17,037
Trade receivables - net 284,504 287,955 282,801
Inventories - net 181,007 176,925 183,585
Deferred income taxes and other current assets 85,097 79,891 68,472
------ ------ ------
Total Current Assets 562,308 570,647 551,895
Other Assets 154,420 155,227 149,762
Plant and equipment - net 172,676 176,206 191,972
Goodwill 723,190 720,873 723,571
------- ------- -------
Total Assets $1,612,594 $1,622,953 $1,617,200
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $130,582 $133,106 $130,928
Accrued expenses 106,719 106,214 85,332
Accrued income taxes 11,339 13,340 6,999
Short-term debt and current maturities of long-term
debt 80,323 80,228 1,746
------ ------ -----
Total Current Liabilities 328,963 332,888 225,005
Long-Term Debt 440,832 457,753 552,990
Other Long-Term obligations 83,153 79,624 74,285
Shareholders' Equity 759,646 752,688 764,920
------- ------- -------
Total Liabilities and Shareholders' Equity $1,612,594 $1,622,953 $1,617,200
========== ========== ==========
</table>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES TO FREE CASH FLOW (UNAUDITED)
<table>
<caption>
Three Months Ended
March 31,
(In thousands) 2006 2005
---------------------------------------------------------------------------------------
<s> <c> <c>
Net cash provided (used) by operating activities $ 8,089 $ (3,474)
Less:
Purchases of property and equipment, net (4,536) (8,907)
--------- ---------
Free Cash Flow $ 3,553 $(12,381)
========= =========
</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>
<caption>
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
March 31,
(In thousands) 2006 2005
------------------------------------------------------------------------------------------
<s> <c> <c>
Net earnings $ 5,207 $13,545
Plus:
Charge related to restructuring activities - after tax 2,417 -
-------- --------
Net earnings excluding charge related to restructuring $ 7,624 $13,545
activities ======== ========
Weighted average shares outstanding - assuming dilution 32,190 32,534
Net earnings per share excluding charge related to
restructuring activities - assuming dilution $0.24 $0.42
======== ========
Charge related to restructuring activities* $ 3,453 $ -
Tax rate related to charge 30.0% -
Charge related to restructuring activities - after tax $ 2,417 $ -
======== ========
</table>
* Cost of products sold includes inventory markdowns resulting from
restructuring of $296 for the three month period ending March 31,
2006.