Investor Inquiries:
Gregory C. Thompson
(440) 329-6111
NEWS RELEASE
INVACARE CORPORATION REPORTS THIRD QUARTER EARNINGS UP SIGNIFICANTLY OVER SECOND
QUARTER; UNCERTAINTY OVER RECENT CHANGES TO MEDICARE REIMBURSEMENT POLICY CLOUDS
OUTLOOK
ELYRIA, Ohio - (October 26, 2006) - Invacare Corporation (NYSE: IVC) today
announced its financial results for the third quarter and nine months ended
September 30, 2006.
CONSOLIDATED RESULTS
Earnings per share* for the third quarter were $0.38, excluding the impact of a
pre-tax $2.9 million charge related to restructuring activities, versus $0.53
for the third quarter last year, excluding the impact of a pre-tax $2.8 million
charge related to restructuring activities. Including the charges, earnings per
share were $0.30 for the quarter versus $0.47 last year. Net earnings* for the
quarter, excluding the charges related to restructuring activities, were $12.0
million versus $17.2 million for the third quarter last year. Including the
charges, net earnings were $9.7 million for the quarter versus $15.3 million
last year. The significant improvement in earnings over the second quarter from
$0.24 to $0.38, excluding restructing charges, was due to improved gross margins
and a lower effective tax rate. Net sales for the quarter decreased 4% to $379.5
million versus $395.3 million last year. Foreign currency translation increased
net sales by one percentage point.
The domestic market has become seriously disrupted due to recently announced
changes to Medicare reimbursement policies for power wheelchairs and oxygen. The
most recent changes announced by the Centers for Medicare and Medicaid Services
(CMS) effective November 15, 2006 impacting Power Mobility Devices (PMD),
stipulate that the maximum fees that Medicare will reimburse suppliers for these
products will be approximately 35% to 40% less than what they currently receive.
If these fees are implemented, access to the medically appropriate PMD and
customized mobility solutions designed for the mobility needs of disabled
consumers will be dramatically reduced. In addition, the financial viability of
a portion of the provider base which is focused in this product line will be
compromised. Invacare intends to monitor this situation carefully, and if the
new fee schedule is implemented in substantially its current form, the Company
will assess the adequacy of its reserves for bad debt based upon its judgment as
to how effectively providers will adapt to the changing reimbursement climate.
While the Company believes its allowance for doubtful accounts are appropriately
stated as of September 30, 2006 based on the current reimbursement levels, there
is no way to predict the potential consequences to our provider customers if the
new fee schedule is implemented in its present form. In the short-term, this
uncertainty has caused providers to reduce their purchases and lower their
inventory levels.
<page>
The Company's previously announced cost reduction and profit improvement
initiatives are on track through the first nine months of the year. However, the
revenue volume shortfalls experienced in the first nine months of the year and
now forecast for the remainder of the year have reduced the expected benefit of
the volume-dependent portion of the cost reduction and profit improvement
actions. Restructuring charges year to date totaled $10.0 million pre-tax and
related primarily to severance costs and inventory markdowns on discontinued
product lines. Since the Company initiated its cost reduction actions in July
2005, it has eliminated approximately 535 positions. In addition, we continue to
increase our sourcing of products from Asia and transfer of manufacturing to our
facilities in China.
Gross margin as a percentage of net sales for the third quarter was down by 0.6
of a percentage point compared to last year's third quarter. However, as a
result of continuing cost reduction initiatives, improved by 0.9 percentage
points when compared to this year's second quarter. Selling, general and
administrative expense (SG&A expense) was $88.8 million compared to $86.6
million in the third quarter last year. Foreign currency increased SG&A by one
percentage point while acquisitions did not impact SG&A. SG&A spending in the
third quarter is flat compared to the second quarter of 2006. Results for the
quarter were negatively impacted by increased interest expense due to increases
in interest rates, but benefited from a reduced effective tax rate.
Earnings per share* for the first nine months of this year were $0.85 compared
to $1.34 last year, excluding the impact of pre-tax charges. Including the
charge, earnings per share were $0.62 for the first nine months compared to
$1.29 for the first nine months of 2005. Net earnings*, excluding the charge
related to restructuring activities, were $27.4 million versus $43.7 million
last year. Including the charge, net earnings for the first nine months were
$19.9 million compared to $41.8 million in the same period a year ago.
Net sales for the first nine months of the year decreased 4% to $1.1 billion
versus $1.2 billion last year. Acquisitions contributed one percentage point to
net sales, while foreign currency translation resulted in a decrease of one
percentage point.
A. Malachi Mixon, III, chairman and chief executive officer, stated, "We are
pleased that in the face of some pricing pressure, we were able to generate
improved gross margins as a result of our cost-reduction initiatives. Our U.S.
business was beginning to develop some positive momentum in July and August
before several adverse governmental announcements again destabilized the
Medicare market and created new uncertainties for our customer base:
1) The Office of Inspector General (OIG) issued a report in September
dealing with oxygen reimbursement levels which we believe was
misleading as it did not consider that 78% of provider costs relate to
performance of services and only 22% are for equipment costs. This
report led Senator Grassley to call for another reduction in the
capped rental period for oxygen therapy from 36 months, which was just
enacted earlier this year, to 13 months;
2
<page>
2) CMS issued new documentation standards for physicians requiring them
to provide significant and onerous levels of documentation to
providers for power wheelchair reimbursement; and
3) CMS published new motorized wheelchair reimbursement guidelines at
rates 35% to 40% below current levels.
While Invacare and the industry are attempting to achieve corrections to these
flawed proposals, our provider customers are frightened and concerned about the
future viability of their businesses. They are more aggressively refurbishing
used equipment and purchasing only equipment that is absolutely necessary.
Providers are also hesitant to make investments in exciting new ambulatory
oxygen systems, such as HomeFill(TM), because the investments cannot be
recovered should the capped rental period actually be reduced to 13 months. In
addition, the rate of physician approvals on power wheelchairs has fallen as
physicians balk at the necessity to spend significantly more time responding to
provider requests for increased documentation to prove medical need. The
industry is currently caught in a major web of reimbursement uncertainties and
disabled consumers are not getting the products they need. As an industry
leader, we will continue to work hard to help educate our government about the
benefits of homecare and to bring the numerous reimbursement challenges to a
satisfactory conclusion."
Mixon continued, "Our businesses that are not impacted by Medicare reimbursement
turned in strong and improving results for the quarter. European profitability
improved 14% over the prior year, excluding restructuring charges, resulting
from sales growth and benefits from the early phases of Invacare Europe's
multi-year cost reduction initiatives which are expected to develop an even
stronger platform for future profitable growth. The Continuing Care Group and
the Supplies business line also had strong revenue increases for the quarter."
NORTH AMERICA
For the quarter, North American net sales decreased 5% to $248.3 million versus
$260.5 million last year. Foreign currency accounted for an increase of less
than one percentage point, while acquisitions did not impact results for the
quarter.
Respiratory Products sales decreased 15% for the quarter, largely due to slower
demand in the HomeFill oxygen system product line. Sales to small providers and
independents declined 34% in the quarter. While the Company's proprietary
technology continues to build share in the ambulatory oxygen market, providers
have slowed purchases of HomeFill until they have a clearer view of future
oxygen reimbursement levels. The Deficit Reduction Act passed earlier this year
included the enactment of a 36-month capped rental period as compared to
previously uncapped oxygen payments. In September, the OIG issued a study
suggesting $3.2 billion in savings over five years from a further reduction to a
13-month capped rental period. The uncertainty created by these announcements
continues to negatively impact the oxygen market, particularly those providers
considering changing to the HomeFill oxygen system.
Sales of the Rehab Products line decreased 9%, due primarily to continued
Medicare and Medicaid related reimbursement issues. Sales of consumer power
3
<page>
wheelchairs were down 17% and custom power sales were down 12% and continue to
be acutely impacted by these same reimbursement issues.
Sales of Standard Products decreased by 4% for the quarter versus last year,
with particular weakness in patient aids (canes, walkers, bath aids) due to
low-cost Asian imports negatively impacting volumes. Unit volumes compared to
prior year are stable to improved in many categories, excluding patient aids,
with sales declines as a result of lower average sales prices. Standard Products
revenues improved sequentially over the first and second quarters, by 5% and 2%
respectively, as a result of pricing and product line adjustments, which have
been facilitated by the acceleration of our Asian sourcing program.
Distributed product sales increased 3% as a result of growth in sales to the
retail sector and continuing increases in revenues from Invacare branded product
for the quarter. Invacare Continuing Care Group sales increased by 7% for the
quarter due to refinements to the channel strategy and sales investments
resulting in increased unit volumes in its core bed products along with
increases in other offerings such as bathing products and an injury reduction
program for long-term caregivers.
For the quarter, earnings before income taxes decreased to $7.7 million versus
$19.3 million last year, excluding restructuring charges of $1.9 million pretax
and $2.2 million pretax, respectively, largely due to weakness in the Rehab and
Respiratory Products lines and ongoing pricing pressures in the standard
products line.
For the first nine months of the year, North American net sales decreased 3% to
$748.4 million versus $774.7 million last year. Foreign currency and
acquisitions each added less than a percentage point to net sales. Earnings
before income taxes decreased to $30.3 million versus $59.8 million last year,
excluding restructuring charges of $6.8 million pre-tax and $2.2 million
pre-tax, respectively.
EUROPE
For the quarter, European net sales increased 2% to $113.9 million versus $111.9
million last year. Foreign currency accounted for four percentage points of the
net sales increase, while acquisitions did not impact results for the quarter.
Reimbursement challenges continue to impact our German business in the Invacare
wheelchair product lines though these pressures have significantly moderated.
This decline was partially offset by strong performance in a number of other
countries. For the quarter, earnings before income taxes were $12.3 million
compared to $10.8 million last year, excluding restructuring charges of $.8
million pre-tax and $.3 million pre-tax, respectively.
For the first nine months of this year, European net sales decreased 3% to
$314.1 million versus $324.3 million last year. Foreign currency accounted for
three percentage points of the net sales decrease, while acquisitions added one
percentage point. Earnings before income taxes increased to $23.4 million versus
$22.0 million last year, excluding restructuring charges of $2.3 million pre-tax
and $.3 million pre-tax, respectively.
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<page>
ASIA/PACIFIC
For the quarter, Asia/Pacific net sales decreased 25% to $17.3 million versus
$22.9 million last year. Foreign currency accounted for three percentage points
of the net sales decrease, while acquisitions did not impact results for the
quarter. Excluding intersegment activity for the quarter, the segment recognized
a loss before income taxes of $1.9 million, excluding restructuring charges of
$.2 million pre-tax, versus a loss of $.5 million last year, excluding
restructuring charges of $0.3 million pre-tax. 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 by Invacare's New Zealand subsidiary.
For the first nine months of this year, Asia/Pacific net sales decreased 21% to
$50.4 million versus $63.4 million last year. Foreign currency accounted for
five percentage points of the net sales decrease, while acquisitions contributed
less than one percentage point. The loss before income taxes increased to $4.5
million versus $4.0 million last year, excluding restructuring charges of $.9
million pre-tax and $.3 million pre-tax, respectively.
FINANCIAL CONDITION
At the end of the third quarter, total debt outstanding was $471.6 million,
bringing debt-to-total-capitalization to 36.5%, an improvement over both the
last quarter and the end of last year ratios of 38.3% and 41.7%, respectively.
Days sales outstanding (DSO) were 67 days, versus 63 days a year ago. DSOs
improved by one day compared to the end of the prior year, despite a slow down
in payments by some providers due to a payment hold implemented by CMS in the
last 9 days of September. Inventory turns were 4.5 versus 4.7 in the same period
last year and equal to turns at the end of last year. The Company generated $9.2
million of free cash flow** in the quarter and $29.5 million year to date. Free
cash flow is defined as net cash provided by operating activities, excluding
cash related restructuring activities, less purchases of property and equipment,
net of proceeds from sales of property and equipment.
OUTLOOK
The recent reimbursement changes and uncertainties affecting the core North
American home medical equipment businesses make forecasting the remainder of
2006 difficult. Aside from the revenue slowdown, the Medicare changes are so
dramatic that if they are implemented in their current form there will be
customers who will not be able to change their infrastructure quickly enough to
survive. As the industry's largest creditor, the Company would certainly
encounter increased bankruptcies in its customer base if there are no meaningful
adjustments to these Medicare changes.
As a result of these conditions, the Company is lowering its full year earnings
per share guidance to between $1.10 and $1.25, excluding restructuring charges,
versus $1.45 to $1.65 previously. This guidance excludes the impact of any
one-time credit risks that arise resulting from the significant reduction in PMD
reimbursement levels. In addition, the Company undertakes its annual impairment
test of goodwill and intangible assets in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, in the fourth quarter of each year. As a result of
the reduced earnings guidance and one-time credit risks, there is the potential
for an impairment charge related to these assets. The Company will complete this
analysis during the fourth quarter. The impact of this potential impairment
5
<page>
charge is excluded from the guidance. The net sales change for the year is
expected to be between negative 2% and negative 4%. This new guidance excludes
any impact from foreign currency and acquisitions.
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
$0.03.
The Company anticipates its free cash flow** for the year will be between $35
million and $45 million, down from our previous guidance of $40 to $55 million.
This outlook is subject to the impact from the previously mentioned PMD fee
reductions and related one-time credit risks.
Commenting on the Company's anticipated results, Mixon said, "In light of these
reimbursement changes, we have already begun to aggressively plan for further
adjustments to our manufacturing strategy and rationalization of our product
offerings. We will undertake additional restructuring initiatives to adjust our
costs and expenses and product assortments within the Medicare environment to
mitigate the adverse consequences from these changes. Our previously
communicated initiatives as follows continue on track:
>> Shifting substantial resources from product development to
manufacturing cost reduction activities, engineered product cost
reductions and product rationalization;
>> Manufacturing cost reduction activities including headcount
reductions;
>> 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
40% compared to 2005; and
>> Continue to cost reduce the design and engineering of our products to
address the reimbursement and pricing realities.
While it is clear that the published reimbursement changes hurt access to
mobility for the disabled community and access to enhanced ambulatory oxygen
therapy, there can be no certainty as to whether or when changes will occur.
However, we will aggressively initiate further cost reductions and also work
with providers to assist them in adjusting their business models for success
under the changing reimbursement environment. The industry has never been more
energized and coordinated to bring these reimbursement challenges to a favorable
conclusion for providers and consumers.
In addition to these actions, the Company is progressing on its global
manufacturing and distribution strategy to exit a number of manufacturing and
distribution locations and reduce costs by $30 million annually by 2008."
Mixon went on to state, "As a result of the unstable reimbursement environment
created by our government, external sales forecasting is meaningless. We will
not attempt to make a public forecast for 2007 until 1) future oxygen and
6
<page>
motorized wheelchair reimbursement is further understood and 2) November
elections results are known and the new Congressional legislative agenda is
communicated."
Mixon concluded, "Our international businesses not impacted by U.S. Medicare
reimbursement continue to perform well and build a solid and strengthening
platform for future growth. We will plan to continue to invest in them. Amidst
all these reimbursement challenges, we continue to improve our competitive cost
positioning, product offerings and quality. As a result of our presence in the
industry, we are positioned well to work with providers in the U.S. as they are
forced to remake their business models in light of the reimbursement changes.
The underlying need by consumers for our products remains and will continue to
grow. While there will be short-term challenges implementing these changes, we
are confident that we will emerge in an even stronger position."
*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
5,900 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),provider credit risks and possible goodwill impairment
arising out of announced reimbursement changes, 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,
7
<page>
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.
###
8
<table>
<caption>
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) 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net sales $379,462 $395,270 $1,112,930 $1,162,481
Cost of products sold 267,925* 276,583 793,554* 820,666
-------- -------- -------- --------
Gross profit 111,537 118,687 319,376 341,815
Selling, general and administrative expense 88,844 86,631 261,798 260,086
Charge related to restructuring activities 2,356 2,760 8,353 2,760
Interest expense - net 8,144 6,804 22,747 17,629
------ ------ ------ ------
Earnings before income taxes 12,193 22,492 26,478 61,340
Income taxes 2,500 7,175 6,625 19,570
------ ------ ------ ------
Net earnings $ 9,693 $15,317 $19,853 $41,770
======= ======= ======= =======
Net earnings per share - basic $0.31 $0.48 $0.63 $1.33
======= ======= ======= =======
Weighted average shares outstanding - basic 31,813 31,632 31,778 31,515
======= ======= ======= =======
Net earnings per share - assuming dilution $0.30 $0.47 $0.62 $1.29
======= ======= ======= =======
Weighted average shares outstanding - assuming dilution 31,890 32,450 32,083 32,505
======= ======= ======= =======
</table>
* Cost of products sold includes inventory markdowns resulting from
restructuring of $572 for the three month period ending September 30, 2006
and $1,644 for the nine-month period ending September 30, 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
$27,809,000 and $76,655,000 for the three and nine months ended September 30,
2006 and $23,882,000 and $73,314,000 for the same periods a year ago.
9
The information by segment is as follows:
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Revenues from external customers
North America $248,294 $260,448 $748,375 $774,716
Europe 113,908 111,909 314,141 324,331
Asia/Pacific 17,260 22,913 50,414 63,434
-------- -------- ---------- ----------
Consolidated $379,462 $395,270 $1,112,930 $1,162,481
======== ======== ========= =========
Earnings (loss) before income taxes
North America $ 5,798 $ 17,042 $ 23,557 $ 57,546
Europe 11,433 10,548 21,066 21,789
Asia/Pacific (2,061) (815) (5,426) (4,346)
All Other (2,977) (4,283) (12,719) (13,649)
------- ------- ------- -------
Consolidated $ 12,193 $ 22,492 $ 26,478 $ 61,340
======== ======== ======== ========
Restructuring charges before income taxes
North America $ 1,914 $ 2,211 $ 6,779 $ 2,211
Europe 848 252 2,286 252
Asia/Pacific 166 297 932 297
All Other - - - -
------- ------- ------- -------
Consolidated $ 2,928 $ 2,760 $ 9,997 $ 2,760
======== ======== ======== ========
Earnings (loss) before income taxes excluding
restructuring charges
North America $ 7,712 $ 19,253 $ 30,336 $ 59,757
Europe 12,281 10,800 23,352 22,041
Asia/Pacific (1,895) (518) (4,494) (4,049)
All Other (2,977) (4,283) (12,719) (13,649)
------- ------- ------- -------
Consolidated $ 15,121 $ 25,252 $ 36,475 $ 64,100
======== ======== ======== ========
</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.
10
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2006 December 31, 2005 September 30, 2005
(In thousands) (unaudited) (unaudited)
- ----------------------------------------------------- ---------------------- --------------------- -----------------------
<s> <c> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $ 9,503 $ 25,876 $5,437
Trade receivables - net 281,885 287,955 287,497
Inventories - net 200,394 176,925 194,579
Deferred income taxes and other current assets 99,871 103,710 96,879
------ ------- ------
Total Current Assets 591,653 594,466 584,392
Other Assets 175,797 155,227 160,902
Plant and equipment - net 174,124 176,206 180,746
Goodwill 758,702 720,873 737,157
------- ------- -------
Total Assets $1,700,276 $1,646,772 $1,663,197
========== ========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $172,983 $133,106 $153,362
Accrued expenses 141,388 130,033 133,058
Accrued income taxes 4,994 13,340 7,060
Short-term debt and current maturities of long-term
debt 78,685 80,228 77,132
------ ------ ------
Total Current Liabilities 398,050 356,707 370,612
Long-Term Debt 392,909 457,753 449,016
Other Long-Term obligations 89,780 79,624 76,377
Shareholders' Equity 819,537 752,688 767,192
------- ------- -------
Total Liabilities and Shareholders' Equity $1,700,276 $1,646,772 $1,663,197
========== ========== ==========
</table>
11
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW (UNAUDITED)
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net cash provided by operating activities $12,468 $33,612 $37,281 $63,123
Plus:
Net cash impact related to restructuring 2,460 335 7,707 335
activities
Less:
Purchases of property and equipment, net (5,763) (8,541) (15,489) (19,413)
------- ------- ------- -------
Free Cash Flow $ 9,165 $25,406 $29,499 $44,045
======= ======= ======= =======
</table>
Free cash flow is a non-GAAP financial measure that is comprised of net cash
provided by operating activities, excluding net cash impact related to
restructuring 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 Nine Months Ended
September 30, September 30,
(In thousands) 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net earnings $ 9,693 $15,317 $19,853 $41,770
Plus:
Inventory markdowns related to restructuring included in cost of
products sold - after tax 455 - 1,233 -
Charge related to restructuring activities - after tax 1,873 1,880 6,265 1,880
------- ------- ------- -------
Total charge related to restructuring activities - after tax $ 2,328 $ 1,880 $ 7,498 $ 1,880
------- ------- ------- -------
Net earnings excluding charge related to restructuring activities $12,021 $17,197 $27,351 $43,650
======= ======= ======= =======
Weighted average shares outstanding - assuming dilution 31,890 32,450 32,083 32,505
Net earnings per share excluding charge related to restructuring
activities - assuming dilution $0.38 $0.53 $0.85 $1.34
======= ======= ======= =======
Inventory markdowns related to restructuring included in cost of
products sold $ 572 $ - $ 1,644 $ -
Charge related to restructuring activities 2,356 2,760 8,353 2,760
-------- ------- ------- -------
Total charge related to restructuring activities $ 2,928 $ 2,760 $ 9,997 $ 2,760
Tax rate related to charge 20.5% 31.9% 25.0% 31.9%
Charge related to restructuring activities - after tax $ 2,328 $ 1,880 $ 7,498 $ 1,880
======= ======= ======= =======
</table>