Exhibit 99.1
Investor Inquiries:
Gregory C. Thompson
(440) 329-6111
INVACARE CORPORATION REPORTS FIRST QUARTER RESULTS; COST REDUCTION INITIATIVES
REMAIN ON TRACK
ELYRIA, Ohio - (May 1, 2007) - Invacare Corporation (NYSE: IVC) today announced
its financial results for the quarter ended March 31, 2007.
CONSOLIDATED RESULTS
Loss per share on a GAAP basis for the first quarter was $.55 ($17.5 million net
loss after-tax) as compared to earnings per share for the same period last year
of $.16 ($5.2 million net income after-tax). Adjusted earnings per share* were
$.05 for the first quarter of 2007 as compared to $.24 last year. Adjusted
earnings per share* excludes the impact of restructuring charges and costs
associated with the company's debt refinancing which was completed during the
first quarter. Adjusted net earnings** for the quarter, excluding restructuring
charges and costs associated with the company's debt refinancing, were $1.6
million versus $7.6 million last year. Net sales for the quarter increased 3.6%
to $374.9 million versus $361.7 million last year. Acquisitions increased net
sales by one percentage point and foreign currency translation increased net
sales by two percentage points.
Adjusted earnings per share* for the quarter excludes the impact of:
o $3.3 million pre-tax charge compared to a $3.5 million pre-tax charge
last year related to restructuring activities with severance costs
being the largest component.
o $13.4 million pre-tax expense related to debt refinancing costs
consisting primarily of make whole payments to debt holders,
incremental interest and write-off of debt issuance costs related to
the previous debt instruments as described below.
The Company continues to be impacted by reimbursement changes in the U.S.
related to power mobility devices. These changes significantly impacted both
revenues and profits for the company's North America/HME (NA/HME) segment where
first quarter revenues declined from the same period last year by 5.9% and
profits declined $9.6 million to a loss of $.5 million, excluding restructuring
charges.
Operations for the quarter benefited from the Company's implementation of cost
reduction initiatives announced earlier this year. The benefits achieved from
the cost reduction initiatives during the first quarter were $7 million,
slightly better than the Company's expectations, principally due to product
sourcing savings. However, as expected, this benefit was offset by continued
competitive pricing pressures and product mix shift toward lower margin product
in the U.S as a result of the Medicare related reimbursement changes.
<page>
Gross margin as a percentage of net sales for the first quarter was lower by 1.6
percentage points compared to last year's first quarter primarily due to
competitive pricing pressures in the U.S. and an unfavorable change in product
mix away from high-end options in the U.S. Rehab business. Excluding
restructuring charges, the margin percentage also declined 1.6 percentage
points. As compared to the fourth quarter of last year, gross margins as a
percentage of sales improved by .7 of a percentage point driven by the cost
reduction initiatives. Excluding restructuring charges, the margin percentage
improved by .2 of a percentage point.
Selling, general and administrative expense (SG&A) increased 5.0% to $87.8
million compared to $83.6 million in the first quarter last year. Foreign
currency translation and acquisitions each increased SG&A expense by two
percentage points. SG&A expense also increased when compared to the first
quarter of last year as a result of higher distribution and commission costs
associated with increased sales volumes, bank fees related to the Company's debt
refinancing, and stock option expense resulting from the change in accounting
treatment for stock options which became effective in 2006. These increased
expenses were partially offset by cost reduction activities. Results for the
quarter were also negatively impacted by increased interest expense due to
increases in interest rates and higher debt levels.
A. Malachi Mixon, III, chairman and chief executive officer, stated "The
adjusted results for the quarter were slightly better than our internal
expectations due to better than anticipated cost reductions of $7 million during
the quarter. There is much to be accomplished to deliver our $38 million cost
reduction budget for the year, but our first quarter performance provides us
further confidence that we will achieve this reduction. First quarter free cash
flow*** of negative $17 million was due to lower profitability and a higher
level of customer rebates and employee incentive payments we pay annually in the
first quarter. In addition, in the first quarter there was a decline in payables
and accruals versus the end of 2006 as a result of the Company's debt
refinancing process which included the acceleration of interest payments related
to the previous debt structure. Inventories also increased $4 million primarily
in Europe but initiatives we have in place are expected to result in
approximately $20 million of declines in inventory levels later in the year."
NORTH AMERICA/HME
For the quarter, NA/HME net sales declined 5.9% to $161.5 million compared to
$171.7 million last year, driven primarily by Rehab and Respiratory product
lines. Rehab product line net sales declined by 9.2% primarily due to Medicare
reimbursement changes which drove competitive price reductions and a continued
shift away from high-end options that normally drive higher average selling
prices and margins. Standard product line net sales increased .2% from the first
quarter of last year driven by increased volumes, particularly in manual
wheelchairs and patient aids, partially offset by pricing reductions.
Respiratory product line net sales declined 12.6% due to reduced unit volumes of
oxygen concentrators resulting from the loss of one customer and continued asset
management programs by providers along with pricing declines in concentrators.
However, HomeFill(TM) II oxygen system net sales increased for the quarter by
38% due to increased purchases from national and smaller providers. Our HomeFill
technology was granted increased reimbursement by Medicare late in 2006 with the
2
<page>
change effective January 1, 2007. This improved reimbursement has further
enhanced the cost advantage this technology offers our customers. As previously
announced, a large national respiratory provider launched a large-scale HomeFill
implementation in the first quarter.
For the quarter, NA/HME loss before income taxes was $.5 million, excluding
restructuring charges of $2.4 million pre-tax, as compared to earnings before
income taxes of $9.1 million last year, excluding restructuring charges of $2.8
million pre-tax. The decline in profit before tax was largely due to the pricing
and competitive industry conditions in Rehab, Standard and Respiratory product
lines and higher freight costs.
INVACARE SUPPLY GROUP (ISG)
ISG net sales for the quarter increased 12.0% to $61.7 million compared to $55.1
million last year driven by volume increases primarily in diabetic and
incontinence products lines. Earnings before income taxes for the quarter
decreased to $1.1 million as compared to $1.3 million last year. This reduction
is attributable to reduced margins due to sales increases in lower margin
products (diabetic and incontinence), higher SG&A expenses to drive growth, and
a reduction in supplier discounts as a result of extended supplier payments in
the first quarter prior to completion of the company's debt refinancing.
INSTITUTIONAL PRODUCTS GROUP (IPG)
IPG net sales for the quarter increased by 2.3% to $23.7 million compared to
$23.2 million last year due to increased volumes in its core bed products, along
with increases in other offerings such as seating products. Earnings before
income taxes decreased to $.6 million from $1.6 million last year as a result of
increased new product development investments, and lower manufacturing
absorption. The Company has announced the closure of its case-good manufacturing
facility in St. Louis with consolidation of these activities into the Company's
other existing manufacturing locations.
EUROPE
For the quarter, European net sales increased 12.0% to $107.0 million versus
$95.5 million last year. Foreign currency translation contributed eight
percentage points of the increase. For the quarter, earnings before income taxes
were $4.7 million, excluding restructuring charges of $.8 million pretax, as
compared to $4.0 million last year, excluding restructuring charges of $.3
million pre-tax. There was strong sales performance in most regions and
increased profits were driven by volume increases, cost reduction initiatives
and a weakening U.S. dollar.
ASIA/PACIFIC
For the quarter, Asia/Pacific net sales increased 29.4% to $20.9 million versus
$16.2 million last year. Foreign currency increased net sales by five percentage
points and acquisitions increased net sales by twenty-five percentage points.
For the quarter, loss before income taxes was $1.1 million, excluding
restructuring charges of less than $.1 million pre-tax, as compared to a pre-tax
loss of $1.1 million last year, excluding restructuring charges of $.3 million
3
<page>
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. The Company continued to benefit from cost reductions initiatives in
the region.
FINANCIAL CONDITION
Total debt outstanding was $601.9 million at the end of the first quarter,
resulting in a debt-to-total-capitalization ratio of 56.1% versus 54.1% at the
end of last year. The increase in the debt-to-capitalization ratio was impacted
primarily by the increase in debt levels as a result of negative cash flow
generation in the first quarter.
Free cash flow*** for the Company during the first quarter was negative $17.3
million principally as a result of lower earnings along with declines in
payables and accrued expenses. The payables and accrued expense balances at
year-end 2006 were higher than normal because the Company's refinancing efforts
were in process. First quarter free cash flow*** is normally lower for the
Company than the other quarters as a result of a higher level of customer
rebates paid in the first quarter, employee incentive payments in certain
locations, and other payments which are historically made during the first
quarter. In addition, accelerated interest payments were made as a result of the
debt refinancing, which negatively impacted free cash flow***. 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.
The Company's cash and cash equivalents at the end of the first quarter were
approximately $57.2 million, down $25.2 million from the end of 2006. The cash
was utilized to pay costs associated with the Company's debt refinancing as
described below and to reduce payables and accrued expenses. Days sales
outstanding at the end of the first quarter was 67 days versus 69 days in the
same period last year, and 66 days at the end of 2006. Inventory turns were 4.4
versus 4.7 for the same period last year, and flat as compared to year-end 2006.
DEBT RECAPITALIZATION
As previously disclosed, the Company completed its debt refinancing transactions
in February 2007. The company entered into a Credit Agreement which provides for
a $400 million senior secured credit facility consisting of a $250 million term
loan facility and a $150 million revolving credit facility with interest at
LIBOR plus 2.25. The Company's obligations under the Credit Agreement are
secured by substantially all of the Company's assets, subject to certain
exceptions, and are guaranteed by our material domestic subsidiaries, with
certain obligations also guaranteed by our material foreign subsidiaries. The
Credit Agreement contains a number of customary restrictive covenants,
affirmative covenants and events of default, and financial covenants that
require the Company to maintain a maximum leverage ratio, a minimum interest
coverage ratio, and a minimum fixed charge coverage ratio. These covenants are
driven primarily by Adjusted EBITDA****, which is defined and shown on the
reconciliation table included with this release.
4
<page>
The Company also consummated the issuance and sale of $135 million aggregate
principal amount of convertible subordinated debentures. The net proceeds to the
Company from the offering, after deducting the initial gross spread payable by
the Company, were approximately $132.3 million. The debentures are unsecured
senior subordinated obligations of the Company guaranteed by substantially all
domestic subsidiaries and pay interest at 4.125% per annum on each February 1
and August 1. The debentures are convertible into common shares of the Company
under certain conditions.
The Company also consummated the issuance and sale of $175 million aggregate
principal amount of 9 3/4% Senior Notes due 2015 (the "senior notes"). The
Company's net proceeds from this offering, after deducting the initial note
purchasers' discount and the estimated offering expenses payable by the Company,
were approximately $167 million. The senior notes are unsecured senior
obligations of the Company, guaranteed by substantially all domestic
subsidiaries.
The Company used the net proceeds from the offerings of the senior notes and the
debentures, together with initial borrowings under the Credit Agreement to repay
outstanding indebtedness and related expenses and repayment costs aggregating
$568 million. In addition, as a result of the refinancing, during the first
quarter the Company incurred $33.1 million in costs comprised of: debt issuance
costs related to the new debt structure of $19.7 million which the Company has
capitalized over the respective lives of the debt instruments; one-time make
whole payments to the previous holders of senior notes and incremental interest
totaling $10.9 million; and write-off of costs previously capitalized related to
the old debt structure of $2.5 million.
The Company estimates that the current weighted average interest rate of the new
facilities and securities combined is approximately 7.3% versus the year-end
2006 weighted average interest rate of approximately 5.9%.
OUTLOOK
The Company continues to execute the numerous cost reduction initiatives
previously communicated and as described further below. The Company believes
that the implementation of these initiatives will improve the Company's
operating margin and result in approximately $38 million of realized savings in
2007, including the $7 million already realized in the first quarter. The
Company anticipates restructuring charges of approximately $20 million in 2007
relating to these actions. Annualized savings from these initiatives implemented
by the end of 2007 should approximate $56 million thereafter. The core
initiatives are as follows:
o Product line simplification. The Company plans to simplify its product
lines and pricing processes to reduce costs and improve service
levels.
o Improvement of gross margins and reduction of fixed costs through
further product and sub-assembly outsourcing. The Company expects to
accelerate its outsourcing of commodity products and sub-assemblies.
Asian sourcing is planned to double over the next three years.
5
<page>
o Rationalization of facilities. Today, Invacare's primary manufacturing
facilities consist of fourteen integrated fabrication plants and two
assembly plants worldwide. Invacare will continue in its strategy to
move from integrated fabrication plants to assembly plants worldwide.
We are finalizing plans to close and/or consolidate several locations
worldwide beginning this year through 2009.
o Standardization of product platforms. To further simplify and reduce
production costs, as well as to leverage development and tooling
investment, the Company has begun the process of standardizing some of
its product platforms globally.
For fiscal year 2007, the Company is reconfirming the following guidance:
o Organic growth in net sales of 0% to 2%, excluding the impact from
acquisitions and foreign currency translation adjustments.
o Adjusted EBITDA**** increase of 4% to 6% over 2006 levels.
o Adjusted earnings per share* of $.95 to $1.15.
o Free cash flow*** between $40 million and $50 million.
Commenting on the Company's anticipated results, Mixon said, "Cost reduction
remains our top priority. The competitive pricing conditions driven by
reimbursement changes in the U.S. remain and we expect approximately $30 million
in net sales reductions in 2007 from the lower pricing. Our $38 million of cost
reductions, which are heavily weighted to the second half of the year, will
offset these impacts and result in improved profitability in the second half of
the year. We expect adjusted second quarter earnings to be sequentially improved
from adjusted first quarter earnings but still lower than adjusted second
quarter earnings last year.
Increased HomeFill revenues in the quarter are evidence that this technology is
gaining further traction as a result of the increased reimbursement by Medicare
effective January 1, 2007. This improved reimbursement has further enhanced the
cost advantage this technology offers our customers.
As previously communicated, Medicare officially announced earlier this month the
10 Metropolitan Statistical Area test sites for U.S. competitive bidding.
Implementation has already begun with the scheduled effective date for
competitive bid pricing in April 2008. Invacare has once again demonstrated its
industry leadership by sponsorship of the Tanner Hobson bill to ensure smaller
providers continued participation in the supply chain of home medical products."
Mixon concluded, "We are confident our restructuring plans are achievable and
will put us back in front of the curve by year end, with net year-over-year
improved operating income."
6
*Adjusted earnings per share (EPS) is a non-GAAP financial measure which is
defined as net earnings excluding the impact of restructuring charges and debt
finance charges, interest and fees associated with the Company's debt
refinancing divided by weighted average shares outstanding - assuming dilution.
This financial measure is reconciled to the related GAAP financial measure in
the "Reconciliation" table included after the Condensed Consolidated Statement
of Operations included in this press release.
**Adjusted net earnings is a non-GAAP financial measure which is defined as net
earnings excluding the impact of restructuring charges and debt finance charges,
interest and fees associated with the Company's debt refinancing. This financial
measure is reconciled to the related GAAP financial measure in the
"Reconciliation" table included after the Condensed Consolidated Statement of
Earnings included in this press release.
***Free cash flow is a non-GAAP financial measure, which 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. This financial measure is reconciled to the related
GAAP financial measure in the "Reconciliation" table included after the
Condensed Consolidated Balance Sheets included in this press release.
****Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA) is a non-GAAP financial measure which is defined as net earnings
excluding the following: interest expense, income taxes, depreciation and
amortization, as further adjusted to exclude restructuring charges, debt finance
charges, interest and fees associated with the Company's debt refinancing, bank
fees and stock option expense. It should be noted that the Company's definition
of Adjusted EBITDA may not be comparable to similar measures disclosed by other
companies because not all companies and analysts calculate Adjusted EBITDA in
the same manner. This financial measure is reconciled to the related GAAP
financial measure in the "Reconciliation" table included after the Condensed
Consolidated Statement of Operations included 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
5,700 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: possible adverse effects of
being substantially leveraged, which could impact our ability to raise capital,
limit our ability to react to changes in the economy or our industry or expose
us to interest rate or event of default risks; changes in government and other
7
<page>
third-party payor reimbursement levels and practices; consolidation of health
care customers and our competitors; ineffective cost reduction and restructuring
efforts; inability to design, manufacture, distribute and achieve market
acceptance of new products with higher functionality and lower costs; extensive
government regulation of our products; lower cost imports; increased freight
costs; failure to comply with regulatory requirements or receive regulatory
clearance or approval for our products or operations in the United States or
abroad; potential product recalls; uncollectible accounts receivable;
difficulties in implementing a new Enterprise Resource Planning system; legal
actions or regulatory proceedings and governmental investigations; product
liability claims; inadequate patents or other intellectual property protection;
incorrect assumptions concerning demographic trends that impact the market for
our products; provisions in our bank credit agreements or other debt instruments
that may prevent or delay a change in control; the loss of the services of our
key management and personnel; decreased availability or increased costs of raw
materials which could increase our costs of producing our products; inability to
acquire strategic acquisition candidates because of limited financing
alternatives; risks inherent in managing and operating businesses in many
different foreign jurisdictions; exchange rate fluctuations, as well as the
risks described from time to time in Invacare's reports as filed with the
Securities and Exchange Commission. Except to the extent required by law, we do
not undertake and specifically decline any obligation to review or update any
forward-looking statements or to publicly announce the results of any revisions
to any of such statements to reflect future events or developments or otherwise.
8
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31,
(In thousands, except per share data) 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Net sales $ 374,905 $ 361,704
Cost of products sold 275,849* 260,408*
------- -------
Gross profit 99,056 101,296
Selling, general and administrative expense 87,766 83,607
Charge related to restructuring activities 3,152 3,157
Debt finance charges, interest and fees associated with debt
refinancing 13,373 -
Interest expense - net 9,869 7,095
------- -------
Earnings (loss) before income taxes (15,104) 7,437
Income taxes 2,400 2,230
------- -------
Net earnings (loss) $ (17,504) $ 5,207
======= =======
Net earnings (loss) per share - basic $ (0.55) $ 0.16
======= =======
Weighted average shares outstanding - basic 31,827 31,731
======= =======
Net earnings (loss) per share - assuming dilution $ (0.55) $ 0.16
======= =======
Weighted average shares outstanding - assuming dilution ** 31,827 32,190
======= =======
</table>
* Cost of products sold includes inventory markdowns resulting from
restructuring of $117 for the three-month period ending March 31, 2007 as
compared to $296 for the three-month period ending March 31, 2006.
** Net earnings (loss) per share assuming dilution calculated for three-month
period ending March 31, 2007 utilizing weighted average shares outstanding -
basic as a result of the Company's net loss.
9
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS TO ADJUSTED EBITDA (1)
Three Months Ended
March 31,
(In thousands) 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Net earnings (loss) $(17,504) $5,207
Interest expense 10,343 7,695
Income taxes 2,400 2,230
Depreciation and amortization 11,074 9,813
------- -------
EBITDA 6,313 24,945
Restructuring charges 3,269 3,453
Debt finance charges, interest and fees associated with debt
refinancing 13,373 -
Bank fees 764 724
Stock option expense 610 268
------- -------
Adjusted EBITDA $ 24,329 $ 29,390
======= =======
</table>
(1) Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA) is a non-GAAP financial measure which is defined as net earnings
excluding the following: interest expense, income taxes, depreciation and
amortization, as further adjusted to exclude restructuring charges, debt finance
charges, interest and fees associated with the Company's debt refinancing, bank
fees and stock option expense. It should be noted that the Company's definition
of Adjusted EBITDA may not be comparable to similar measures disclosed by other
companies because not all companies and analysts calculate Adjusted EBITDA in
the same manner. We believe that these types of exclusions are also recognized
by the industry in which we operate as relevant in computing Adjusted EBITDA as
a supplementary non-GAAP financial measure widely used by financial analysts and
others in our industry to meaningfully evaluate a company's future operating
performance and cash flow. Moreover, our definition of Adjusted EBITDA as
presented herein also may be useful in reflecting certain debt covenant
measurements under our senior secured credit facility. In addition to these
recognized purposes, we also use EBITDA and Adjusted EBITDA to evaluate our
performance.
10
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET EARNINGS PER SHARE
TO ADJUSTED EARNINGS PER SHARE (2)
Three Months Ended
March 31,
(In thousands, except per share data) 2007 2006
- -----------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Net earnings (loss) per share - assuming dilution $ (0.55) $ 0.16
Weighted average shares outstanding- assuming dilution * 31,827 32,190
Net earnings (loss) $ (17,504) $ 5,207
Income taxes 2,400 2,230
------- -------
Earnings (loss) before income taxes (15,104) 7,437
Restructuring charges 3,269 3,453
Debt finance charges, interest and fees associated with debt refinancing 13,373 -
------- -------
Adjusted earnings before income taxes 1,538 10,890
Income taxes (benefit) (20) 3,267
------- -------
Adjusted net earnings 1,558 7,623
======= =======
Weighted average shares outstanding- assuming dilution 31,898 32,190
======= =======
Adjusted earnings per share - assuming dilution $ 0.05 $ 0.24
======= =======
</table>
(2) Adjusted Earnings per share (EPS) is a non-GAAP financial measure which is
defined as net earnings excluding the impact of restructuring charges and debt
finance charges, interest and fees associated with the Company's debt
refinancing divided by weighted average shares outstanding - assuming dilution.
It should be noted that the Company's definition of Adjusted EPS may not be
comparable to similar measures disclosed by other companies because not all
companies and analysts calculate Adjusted EPS in the same manner. We believe
that these types of exclusions are also recognized by the industry in which we
operate as relevant in computing Adjusted EPS as a supplementary non-GAAP
financial measure widely used by financial analysts and others in our industry
to meaningfully evaluate a company's operating performance.
* Net earnings (loss) per share - assuming dilution calculated for three-months
ended March 31, 2007 utilizing weighted average shares outstanding - basic as a
result of the Company's net loss.
11
Business Segments - The Company operates in five primary business segments based
on geographical area: North America / Home Medical Equipment ("HME"), Invacare
Supply Group, Institutional Products Group, Europe and Asia/Pacific. The five
reportable segments represent operating groups, which offer products to
different geographic regions. Intersegment revenue for reportable segments was
$19,874,000 and $24,880,000 for the Three Months Ended March 31, 2007 and 2006,
respectively.
The information by segment is as follows:
<table>
<caption>
Three Months Ended
March 31,
(In thousands) 2007 2006
- -----------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Revenues from external customers
North America / HME $161,532 $171,694
Invacare Supply Group 61,676 55,085
Institutional Products Group 23,724 23,196
Europe 107,030 95,546
Asia/Pacific 20,943 16,183
------- -------
Consolidated $374,905 $361,704
======= =======
Earnings (loss) before income taxes
North America / HME $(2,908) $6,278
Invacare Supply Group 1,055 1,339
Institutional Products Group 595 1,553
Europe 3,924 3,692
Asia/Pacific (1,110) (1,398)
All Other (16,660) (4,027)
------- -------
Consolidated $(15,104) $ 7,437
======= =======
Restructuring charges before income taxes
North America / HME $2,430 $2,806
Invacare Supply Group 43 -
Institutional Products Group 4 25
Europe 786 338
Asia/Pacific 6 284
------- -------
Consolidated $3,269 $ 3,453
======= =======
Debt finance charges, interest and fees associated with
debt refinancing
All Other $13,373 $ -
======= =======
Earnings (loss) before income taxes excluding restructuring charges and debt
finance charges, interest and fees associated with debt refinancing
North America / HME $(478) $9,084
Invacare Supply Group 1,098 1,339
Institutional Products Group 599 1,578
Europe 4,710 4,030
Asia/Pacific (1,104) (1,114)
All Other (3,287) (4,027)
------- -------
Consolidated $1,538 $10,890
======= =======
</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. In addition, the "All
other" earnings (loss) before income taxes for the first quarter 2007 includes
debt finance charges, interest and fees associated with debt refinancing.
12
<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2007 December 31, 2006
(In thousands) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $ 57,174 $ 82,393
Trade receivables - net 248,000 261,606
Inventories - net 206,555 201,756
Deferred income taxes and other current assets 98,560 110,003
------ -------
Total Current Assets 610,289 655,758
Other Assets 186,347 170,319
Plant and equipment - net 168,835 173,945
Goodwill 493,226 490,429
------- -------
Total Assets $1,458,697 $1,490,451
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $147,418 $163,041
Accrued expenses 119,907 147,776
Accrued income taxes 3,312 12,916
Short-term debt and current maturities of long- term debt 5,158 124,243
----- -------
Total Current Liabilities 275,795 447,976
Long-Term Debt 596,741 448,883
Other Long-Term obligations 114,461 108,228
Shareholders' Equity 471,700 485,364
------- -------
Total Liabilities and Shareholders' Equity $1,458,697 $1,490,451
========== ==========
</table>
13
<table>
<caption>
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) 2007 2006
---------------------------------------------------------------------------------------------------
<s> <c> <c>
Net cash provided (used) by operating activities $(18,343) $8,529
Plus:
Net cash impact related to restructuring activities 4,371 2,777
Less:
Purchases of property and equipment, net (3,327) (4,976)
------- -------
Free Cash Flow $(17,299) $6,330
======= =======
</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).
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