Exhibit 99.1
Investor Inquiries:
Gregory C. Thompson
(440) 329-6111
INVACARE CORPORATION REPORTS SECOND QUARTER RESULTS IN LINE WITH EXPECTATIONS
ELYRIA, Ohio - (July 31, 2007) - Invacare Corporation (NYSE: IVC) today
announced its financial results for the second quarter and six months ended June
30, 2007.
CONSOLIDATED RESULTS
Earnings per share on a GAAP basis for the second quarter were break-even ($.05
million net income after-tax) as compared to earnings per share for the same
period last year of $.15 ($5.0 million net income after-tax). Adjusted earnings
per share* was $.14 for the second quarter of 2007 as compared to $.24 for the
second quarter last year. Adjusted earnings per share* for the quarter excludes
the impact of restructuring charges of $1.8 million pre-tax as compared to $3.6
million pre-tax last year. Adjusted net earnings** for the quarter, excluding
restructuring charges were $4.3 million versus $7.6 million last year. Net sales
for the quarter increased 5.8% to $393.3 million versus $371.8 million last
year. Acquisitions increased net sales by one percentage point and foreign
currency translation increased net sales by three percentage points.
Organic net sales for the quarter grew 2% over last year driven by European
organic net sales growth of 6.7% and U.S. HomeFill(R) oxygen system net sales
growth of 57.0%. European net sales growth continues to be driven by volume
increases in most regions. HomeFill product sales benefited from sales to a
large national provider which began purchasing the product earlier this year
along with continuing increases in sales to smaller and regional providers.
However, the domestic market, particularly related to power mobility devices,
continues to be negatively impacted by reimbursement changes which has resulted
in declining revenues and reduced profits in the North American/Home Medical
Equipment (NA/HME) segment as compared to the second quarter of last year.
The Company's previously announced cost reduction and profit improvement
initiatives are on track through the first half of the year. The benefits
achieved from the cost reduction initiatives, principally related to product
sourcing savings, headcount reductions, and manufacturing consolidation totaled
$16 million for the first half of the year which was slightly better than the
company's expectations. However, as expected, this benefit was offset by
continued pricing pressures and product mix shift toward lower margin product in
the U.S. as a result of Medicare related reimbursement changes.
Gross margin as a percentage of net sales for the second quarter was lower by .4
percentage points compared to last year's second quarter, primarily due to
competitive pricing pressures in the U.S. and an unfavorable change in product
mix away from high-end products in the U.S. Rehab business due to reimbursement
<page>
changes. Excluding restructuring charges, the margin percentage declined .6
percentage points in the second quarter of 2007 versus the second quarter of
2006. As compared to the first quarter of 2007, gross margins as a percentage of
sales improved by 1.6 percentage points driven by the cost reduction initiatives
and increased sales volumes.
Selling, general and administrative expense (SG&A) increased 6.2% to $93.9
million in the quarter compared to $88.4 million in the second quarter last
year. Foreign currency translation increased SG&A three percentage points while
acquisitions increased SG&A expense by two percentage points. SG&A expense also
increased when compared to the second quarter of last year as a result of
accrual of bonus expense in 2007, increased stock option expense resulting from
the change in accounting treatment for stock options which became effective in
2006, higher fees related to the Company's new debt agreements and increased
expenses relating to European sales growth. After adjusting for these items,
SG&A declined 1.5% as a result of the Company's ongoing reduction activities.
Results for the quarter were also negatively impacted by increases in interest
rates associated with the debt refinancing and higher debt levels.
Loss per share on a GAAP basis for the six months ended June 30, 2007 was $.55
($17.5 million net loss after-tax) as compared to earnings per share for the
same period last year of $.32 ($10.2 million net income after-tax). Adjusted
earnings per share* were $.18 for the first six months of 2007 as compared to
$.47 for the first half of last year. Adjusted earnings per share* for the six
months ended June 30, 2007, excludes the impact of:
o $5.1 million pre-tax charge compared to a $7.1 million pre-tax charge
last year related to restructuring activities with severance costs
being the largest component, and
o $13.4 million pre-tax expense in 2007 related to debt refinancing
costs consisting primarily of make whole payments to debt holders,
incremental interest and write-off of debt issuance costs.
Adjusted net earnings** for the six months ended June 30, 2007, excluding
restructuring charges and debt refinancing costs were $5.9 million versus $15.2
million last year. Net sales for the first six months of 2007 increased 4.7% to
$768.2 million versus $733.5 million last year. Acquisitions increased net sales
by one percentage point and foreign currency translation increased net sales by
three percentage points.
A. Malachi Mixon, III, Chairman and Chief Executive Officer, stated, "The
challenges from Medicare reimbursement changes initiated in 2006 continue to
negatively impact the performance of the Company, particularly in North America.
However, we continue to be focused on our cost reduction efforts as the top
priority and pleased that these initiatives are on track and remain slightly
better than expectations for the first half of the year. Additionally, European
net sales and profit performance, as well as HomeFill oxygen system sales,
continue to improve. Second quarter free cash flow*** strengthened as we gained
traction with inventory management, one of our key initiatives for the year.
Free cash flow*** totaled $16.4 million for the second quarter, a significant
improvement from the first quarter."
2
NORTH AMERICA/HME (NA/HME)
For the quarter ended June 30, 2007, NA/HME net sales declined 2.8% to $166.4
million compared to $171.2 million in the same period last year, driven
primarily by sales declines in the Rehab and Respiratory product lines. Foreign
currency did not impact the net sales change. Rehab product line net sales
declined by 6.3% compared to the second quarter last year primarily due to
Medicare reimbursement changes which drove competitive price reductions and a
continued shift away from higher performance products within the custom power
product line that normally drive higher average selling prices and margins.
Respiratory product line net sales declined 4.5% due to reduced unit volumes of
oxygen concentrators resulting from the loss of one large national provider and
continued inventory utilization programs by providers along with pricing
declines in concentrators. HomeFill oxygen system net sales increased for the
quarter by 57.0% due to increased purchases by a large national respiratory
provider which launched a large-scale HomeFill implementation in the first
quarter of this year, and continued increases in sales to smaller and regional
providers. Standard product line net sales for the second quarter increased .7%
compared to the second quarter of last year driven by increased volumes,
particularly in manual wheelchairs and beds, partially offset by pricing
reductions.
For the quarter, NA/HME earnings before income taxes were $2.7 million,
excluding restructuring charges of $.4 million pre-tax, as compared to earnings
before income taxes of $8.2 million last year, excluding restructuring charges
of $2.0 million pre-tax. The decline in profit before tax was largely due to
Medicare reimbursement changes and competitive pricing conditions in Rehab,
Standard and Respiratory product lines and higher freight costs. These declines
were partially offset by continuing cost reduction activities.
For the first six months of the year, NA/HME net sales decreased 4.4% to $327.9
million versus $342.9 million last year. Foreign currency increased net sales by
less than one percentage point. Earnings before income taxes decreased to $2.2
million, excluding restructuring charges of $2.8 million pre-tax, versus $17.3
million last year, excluding restructuring charges of $4.8 million pre-tax.
INVACARE SUPPLY GROUP (ISG)
ISG net sales for the quarter increased 11.6% to $62.7 million compared to $56.2
million last year driven by an increase in home delivery program sales and
volume increases in incontinence, diabetic and enterals product lines. Earnings
before income taxes for the quarter decreased to $.5 million as compared to $1.4
million last year. This reduction is attributable to reduced margins due to
sales increases in lower margin products (diabetic and incontinence) and higher
distribution costs associated with increased sales volumes.
For the first six months of the year, ISG net sales increased 11.8% to $124.4
million versus $111.3 million last year. Earnings before income taxes decreased
to $1.6 million as compared to $2.8 million last year.
3
<page>
INSTITUTIONAL PRODUCTS GROUP (IPG)
IPG net sales for the quarter decreased by 4.4% to $21.7 million compared to
$22.7 million last year primarily due to reduced purchasing by a large national
account. Earnings before income taxes decreased to $.5 million from $1.0 million
last year as a result of unfavorable foreign exchange rate movement of the
Canadian dollar and investments in sales and marketing programs to support new
product introductions and to drive growth. The closure of the company's
case-good manufacturing facility announced earlier in the year is on track and
expected to be completed during the third quarter of this year.
For the first six months of the year, IPG net sales decreased 1% to $45.5
million versus $45.9 million last year. Earnings before income taxes decreased
to $1.1 million as compared to $2.5 million last year.
EUROPE
For the quarter, European net sales increased 13.9% to $119.2 million versus
$104.7 million last year. Foreign currency translation increased net sales by
seven percentage points. For the quarter, earnings before income taxes were $7.8
million, excluding restructuring charges of $1.2 million pretax, as compared to
$7.0 million last year, excluding restructuring charges of $1.1 million pre-tax.
Net sales performance continues to be strong in most regions and increased
profits were driven by volume increases, cost reduction initiatives and a
weakening U.S. dollar.
For the first six months of the year, European net sales increased 13.0% to
$226.2 million versus $200.2 million last year. Foreign currency translation
increased net sales by seven percentage points. Earnings before income taxes
were $12.5 million, excluding restructuring charges of $1.9 million pretax, as
compared to $11.1 million last year, excluding restructuring charges of $1.4
million pre-tax.
ASIA/PACIFIC
For the quarter, Asia/Pacific net sales increased 37.1% to $23.3 million versus
$17.0 million last year. Foreign currency increased net sales by fifteen
percentage points and acquisitions increased net sales by twenty-eight
percentage points. For the quarter, loss before income taxes was $.6 million,
excluding restructuring charges of $.3 million pre-tax, as compared to a pre-tax
loss of $1.5 million last year, excluding restructuring charges of $.5 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. The Company continued to benefit from cost reduction initiatives in
the region.
For the first six months of the year, Asia/Pacific net sales increased 33.3% to
$44.2 million versus $33.2 million last year. Foreign currency increased net
sales by ten percentage points and acquisitions increased net sales by
twenty-seven percentage points. Loss before income taxes was $1.7 million,
excluding restructuring charges of $.3 million pre-tax, as compared to a pre-tax
loss of $2.6 million last year, excluding restructuring charges of $.8 million
pre-tax.
4
<page>
FINANCIAL CONDITION
Total debt outstanding was $570.9 million at the end of the second quarter,
resulting in a debt-to-total-capitalization ratio of 53.9% versus 56.1% at the
end of the first quarter of 2007 and 54.1% at the end of last year. The decrease
in the debt-to-capitalization ratio was the result of debt pay down in the
second quarter.
Free cash flow*** for the Company during the second quarter was $16.4 million
and negative $.9 million for the first six months of the year. The improvement
in the second quarter free cash flow*** as compared to the first quarter was
principally due to improved earnings along with a decrease in inventories. 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 second quarter were
approximately $35.8 million, down from $57.2 million at the end of the first
quarter. The cash was used to reduce the debt outstanding. Days sales
outstanding at the end of the second quarter was 64 days versus 68 days in the
same period last year, and 66 days at the end of 2006. Inventory turns were 4.7
versus 4.6 for the same period last year and 4.4 at the end of 2006.
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 $16 million already realized in the first half of the year.
The Company anticipates restructuring charges of approximately $15 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 remain as follows:
o Product line simplification.
o Reduction of fixed costs through further product and sub-assembly
outsourcing.
o Rationalization of facilities.
o Standardization of 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 earnings per share* of $.95 to $1.15.
o Free cash flow*** between $40 million and $50 million.
5
<page>
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 weighted to the second half of the year, should offset
these impacts and result in improved profitability in the second half of the
year. We expect adjusted third quarter earnings to be sequentially improved from
adjusted second quarter earnings but still lower than adjusted third quarter
earnings last year.
Increased HomeFill revenues in the quarter once again 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,
and most importantly, physicians are becoming excited about providing the
technology to their patients.
As previously communicated, Medicare officially announced earlier this year the
first 10 Metropolitan Statistical Area test sites for the U.S. competitive
bidding program. Implementation has already begun but last Friday, July 27,
2007, CMS once again delayed the bid deadline and the scheduled effective date
for competitive bid pricing has now been pushed out to July 2008. Invacare has
once again demonstrated its industry leadership by developing and launching a
"National Competitive Bidding Resource Center" for providers, available at
www.invacare.com, and lobbying for the Tanner Hobson bill in the House and the
Conrad Hatch bill in the Senate, each of which would ensure smaller providers
continued participation in the supply chain of home medical products."
Mixon concluded, "We believe 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 in the fourth quarter."
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
Operations 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.
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
third-party payor reimbursement levels and practices; consolidation of health
care providers and our competitors; loss of key health care providers;
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
7
<page>
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 agreement 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 Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net sales $ 393,267 $ 371,764 $ 768,172 $ 733,468
Cost of products sold 283,321* 266,199* 559,170* 526,607*
------- ------- ------- -------
Gross profit 109,946 105,565 209,002 206,861
Selling, general and administrative expense 93,851 88,369 181,617 171,976
Charge related to restructuring activities 1,661 2,840 4,813 5,997
Debt finance charges, interest and fees associated with debt
refinancing 8 - 13,381 -
Interest expense - net 11,247 7,508 21,116 14,603
------- ------- ------- -------
Earnings (loss) before income taxes 3,179 6,848 (11,925) 14,285
Income taxes 3,125 1,895 5,525 4,125
------- ------- ------- -------
Net earnings (loss) $ 54 $ 4,953 $ (17,450) $ 10,160
======= ======= ======= =======
Net earnings (loss) per share - basic $ 0.00 $ 0.16 $ (0.55) $ 0.32
======= ======= ======= =======
Weighted average shares outstanding - basic 31,838 31,789 31,832 31,760
======= ======= ======= =======
Net earnings (loss) per share - assuming dilution $ 0.00 $ 0.15 $ (0.55) $ 0.32
======= ======= ======= =======
Weighted average shares outstanding - assuming dilution ** 31,844 32,113 31,832 32,155
======= ======= ======= =======
</table>
* Cost of products sold includes inventory markdowns resulting from
restructuring of $128 and $245 for the three-month and six-month periods ending
June 30, 2007, respectively; as compared to $776 and $1,072 for the three and
six-month periods ending June 30, 2006, respectively.
** Net earnings (loss) per share assuming dilution calculated for six-month
period ending June 30, 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 (LOSS) TO ADJUSTED EBITDA (1)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net earnings (loss) $ 54 $4,953 $(17,450) $10,160
Interest expense 11,770 8,224 22,113 15,919
Income taxes 3,125 1,895 5,525 4,125
Depreciation and amortization 10,806 9,283 21,880 19,096
------- ------- ------- -------
EBITDA 25,755 24,355 32,068 49,300
Restructuring charges 1,789 3,616 5,058 7,069
Debt finance charges, interest and fees associated with debt
refinancing 8 - 13,381 -
Bank fees 716 689 1,480 1,413
Stock option expense 467 307 1,077 575
------- ------- ------- -------
Adjusted EBITDA $ 28,735 $ 28,967 $ 53,064 $ 58,357
======= ======= ======= =======
</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 (LOSS) PER SHARE
TO ADJUSTED EARNINGS PER SHARE (2)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net earnings (loss) per share - assuming dilution $ 0.00 $ 0.15 $ (0.55) $ 0.32
Weighted average shares outstanding- assuming dilution * 31,844 32,113 31,832 32,155
Net earnings (loss) $ 54 $ 4,953 $ (17,450) $ 10,160
Income taxes 3,125 1,895 5,525 4,125
------- ------- ------- -------
Earnings (loss) before income taxes 3,179 6,848 (11,925) 14,285
Restructuring charges 1,789 3,616 5,058 7,069
Debt finance charges, interest and fees associated with debt
refinancing 8 - 13,381 -
------- ------- ------- -------
Adjusted earnings before income taxes 4,976 10,464 6,514 21,354
Income taxes 650 2,904 630 6,171
------- ------- ------- -------
Adjusted net earnings $ 4,326 $ 7,560 $ 5,884 $ 15,183
======= ======= ======= =======
Weighted average shares outstanding- assuming dilution 31,844 32,113 31,891 32,155
======= ======= ======= =======
Adjusted earnings per share - assuming dilution $ 0.14 $ 0.24 $ 0.18 $ 0.47
======= ======= ======= =======
</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 six-months
ended June 30, 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:
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 $21,038,000
and $40,912,000 for the three and six months ended June 30, 2007 and $23,966,000
and $48,846,000 for the same periods a year ago.
The information by segment is as follows:
<table>
<caption>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Revenues from external customers
North America / HME $166,351 $171,198 $327,883 $342,892
Invacare Supply Group 62,696 56,165 124,372 111,250
Institutional Products Group 21,746 22,743 45,470 45,939
Europe 119,213 104,687 226,243 200,233
Asia/Pacific 23,261 16,971 44,204 33,154
------- ------- ------- -------
Consolidated $393,267 $371,764 $768,172 $733,468
======= ======= ======= =======
Earnings (loss) before income taxes
North America / HME $ 2,341 $ 6,190 $ (567) $ 12,468
Invacare Supply Group 556 1,447 1,611 2,786
Institutional Products Group 538 952 1,133 2,505
Europe 6,596 5,941 10,520 9,633
Asia/Pacific (909) (1,967) (2,019) (3,365)
All Other (5,943) (5,715) (22,603) (9,742)
------- ------- ------- -------
Consolidated $ 3,179 $ 6,848 $(11,925) $ 14,285
======= ======= ======= =======
Restructuring charges before income taxes
North America / HME $ 381 $ 2,034 $ 2,811 $ 4,840
Invacare Supply Group (29) - 14 -
Institutional Products Group 5 - 9 25
Europe 1,155 1,100 1,941 1,438
Asia/Pacific 277 482 283 766
------- ------- ------- -------
Consolidated $ 1,789 $ 3,616 $ 5,058 $ 7,069
======= ======= ======= =======
Debt finance charges, interest and fees associated with debt refinancing
All Other $ 8 $ - $ 13,381 $ -
======= ======= ======= =======
Earnings (loss) before income taxes excluding restructuring charges and debt
finance charges, interest and fees associated with debt refinancing
North America / HME $ 2,722 $ 8,224 $ 2,244 $ 17,308
Invacare Supply Group 527 1,447 1,625 2,786
Institutional Products Group 543 952 1,142 2,530
Europe 7,751 7,041 12,461 11,071
Asia/Pacific (632) (1,485) (1,736) (2,599)
All Other (5,935) (5,715) (9,222) (9,742)
------- ------- ------- -------
Consolidated $ 4,976 $ 10,464 $ 6,514 $ 21,354
======= ======= ======= =======
</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 half of 2007 includes
debt finance charges, interest and fees associated with debt refinancing.
12
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<table>
<caption>
June 30, 2007 December 31, 2006
(In thousands) (unaudited)
- ----------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Current Assets
Cash, cash equivalents and marketable securities $ 35,820 $ 82,393
Trade receivables - net 264,322 261,606
Inventories - net 197,144 201,756
Deferred income taxes and other current assets 93,816 110,003
------- -------
Total Current Assets 591,102 655,758
Other Assets 185,627 170,319
Plant and equipment - net 167,491 173,945
Goodwill 506,640 490,429
------- -------
Total Assets $1,450,860 $1,490,451
========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 139,229 $163,041
Accrued expenses 133,354 147,776
Accrued income taxes 1,861 12,916
Short-term debt and current maturities of long-term debt 5,161 124,243
------- -------
Total Current Liabilities 279,605 447,976
Long-Term Debt 565,721 448,883
Other Long-Term obligations 116,528 108,228
Shareholders' Equity 489,006 485,364
------- -------
Total Liabilities and Shareholders' Equity $1,450,860 $1,490,451
========= ==========
</table>
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<table>
<caption>
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES TO FREE CASH FLOW (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 2007 2006 2007 2006
- ------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net cash provided (used) by operating activities $16,085 $16,284 $(2,258) $24,813
Plus:
Net cash impact related to restructuring activities 4,330 2,470 8,701 5,247
Less:
Purchases of property and equipment, net (3,981) (4,750) (7,308) (9,726)
------- ------- ------- -------
Free Cash Flow $16,434 $14,004 $ (865) $20,334
======= ======= ======= =======
</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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