UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 1, 2007
INVACARE CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
OHIO 001-15103 95-2680965
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(State or Other (Commission File No.) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
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(Address of Principal Executive Offices)
(440) 329-6000
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(Registrant's Telephone Number, Including Area Code)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 204.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02.Results of Operations and Financial Condition.
On February 1, 2007, Invacare Corporation issued a press release providing
its financial results for the fourth quarter and twelve months ended December
31, 2006. The press release is furnished herewith as Exhibit 99.1.
Item 8.01.Other Events.
The following information which is contained in the press release furnished
by Invacare Corporation under Item 2.02 of this Form 8-K is hereby filed by the
Company under this Item 8.01.
Results for the fourth quarter 2006 and fiscal 2006. In its press release
dated January 17, 2007, Invacare Corporation provided estimates for certain of
its fourth quarter and fiscal year 2006 financial results. The results set forth
below update the estimated results set forth in the January 17, 2007 press
release. During the course of the preparation of Invacare Corporation's final
consolidated audited financial statements and related notes, Invacare
Corporation may identify items that would require it to make adjustments to the
preliminary financial information presented below, which could be significant.
Specifically, for the fourth quarter of 2006, Invacare Corporation had:
o Net sales of $385 million versus $367 million for the fourth quarter
2005.
o Gross margin of $99 million versus $106 million for the fourth quarter
2005, which is net of inventory mark-downs resulting from
restructuring of $2 million in 2006.
o Net earnings (loss) of ($338) million versus $7 million for the fourth
quarter 2005.
o Adjusted earnings before interest, taxes, depreciation and
amortization(1) (EBITDA) of $28 million versus Adjusted EBITDA of $33
million for the fourth quarter 2005.
For fiscal year 2006, Invacare Corporation had:
o Net sales of $1.50 billion versus $1.53 billion for fiscal year 2005.
o Gross margin of $417 million versus $446 million for the fiscal year
2005, which is net of inventory mark-downs resulting from
restructuring of $4 million in 2006.
o Net earnings (loss) of ($318) million versus $49 million for the
fiscal year 2005.
o Adjusted EBITDA(1) of $121 million versus Adjusted EBITDA of $150
million for fiscal year 2005.
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(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 our debt refinancing,
bank fees classified as SG&A expense, incremental reserve against accounts
receivable, asset write-downs related to goodwill and other intangible
assets and stock option expense. It should be noted that Invacare
Corporation'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. The Company believes
that these types of exclusions are also recognized by the industry in which
it operates as relevant in computing Adjusted EBITDA as a supplementary
non-GAAP financial measure widely used by financial analysts and others in
the Company's industry to meaningfully evaluate a company's future
operating performance and cash flow. Moreover, the Company's definition of
Adjusted EBITDA as presented herein also may be useful in reflecting
certain measurements under its indenture that it anticipates entering into
in connection with our proposed issuance under Rule 144A of senior notes;
although it may be similar to or different than Adjusted EBITDA as defined
in the Company's proposed new senior secured credit facility, which has not
yet been finalized. In addition to these recognized purposes, the Company
also uses EBITDA and Adjusted EBITDA to evaluate its performance. For a
reconciliation of these Adjusted EBITDA ranges to net earnings, the most
directly comparable GAAP financial measure, see "Reconciliation of Net
Earnings to Adjusted EBITDA" below.
Cash and cash equivalents at December 31, 2006 were $82.4 million and debt
level was $573.1 million. Peak borrowings during fourth quarter 2006 were
approximately $25 million higher than this amount, reflecting seasonal working
capital requirements and growth.
The adjusted fourth quarter 2006 and adjusted fiscal year 2006 results
above exclude restructuring charges for fiscal year 2006 of $21.3 million ($10
million of this amount has been recognized previously over the nine months ended
September 30, 2006), additional fourth quarter debt finance charges, interest
and fees aggregating $3.7 million due to debt covenant violations (previously
reported in our September 30, 2006 Form 10-Q), and, as described below, a fourth
quarter charge relating to accounts receivable collectibility issues arising
primarily from Medicare reimbursement reductions for power wheelchairs announced
on November 15, 2006, and an impairment charge related to goodwill and other
intangible assets.
Incremental Reserve Against Accounts Receivable. Due to recent changes in
Medicare reimbursement regulations, specifically changes to the qualification
processes and reimbursement levels of power wheelchairs, there is increased
collectibility risk to Invacare Corporation. As a result of these changes in
reimbursement, the Company performed a review of customers most vulnerable to
changes in the reimbursement for power mobility products and, as part of its
2006 fourth quarter financial results, the Company recorded an incremental
reserve against accounts receivable of approximately $26.8 million pre-tax,
which is not included in Adjusted EBITDA for 2006 or fourth quarter 2006 above.
In response to these regulatory changes, the Company is implementing tighter
credit policies and is working with certain customers in an effort to help them
reduce costs and improve their financial viability.
Impairment of Goodwill and Other Intangible Assets. The Company undertakes
its annual impairment test of goodwill and intangible assets in accordance with
SFAS No. 142, Goodwill and Other Intangible Assets, in connection with the
preparation of its fourth quarter results each year. As a result of the reduced
profitability of its NA/HME operating segment, and uncertainty associated with
future market conditions, the Company recorded an impairment charge related to
goodwill and intangible assets of this segment of approximately $300.4 million
pre-tax. The Company is in process of finalizing the underlying valuation
associated with this charge in accordance with SFAS No. 142; however, based on
the information known at this time, this is the Company's best estimate of the
impairment. This charge is not included in Adjusted EBITDA for 2006 or fourth
quarter 2006 above.
Debt Recapitalization Update
The Company has obtained a commitment letter for the refinancing of the
Company's existing indebtedness and is working with these lenders to put in
place a long-term capital structure. The Company currently expects to complete
the new financing by mid-February 2007. The new financing is expected to include
a senior secured revolving credit facility and term loans along with additional
senior note and/or equity-linked financing. This new financing program is
expected to result in total capacity of approximately $700 million and will be
used to refinance the existing revolving credit facility, private placement
notes, asset-backed securitization, and related refinancing fees.
The Company estimates that the weighted average interest rate of the new
facilities and securities combined will be approximately 7.5% to 9.5% versus the
current weighted average interest rate of approximately 5.9%.
Reconciliation of Net Earnings to Adjusted EBITDA(1)
The following is a reconciliation of Adjusted EBITDA(1) to net earnings,
the most directly comparable GAAP financial measure.
Three Months Ended December 31, Year Ended December 31,
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2005 2006 2005 2006
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($ in thousands)
Net earnings (loss)...................... $ 7,082 ($337,627) $ 48,852 ($317,774)
Interest expense......................... 7,093 9,336 27,246 34,084
Income taxes............................. 2,880 1,625 22,450 8,250
Depreciation and amortization............ 9,826 10,896 40,524 39,892
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EBITDA................................... $ 26,881 ($315,770) $ 139,072 ($235,548)
Restructuring charges(2)................. 4,773 11,253 7,533 21,250
Debt finance charges, interest and fees
associated with debt refinancing(3).... -- 3,745 -- 3,745
Bank fees classified as SG&A expense..... 700 735 2,563 2,845
Stock option expense(4).................. 223 647 881 1,587
Incremental accounts receivable reserve(5) -- 26,775 -- 26,775
Asset write-downs related to goodwill and
other intangible assets(6)............. -- 300,417 -- 300,417
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Adjusted EBITDA(1)....................... $ 32,577 $27,802 $ 150,049 $121,071
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(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 debt refinancing, bank
fees classified as SG&A expense, stock option expense, incremental reserve
against accounts receivable and asset write-downs related to goodwill and
other intangible assets. It should be noted that Invacare Corporation'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. The Company believes that
these types of exclusions are also recognized by the industry in which it
operates as relevant in computing Adjusted EBITDA as a supplementary
non-GAAP financial measure widely used by financial analysts and others in
the Company's industry to meaningfully evaluate a company's future
operating performance and cash flow. Moreover, the Company's definition of
Adjusted EBITDA as presented herein also may be useful in reflecting
certain measurements under its indenture that it anticipates entering into
in connection with our proposed issuance under Rule 144A of senior notes;
although it may be similar to or different than Adjusted EBITDA as defined
in the Company's proposed new senior secured credit facility, which has not
yet been finalized. In addition to these recognized purposes, the Company
also uses EBITDA and Adjusted EBITDA to evaluate its performance.
(2) In the second half of 2005, the Company initiated multi-year cost reduction
plans, and accelerated a restructuring plan in the fourth quarter of 2006.
Restructuring charges which have been reported to date have been recorded
in both cost of products sold, since it relates to inventory markdowns, and
the charge related to restructuring activities.
(3) Aggregate of total fourth quarter interest, finance charges and fees
arising as a result of debt covenant violations under existing credit
agreements.
(4) Prior to January 1, 2006, the Company accounted for options under its
stock-based compensation plans using the intrinsic value method. Effective
January 1, 2006, the Company adopted SFAS 123R using the modified
prospective application method. Under the modified prospective method,
compensation cost was recognized for the three and twelve months ended
December 31, 2006 for all stock-based payments granted subsequent to
January 1, 2006 based upon the grant-date fair value calculated in
accordance with SFAS 123R, and all stock-based payments granted prior to,
but not vested as of, January 1, 2006 based upon grant-date fair value
previously calculated for previously presented pro forma footnote
disclosures in accordance with the original provisions of SFAS No. 123,
Accounting for Stock Based Compensation. Results for periods prior to
January 1, 2006 have not been restated.
(5) Due to recent changes in Medicare reimbursement regulations, specifically
changes to the qualification processes and reimbursement levels of power
wheelchairs, there is increased collectibility risk to Invacare
Corporation. As a result of these changes in reimbursement, the Company
performed a review of customers most vulnerable to changes in the
reimbursement for power mobility products and, as part of its 2006 fourth
quarter financial results, the Company recorded an incremental reserve
against accounts receivable of approximately $26.8 million pre-tax. In
response to these regulatory changes, the Company is implementing tighter
credit policies and is working with certain customers in an effort to help
them reduce costs and improve their financial viability.
(6) The Company undertakes its annual impairment test of goodwill and
intangible assets in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, in connection with the preparation of its fourth quarter
results each year. As a result of the reduced profitability of its NA/HME
operating segment, and uncertainty associated with future market
conditions, the Company recorded an impairment charge related to goodwill
and intangible assets of this segment of approximately $300.4 million
pre-tax. The Company is in process of finalizing the underlying valuation
associated with this charge in accordance with SFAS No. 142; however, based
on the information known at this time, this is the Company's best estimate
of the impairment.
Item 9.01 Financial Statements and Exhibits.
Exhibit Number Description of Exhibit
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99.1 Press Release dated February 1, 2007
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Invacare Corporation
By: /s/ Gregory C. Thompson
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Gregory C. Thompson
Chief Financial Officer
Date: February 1, 2007