Market Overview

Invacare Reports Results for Third Quarter 2017

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Invacare Corporation (NYSE:IVC) ("Invacare" or the "company") today
reported results for the quarter ended September 30, 2017.

Highlights

  • Reported net sales decreased 6.4% to $250.9 million compared to the
    third quarter last year. Excluding the divested Garden City Medical,
    Inc. (GCM), constant currency net sales(a) decreased 4.5%
    compared to the third quarter last year.
  • Constant currency sequential net sales(b) increased 3.7%
    compared to second quarter 2017 driven by increases in the Europe,
    North America/Home Medical Equipment (NA/HME) and Asia/Pacific
    segments.
  • Gross margin as a percentage of net sales increased 80 basis points to
    28.2% compared to the third quarter last year, principally as a result
    of the strategic mix shift toward mobility and seating products and
    reduced freight costs.
  • Operating loss increased by $8.5 million to $5.9 million compared to
    the third quarter last year. Excluding a $7.4 million gain on sale of
    the GCM business realized in the third quarter of 2016, the operating
    loss increased by $1.1 million primarily due to lower net sales.
  • GAAP loss per share was $0.57 and adjusted net loss per share(c)
    was $0.41 in the third quarter 2017.
  • Free cash flow(d) usage was $4.8 million in the third
    quarter 2017, which was $17.7 million more favorable than the second
    quarter 2017.



Key Indicators of the Transformation(1)

                     
  Phase Two        
(in millions USD)  

Indicators(1)

  Q3 17   Q3 16  

$ Change

  % Change
Net Sales

$250.9 $268.1 $(17.2) (6.4)%
Constant Currency Net Sales, excluding GCM

$248.0 $259.8 $(11.8) (4.5)%
Gross Margin % of Net Sales

28.2% 27.4% 80 bps
Gross Profit

$70.7 $73.4 $(2.7) (3.7)%
Constant Currency SG&A, excluding GCM

$75.2 $76.6 $(1.4) (1.9)%
Free Cash Flow

$(4.8) $1.5 $(6.2) (426.0)%
EBITDA       $(2.2)   $(1.1)   $(1.1)   (98.2)%

(1)As previously disclosed, the key indicators of
the transformation noted in this table are measures of progress used by
the company as it moves through its three-phase transformation from a
generalist durable medical equipment company toward one more focused on
clinically complex products and solutions.

CEO Summary

"In the third quarter, constant currency sequential net sales grew 3.7%
compared to the second quarter of 2017 driven by the Europe, NA/HME and
Asia/Pacific segments. We are pleased to see this turn in sequential
sales growth in NA/HME, which is largely the result of new product
offerings and increased commercial effectiveness," said Matthew E.
Monaghan, chairman, president and chief executive officer. "Also during
the quarter, the company's continued focus on cash resulted in a $17.7
million improvement in free cash flow compared to the second quarter
2017 driven by inventory reductions. In parallel, we remain focused on
deploying quality best practices and improving the fundamental way we do
business globally. With our continued focus on quality, new product
launches, product mix, cost reductions and free cash flow, we are making
progress on our journey to achieve our long-term earnings objectives and
to create shareholder value."



Q3 17 Segment Results

           
(in millions USD)   Net Sales     Operating Income (Loss)
        Constant    
Reported Currency
Q3 17   Q3 16   % Change   % Change Q3 17   Q3 16   % Change
Europe $ 143.3 $ 141.7 1.1 % (0.5 )% $ 12.0 $ 11.6 3.0 %
NA/HME 79.5 99.3 (19.9 ) (20.3 ) (12.4 ) (11.0 ) (13.1 )
NA/HME, excluding GCM 79.5 90.9 (12.6 ) (12.9 ) (12.4 ) (11.4 ) (8.8 )
IPG 14.0 15.3 (8.9 ) (9.1 ) 1.2 1.5 (19.7 )
Asia/Pacific   14.1     11.7     20.4     17.9       0.4     (0.6 )   169.2  
 

Europe - Compared to the third quarter last year, the
slight decline in constant currency net sales was driven primarily by
respiratory products, partially offset by increases in mobility and
seating products. Operating income increased compared to the third
quarter last year principally due to favorable net sales mix partially
offset by unfavorable manufacturing variances and increased SG&A expense.

North America/Home Medical Equipment - Constant currency
net sales decreased in all categories compared to the third quarter last
year, though mostly in lifestyle and respiratory products. Mobility and
seating sales were a lesser part of the year-over-year net sales
decline. Compared to the second quarter 2017, sequential net sales
improved 1.6% driven by mobility and seating and lifestyle products.
Operating loss increased compared to the third quarter last year
primarily related to net sales declines and unfavorable manufacturing
variances partially offset by reduced freight, research and development,
SG&A expense and favorable sales mix.

Institutional Products Group (IPG) - Net sales decreased
in all product categories compared to the third quarter last year, as
the segment continues its customer mix shift within the long-term care
channel. Operating income declined as reduced SG&A expense, primarily
due to lower employment and freight costs, was more than offset by a net
sales decline and increased warranty expense.

Asia/Pacific - Constant currency net sales increased in
all product categories compared to the third quarter last year but
principally related to mobility and seating products. Operating income
increased significantly as a result of increased net sales, favorable
net sales mix, and reduced SG&A and research and development expenses.

Additional Highlights

  • On July 24, 2017, the company successfully satisfied FDA requirements
    under the consent decree to resume full operations at the Corporate
    and Taylor Street manufacturing facility in Elyria, Ohio.
  • On August 11, 2017, the company launched the Invacare® TDX®
    SP2 Power Wheelchair with LiNX® Technology and Ultra Low
    Maxx Seating. LiNX informatics technology includes a touch screen
    display; wireless programming and remote monitoring for better
    clinical evaluations; easy, intuitive programming; and great connected
    functionality for providers.
  • On October 24, 2017, the company expanded its product informatics
    offering via the launch of the enhanced Invacare® Platinum®
    Mobile Oxygen Concentrator with Connectivity. Following the launch of
    LiNX® technology, this is the company's second application
    of product informatics.

Outlook

The company has been executing a multi-year strategic transformation of
its overall approach to quality, product mix, commercial execution,
supply chain and engineering changes. The company is increasingly
focused on solutions that provide the greatest clinical benefit to
patients and help healthcare providers be most effective. These changes
apply globally, although the efforts to drive change have been most
intensely focused in North America. Part of this strategy has been to
diminish sales of less clinically valuable products. Following a
positive turn in sequential net sales growth after several quarters of
transformation work, the company expects North America/HME net sales to
continue to improve sequentially in the fourth quarter 2017 versus third
quarter 2017. The company is gradually applying the transformation to
the Europe segment, which may slightly reduce the segment's net sales as
it begins to shift its product mix toward more clinically valued,
higher-margin products. Regarding the IPG segment, the company expects
its new go-to-market strategy within the capital selling environment to
continue to take time to yield growth. In order to provide shareholder
value, the company continues to prioritize its emphasis on a culture of
quality excellence and achieving its long-term earnings potential.

Conference Call and Webcast

As previously announced, the company will provide a conference call and
webcast for investors and other interested parties to review its third
quarter 2017 financial results on Wednesday, November 8, 2017 at 8:30 AM
ET. Those wishing to participate in the live call should dial
866-719-0110, or for international callers 719-234-0008, and enter
Conference ID 2637579. A simultaneous webcast of the call will be
accessible at https://calltower.adobeconnect.com/invacare3q2017/event/registration.html.
A copy of the webcast slide deck will be posted to www.invacare.com/investorrelations
prior to the webcast.

A recording of the conference call can be accessed by dialing
888-203-1112 (U.S. and Canada) or 719-457-0820 (international callers)
and entering the Conference ID Code 2637579 through November 15, 2017.
An archive of the webcast presentation will be posted at www.invacare.com/investorrelations
24 hours after the call.

About Invacare Corporation

Invacare Corporation (NYSE:IVC) ("Invacare" or the "company") is a
leading manufacturer and distributor in its markets for medical
equipment used in non-acute care settings. At its core, the company
designs, manufactures, and distributes medical devices that help people
to move, breathe, rest and perform essential hygiene. The company
provides clinically complex medical device solutions for congenital
(e.g., cerebral palsy, muscular dystrophy, spina bifida), acquired
(e.g., stroke, spinal cord injury, traumatic brain injury, post-acute
recovery, pressure ulcers) and degenerative (e.g., ALS, multiple
sclerosis, chronic obstructive pulmonary disease, elderly, bariatric)
ailments. The company's products are important parts of care for people
with a wide range of challenges, from those who are active and involved
in work or school each day and may need additional mobility or
respiratory support, to those who are cared for in residential care
settings, at home and in rehabilitation centers. The company sells its
products principally to home medical equipment providers with retail and
e-commerce channels, residential care operators, distributors and
government health services in North America, Europe and Asia/Pacific.
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. Forward-looking statements are those that
describe future outcomes or expectations that are usually identified by
words such as "will," "should," "could," "plan," "intend," "expect,"
"continue," "forecast," "believe," and "anticipate" and include, for
example, any statement made regarding the company's future results.
Actual results may differ materially as a result of various risks and
uncertainties, including regulatory proceedings or the company's failure
to comply with regulatory requirements or receive regulatory clearance
or approval for the company's products or operations; adverse effects of
regulatory or governmental inspections of company facilities at any time
and governmental warning letters or enforcement actions; circumstances
or developments that may make the company unable to implement or realize
the anticipated benefits, or that may increase the costs, of its current
business initiatives; possible adverse effects on the company's
liquidity that may result from delays in the implementation or
realization of benefits from its current business initiatives; exchange
rate fluctuations; and those other risks and uncertainties expressed in
the cautionary statements and risk factors in the company's annual
report on Form 10-K, quarterly reports on Form 10-Q and other filings
with the Securities and Exchange Commission. The company may not be able
to predict and may have little or no control over many factors or events
that may influence its future results and, except as required by law,
shall have no obligation to update any forward-looking statements.

   
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF LOSS (UNAUDITED)
 
(In thousands, except per share data) Three Months Ended Nine Months Ended
September 30 September 30
2017   2016 2017   2016
Net sales $ 250,906 $ 268,145 $ 716,146 $ 800,734
Cost of products sold 180,166   194,703   515,239   585,837  
Gross Profit 70,740 73,442 200,907 214,897
Selling, general and administrative expenses 75,921 77,705 224,155 229,261
Gain on sale of business (7,386 ) (7,386 )
Charges related to restructuring activities 703   508   8,973   1,299  
Operating Income (Loss) (5,884 ) 2,615 (32,221 ) (8,277 )
Net loss (gain) on convertible debt derivatives 2,550 (1,192 ) 2,700 (2,282 )
Interest expense - net 6,707   4,402   15,733   11,021  
Loss before Income Taxes (15,141 ) (595 ) (50,654 ) (17,016 )
Income tax provision 3,450   4,425   8,225   8,200  
Net Loss (18,591 ) (5,020 ) (58,879 ) (25,216 )
 
Net Loss per Share—Basic $ (0.57 ) $ (0.15 ) $ (1.80 ) $ (0.78 )
 
Weighted Average Shares Outstanding—Basic 32,867 32,465 32,725 32,484
 
Net Loss per Share—Assuming Dilution * $ (0.57 ) $ (0.15 ) $ (1.80 ) $ (0.78 )
 
Weighted Average Shares Outstanding—Assuming Dilution 33,372 32,610 33,086 32,589

* Net loss per share assuming dilution calculated using weighted average
shares outstanding - basic for periods in which there is a loss.

   
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET LOSS PER SHARE

TO ADJUSTED NET LOSS PER SHARE(c)

 
(In thousands, except per share data) Three Months Ended Nine Months Ended
September 30   September 30
2017   2016 2017   2016
Net loss per share - assuming dilution* $ (0.57 ) $ (0.15 ) $ (1.80 ) $ (0.78 )
Weighted average shares outstanding- assuming dilution 32,867 32,465 32,725 32,484
Net loss (18,591 ) (5,020 ) (58,879 ) (25,216 )
Income tax provision 3,450   4,425   8,225   8,200  
Loss before Income Taxes (15,141 ) (595 ) (50,654 ) (17,016 )
Amortization of discount on convertible debt 2,643 1,588 6,094 3,809
Gain on sale of business (7,386 ) (7,386 )
Net loss (gain) on convertible debt derivatives 2,550   (1,192 ) 2,700   (2,282 )
Adjusted Loss before Income Taxes (9,948 ) (7,585 ) (41,860 ) (22,875 )
Adjusted Income Taxes 3,450   4,425   7,705   7,925  
Adjusted Net Loss(f) $ (13,398 ) $ (12,010 ) $ (49,565 ) $ (30,800 )
 
Weighted Average Shares Outstanding - Assuming Dilution 32,867   32,465   32,725   32,484  
Adjusted Net Loss per Share - Assuming Dilution(c)
*
$ (0.41 ) $ (0.37 ) $ (1.51 ) $ (0.95 )

Adjusted net loss per share (Adjusted EPS) and adjusted net loss are
non-GAAP financial measures, which are defined at the end of the release.

*Net loss per share assuming dilution and adjusted net loss per share(c)
assuming dilution calculated using weighted average shares outstanding -
basic for periods in which there is a loss.


   
INVACARE CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO EBITDA(e)

 
(In thousands) Three Months Ended Nine Months Ended
September 30   September 30
2017   2016 2017   2016
Net Loss $ (18,591 ) $ (5,020 ) $ (58,879 ) $ (25,216 )
Income tax provision 3,450 4,425 8,225 8,200
Interest expense - net 6,707 4,402 15,733 11,021
Net loss (gain) on convertible debt derivatives 2,550   (1,192 ) 2,700   (2,282 )
Operating Income (Loss) (5,884 ) 2,615 (32,221 ) (8,277 )
Gains on sale of businesses (7,386 ) (7,386 )
Depreciation and amortization 3,646   3,642   10,958   10,911  

EBITDA(e)

$ (2,238 ) $ (1,129 ) $ (21,263 ) $ (4,752 )

"EBITDA" is a non-GAAP financial measure, which is defined at the end
of the release.


INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENTS
(UNAUDITED)

The company operates in four primary business segments: North
America/Home Medical Equipment (NA/HME), Institutional Products Group
(IPG), Europe and Asia/Pacific. The four reportable segments represent
operating groups, which offer products to different geographic
regions. Intersegment revenue for reportable segments was $27,066,000
and $87,123,000 for the three and nine months ended September 30, 2017,
respectively, compared to $33,240,000 and $104,543,000 for the three and
nine months ended September 30, 2016, respectively. The accounting
principles applied at the operating segment level are generally the same
as those applied at the consolidated financial statement level.
Intersegment sales are eliminated in consolidation.

The information by segment is as follows:

  Three Months Ended   Nine Months Ended
(In thousands) September 30 September 30
2017   2016   Change 2017   2016   Change
Revenues from external customers

Europe (1)

$ 143,281 $ 141,738 $ 1,543 $ 391,274 $ 399,504 $ (8,230 )
NA/HME (1) 79,516 99,323 (19,807 ) 241,467 317,695 (76,228 )
IPG 13,975 15,343 (1,368 ) 45,668 49,702 (4,034 )
Asia/Pacific 14,134   11,741   2,393   37,737   33,833   3,904  
Consolidated $ 250,906   $ 268,145   $ (17,239 ) $ 716,146   $ 800,734   $ (84,588 )
 
Operating income (loss)
Europe (1) $ 11,987 $ 11,638 $ 349 $ 24,164 $ 24,550 $ (386 )
NA/HME (1) (12,446 ) (11,007 ) (1,439 ) (34,267 ) (24,065 ) (10,202 )
IPG 1,202 1,497 (295 ) 4,572 4,453 119
Asia/Pacific 387 (559 ) 946 (161 ) (1,599 ) 1,438
All Other (6,311 ) (5,832 ) (479 ) (17,556 ) (17,703 ) 147
Charge related to restructuring activities (703 ) (508 ) (195 ) (8,973 ) (1,299 ) (7,674 )
Gain on sale of business   7,386   (7,386 )   7,386   (7,386 )
Consolidated operating income (loss) (5,884 ) 2,615 (8,499 ) (32,221 ) (8,277 ) (23,944 )
Net (loss) gain on convertible derivatives (2,550 ) 1,192 (3,742 ) (2,700 ) 2,282 (4,982 )
Net Interest expense (6,707 ) (4,402 ) (2,305 ) (15,733 ) (11,021 ) (4,712 )
Loss before income taxes $ (15,141 ) $ (595 ) $ (14,546 ) $ (50,654 ) $ (17,016 ) $ (33,638 )

"All Other" consists of unallocated corporate selling, general and
administrative expenses and intercompany profits, which do not meet the
quantitative criteria for determining reportable segments.

(1) During the first quarter of 2017, a subsidiary, formerly
included in the Europe segment, was transferred to the NA/HME segment as
the subsidiary is managed by the NA/HME segment manager effective
January 1, 2017. This restatement increased revenues from external
customers by $1,300,000 and $3,738,000 and operating loss by $15,000 and
$165,000 for the three and nine months ended September 30, 2016,
respectively, for NA/HME with an offsetting impact on Europe.


INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENT
NET SALES (UNAUDITED)

The following tables provide net sales change as reported and as
adjusted to exclude the impact of foreign exchange translation (constant
currency net sales(a)) as well as net sales further adjusted
to exclude the impact of the sale of the GCM on September 30, 2016 which
was not deemed a discontinued operation for financial reporting
purposes. The current year functional constant currency net sales are
translated using the prior year's foreign exchange rates. These amounts
are then compared to the prior year's sales to calculate the constant
currency net sales change.

 
Three months ended September 30, 2017 compared to September 30,
2016:
 
        Foreign Exchange  
Reported Translation Impact Constant Currency
Europe 1.1 % 1.6 % (0.5 )%
NA/HME (19.9 ) 0.4 (20.3 )
IPG (8.9 ) 0.2 (9.1 )
Asia/Pacific 20.4 2.5 17.9
Consolidated (6.4 ) 1.1 (7.5 )
 
Reported excluding
Reported Impact of GCM GCM
NA/HME (19.9 )% (7.3 )% (12.6 )%
Consolidated (6.4 ) (3.0 ) (3.4 )
 
Constant Currency
Constant Currency Impact of GCM excluding GCM
NA/HME (20.3 )% (7.4 )% (12.9 )%
Consolidated (7.5 ) (3.0 ) (4.5 )
 

Nine months ended September 30, 2017 compared to September 30,
2016:

 
Foreign Exchange
Reported Translation Impact Constant Currency
Europe (2.1 )% (2.9 )% 0.8 %
NA/HME (24.0 ) 0.1 (24.1 )
IPG (8.1 ) (8.1 )
Asia/Pacific 11.5 2.3 9.2
Consolidated (10.6 ) (1.4 ) (9.2 )
 
Reported excluding
Reported Impact of GCM GCM
NA/HME (24.0 )% (7.0 )% (17.0 )%
Consolidated (10.6 ) (3.1 ) (7.5 )
 
Constant Currency
Constant Currency Impact of GCM excluding GCM
NA/HME (24.1 )% (7.0 )% (17.1 )%
Consolidated (9.2 ) (3.1 ) (6.1 )
 

INVACARE CORPORATION AND SUBSIDIARIES
BUSINESS SEGMENT
SEQUENTIAL NET SALES (UNAUDITED)

The following tables provide net sales at reported rates for the
quarters ended September 30, June 30, and March 31, 2017, respectively,
and net sales for the quarters ended September 30 and June 30, 2017,
respectively, as translated at the foreign exchange rates for the
quarter ended March 31, 2017 with each then compared to the most recent
prior period's net sales (constant currency sequential net sales(b)).

    Q3 17 at     Q3 17 at      
Reported Foreign Q1 17 Q2 17 at Q1
Foreign Exchange Foreign 17 Foreign
Exchange Translation Exchange Exchange Sequential Sequential
Rates Impact Rates Rates   Growth $ Growth %
Europe $ 143,281 $ (9,931 ) $ 133,350 $ 126,226 $ 7,124 5.6 %
NA/HME 79,516 (447 ) 79,069 77,791 1,278 1.6
IPG 13,975 (34 ) 13,941 15,335 (1,394 ) (9.1 )
Asia Pacific 14,134   (448 ) 13,686   12,114     1,572   13.0  
Consolidated $ 250,906   $ (10,860 ) $ 240,046   $ 231,466     $ 8,580   3.7 %
 
Q2 17 at Q2 17 at Q1 17 at
Reported Foreign Q1 17 Reported
Foreign Exchange Foreign Foreign
Exchange Translation Exchange Exchange Sequential Sequential
Rates Impact Rates Rates   Growth $ Growth %
Europe $ 128,485 $ (2,259 ) $ 126,226 $ 119,508 $ 6,718 5.6 %
NA/HME 77,689 102 77,791 84,262 (6,471 ) (7.7 )
IPG 15,320 15 15,335 16,373 (1,038 ) (6.3 )
Asia Pacific 12,023   91   12,114   11,580     534   4.6  
Consolidated $ 233,517   $ (2,051 ) $ 231,466   $ 231,723     $ (257 ) (0.1 )%
 
    Q1 17 at        
Reported Q2 17 at Q3 17 at Q1 17 Q2 17 vs Q1 17 Q3 17 vs Q2 17
Foreign Q1 17 Foreign Foreign Sequential Sequential
Exchange Rates Exchange Rates Exchange Rates   Growth % Growth %
Europe $ 119,508 $ 126,226 $ 133,350 5.6 % 5.6 %
NA/HME 84,262 77,791 79,069 (7.7 ) 1.6
IPG 16,373 15,335 13,941 (6.3 ) (9.1 )
Asia Pacific 11,580   12,114   13,686     4.6   13.0  
Consolidated $ 231,723   $ 231,466   $ 240,046     (0.1 )% 3.7 %
 
   
INVACARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 

September 30,
2017

December 31,
2016

(In thousands)
Assets
Current Assets
Cash and cash equivalents $ 155,964 $ 124,234
Trade receivables, net 126,587 116,307
Installment receivables, net 1,685 1,368
Inventories, net 143,775 135,644
Other current assets 31,345   31,519
Total Current Assets 459,356 409,072
Other Assets 87,099 29,687
Intangibles 30,882 29,023
Property and Equipment, net 76,746 75,359
Goodwill 401,291   360,602
Total Assets $ 1,055,374   $ 903,743
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 80,445 $ 88,236
Accrued expenses 114,012 110,095
Current taxes payable 4,957 7,269
Short-term debt and current maturities of long-term obligations 1,940   15,261
Total Current Liabilities 201,354 220,861
Long-Term Debt 238,912 146,088
Other Long-Term Obligations 179,083 114,407
Shareholders' Equity 436,025   422,387
Total Liabilities and Shareholders' Equity $ 1,055,374   $ 903,743
 
   
INVACARE CORPORATION AND SUBSIDIARIES
RECONCILIATION FROM NET CASH PROVIDED (USED) BY

OPERATING ACTIVITIES TO FREE CASH FLOW(d)

 
Three Months Ended Nine Months Ended
(In thousands) September 30 September 30
2017   2016 2017   2016
Net cash provided (used) by operating activities $ (2,899 ) $ 4,446 $ (53,367 ) $ (49,385 )
Plus:
Sales of property and equipment 21 9 211 29
Less:
Purchases of property and equipment (1,885 ) (2,994 ) (7,389 ) (6,797 )
Free Cash Flow(d) $ (4,763 ) $ 1,461   $ (60,545 ) $ (56,153 )
 

Definitions of Non-GAAP Financial Measures

(a) As used throughout this document, "constant currency net
sales" is a non-GAAP financial measure, which is defined as net sales
excluding the impact of foreign currency translation. The current year's
functional constant currency net sales are translated using the prior
year's foreign exchange rates. These amounts are then compared to the
prior year's sales to calculate the constant currency net sales change.
A table accompanying this release compares net sales as reported and net
sales excluding the effects of foreign exchange translation by segment
and for the consolidated company for the three and nine months ended
September 30, 2017 and September 30, 2016, respectively. The company
believes that this financial measure provides meaningful information for
evaluating the core operating performance of the company. This financial
measure is reconciled to the related GAAP financial measures in the
"Business Segment Net Sales" table included in this press release.

(b) As used throughout this document, "constant currency
sequential net sales" is a non-GAAP financial measure in which a given
quarter's net sales are compared to the most recent prior quarter's net
sales with each quarter's net sales translated at the foreign exchange
rates for the quarter ended March 31, 2017. A table accompanying this
release compares net sales for the three months ended September 30, 2017
and June 30, 2017 to the most recent prior quarter for each period,
respectively, with all periods translated at the foreign exchange rates
for the three months ended March 31, 2017. The company believes that
this financial measure provides meaningful information for evaluating
the core operating performance of the company. This financial measure is
reconciled to the related GAAP financial measures in the "Business
Segment Sequential Net Sales" table included in this press release.

(c) As used throughout this document, "adjusted net loss per
share" (Adjusted EPS) is a non-GAAP financial measure, which is defined
as adjusted net loss(f) 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. The company believes that its
exclusion adjustments are generally recognized by the industry in which
it operates as relevant in computing Adjusted EPS as a supplementary
non-GAAP financial measure used by financial analysts and others in the
company's industry to meaningfully evaluate operating performance. This
financial measure is reconciled to the related GAAP financial measure in
the "Reconciliation" table located after the Condensed Consolidated
Statement of Operations included in this press release.

(d) As used throughout this document, "free cash flow" is a
non-GAAP financial measure, which is defined as net cash provided (used)
by operating activities less purchases of property and equipment plus
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. This financial measure is
reconciled to the related GAAP financial measure in the "Reconciliation"
table located after the Condensed Consolidated Balance Sheets included
in this press release.

(e) As used throughout this document, "EBITDA" is a non-GAAP
financial measure, which is defined as net loss plus: income taxes,
interest expense-net, net gain or loss on convertible debt derivatives,
gain on sale of business, and depreciation and amortization. The company
believes that this financial measure provides meaningful information
which is used by financial analysts and others in the company's industry
to evaluate the performance of the company. This financial measure is
reconciled to the related GAAP financial measure in the "Reconciliation"
table included in this press release.

(f) As used throughout this document, "adjusted net loss" is
a non-GAAP financial measure, which is defined as adjusted net loss
before income taxes net of adjusted income taxes. Adjusted net loss
before income taxes is computed as the net loss excluding the
amortization of convertible debt discounts recorded in interest expense
($2.6 million and $6.1 million pre-tax for the three and nine months
ended September 30, 2017, respectively, compared to $1.6 million and
$3.8 million pre-tax for the three and nine months ended September 30,
2016), gain on sale of business ($7.4 million for the three and nine
months ended September 30, 2016), and net loss (gain) on convertible
debt derivatives (net loss of $2.6 million and $2.7 million for the
three and nine months ended September 30, 2017, respectively, compared
to net gains of $1.2 million and $2.3 million for the three and nine
months ended September 30, 2016, respectively). Adjusted income taxes
are computed as taxes as calculated for GAAP then adjusted for an
expense or benefit at the statutory rate related to pretax adjustments
related to locations without a valuation allowance, the exclusion of
uncertain tax liabilities deemed not related to current operations or
the exclusion of taxes related to nonrecurring sales of non-inventory
product or entities on an intercompany basis. (Note: The U.S. is in a
full valuation allowance and accordingly, no tax expense adjustments are
appropriate related to U.S. pre-tax adjustments.) 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.

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