Final audit drags on at Invacare

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Friday, July 25, 2014

ELYRIA, Ohio – Invacare is still very much in the throes of trying to complete a third and final audit to comply with U.S. Food and Drug Administration (FDA) regulations, based on an update given during a conference call last week.

Invacare needs to better demonstrate that its quality system is sustainably compliant and that each subsystem is properly integrated, Rob Gudbranson, CFO, told listeners on a call to discuss the company’s earnings for the second quarter. To help it improve the functionality and capabilities of some of those subsystems, the company has hired additional consultants, he said.

“While we’re making progress, we can’t predict the timing of the auditor’s final report,” said Gudbranson, who, in other news, will become interim president and CEO on Aug. 1, in the wake of Gerry Blouch’s retirement (see related story).

Invacare reported a loss in net earnings of $13.6 million for the second quarter compared to a loss of $12.5 million for the same period last year. It reported net sales of $331.3 million vs. $344.8 million.

While it works to complete the audit, Gudbranson said Invacare has three business priorities: to improve cash flow, to establish a new credit facility with its banks (its existing facility matures October 2015) and to restore profitability to the North American/HME and Asia Pacific segments.

When asked during the call whether or not it’s feasible to restore profitability to the North America/HME segment until a consent decree with the FDA has been lifted, Gudbranson acknowledged that the company has “tough decisions” to make.

“We’re fully committed to turning around this business in this challenging time,” he said.

For the North America/HME segment, Invacare reported a loss in net earnings of $12.4 million, excluding restructuring charges, for the second quarter compared to a loss of $10.3 million for the same period last year. It reported net sales of $138.7 million, a 13% decrease.

As a result of the consent decree, the number of domestic power wheelchairs shipped from the Taylor Street facility in the second quarters of 2014 and 2013 represented only 8.8% and 14.5%, respectively, of the pre-consent decree units shipped during the same period in 2012.

Other factors negatively impacting HME sales: ongoing pre- and post-payment audits and a shift toward lower cost alternatives for certain products included in the competitive bidding program. Additionally, a significant shipment of portable oxygen concentrators made to a large national account last year was not repeated this year.

Invacare reported a loss in net earnings of $31.6 million for the first half of the year compared to net earnings of $22.7 million for the same period last year. It reported net sales of $640.4 million vs. $676.2 million.

For North America/HME, the company reported a loss in net revenues of $28.4 million, excluding restricting charges, for the first six months of the year compared to $19.8 million for the same period last year. It reported net sales of $267.8 million vs. $311.2 million.

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