By a News Reporter-Staff News Editor at Pharma Business Week -- Invacare Corporation (NYSE: IVC) announced its financial results for the quarter and year ended December 31, 2013 (see also Invacare Corporation).
Except for free cash flow(a), the financial information for all periods excludes the results of discontinued operations. Discontinued operations include Invacare Supply Group, Inc., the Company's former domestic medical supplies business that was divested on January 18, 2013 and Champion Manufacturing, Inc., the Company's former domestic medical recliner business for dialysis clinics that was divested on August 6, 2013. Champion was a part of the Institutional Products Group segment. For more information, see the detailed condensed consolidated financial statements at the end of this release. CEO SUMMARY Commenting on the Company's 2013 financial results, Gerald B. Blouch, President and Chief Executive Officer, stated, ''Our European business segment was the key contributor to our financial performance in 2013, and I want to publicly thank our European associates for successfully improving their business results throughout the year. However, the excellent performance in Europe was more than offset by the financial results of our remaining three business segments, which struggled primarily as a result of the Company's consent decree with the United States Food and Drug Administration (FDA), lack of significant new product introductions and unfavorable sales mix. Overall 2013 financial performance resulted in adjusted net loss per share(b) of $1.20 compared to adjusted net earnings per share(b) of $0.22 in 2012. Organic net sales for the year decreased 6.3% compared to last year. Despite these challenges, we achieved free cash flow(a) in 2013 of $6.3 million and successfully reduced total debt outstanding by $190.1 million to $48.0 million as of December 31, 2013.''
Regarding the status of the consent decree, Blouch continued, ''Throughout 2013, we continued to make progress on demonstrating our quality systems improvements to our third-party expert auditor, and we received the FDA's acceptance of two of the three required third-party certification reports. We anticipate that the expert auditor will re-commence the final certification audit at the end of this month. Our top priority is to resume full production at our Taylor Street wheelchair manufacturing facility in Elyria, Ohio, and we appreciate the ongoing support of our associates, customers and shareholders, as we work through this process.'' STATUS OF THE CONSENT DECREE The consent decree covers the corporate and Taylor Street facilities in Elyria, Ohio. It requires a third-party expert to perform three separate certification audits. In order to resume full operations, the expert certification audit reports must be submitted to the FDA for review and acceptance. In the first two audits in 2013, the third-party expert certified that the Company's equipment and process validation procedures and its design control systems were compliant with the FDA's Quality System Regulation (QSR). The Company has received the FDA's acceptance of these first two reports. During the final expert certification audit, the auditor indicated that some additional work was required primarily in the Company's updated complaint and risk review processes before the final, and most comprehensive, certification report could be completed and provided to the FDA, as the Company discussed in its December 23, 2013 press release. The Company has been executing its action plan relating to these comments, and it anticipates that the third-party expert will return at the end of February to re-commence this final certification audit.
The Company cannot predict the timing of the completion or the outcome of the third-party expert's final certification report. However, when the expert's certification report is completed and submitted to the FDA, along with the Company's own report related to its compliance status together with its responses to any observations in the certification report, the FDA will inspect the Company's corporate and Taylor Street facilities to determine whether they are in compliance with the FDA's QSR. The FDA has the authority to reinspect these facilities at any time. If the FDA is satisfied with the Company's compliance, the FDA will provide written notification that the Company is permitted to resume full operations at the impacted facilities. CONTINUING OPERATIONS FINANCIAL HIGHLIGHTS FOR THE FOURTH QUARTER Loss per share on a GAAP basis was $0.48 compared to loss per share of $0.36 last year.
Adjusted net loss per share(b) was $0.19 compared to an adjusted net loss per share(b) of $0.10 last year.
Free cash flow(a) was $9.9 million compared to $31.2 million last year.
Net sales decreased 5.6% while organic net sales decreased 6.6% compared to last year.
Adjusted EBITDA(d) was $8.9 million compared to $13.3 million last year. CONTINUING OPERATIONS FINANCIAL HIGHLIGHTS FOR THE YEAR Loss per share on a GAAP basis was $1.60 compared to loss per share of $0.35 in 2012.
Adjusted net loss per share(b) was $1.20 compared to adjusted net earnings per share(b) of $0.22 for the full year 2012.
Free cash flow(a) was $6.3 million compared to $49.1 million in 2012.
Net sales decreased 5.6% while organic net sales decreased 6.3% compared to 2012.
Adjusted EBITDA(d) was $19.8 million compared to $75.5 million in 2012.
Debt outstanding decreased by $190.1 million, resulting in a ratio of debt to adjusted EBITDA(d) of 2.2, compared to 2.0 as of September 30, 2013, and 2.7 as of December 31, 2012. CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS Net loss per share on a GAAP basis for the fourth quarter of 2013 was $0.48 ($15.4 million net loss) as compared to net loss per share for the same period last year of $0.36 ($11.4 million net loss). The net loss for the current quarter was negatively impacted by incremental warranty expense of $0.10 per share ($3.3 million after-tax expense) related to the Company's power wheelchair joystick recall, charges related to restructuring of $0.06 per share ($2.0 million after-tax expense), asset write-downs related to intangible assets of $0.04 per share ($1.2 million after-tax expense) and increased tax expense of $0.32 per share ($10.0 million tax expense) resulting from an intraperiod tax allocation associated with discontinued operations. The incremental warranty expense related to the joystick recall was recorded in the North America/Home Medical Equipment (HME) and Asia/Pacific segments ($2.1 million and $1.2 million after-tax expense, respectively). Net loss for the fourth quarter of 2013 benefited by $1.4 million ($0.04 per share) related to an amended value added tax (VAT) filing recognized in the European segment. Net loss for the fourth quarter of 2012 was unfavorably impacted by restructuring charges of $0.24 per share ($7.6 million after-tax expense) and asset write-downs related to intangible assets of $0.02 per share ($0.7 million after-tax expense) and positively impacted by $0.07 per share ($2.2 million tax benefit) resulting from an intraperiod tax allocation associated with discontinued operations.
Adjusted net loss per share(b) was $0.19 for the fourth quarter of 2013 as compared to adjusted net loss per share(b) of $0.10 for the fourth quarter of 2012. The adjusted net lossİ for the quarter was $6.1 million versus adjusted net lossİ of $3.1 million for the fourth quarter of last year. Adjusted net lossİ for the quarter was negatively impacted primarily by lower net sales, reduced gross margin, including increased warranty expense, partially offset by reduced selling, general and administrative (SG&A) and interest expenses.
Net sales for the quarter decreased 5.6% compared to the same quarter last year. Organic net sales for the quarter decreased 6.6% over the same period last year, as increases for the European segment were offset by declines for all other segments. The Company estimates that sales of products manufactured from the Taylor Street facility, which includes products sold outside of North America/HME segment, were approximately $11.8 million in the fourth quarter compared to approximately $32.8 million in the fourth quarter of last year. Net sales by segment and for the consolidated company, as reported and as adjusted to exclude the impact of foreign currency translation comparing the quarter-end and year-to-date periods ended December 31, 2013 as compared to December 31, 2012, are provided in a table accompanying this release.
Gross margin as a percentage of net sales from continuing operations for the fourth quarter was lower by 1.7 percentage points compared to last year's fourth quarter. The fourth quarter of 2013 gross margin reflects an incremental warranty expense for the power wheelchair joystick recall of $3.4 million pre-tax or 1.0 percentage point. The incremental warranty expense was recorded in the North America/HME and Asia/Pacific reporting segments. Thus far, the customer response to the joystick recall, which officially launched in October 2013, has surpassed the anticipated response rate, which was based on historic recalls. As previously indicated, the reserve is subject to adjustment as new developments change the Company's estimate of the total cost of this matter. In addition, the gross margin was negatively impacted by the North America/HME sales decline in custom power wheelchairs, which historically is one of the Company's higher margin product lines, and unfavorable net sales mix toward lower margin customers. The current quarter gross margin benefited by $1.4 million or 0.4 of a percentage point, related to an amended VAT filing recognized in the European segment.
Keywords for this news article include: Asia, China, Invacare Corporation, Finance and Investment, Investment and Finance, Government Agencies Offices and Entities.
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