Invacare 2013 Annual Report Download - page 3

Fellow Shareholders,
While 2013 certainly had its challenges, we are making significant progress on critical priorities, including actively working
toward resolving the Company’s consent decree with the United States Food and Drug Administration (FDA). We also are
proactively implementing initiatives that will align our operations with the Company’s future business strategy. We are pleased
with the steps we are taking to best position Invacare once matters related to our consent decree with the FDA have been resolved.
With respect to our industry overall, news stories around the world focused on trends, including the aging population, the
growing prevalence of chronic illness and the increasing costs of healthcare. In the United States, conversations concerning the
Affordable Care Act have further illuminated the flaws of Medicare’s current delivery model, which encourages healthcare silos
that sometimes produce conflicting and competing financial incentives. It is now generally accepted that controlling escalating
healthcare costs must integrate each element of the healthcare continuum to decrease hospital admissions, reduce lengths of stay
and lower readmission rates.
As we work through the changing industry dynamics, we believe that Invacare is well-positioned to participate in this
healthcare evolution. We are pleased that we are starting to see public policy, such as the proposed Accountable Care Organizations
(ACOs), shift to support the transition of patient care from acute care to long-term care to homecare. We expect this reform to
contribute to growing the demand for Invacare® home and long-term care medical devices over time.
Demonstrating Quality Systems Compliance
To ensure we are in position to take advantage of the fundamental strengths of the home and long-term care markets in which
we participate, we must continue to transform our business. Our first priority is to demonstrate our quality systems compliance
to the FDA. Throughout 2012 and 2013, we invested significant time and resources into systemically improving our quality systems
at our corporate and Taylor Street manufacturing facilities, which are currently under a consent decree with the FDA. In order to
resume full operations at these facilities, the consent decree requires that a third-party expert perform three separate certification
audits. The expert certification audit reports must be submitted to the FDA for review and acceptance.
In 2013, we completed two of the three required third-party expert certification audits and the FDA found the results of both
to be acceptable. In the first two audits, the third-party expert certified that our equipment and process validation procedures and
design control systems were compliant with the FDA's Quality System Regulation (QSR). The FDA’s acceptance of these
certifications permitted us to resume design activities at the impacted facilities and work on critical new product development
projects that will help us begin to regain our custom power wheelchair market share.
In our 2013 Form 10-K, we stated that the third-party expert had resumed the final certification audit at the end of February
2014. We cannot predict the timing of the completion of the third-party expert’s final certification report. However, after the
expert’s certification report is completed and submitted to the FDA, along with our own report related to our compliance status
and our responses to any observations in the certification report, the FDA is expected to inspect our corporate and Taylor Street
facilities to determine whether they are in compliance with the FDA’s QSR and the consent decree. If the FDA is satisfied with
our compliance, the FDA will provide written notification that we are permitted to resume full operations at our corporate and
Taylor Street facilities.
Positioning the Company for the Future
While most of our business segments were negatively impacted by the consent decree in 2013, we have actively managed
the business to position ourselves for the future. Most notably, our European business successfully delivered sales, gross margin
and market share improvement throughout 2013. The European team is focused on driving profitable growth in core product and
core geographic areas, redirecting cash and other resources to optimize profitable opportunities and creating a differentiated and
highly valued customer and consumer experience when working with Invacare. The European team also is making investments
in respiratory and complex rehab technology sales specialists for target regions with the potential for growth in those core product
categories. A disciplined approach to talent management and organizational competency has been critical to Europe’s performance
and will continue to be a major area of focus for the team as they strive to continue driving profitable growth.
Throughout 2013, we also leveraged opportunities to reduce complexity within our business in order to focus on our core
product lines and geographies with the long-term goal of returning to a high-single digit operating margin. The divestiture of
Invacare Supply Group, our former domestic medical supplies business, was a significant step forward in that endeavor. It also
resulted in net proceeds of approximately $144.7 million that were used to pay down our total debt outstanding. In August of 2013,
we also divested Champion Manufacturing, Inc., our former domestic medical recliner business for dialysis clinics, which resulted