Invacare 2014 Annual Report Download - page 45

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in the competitive bidding product categories. When the Company's products are ordered by homecare providers, the Company is
not informed as to whether the provider is paid for the product through Medicare, Medicaid or private pay reimbursement or through
direct cash sales. However, industry studies have shown historically that approximately 40% of HME providers' revenues on average
are from sales paid by Medicare. Additionally, it is estimated that the 100 MSA's which implemented NCB, account for approximately
50% of Medicare's spending on durable medical equipment. Taking the $299,000,000 of U.S. HME net sales for the full year of
2014 of NCB bid categorized product and applying the previously mentioned 40% and then the 50% estimates, the Company's
revenues from products potentially exposed to NCB could be approximately $60,000,000. By January 1, 2016, CMS expects to
begin expanding NCB to 100% of the Medicare population. It also is worth noting that this estimate does not include other potential
pricing pressures that also could impact homecare providers from other payors. The impact of NCB on net sales is hard to measure,
as the Company does not have zip code level visibility into customers' sales, rental data or Medicare fulfillment data. The Company
continues to remain judicious in its extension of credit to customers in these areas. The Company has worked closely with providers
in recent years in preparation for NCB, offering programs to assist them in improving their operational efficiency, as well as offering
products that serve to expand market opportunities. The Company believes that products such as the HomeFill® oxygen systems
can enable providers an opportunity to reduce costs and transform their business model.
The Company does not expect to experience significant increased net sales in the North America/HME segment for custom
power wheelchairs and seating systems until it has successfully completed the previously described third-party expert certification
audit and FDA inspection and has received written notification from the FDA that the Company may resume full operations at its
corporate and Taylor Street manufacturing facilities. Regarding products manufactured at the Taylor Street facility, which have
been impacted by the Company's consent decree with the FDA and include some products sold outside of the North America/HME
segment, net sales were approximately $43.2 million in 2014 compared to approximately $55.5 million in 2013. Even if the Company
receives the FDA notification that it may resume full operations at its Taylor Street facility, it is uncertain as to whether, or how
quickly, the Company will be able to rebuild net sales, irrespective of market conditions, to more typical historical levels such as
when Taylor Street production accounted for approximately $172 million and $147 million in net sales in 2011 and 2012, respectively.
Accordingly, the Company expects that these challenges are likely to pressure the Company's operating results in 2015.
See “Contingencies” in the Notes to the Condensed Consolidated Financial Statements and “Forward-Looking Statements”
included in this Annual Report on Form 10-K.
DISCONTINUED OPERATIONS
On December 21, 2012, in order to focus on its core equipment product lines, the Company entered into an agreement to
sell ISG and determined on that date that the "held for sale" criteria of ASC 360-10-45-9 were met. On January 18, 2013, the
Company completed the sale of the ISG medical supplies business to AssuraMed, Inc. for a purchase price of $150,800,000 in
cash. ISG had been operated on a stand-alone basis and reported as a reportable segment of the Company. The Company recorded
a gain of $59,402,000 pre-tax in 2013 which represented the excess of the net sales price over the book value of the assets and
liabilities of ISG, excluding cash. The sale of this business was dilutive to the Company's results. The Company utilized the
proceeds from the sale to reduce debt outstanding under its revolving credit facility in the first quarter of 2013.
The net sales of the discontinued operation of ISG were $18,498,000 and $341,606,000 for 2013 and 2012, respectively.
Earnings before income taxes for the discontinued operation of ISG were $402,000 and $16,238,000 for 2013 and 2012, respectively.
On January 17, 2014, the Company received a claim for approximately $1,352,000 from the acquirer of ISG. The claim
alleged a breach of the purchase agreement, specifically that the inventories sold were not entirely useable or saleable in the
ordinary course of business. The Company believes this claim is without merit and intends to contest this claim vigorously. As
of the date of this filing, the Company is unable to estimate the outcome of this matter.
On August 6, 2013, the Company sold Champion, its domestic medical recliner business for dialysis clinics, to Champion
Equity Holdings, LLC for $45,000,000 in cash, which was subject to final post-closing adjustments. Champion had been operated
on a stand-alone basis and reported as part of the IPG segment of the Company. The Company recorded a gain of $22,761,000
pre-tax in the third quarter of 2013, which represented the excess of the net sales price over the book value of the assets and
liabilities of Champion. The sale of this business was dilutive to the Company's results. The Company utilized the proceeds from
the sale to reduce debt outstanding under its revolving credit facility in the third quarter of 2013. The gain recorded by the Company
reflects the Company's estimated final purchase adjustments.