Invacare 2011 Annual Report Download - page 118

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Contingencies—Continued
that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the
inherent uncertainties in evaluating certain exposures.
As a medical device manufacturer, the company is subject to extensive government regulation, including
numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various
government programs. The marketing, invoicing, documenting and other practices of health care suppliers and
manufacturers are all subject to government scrutiny. Violations of law or regulations can result in
administrative, civil and criminal penalties and sanctions, including disqualification from Medicare and other
reimbursement programs, which could have a material adverse effect on the company’s business.
Further, the FDA regulates virtually all aspects of a medical device’s development, testing, manufacturing,
labeling, promotion, distribution and marketing. The company’s failure to comply with the regulatory
requirements of the FDA and other applicable U.S. regulatory requirements may subject the company to
administrative or judicially imposed sanctions. These sanctions include warning letters, civil penalties, criminal
penalties, injunctions, consent decrees, product seizure or detention, product recalls and total or partial
suspension of production.
As part of its regulatory function, the FDA routinely inspects the sites of medical device companies, and in
2011, the FDA inspected certain of the company’s facilities. In December 2011, the FDA requested that the
company negotiate and agree to a consent decree of injunction related to the company’s headquarters facility and
its wheelchair manufacturing facility in Elyria, Ohio. The FDA’s proposed consent decree would require
suspension of certain operations at these Elyria facilities until they are certified by the company and then
determined by FDA to be in compliance with FDA quality system regulations. The company is in the process of
negotiating the terms of the proposed consent decree with FDA. In addition, in December 2010, the company
received a warning letter from the FDA related to quality system processes and procedures at the company’s
Sanford, Florida facility. The company is taking these issues very seriously and has added resources to ensure it
is addressing all of the FDA’s concerns in a timely manner. However, the results of regulatory claims,
proceedings, investigations, or litigation are difficult to predict. An unfavorable resolution or outcome of the
FDA warning letter or consent decree of injunction could materially and adversely affect the company’s
business, financial condition, and results of operations.
Any of the above contingencies could have an adverse impact on the company’s financial condition or
results of operations.
Supplemental Guarantor Information
Effective February 12, 2007, substantially all of the domestic subsidiaries (the “Guarantor Subsidiaries”) of
the company became guarantors of the indebtedness of Invacare Corporation under its 4.125% Convertible
Senior Subordinated Debentures due 2027 (the “Debentures”) with an original aggregate principal amount of
$135,000,000. The majority of the company’s subsidiaries are not guaranteeing the indebtedness of the
Debentures (the “Non-Guarantor Subsidiaries”). Each of the Guarantor Subsidiaries has fully and unconditionally
guaranteed, on a joint and several basis, to pay principal, premium, and interest related to the Debentures and
each of the Guarantor Subsidiaries are directly or indirectly wholly-owned subsidiaries of the company.
Presented below are the consolidating condensed financial statements of Invacare Corporation (Parent), its
combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in
subsidiaries accounted for using the equity method. The company does not believe that separate financial
statements of the Guarantor Subsidiaries are material to investors and accordingly, separate financial statements
and other disclosures related to the Guarantor Subsidiaries are not presented.
FS-46