Invacare 2012 Annual Report Download - page 52

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OUTLOOK
The company’s fiscal year 2012 was dominated by its consent decree negotiations with the FDA which
concluded when the consent decree became effective on December 21, 2012. The consent decree of injunction
limits the company’s manufacture and distribution of custom power and manual wheelchairs, wheelchair
components and wheelchair subassemblies at or from its Taylor Street manufacturing facility. The decree also
temporarily limits design activities related to wheelchairs and power beds that take place at the impacted Elyria,
Ohio facilities.
In order to resume full operations at the impacted Elyria, Ohio facilities, the company must successfully
complete a three-step third-party expert certification audit that will be followed by an FDA inspection. The
company has initiated the first two of its third-party expert certification audits. The first addresses the equipment
and process validation procedures in the Taylor Street manufacturing facility and the second addresses the
company’s design control procedures at the corporate facility. Barring any unexpected developments or the
requirement to perform additional remediation activities as a result of the third-party expert audits, the company
expects the first two certification audits to be completed in the first quarter of 2013. At the time of filing this
Annual Report on Form 10-K, the third expert certification audit has commenced and the company plans to
complete the audit in the second quarter of 2013. Because the FDA has the authority to reinspect at any time, the
company cannot determine whether the FDA will elect to inspect after either the first or second third-party expert
audits. According to the consent decree, the FDA has thirty (30) days after receipt of the third expert certification
audit results to commence its own inspection. It is not possible for the company to estimate the timing or
potential response of the FDA’s inspection and subsequent written notification and thus, it is uncertain whether
normal operations will resume before the end of 2013. Completing the remediation and receiving the FDA’s
approval on the second certification audit related to design controls will allow the company to resume design
activities and refocus its engineering resources on new product development. Introducing new product solutions
to the market will get the company back on track to regaining market share and resuming its globalization
program designed to harmonize core product offerings and deliver on its long-term goal of $100 million in cost
improvements and re-establish high single-digit operating margins.
Since the consent decree became effective, new orders for power wheelchairs, one of the company’s most
profitable product lines, have declined substantially compared to the same period last year, primarily due to the
consent decree’s limitations on the company’s ability to manufacture, assemble and distribute wheelchairs at or
from its Taylor Street manufacturing facility. As the company has previously disclosed, the consent decree
contains several important exceptions, as follows:
a. The company may continue to fulfill orders and written quotes that were already in the company’s
order fulfillment system as of the December 21, 2012 effective date of the consent decree, as long as
the provider completes a form certifying that he or she is aware of the decree and would still like for
the company to fulfill the order.
b. The company may manufacture and distribute a user’s replacement chair and/or seating system when a
user requests the same or newer version of his/her existing product, and the clinician submits a
verification of medical necessity form that acknowledges the existence of the consent decree.
c. The company may manufacture and distribute wheelchairs or seating systems from the Taylor Street
facility, if a clinical evaluation determines that the product is medically necessary to meet a particular
user’s needs which cannot be appropriately addressed by another manufacturer’s product, and the
clinician and the user’s physician complete and submit a verification of medical necessity form.
d. Other exemptions exist to allow for ongoing service, repair and warranty replacement of products
already in use as long as the provider completes a form certifying that he or she is aware of the consent
decree and that the parts and components they receive will be used solely for the service or repair of the
company’s wheelchairs already in use.
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