Invacare 2014 Annual Report Download - page 119

INVACARE CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-49
For additional information regarding the consent decree, please see the following sections of this Annual Report on Form
10-K: Item 1. Business - Government Regulation and Item 1A. Risk Factors; Item 3. Legal Proceedings; and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Outlook and - Liquidity and Capital Resources.
The Company' recorded incremental warranty expense in 2014 totaling $11,493,000 for three specific product recalls. First,
an expense of $6,559,000 for a recall related to a component in a stationary oxygen concentrator that was manufactured in the
Company’s facility in Suzhou, China, and sold globally. This expense was recorded in the European segment ($3,395,000) and
North America/HME segment ($3,164,000). Second, an expense of $2,057,000 for the recall of a sieve bed component used within
stationary oxygen concentrators manufactured in the Company's Sanford, Florida facility during August 2014, which was recorded
in the North America/HME segment. Third, an incremental expense of $2,877,000 related to the Company's joystick recall as a
result of higher than previously anticipated response rates from large customers in the U.S. and Canada and a product mix toward
higher cost joysticks, which was recorded in the North America/HME segment ($1,612,000) and the Asia/Pacific segment
($1,265,000). These warranty reserves are subject to adjustment in future periods as new developments change the Company's
estimate of the total cost of these matters. See Current Liabilities in the Notes to the Consolidated Financial Statements for the
total provision amounts and a reconciliation of the changes in the warranty accrual.
In 2013, the Company recorded an incremental warranty reserve of $7,264,000, which primarily impacted the Asia/Pacific
($4,639,000) and the North America/HME ($2,625,000) segments. The warranty accrual related to the power wheelchair joystick
recall which was increased during the fourth quarter of 2013 principally as a result of the commencement of the recall in the quarter
and the realization that the number of replacement units required was trending higher than the Company's original estimates, which
were based on historical experience related to previous recalls. See Current Liabilities in the Notes to the Consolidated Financial
Statements for the total provision amounts and a reconciliation of the changes in the warranty accrual.
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. In October 2014, the FDA conducted an inspection at the Sanford facility and, at the
conclusion, issued its Form 483 containing four inspectional observations, three of which related to complaint handling and CAPA
and a fourth related to production process controls. In January 2014, the FDA conducted inspections at the Company’s manufacturing
facility in Suzhou, China and at the Company’s electronic components subsidiary in Christchurch, New Zealand, covering quality
systems and current Good Manufacturing Practice regulations. In August 2014, the FDA inspected Alber GmbH in Albstadt,
Germany. The FDA issued its inspectional observations on Form 483 to the Company after these inspections, and the Company
submitted its responses to the agency in a timely manner. The Company has timely filed its response with the FDA and continues
to work on addressing the FDA observations. The results of regulatory claims, proceedings, investigations, or litigation are difficult
to predict. An unfavorable resolution or outcome of the FDA warning letter or other FDA enforcement related to the Sanford
facility 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.
Subsequent Event
Appointment of New Chief Executive Officer
On January 21, 2015, the Company entered into an employment agreement (the “Employment Agreement”) with Matthew
E. Monaghan that provides for his employment as the President and Chief Executive Officer of the Company, effective April 1,
2015. Upon the effectiveness of his appointment, Mr. Monaghan will succeed Robert K. Gudbranson, who has served as the
Company’s Interim President and Chief Executive Officer since August 1, 2014. Mr. Gudbranson will continue to serve as Interim
President and Chief Executive Officer until April 1, 2015, at which time he will continue in his role as Senior Vice President and
Chief Financial Officer.
New Credit Agreement
On January 16, 2015, the Company entered into a Revolving Credit and Security Agreement (the “New Credit Agreement”),
which provides for an asset-based lending senior secured revolving credit facility which matures in January 2018. The New Credit
Agreement was entered into by and among the Company, certain of the Company’s direct and indirect domestic and Canadian
subsidiaries (together with the Company, the “Borrowers”), certain other of the Company’s direct and indirect domestic and
Canadian subsidiaries (the “Guarantors”), and PNC Bank, National Association (“PNC”), JPMorgan Chase Bank, N.A., KeyBank
National Association, and Citizens Bank, National Association (the “Lenders”). PNC is the administrative agent under the New
Credit Agreement (the “Administrative Agent”).