Invacare 2014 Annual Report Download - page 20

I-16
Item 1A. Risk Factors.
The Company’s business, operations and financial condition are subject to various risks and uncertainties. One should
carefully consider the risks and uncertainties described below, together with all of the other information in this annual report on
Form 10-K and in the Company’s other filings with the SEC, before making any investment decision with respect to the Company’s
securities. The risks and uncertainties described below may not be the only ones the Company faces. Additional risks and
uncertainties not presently known by the Company or that the Company currently deems immaterial may also affect the Company’s
business. If any of these known or unknown risks or uncertainties actually occur, develop or worsen, the Company’s business,
financial condition, results of operations and future growth prospects could change substantially.
The Company is subject to a consent decree of injunction ("consent decree") with the U.S. Food and Drug Administration
(“FDA”), the effects of which are costly to the Company and could result in continued adverse consequences to the Company's
business.
The consent decree, which was filed as an exhibit to the Company's Form 8-K filed on December 20, 2012, became effective
December 21, 2012. The injunction limits the Company's manufacture and distribution of power and manual wheelchairs,
wheelchair components and wheelchair sub-assemblies at or from its Taylor Street manufacturing facility in Elyria, Ohio. The
decree also temporarily limited design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio
facilities. However, the Company is entitled to continue to produce from the Taylor Street manufacturing facility certain medically
necessary wheelchairs provided that documentation and record-keeping requirements are followed, as well as ongoing replacement,
service and repair of products already in use, under terms delineated in the consent decree. In addition, the Company was able to
fulfill purchase orders and quotes that were in the Company's order fulfillment system prior to the effective date of the decree.
Under the terms of the consent decree, in order to resume full operations at the impacted facilities, the Company must successfully
complete a third-party expert certification audit and receive written notification from the FDA. The certification audit is comprised
of three distinct reports. The first two of the three certification reports were completed and accepted by the FDA during 2013. The
final and most comprehensive certification audit was initiated during 2013, but has not yet been completed. The timing of the
third certification audit is uncertain. After completion of the third certification report, the Company then must submit its own
report related to its compliance status and its responses to any observations by the third-party expert or by the FDA from prior
inspections. The Company will not be able to resume full operations at the corporate and Taylor Street facilities until the FDA
issues written notice that it has found the facilities to be in compliance. Within 30 days of receiving the Company’s report, according
to the terms of the consent decree, the FDA will begin a comprehensive inspection of the corporate and Taylor Street facilities.
It is not possible for the Company to estimate the timing of completion of the third certification report, or the timing or
potential response of the FDA's inspection and subsequent written notification. Further significant delays in the timing of the
completion of the final third-party expert certification audit, the FDA's inspection or written notification to resume operations, or
any need to complete significant additional remediation as a result of the final third-party expert certification audit or the FDA
inspection could have a material adverse effect on the Company's business, financial condition, liquidity or results of operations.
After resumption of full operations, the Company must undergo five years of audits by a third-party expert auditor, who will
issue reports to the Company and the FDA identifying whether the facilities are operated and administered in continuous compliance
with FDA regulations and the consent decree. Under the consent decree, the FDA has the authority to inspect the corporate and
Taylor Street facilities at any time. The FDA also has the authority to order the Company to take a wide variety of actions if the
FDA finds that the Company is not in compliance with the consent decree or FDA regulations. The FDA also has authority under
the consent decree to assess liquidated damages for any violations of the consent decree, FDA regulations or the federal Food,
Drug and Cosmetic Act. See Item 1. Business -- Government Regulation. Any such failure by the Company to comply with the
consent decree or FDA regulations, or any need to complete significant remediation as a result of any such audits or inspections,
or actions taken by the FDA as a result of any such failure to comply, could have a material adverse effect on the Company’s
business, financial condition, liquidity or results of operations.
During the pendency of the consent decree negotiations in 2012, and during its effectiveness since December 21, 2012, the
Company has experienced significant pressures on its net sales and operating results. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations. The Company expects to continue to experience pressure on net sales
and profitability, particularly in the North America/HME segment, until it has successfully completed the previously described
final third-party expert certification audit and FDA inspection and has received written notification from the FDA that the Company
may resume full operations. Even after the Company receives the FDA notification, it is uncertain as to whether, or how quickly,
the Company will be able to rebuild net sales and profitability to more typical historical levels, irrespective of market conditions.
If the Company is unable to obtain FDA approval to resume full operations, the Company may be required to restructure its business
strategy to rebuild profitability, and there can be no assurance that it would be successful in doing so.