Invacare 2015 Annual Report Download - page 122

INVACARE CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-50
higher cost joysticks, which was recorded in the North America/HME segment ($1,612,000) and the Asia/Pacific segment
($1,265,000).
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 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 Forms 483 to the company after these inspections, and the company submitted its
responses to the agency in a timely manner. In October 2014, the FDA conducted an inspection at the Sanford facility and, at the
conclusion, issued its Form 483 observations. In December 2015, the FDA issued Form 483 observations following a 2015 inspection
of approximately 5 months at the Corporate and Taylor Street facilities in Elyria, Ohio which included a review of the company’s
compliance with terms of the consent decree and the matters covered by the first and second expert certification reports previously
accepted in 2013. The company has timely filed its responses to these Form 483 with the FDA and continues to work on addressing
the FDA's 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 or other company
facilities 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
On February 16, 2016, in connection with the commencement of the company's offering of 5.00% convertible senior notes
due 2021 described below, the company entered into a First Amendment to Amended and Restated Revolving Credit and Security
Agreement (the “Credit Agreement Amendment”), which amended the Amended and Restated Revolving Credit and Security
Agreement (the “Credit Agreement”), dated as of September 30, 2015, by and among the company, certain of the company’s direct
and indirect domestic, Canadian and European subsidiaries, the lenders party thereto, PNC Bank, National Association, as the
administrative agent, and J.P. Morgan Europe Limited, as the European agent. The Credit Agreement Amendment provides for,
among other things:
• the amendment of the negative covenant regarding indebtedness to permit the issuance of new convertible notes ;
• the amendment of various negative covenants to permit convertible bond hedge and warrant transactions to be entered
into by the company in connection with the issuance of new convertible notes;
• the amendment of the mandatory prepayment provision to eliminate the prepayment requirement that would otherwise
be required upon the receipt of proceeds from the issuance of the convertible notes and the sale of the warrants and the
negative covenant regarding dividends to permit the issuance of certain equity interests, payment of interest on the notes
and certain payments to be made upon conversion of the convertible notes, as well as upon the exercise, settlement or
termination of the convertible bond hedge and warrant transactions, so long as the company is not, and would not after
giving pro-forma effect to any such transaction be, in default under the Credit Agreement and has had undrawn availability
equal to at least 20% of the maximum revolving advance amount under its North American-based credit facility (which
maximum amount is currently $100,000,000) for the 30 consecutive days ending delivered by the company under the
Credit Agreement;
• the amendment of the negative covenant to permit the repurchase by the company of up to $5,000,000 of its common
shares, including any such shares that may be repurchased in connection with the issuance of the convertible notes so
long as the company is not, and would not after giving pro-forma effect to any such repurchase be, in default under the
Credit Agreement and has had undrawn availability equal to at least 20% of the maximum revolving advance amount
under its North American-based credit facility (which maximum amount is currently $100,000,000) for the 30 consecutive
days ending as of the date of the most recent North American borrowing base certificate delivered by the company under
the Credit Agreement;