Invacare 2014 Annual Report Download - page 28

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The Company’s success depends on the Company’s ability to design, manufacture, distribute and achieve market acceptance
of new products with higher functionality and lower costs.
The Company sells products to customers primarily in markets that are characterized by technological change, product
innovation and evolving industry standards, yet in which product price is increasingly a primary consideration in customers’
purchasing decisions. The Company historically has been engaged in product development and improvement programs. However,
beginning in 2012 as a result of the FDA consent decree, which is described elsewhere in this Annual Report on Form 10-K, the
Company's engineering resources had been focused primarily on quality remediation and not on the design of new products. The
Company has received the FDA's approval to resume design activities at the impacted Elyria facilities in 2013 and has refocused
certain of its engineering resources on new product development.
The Company must continue to design and improve innovative products, effectively distribute and achieve market acceptance
of those products, and reduce the costs of producing the Company’s products, in order to compete successfully with the Company’s
competitors. If competitors’ product development capabilities become more effective than the Company’s product development
capabilities, if competitors’ new or improved products are accepted by the market before the Company’s products or if competitors
are able to produce products at a lower cost and thus offer products for sale at a lower price, the Company’s business, financial
condition and results of operation could be adversely affected.
The Company’s business strategy relies on certain assumptions concerning demographic trends that impact the market for
its products. If these assumptions prove to be incorrect, demand for the Company’s products may be lower than expected.
The Company’s ability to achieve its business objectives is subject to a variety of factors, including the relative increase in
the aging of the general population. The Company believes that these trends will increase the need for its products. The projected
demand for the Company’s products could materially differ from actual demand if the Company’s assumptions regarding these
trends and acceptance of its products by health care professionals and patients prove to be incorrect or do not materialize. If the
Company’s assumptions regarding these factors prove to be incorrect, the Company may not be able to successfully implement
the Company’s business strategy, which could adversely affect the Company’s results of operations. In addition, the perceived
benefits of these trends may be offset by competitive or business factors, such as the introduction of new products by the Company’s
competitors or the emergence of other countervailing trends, including lower reimbursement and pricing.
The terms of the Company’s debt facilities and financing arrangements may limit the Company’s flexibility in operating
its business.
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 and represents
the Company's principal source of financing for much of its liquidity needs. The New Credit Agreement provides the Company
with the ability to borrow under a senior secured revolving credit, letter of credit and swing line loan facility (the “Credit Facility”).
The aggregate borrowing availability under the Credit Facility is determined based on a borrowing base formula set forth in the
New Credit Agreement. The Credit Facility is secured by substantially all of the Company’s domestic and Canadian assets, other
than real estate. The New Credit Agreement contains customary default provisions, with certain grace periods and exceptions, that
include, among other things, failure to pay amounts due, breach of covenants, representations or warranties, bankruptcy, the
occurrence of a material adverse effect, exclusion from any medical reimbursement program, and an interruption of any material
manufacturing facilities for more than ten consecutive days.
The borrowing availability under of the Company's credit agreements may be inadequate to finance the Company's future
operations or capital needs. Furthermore, the restrictive terms of the credit agreements may limit the Company’s ability to conduct
and expand its business and pursue its business strategies. The Company’s ability to comply with the provisions of its credit
agreements can be affected by events beyond its control, including changes in general economic and business conditions, or by
government enforcement actions, such as, for example, adverse impacts from the FDA consent decree of injunction. If the Company
is unable to comply with the provisions in the New Credit Agreement, it could result in a default which could trigger acceleration
of, or the right to accelerate, the related debt. Because of cross-default provisions in its agreements and instruments governing
certain of the Company's indebtedness, a default under the New Credit Agreement could result in a default under, and the acceleration
of, certain other Company indebtedness. In addition, the Company's lenders would be entitled to proceed against the collateral
securing the indebtedness.
The Company's ability to meet its liquidity needs will depend on many factors, including the operating performance of the
business, the Company's ability to successfully complete in a timely manner the third-party expert certification audit and FDA
inspection contemplated under the consent decree and receipt of the written notification from the FDA permitting the Company
to resume full operations, as well as the Company's continued compliance with the covenants under its credit agreements.