Invacare 2014 Annual Report Download - page 44

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
OUTLOOK
The Company's financial results were negatively impacted in 2014 and will continue to be pressured in 2015 as a result of its
consent decree with the United States Food and Drug Administration (FDA) affecting operations at the Corporate and Taylor Street
facilities in Elyria, Ohio, which requires that a third-party expert perform three separate certification audits. Before the FDA will
inspect the Company's facilities and consider whether to permit the Company to resume full operations, the third-party certification
audit reports must be completed and submitted to the FDA for review and acceptance. The Company has received the FDA's
acceptance of the first two certification reports. However, the Company cannot predict the timing or the outcome of the third expert
certification audit.
With the help of a consulting firm the Company engaged in 2014, the Company's internal subject matter experts are executing
action plans to improve the functionality and capabilities of certain quality subsystems, most notably complaint handling and
corrective and preventative actions (CAPA). The Company has identified the root causes of the issues that need to be addressed in
order to achieve sustainable compliance and the Company is working through quality implementation plans that are intended to
help the Company achieve the appropriate solution. The Company is making progress, but there is still work to do, including process
improvements for addressing complaint data, before the Company can verify the effectiveness of its solutions and complete the
third-party expert certification audit.
According to the consent decree, once the expert's third certification audit is completed and its certification report is submitted
to the FDA, as well as the Company’s own report related to its compliance status together with its responses to any observations
in the certification report, the FDA will inspect the Company's corporate and Taylor Street facilities to determine whether they are
in compliance with the FDA's Quality System Regulation (QSR). Once the FDA is satisfied with the Company's compliance, the
FDA will provide written notification that the Company is permitted to resume full operations at the impacted facilities.
The Company's European segment reported strong earnings again in 2014 while the Company's Institutional Products Group,
excluding intangible impairment charges, and Asia/Pacific segment had improved results as well, particularly in the fourth quarter
of 2014. However, if the Euro continues to be weak in 2015 relative to the U.S. dollar in comparison to 2014, the Company's
performance will be negatively impacted as the European segment was the Company's main driver of profitability and cash flow
in 2014. In addition, the Company must make Supplemental Executive Retirement Plan and deferred compensation payments of
approximately $24,700,000 in 2015 as the result of the retirement of four senior executives during 2014 which will negatively
impact operating cash flows for the Company. Accordingly, the Company will monitor and manage cash flow particularly closely
in 2015 while working diligently toward improving the profitability of the North America/HME and Asia/Pacific businesses, and
continuing its quality systems remediation.
In January 2015, the Company finalized its New Credit Agreement which provides for an asset-based lending senior secured
revolving credit facility which matures in January 2018. The New Credit Agreement provides the Company with the ability to
borrow up to an aggregate principal amount of $100 million under the related Credit Facility, which includes a senior secured
revolving credit, letter of credit and swing line loan facility. The aggregate borrowing availability under the Credit Facility is
determined based on a borrowing base formula set forth in the New Credit Agreement. See “Subsequent Event” in the Notes to the
Condensed Consolidated Financial Statements. Continued compliance with the Company's credit agreements is a high priority,
which means the Company remains focused on generating sufficient cash and managing its expenditures. The Company also may
examine alternatives such as raising additional capital through permitted asset sales or sale leaseback transactions. Such alternatives,
if available on terms satisfactory to the Company, could be dilutive to the Company's results.
As described elsewhere in this Annual Report on Form 10-K, for the fiscal quarter and the fiscal year ended December 31,
2014, the Company had a net loss from continuing operations of $0.21 per share and $2.15 per share, respectively. These results
are indicative of the pressures on the Company's net sales and margins that were present throughout 2014. During 2014, the net
sales of the Company’s North America/HME segment were negatively impacted by external factors principally related to National
Competitive Bidding (NCB). Lifestyle products in this segment were primarily impacted by a shift toward lower cost products that
are subject to the Centers for Medicare and Medicaid Services’ National Competitive Bidding (NCB) program and pre- and post-
payment audits. The Company is addressing its product portfolio in an effort to minimize declines in this product segment into
2015. In addition, the Company continued to closely monitor the roll-out of NCB, which is effective in 100 metropolitan statistical
areas (MSAs) of the United States.
The Company estimates that, for the full year of 2014, approximately $299,000,000 in net sales of its U.S. HME equipment
business, the major division within the North America/HME segment, were products sold to homecare providers that were included