Avid 2015 Annual Report Download - page 26

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Risks Related to Our Liquidity and Financial Performance
If we are not able to generate and maintain adequate liquidity our ability to operate our business could be adversely
affected.
Generating and maintaining adequate liquidity is important to our business operations. We meet our liquidity needs primarily
through cash generated by operations, proceeds from our issuance of 2.00% convertible senior notes due 2020, and borrowings
represented by the Term Loan under the Financing Agreement. We also have the ability to borrow up to $5.0 million under the
Credit Facility. We have also undertaken significant cost cutting measures, including pursuant to the restructuring plan we
announced in February 2016, and we may take additional measures to further improve our liquidity. Significant fluctuations in our
cash balances could harm our ability to meet our immediate liquidity needs, impair our capacity to react to sudden or unexpected
contractions or growth in our business, reduce our ability to withstand a sustained period of economic crisis, and impair our
ability to compete with competitors with greater financial resources. In addition, fluctuations in our cash balances could cause us
to draw on our Credit Facility and therefore reduce available funds under the Credit Facility (see “Management’s Discussion and
Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources” in Item 7 of this Form 10-K). If we
are unable to generate sufficient cash flow or our borrowings are not sufficient, our liquidity may significantly decrease, which
could have an adverse effect on our business.
Restrictions in the Financing Agreement may limit our activities.
The Financing Agreement contains restrictive covenants that limit our ability to engage in activities that could otherwise benefit
us, including, among other things, limitations on our ability to make investments, incur additional indebtedness, issue equity, sell
assets, pay dividends and make other restricted payments, and create liens. We are also required to comply on an ongoing basis
with certain financial covenants, including a maximum leverage ratio and an annual limit on the amount of our capital
expenditures. Failure to comply with any of these restrictions or covenants may result in an event of default under the Financing
Agreement, which could permit acceleration of the outstanding indebtedness under the Financing Agreement and require us to
repay such indebtedness before its scheduled due date. Certain events of default under the Financing Agreement may also give
rise to a default under our convertible notes due 2020 or other future indebtedness. If an event of default were to occur, we might
not have sufficient funds available to make the payments required. If we are unable to repay amounts owed, our lenders may be
entitled to foreclose on and sell substantially all of our assets, which secure our borrowings under the Financing
Agreement.
Our debt levels increased significantly as a result of our entry into the Financing Agreement, our issuance of the 2.00%
Convertible Senior Notes due 2020 (“Notes”) and our borrowings under the Term Loan, and our substantial indebtedness
could adversely affect our business, cash flow and results of operations.
Our indebtedness increased by $195 million as a result of our entry into the Financing Agreement in February 2016 and our
issuance of the Notes in June 2015. We also borrowed $100.0 million under the Term Loan. This increased level of indebtedness
may:
• require us to dedicate a greater percentage of our cash flow from operations to payments on our debt, thereby reducing
the availability of cash flow to fund capital expenditures, pursue other acquisitions or investments and use for general
corporate purposes;
• increase our vulnerability to general adverse economic conditions, including increases in interest rates with respect to
borrowings under the Financing Agreement that bear interest at variable rates or when our indebtedness is being
refinanced;
• limit our ability to obtain additional financing; and
• limit our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry, creating
competitive disadvantages compared to other competitors with lower debt levels and borrowing costs.
We cannot assure you that our cash flow from operations, combined with any additional borrowings available to us, will be
sufficient to enable us to repay our indebtedness, or to fund other liquidity needs. We may incur additional indebtedness in the
future, which could cause these risks to intensify. If we are unable to generate sufficient cash flows, we may be required to adopt
one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be
onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial