Invacare 2013 Annual Report Download - page 56

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of Justice case and a German Tax Court case that impacted an open tax return year. In both years, the Company's losses without
benefit and valuation allowances existed in the United States, Denmark, Australia and New Zealand. See “Income Taxes” in the
Notes to the Consolidated Financial Statements included elsewhere in this report for more detail.
Research and Development. Research and development expenditures, which are included in costs of products sold, decreased
to $24,459,000 in 2012 from $27,556,000 in 2011. The expenditures, as a percentage of net sales, were 1.7% and 1.9% in 2011
and 2010, respectively.
INFLATION
Although the Company cannot determine the precise effects of inflation, management believes that inflation does continue
to have an influence on the cost of materials, salaries and benefits, utilities and outside services. The Company attempts to minimize
or offset the effects through increased sales volumes, capital expenditure programs designed to improve productivity, alternative
sourcing of material and other cost control measures.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain an adequate liquidity position through its unused bank lines of credit (see Long-Term
Debt in the Notes to Consolidated Financial Statements included in this report) and working capital management.
The Company's total debt outstanding, inclusive of the debt discount included in equity in accordance with FSB APB 14-1,
decreased by $190,148,000 to $47,995,000 at December 31, 2013 from $238,143,000 as of December 31, 2012. The Company's
balance sheet reflects the impact of ASC 470-20, which reduced debt and increased equity by $2,709,000 and $3,341,000 as of
December 31, 2013 and December 31, 2012, respectively. The debt discount decreased $632,000 during 2013, as a result of
amortization of the convertible debt discount. The debt decrease during the year was principally the result of using the proceeds
from the sale of ISG in the first quarter and Champion in the third quarter of 2013 to reduce debt outstanding under the Company's
revolving credit facility. The Company's cash and cash equivalents were $29,785,000 at December 31, 2013, and decreased from
$38,791,000 at December 31, 2012. At December 31, 2013, the Company had outstanding $28,109,000 on its revolving line of
credit compared to $217,494,000 as of December 31, 2012.
During 2013, the Company's borrowing capacity and cash on hand were utilized for normal operations. Debt repurchases,
acquisitions, divestitures, the timing of vendor payments, the granting of extended payment terms to significant national accounts
and other activity can have a significant impact on the Company's cash flow and borrowings outstanding such that the debt reported
at the end of a given period may be materially different than debt levels during a different given period. During 2013, the outstanding
borrowings on the Company's revolving credit facility varied from a low of $28,100,000 to a high of $267,900,000. While the
Company has cash balances in various jurisdictions around the world, there are no material restrictions regarding the use of such
cash for dividends within the Company, loans or other purposes.
Senior Credit Facility.
Prior Credit Agreement. The Company's senior secured revolving credit agreement, (the “Credit Agreement”), as entered
into on October 28, 2010, originally provided for a $400 million senior secured revolving credit facility maturing in October 2015.
The Credit Agreement contains certain covenants that are customary for similar credit arrangements, including covenants relating
to, among other things, financial reporting and notification, compliance with laws, preservation of existence, maintenance of books
and records, use of proceeds, maintenance of properties and insurance, and limitations on liens, dispositions, issuance of debt,
investments, payment of dividends, repurchases of capital stock, acquisitions, transactions with affiliates, and capital expenditures.
There also are financial covenants that require the Company to maintain a maximum leverage ratio (consolidated funded
indebtedness to consolidated EBITDA, each as defined in the Credit Agreement, as amended) and a minimum interest coverage
ratio (consolidated EBITDA to consolidated interest charges, each as defined in the Credit Agreement, as amended).
On May 30, 2013, the Company entered into a Fourth Amendment ("the Amendment") to its Credit Agreement. Pursuant
to the Amendment, the Credit Agreement was amended to: (i) decrease the aggregate principal amount of the revolving credit
facility to $250,000,000 from $400,000,000, and limit the Company's borrowings under the revolving credit facility to an amount
not to exceed $200,000,000 aggregate principal amount through December 31, 2013; (ii) increase the maximum leverage ratio to
4.00 to 1.00 from 3.50 to 1.00 until January 1, 2014, when the maximum leverage ratio will revert back to 3.50 to 1.00; (iii)
decrease the minimum interest coverage ratio to 3.00 to 1.00 from 3.50 to 1.00 until January 1, 2014, when the minimum interest
coverage ratio will revert back to 3.50 to 1.00; (iv) in calculating consolidated EBITDA for purposes of determining the ratios,
provide for the add back to consolidated EBITDA of up to an additional $15,000,000 for future one-time cash restructuring charges
and (v) provide for an increase of (A) 25 basis points in the margin applicable to determining the interest rate on borrowings under
the revolving credit facility and letter of credit fees and (B) 10 basis points in the commitment fee, all during periods when the