Invacare 2014 Annual Report Download - page 53

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Interest. Interest expense decreased to $3,078,000 in 2013 from $7,739,000 in 2012, representing a 60.2% decrease. This
decrease was attributable primarily to debt reduction during the year as proceeds from the sales of businesses were utilized to
reduce debt. Interest income in 2013 was $384,000 as compared to $686,000 in 2012, primarily due to a reduction in volume of
financing provided to customers.
Income Taxes. The Company had an effective tax rate of 25.0% in 2013 compared to an expected benefit of 35% on the
continuing operations pre-tax loss and 1,413.7% in 2012 on the pre-tax loss from continuing operations. The Company's effective
tax rate in 2013 was unfavorable to the expected U.S. federal statutory rate benefit due to the negative impact of the Company
not being able to record tax benefits related to losses in countries which had tax valuation allowances for the year, except in the
U.S. where a benefit of $3,445,000 was recognized as an intra-period allocation with discontinued operations, more than offsetting
the benefit of foreign income taxed at rates below the U.S. statutory rate. The Company's effective tax rate in 2012 was higher
than the expected U.S. federal statutory rate due to the negative impact of the Company not being able to record tax benefits related
to losses in countries which had tax valuation allowances for the year, except in the U.S. where a benefit of $9,230,000 was
recognized as an intra-period allocation with discontinued operations against a portion of the domestic taxable loss from continuing
operations, more than offsetting the benefit of foreign income taxed at rates below the U.S. statutory rate. In 2012, the Company
also recorded a foreign discrete tax adjustment of $9,336,000 including interest related to prior year periods under audit, which
is being contested by the Company. In 2013, the Company's losses without benefit and valuation allowances existed in the United
States, Australia and New Zealand, and for 2012 also existed for Denmark. During 2013 the Danish valuation allowance of $390,000
was reversed due to a pattern of profitability. 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 $24,075,000 in 2013 from $23,851,000 in 2012. The expenditures, as a percentage of net sales, were 1.8% and 1.7% in 2013
and 2012, 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 $25,652,000 to $22,343,000 at December 31, 2014 from $47,995,000 as of December 31, 2013. The Company's
balance sheet reflects the impact of ASC 470-20, which reduced debt and increased equity by $1,999,000 and $2,709,000 as of
December 31, 2014 and December 31, 2013, respectively. The debt discount decreased $710,000 during 2014, 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 Altimate in the third quarter of 2014 to reduce debt outstanding under the Company's revolving credit facility.
The Company's cash and cash equivalents were $38,931,000 at December 31, 2014 compared to $29,785,000 at December 31,
2013. At December 31, 2014, the Company had $4,000,000 outstanding on its revolving credit facility compared to $28,109,000
as of December 31, 2013.
During 2014, 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 2014, the outstanding
borrowings on the Company's revolving credit facility varied from a low of $4,000,000 to a high of $66,300,000. 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, except in China where the cash balance as of December 31, 2014
was approximately $4,800,000.
On January 31, 2014, the Company entered into an Amended and Restated Credit Agreement (the "Amended and Restated
Credit Agreement") which contained certain 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