Invacare 2015 Annual Report Download - page 55

I-49
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), the net proceeds of the company's issuance in
February 2016 of $130,000,000 aggregate principal amount of 5.00% convertible senior notes due in 2021 (see Subsequent Events
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,
increased by $25,993,000 to $48,323,000 at December 31, 2015 from $22,330,000 as of December 31, 2014. The company's
balance sheet reflects the impact of ASC 470-20, which reduced debt and increased equity by $1,203,000 and $1,999,000 as of
December 31, 2015 and December 31, 2014, respectively. The debt discount decreased $796,000 during 2015, as a result of
amortization of the convertible debt discount. The debt increase during the year was principally the result of the recording of
$32,339,000 in capital lease liabilities as a result of the company's real estate sale and leaseback transaction completed in the
second quarter of 2015. The company's cash and cash equivalents were $60,055,000 at December 31, 2015 compared to $38,931,000
at December 31, 2014. At December 31, 2015, the company had no borrowings outstanding on its revolving credit facility compared
to $4,000,000 as of December 31, 2014.
The company's borrowing capacity and cash balances were utilized for normal operations during the period ended
December 31, 2015. Debt repayments, 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 given
period. During 2015, the outstanding borrowings on the company's revolving credit facility varied from a low of zero to a high
of $35,000,000. 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, 2015 was approximately $5,500,000.
On January 16, 2015, the company entered into an asset-based lending Revolving Credit and Security Agreement (the “Prior
Credit Agreement”), which was amended on April 22, 2015 and amended and restated on September 30, 2015 to provide for a
new revolving line of credit, letter of credit and swing line facility for European borrowers (the “Amended and Restated Credit
Agreement”). The initial borrowings under the Prior Credit Agreement were used to repay approximately $17,000,000 in aggregate
principal amount of borrowings and terminate the company's previous credit agreement, which was scheduled to mature in October
2015. As determined pursuant to the borrowing base formula for the U.S. and Canadian borrowers, the company’s borrowing base
including the period ending December 31, 2015 under the U.S. and Canadian Credit Facility of the Amended and Restated Credit
Agreement was approximately $64,655,000, with aggregate borrowing availability of approximately $38,230,000, taking into
account the then-applicable $10,000,000 minimum availability reserve, then-outstanding letters of credit, other reserves and the
$11,250,000 dominion trigger amount noted below. As determined pursuant to the borrowing base formula for the European
borrowers, the company’s borrowing base including the period ending December 31, 2015 under the European Credit Facility of
the Amended and Restated Credit Agreement was approximately $21,528,000, with aggregate borrowing availability of
approximately $15,153,000, taking into account the $3,000,000 minimum availability reserve, then-outstanding letters of credit,
other reserves and the $3,375,000 dominion trigger amount noted below. See Long-Term Debt in the Notes to the Consolidated
Financial Statements for more details regarding the Amended and Restated Credit Agreement.
As a result of entering into the Amended and Restated Credit Agreement, the company incurred $1,954,000 in fees, which
were capitalized and are being amortized through January 2018. In addition, as a result of terminating the previous credit agreement,
which was scheduled to mature in October 2015, the company wrote-off $668,000 in previously capitalized fees in the first quarter
of 2015, which is reflected in the expense of the North America / HME segment.
As of December 31, 2015, the company was in compliance with all covenant requirements. The Amended and Restated
Credit Agreement contains customary representations, warranties and covenants including dominion triggers requiring the company
to maintain borrowing capacity of not less than $11,250,000 on an given business day or $12,500,000 for five consecutive days
related to the U.S. and Canadian borrowers and $3,375,000 on an given business day or 12.5% of the maximum amount that may
be drawn under the European Credit Facility for five consecutive days related to European borrowers in order to avoid triggering