Invacare 2008 Annual Report Download - page 51

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On February 1, 2017 and 2022 and upon the occurrence of certain circumstances, holders have the right to
require the company to repurchase all or some of their debentures. The net proceeds to the company from the
offering of the debentures were approximately $132.3 million.
The company’s borrowing arrangements contain covenants with respect to, among other items, maximum
amount of debt, minimum loan commitments, interest coverage, net worth, dividend payments, working capital,
and funded debt to capitalization, as defined in the company’s bank agreements and agreement with its note
holders. The company is currently, and expects to be in 2009, in compliance with all covenant requirements.
Under the most restrictive covenant of the company’s borrowing arrangements as of December 31, 2008, the
company had the capacity to borrow up to an additional $150,000,000 via the company’s revolving credit
facility; provided that this capacity is not necessarily available to fund acquisitions by the company. The
company’s borrowing arrangements impose restrictions regarding the establishment of intercompany loans and
thus, cash transfers. Those restrictions can have a negative impact on the company’s ability to meet liquidity
needs, particularly in the United States.
While there is general concern about the potential for rising interest rates, the company believes that its
exposure to interest rate fluctuations is manageable given that portions of the company’s debt are at fixed rates
for extended periods of time, the company has the ability to utilize swaps to exchange variable rate debt to fixed
rate debt, if needed, and the company’s free cash flow should allow it to absorb any modest rate increases in the
months ahead without any material impact on its liquidity or capital resources. As of December 31, 2008, the
weighted average floating interest rate on borrowings was 7.19%.
As is the case for many companies operating in the current economic environment, the company is exposed
to a number of risks arising out of the global credit crisis. These risks include the possibility that: one or more of
the lenders participating in the company’s revolving credit facility may be unable or unwilling to extend credit to
the company; the third party company that provides lease financing to the company’s customers may refuse or be
unable to fulfill its financing obligations or extend credit to the company’s customers; one or more customers of
the company may be unable to pay for purchases of the company’s products on a timely basis; one or more key
suppliers may be unable or unwilling to provide critical goods or services to the company; and one or more of the
counterparties to the company’s hedging arrangements may be unable to fulfill its obligations to the company.
Although the company has taken actions in an effort to mitigate these risks, during periods of economic
downturn, the company’s exposure to these risks increases. Events of this nature may adversely affect the
company’s liquidity or sales and revenues, and therefore have an adverse effect on the company’s business and
results of operations.
CAPITAL EXPENDITURES
There are no individually material capital expenditure commitments outstanding as of December 31, 2008.
The company estimates that capital investments for 2009 could approximate $20,000,000 to $22,000,000,
compared to actual capital expenditures of $19,957,000 in 2008. The company believes that its balances of cash
and cash equivalents, together with funds generated from operations and existing borrowing facilities, will be
sufficient to meet its operating cash requirements and fund required capital expenditures for the foreseeable
future.
CASH FLOWS
Cash flows provided by operating activities were $76,414,000 in 2008, compared to $79,100,000 in the
previous year. The 2007 operating cash flow amount benefited from the collection of a tax receivable of
$11,800,000 and $5,000,000 in insurance proceeds received on an embezzlement claim, compared to a tax
receivable collection in 2008 of $4,000,000. Excluding these items, operating cash flows in 2008 benefited from
much improved earnings offset by higher accounts receivable due to strong fourth quarter 2008 sales and greater
cash used for inventory in 2008 as compared to 2007.
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