Invacare 2009 Annual Report Download - page 52

are three significant financial covenants, under the credit facility: leverage ratio, interest coverage ratio and fixed
charge ratio. As of December 31, 2009, the company was in compliance with all covenant requirements. Under
the most restrictive covenant of the company’s borrowing arrangements as of December 31, 2009, the company
had the capacity to borrow up to an additional $148,275,000.
The leverage ratio is defined in the credit facility as Consolidated Funded Indebtedness at the balance sheet
date as compared to Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for
the previous twelve months. As of December 31, 2009, the maximum leverage ratio permitted by the borrowing
arrangements was 4.0 to 1.0. The actual leverage ratio as of December 31, 2009 was 2.24 to 1.0.
The interest coverage ratio is defined in the credit facility as Consolidated EBITDA for the previous twelve
months as compared to Consolidated Interest Charges for the previous twelve months. As of December 31, 2009,
the minimum interest coverage ratio permitted by the borrowing arrangements was 3.0 to 1.0. The actual interest
coverage ratio as of December 31, 2009 was 5.01 to 1.0.
The fixed charge ratio, as defined in the credit facility, takes into consideration several items including:
Consolidated EBITDA, rent and lease expense, capital expenditures, interest charges, regularly scheduled
principal payments and federal, state and local taxes paid. As of December 31, 2009, the minimum fixed charge
ratio permitted by the borrowing arrangements was 1.6 to 1.0. The actual fixed charge ratio as of December 31,
2009 was 2.20 to 1.0.
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, 2009, the
weighted average floating interest rate on borrowings was 7.27%.
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, 2009.
The company estimates that capital investments for 2010 could approximate $25,000,000, compared to actual
capital expenditures of $17,999,000 in 2009. 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.
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