Invacare 2011 Annual Report Download - page 55

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) of no greater than 3.50 to 1, and
a minimum interest coverage ratio (consolidated EBITDA to consolidated interest charges, each as defined in the
Credit Agreement) of no less than 3.50 to 1. As of December 31, 2011, the company’s leverage ratio was 1.81
and the company’s interest coverage ratio was 23.80 compared to a leverage ratio of 1.89 and an interest
coverage ratio of 8.40 as of December 31, 2010. As of December 31, 2011, the company was in compliance with
all covenant requirements and under the most restrictive covenant of the company’s borrowing arrangements, the
company had the capacity to borrow up to an additional $152,937,000.
The company may from time to time seek to retire or purchase its 4.125% Convertible Senior Subordinated
Debentures due 2027, in open market purchases, privately negotiated transactions or otherwise. Such purchases
or exchanges, if any, will depend on prevailing market conditions, the company’s liquidity requirements,
contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the
aggregate, may be material. In 2011, the company repurchased and extinguished $63,351,000 principal amount
of its Convertible Senior Subordinated Debentures compared to $57,799,000 in 2010. At December 31, 2011, the
company had $13,850,000 par value outstanding of its Convertible Senior Subordinated Debentures.
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
into 2013, the company has the ability to utilize swaps to exchange variable rate debt for 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. In 2011, the company entered into interest
rate swap agreements to effectively convert a portion of floating rate revolving credit facility debt to fixed rate
debt to avoid the risk of changes in market interest rates. Specifically, interest rate swap agreements for notional
amounts of $18,000,000 and $22,000,000 through September 2013, $20,000,000 and $25,000,000 through May
2013 and $15,000,000 through February 2013 were entered into that fix the LIBOR component of the interest
rate on that portion of the revolving credit facility debt at rates of 0.625%, 0.46%, 1.08%, 0.73% and 1.05%,
respectively, for effective aggregate rates of 2.375%, 2.21%, 2.83%, 2.48% and 2.80%, respectively. As of
December 31, 2011, the weighted average floating interest rate on all borrowings was 2.54% compared to 3.29%
as of December 31, 2010.
In the current economic environment, the company is exposed to a number of risks. These risks include the
possibility, among other things, 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; interest rates on the company’s variable rate debt could increase significantly; 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, 2011.
The company estimates that capital investments for 2012 could approximate between $25,000,000 and
$30,000,000, compared to actual capital expenditures of $22,160,000 in 2011. 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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