Invacare 2012 Annual Report Download - page 35

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defined under the credit facility) of no greater than 3.5 to 1, and a minimum interest coverage ratio (consolidated
EBITDA to consolidated interest charges, as defined under the credit facility) of no less than 3.5 to 1. In
calculating the leverage ratio, the company can only exclude cash restructuring charges up to a maximum of
$15,000,000 over the life of the agreement and the company reached the limitation in the fourth quarter of 2012.
Accordingly, all additional cash restructuring charges will count to reduce EBITDA thereunder. If the company
were unsuccessful in meeting these covenants or other, financial or operating covenants in its credit facility, it
would result in a default which could trigger acceleration of, or the right to accelerate, the related debt. Because
of cross-default provisions in the agreements and instruments governing certain of the company’s indebtedness, a
default under the credit facility could result in a default under, and the acceleration of, certain other company
indebtedness. In addition, the company’s lenders would be entitled to proceed against the collateral securing the
indebtedness.
These covenants could materially and adversely affect the company’s ability to finance its future operations
or capital needs. Furthermore, they may restrict the company’s ability to conduct and expand its business and
pursue its business strategies. The company’s ability to meet these financial ratios and financial condition tests
can be affected by events beyond its control, including changes in general economic and business conditions, or
they can be affected by government enforcement actions, such as, for example, adverse impacts from the FDA
consent decree of injunction. If the company were unsuccessful in meeting those, or other, financial or operating
covenants in its credit facility, it would result in a default which could trigger acceleration of, or the right to
accelerate, the related debt. The company’s ability to meet its liquidity needs will depend on many factors,
including the operating performance of the business, the company’s ability to successfully complete in a timely
manner the third-party expert certification audit and FDA inspection contemplated under the consent decree and
receipt of the written notification from the FDA permitting the company to resume full operations, as well as the
company’s continued compliance with the covenants under its credit facility. Notwithstanding the company’s
expectations, if the company’s operating results decline more than it currently anticipates, or if the company is
unable to successfully complete the consent decree-related third-party expert certification audit and FDA
inspection within the currently estimated time frame, the company may be unable to comply with the financial
covenants, and its lenders could demand repayment of the amounts outstanding under the company’s credit
facility.
As a result, continued compliance with the leverage covenant under the company’s credit facility is a high
priority, which means the company remains focused on generating sufficient cash and managing its expenditures.
The company also may examine alternatives such as raising additional capital through permitted asset sales. Such
asset sales could be dilutive to the company’s results. In addition, if necessary or advisable, the company may
seek to renegotiate its credit facility in order to remain in compliance. The company can make no assurances that
under such circumstances its financing arrangements could be renegotiated, or that alternative financing would
be available on terms acceptable to the company, if at all.
The company also has an agreement with DLL, a third party financing company, to provide the majority of
future lease financing to Invacare’s North America customers. Either party could terminate this agreement with
180 days notice or 90 days notice by DLL upon the occurrence of certain events. Should this agreement be
terminated, the company’s borrowing under the credit agreement could increase.
The company’s capital expenditures could be higher than anticipated.
Unanticipated maintenance issues, changes in government regulations or significant investments in
technology and new product development could result in higher than anticipated capital expenditures, which
could impact our debt, interest expense and cash flows.
I-29