Invacare 2013 Annual Report Download - page 94

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-20
The increase in the liability for pre-existing warranties in 2013 is primarily the result of product recalls. The warranty accrual
as of December 31, 2013 includes anticipated warranty expense related to the power wheelchair joystick recall of $7,264,000 pre-
tax ($7,170,000 after-tax), which primarily impacted the Asia/Pacific ($4,639,000) and the North America/HME segment
($2,625,000). The warranty accrual related to the power wheelchair joystick recall was increased during the fourth quarter of
2013 principally as a result of the commencement of the recall in the quarter and the realization that the number of replacement
units required was trending higher than the Company's original estimates, which were based on historical information related to
previous recalls. The effect of this change in estimate increased warranty expense by $3,402,000 ($3,308,000 after-tax) in the
fourth quarter of 2013. The Company will continue to review the adequacy of the joystick recall accrual as the recall progresses.
Long-Term Debt
Debt as of December 31, 2013 and 2012 consisted of the following (in thousands):
2013 2012
Senior secured revolving credit facility, due in October 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,109 $ 217,494
Convertible senior subordinated debentures at 4.125%, due in February 2027. . . . . . . . . . . . . . . 10,641 10,009
Other notes and lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,536 7,299
45,286 234,802
Less current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,102)(5,427)
$ 31,184 $ 229,375
The Company's senior secured revolving credit agreement, (the “Credit Agreement”), as entered into on October 28, 2010,
originally provided for a $400 million senior secured revolving credit facility maturing in October 2015. The Credit Agreement
contains certain covenants that are customary for similar credit arrangements, including covenants relating to, among other things,
financial reporting and notification, compliance with laws, preservation of existence, maintenance of books and records, use of
proceeds, maintenance of properties and insurance, and limitations on liens, dispositions, issuance of debt, investments, payment
of dividends, repurchases of capital stock, acquisitions, transactions with affiliates, and capital expenditures. There also are 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, as amended) and a minimum interest coverage ratio (consolidated EBITDA
to consolidated interest charges, each as defined in the Credit Agreement, as amended).
On May 30, 2013, the Company entered into a Fourth Amendment ("the Amendment") to its Credit Agreement. Pursuant
to the Amendment, the Credit Agreement was amended to: (i) decrease the aggregate principal amount of the revolving credit
facility to $250,000,000 from $400,000,000, and limit the Company's borrowings under the revolving credit facility to an amount
not to exceed $200,000,000 aggregate principal amount through December 31, 2013; (ii) increase the maximum leverage ratio to
4.00 to 1.00 from 3.50 to 1.00 until January 1, 2014, when the maximum leverage ratio reverts back to 3.50 to 1.00; (iii) decrease
the minimum interest coverage ratio to 3.00 to 1.00 from 3.50 to 1.00 until January 1, 2014, when the minimum interest coverage
ratio will revert back to 3.50 to 1.00; (iv) in calculating consolidated EBITDA for purposes of determining the ratios, provide for
the add back to consolidated EBITDA of up to an additional $15,000,000 for future one-time cash restructuring charges and (v)
provide for an increase of (A) 25 basis points in the margin applicable to determining the interest rate on borrowings under the
revolving credit facility and letter of credit fees and (B) 10 basis points in the commitment fee, all during periods when the leverage
ratio exceeds 3.50 to 1.00. The initial restructuring charge limitation of $15,000,000 for the life of the agreement was reached in
the fourth quarter of 2012. As a result of reaching the charge limitation, EBITDA for the leverage ratio as of December 31, 2013
was reduced by cash charges of $3,871,000. Compliance with the ratios is tested at the end of the quarter in accordance with the
Credit Agreement. As a result of the Amendment, the Company incurred $436,000 in fees in the second quarter of 2013 which
were capitalized and are being amortized through October, 2015. In addition, as a result of reducing the capacity of the facility
from $400,000,000 to $250,000,000, the Company wrote-off $1,216,000 in fees previously capitalized in the second quarter of
2013, which is reflected in the expense of the North America / HME segment.
The Credit Agreement also provides for the issuance of swing line loans. Borrowings under the Credit Agreement bear
interest, at the Company's election, at (i) the London Inter-Bank Offer Rate (“LIBOR”) plus a margin; or (ii) a Base Rate Option
plus a margin. The applicable margin is currently 2.25% per annum for LIBOR loans and 1.25% for the Base Rate Option loans
based on the Company's leverage ratio. In addition to interest, the Company is required to pay commitment fees on the unused
portion of the Credit Agreement. The commitment fee rate is currently 0.35% per annum. Like the interest rate spreads, the
commitment fee is subject to adjustment based on the Company's leverage ratio. The obligations of the borrowers under the Credit