Invacare 2013 Annual Report Download - page 95

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-21
Agreement are secured by substantially all of the Company's U.S. assets and are guaranteed by substantially all of the Company's
material domestic and foreign subsidiaries.
As of December 31, 2013, the Company's leverage ratio was 2.30 and the Company's interest coverage ratio was 7.51
compared to a leverage ratio of 2.66 and an interest coverage ratio of 19.00 as of December 31, 2012. As of December 31, 2013,
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 $40,143,000.
The Company may from time to time seek to retire or purchase its 4.125% Convertible Senior Subordinated Debentures
due 2027, in privately negotiated transactions or otherwise so long as no event of default is then occurring or would be caused
thereby and the Company’s leverage ratio after such redemption, purchase or repurchase is not more than 3.00 to 1. The Credit
Agreement provides for customary events of default with corresponding grace periods, including, among other things, failure to
pay any principal or interest when due, failure to perform or observe covenants, bankruptcy or insolvency events and change of
control. 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. The Company did not repurchase and extinguish any of its Convertible Senior Subordinated Debentures in 2013
compared to repurchase and extinguishment of principal amounts of $500,000 in 2012 and $63,351,000 in 2011. As of December 31,
2013, the Company had $13,350,000 remaining of 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 2014, 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. The
Company is a party to an interest rate swap agreement 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, an interest rate swap agreement, as of
December 31, 2013, for a notional amount of $12,000,000 through April 2014 was entered into that fixes the LIBOR component
of the interest rate on that portion of the revolving credit facility debt at rate of 0.54% for an effective aggregate rate of 2.79%.
As of December 31, 2013, the weighted average floating interest rate on revolving credit borrowing was 2.39% compared to 2.21%
as of December 31, 2012.
In 2007, the Company issued $135,000,000 principal amount of Convertible Senior Subordinated Debentures due 2027.
The debentures are unsecured senior subordinated obligations of the Company guaranteed by substantially all of the Company’s
domestic subsidiaries, pay interest at 4.125% per annum on each February 1 and August 1, and are convertible upon satisfaction
of certain conditions into cash, common shares of the Company, or a combination of cash and common shares of the Company,
subject to certain conditions. The debentures allow the Company to satisfy the conversion using any combination of cash or stock,
and at the Company’s discretion. The Company intends to satisfy the accreted value of the debentures using cash. Assuming
adequate cash on hand at the time of conversion, the Company also intends to satisfy the conversion spread using cash, as opposed
to stock. As of December 31, 2013, the principal amount of the Company’s Convertible Notes exceeded the if-converted value of
those notes by $851,000. The Company retired principal amounts of $500,000 in 2012 compared $63,351,000 in 2011 of Convertible
Notes at a premium above par. In accordance with ASC 470-20, Convertible Debt, the Company utilized the inducement method
of accounting to calculate the loss associated with the early retirement of the convertible debt. The Company recorded expense
of $312,000 and $24,200,000 related to the loss on the debt extinguishment including the write-off of $11,000 and $1,554,000 of
deferred financing fees, which were previously capitalized in 2012 and 2011, respectively.
The Company includes the dilutive effect of shares necessary to settle the conversion spread in the Net Earnings per Share-
Assuming Dilution calculation unless such amounts are anti-dilutive. The initial conversion rate is 40.3323 shares per $1,000
principal amount of debentures, which represents an initial conversion price of approximately $24.79 per share. Holders of the
debentures can convert the debt to common stock if the Company’s common stock price is at a level in excess of $32.23, a 30%
premium to the initial conversion price for at least twenty trading days during a period of thirty consecutive trading days preceding
the date on which the notice of conversion is given. At a conversion price of $32.23 (30% premium over $24.79), the full conversion
of the convertible debt equates to 539,000 shares. The debentures are redeemable at the Company’s option, subject to specified
conditions, on or after February 6, 2012 through and including February 1, 2017. The Company may redeem some or all of the
debentures for cash on or after February 1, 2017. Holders have the right to require the Company to repurchase all or some of their
debentures upon the occurrence of certain circumstances on February 1, 2017 and 2022. The Company evaluated the terms of the
call, redemption and conversion features under the applicable accounting literature, including Derivatives and Hedging, ASC 815,
and determined that the features did not require separate accounting as derivatives. The notes, debentures and common shares
issuable upon conversion of the debentures have been registered under the Securities Act.