Invacare 2009 Annual Report Download - page 86

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-Term Debt—Continued
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 20 trading days during a period of 30 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 5,445,000 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 net proceeds to the company
from the offering of the debentures after deducting the estimated offering expenses payable by the company,
were approximately $132,300,000. The notes, debentures and common shares issuable upon conversion of the
debentures have been registered under the Securities Act.
The components of the company’s convertible debt as of December 31, 2009 and 2008 consist of the
following (in thousands):
2009 2008
Carrying amount of equity component ......................................... $ 59,012 $ 59,012
Principal amount of liability component ........................................ $135,000 $135,000
Unamortized discount ...................................................... (48,272) (52,414)
Net carrying amount ....................................................... $ 86,728 $ 82,586
The unamortized discount of $48,272,000 is to be amortized through February 2017. The effective interest
rate on the liability component was 11.5% for 2007 through 2009. Non-cash interest expense of $4,142,000,
$3,694,000 and $2,904,000 was recognized in 2009, 2008 and 2007, respectively, in comparison to actual interest
expense paid of $5,569,000, based on the stated coupon rate of 4.125%, for each of the same periods. The
convertible debt was not convertible as of December 31, 2009 nor was the convertible debt conversion price
threshold of $32.23, as noted above, met.
There were no borrowings denominated in foreign currencies as of December 31, 2009 and 2008. For 2009
and 2008, the weighted average floating interest rate on borrowings was 6.67% and 6.95%, respectively.
The company’s borrowing arrangements contain covenants with respect to, among other items, maximum
amount of debt, minimum loan commitments, interest coverage, dividend payments, working capital, and debt to
EBITDA, as defined in the company’s bank agreements and agreement with its note holders. The company is 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.
In July 2009, cash flow hedges entered into in July 2007 that exchanged the LIBOR variable rate on
$125,000,000 of term loan debt for a fixed rate of 5.0525% expired. As of December 31, 2009, the company was
not a party to any interest rate swap agreements.
The aggregate minimum maturities of long-term debt for each of the next five years are as follows:
$1,091,000 in 2010, $1,067,000 in 2011, $2,767,000 in 2012, $1,054,000 in 2013, and $1,125,000 in 2014. Due
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