Invacare 2012 Annual Report Download - page 103

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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
2012, the company repurchased and extinguished $500,000 principal amount of its Convertible Senior
Subordinated Debentures compared to $63,351,000 in 2011. As of December 31, 2012, 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 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, as of December 31,
2012, for notional amounts of $15,000,000 through February 2013, $20,000,000 and $25,000,000 through May
2013, $18,000,000 through June 2013, $22,000,000 through September 2013 and $12,000,000 and 23,000,000
through April 2014 were entered into that fix the LIBOR component of the interest rate on that portion of the
revolving credit facility debt at rates of 1.05%, 1.08%, 0.73%, 0.625%, 0.46%, 0.54% and 0.47%, respectively,
for effective aggregate rates of 3.05%, 3.08%, 2.73%, 2.625%, 2.46%, 2.54% and 2.47%, respectively. As of
December 31, 2012, the weighted average floating interest rate on borrowing was 2.21% compared to 2.28% as
of December 31, 2011.
The Credit Agreement required the company to redeem, purchase or repurchase no less than $100 million in
principal amount of the 9.75% Senior Notes previously due 2015 and/or the company’s 4.25% Convertible
Senior Subordinated Debentures due 2027 (the “Convertible Notes”) by February 28, 2011. This was completed
by December 31, 2010. After February 28, 2011, the company may redeem, purchase or repurchase the
Convertible Notes 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.
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, and at the
company’s discretion. The debentures allow the company to satisfy the conversion using any combination of
cash or stock. 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, 2012, the principal amount of the company’s Convertible Notes
exceeded the if-converted value of those notes by $4,571,000. During 2012, the company retired $500,000
compared to 2011 in which $63,351,000 in principal amount 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.
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