Invacare 2014 Annual Report Download - page 91

INVACARE CORPORATION AND SUBSIDIAIRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-21
On January 16, 2015, the Company entered into a Revolving Credit and Security Agreement (the “New Credit Agreement”).
The proceeds of the New Credit Agreement were used to repay and terminate the Company’s Amended and Restated Credit
Agreement, which was scheduled to mature in October 2015. See Subsequent Events in the Notes to these Consolidated Financial
Statements for more details regarding the New Credit Agreement.
The Company's New Credit Agreement prohibits the Company from retiring or purchasing its 4.125% Convertible Senior
Subordinated Debentures due 2027. The Company did not repurchase and extinguish any of its Convertible Senior Subordinated
Debentures in 2014 or 2013 compared to repurchase and extinguishment of a principal amount of $500,000 in 2012. As of
December 31, 2014, 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, the Company has the ability to utilize
swaps to exchange variable rate debt to fixed rate debt, if needed, and the Company's borrowing capacity should allow it to absorb
any modest rate increases in the months ahead without any material impact on its liquidity or capital resources. As of December 31,
2014, the weighted average floating interest rate on revolving credit borrowing was 2.25% compared to 2.39% as of December 31,
2013.
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, 2014, the principal amount of the Company’s Convertible Notes exceeded the if-converted value of
those notes by $4,624,000. The Company retired a principal amount of $500,000 in 2012 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 in 2012 related
to the loss on the debt extinguishment including the write-off of $11,000 of deferred financing fees, which were previously
capitalized in 2012.
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 as was the case in 2014, 2013 and 2012. 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 20 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.
The components of the Company’s convertible debt as of December 31, 2014 and 2013 consist of the following (in thousands):
2014 2013
Carrying amount of equity component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,381 $ 25,381
Principal amount of liability component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,350 $ 13,350
Unamortized discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,999)(2,709)
Net carrying amount of liability component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,351 $ 10,641