Invacare 2009 Annual Report Download - page 47

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any estimated declines in value. These investments were acquired in private placements and there are no quoted
market prices or stated rates of return and the company does not have the ability to easily sell these investments.
The company completed an evaluation of the residual value related to these investments in the fourth quarter of
2009 which considered the weakening in the commercial real estate market as well as the redemption of one of
the investments for a nominal amount and as a result, the company recognized impairment charges totaling
$6,713,000 pre-tax which is included in the All Other segment.
In accordance with ASC 350, Intangibles—Goodwill and Other, the company reviews intangibles for
impairment. As a result of the company’s 2009 intangible impairment review, impairment charges of $896,000
and $800,000 were recorded related to trademarks for Europe and a customer list for NA/HME, respectively as
the actual cash flows associated with these intangibles were less than what was originally used to value the
intangibles.
Interest. Interest expense decreased to $33,150,000 in 2009 from $42,927,000 in 2008, representing a
22.8% decrease. This decrease was attributable to debt reduction during the year and, to a lesser extent, decreased
borrowing rates in 2009 compared to 2008. Interest income in 2009 was $1,674,000, which was lower than the
prior year amount of $3,045,000, primarily due to decreased volume of financing provided to customers. As a
result of the company’s adoption, effective January 1, 2009, of FASB Staff Position APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
(FSP APB 14-1) as codified in Debt with Conversion and Other Options, ASC 470-20, the company’s 2009
financial statements contain restated amounts for 2008 and 2007 that reflect an increase in interest expense of
$3,694,000 and $2,904,000 for 2008 and 2007, respectively. See “Accounting Policies” in the Notes to
Consolidated Financial Statements included elsewhere in this report.
Income Taxes. The company had an effective tax rate of 12.9% in 2009 and 27.1% in 2008. The company’s
effective tax rate is lower than the expected U.S. federal statutory rate due to earnings abroad being taxed at rates
lower than the U.S. statutory rate. The company’s rate was increased each year due to losses without benefit, due
to valuation allowances in the United States, Australia and New Zealand. In addition, the 2009 tax rate was
benefitted by a loss carryback, due to a tax law change in the United States, which previously was fully offset by
a valuation allowance. See “Income Taxes” in the Notes to the Consolidated Financial Statements included
elsewhere in this report for more detail.
Research and Development. The company continues to invest in research and development activities to
maintain its competitive advantage. The company dedicates funds to applied research activities to ensure that
new and enhanced design concepts are available to its businesses. Research and development expenditures,
which are included in costs of products sold, increased to $25,725,000 in 2009 from $24,764,000 in 2008. The
expenditures, as a percentage of net sales, were 1.5% and 1.4% in 2009 and 2008, respectively.
2008 Versus 2007
Charge Related to Restructuring Activities. Throughout 2008, the company continued its cost reduction and
profit improvement initiatives. The benefits achieved from the cost reduction initiatives, principally related to
product sourcing savings, headcount reductions and manufacturing consolidation, totaled approximately
$18,000,000 for 2008, which was slightly less than the company’s expectations due to increases in commodity
costs. As expected, a significant portion of this benefit was offset by continued pricing pressures and product mix
shift toward lower margin product, primarily in the U.S. and Europe, as a result of reimbursement changes.
Restructuring charges of $4,766,000 were incurred during 2008 of which $1,817,000 was recorded in cost of
goods sold, since it relates to inventory markdowns, and the remaining charge amount was included in the
Charge Related to Restructuring Activities in the Consolidated Statement of Operations. The costs incurred
during 2008 were principally for severance, product line discontinuation and costs associated with facility
closures.
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