Invacare 2011 Annual Report Download - page 50

February 2015. During 2010, the company also extinguished $57,799,000 in principal amount of its outstanding
4.125% convertible senior subordinated debentures due in February 2027. This early debt extinguishment
resulted in debt fees and premium expenses of $40,164,000 for all of these debt instruments. Related to the
revolving credit facility, the company expensed $1,228,000 of deferred financing fees, which were previously
capitalized. Related to the senior notes, the company incurred the following debt fees and premium expenses:
debt deferred financing fees of $3,764,000, which were previously capitalized and premiums and fees associated
with the early extinguishment of the debt of $14,907,000. Related to the convertible senior subordinated
debentures, the company incurred $18,763,000 of premiums paid and losses recorded as a result of early debt
extinguishment and expensed deferred financing fees of $1,502,000, which were previously capitalized.
All of these charges in 2011 and 2010 are included in the All Other segment.
Charge Related to Restructuring Activities. As disclosed previously and as a result of the company’s
ongoing globalization initiative to reduce complexity within its global footprint, the company finalized the
closure of two facilities in the current year: one in the European segment and the other in the NA/HME segment.
The assembly activities have been transferred to other company facilities or outsourced to third parties. In
addition, the company, as a continuation of its cost reduction and profit improvement initiatives, reduced
headcount, primarily in the U.S. during the fourth quarter of 2011. As a result, the company incurred
restructuring charges in 2011 of $10,870,000 of which $277,000 was recorded in cost of goods sold, since it
related 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 2011 were
principally related to severance and other associated closure costs.
Interest. Interest expense decreased to $7,963,000 in 2011 from $20,647,000 in 2010, representing a 61.4%
decrease. This decrease was attributable to lower borrowing rates in 2011 as compared to 2010, and to a lesser
extent, debt reduction. Interest income in 2011 was $1,444,000 as compared to $724,000 in 2010, primarily due
to increased interest rates charged on financing provided to customers.
Income Taxes. The company had an effective tax rate of 173.6% in 2011 and 33.4% in 2010. The company’s
effective tax rate in 2011 is higher than the expected U.S. federal statutory rate due to goodwill and intangible write-
offs without tax benefit and the negative impact of the company not being able to record tax benefits related to losses in
countries which had tax valuation allowances for the year, more than offsetting the benefit of foreign income taxed at
rates below the U.S. statutory rate. In addition, during 2011, the company recognized a $4,947,000 tax benefit as a
result of a tax settlement in Germany as the German government agreed to follow a European Court of Justice case and
a German Tax Court case that impacted an open tax return year. The company’s effective tax rate in 2010 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. In
both years, the company’s rate was higher than it otherwise would have been due to losses without benefit, and due to
valuation allowances in the United States, Denmark, Australia and New Zealand. 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 $27,556,000 in 2011 from $25,954,000 in 2010. The
expenditures, as a percentage of net sales, were 1.5% and 1.5% in 2011 and 2010, respectively.
2010 Versus 2009
Net Sales. Consolidated net sales for 2010 increased 1.7% for the year, to $1,722,081,000 from $1,693,136,000 in
2009. Foreign currency translation increased net sales by 0.3 of a percentage point while acquisitions increased sales by
0.4 of a percentage point. The organic net sales increase was 1.0% which was driven by growth in ISG, Europe and
Asia/Pacific segments.
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