Invacare 2011 Annual Report Download - page 53

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outstanding 9.75% Senior Notes which were not due until 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.
In 2009, the company fully repaid its $250,000,000 term loan facility which was not due to expire until
February 2013. As a result, deferred financing fees of $2,878,000, which were previously capitalized, were
expensed. All of these charges in 2010 and 2009 are included in the All Other segment.
Asset write-downs to intangibles and investments. The company has made other investments in limited
partnerships and non-marketable equity securities, which are accounted for using the cost method, adjusted for
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.
In 2009, the company recognized an impairment charge totaling $6,713,000 on investments along with an
impairment charge of $1,696,000 on its intangibles. The company completed an evaluation of the residual value
related to its investments in the fourth quarter of 2010 and recognized an immaterial loss. These charges are
included in the All Other Segment.
Charge Related to Restructuring Activities. The company recorded restructuring charges which
commenced in 2005 and concluded in the first quarter of 2009. For 2009, the company recorded restructuring
charges of $4,804,000 of which $298,000 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 previous charges were related to a multi-year cost reduction plan.
Interest. Interest expense decreased to $20,647,000 in 2010 from $33,150,000 in 2009, representing a
37.7% decrease. This decrease was attributable to debt reduction during the year and, to a lesser extent, decreased
borrowing rates in 2010 compared to 2009. Interest income in 2010 was $724,000, which was lower than the
prior year amount of $1,674,000, primarily due to decreased volume of financing provided to customers.
Income Taxes. The company had an effective tax rate of 33.4% in 2010 and 12.9% in 2009. 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. 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, Australia and
New Zealand. In addition, the 2009 tax rate was lower than the 2010 rate primarily due to a loss carryback,
resulting from 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. Research and development expenditures, which are included in costs of
products sold, increased to $25,954,000 in 2010 from $25,725,000 in 2009. The expenditures, as a percentage of
net sales, were 1.5% and 1.5% in 2010 and 2009, respectively.
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