Invacare 2012 Annual Report Download - page 112

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INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
a result of the closure of the Hong, Denmark facility. The facility closures were completed in 2012 in addition to
the elimination of various positions principally in the North America/Home Medical Equipment (HME) and
Asia/Pacific segments.
Charges for the year ended December 31, 2011 totaled $10,534,000 including charges for severance
($8,352,000), contract exit costs primarily related to the closure of the Hong, Denmark assembly facility
($1,788,000) and inventory write-offs ($277,000) recorded in cost of products sold and miscellaneous costs
($117,000). The majority of the 2011 North America/HME charges were incurred for severance, primarily at the
corporate headquarters as the result of the elimination of various positions principally in sales and administration
in Elyria, Ohio. These eliminations were permanent reductions in workforce which primarily resulted in reduced
selling, general and administrative expenses. In Europe, the charges were the result of the closure of the
company’s Hong, Denmark facility. The assembly activities were transferred to other company facilities or
outsourced to third parties. This closure enabled the company to reduce fixed operating costs related to the
facility and reduce headcount with the transfer of a portion of the production to other company facilities. The
majority of the 2011 charges have now been paid out and were funded with operating cash flows.
Charges for the year ended December 31, 2012 totaled $11,395,000 including charges for severance
($6,775,000), lease termination costs ($1,725,000), building and asset write-downs, primarily related to the
closure of the Hong, Denmark assembly facility, and other miscellaneous charges in Europe and Asia/Pacific
($2,404,000) and inventory write-offs ($491,000) in Asia/Pacific recorded in cost of products sold. Severance
charges were primarily incurred in the North America/HME segment ($4,242,000), Asia/Pacific segment
($1,681,000) and Europe segment ($817,000). The charges were incurred as a result of the elimination of various
positions as part of the company’s globalization initiatives. In addition, a portion of the North America/HME
segment severance was related to positions eliminated, principally in sales and marketing as well as
manufacturing, at the company’s Taylor Street facility as a result of the FDA consent decree. The savings from
these charges will be reflected primarily in reduced selling, general and administrative expenses and
manufacturing expenses for the company. In Europe, positions were eliminated as a result of finalizing the exit
from the manufacturing facility in Denmark and an elimination of a senior management position in Switzerland.
In Asia/Pacific, at the end of October 2012, the company’s management approved a plan to restructure the
company’s operations in this segment. In Australia, the company consolidated offices / warehouses, decrease
staffing and exited various activities while returning to a focus on distribution. At the company’s subsidiary,
which produces microprocessor controllers, the company decided to cease the contract manufacturing business
for companies outside of the healthcare industry. Payments for the year ended December 31, 2012 were
$9,381,000 and were funded with operating cash flows. The majority of the 2012 charges are expected to be paid
out within the next twelve months. To date, the company’s liquidity has not been materially impacted.
There have been no material changes in accrued balances related to the charges, either as a result of
revisions in the plan or changes in estimates. In addition, the savings anticipated as a result of the company’s
restructuring plans have been or are expected to be achieved, primarily resulting in reduced salary and benefit
costs principally impacting Selling, General and Administrative expenses, and to a lesser extent, Costs of
Products Sold. However, in 2011 and into 2012, these savings have been more than offset by continued margin
decline, principally as a result of product mix, and higher regulatory and compliance costs related to quality
system improvements, which are unrelated to the restructuring actions.
FS-32