Invacare 2012 Annual Report Download - page 57

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review, an impairment charge of $96,000 ($96,000 after tax) was recorded related to a patent in the NA/HME
segment. In addition, total impairment charges of $677,000 ($602,000 after tax) were recorded in the IPG
segment: $398,000 ($398,000 after tax) related to developed technology and $279,000 ($204,000 after tax)
related to a trademark impairment.
In 2011, the company recorded intangible impairment charges of $1,761,000 related to certain intangible
assets in the NA/HME, IPG, Europe and Asia/Pacific segments. In addition, as a result of the company’s annual
impairment test of goodwill, the company recorded an impairment charge of $39,729,000 ($39,729,000 after tax)
in the Asia/Pacific segment as a result of reduced forecasted profitability and $7,990,000 ($7,336,000 after tax)
in the NA/HME segment as a result of the impact from the FDA consent decree.
Debt Finance Charges and Fees. In 2012, the company extinguished $500,000 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 $312,000 comprised of $301,000 of premiums
paid and losses recorded as a result of early debt extinguishment and $11,000 of expense related to deferred
financing fee write-offs, which were previously capitalized.
In 2011, the company extinguished $63,351,000 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 $24,200,000 comprised of $22,646,000 of premiums paid and losses recorded as a result of
early debt extinguishment and $1,554,000 of expenses related to deferred financing fee write-offs, which were
previously capitalized.
All of the debt finance charges and fees in 2012 and 2011 are included in the All Other segment.
Charge Related to Restructuring Activities. The company’s restructuring charges were necessitated
primarily by continued declines in Medicare and Medicaid reimbursement by the U.S. government, as well as
similar healthcare reimbursement pressures abroad, which negatively affect the company’s customers (e.g. home
health care providers), coupled with continued pricing pressures faced by the company as a result of outsourcing
by competitors to lower cost locations. While the company’s restructuring efforts have been executed on a timely
basis, resulting in operating cost savings, the 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. The company expects any near-term cost savings
from restructuring will be more than offset by higher regulatory and compliance costs related to quality system
improvements at least until the company has completed its quality systems remediation efforts.
The company’s restructuring commenced in the second quarter of 2011 with the company’s decision to
close the Hong, Denmark assembly facility as part of the company’s ongoing globalization initiative to reduce
complexity in the company’s supply chain which is intended to reduce expenses to help offset pricing pressures.
In the third quarter of 2011, the company continued to execute on the closure of the Hong, Denmark assembly
facility and initiated the closure of a smaller facility in the U.S. Charges for the quarter ended December 31, 2011
were primarily incurred at the company’s corporate headquarters for severance, with additional costs incurred as
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
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