Invacare 2013 Annual Report Download - page 102

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FS-28
Charges Related to Restructuring Activities
The Company's restructuring charges recorded in 2011, 2012 and 2013 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) and continued pricing pressures faced by the
Company as a result of outsourcing by competitors to lower cost locations. In addition, restructuring decisions were also the result
of reduced profitability in the North America/HME segment impacted by the FDA consent decree. 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, reduced volumes and 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 offset by the continued investment in regulatory and compliance costs related to quality
system improvements at least until the Company has completed its quality systems remediation efforts, and reduced net sales in
the North America/HME segment until it has successfully completed the previously described third-party expert certification audit
and FDA inspection and has received written notification from the FDA that the Company may resume full operations.
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 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, decreased 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 have now been paid out.
Charges for the year ended December 31, 2013 totaled $9,336,000 including charges for severance ($8,282,000), lease
termination costs ($698,000) and other miscellaneous charges principally in North America/HME ($356,000). Severance charges
were primarily incurred in the North America/HME segment ($5,405,000), Europe segment ($1,640,000) and Asia/Pacific segment
($970,000). The charges were incurred as a result of the elimination of various positions as part of the Company's globalization
initiatives. North America/HME segment severance was principally related to positions eliminated due to lost sales volumes