Invacare 2013 Annual Report Download - page 52

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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) 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.
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 ($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 resulting from the impact of the FDA
consent decree. In Europe, severance was incurred for elimination of certain sales and supply chain positions. In Asia/Pacific,
severance was principally incurred at the Company's subsidiary, which produces microprocessor controllers, as a result of the
Company's decision in 2012 to cease the contract manufacturing business for companies outside of the healthcare industry. The
lease termination costs were principally related to Australia as a result of the restructuring announced in 2012. The savings from
these charges will be reflected primarily in reduced selling, general and administrative expenses and manufacturing expenses for
the Company. Payments for the year ended December 31, 2013 were $11,844,000 and were funded with operating cash flows and
the Company's revolving credit facility. The majority of the 2013 charges are expected to be paid out within the next twelve months.
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 have now been paid out.
To date, the Company's liquidity has not been materially impacted; however, the Company's disclosure in Liquidity and
Capital Resources highlights risks that could negatively impact the Company's liquidity. See also "Charges Related to Restructuring
Activities" in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
Interest. Interest expense decreased to $3,508,000 in 2013 from $8,240,000 in 2012, representing a 57.4% decrease. This
decrease was attributable primarily to debt reduction during the year as proceeds from the sales of businesses were utilized to
reduce debt. Interest income in 2013 was $384,000 as compared to $686,000 in 2012, primarily due to a reduction in volume of
financing provided to customers.
Income Taxes. The Company had an effective tax rate of 33.0% in 2013 compared to an expected benefit of 35% on the
continuing operations pre-tax loss and 294.3% in 2012 on pre-tax (loss) earnings from continuing operations. The Company's
effective tax rate in 2013 was higher than the expected U.S. federal statutory rate due to 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, except in the U.S.
where a benefit of $1,220,000 was recognized as an intra-period allocation with discontinued operations, more than offsetting the
benefit of foreign income taxed at rates below the U.S. statutory rate. The Company's effective tax rate in 2012 was higher than
the expected U.S. federal statutory rate due to the negative impact of the Company not being able to record tax benefits related to