Invacare 2014 Annual Report Download - page 49

I-45
Asset write-downs to intangible assets. In accordance with ASC 350, Intangibles - Goodwill and Other, the Company
reviews intangibles for impairment. As a result of the Company's 2014 intangible review, the Company recognized intangible
write-down charges in the IPG segment of $13,041,000 comprised of a customer list impairment of $12,826,000 and a non-compete
agreement of $215,000 as the actual and remaining cash flows associated with the intangibles were less than the cash flows
originally used to value the intangibles, primarily driven by reduced net sales. The after-tax and pre-tax impairment amounts were
the same for each of the above impairments.
As a result of the Company's 2013 intangible impairment review, the Company recognized intangible write-down charges
of $1,523,000 comprised of trademarks with indefinite lives impairment of $568,000, a trademark with a definite life impairment
of $123,000, customer list impairment of $442,000 and developed technology impairment of $223,000 all recorded in the IPG
segment and a customer list impairment of $167,000 recorded in the North America/HME segment. The after-tax and pre-tax
impairment amounts were the same for each of the above impairments except for the indefinite-lived trademark impairments in
the IPG segment, which were $496,000 after-tax.
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 other costs as a result of pressures on the business.
Charges for the year ended December 31, 2014 totaled $11,112,000 including charges for severance ($9,841,000), other
charges in IPG and Europe ($1,286,000) principally related to building write-downs and lease termination cost reversals ($15,000).
Severance charges were incurred in the North America/HME segment ($4,404,000), Other ($2,978,000), IPG segment
($1,163,000), Asia/Pacific segment ($769,000) and Europe segment ($527,000). The North America/HME segment severance
was principally related to additional positions eliminated due to lost sales volumes resulting from the impact of the FDA consent
decree. The Other severance related to the elimination of two senior corporate executive positions. IPG segment severance related
principally to the closure of the London, Ontario facility. Europe and Asia/Pacific severance related to the elimination of certain
positions as a result of general restructuring efforts. The costs related to the building write-downs related to two plant closures.
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, 2014 were $11,131,000 and were funded
with operating cash flows and the Company's revolving credit facility. The majority of the 2014 charges are expected to be paid
out within the next 12 months.
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 totaled were $11,844,000 and were funded with operating cash
flows and the Company's revolving credit facility. The 2013 charges have 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 $3,039,000 in 2014 from $3,078,000 in 2013, representing a 1.3% decrease. This
decrease was attributable primarily to debt reduction during the year as proceeds from the sale of a business were utilized to reduce
debt, which was principally offset by higher borrowing rates and reduced supplier cash discounts. Interest income in 2014 was
$507,000 as compared to $384,000 in 2013, primarily due to interest income earned in Europe on a VAT receivable.