Invacare 2015 Annual Report Download - page 51

I-45
Charges for the year ended December 31, 2015 totaled $1,971,000 including charges for severance ($1,678,000) and charges
principally related to a building lease termination primarily in the North America/HME segment ($293,000). Severance charges
were incurred in the North America/HME segment ($1,069,000), Europe segment ($510,000), IPG segment ($73,000) and Asia/
Pacific segment ($26,000) related to the elimination of certain positions as a result of general restructuring efforts. 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, 2015 were $3,723,000 and were funded with operating cash flows
and cash on hand. The majority of the 2015 charges are expected to be paid out within the next 12 months.
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
charges were principally related to additional positions eliminated due to lost sales volumes resulting from the impact of the FDA
consent decree. The Other severance charges related to the elimination of two senior corporate executive positions. IPG segment
severance charges related principally to the closure of the London, Ontario facility. Europe and Asia/Pacific severance charges
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 have been paid out as of December 31, 2015 except for a majority of the charges related to the elimination of two senior
corporate executive positions.
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 $2,911,000 in 2015 from $3,039,000 in 2014, representing a 4.2% decrease. This
decrease was attributable primarily to lower average borrowings in 2015 versus 2014, despite an increase in interest expense
related to capital leases. Interest income in 2015 was $165,000 as compared to $507,000 in 2014, primarily due to interest income
earned in Europe on a VAT receivable in 2014 that did not occur in 2015.
Income Taxes. The company had an effective tax rate of 125.3% in 2015 compared to an expected benefit of 35% on the
continuing operations pre-tax loss and 8.8% in 2014 compared to an expected benefit of 35% on the pre-tax loss from continuing
operations. The company's effective tax rate in 2015 was unfavorable to the expected U.S. federal statutory rate benefit 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, more than offsetting the benefit of foreign income taxed at rates below the U.S. statutory rate. The company's effective
tax rate in 2014 was unfavorable to the expected U.S. federal statutory rate benefit 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 $7,175,000 was recognized as an intra-period allocation with discontinued operations against a portion of the
domestic taxable loss from continuing operations, more than offsetting the benefit of foreign income taxed at rates below the U.S.
statutory rate. See “Income Taxes” in the Notes to the Consolidated Financial Statements included elsewhere in this report for
more detail.
Research and Development. The company continues to invest in research and development activities. The company dedicates
funds to applied research activities to ensure that new and enhanced design concepts are available to its businesses. Research and
development expenditures, which are included in costs of products sold, decreased to $18,677,000 in 2015 from $23,149,000 in
2014. The expenditures, as a percentage of net sales, were 1.6% and 1.8% in 2015 and 2014, respectively.
2014 Versus 2013
Net Sales. Consolidated net sales for 2014 decreased 4.8% for the year, to $1,270,163,000 from $1,334,505,000 in 2013.
Foreign currency translation increased net sales by 0.2 of a percentage point. Constant currency net sales decreased 5.0% as a
result of declines in the North America/HME, IPG and Asia/Pacific segments being offset by increases in the European segment.