Invacare 2015 Annual Report Download - page 54

I-48
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.
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.
Income Taxes. The company had an effective tax rate of 8.8% in 2014 compared to an expected benefit of 35% on the
continuing operations pre-tax loss and 25.0% in 2013 compared to an expected benefit of 35% on the pre-tax loss from continuing
operations. 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. The company's effective tax rate in 2013 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 $3,445,000 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. In 2013, the company's losses without benefit and valuation allowances existed in the United States, Australia
and New Zealand, and for 2014 also existed for one company in Switzerland. During 2013 a Danish valuation allowance of
$390,000 was reversed due to a pattern of profitability. See “Income Taxes” in the Notes to the Consolidated Financial Statements
included elsewhere in this report for more detail.
Research and Development. Research and development expenditures, which are included in costs of products sold, increased
to $23,149,000 in 2014 from $24,075,000 in 2013. The expenditures, as a percentage of net sales, were 1.8% and 1.8% in 2014
and 2013, respectively.