Invacare 2013 Annual Report Download - page 50

I-44
RESULTS OF CONTINUING OPERATIONS
2013 Versus 2012
Net Sales. Consolidated net sales for 2013 decreased 5.6% for the year, to $1,352,359,000 from $1,432,693,000 in 2012.
Foreign currency translation increased net sales by 0.7 of a percentage point. Organic net sales decreased 6.3% as a result of
increases for the European segment being offset by declines for all other segments.
North America/Home Medical Equipment (North America/HME)
North America/HME net sales decreased 12.4% in 2013 versus the prior year to $607,094,000 from $692,657,000 with
foreign currency translation decreasing net sales by 0.3 of a percentage point. The organic net sales decrease of 12.1% was primarily
driven by declines in the mobility and seating and lifestyle products partially offset by increases in respiratory products. The
increase in respiratory product was partially driven by a large order of HomeFill® oxygen systems by a national account which
was fulfilled in 2013. The sales decline in mobility and seating products was primarily driven by the impact of the FDA consent
decree, which limits sales of mobility products from the Taylor Street manufacturing facility to products having properly completed
verification of medical necessity (VMN) documentation. The VMN is a signed document from a clinician, and in some instances
a physician, that certifies that the product is deemed medically necessary for a particular patient's condition, which cannot be
adequately addressed by another manufacturer's product or which is a replacement of the patient's existing product.
Institutional Products Group (IPG)
IPG net sales decreased 11.2% in 2013 over the prior year to $112,290,000 from $126,508,000. Foreign currency translation
had no material impact on net sales. The organic net sales decrease of 11.1% was driven primarily by declines in all product
categories as a result of delay in new product introductions and higher volume in 2012 for interior design projects.
Europe
European net sales increased 6.7% in 2013 compared to the prior year to $583,143,000 from $546,543,000 as foreign currency
translation increased net sales by 2.3 percentage points. Organic net sales increased 4.4 percentage points, principally due to
increases in lifestyle and mobility and seating products partially offset by a decline in respiratory products.
Asia/Pacific
Asia/Pacific net sales decreased 25.6% in 2013 from the prior year to $49,832,000 from $66,985,000. Foreign currency
translation decreased net sales by 1.4 percentage points. Organic net sales decreased 24.2%. The decline in the Company's subsidiary
which produces microprocessor controllers was primarily related to its decision to exit the contract manufacturing business for
companies outside of the healthcare industry, as well as reduced sales of electronic components for mobility products. The
Company's Australian and New Zealand distribution businesses experienced a decline in net sales, primarily in lifestyle and
mobility and seating products. Changes in exchange rates, particularly with the Euro and U.S. Dollar, have had, and may continue
to have, a significant impact on sales in this segment.
Gross Profit. Consolidated gross profit as a percentage of net sales was 27.9% in 2013 as compared to 30.5% in 2012. The
margin decline was principally related to reduced volumes, sales mix favoring lower margin product lines and lower margin
customers and an incremental warranty expense related to a power wheelchair recall. Gross profit as a percentage of net sales for
the Europe and IPG segments was favorable as compared to the prior year with North America/HME and Asia/Pacific segments
unfavorable to the prior year. The 2013 gross margin reflects an incremental warranty expense for a power wheelchair joystick
recall of $7,264,000 pre-tax, or 0.5 of a percentage point. The incremental warranty expense was recorded in the North America/
HME and Asia/Pacific reporting segments. Thus far, the customer response to the joystick recall, which officially launched in
October 2013, has surpassed the anticipated response rate, which was based on historic recalls, and accordingly the reserve was
adjusted in the fourth quarter of 2013. The reserve is subject to adjustment as new developments change the Company's estimate
of the total cost of this matter. The gross margin benefited by $1,389,000 or 0.1 of a percentage point, related to an amended Value
Added Tax filing recognized in the European segment.
North America/HME gross profit as a percentage of net sales decreased 5.7 percentage points in 2013 from the prior year.
The decline in margins was principally due to an unfavorable sales mix favoring lower margin customers and product lines and
unfavorable absorption of fixed costs at the Taylor Street manufacturing facility as a result of reduced volumes resulting principally
from the impact of the FDA consent decree. The 2013 decrease in gross margin reflects an incremental warranty expense for the
power wheelchair joystick recall of $2,625,000 pre-tax or 0.4 of a percentage point.