Invacare 2013 Annual Report Download - page 54

I-48
North America/HME gross profit as a percentage of net sales decreased by 2.0 percentage points in 2012 from the prior
year. The decline in margins was principally due to an unfavorable sales mix favoring lower margin customers and product lines,
reduced volumes and increased research and development expenses, primarily focused on FDA remediation.
IPG gross profit as a percentage of net sales increased 2.1 percentage points in 2012 from the prior year. The increase in
margin is primarily attributable to volume increases, the favorable impact from the rental acquisition, which was finalized in the
fourth quarter of 2011 and reduced freight costs partially offset by increased research and development expenses. The increased
research and development expenses for this segment include the costs of contracted engineering on negative pressure wound
therapy products.
Gross profit in Europe as a percentage of net sales decreased 1.9 percentage points in 2012 from the prior year. The decrease
was primarily a result of unfavorable product mix toward lower margin product and lower margin customers and increased warranty
expenses.
Gross profit in Asia/Pacific as a percentage of net sales decreased by 3.7 percentage points in 2012 from the prior year. The
decline was primarily as a result of the significant volume declines in each of the businesses in this segment.
Selling, General and Administrative. Consolidated selling, general and administrative (SG&A) expenses as a percentage
of net sales were 28.7% in 2012 and 26.5% in 2011. The overall dollar increase was $17,797,000, or 4.5%, with foreign currency
translation decreasing expenses by $8,313,000, or 2.1 percentage points, and an acquisition increasing expenses by $10,263,000,
or 2.6 percentage points. Excluding the acquisition and the impact of foreign currency translation, SG&A expenses increased
$15,847,000 or 4.0%. This increase is primarily attributable to increased regulatory and compliance costs related to quality systems
improvements of $22,757,000. Excluding an acquisition, the impact of foreign currency translation and the increased regulatory
and compliance costs, SG&A expense decreased $6,910,000, or 1.8 percentage points, primarily as a result of reduced bad debt
and associate costs.
SG&A expenses for North America/HME increased 4.9%, or $9,785,000, in 2012 compared to 2011 with foreign currency
translation decreasing SG&A expense by $215,000. Excluding the foreign currency translation, SG&A expense increased
$10,000,000 or 5.0% due to increased regulatory and compliance costs related to quality systems improvements of $22,757,000,
partially offset by reduced bad debt and associate costs.
SG&A expenses for IPG increased by 36.8%, or $11,642,000, in 2012 compared to 2011. Acquisitions increased SG&A
expenses by 32.5 percentage points, or $10,263,000, while foreign currency translation decreased expense by $22,000, or 0.1 of
a percentage point. Excluding the impact of acquisitions and foreign currency translation, SG&A expenses increased by $1,401,000,
or 4.4%, due to increased associate costs, including commission expense and unfavorable currency transaction effects associated
with the Canadian Dollar versus the U.S. Dollar.
European SG&A expenses decreased by 2.9%, or $3,741,000, in 2012 compared to 2011. Foreign currency translation
decreased SG&A expenses by approximately $8,293,000. Excluding the foreign currency translation impact, SG&A expenses
increased by $4,552,000, or 3.5%, primarily related to increased associate costs and bad debt expense partially offset by favorable
foreign currency transaction effects.
Asia/Pacific SG&A expenses increased 0.4%, or $111,000, in 2012 compared to 2011. Foreign currency translation increased
expenses by $217,000. Excluding the foreign currency translation impact, SG&A expenses decreased $106,000, or 0.3%, primarily
due to reduced bad debt expenses.
Asset write-downs to goodwill and intangible assets. In the 2012 intangible impairment review, the Company recognized
intangible write-down charges of $773,000 comprised of: trademark with an indefinite life impairment of $279,000 and developed
technology impairment of $398,000, both in the IPG segment and a patent impairment of $96,000 in the North America/HME
segment. The pre-tax and after-tax impairment amounts were the same for each of the above impairments except for the trademark
impairment in the IPG segment, which was $204,000 after-tax.
In the 2011 intangible impairment review, the Company recognized intangible write-down charges of $1,761,000 comprised
of customer list impairment of $625,000 in the IPG segment, customer list impairment of $508,000 in the North America/HME
segment, indefinite-lived trademark impairment of $427,000 in the European segment and an intellectual property impairment of
$201,000 in the Asia/Pacific segment. The pre-tax and after-tax impairment amounts were the same for each of the above
impairments except for the indefinite-lived trademark impairment in the European segment, which was $320,000 after-tax. In
addition, as a result of the Company's annual impairment test of goodwill, the Company recorded an impairment charge of