Invacare 2012 Annual Report Download - page 56

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NA/HME gross profit as a percentage of net sales declined 2.1 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 1.8 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 declined 1.8 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 declined 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 28.5% in 2012 and 26.4% in 2011. The overall dollar increase was $17,970,000 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 $16,020,000 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 $6,737,000, or 1.7 percentage points, primarily as a result of
reduced bad debt and associate costs.
SG&A expenses for NA/HME increased 4.9%, or $9,779,000, 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 $9,994,000 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 34.0%, or $11,821,000, in 2012 compared to 2011. An acquisition
increased SG&A expenses by 29.5 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 an acquisition and foreign
currency translation, SG&A expenses increased by $1,580,000, or 4.5%, 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 intangible assets. In accordance with ASC 350, Intangibles - Goodwill and Other, the
company reviews intangibles for impairment. As a result of the company’s 2012 annual intangible impairment
I-50