Invacare 2013 Annual Report Download - page 51

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IPG gross profit as a percentage of net sales increased 2.5 percentage points in 2013 from the prior year. The increase in
margin is primarily attributable to favorable product mix toward high margin products and reduced freight costs, partially offset
by lower volumes.
Gross profit in Europe as a percentage of net sales increased 1.1 percentage points in 2013 from the prior year. The increase
was primarily a result of higher sales volumes as well as reduced purchasing and freight costs. Gross margin in 2013 also benefited
by $1,389,000 or 0.2 of a percentage point, related to an amended value added tax (VAT) filing recognized in the fourth quarter
of 2013.
Gross profit in Asia/Pacific as a percentage of net sales decreased 16.1 percentage points in 2013 from the prior year. The
decline was primarily as a result of the significant volume declines in each of the businesses in this segment, higher warranty
expense and increased research and development expenses. The 2013 gross margin reflects an incremental warranty expense for
the power wheelchair joystick recall of $4,639,000 pre-tax, or 9.3 percentage points.
Selling, General and Administrative. Consolidated selling, general and administrative (SG&A) expenses as a percentage
of net sales were 29.7% in 2013 and 28.7% in 2012. The overall dollar decrease was $9,409,000, or 2.3%, with foreign currency
translation increasing expenses by $1,613,000, or 0.4 of a percentage point. Excluding the impact of foreign currency translation,
SG&A expenses decreased $11,022,000, or 2.7%. This decrease is primarily attributable to decreased regulatory and compliance
costs related to quality systems improvements.
SG&A expenses for North America/HME decreased 4.4%, or $9,215,000, in 2013 compared to 2012 with foreign currency
translation decreasing SG&A expense by $546,000. Excluding the foreign currency translation, SG&A expense decreased
$8,669,000, or 4.1%, due principally to decreased regulatory and compliance costs.
SG&A expenses for IPG increased by 2.5%, or $1,079,000, in 2013 compared to 2012 with foreign currency translation
decreasing expense by $47,000, or 0.1 of a percentage point. Excluding the impact of foreign currency translation, SG&A expenses
increased by $1,126,000, or 2.6%, primarily due to increased associate costs.
European SG&A expenses increased by 6.3%, or $7,876,000, in 2013 compared to 2012. Foreign currency translation
increased SG&A expenses by approximately $2,712,000. Excluding the foreign currency translation impact, SG&A expenses
increase by $5,164,000, or 4.1%, primarily due to increased associate costs and unfavorable foreign currency transactions.
Asia/Pacific SG&A expenses decreased 29.0%, or $9,149,000, in 2013 compared to 2012. Foreign currency translation
decreased expenses by $506,000. Excluding the foreign currency translation impact, SG&A expenses decreased $8,643,000, or
27.4%, principally as a result of reduced personnel costs resulting from restructuring activities implemented in 2012.
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 2013 intangible review, the Company recognized intangible
write-down charges of $1,523,000 comprised of trademarks with indefinite lives impairment of $568,000, a trademark with a
definite life impairment of $123,000, customer list impairment of $442,000 and developed technology impairment of $223,000
all recorded in the IPG segment and a customer list impairment of $167,000 recorded in the North America/HME segment. The
after-tax and pre-tax impairment amounts were the same for each of the above impairments except for the indefinite-lived trademark
impairments in the IPG segment, which were $496,000 after-tax.
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 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.
Debt Finance Charges and Fees. There were no debt extinguishments in 2013. In 2012, the Company extinguished
$500,000 in principal amount of its outstanding 4.125% convertible senior subordinated debentures due in February 2027. This
early debt extinguishment resulted in debt fees and premium expenses of $312,000 comprised of $301,000 of premiums paid and
losses recorded as a result of early debt extinguishment and $11,000 of expense related to deferred financing fee write-offs, which
were previously capitalized.
All of the debt finance charges and fees in 2012 are included in the All Other segment.