Invacare 2014 Annual Report Download - page 50

I-46
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. The Company continues to invest in research and development activities to maintain its
competitive advantage. The Company dedicates funds to applied research activities to ensure that new and enhanced design
concepts are available to its businesses. 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.
2013 Versus 2012
Net Sales. Consolidated net sales for 2013 decreased 5.7% for the year, to $1,334,505,000 from $1,415,818,000 in 2012.
Foreign currency translation increased net sales by 0.8 of a percentage point. Organic net sales decreased 6.5% as a result of
increases for the European segment being more than offset by declines for all other segments.
North America/Home Medical Equipment (North America/HME)
North America/HME net sales decreased 12.8% in 2013 versus the prior year to $589,240,000 from $675,782,000 with
foreign currency translation decreasing net sales by 0.2 of a percentage point. The organic net sales decrease of 12.6% 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
VMN documentation.
Institutional Products Group (IPG)
IPG net sales decreased 11.2% in 2013 to $112,290,000 from $126,508,000 in the prior year. 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 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 to $49,832,000 from $66,985,000 in the prior year. 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.