Invacare 2014 Annual Report Download - page 51

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Gross Profit. Consolidated gross profit as a percentage of net sales was 27.5% in 2013 as compared to 30.2% 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 reflected an incremental warranty expense for a power wheelchair joystick
recall of $7,264,000 or 0.5 of a percentage point. The incremental warranty expense was recorded in the North America/HME and
Asia/Pacific reporting segments. The customer response to the joystick recall, which officially launched in October 2013, 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 2013 gross margin benefited by $1,389,000 or 0.1 of a percentage point, related to an amended VAT filing recognized in the
European segment.
North America/HME gross profit as a percentage of net sales decreased by 6.0 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 reflected an incremental warranty
expense for the power wheelchair joystick recall of $2,625,000 pre-tax or 0.4 of a percentage point.
IPG gross profit as a percentage of net sales increased 2.5 percentage points in 2013 from the prior year. The increase in
margin was 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 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 reflected an incremental warranty expense
for the power wheelchair joystick recall of $4,639,000 pre-tax, or 9.3 percentage points.
See “Current Liabilities” in the Notes to the Consolidated Financial Statements included elsewhere in this report for the
total provision amounts and a reconciliation of the changes in the warranty accrual.
Selling, General and Administrative. Consolidated selling, general and administrative (SG&A) expenses as a percentage
of net sales were 29.8% in 2013 and 28.7% in 2012. The overall dollar decrease was $9,491,000, 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 $11,104,000, or 2.7%. This decrease was primarily attributable to decreased regulatory and compliance
costs related to quality systems improvements.
SG&A expenses for North America/HME decreased 4.5%, or $9,297,000, 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
$8,751,000, or 4.2%, primarily due to increased associate 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
increased 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.