Invacare 2015 Annual Report Download - page 50

I-44
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 28.0% in 2015 and 30.2% in 2014. The overall dollar decrease was $64,066,000, or 16.7%, with foreign currency
translation decreasing expense by $23,891,000 or 6.2% percentage points. Excluding the impact of foreign currency translation,
SG&A expenses decreased $40,175,000, or 10.5%. This decrease is primarily attributable to the sale of the rentals businesses in
the third quarter of 2015 which lowered SG&A expenses by $15,626,000 and by reduced consulting expense (including regulatory
and compliance costs related to quality system improvements), employment costs and product liability expense. These were
partially offset by a $4,031,000 write-off of costs associated with a canceled legacy software program based on a change in the
North America/HME IT strategy.
European SG&A expenses decreased by 15.9%, or $22,254,000, in 2015 compared to 2014. Foreign currency translation
decreased expense by approximately $18,709,000 or 13.4 percentage points. Excluding the foreign currency translation impact,
SG&A expenses decreased by $3,545,000, or 2.5%, primarily in depreciation and amortization expense partially offset by increased
employment costs.
SG&A expenses for North America/HME decreased 9.8%, or $15,296,000, in 2015 compared to 2014 with foreign currency
translation decreasing expense by $2,313,000 or 1.5 percentage points. Excluding the foreign currency translation, SG&A expense
decreased $12,983,000, or 8.3%, due principally to reduced employment costs, product liability expense and consulting expense,
including lower regulatory and compliance costs related to quality systems improvements. These were partially offset by a
$4,031,000 write-off of costs associated with a canceled legacy software program based on a change in the North America/HME
IT strategy. In addition, 2014 included an incremental expense of $958,000 related to the retirement of an executive officer of the
company.
SG&A expenses for IPG decreased by 43.2%, or $17,898,000, in 2015 compared to 2014 with foreign currency translation
having an immaterial impact. Excluding the impact of foreign currency translation, SG&A expenses decreased by $17,905,000,
or 43.2%, primarily due to the sale of the rentals businesses which reduced SG&A expenses by $15,626,000 as well as reduced
employment costs.
Asia/Pacific SG&A expenses decreased 21.5%, or $4,580,000, in 2015 compared to 2014. Foreign currency translation
decreased expense by $2,876,000 or 13.5 percentage points. Excluding the foreign currency translation impact, SG&A expenses
decreased $1,704,000, or 8.0%, principally as a result of reduced employment costs and depreciation expense.
SG&A expenses related to the Other Segment decreased by 16.3% or $4,038,000 in 2015 as compared to 2014. The decrease
is attributable to lower legal and professional costs as well as decreased employment costs. In addition, 2014 included an incremental
expense of $1,800,000 related to the retirement of an executive officer of the company.
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 2015 intangible review, the company did not recognize any intangible
write-down charges.
As a result of the company's review of intangible assets for 2014, the company recognized intangible write-down charges
in the IPG segment of $13,041,000 comprised of a customer list impairment of $12,826,000 and a non-compete agreement of
$215,000 as the actual and remaining cash flows associated with the intangibles were less than the cash flows originally used to
value the intangibles, primarily driven by reduced net sales. The after-tax and pre-tax impairment amounts were the same for each
of the above impairments.
Charge Related to Restructuring Activities. The company's restructuring charges were necessitated primarily by continued
declines in Medicare and Medicaid reimbursement by the U.S. government, as well as similar healthcare reimbursement pressures
abroad, which negatively affect the company's customers (e.g. home health care providers) and continued pricing pressures faced
by the company as a result of outsourcing by competitors to lower cost locations. In addition, restructuring decisions were also
the result of reduced profitability in the North America/HME and Asia/Pacific segments impacted by the FDA consent decree.
While the company's restructuring efforts have been executed on a timely basis resulting in operating cost savings, the savings
have been more than offset by continued margin decline, principally as a result of product mix, reduced volumes and regulatory
and compliance costs related to quality system improvements which are unrelated to the restructuring actions. The company expects
any near-term cost savings from restructuring will be offset by other costs as a result of pressures on the business.