Invacare 2015 Annual Report Download - page 53

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IPG gross profit as a percentage of net sales increased 0.9 of a percentage point in 2014 from the prior year. The increase
in margin was primarily attributable to lower R&D and warranty expense.
Gross profit in Asia/Pacific as a percentage of net sales increased 2.4 percentage points in 2014 from the prior year. The
increase was primarily as a result of reduced warranty expense and a favorable product mix related to the company's decision to
exit the contract manufacturing business for customers outside of the healthcare industry partially offset by unfavorable absorption
of fixed costs at the company's subsidiary which produces microprocessor controllers. The 2014 gross margin reflected an
incremental warranty expense for the power wheelchair joystick recall of $1,265,000 pre-tax, or 2.6 percentage points compared
an incremental warranty expense for the power wheelchair joystick recall of $4,639,000 pre-tax, or 9.3 percentage points, recorded
in 2013.
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 30.2% in 2014 and 29.8% in 2013. The overall dollar decrease was $13,419,000, or 3.4%, with foreign currency
translation increasing expense by $85,000. Excluding the impact of foreign currency translation, SG&A expenses decreased
$13,504,000, or 3.4%. This decrease was primarily attributable to reduced employment, bad debt and consulting expense, including
lower regulatory and compliance costs related to quality systems improvements.
European SG&A expenses increased by 5.2%, or $6,917,000, in 2014 compared to 2013. Foreign currency translation
increased expense by approximately $1,569,000 or 1.2 percentage points. Excluding the foreign currency translation impact,
SG&A expenses increased by $5,348,000, or 4.0%, primarily due to higher employment costs.
SG&A expenses for North America/HME decreased 11.2%, or $19,626,000, in 2014 compared to 2013 with foreign currency
translation decreasing expense by $1,009,000 or 0.6 of a percentage point. Excluding the foreign currency translation, SG&A
expense decreased $18,617,000, or 10.6%, due principally to reduced employment, bad debt and consulting expense, including
lower regulatory and compliance costs related to quality systems improvements.
SG&A expenses for IPG decreased by 6.5%, or $2,862,000, in 2014 compared to 2013 with foreign currency translation
decreasing expense by $144,000, or 0.3 of a percentage point. Excluding the impact of foreign currency translation, SG&A expenses
decreased by $2,718,000, or 6.2%, primarily due to reduced employment costs.
Asia/Pacific SG&A expenses decreased 4.7%, or $1,059,000, in 2014 compared to 2013. Foreign currency translation
decreased expense by $331,000 or 1.5 percentage points. Excluding the foreign currency translation impact, SG&A expenses
decreased $728,000, or 3.2%, principally as a result of reduced associate costs and depreciation expense.
SG&A expenses related to the Other Segment increased by 14.9% or $3,211,000 in 2014 as compared to 2013. The increase
is attributable to increased employment costs including $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 2014 intangible review, 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.
As a result of the company's 2013 intangible impairment 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.
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 segment impacted by the FDA consent decree. While the company's