Invacare 2008 Annual Report Download - page 45

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Gross Profit. Consolidated gross profit as a percentage of net sales was 27.8% in 2008 as compared to
27.9% in 2007. Margin remained relatively unchanged as the company benefited from increased volumes, price
increases and cost reduction initiatives, which were offset by increased commodity costs and unfavorable product
mix. Margins in 2007 benefited by 0.2 of a percentage point from the impact of insurance and asset recoveries
related to an embezzlement at one of the company’s foreign locations which the company disclosed last
year. Excluding the benefit in 2007, margins improved slightly.
NA/HME gross profit as a percentage of net sales was 30.5% in 2008 versus 30.8% in 2007. Excluding the
favorable impact from insurance and asset recoveries related to the embezzlement noted above, margins were
relatively flat as cost reduction initiatives and price increases principally offset the increases in freight and
commodity costs.
ISG gross profit as a percentage of net sales declined 0.6 of a percentage point in comparison to the prior
year. While the company realized a benefit from freight recovery programs and cost reductions, these were offset
by an unfavorable product mix toward lower margin products such as diabetic and incontinence products and a
charge incurred resulting in the write-off of inventory.
IPG gross profit as a percentage of net sales increased 3.2 percentage points in 2008 from the prior year. The
increase in margin is primarily attributable to volume increases, freight recovery programs and favorable foreign
currency exchange rate of the Canadian dollar.
Gross profit in Europe as a percentage of net sales declined 1.8 percentage points in 2008 from the prior
year. The decrease was primarily attributable to an unfavorable product mix toward lower margin product,
unfavorable foreign currency impacts due to the weakness of the British pound as compared to the Euro and by
the negative impact of reimbursement and pricing pressures in Germany.
Gross profit in Asia/Pacific as a percentage of net sales improved by 8.3 percentage points in 2008 from the
prior year. The increase was largely due to cost reduction activities including the move of controller
manufacturing from New Zealand to China, which was completed during the year.
Selling, General and Administrative. Consolidated selling, general and administrative expenses as a
percentage of net sales were 22.7% in 2008 and 22.9% in 2007. The overall dollar increase was $31,408,000 or
8.6%, with foreign currency translation increasing expenses by $10,621,000 or three percentage points and
acquisitions increasing expenses by approximately $3,389,000 or one percentage point. Excluding acquisitions
and foreign currency translation impact, selling, general and administrative (SG&A) expenses increased
$17,398,000 or 4.7%. Last year’s SG&A includes a one-time benefit of $3,981,000 resulting from debt
cancellation related to the liquidation of a development stage investment as disclosed last year. Excluding foreign
currency translation, acquisitions and this one-time benefit, SG&A expense increased $13,417,000 or 3.6%. This
increase is primarily attributable to higher variable costs associated with increased sales volumes and earnings
such as commissions and bonus, and investments in sales and marketing programs to drive future sales growth.
SG&A expenses for NA/HME increased 7.6% or $14,002,000 in 2008 compared to 2007. Acquisitions
increased these expenses by approximately $3,389,000. Last year’s SG&A expenses include the one-time benefit
from debt cancellation disclosed above. Excluding foreign currency translation and the one-time benefit, SG&A
expense increased $6,632,000 or 3.6% primarily due to increased commission and bonus expense.
SG&A expenses for ISG increased by 1.8% or $467,000 in 2008 compared to 2007. The increase is
attributable to higher administrative costs such as banking fees and insurance costs.
SG&A expenses for IPG decreased by 3.5% or $527,000 in 2008 compared to 2007. Foreign currency
translation increased SG&A expenses by approximately three percentage points or $375,000. Excluding the
impact of foreign currency translation, SG&A expenses decreased by $902,000 due to favorable currency
transaction effects, which more than offset investments made to drive increased sales.
I-39