Invacare 2008 Annual Report Download - page 46

European SG&A expenses increased by 11.7% or $13,758,000 in 2008 compared to 2007. Foreign currency
translation increased SG&A expenses by approximately $10,340,000. The remaining increase in expense of
$3,418,000 or 2.9% was primarily due to greater investment in marketing programs and personnel to drive sales
growth.
Asia/Pacific SG&A expenses increased 15.4% or $3,708,000 in 2008 compared to 2007. Foreign currency
translation decreased expenses by $161,000. Excluding the foreign currency translation impact, SG&A expenses
increased $3,869,000 or 16.1% primarily due to increased selling costs and a less favorable foreign currency
transactional impact compared to 2007.
Debt Finance Charges, Interest and Fees Associated with Debt Refinancing. In February 2007, the
company completed its refinancing efforts which resulted in a Credit Agreement which provides for a $400
million senior secured credit facility consisting of a six-year $250 million term loan facility and a five-year $150
million revolving credit facility with interest at LIBOR plus 2.25%, the issuance and sale of $135 million
aggregate principal amount of 4.125% convertible senior subordinated debentures due 2027 and the issuance and
sale of $175 million aggregate principal amount of 9.75% Senior Notes due 2015. The company incurred
$13,408,000 in 2007 and $3,745,000 in 2006 for debt finance charges, interest and fees associated with the debt
refinancing.
Interest. Interest expense decreased to $39,233,000 in 2008 from $44,309,000 in 2007, representing an
11.5% decrease. This decrease was attributable to debt reduction during the year and, to a lesser extent, decreased
borrowing rates in 2008 compared to 2007. Interest income in 2008 was $3,045,000, which was higher than the
prior year amount of $2,340,000, primarily due to increased volume of financing provided to customers and
higher rates on financing. As a result of the company’s adoption of FSP APB 14-1 effective January 1, 2009, the
company’s 2009 financial statements will contain restated amounts for 2008 and 2007 that will reflect an
increase in interest expense of $3,695,000 and $2,904,000 for 2008 and 2007, respectively. See “Accounting
Policies” in the Notes to Consolidated Financial Statements included elsewhere in this report.
Income Taxes. The company had an effective tax rate of 25.1% in 2008 and 91.8% in 2007. The company’s
effective tax rate is lower than the expected U.S. federal statutory rate due to earnings abroad being taxed at rates
lower than the U.S. statutory rate. The company’s effective tax rate was reduced each year due to earnings abroad
being taxed at rates lower than the U.S. federal statutory rate, including in 2007 a benefit of $7,820,000 related to
a tax rate change in Germany and corresponding reduction of the company’s net German deferred tax liability.
The company’s rate was increased each year due to losses without benefit, principally in the United States, which
had a greater impact in 2007 than 2008 due to the size of the 2007 loss relative to total pretax income.
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 $24,764,000 in 2008 from $22,491,000 in 2007. The
expenditures, as a percentage of net sales, were 1.4% in both 2008 and 2007, respectively.
2007 Versus 2006
Charge Related to Restructuring Activities. The company achieved its cost reduction and profit
improvement initiatives established at the beginning of 2007, which included: product line rationalization,
expanded outsourcing, rationalization of facilities, supply chain simplification and rationalization and
organization infrastructure rationalization. The benefits achieved from the cost reduction initiatives, principally
related to product sourcing savings, headcount reductions and manufacturing consolidation, totaled $40 million
for 2007, which was slightly better than the company’s expectations. However, as expected, a significant portion
of this benefit was offset by continued pricing pressures and product mix shift toward lower margin product,
primarily in the U.S., as a result of Medicare related reimbursement changes.
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