Invacare 2006 Annual Report Download - page 38

To date, the company has made substantial progress on its restructuring activities, including exiting four
facilities and eliminating approximately 600 positions through December 31, 2006, including 300 positions during
2006. Restructuring charges of $21,250,000 were incurred during 2006 of which $3,973,000 is recorded in cost of
products sold, since it relates to inventory markdowns, and the remaining charge amount is included in the Charge
Related to Restructuring Activities in the Consolidated Statement of Operations. The costs incurred during 2006
were principally for severance, product line discontinuation and costs associated with facility closures. There have
been no material changes in accrued balances related to the charge, either as a result of revisions in the plan or
changes in estimates, and the company expects to utilize the accruals recorded as of December 31, 2006 during
2007.
With additional actions planned in 2007, the company anticipates recognizing an additional charge of
$20,000,000 pre-tax. In addition, the company continues to further refine its global manufacturing and distribution
strategy. Execution of these cost reduction actions has begun. The company expects a global reduction of at least
350 additional positions and to exit a number of its manufacturing operations worldwide resulting in $38,000,000 of
cost reductions in 2007.
Net Sales. Consolidated net sales for 2006 decreased 2.1% for the year, to $1,498,035,000 from
$1,529,732,000 in 2005. Acquisitions accounted for a one percentage point increase in net sales while foreign
currency translation had less than a one percentage point impact. The overall decline was primarily driven by sales
declines in the NA/HME and Asia/Pacific segments. In the fourth quarter of 2006, the company expanded its
number of reporting segments from three to five due to organizational changes within the former North American
geographic operating segment and changes in how the chief operating decision maker (as that term is defined in
FASB SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information) assesses performance
and makes resource allocation decisions. North America now includes: North America/Home Medical Equipment
(NA/HME), Invacare Supply Group (ISG) and Institutional Products Group (IPG). The company has modified its
operating segments and reportable segments in 2006 with the corresponding prior year amounts being reclassified
to conform to the 2006 presentation.
North America/Home Medical Equipment
NA/HME net sales declined 4.3% in 2006 versus the prior year to $676,326,000 from $706,555,000 with
acquisitions and foreign currency translation each increasing net sales by one percentage point. These sales consist
of Rehab (power wheelchairs, custom manual wheelchairs, personal mobility and seating and positioning),
Standard (manual wheelchairs, personal care, home care beds, low air loss therapy and patient transport), and
Respiratory (oxygen concentrators, HomeFill
TM
transfilling systems, sleep apnea, aerosol therapy and other
respiratory) products. Rehab product line net sales declined by .7% in 2006, primarily driven by the significant
reimbursement changes in the U.S. market during the year. Standard product line net sales declined by 4.7% in
2006, driven by continued pricing pressures for these products which was somewhat offset by increased volumes.
Respiratory product line sales declined by 11.1% in 2006 primarily attributable to lower pricing on oxygen
concentrators, changes during the year regarding reimbursement for Respiratory product which hampered volumes,
and reduced purchases from national and independent providers for HomeFill
TM
II oxygen systems.
Invacare Supply Group
ISG net sales increased 3.3% in 2006 over the prior year to $228,236,000 from $220,908,000. Acquisitions and
foreign currency translation had no impact on the sales increase. These sales consist of ostomy, incontinence,
diabetic, wound care and other medical supply product. The increase is primarily attributable to volume increases in
the diabetic and incontinence product lines as well as increased volumes into the Retail market channel.
Institutional Products Group
IPG net sales increased 9.4% in 2006 over the prior year to $93,455,000 from $85,415,000. Acquisitions and
foreign currency translation had no impact on the sales increase. These sales consist of bed, furniture, home medical
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