Invacare 2007 Annual Report Download - page 45

2006 Versus 2005
Charge Related to Restructuring Activities. The company progressed with the restructuring initiatives that
it began in 2005 to drive cost reductions and improve profitability which was necessitated by the continued
decline in reimbursement for medical equipment by U.S. government programs as well as similar reimbursement
pressures abroad and continued pricing pressures faced by the company as a result of outsourcing by competitors
to lower cost locations.
The cost reduction and profit improvement actions included: reduction in personnel, outsourcing
improvements utilizing the company’s China manufacturing capability and third parties, shifting resources from
product development to manufacturing cost reduction activities and product rationalization, reducing freight
exposure through freight auctions and changing the freight policy, general expense reductions, and exiting
facilities.
The company 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 was recorded in cost of
products sold, since it relates to inventory markdowns, and the remaining charge amount was 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 were 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 utilized the accruals recorded as of December 31,
2006 during 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.
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. 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 were 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™ 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. The increase was 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. The increase was primarily attributable to
higher volumes in its core bed products as well as increases in bathing equipment.
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