Invacare 2009 Annual Report Download - page 44

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OUTLOOK
The company expects the organic sales growth seen in the fourth quarter of 2009 to continue with some
additional improvement during 2010 due to improving market conditions. This growth is forecast despite the
potential for pricing and reimbursement pressures in some markets. For the European segment, there has been
some discussion by the French government of reduced wheelchair reimbursement for 2010, although there is no
legislation underway to the company’s knowledge. For the IPG business and the Australian distribution business,
delays in purchases by long-term care facilities may continue, although such delays are not expected to continue
throughout the year. In the NA/HME segment, organic sales growth for the year is expected to improve, although
growth in specific products may vary by quarter. Finally, the company has not included in its guidance any
negative impact from the potential medical device excise tax included in, or other adverse impacts from,
proposed health care reform legislation in the United States. If further action is taken by the U.S. Congress and
the President, the company will update the information it has already shared on the potential impact of the
proposed legislation.
The company faces two potentially significant issues entering 2010. First, there has been some recent
weakening of foreign currencies against the U.S. dollar; however, the rates are generally close to or above the
averages seen in 2009. The company did not plan for a substantial strengthening of the U.S. dollar. Second,
commodity prices have increased during the fourth quarter of 2009, although contracts have kept that higher cost
from impacting the 2009 fourth quarter results. For 2010, the company has forecast its plan based on commodity
prices consistent with those seen at year end 2009. The company does not expect a substantial rise in commodity
prices in 2010 from those levels.
Organic sales growth, earnings and cash flow for 2010 are expected to be consistent with the guidance
provided in the company’s February 4, 2010 press release. The guidance should be read in conjunction with the
information contained herein under “Risk Factors” and “Forward-Looking Information.”
RESULTS OF OPERATIONS
2009 Versus 2008
Charge Related to Restructuring Activities. Throughout 2009, the company continued its cost reduction and
profit improvement initiatives, which now are substantially complete as related to restructuring activities. The
company has achieved tremendous benefits from its cost reduction initiatives, principally related to product
sourcing savings, headcount reductions and manufacturing consolidation. However, as was 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. and Europe, as a result of reimbursement changes.
Restructuring charges of $4,804,000 were incurred during 2009 of which $298,000 was recorded in cost of
goods 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 2009 were principally for severance expenses.
Net Sales. Consolidated net sales for 2009 decreased 3.6% for the year, to $1,693,136,000 from
$1,755,694,000 in 2008. Foreign currency translation decreased net sales by four percentage points while
acquisitions increased sales by less than one percentage point. The remaining increase was driven by
performance in NA/HME, ISG and Europe.
North America/Home Medical Equipment
NA/HME net sales increased 0.9% in 2009 versus the prior year to $748,401,000 from $741,502,000 with
acquisitions increasing net sales by one percentage point while foreign currency translation decreased net sales
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