Invacare reports 'disappointing' earnings

Sunday, February 4, 2007

ELYRIA, Ohio - Invacare lost $337.6 million in the fourth quarter of 2006 compared to a net income of $7.1 million in the same quarter last year, the manufacturer reported last week.

Net sales were $385 million for the quarter compared to $367 million last year.

Chairman and CEO Mal Mixon stated: "Although the adjusted result for the quarter was within recent guidance, our overall results for the year were disappointing."

Invacare attributed its loss to a whopping $300 million charge for writing off "goodwill and other intangible assets."

According to one industry watcher: "In layman's terms, that means they probably bought something worth $300 million or booked something for $300 million, and it didn't turn out to be worth that much due to changes in reimbursement or some other change in dynamics."

Invacare also attributed its loss to a $26.8 million charge for what it called "receivable collectibility issues arising primarily from Medicare reimbursement reductions for power wheelchairs."

Medicare implemented its new fee schedule for power wheelchairs and scooters--which represented, on average, a 27% cut in reimbursement--in the fourth quarter.

Invacare plans to improve the company's outlook in 2007 with the following cost-cutting initiatives:

* Simplify its product lines and pricing processes to reduce costs and improve service levels.
* Continue to outsource commodity products and sub-assemblies. The company expects to double outsourcing to Asia over the next three years.
* Move from integrated fabrication plants to assembly plants. The company plans to close and/or consolidate several locations worldwide between 2007 and 2009.
* Standardize product platforms to further simplify and reduce product costs, as well as leverage development and tooling investment.

In 2007, Invacare expects 0% to 2% organic growth in net sales.

"We are confident our restructuring plans are achievable and will put us back in front of the curve by year end, with net year-over-year improved operating income," Mixon stated.