Invacare Issues Financial Guidance, Outlook for 2007

ELYRIA, Ohio–Last week Invacare Corp. said it expects to post
lower year-over-year sales for 2006 as a result of Medicare
reimbursement cuts and other changes in the HME landscape.

In a guidance statement issued Wednesday, Chairman and CEO Mal
Mixon ticked through several of last year’s events, noting
reimbursement cuts for home oxygen; a capped rental reduction for
basic DME from 15 months to 13 months; and cutbacks to power
wheelchair reimbursement “with onerous new application requirements
which have slowed demand in the current environment.”

The company said it anticipates net sales of $1.49 to $1.50
billion against $1.53 billion for 2005.

The statement noted that excludes a fourth-quarter charge
relating to “accounts receivable collectibility issues” arising
primarily from Medicare reimbursement reductions for power
wheelchairs.

“Due to recent changes in Medicare reimbursement regulations,
specifically changes to the qualification processes and
reimbursement levels of power wheelchairs, there is increased
collectibility risk to Invacare,” the statement continued, adding
that the company is reviewing accounts of customers that are “most
exposed to these issues” and is working with some in an effort to
help them reduce costs, including product line consolidations and
introduction of simplified pricing.

Invacare said it is implementing tighter credit policies with
many of these accounts.

The company said it is undertaking additional cost reduction
actions, and that these initiatives, along with previously
announced plans to reduce manufacturing and distribution costs,
will result in approximately $38 million in savings for 2007, and
thereafter, about $50 million annually.

The initiatives include:

— Product line simplification. The company plans to simplify
its product lines and pricing processes to reduce costs and improve
service levels.
–Improving product gross margins and reducing fixed costs through
further product and sub-assembly outsourcing. The outsourcing of
commodity products and sub-assemblies will be accelerated, and
Asian sourcing is planned to double over the next three
years.
–Rationalization of facilities. Today, Invacare’s primary
manufacturing facilities include 14 integrated fabrication plants
and two assembly plants worldwide. Invacare will continue the move
from integrated fabrication plants to assembly plants and is
finalizing plans to close and/or consolidate several locations
beginning this year through 2009.
–Product platform standardization. To further simplify and reduce
production costs, as well as to leverage development and tooling
investment, the company has begun the process of standardizing some
of its product platforms globally.

“While the pace of change has been grueling” Mixon said, “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.”

Earlier this month, the HME manufacturing giant said it would
restructure its North American HME business into a “more
cost-effective and efficient business model” and that its rehab,
respiratory, standard and sleep product divisions would be
reorganized into an umbrella organization called the HME Group.
(See HomeCare Monday, Jan. 8.) For 2007,
the company projected organic growth in net sales from 0 to 2
percent.

The company also said it has received a subpoena from the U.S.
Department of Justice seeking documents relating to three
long-standing promotional and rebate programs. Invacare said it
believes that the programs described in the subpoena are in
compliance with all applicable laws and is cooperating fully with
the government inquiry.