ROLLING AGAIN : Wheelchair Maker Shifts Strategies in Attempt to Recover Its Dominance
Everest & Jennings President Whitney McFarlin went to lunch one day last year in a motorized wheelchair made by the company he runs.
Eager to experience what it’s like to use one, McFarlin was joined by two of his executives on a trip from their offices on Sepulveda Boulevard in West Los Angeles to a delicatessen seven blocks away. What should have been a 45-minute lunch, McFarlin said, took twice as long as the three executives maneuvered through an obstacle course of automobiles, potholes, narrow doorways, pedestrians and waitresses.
Like the one at that lunchtime, the course McFarlin has steered as chief executive of the world’s largest wheelchair maker has been bumpy. In June, 1985, McFarlin was put in charge of a family-controlled company that a decade ago was the General Motors of the wheelchair business with about 60% of the U.S. market. But in recent years, the company’s market share has fallen to about 40%, thanks to a series of strategic blunders and competition from aggressive upstarts.
The company’s problems included expanding into the hospital-bed business in 1984, only to lose $250,000 a month before management scrapped the idea a year later. Moving its U.S. manufacturing division from West Los Angeles to Camarillo in 1982 ended up costing $38 million, instead of an expected $24 million. And perhaps most damaging, Everest & Jennings was plagued with the complacency that often comes with success. As a result, innovative wheelchair makers in the United States and low-cost manufacturers in Taiwan saw an opening to challenge the industry giant.
Suit Filed
There’s also a nagging legal problem for the company. Missouri Atty. Gen. William L. Webster is suing Everest & Jennings to force a recall of the motorized wheelchairs built by the company from 1978 to 1983. Webster filed suit after the drive shaft of a wheelchair used by one of his lawyers broke, nearly sending the man rolling into a busy street. Everest & Jennings has denied there is a problem with the motors, and out-of-court negotiations are taking place in an effort to settle the two-year-old suit. Because of this and other lawsuits, Everest & Jennings’ auditors will qualify the company’s 1986 financial results, McFarlin said.
A further complication was the triple-bypass surgery that Gerald Jennings, the company’s chief executive since 1953, underwent in 1978. “I was not full of energy as I used to be, and things weren’t getting done. As a result, mistakes were made,” he said.
All of these problems led Jennings and his family--who still control 55% of the company’s voting stock through two classes of shares, worth about $47 million--to look for an outsider to take over the operation. Enter McFarlin, a 46-year-old Arkansas native who was an executive with Medtronic, a Minneapolis manufacturer of heart pacemakers.
Since arriving, McFarlin has moved quickly. He shut down the hospital-bed operation, although it resulted in a $4.9-million loss in 1985, the company’s first annual loss since going public in 1968. He is also streamlining the company’s manufacturing system. Instead of making 4,400 different kinds of wheelchairs, the company will produce only a dozen or so basic wheelchair frames that can be tailored to individual users.
Last year McFarlin also sold the company’s West Los Angeles real estate, which had not been used after domestic operations were moved to Camarillo, for $7.7 million in cash and $19.1 million in notes to celebrated real estate developer Donald Bren.
Sepulveda Headquarters Remain
The sale leaves only a small building on Sepulveda, where Everest & Jennings keeps its international headquarters, close to Los Angeles International Airport. McFarlin used the proceeds from the sale to cut long-term debt from $47 million to $32 million, and said he will reduce debt by another $19 million when the notes become due within four years.
This week the company expects to report improved 1986 results of $12.1 million in net income on a 12% increase in revenue to $195 million. But only $2.2 million of the profit is expected to come from continuing operations, the rest from the real estate sale. Although it is a move forward, wheelchairs remain a low-margin business with plenty of competition.
It was not always so, however.
Back in 1933 Everest & Jennings was formed as a partnership when Harry Jennings, Gerald’s father, built a folding wheelchair for his friend, Herbert Everest, who was confined to a bulky, wicker wheelchair as a result of a mining accident. From there, the company steadily grew until it was the world’s largest maker of wheelchairs. Its products were used by Franklin D. Roosevelt and Winston Churchill. The Everest family sold its stake in the company in 1953.
But its dominance of the market has invited lawsuits. In the 1970s the company battled the Justice Department, which claimed Everest & Jennings monopolized the industry. The company agreed to a settlement that prohibits it from buying another wheelchair company until 1989.
It still faces an antitrust legal battle from its chief rival, Invacare, a rapidly growing wheelchair maker in suburban Cleveland. Invacare is suing Everest & Jennings in federal court in Cleveland, accusing the company of unfairly cutting prices five years ago.
“They thought they would put me out of business and teach me a lesson. They figured if they cut their prices 23%, I ought to get the message,” said Invacare Chairman A. Malachi Mixon III.
Everest & Jennings denies it has tried to force Invacare out of business. “That’s never been our intention, although that’s what they like to say,” countered Jennings. Analysts estimate each company has about a 40% share of the U.S. market, with Invacare selling more wheelchairs but Everest & Jennings having more total revenue because of its higher-priced models. (Overseas, Everest & Jennings still has an edge on Invacare.)
Outside Factors Hurt
Some of Everest & Jennings’ recent problems were not its fault. A tightening by the federal government in health-care reimbursements hurt medical-equipment spending. And the computer industry downturn hurt the company’s profitable metal-casting unit, which makes metal boxes for computer disk drives.
Besides straightening out finances, McFarlin is moving the company into new markets. The company is giving more attention to light, easy-to-steer wheelchairs that weigh about 25 pounds and are especially popular among disabled Viet Nam veterans, who want more freedom than is offered by conventional, 50-pound wheelchairs.
Everest & Jennings was also slow to develop small scooter-like chairs that are popular with senior citizens. Everest & Jennings now makes scooters. And to compete with low-cost wheelchairs made by Taiwan competitors, Everest & Jennings is also turning out an inexpensive wheelchair that costs $250 to $300, contrasted with $750 to $1,000 for standard models.
Thus far McFarlin has received rave reviews from directors and shareholders because the company’s stock has climbed from $6 a share in 1985 to $13.625 Monday. Among his supporters is Everest & Jennings’ largest shareholder outside the Jennings family, Industrial Equity (Pacific), a Hong Kong company controlled by Ronald Brierley, a New Zealand-born investor who controls a vast investment empire from Sydney, Australia.
“Whitney is a very good businessman who has done some beneficial things. He doesn’t just make short-term changes,” said Ronald Langley, who manages Brierley’s U.S. investments from an office in La Jolla.
Brierley began buying Everest & Jennings’ stock two years ago and now controls about 25% of the company’s shares at an acquisition cost, Langley said, of $17 million. Brierley’s stock is now worth about $20 million. His group plans to run one candidate for the company’s board of directors this year.
Now Long-Term Investor
Langley won’t say what the group’s plans are, except that Brierley is a long-term investor. Any chance of a takeover is out of the question unless it is approved by the Jennings family--Gerald, his brother, David, and his sister, Sybil. In addition to having a controlling stock position, the family has seven of 12 seats on the board of directors.
Gerald Jennings said he believes that Brierley may eventually try to buy the company years from now after the next generation of Jennings inherits the stock.
Although Everest & Jennings’ recent problems clearly tarnished its name with investors, McFarlin believes that the company has turned around. Its name in the wheelchair business remains its biggest asset.
“The Everest & Jennings name in our market is comparable to IBM’s name in computers,” he said.
Mixon, Invacare’s chairman, is understandably skeptical. He said Everest & Jennings’ reputation has irretrievably lost much of its luster.
“I’m not sure they know where they are going,” he said.
EVEREST & JENNINGS AT A GLANCE
Everest & Jennings is the world’s largest wheelchair maker. The company has 2,500 employees worldwide, including 1,100 at its U.S. subsidiary in Camarillo.
