10-K 1 ivc10-k.htm IVC 10-K
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-15103
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INVACARE CORPORATION
(Exact name of Registrant as specified in its charter)
Ohio
95-2680965
(State or other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification Number)
One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (440) 329-6000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Shares, without par value
Rights to Purchase Preferred Shares, without par value
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes  ¨    No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such short period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section229.405) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).    Yes  ¨    No  ý
As of June 30, 2011, the aggregate market value of the 28,363,662 Common Shares of the Registrant held by non-affiliates was $941,389,942 and the aggregate market value of the 4,573 Class B Common Shares of the Registrant held by non-affiliates was $151,778. While the Class B Common Shares are not listed for public trading on any exchange or market system, shares of that class are convertible into Common Shares at any time on a share-for-share basis. The market values indicated were calculated based upon the last sale price of the Common Shares as reported by The New York Stock Exchange on June 30, 2011, which was $33.19. For purposes of this information, the 2,507,167 Common Shares and 1,080,174 Class B Common Shares which were held by Executive Officers and Directors of the Registrant were deemed to be the Common Shares and Class B Common Shares held by affiliates.
As of February 23, 2011, 30,734,171 Common Shares and 1,084,747 Class B Common Shares were outstanding.
Documents Incorporated By Reference
Portions of the Registrant’s definitive Proxy Statement to be filed in connection with its 2011 Annual Meeting of Shareholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this report.
Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of December 31, 2011.
 
 
 
 
 


INVACARE CORPORATION
2011 ANNUAL REPORT ON FORM 10-K CONTENTS
 
 
 
 
Item
 
Page
PART I:
1
1A.
1B.
2
3
4
 
 
PART II:
5
6
7
7A.
8
9
9A.
9B.
 
PART III:
10
11
12
13
14
 
PART IV:
15

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PART I

Item 1.        Business.

GENERAL

Invacare Corporation is the world’s leading manufacturer and distributor in the estimated $11.0 billion worldwide market for medical equipment and supplies used in the home based upon its distribution channels, breadth of product line and net sales. The company designs, manufactures and distributes an extensive line of health care products for the non-acute care environment, including the home health care and extended care markets. The company continuously revises and expands its product lines to meet changing market demands and currently offers numerous product lines. The company sells its products principally to over 25,000 home health care and medical equipment providers, distributors and government locations in the United States, Australia, Canada, Europe, New Zealand and Asia. Invacare’s products are sold through its worldwide distribution network by its sales force, telesales associates and various organizations of independent manufacturers’ representatives and distributors. The company also distributes medical equipment and disposable medical supplies manufactured by others.

Invacare is committed to design and deliver the best value in medical products, which promote recovery and active lifestyles for people requiring home and other non-acute health care. Invacare pursues this vision by:

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designing and developing innovative and technologically superior products;
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ensuring continued focus on the company’s primary market—the non-acute health care market;
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marketing the company’s broad range of products;
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driving efficiency and innovation through the use of the company’s global resources;
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providing a professional and cost-effective sales, customer service and distribution organization;
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supplying innovative provider support and aggressive product line extensions;
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building a strong referral base among health care professionals;
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continuously advancing and recruiting top management candidates;
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empowering all employees;
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providing a performance-based reward environment; and
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continually striving for total quality throughout the organization.

The company is a corporation duly organized under the laws of the State of Ohio in 1971. When the company was acquired in December 1979 by a group of investors, including some of its current officers and directors, it had $19.5 million in net sales and a limited product line of lifestyle wheelchairs and patient aids. In 2011, Invacare reached approximately $1.8 billion in net sales, representing a 16% compound average sales growth rate since 1979, and, based upon the company’s distribution channels, breadth of product line and net sales, currently is the leading company in each of the following major, non-acute, medical equipment categories: power and manual wheelchairs, homecare bed systems and home respiratory therapy.

The company’s executive offices are located at One Invacare Way, Elyria, Ohio, 44036 and its telephone number is (440) 329-6000. In this report, “Invacare” and the “company” refer to Invacare Corporation and, unless the context otherwise indicates, its consolidated subsidiaries.

THE HOME MEDICAL EQUIPMENT INDUSTRY

North America Market

The home medical equipment (HME) market includes home health care products, physical rehabilitation products and other non-disposable products used for the recovery and long-term care of patients. As healthcare spending continues to escalate around the world, particularly in the United States, the company believes that homecare is a significant part of the solution for healthcare reform. By 2030, the number of people in the United States over 65 is expected to exceed 70 million.1 With the costs of healthcare continuing to increase in a currently unsustainable healthcare system, it will become essential that patients are given the right care, in the right place at the right cost. Homecare will be a key part of the solution in healthcare reform.

The Right Care: The institutional care model will always be an essential part of the health care system, but it is simply not the best and most cost-effective environment of care for many patients, particularly those with chronic medical conditions. The steady growth in Medicare-aged patients with chronic illnesses is placing unprecedented pressure on the financial stability

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and sustainability of the Medicare program.1 The company believes that patients prefer care and treatment provided to them in their home. Initiatives such as patient-centered medical homes and Accountable Care Organizations (ACOs) can align incentives for providers to partner closely across all medical specialties and settings and have the potential to significantly alter the trajectory of rising health care costs.
 
The Right Place: The company believes that many medical professionals and patients prefer home health care over institutional care because home health care results in greater patient independence, increased patient responsibility and improved responsiveness to treatment. An article in the New England Journal of Medicine1 notes that several engineering and electronics companies have developed products for monitoring health at home. Massachusetts General Hospital in Boston is experimenting with Internet video-conferencing to permit virtual visits from patients' homes.1 Furthermore, health care professionals, public payors and private payors appear to favor homecare as a cost-effective, clinically appropriate alternative to facility-based care.

Technological advances have made medical equipment increasingly adaptable for use in the home. It has been estimated that over 70 percent of non-surgical and non-emergent treatment and care could be effectively administered in the patient's home. Current hospital procedures often allow for earlier patient discharge, thereby lengthening recuperation periods outside of the traditional institutional setting. In addition, continuing medical advances prolong the lives of adults and children, thus increasing the demand for home medical care equipment. Undoubtedly, as health care consumers the baby boomer population will have strong opinions and preferences about their treatment settings. Recent data from the AARP Public Policy Institute and a Harris Interactive poll suggest that 89 percent of people aged 50 and older want to receive medical services in their home as they age and 65 percent would prefer home care while recuperating from surgery.2, 3

The Right Cost: The company believes that home health care and home medical equipment will play a significant role in reducing health care costs. The Agency of Healthcare Research & Quality, along with Johns Hopkins, examined extensively the benefits of Hospital at Home.4 Studies have shown that the Hospital at Home program results in lower length of stay, costs, readmission rates and complications than traditional inpatient care. In addition, surveys indicate higher levels of patient and family member satisfaction with homecare than with traditional care. Costs of care were 32 percent lower for Hospital at Home patients than for hospital inpatients, and ever critical readmission rates were 42 percent for Hospital at Home patients, compared with 87 percent of hospital inpatients.

Invacare believes that homecare is the trifecta of healthcare: it is patient preferred, has better clinical outcomes and is more cost-effective than institutionalized care.5 Homecare is going to be a significant driver of future growth for the medical care industry, as the unsustainable costs of institutional healthcare force governments to move to cost-effective venues of healthcare.

Europe/Asia/Pacific Market

The company believes that, while many of the market factors influencing demand in North America are also present in Europe and Asia/Pacific—aging of the population, technological trends and society’s acceptance of people with disabilities—each of the markets of Europe and in Asia/Pacific has distinctive characteristics. The health care industry tends to be more heavily socialized and, therefore, is more influenced by government regulation and fiscal policy. Variations in product specifications, regulatory approval processes, distribution requirements and reimbursement policies require the company to tailor its approach to the local market. Management believes that as the European markets develop more common product requirements and the company continues to refine its distribution channels, the company can more effectively penetrate these markets. Likewise, the company expects to increase its sales in the highly fragmented Australian, New Zealand and Asian markets as these markets, and the company’s distribution within them, develop.

Reimbursement

The company is directly affected by government regulation and reimbursement policies in virtually every country in which the company operates. In the United States, the growth of health care costs has increased at rates in excess of the rate of inflation and as a percentage of GDP for several decades. A number of efforts to control the federal deficit have impacted reimbursement levels for government sponsored health care programs, and private insurance companies and state Medicaid programs peg their reimbursement levels to Medicare.

1Landers SH. Why Health Care is Going Home. N Engl J Med 2010; 363 (18): 1690-1691
2Data obtained from AARP Public Policy Institute. www.aarp.org/research/ppi. Accessed 1-2012
3Harris Interactive poll, November 2011. PR Newswire. www.prnewswire. Accessed 1-2012
4AHRQ Innovations Exchange. Hospital at Homesm Care Reduces Costs, Readmissions and Complications and Enhances Satisfaction for Elderly Patients. www.innovations.ahrq.gov Accessed 1-2012.
5Doty, Pamela. "Cost-Effectiveness of Home and Community-Based Long-Term Care Services." USHHS/ASPE Office of Disability, Aging and Long-Term Care Policy. June 2000: 10

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Reimbursement guidelines in the home health care industry have a substantial impact on the nature and type of equipment an end-user can obtain and, thus, affect the product mix, pricing and payment patterns of the company’s customers who are medical equipment providers. The company believes its strong market position and technical expertise will allow it to respond to ongoing regulatory changes. However, the issues described above will likely continue to have significant impacts on the pricing of the company’s products.

GEOGRAPHICAL SEGMENTS AND PRODUCT CATEGORIES

North America

North America includes the following segments in the United States and Canada: North America/Home Medical Equipment (NA/HME), Invacare Supply Group (ISG) and Institutional Products Group (IPG).

NA/HME

This segment primarily includes: Mobility and Seating, Lifestyle and Respiratory Therapy product lines as discussed below.

MOBILITY AND SEATING PRODUCTS

Power Wheelchairs. Invacare manufactures a complete line of power wheelchairs for individuals who require independent powered mobility. The range includes products that can be significantly customized to meet an individual’s specific needs, as well as products that are inherently versatile and meet a broad range of individual requirements. Center-wheel drive power wheelchair lines are marketed under the Invacare® TDX® brand name and include a full range of powered mobility products. The TDX line of power wheelchairs offers an unprecedented combination of power, stability and maneuverability. The Pronto® series power wheelchairs with SureStep® stability feature center-wheel drive performance for exceptional maneuverability and intuitive driving. Power tilt and recline systems are offered as well.

Custom Manual Wheelchairs. Invacare manufactures and markets a range of custom manual wheelchairs for everyday, sports and recreational uses. These lightweight chairs are marketed under the Invacare® and Invacare Top End® brand names. The chairs provide mobility for people with moderate to severe disabilities in their everyday activities as well as for use in various sports such as basketball, racing and tennis.

Personal Mobility. Invacare manufactures and distributes personal mobility products, including compact scooters available in three-wheel and four-wheel versions.

Seating and Positioning Products. Invacare markets seat cushions, back supports and accessories under three series: the Invacare® Absolute™ series provides simple seating solutions for comfort, fit and function; the Invacare® Matrx® Series includes versatile modular seating, providing optimal rehab solutions; and the Invacare® PinDot® series offers custom seating solutions personalized for the most challenged clients. The company also markets specialty seating products, pediatric seating and wheelchairs, as well as various standers that allow people to stand who otherwise would be unable.

LIFESTYLE PRODUCTS

Manual Wheelchairs. Invacare’s manual wheelchairs are sold for use inside and outside the home, institutional settings or public places. Users include people who are chronically or temporarily disabled and require basic mobility performance with little or no frame modification. Examples of the company’s manual wheelchair lines, which are marketed under the Invacare® brand name, include the 9000, the Tracer® and the Veranda™ wheelchairs. These wheelchairs are designed to accommodate the diverse capabilities and unique needs of the individual, from petite to bariatric sizes.

Personal Care. Invacare is principally a distributor of a full line of personal care products, including ambulatory aids such as crutches, canes, rollators, walkers, knee walkers and wheeled walkers. Also available are safety aids such as tub transfer benches, shower chairs and grab bars, and patient care products such as commodes and other toilet assist aids.

Homecare Beds. Invacare manufactures and distributes a wide variety of manual, semi-electric and fully-electric beds for home use under the Invacare® brand name. Homecare bed accessories include bedside rails, mattresses, overbed tables and trapeze bars. Also available are bariatric beds and accompanying accessories to serve the special needs of bariatric patients.

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Pressure Relieving Mattresses.  Invacare distributes a complete line of therapeutic pressure relieving overlays and mattress replacement systems for the prevention and treatment of pressure ulcers. The Invacare® Solace® and microAIR® brand names feature a broad range of pressure relieving foam mattresses or powered mattress replacements with alternating pressure, low-air-loss or rotational mattresses, which redistribute weight and assist with moisture management. These mattresses are designed to provide comfort, support and relief to those patients who are immobile or have limited mobility and spend a great deal of time in bed.

Patient Transport. Invacare manufactures and/or distributes products needed to assist in transferring individuals from surface to surface (bed to chair) or transporting from room to room. Designed for use in the home or institutional settings, these products include patient lifts and slings, and a series of mobile, multi-functional recliners.

RESPIRATORY THERAPY PRODUCTS

Non-Delivery Oxygen. Trends in the industry continue to be towards a non-delivery oxygen therapy model. The Invacare® HomeFill® Oxygen System is the standard in ambulatory oxygen technology. With more than 200,000 units in the field, it is the basis for a non-delivery model and allows patients to fill their own high-pressure cylinders from a concentrator in their home. Published industry data suggests a large portion of the costs associated with the provision of home oxygen therapy are directly associated with the delivery and delivery-related activities required to meet the ambulatory oxygen therapy needs of patients. The Invacare HomeFill® Oxygen System is the benchmark in non-delivery oxygen technologies,1 allowing providers to virtually eliminate time-consuming and costly service calls associated with cylinder and/or liquid oxygen deliveries.

Rounding out Invacare’s non-delivery respiratory offerings are the Invacare® SOLO2® Transportable Concentrator and the Invacare® XPO2™ portable concentrator, which are now both approved by the U.S. Federal Aviation Administration for use in flight. The SOLO2® transportable concentrator offers continuous flow oxygen up to three liters per minute or pulse dose oxygen in settings 1-5. It is a flexible, reliable and clinically robust system that is easy to operate. The extremely portable XPO2™ portable concentrator weighs just six pounds with pulse dose settings 1-5 to meet the needs of a broad range of patients.

Stationary Oxygen Concentrators. Invacare oxygen concentrators are manufactured under the Perfecto2™ name and are available in five and 10 liter models. All Invacare stationary concentrators are designed to provide patients with durable equipment and reliable oxygen either at home or in a healthcare setting.

Aerosol Products and Oxygen Accessories. Invacare offers a family of aerosol compressors under the Stratos™ name. Invacare also has an expanded line of conservers and regulators to maximize the efficiency of oxygen cylinders.

OTHER PRODUCTS AND SERVICES

Invacare is the only company with a breadth of service offerings that includes the ability to assist providers in the collection of outstanding co-pays, rental capabilities, software and technology to streamline efficiencies, repair services and replacement parts.

Invacare Supply Group (ISG)

Invacare distributes numerous lines of branded medical supplies including ostomy, incontinence, diabetic, enteral, wound care and urology products as well as home medical equipment, including lifestyle products.

Institutional Products Group (IPG)

Invacare, operating as Invacare Continuing Care, Invacare Continuing Care Canada, Champion, Invacare Rentals and Dynamic Medical Systems, is a manufacturer and marketer of healthcare furnishings including beds, case goods and safe patient handling equipment for the long-term care markets, specialty clinical recliners for dialysis and oncology clinics and certain other home medical equipment and accessory products. In addition, this segment includes rental of certain home medical equipment through providers and institutions for the North American market.

1 Morrison Informatics , Inc. A Comprehensive Cost Analysis of Medicare Home Oxygen Therapy. A Study for the American Association for Homecare. June 27, 2006


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Asia/Pacific

The company’s Asia/Pacific operations consist of Invacare Australia and Invacare New Zealand, which distributes a wide range of home medical equipment including mobility and seating, lifestyle and respiratory therapy products to homecare and long-term care markets; and Dynamic Controls, a manufacturer of electronic operating components used in power wheelchairs, scooters, respiratory and other products; and Invacare New Zealand, a distributor of a wide range of home medical equipment.

Europe

The company’s European operations operate as a “common market” company with sales throughout Europe, the Middle East and Africa. The European operations currently sell a line of products providing room for growth as Invacare continues to broaden its product line offerings in line with the company's One Invacare strategy.

Most wheelchair products sold in Europe are designed to meet specific market requirements. The company manufactures and/or assembles both manual and power wheelchair products in the following countries: United Kingdom, France and Germany. Manual wheelchair products are also manufactured and/or assembled in Portugal, Switzerland and Sweden. Beds are assembled in Sweden and Portugal. Personal care products are manufactured in Germany and also purchased from China; and Dolomite products are principally purchased from China and Mexico. Respiratory therapy products such as concentrators and HomeFill® oxygen systems are imported from Invacare's U.S. or China operations.

For information relating to net sales by product group, see Business Segments in the Notes to the Consolidated Financial Statements included in this report.

WARRANTY

Generally, the company’s products are covered from the date of sale to the customer by warranties against defects in material and workmanship for various periods depending on the product. Certain components carry a lifetime warranty.

COMPETITION

North America and Asia/Pacific

The home medical equipment market is highly competitive and Invacare products face significant competition from other well-established manufacturers and distributors. The company believes that its success in increasing market share is dependent on providing value to the customer based on the quality, performance and price of the company's products, the range of products offered, the technical expertise of the sales force, the effectiveness of the company's distribution system, the strength of the dealer and distributor network and the availability of prompt and reliable service for its products. Various competitors, from time to time, have instituted price-cutting programs in an effort to gain market share and may do so again in the future.

Europe

As a result of the differences encountered in the European marketplace, competition generally varies from one country to another. The company typically encounters one or two strong competitors in each country, some of whom are becoming regional leaders in specific product lines.

MARKETING AND DISTRIBUTION

North America and Asia/Pacific

Invacare products are marketed in the United States and Asia/Pacific primarily to providers who in turn sell or rent these products directly to consumers within the non-acute care setting. Invacare’s primary customers are home medical equipment (HME) providers. The company also employs a “pull-through” marketing strategy to medical professionals, including physical and occupational therapists, who refer their patients to HME providers to obtain specific types of home medical equipment.

Invacare’s NA/HME sales and marketing organization consists primarily of a sales force which markets and sells Invacare® branded products to HME providers. Each member of Invacare’s HME sales force functions as a Territory Business Manager (TBM) and handles all product and service needs for an account, thus saving customers’ valuable time. The TBM also provides training and servicing information to providers, as well as product literature, point-of-sale materials and other advertising and merchandising aids. In Canada, products are sold by a sales force and distributed through regional distribution centers to health

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care providers throughout Canada.

The Inside Sales Department provides increased sales coverage of smaller accounts and complements the efforts of the field sales force. Inside sales offers cost-effective sales coverage through a targeted telesales effort.
Invacare's Technical Education department offers educational programs that place emphasis on improving the productivity of repair technicians. The Service Referral Network includes numerous providers who honor the company's product warranties regardless of where the product was purchased. This network of servicing providers seeks to ensure that all consumers using Invacare products receive quality service and support that is consistent with the Invacare brand promise - Making Life's Experiences Possible™.
Additionally, Invacare is the only manufacturer with a breadth of service offerings that includes the ability to assist providers in the collection of outstanding co-pays, rental capabilities, software and technology to streamline efficiencies, repair services and replacement parts. These tools and resources assist home and long-term care providers in optimizing resources and furthering their business success. With National Competitive Bidding (NCB) on the top of mind for durable medical equipment providers in the United States, Invacare began to package all of its product and service offerings into an action guide. The action guide is complemented with supporting materials and informational videos which can be downloaded at www.invacare.com/ncb. This approach positions Invacare as part of the solution for our customers in the declining reimbursement environment related to National Competitive Bidding.
The company markets products and services to the institutional care market through a specialized sales force, a national rentals and services organization and a team of clinical professionals who call on clinical decision makers. IPG products include beds and furnishings, patient handling, bathing, durable medical equipment and clinical therapies, such as therapeutic support surfaces and negative pressure wound therapy. IPG sales and marketing organizations consist of field sales representatives and independent representative agencies supported by a marketing group that generates awareness and demand at institutions for Invacare products and services. IPG also provides interior design services for nursing homes and assisted living facilities involved with renovation and new construction.
The company sells distributed products, primarily soft goods and disposable medical supplies, through ISG. ISG products include ostomy, incontinence, wound care and diabetic supplies, as well as 40 other categories of other soft goods and disposables. ISG markets its products through field account managers, inside telesales, a customer service department and the Internet. Additionally, ISG entered the long-term care market on a regional basis and markets to those nursing homes utilizing independent manufacturer representatives. ISG also markets a Home Delivery Program to home medical equipment providers through which ISG drop ships supplies in the provider's name to the customer's address. Thus, providers have no products to stock, no minimum order requirements and delivery is made within 24 to 48 hours nationwide. ISG also offers many customized marketing programs as well as business-to-consumer and business-to-business website development, designed to help its customers create awareness, grow companion and cash sales and assist in patient retention.
In 2011, the company continued its strategic advertising campaign in key business-to-business publications that reach Invacare's respective customers. The company contributed extensively to editorial coverage in trade publications concerning the products the company manufactures; and company representatives attended numerous trade shows and conferences on a national and regional basis in which Invacare products were displayed to providers, health care professionals, managed care professionals and consumers. “Yes, you can.®” continues to be Invacare's global tagline and is used in company ads and on the Invacare global website as it is indicative of the company's “can do” attitude. In 2011, the company established its brand promise - Making Life's Experiences Possible™ - and began to weave this into the marketing messages both internally and externally.
Invacare continues to improve performance and usability on www.invacare.com. Throughout 2011, the company also increased participation in online forums and engaged customers by utilizing social media tools, including a Facebook® page and YouTube® channel. These moves toward a more customer-centric approach allow the company to provide a customer interface that better addresses customer needs. During the year, the company launched a “Real Life” campaign dedicated to raising awareness of the everyday struggles and achievements of those living with disabilities, ailments or advancing age. People were invited to share their stories through the digital forums YouTube®, Facebook® and Flickr® in the hopes of educating people around the world about what is possible. The initiative was connected with a media campaign to demonstrate that life is made possible with Invacare products.
The company continues to generate greater consumer awareness of its products. This was evidenced by the company's sponsorship of a variety of wheelchair sporting events and support of various philanthropic causes benefiting the consumers of the company's products. The company continued its sponsorships of individual wheelchair athletes and teams, including several of the top-ranked male and female racers, hand cyclists, and wheelchair tennis players in the world. In 2011, the company began laying the groundwork to support these sponsored athletes and others in the 2012 Paralympic Games in London. The company

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also continued its support of disabled veterans through its sponsorship of the 31st National Veterans Wheelchair Games, the largest annual wheelchair sports event in the world. The games bring a competitive and recreational sports experience to military service veterans who use wheelchairs for their mobility needs due to spinal cord injury, neurological conditions or amputation.

Europe

The company’s European operations consist primarily of manufacturing, marketing and distribution operations in Western Europe and export sales activities through local distributors elsewhere in the world. The company has a sales force and distribution centers in Austria, Belgium, Denmark, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom, and sells through distributors elsewhere in Europe, the Middle East and in Africa. In markets where the company has its own sales force, product sales are typically made through dealers of medical equipment and, in certain markets, products are sold directly to government agencies. In 2011, the continued consolidation of big buying groups tending to develop their business on a European scale has continued. As a result, Invacare is generalizing the application of pan-European pricing policies.

Invacare continued its sponsorship of wheelchair tennis for a 17th consecutive year by becoming the title sponsor of the International Tennis Federation Doubles Masters event hosted in Amsterdam, Netherlands.

PRODUCT LIABILITY COSTS

The company’s captive insurance company, Invatection Insurance Company, currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in aggregate losses per policy year arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s current insurance levels will continue to be adequate or available at affordable rates.

Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss awards and settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company is responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices.

PRODUCT DEVELOPMENT AND ENGINEERING
Invacare is committed to continuously improving upon and renewing its product offerings. Invacare's key globalization initiative is moving from a local product development approach to address local markets, to a primarily global product development approach, aimed at developing global product platforms. This strategy is designed to enable the company to leverage its new product development cycle and offer more innovative product solutions, while at the same time reducing complexity within the business and increasing cost-effectiveness. By streamlining its engineering and product development capabilities on a global basis, Invacare expects to further increase its industry leadership with the broadest range of product offerings in both homecare and continuing care medical device equipment. This will uniquely position the company in a changing healthcare environment.
The following are some of Invacare's notable new products and product updates for 2011:
Global Products

The patented design of the Invacare® Glissando™ mattress features two sections of high density foam and a layer that enables the top and bottom sections of the mattress to move independently as the bed is articulated. The innovative gliding feature takes comfort and safety to a new level, minimizing friction and shear that can contribute to costly pressure ulcers. This product, originally launched in Europe, is now being distributed globally.

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The Invacare® Top End® Reveal™ wheelchair is an ultra light weight performance rigid wheelchair in the custom manual family of products. The Reveal wheelchair is a sleek, super lightweight chair that can easily be adjusted for a customized fit and optimal chair performance. It employs the latest material technology, 7005 series aluminum, for a smooth and energy-efficient ride. The wheelchair may be tailored to ensure the best wheel access and efficiency by easily adjusting the center of gravity, rear seat height, caster angle or back angle.

The new Invacare® Matrx® MX1 cushion is a lightweight, carbon-fiber back with a very lightweight shell, exceptional durability and aesthetic appeal. It is contoured to provide stability to the hips and trunk, without restricting upper body mobility. It is available in three height options and has three hardware options to optimally fit the back to a wheelchair.

The Invacare® Rio™ bath lift features easy, tool-less installation, a modern, clean design with easy to clean surfaces with no slots or rips, self-release suction cups that can easily be removed, a stationary backrest and a compact, portable design.
The Invacare® Etude® Plus homecare bed, with its attractive aesthetics, flexible design and easy handling, is ideal for homecare use. All the hallmarks and proven features of the popular Etude bed concept, such as sturdiness, ease of handling and durability, are present in this new version. Etude™ Plus bed is easy to transport and install in the home.

The Invacare® Leo™ 3-wheel scooter offers a stable three-wheel base that provides a smooth, safe drive and handles varying surfaces with ease. Features include a full lighting package, built-in splash guards to protect the electronics and transaxle, comfortable seating that swivels and slides and flat free tires.

The Invacare® Action® 1 low active wheelchair is a modified version of the Invacare® Tracer® SX5 low-active wheelchair that was adapted to suit the market requirements of Europe, Australia, New Zealand and China. It is one of the first low-active wheelchair platforms for Invacare.

The Invacare® Myon™ Medium-Active wheelchair is a comfortable, foldable, lightweight wheelchair that is suited for everyday use. Key features of this wheelchair are increased center of gravity positioning and increased seat depth and seat width. It is a shared platform with other models in the Myon™ family which means that therapists and dealers can maximize opportunities for modularity and personalized adjustments for the consumer. The Myon™ wheelchair is based off of a successful European platform and launched in Canada in 2011.
Local Products
In 2011 the Invacare® Veranda™ low active manual wheelchair product was expanded in the United States from the existing 18 inch seat width to include 16 inch and 20 inch widths. This further developed the market interest in the Veranda wheelchair as it was able to accommodate a larger group of consumers.

In the United States, the Invacare® Top End® Crossfire™ T7A custom manual wheelchair was introduced as 25% lighter compared to its predecessor, the Invacare® Top End® Crossfire™ T6A. This was accomplished by using a special 7005 aluminum to reduce the wall thickness and carving weight out of more than 20 components, while appreciating the need for durability and performance in the wheelchair. The ingenuity of the T7A wheelchair design is that it minimizes high-stress concentrations throughout the entire chair, making a lighter and stronger chair.

The European Invacare® Kite® wheelchair is an outdoor-indoor power wheelchair built to incorporate Invacare's new and patented wheelbase technology. This adaptable power chair comes equipped with Dual Swing Technology (D.S.T.)® feature; a suspension system engineered for driving comfort and traction. The Kite wheelchair is designed for active consumers who love outdoor activities yet who still require a compact chair in their everyday life.
    
The new Invacare® Storm® 4 Max wheelchair is the latest addition to the European Storm range of rear-wheel drive power wheelchair products, designed for heavier clients. It features a longer chassis to improve weight distribution yet still provide excellent maneuverability outdoors or inside. Extra long, sturdy armrests and leg rests will support the consumer, especially when re-positioning themselves within the seat.

The Invacare® Spectra® XTR wheelchair in Europe has been developed to combine powerful driving performance with comfort. High torque motors and a unique suspension design provide a smoother, easier ride. The interchangeable seating systems offer excellent flexibility and modularity, and coupled with a new easy to remove cable free battery system, the Spectra XTR wheelchair is extremely quick and simple to service.

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The popular Invacare® ScanBed® 755 bed from Europe is now available in wider variants of 1050 mm and 1200 mm, proving even more comfort for taller or larger clients (weights of 200 kg).The ScanBed 755 Wide bed is attractive and modern, the streamlined design, it is intended to blend into any homecare or institutional environment.

MANUFACTURING AND SUPPLIERS

The company’s objective is to continue to reduce costs and possibly consolidate facilities to maintain its high quality supply. The company seeks to achieve this objective through a strategic combination of Invacare manufacturing facilities, contract manufacturing facilities and key suppliers. The operational strategy further supports the marketing strategy with flexible providers of new and modified products that respond to the demands of the market.

The supply chain is focused on providing custom-configured, made-to-order manufactured products as well as high-quality, cost-effective solutions for standard stock products. As strategic choices are made globally, the company will continue to be focused on providing quick product delivery to the market as a specific competitive advantage to the marketing and sales teams in these regions.

The company continues to emphasize reducing the costs of its global manufacturing and distribution operations. Access to sourcing opportunities has been facilitated by the company’s establishment of a test and design engineering facility in the company’s Suzhou, China location. In Asia, Invacare manufactures products that serve regional market opportunities through the company’s wholly-owned factory in Suzhou, Jiangsu Province, China. The Suzhou facility supplies products to the major geographic regions of the world served by Invacare: North America, Europe and Asia/Pacific.

Best practices in lean manufacturing are used throughout the company’s operations to eliminate waste, shorten lead times, optimize inventory, improve productivity, drive quality and engage supply chain associates in the defining and implementation of needed change.

The company purchases raw materials, components, sub-assemblies and finished goods from a variety of suppliers around the world. The company’s Asian sourcing and purchasing office has proven to be a significant asset to the company’s supply chain through the identification, development and management of suppliers across Asia. Where appropriate, Invacare utilizes contracts with suppliers in all regions to increase the guarantees of delivery, cost, quality and responsiveness. In those situations where contracts are not advantageous, Invacare works to manage multiple sources of supply and relationships that provide increased flexibility to the supply chain.

North America

The company has focused its factories in North America on the production of powered mobility and custom manual wheelchairs and seating products, the fully integrated manufacture of homecare and institutional care beds, the final assembly of respiratory therapy products and the integrated component fabrication, painting and final assembly of a variety of standard manual wheelchairs and personal care products in North America. The company operates four major factories located in Elyria, Ohio; Sanford, Florida; London, Ontario and Reynosa, Mexico.

Asia/Pacific

The Asia/Pacific region is focused on improving its customer delivery effectiveness, expanding its reach into all customer channels in all major metropolitan centers and integrating its distribution operations across the region.

Europe

The company has eight manufacturing/assembly facilities spread throughout Europe with the capability to manufacture patient aid, wheelchair, powered mobility, bath safety, beds and patient transport products. The European manufacturing and logistics facilities are focused on accelerating opportunities for streamlining to gain productivity improvements in cost and quality over the next few years.


GOVERNMENT REGULATION

The company is directly affected by government regulation and reimbursement policies in virtually every country in which it operates. Government regulations and health care policy differ from country to country, and within some countries (most notably

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the U.S., European Union, Australia and Canada), from state to state or province to province. Changes in regulations and health care policy take place frequently and can impact the size, growth potential and profitability of products sold in each market.

In the U.S., the growth of health care costs has increased at rates in excess of the rate of inflation and as a percentage of GDP for several decades. A number of efforts to control the federal deficit have impacted reimbursement levels for government sponsored health care programs and private insurance companies often imitate changes made in federal programs. Reimbursement guidelines in the home health care industry have a substantial impact on the nature and type of equipment an end user can obtain and thus, affect the product mix, pricing and payment patterns of the company’s customers who are the HME providers.

The company continues its pro-active efforts to shape public policy that impacts home and community-based, non-acute health care. The company is currently very active with federal legislation and regulatory policy makers. Invacare believes that these efforts give the company a competitive advantage in two ways. First, customers frequently express appreciation for the company’s efforts on behalf of the entire industry. Second, sometimes the company has the ability to anticipate and plan for changes in public policy, unlike most other HME manufacturers who must react to change after it occurs.

The United States Food and Drug Administration (the “FDA”) regulates the manufacture and sale of medical devices. Under such regulation, medical devices are classified as Class I, Class II or Class III devices. The company’s principal products are designated as Class I or Class II devices. In general, Class I devices must comply with labeling and record keeping requirements and are subject to other general controls. In addition to general controls, certain Class II devices must comply with product design and manufacturing controls established by the FDA. Domestic and foreign manufacturers of medical devices distributed commercially in the U.S. are subject to periodic inspections by the FDA. Furthermore, state, local and foreign governments have adopted regulations relating to the design, manufacture and marketing of health care products.

In December 2011, the FDA requested that the company negotiate and agree to a consent decree of injunction at the company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the proposed terms of which would require the suspension of certain operations at those facilities until they are certified by the company and then determined by FDA to be in compliance with FDA quality system regulations. The company is in the process of negotiating with the FDA the terms of the consent decree. In addition, in December 2010, the company received a warning letter from the FDA related to quality system processes and procedures at the company's Sanford, Florida facility. The company has reorganized its quality assurance and regulatory affairs functions, including the addition of a senior vice president of quality assurance and regulatory affairs with experience in the medical device industry who will lead these functions. The company has developed and is executing a comprehensive quality systems remediation plan. See Item 1A. Risk Factors.

From time to time, the company may undertake voluntary recalls or field corrective actions of the company’s products to correct product issues that may arise. These actions help to maintain ongoing customer relationships and enhance the company’s reputation for adhering to high standards of quality and safety. None of the company’s actions has been classified by the FDA as high risk. The company continues to strengthen its programs to better ensure compliance with applicable regulations and actively keeps abreast of proposed regulations, particularly those which could have a material adverse effect on the company.

The company occasionally sponsors clinical studies, usually involving its respiratory therapy products. These studies have historically been non-significant risk studies with human subjects. Such studies, their protocols, participant criteria and all results are registered in the Clinical Registry managed by the National Institutes of Health and available to the public via the Internet.

In regards to reimbursement in the United States, the Centers for Medicare and Medicaid Services (CMS) began implementation January 1, 2011 in the first nine metropolitan areas of the Medicare National Competitive Bidding (NCB) program. The company remains judicious in its extension of credit to customers and monitors whether other payors begin to model their payments on the NCB program. The company also closely watches state Medicaid budgets and how deficits may impact coverage and payments for home medical equipment and institutional care products.

The 2010 health care reform law in the U.S., the Patient Protection and Affordable Care Act, included a number of provisions affecting the HME industry. First, the health care law expanded Round 2 of the Medicare National Competitive Bidding program from 70 to 91 geographic bid areas. Round 2 is currently scheduled to go into effect July 2013. Second, Medicare now makes rental payments for 13 months before the beneficiary assumes ownership of the standard power wheelchair. Finally, the new health care law imposed a “productivity adjustment” to the annual fee schedules of all Medicare providers, including HME providers, that limits any annual cost of living increases applied to the fee schedules. The 2010 health care reform law also includes a new tax on U.S. sales of medical device manufacturers or importers, such as Invacare. The law will impose a yearly 2.3% sales-based excise tax on medical device manufacturers starting in 2013. The excise tax will be deductible by the manufacturer on its federal income tax return. The excise tax will not apply to medical devices that the Secretary of Treasury determines are generally purchased by the general public at retail for individual use. In January 2012, the Department of the Treasury issued guidance on the definition

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of a taxable medical device related to the excise tax. While the company believes a portion of its products will be exempt from the excise tax under the retail exemption, it is still in the process of fully analyzing the implications of the excise tax by the Department of the Treasury. The company intends to respond to the IRS and the Treasury Department to seek additional clarity on the proposed regulations.

Although reductions in Medicare payments are not beneficial to the homecare industry, the company believes it can still grow and thrive in this environment. No significant cost-of-living adjustments have been made over the last few years to the reimbursement and payment amounts permitted under Medicare with respect to the company’s products, but the company will continue to try to respond with improved productivity. In addition, the company’s respiratory therapy products (for example, the low-cost HomeFill® oxygen delivery system) can help offset the Medicare reimbursement cuts to the homecare provider. The company will continue to focus on developing products that help the provider improve profitability. Additionally, the company continues to focus on low-cost country sourcing and/or manufacturing to help ensure that the company is one of the lowest cost manufacturers and distributors to the homecare provider.

BACKLOG

The company generally manufactures most of its products to meet near-term demands by shipping from stock or by building to order based on the specialty nature of certain products. Therefore, the company does not have substantial backlog of orders of any particular product nor does it believe that backlog is a significant factor for its business.

EMPLOYEES

As of December 31, 2011, the company had approximately 6,200 employees.

FOREIGN OPERATIONS AND EXPORT SALES

The company also markets its products for export to other foreign countries. In 2011, the company had product sales in over 80 countries worldwide. For information relating to net sales, operating income and identifiable assets of the company’s foreign operations, see Business Segments in the Notes to the Consolidated Financial Statements.

AVAILABLE INFORMATION

The company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments thereto, as well as proxy statements and other documents with the Securities and Exchange Commission (SEC). The public may read and copy any material that the company files with the SEC at the SEC’s Public Reference Room located at 100 F Street, NE, Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website, www.sec.gov, which contains all reports, proxy statements and other information filed by the company with the SEC.

Additionally, Invacare’s filings with the SEC are available on or through the company’s website, www.invacare.com, as soon as reasonably practicable after they are filed electronically with, or furnished to, the SEC. Copies of the company’s filings also can be requested, free of charge, by writing to: Shareholder Relations Department, Invacare Corporation, One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125.


FORWARD-LOOKING INFORMATION

This Form 10-K contains forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Terms such as “will,” “should,” “could,” “plan,” “intend,” “expect,” “continue,” “forecast,” “believe,” “anticipate” and “seek,” as well as similar comments, are forward-looking in nature. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results and events may differ significantly from those expressed or anticipated as a result of risks and uncertainties which include, but are not limited to, the following: compliance costs, limitations on the production and/or marketing of the Company's products or other adverse effects of enforcement actions which could arise from the current, ongoing FDA investigations and negotiations on a proposed consent decree, and the risk that the Company and the FDA may not reach agreement on the terms of a consent decree; adverse changes in government and other third-party payor reimbursement levels and practices (such as, for example, the Medicare national competitive bidding program covering nine metropolitan areas beginning in 2011 and an additional 91 metropolitan areas beginning in July 2013), impacts of the 2010 U.S. health care reform legislation (such as, for example, the excise tax beginning in 2013 on certain medical devices, together with further regulations to be promulgated

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by the U.S. Secretary of Treasury, if adopted); extensive government regulation of the Company's products; legal actions, regulatory proceedings or governmental investigations; or the Company's failure to comply with regulatory requirements or receive regulatory clearance or approval for the Company's products or operations in the United States or abroad; product liability claims; the uncertain impact on the Company's providers, on the Company's suppliers and on the demand for the Company's products resulting from the current global economic conditions and general volatility in the credit and stock markets; loss of key health care providers; exchange rate and tax rate fluctuations; inability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs; consolidation of health care providers and the Company's competitors; lower cost imports; uncollectible accounts receivable; difficulties in implementing/upgrading Enterprise Resource Planning systems; risks inherent in managing and operating businesses in many different foreign jurisdictions; ineffective cost reduction and restructuring efforts; potential product recalls; natural disasters that lead to supply chain disruptions beyond the Company's control; possible adverse effects of being leveraged, which could impact the Company's ability to raise capital, limit its ability to react to changes in the economy or the health care industry or expose the Company to interest rate or event of default risks; increased freight costs; inadequate patents or other intellectual property protection; incorrect assumptions concerning demographic trends that impact the market for the Company's products; unanticipated changes in the Company's product sales mix; decreased availability or increased costs of materials which could increase the Company's costs of producing or acquiring the Company's products, including possible increases in commodity costs; the loss of the services of or inability to attract and maintain the Company's key management and personnel; inability to acquire strategic acquisition candidates because of limited financing alternatives; increased security concerns and potential business interruption risks associated with political and/or social unrest in foreign countries where the Company's facilities or assets are located; provisions of Ohio law or in the Company's debt agreements, shareholder rights plan or charter documents that may prevent or delay a change in control, as well as the risks described from time to time in Invacare's reports as filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise
 
Item 1A.    Risk Factors.

The company’s business, operations and financial condition are subject to various risks and uncertainties. One should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report on Form 10-K and in the company’s other filings with the SEC, before making any investment decision with respect to the company’s securities. The risks and uncertainties described below may not be the only ones the company faces. Additional risks and uncertainties not presently known by the company or that the company currently deems immaterial may also affect the company’s business. If any of these known or unknown risks or uncertainties actually occur, develop or worsen, the company’s business, financial condition, results of operations and future growth prospects could change substantially.

The company has received a proposed consent decree of injunction from the U.S. Food and Drug Administration (“FDA”), the effects of which could be costly to the company and could result in adverse consequences to the company's business.
The company received inspectional observations (known as FDA Form-483s) in connection with inspections in 2010 and 2011 of its corporate facility and its wheelchair manufacturing facility in Elyria, Ohio. In December 2011, the FDA requested that the company agree to a consent decree of injunction at the company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the proposed terms of which would require the suspension of certain operations at those facilities until they are certified by the company and then determined by the FDA to be in compliance with FDA quality system regulations. The company is in the process of negotiating with the FDA on the terms of the consent decree. While the final terms of the consent decree have not been determined, they will result in the suspension of a portion, which could be substantial, of the company's operations at its wheelchair manufacturing facility in Elyria, Ohio. The duration of any such suspension would be dependent upon the company's ability to certify its compliance with FDA regulations and then the FDA's determination of such compliance. A suspension of operations likely would have adverse effects on the company's business, including loss of revenues, harm to the company's reputation and customer dissatisfaction. The company also is devoting additional substantial financial, management and engineering resources to making the systemic improvements necessary to comply with the terms of the consent decree and maintain compliance in the future. The company's diversion of resources could impact other areas of the company's business, such as, for example, delays in new product development and cost reduction and globalization activities. All of these factors could result in material adverse consequences to the company's business, performance, prospects, value, financial condition, and results of operations.
The company is cooperating with the FDA in attempting to negotiate the final terms of the consent decree. However, there can be no assurance that negotiations will conclude with mutually agreeable terms of the consent decree which could lead the FDA to pursue judicial, legal or other enforcement action against the company. Such enforcement could include requiring restrictions on the manufacturing, sale or distribution of the company's products, product recalls, or the payment of fines or penalties, which enforcement could result in material adverse consequences to the company's business, performance, prospects, value, financial

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condition, and results of operations.
The company’s failure to comply with medical device regulatory requirements or receive regulatory clearance or approval for the company’s products or operations in the United States or abroad could adversely affect the company’s business.
The company’s medical devices are subject to extensive regulation in the United States by the FDA, and by similar governmental authorities in the foreign countries where the company does business. The FDA regulates virtually all aspects of a medical device’s development, testing, manufacturing, labeling, promotion, distribution and marketing. In addition, the company is required to file reports with the FDA if the company’s products cause, or contribute to, death or serious injury, or if they malfunction and would be likely to cause, or contribute to, death or serious injury if the malfunction were to recur. In general, unless an exemption applies, the company’s mobility and respiratory therapy medical devices must receive a pre-marketing clearance from the FDA before they can be marketed in the United States. The FDA also regulates the export of medical devices to foreign countries. The company cannot be assured that any of the company’s devices, to the extent required, will be cleared by the FDA through the pre-market clearance process or that the FDA will provide export certificates that are necessary to export certain of the company’s products. In connection with the FDA warning letter received by the company in December 2010, the FDA has refused to provide new export certificates for company products until the matters covered in the warning letter are resolved.

Additionally, the company may be required to obtain pre-marketing clearances to market modifications to the company’s existing products or market its existing products for new indications. The FDA requires device manufacturers themselves to make and document a determination as to whether or not a modification requires a new clearance; however, the FDA can review and disagree with a manufacturer’s decision. The company has applied for, and received, a number of such clearances in the past. The company may not be successful in receiving clearances in the future or the FDA may not agree with the company’s decisions not to seek clearances for any particular device modification. The FDA may require a clearance for any past or future modification or a new indication for the company’s existing products. Such submissions may require the submission of additional data and may be time consuming and costly, and ultimately may not be cleared by the FDA.

If the FDA requires the company to obtain pre-marketing clearances for any modification to a previously cleared device, the company may be required to cease manufacturing and marketing the modified device or to recall the modified device until the company obtains FDA clearance and the company may be subject to significant regulatory fines or penalties. In addition, the FDA may not clear these submissions in a timely manner, if at all. The FDA also may change its policies, adopt additional regulations or revise existing regulations, each of which could prevent or delay pre-market clearance of the company’s devices, or could impact the company’s ability to market a device that was previously cleared. Any of the foregoing could adversely affect the company’s business.

The company’s failure to comply with the regulatory requirements of the FDA and other applicable U.S. regulatory requirements may subject the company to administrative or judicially imposed sanctions. These sanctions include warning letters, civil penalties, criminal penalties, injunctions, consent decrees, product seizure or detention, product recalls and total or partial suspension of production.

As part of its regulatory function, the FDA routinely inspects the sites of medical device companies, and in 2010 and 2011, the FDA inspected certain of the company's facilities. In December 2011, the FDA requested that the company agree to a consent decree of injunction at the company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio. See the previous Risk Factor regarding the FDA consent decree. In addition, in December 2010, the company received a warning letter from the FDA related to quality system processes and procedures at the company's Sanford, Florida facility. The company is taking these issues very seriously and has added resources to ensure it is addressing all of the FDA's concerns in a timely manner. However, the results of regulatory claims, proceedings, investigations, or litigation are difficult to predict. An unfavorable resolution or outcome of the FDA warning letter or consent decree of injunction could materially and adversely affect the company's business, financial condition, and results of operations.

In many of the foreign countries in which the company markets its products, the company is subject to extensive medical device regulations that are similar to those of the FDA, including those in Europe. The regulation of the company’s products in Europe falls primarily within the European Economic Area, which consists of the 27 member states of the European Union, as well as Iceland, Liechtenstein and Norway. Only medical devices that comply with certain conformity requirements of the Medical Device Directive are allowed to be marketed within the European Economic Area. In addition, the national health or social security organizations of certain foreign countries, including those outside Europe, require the company’s products to be qualified before they can be marketed in those countries. Failure to receive or delays in the receipt of, relevant foreign qualifications in the European Economic Area or other foreign countries could have a material adverse effect on the company’s business.

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Being in the health care industry, the company is subject to extensive government regulation, and if the company fails to comply with applicable health care laws or regulations, the company could suffer severe civil or criminal sanctions or be required to make significant changes to the company’s operations that could have a material adverse effect on the company’s results of operations.
The company sells its products principally to medical equipment and home health care providers who resell or rent those products to consumers. Many of those providers (the company’s customers) are reimbursed for the Invacare products sold to their customers and patients by third-party payors, including Medicare and Medicaid. The U.S. federal government and the governments in the states and other countries in which the company operates regulate many aspects of the company’s business. As a part of the health care industry, the company is subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, invoicing, documenting and other practices of health care suppliers and manufacturers are all subject to government scrutiny. Government agencies periodically open investigations and obtain information from health care suppliers and manufacturers pursuant to the legal process. Violations of law or regulations can result in severe administrative, civil and criminal penalties and sanctions, including disqualification from Medicare and other reimbursement programs, which could have a material adverse effect on the company’s business. While the company has established numerous policies and procedures to address compliance with these laws and regulations, there can be no assurance that the company's efforts will be effective to prevent a material adverse effect on the company’s business from noncompliance issues.

The company received a subpoena in 2006 from the U.S. Department of Justice seeking documents relating to three long-standing and well-known promotional and rebate programs maintained by the company. The company believes that the programs described in the subpoena are in compliance with all applicable laws and the company has cooperated fully with the government investigation. As of February 2012, the subpoena remains pending. See also the previous two Risk Factors regarding the FDA's regulatory enforcement actions.

Health care is an area of rapid regulatory change. Changes in the law and new interpretations of existing laws may affect permissible activities, the costs associated with doing business, and reimbursement amounts paid by federal, state and other third-party payors. The company cannot predict the future of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or possible changes in health care policies in any country in which the company conducts business. Future legislation and regulatory changes could have a material adverse effect on the company’s business.

Changes in government and other third-party payor reimbursement levels and practices have negatively impacted and could continue to negatively impact the company’s revenues and profitability.
The company’s products are sold primarily through a network of medical equipment and home health care providers, extended care facilities, hospital and HMO-based stores and other providers. In addition, the company sells directly to various government providers throughout the world. Many of these providers (the company’s customers) are reimbursed for the products and services provided to their customers and patients by third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans and managed care programs. Most of these programs set maximum reimbursement levels for some of the products sold by the company in the United States and abroad. If third-party payors deny coverage, make the reimbursement process or documentation requirements more uncertain or further reduce their current levels of reimbursement (i.e., beyond the reductions described below), or if the company’s costs of production do not decrease to keep pace with decreases in reimbursement levels, the company may be unable to sell the affected product(s) through its distribution channels on a profitable basis.

Reduced government reimbursement levels and changes in reimbursement policies have in the past added, and could continue to add, significant pressure to the company’s revenues and profitability. For example, CMS introduced national competitive bidding for nine metropolitan areas in the U.S., which went into effect in January 2011. The reimbursement rates for nine product categories were reduced by an average of 32 percent in these nine metropolitan areas. CMS is currently scheduled to expand the NCB program to an additional 91 metropolitan areas in July 2013.

Similar trends and concerns are occurring in state Medicaid programs. These recent changes to reimbursement policies, and any additional unfavorable reimbursement policies or budgetary cuts that may be adopted in the future, could adversely affect the demand for the company’s products by customers who depend on reimbursement from the government-funded programs. The percentage of the company’s overall sales that are dependent on Medicare or other insurance programs may increase as the portion of the U.S. population over age 65 continues to grow, making the company more vulnerable to reimbursement level reductions by these organizations. Reduced government reimbursement levels also could result in reduced private payor reimbursement levels because some third-party payors index their reimbursement schedules to Medicare fee schedules. Reductions in reimbursement levels also may affect the profitability of the company’s customers and ultimately force some customers without strong financial

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resources to go out of business. The reimbursement reductions may prove to be so dramatic that some of the company’s customers may not be able to adapt quickly enough to survive. The company is the industry’s largest creditor and an increase in bankruptcies in the company’s customer base could have an adverse effect on the company’s financial results.

Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have government-managed health care systems that govern reimbursement for new home health care products. The ability of hospitals and other providers supported by such systems to purchase the company’s products is dependent, in part, upon public budgetary constraints. Various countries have tightened reimbursement rates and other countries may follow. If adequate levels of reimbursement from third-party payors outside of the United States are not obtained, international sales of the company’s products may decline, which could adversely affect the company’s net sales.

The impact of all the changes discussed above is uncertain and could have a material adverse effect on the company’s business, financial condition and results of operations.

The adoption of healthcare reform and other legislative developments in the United States may adversely affect the company’s business, results of operations and/or financial condition.
In March 2010, significant reforms to the healthcare system were adopted as law in the United States under the Patient Protection and Affordable Care Act. The law includes provisions that, among other things, reduce and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes. Specifically, the law imposes a 2.3% sales-based excise tax on U.S. sales by manufacturers of most medical devices beginning in 2013. The excise tax will be deductible by the manufacturer on its federal income tax return. The excise tax will not apply to medical devices that the Secretary of Treasury determines are generally purchased by the general public at retail for individual use. In January 2012, the Department of the Treasury issued guidance on the definition of a taxable medical device related to the excise tax. While the company believes a portion of its products will be exempt from the excise tax under the retail exemption, it is still in the process of fully analyzing the implications of the excise tax by the Department of the Treasury. The company intends to respond to the IRS and the Treasury Department to seek additional clarity on the proposed regulations. Various healthcare reform proposals have also emerged at the state level. The new law and these proposals could impact the demand for the company’s products or the prices at which the company sells its products. In addition, the excise tax may increase the company’s cost of doing business. The impact of this law and these proposals could have a material adverse effect on the company’s business, results of operations and/or financial condition.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) enacted in 2010 institutes a wide range of reforms, some of which may impact the company. Among other things, the Act contains significant corporate governance and executive compensation-related provisions that authorize or require the SEC to adopt additional rules and regulations in these areas, such as shareholder “say on pay” voting and proxy access. The impact of these provisions on the company’s business is uncertain. The Act also provides for new statutory and regulatory requirements for derivative transactions, including foreign exchange and interest rate hedging transactions. Certain transactions will be required to be cleared on exchanges, and cash collateral will be required for those transactions. While the Act provides for a potential exception from these clearing and cash collateral requirements for commercial end-users such as the company, the exception is subject to future rule making and interpretation by regulatory authorities. The company enters into foreign exchange contracts, interest rate swaps and foreign currency forward contracts from time to time to manage its exposure to commodity price risk, foreign currency exchange risk and interest rate risk. If, in the future, the company is required to provide cash collateral for its hedging transactions, it could reduce the company’s ability to execute strategic hedges. In addition, the contractual counterparties in hedging arrangements will be required to comply with the Act’s new requirements, which could ultimately result in increased costs of these arrangements to customers such as the company.

If the company’s cost reduction efforts are ineffective, the company’s revenues and profitability could be negatively impacted.
In response to reimbursement reductions and competitive pricing pressures, the company continues to initiate numerous cost reduction and organizational efficiency efforts, including globalization of its product lines. The company may not be successful in achieving the operating efficiencies and operating cost reductions expected from these efforts, and the company may experience business disruptions associated with the restructuring and cost reduction activities. These efforts may not produce the full efficiency and cost reduction benefits that the company expects. Further, these benefits may be realized later than expected, and the costs of implementing these measures may be greater than anticipated. If these measures are not successful, the company may undertake additional cost reduction efforts, which could result in future charges. Moreover, the company’s ability to achieve other strategic goals and business plans and the company’s financial performance may be adversely affected and the company could experience business disruptions with customers and elsewhere if the company’s cost reduction and restructuring efforts prove ineffective.

I-17


The company is subject to risks arising out of the continuing global economic uncertainty.
As is the case for many companies operating in the current economic environment, the company is exposed to a number of risks. These risks include the possibility that: one or more of the lenders participating in the company’s revolving credit facility may be unable or unwilling to extend credit to the company; the third party company that provides lease financing to the company’s customers may refuse or be unable to fulfill its financing obligations or extend credit to the company’s customers; one or more customers of the company may be unable to pay for purchases of the company’s products on a timely basis; one or more key suppliers may be unable or unwilling to provide critical goods or services to the company; and one or more of the counterparties to the company’s hedging arrangements may be unable to fulfill its obligations to the company. Although the company has taken actions in an effort to mitigate these risks, during periods of economic downturn, the company’s exposure to these risks increases. Events of this nature may adversely affect the company’s liquidity or sales and revenues, and therefore have an adverse effect on the company’s business and results of operations.

If the company's information technology systems fail, or if the company experiences an interruption in the operation of its information technology systems, then the company's business, financial condition and results of operations could be materially adversely affected.
The company relies upon the capacity, reliability and security of its information technology, or IT, systems across all of its major business functions, including research and development, manufacturing, sales, financial and administrative functions. Since the company is geographically diverse, has various business segments and has grown over the years though various acquisitions, it also has many disparate versions of IT systems across its organization. As a result of these disparate IT systems, the company faces the challenge of supporting older systems and implementing upgrades when necessary. The failure of the company's information technology systems, whether resulting from the disparate versions of IT systems across its various segments, business functions or otherwise, its inability to successfully maintain, enhance and/or replace its information technology systems, or any compromise of the integrity or security of the data that is generated from information technology systems, or any shortcomings in the company's disaster recovery platforms, could adversely affect the company's results of operations, disrupt business and make the company unable, or severely limit the company's ability to respond to customer demands. In addition, the company's information technology systems are vulnerable to damage or interruption from:
•
earthquake, fire, flood and other natural disasters;
•
employee or other theft;
•
attacks by computer viruses or hackers;
•
power outages; and
•
computer systems, internet, telecommunications or data network failure.
Any interruption of the company's information technology systems could result in decreased revenue, increased expenses, increased capital expenditures, customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on the company's results of operations or financial condition.

The industry in which the company operates is highly competitive and some of the company’s competitors may have greater financial resources than the company does.
The home medical equipment market is highly competitive and the company’s products face significant competition from other well-established manufacturers. Reduced government reimbursement levels and changes in reimbursement policies, such as the National Competitive Bidding program implemented by CMS, may drive competitors, particularly those that have greater financial resources than the company's to offer drastically reduced pricing terms in an effort to secure government acceptance of their products and pricing. Any increase in competition may cause the company to lose market share or compel the company to reduce prices to remain competitive, which could have a material adverse affect on the company’s results of operations.

The consolidation of health care customers and the company’s competitors could result in a loss of customers or in additional competitive pricing pressures.
Numerous initiatives and reforms instituted by legislators, regulators and third-party payors to reduce home medical equipment costs have resulted in a consolidation trend in the home medical equipment industry as well as among the company’s customers, including home health care providers. In the past, some of the company’s competitors have been lowering the purchase prices of their products in an effort to attract customers. This in turn has resulted in greater pricing pressures, including pressure to offer customers more competitive pricing terms, and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large single accounts continue to consolidate purchasing decisions

I-18

for some of the company’s customers. Further consolidation could result in a loss of customers, increased collectability risks, or increased competitive pricing pressures.

The company’s products are subject to recalls, which could harm the company’s reputation and business.
The company is subject to ongoing medical device reporting regulations that require the company to report to the FDA or similar governmental authorities in other countries if the company’s products cause, or contribute to, death or serious injury, or if they malfunction and would be likely to cause, or contribute to, death or serious injury if the malfunction were to recur. The FDA and similar governmental authorities in other countries could force the company to do a field correction or recall the company’s products in the event of material deficiencies or defects in design or manufacturing. In addition, in light of a deficiency, defect in design or manufacturing or defect in labeling, the company may voluntarily elect to recall or correct the company’s products. A government mandated or voluntary recall/field correction by the company could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling. Any recall/field correction would divert managerial and financial resources and could harm the company’s reputation with its customers, product users and the health care professionals that use, prescribe and recommend the company’s products. The company could have product recalls or field actions that result in significant costs to the company in the future, and these actions could have a material adverse effect on the company’s business.

The company’s revenues and profits are subject to exchange rate and interest rate fluctuations that could adversely affect its results of operations or financial position.
Currency exchange rates are subject to fluctuation due to, among other things, changes in local, regional or global economic conditions, the imposition of currency exchange restrictions and unexpected changes in regulatory or taxation environments. The functional currency of the company’s subsidiaries outside the United States is the predominant currency used by the subsidiaries to transact business. Through the company’s international operations, the company is exposed to foreign currency fluctuations, and changes in exchange rates can have a significant impact on net sales and elements of cost. The company conducts a significant number of transactions in currencies other than the U.S. dollar. In addition, because certain of the company’s costs and revenues are denominated in other currencies, the company’s results of operations are exposed to foreign exchange rate fluctuations as the financial results of those operations are translated from local currency into U.S. dollars upon consolidation.

The company uses forward contracts primarily to help reduce its exposure to transactional exchange rate risk. Despite the company’s efforts to mitigate these risks, however, the company’s revenues and profitability may be materially adversely affected by exchange rate fluctuations. The company does not have a meaningful way to hedge translation.

The company also is exposed to market risk through various financial instruments, including fixed rate and floating rate debt instruments. The company does at times use interest swap agreements to mitigate its exposure to interest rate fluctuations, but those efforts may not adequately protect the company from significant interest rate risks. Interest on much of the company’s debt is based on the London Interbank Offered Rate (LIBOR), which is currently historically low. Increases in LIBOR could have a significant impact on the company’s reported interest expense.

The company is subject to certain risks inherent in managing and operating businesses in many different foreign jurisdictions.
The company has significant international operations, including operations in Australia, Canada, New Zealand, Mexico, Asia (primarily China) and Europe. There are risks inherent in operating and selling products internationally, including:
•
different regulatory environments and reimbursement systems;
•
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
•
foreign customers who may have longer payment cycles than customers in the United States;
•
tax rates in certain foreign countries that may exceed those in the United States and foreign earnings that may be subject to withholding requirements;
•
the imposition of tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country;
•
general economic and political conditions in countries where the company operates or where end users of the company’s products reside;
•
security concerns and potential business interruption risks associated with political and/or social unrest in foreign countries where the company’s facilities or assets are located;
•
difficulties associated with managing a large organization spread throughout various countries;

I-19

•
difficulties in enforcing intellectual property rights and weaker intellectual property rights protection in some countries;
•
required compliance with a variety of foreign laws and regulations; and
•
differing consumer product preferences.

The factors described above also could disrupt the company’s product manufacturing/assembling and key suppliers located outside of the United States. For example, the company increasingly relies on its manufacturing and sourcing operations in China for the production of its products. Disruptions in the company’s foreign operations, particularly those in China or Mexico, may impact the company’s revenues and profitability.

The company may be adversely affected by legal actions or regulatory proceedings.
The company may be subject to claims, litigation or other liabilities as a result of injuries caused by allegedly defective products, acquisitions the company has completed or in the intellectual property area. Any such claims or litigation against the company, regardless of the merits, could result in substantial costs and could harm the company's business or its reputation. Intellectual property litigation or claims also could require the company to:
•
cease manufacturing and selling any of the company’s products that incorporate the challenged intellectual property;
•
obtain a license from the holder of the infringed intellectual property right alleged to have been infringed, which license may not be available on commercially reasonable terms, if at all; or
•
redesign or rename the company’s products, which may not be possible, and could be costly and time consuming and could result in lost revenues and market share.
The results of legal proceedings are difficult to predict and the company cannot provide any assurance that an action or proceeding will not be commenced against the company, or that the company will prevail in any such action or proceeding, such as, for example, the two shareholder derivative lawsuits described under “Legal Proceedings.” An unfavorable resolution of any legal action or proceeding could materially and adversely affect the company's business, results of operations, liquidity or financial condition or its reputation.

Product liability claims may harm the company’s business, particularly if the number of claims increases significantly or the company’s product liability insurance proves inadequate.
The manufacture and sale of home health care devices and related products exposes the company to a significant risk of product liability claims. From time to time, the company has been, and is currently, subject to a number of product liability claims alleging that the use of the company’s products has resulted in serious injury or even death.

Even if the company is successful in defending against any liability claims, these claims could nevertheless distract the company’s management, result in substantial costs, harm the company’s reputation, adversely affect the sales of all the company’s products and otherwise harm the company’s business. If there is a significant increase in the number of product liability claims, the company’s business could be adversely affected.

The company’s captive insurance company, Invatection Insurance Company, currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in aggregate losses per policy year arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that the company’s current insurance levels will continue to be adequate or available at affordable rates.

Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss awards and settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company is responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices.


I-20

In addition, as a result of a product liability claim or if the company’s products are alleged to be defective, the company may have to recall some of its products, may have to incur significant costs or may suffer harm to its business reputation.

Decreased availability or increased costs of raw materials could increase the company’s costs of producing its products.
The company purchases raw materials, fabricated components, some finished goods and services from a variety of suppliers. Raw materials such as plastics, steel, and aluminum are considered key raw materials. Where appropriate, the company employs contracts with its suppliers, both domestic and international. In those situations in which contracts are not advantageous, the company believes that its relationships with its suppliers are satisfactory and that alternative sources of supply are readily available. From time to time, however, the prices and availability of these raw materials fluctuate due to global market demands, which could impair the company’s ability to procure necessary materials, or increase the cost of these materials. Inflationary and other increases in costs of these raw materials have occurred in the past and may recur from time to time. In addition, freight costs associated with shipping and receiving product and sales are impacted by fluctuations in the cost of oil and gas. A reduction in the supply or increase in the cost of those raw materials could impact the company’s ability to manufacture its products and could increase the cost of production. As an example, inflation in China has in the past and will probably in the future increase costs and an appreciation of the Yuan or an increase in labor rates could have an unfavorable impact on the cost of key components and some finished goods. Demand in China and other developing countries for raw materials may result in increases in the cost of key commodities and could have a negative impact on the profits of the company if these increases cannot be passed onto the company’s customers.

Lower cost imports could negatively impact the company’s profitability.
Competition from lower cost imports sourced from Asia may negatively impact the company’s sales volumes. In the past, competition from certain of these products has caused the company to lower its prices, cutting into the company’s profit margins and reducing the company’s overall profitability.

The company’s success depends on the company’s ability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs.
The company sells products to customers primarily in markets that are characterized by technological change, product innovation and evolving industry standards, yet in which product price is increasingly a primary consideration in customers’ purchasing decisions. The company is continually engaged in product development and improvement programs. The company must continue to design and improve innovative products, effectively distribute and achieve market acceptance of those products, and reduce the costs of producing the company’s products, in order to compete successfully with the company’s competitors. If competitors’ product development capabilities become more effective than the company’s product development capabilities, if competitors’ new or improved products are accepted by the market before the company’s products or if competitors are able to produce products at a lower cost and thus offer products for sale at a lower price, the company’s business, financial condition and results of operation could be adversely affected.

Failure to properly manage the distribution of the company’s products may result in reduced revenue and profitability.
The company uses a variety of distribution methods to sell its products and services. The company’s distribution network includes various customers such as specialized home health care providers and extended care facilities, hospital and HMO-based stores, home health agencies, mass merchandisers and the Internet. As the company reaches more customers worldwide through an increasing number of new distribution channels, inventory management becomes more challenging. If the company is unable to properly manage and balance inventory levels and potential conflicts among these various distribution methods, its operating results could be harmed.

The company’s business strategy relies on certain assumptions concerning demographic trends that impact the market for its products. If these assumptions prove to be incorrect, demand for the company’s products may be lower than expected.
The company’s ability to achieve its business objectives is subject to a variety of factors, including the relative increase in the aging of the general population. The company believes that these trends will increase the need for its products. The projected demand for the company’s products could materially differ from actual demand if the company’s assumptions regarding these trends and acceptance of its products by health care professionals and patients prove to be incorrect or do not materialize. If the company’s assumptions regarding these factors prove to be incorrect, the company may not be able to successfully implement the company’s business strategy, which could adversely affect the company’s results of operations. In addition, the perceived benefits of these trends may be offset by competitive or business factors, such as the introduction of new products by the company’s competitors or the emergence of other countervailing trends, including lower reimbursement and pricing.

I-21


The company’s debt may limit the company’s flexibility in operating its business.
The company has substantial outstanding indebtedness. This indebtedness requires a significant portion of cash flow from operations to be dedicated to the payment of principal and/or interest, thus reducing the company’s ability to use its cash flow to fund its operations, capital expenditures and future business opportunities. The company’s indebtedness also may limit the company’s ability to react to changes in the economy or its industry.

The company’s revolving credit facility contains various covenants that limit the company’s ability to engage in specified types of transactions. In addition, under the company’s revolving credit facility, it is required to satisfy and maintain specified financial ratios and other financial condition tests. These covenants could materially and adversely affect the company’s ability to finance its future operations or capital needs. Furthermore, they may restrict the company’s ability to conduct and expand its business and pursue its business strategies. The company’s ability to meet these financial ratios and financial condition tests can be affected by events beyond its control, including changes in general economic and business conditions, or they can be affected by government enforcement actions, such as, for example, adverse impacts from the consent decree of injunction required by the FDA.

Armed hostilities, terrorism, natural disasters, political unrest or public health issues could harm the company’s business.
Armed hostilities, terrorism, natural disasters, political unrest or public health issues, whether in the U.S. or abroad, could cause damage or disruption to the company, its suppliers or customers, or could create political or economic instability, any of which could harm the company’s business. These events could cause a decrease in demand for the company’s products, could make it difficult or impossible for the company to deliver products or for the company’s suppliers to deliver materials, and could create delays and inefficiencies in the company’s manufacturing operations.

The company’s Chairman of the Board of Directors and certain members of management own shares representing a substantial percentage of the company’s voting power and their interests may differ from other shareholders.
The company has two classes of common stock. The Common Shares have one vote per share and the Class B Common Shares have 10 votes per share. As of January 1, 2012, the company’s chairman, Mr. A. Malachi Mixon, III, and certain members of management beneficially owned (including the right to acquire) approximately 31% of the combined voting power of the company’s Common Shares and Class B Common Shares and could influence the outcome of a corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the company’s assets. They also will have the power to influence or make more difficult a change in control. The interests of Mr. Mixon and his relatives may differ from the interests of the other shareholders and they may take actions with which some shareholders may disagree.

The company’s operating results and financial condition could be adversely affected if the company becomes involved in litigation regarding its patents or other intellectual property rights.
Litigation involving patents and other intellectual property rights is common in the company’s industry, and other companies within the company’s industry have used intellectual property litigation in an attempt to gain a competitive advantage. The company in the past has been, and in the future may become, a party to lawsuits involving patents or other intellectual property. If the company loses any of these proceedings, a court or a similar foreign governing body could invalidate or render unenforceable the company’s owned or licensed patents, require the company to pay significant damages, seek licenses and/or pay ongoing royalties to third parties, require the company to redesign its products, or prevent the company from manufacturing, using or selling its products, any of which would have an adverse effect on the company’s results of operations and financial condition. The company in the past has brought, and may in the future also bring, actions against third parties for infringement of the company’s intellectual property rights. The company may not succeed in these actions. The defense and prosecution of intellectual property suits, proceedings before the U.S. Patent and Trademark Office or its foreign equivalents and related legal and administrative proceedings are both costly and time consuming. Protracted litigation to defend or prosecute the company’s intellectual property rights could seriously detract from the time the company’s management would otherwise devote to running its business. Intellectual property litigation relating to the company’s products could cause its customers or potential customers to defer or limit their purchase or use of the affected products until resolution of the litigation.

I-22


If the company is unable to protect its intellectual property rights or resolve successfully claims of infringement brought against it, the company's product sales and business could be affected adversely.
The company's business depends in part on its ability to establish, protect, safeguard and enforce its intellectual property and contractual rights and to defend against any claims of infringement, both of which involve complex legal, factual and marketplace uncertainties. The company relies on a combination of patent, trade secret, copyright and trademark law and security measures to protect its intellectual property, but effective intellectual property protection may not be available in all places that the company sells its products or services, particularly in certain foreign jurisdictions. In addition, the company uses nondisclosure, confidentiality agreements and invention assignment agreements with many of its employees, and nondisclosure and confidentiality agreements with certain third parties, in an effort to help protect its proprietary technology and know-how. If these agreements are breached or the company's intellectual property is otherwise misappropriated, the company may have to rely on litigation to enforce its intellectual property rights. If any of these measures are unsuccessful in protecting the company's intellectual property, the company's business may be affected adversely.

In addition, the company may face claims of infringement that could interfere with its ability to use technology or other intellectual property rights that are material to the company's business operations. In the event that a claim of infringement against the company is successful, the company may be required to pay royalties or license fees to continue to use technology or other intellectual property rights that the company was using, or the company may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. If the company is unable to obtain licenses on reasonable terms, it may be forced to cease selling or using the products that incorporate the challenged intellectual property, or to redesign or, in the case of trademark claims, rename its products to avoid infringing the intellectual property rights of third parties, which may not be possible, or if possible, may be time-consuming. Any litigation of this type, whether successful or unsuccessful, could result in substantial costs to the company and adversely affect the company's business and financial condition.

The company also holds patent and other intellectual property licenses from third parties for some of its products and on technologies that are necessary in the design and manufacture of some of the company's products. The loss of these licenses could prevent the company from, or could cause additional disruption or expense in, manufacturing, marketing and selling these products, which could harm the company's business.

The company’s research and development and manufacturing processes are subject to federal, state, local and foreign environmental requirements.
The company’s research and development and manufacturing processes are subject to federal, state, local and foreign environmental requirements, including requirements governing the discharge of pollutants into the air or water, the use, handling, storage and disposal of hazardous substances and the responsibility to investigate and clean up contaminated sites. Under some of these laws, the company also could be held responsible for costs relating to any contamination at the company’s past or present facilities and at third-party waste disposal sites. These could include costs relating to contamination that did not result from any violation of law and, in some circumstances, contamination that the company did not cause. The company may incur significant expenses relating to the failure to comply with environmental laws. The enactment of stricter laws or regulations, the stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at the company’s own or third party sites may require the company to make additional expenditures, which could be material.

Since the company’s ability to obtain further financing may be limited, the company may be unable to acquire strategic acquisition candidates.
The company’s plans typically include identifying, acquiring, and integrating other strategic businesses. There are various reasons for the company to acquire businesses or product lines, including providing new products or new manufacturing and service capabilities, to add new customers, to increase penetration with existing customers, and to expand into new geographic markets. The company’s ability to successfully grow through acquisitions depends upon its ability to identify, negotiate, complete and integrate suitable acquisitions and to obtain any necessary financing. The costs of acquiring other businesses could increase if competition for acquisition candidates increases. Further, the provisions of the company’s existing credit facility impose limitations regarding acquisitions, which could prevent significant acquisitions, without entering into amendments with regard to those provisions. If the company is unable to obtain the necessary financing, it may miss opportunities to grow its business through strategic acquisitions.

Additionally, the success of the company’s acquisition strategy is subject to other risks and costs, including the following:

I-23

•
the company’s ability to realize operating efficiencies, synergies, or other benefits expected from an acquisition, and possible delays in realizing the benefits of the acquired company or products;
•
diversion of management’s time and attention from other business concerns;
•
difficulties in retaining key employees of the acquired businesses who are necessary to manage these businesses;
•
difficulties in maintaining uniform standards, controls, procedures and policies throughout acquired companies;
•
adverse effects on existing business relationships with suppliers or customers;
•
the risks associated with the assumption of contingent or undisclosed liabilities of acquisition targets; and
•
ability to generate future cash flows or the availability of financing.

In addition, an acquisition could materially impair the company’s operating results by causing the company to incur debt or requiring the amortization of acquisition expenses and acquired assets.

The company’s reported results may be adversely affected by increases in reserves for uncollectible accounts receivable.
The company has a large balance of accounts receivable and has established a reserve for the portion of such accounts receivable that the company estimates will not be collected because of the company’s customers’ non-payment. The specific reserve is based on historical trends and current relationships with the company’s customers and providers. Changes in the company’s collection rates can result from a number of factors, including turnover in personnel, changes in the payment policies or practices of payors, changes in industry rates or pace of reimbursement or changes in the financial health of the company’s customers. As a result of past changes in Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement levels of consumer power wheelchairs and custom power wheelchairs, the business viability of several of the company’s customers had become questionable and several have failed. Further, as National Competitive Bidding is implemented in additional areas, the number of start-up or new providers who have three-year contracted pricing will increase. The company’s reserve for uncollectible receivables has fluctuated in the past and will continue to fluctuate in the future. Changes in rates of collection, even if they are small in absolute terms, could require the company to increase its reserve for uncollectible receivables beyond its current level. The company has reviewed the accounts receivables, including those receivables financed through DLL, associated with many of its customers that are most exposed to these issues. If the business viability of certain of the company’s customers deteriorates or if the company’s credit policies are ineffective in reducing the company’s exposures to credit risk, additional increases in reserves for uncollectible accounts may be necessary, which could adversely affect the company’s financial results.

The loss of the services of the company’s key management and personnel could adversely affect its ability to operate the company’s business.
The company’s future success will depend, in part, upon the continued service of key managerial, research and development staff and sales and technical personnel. In addition, the company’s future success will depend on its ability to continue to attract and retain other highly qualified personnel, including personnel experienced in quality systems and regulatory affairs. If the company is not successful in retaining its current personnel or in hiring or retaining qualified personnel in the future, the company’s business may be adversely affected. The company’s future success depends, to a significant extent, on the abilities and efforts of its executive officers and other members of its management team. If the company loses the services of any of its management team, the company’s business may be adversely affected.

Certain provisions of the company’s debt agreements, its charter documents, its shareholder rights plan and Ohio law could delay or prevent the sale of the company.
Provisions of the company’s debt agreements, its charter documents, its shareholder rights plan and Ohio law may make it more difficult for a third party to acquire, or attempt to acquire, control of the company even if a change in control would result in the purchase of shares of the company at a premium to market price. In addition, these provisions may limit the ability of shareholders of the company to approve transactions that they may deem to be in their best interest.

Item 1B.    Unresolved Staff Comments.
None.

I-24



Item 2.        Properties.

The company owns or leases its warehouses, offices and manufacturing facilities and believes that these facilities are well maintained, adequately insured and suitable for their present and intended uses. Information concerning certain leased facilities of the company as of December 31, 2011 is set forth in Leases and Commitments in the Notes to the Consolidated Financial Statements of the company included in this report and in the table below:

 
Square
Feet
 
Ownership
Or Expiration
Date of Lease
 
Renewal
Options
 
Use
North American/HME Operations
 
 
 
 
 
 
 
Akron, Ohio
17,477

 
December 2013
 
One (1 yr.)
 
Offices
Alexandria, Virginia
230

 
September 2012
 
None
 
Offices
Alpharetta, Georgia
11,665

 
March 2014
 
None
 
Warehouse and Offices
Arlington, Texas
63,626

 
May 2015
 
None
 
Warehouse
Atlanta, Georgia
91,418

 
April 2016
 
None
 
Warehouse and Offices
Beijing, China
1,399

 
January 2013
 
None
 
Offices
Cranbury, New Jersey
111,987

 
April 2018
 
Two (3 yr.)
 
Warehouse and Offices
Elyria, Ohio
 
 
 
 
 
 
 
—1200 Taylor Street
251,656

 
Own
 
—
 
Manufacturing and Offices
—899 Cleveland Street
111,738

 
November 2013
 
None
 
Warehouse
—One Invacare Way
50,000

 
Own
 
—
 
Headquarters
—1320 Taylor Street
30,000

 
January 2015
 
One (5 yr.)
 
Offices
—1166 Taylor Street
4,800

 
Own
 
—
 
Warehouse and Offices
—56 Ternes Avenue
12,001

 
December 2012
 
One (1 yr.)
 
Warehouse
Kirkland, Quebec
26,196

 
November 2015
 
None
 
Manufacturing, Warehouse and Offices
Marlboro, New Jersey
2,800

 
June 2012
 
None
 
Offices
Mississauga, Ontario
61,375

 
February 2016
 
None
 
Warehouse and Offices
Morton, Minnesota
28,400

 
May 2012
 
Two (3 yr.)
 
Manufacturing, Warehouse and Offices
North Ridgeville, Ohio
152,861

 
Own
 
—
 
Manufacturing, Warehouse and Offices
Pharr, Texas
4,375

 
November 2012
 
None
 
Warehouse and Offices
Pinellas Park, Florida
11,400

 
July 2012
 
None
 
Manufacturing and Offices
Pinellas Park, Florida
3,200

 
June 2012
 
Two (1 yr.)
 
Manufacturing
Reynosa, Mexico
152,256

 
Own
 
—
 
Manufacturing and Offices
Sanford, Florida
116,272

 
Own
 
—
 
Manufacturing and Offices
Scarborough, Ontario
5,428

 
February 2014
 
None
 
Manufacturing and Offices
Shenzhen, China
2,901

 
September 2012
 
None
 
Offices
Simi Valley, California
38,501

 
February 2014
 
One (5 yr.)
 
Manufacturing, Warehouse and Offices
Spicewood, Texas
6,500

 
Month to Month
 
None
 
Manufacturing and Offices
Suzhou, China
11,840

 
December 2012
 
None
 
Manufacturing and Offices
Suzhou, China
88,861

 
October 2012
 
None
 
Manufacturing and Offices
Tonawanda, New York
7,515

 
March 2013
 
None
 
Warehouse and Offices
Vaughan, Ontario
26,637

 
December 2015
 
None
 
Manufacturing and Offices

I-25

 
Square
Feet
 
Ownership
Or Expiration
Date of Lease
 
Renewal
Options
 
Use
Invacare Supply Group
 
 
 
 
 
 
 
Cranbury, New Jersey
127,963

 
April 2018
 
Two (3 yr.)
 
Warehouse and Offices
Grand Prairie, Texas
87,508

 
August 2015
 
One (5 yr.)
 
Warehouse and Offices
Jacksonville, Florida
79,652

 
September 2014
 
Two (3 yr.)
 
Warehouse and Offices
Milford, Massachusetts
29,582

 
December 2015
 
None
 
Offices
Rancho Cucamonga, California
55,890

 
April 2012
 
None
 
Warehouse and Offices
South Bend, Indiana
80,000

 
April 2019
 
One (3 yr.)
 
Warehouse and Offices
 
 
 
 
 
 
 
 
Institutional Products Group
 

 
 
 
 
 
 
Albuquerque, New Mexico
1,928

 
June 2012
 
None
 
Warehouse and Offices
Boise, Idaho
1,670

 
Month to Month
 
None
 
Warehouse and Offices
Brookfield, Wisconsin
5,600

 
January 2013
 
Two (3 yr.)
 
Warehouse and Offices
Chicopee, Massachusetts
4,800

 
November 2015
 
Two (3 yr.)
 
Warehouse and Offices
Eden Prairie, Minnesota
 
 
 
 
 
 
 
—7564 Market Place Drive
3,764

 
September 2013
 
Two (3 yr.)
 
Warehouse and Offices
—6837 Washington Avenue S
1,950

 
Month to Month
 
None
 
Warehouse and Offices
Edwardsville, Kansas
1,250

 
Month to Month
 
None
 
Warehouse and Offices
Elkhart, Indiana
44,718

 
March 2014
 
One (3 yr.)
 
Manufacturing, Warehouse and Offices
Eureka, California
1,302

 
January 2015
 
One (3 yr.)
 
Warehouse and Offices
Fresno, California
1,600

 
April 2012
 
None
 
Warehouse and Offices
Hampden, Maine
4,800

 
September 2012
 
Two (1 yr.)
 
Warehouse and Offices
Hayward, California
4,800

 
July 2012
 
One (1 yr.)
 
Warehouse and Offices
Kansas City, Missouri
4,964

 
February 2013
 
One (3 yr.)
 
Warehouse and Offices
Knoxville, Tennessee
2,400

 
May 2012
 
One (1 yr.)
 
Warehouse and Offices
Lakewood, Washington
 
 
 
 
 
 
 
—10111 S. Tacoma Way, Ste D2
3,210

 
April 2012
 
None
 
Warehouse and Offices
—10111 S. Tacoma Way, Ste A3
7,167

 
Month to Month
 
None
 
Warehouse and Offices
Las Vegas, Nevada
1,609

 
December 2012
 
None
 
Warehouse and Offices
Lithia Springs, Georgia
4,000

 
December 2012
 
None
 
Warehouse and Offices
London, Ontario
103,200

 
Own
 
—
 
Manufacturing and Offices
Midvale, Utah
2,050

 
Month to Month
 
None
 
Warehouse and Offices
Modesto, California
3,675

 
January 2013
 
Two (3 yr.)
 
Warehouse and Offices
Norristown, Pennsylvania
3,790

 
February 2013
 
None
 
Warehouse and Offices
North Highlands, California
3,923

 
February 2015
 
One (3 yr.)
 
Warehouse and Offices
Norwood, Massachusetts
15,000

 
February 2014
 
One (3 yr.)
 
Warehouse and Offices
Phoenix, Arizona
2,289

 
Month to Month
 
None
 
Warehouse and Offices
Pittsburgh, Pennsylvania
2,912

 
August 2014
 
None
 
Manufacturing and Offices
Portland, Oregon
2,500

 
November 2014
 
None
 
Warehouse and Offices
Rancho Dominguez, California
15,000

 
August 2014
 
None
 
Warehouse and Offices
San Bernardino, California
2,124

 
July 2012
 
None
 
Manufacturing and Offices
San Diego, California
2,025

 
August 2012
 
None
 
Manufacturing, Warehouse and Offices
Springfield, Oregon
3,264

 
November 2012
 
None
 
Warehouse and Offices
Spokane Valley, Washington
2,400

 
July 2012
 
None
 
Warehouse and Offices

I-26

 
Square
Feet
 
Ownership
Or Expiration
Date of Lease
 
Renewal
Options
 
Use
Institutional Products Group
 
 
 
 
 
 
 
St. Louis, Missouri
8,196

 
July 2013
 
Two (3 yr.)
 
Offices
Tampa, Florida
3,750

 
November 2014
 
One (3 yr.)
 
Warehouse and Offices
Wallingford, Connecticut
4,000

 
December 2013
 
One (3 yr.)
 
Warehouse and Offices
Warwick, Rhode Island
3,100

 
Month to Month
 
One (1 yr.)
 
Warehouse and Offices
Woburn, Massachusetts
5,200

 
February 2014
 
None
 
Warehouse and Offices
 
 
 
 
 
 
 
 
Asia/Pacific Operations
 

 
 
 
 
 
 
Auckland, New Zealand
30,518

 
September 2014
 
None
 
Manufacturing, Warehouse and Offices
Banyo, QLD, Australia
26,791

 
September 2013
 
One (5 yr.)
 
Warehouse and Offices
Carrum Downs, VIC, Australia
16,006

 
November 2012
 
One (5 yr.)
 
Warehouse and Offices
Christchurch, New Zealand
13,691

 
December 2014
 
Two (6 yr.)
 
Offices
Christchurch, New Zealand
22,027

 
December 2014
 
One (3 yr.)
 
Manufacturing, Warehouse and Offices
Kidderminster, United Kingdom
6,200

 
January 2018
 
None
 
Warehouse and Offices
Malaga, WA, Australia
8,396

 
April 2014
 
One (3 yr.)
 
Warehouse and Offices
Netley, SA, Australia
3,428

 
June 2016
 
One (5 yr.)
 
Warehouse and Offices
North Olmsted, Ohio
2,280

 
October 2012
 
One (3 yr.)
 
Warehouse and Offices
North Rocks, NSW, Australia
45,712

 
August 2012
 
Two (3 yr.)
 
Warehouse and Offices
Shanghai, China
802

 
December 2012
 
None
 
Offices
 
 
 
 
 
 
 
 
European Operations
 

 
 
 
 
 
 
Albstadt, Germany
73,894

 
February 2018
 
Two (5 yr.)
 
Manufacturing, Warehouse and Offices
Albstadt, Germany
12,917

 
November 2012
 
One (1 yr.)
 
Warehouse
Anderstorp, Sweden
47,576

 
Own
 
—
 
Manufacturing, Warehouse and Offices
Bergen, Norway
1,076

 
November 2012
 
One (6 mos.)
 
Warehouse and Offices
Brondby, Denmark
17,922

 
Month to Month
 
One (1 yr.)
 
Warehouse and Offices
Dio, Sweden
110,524

 
Own
 
—
 
Manufacturing, Warehouse and Offices
Dublin, Ireland
5,000

 
December 2024
 
Three (5 yr.)
 
Warehouse and Offices
Ede, The Netherlands
12,917

 
November 2016
 
One (5 yr.)
 
Warehouse
Ede, The Netherlands
9,257

 
November 2016
 
One (5 yr.)
 
Offices
Fondettes, France
191,856

 
Own
 
—
 
Manufacturing and Warehouse
Girona, Spain
14,639

 
January 2017
 
—
 
Warehouse and Offices
Gland, Switzerland
5,586

 
September 2012
 
One (1 yr.)
 
Offices
Gland, Switzerland
1,184

 
September 2012
 
One (1 yr.)
 
Offices
Goteborg, Sweden
10,118

 
September 2012
 
One (3 yr.)
 
Warehouse
Hong, Denmark
155,541

 
Own
 
—
 
Warehouse and Offices
Isny, Germany
47,232

 
Own
 
—
 
Manufacturing, Warehouse and Offices
Isny, Germany
1,615

 
Own
 
—
 
Warehouse
Kinross, United Kingdom
4,800

 
Month to Month
 
—
 
Warehouse and Offices

I-27

 
Square
Feet
 
Ownership
Or Expiration
Date of Lease
 
Renewal
Options
 
Use
European Operations
 
 
 
 
 
 
 
Kristiansand, Norway
646

 
January 2016
 
One (6 mos.)
 
Services and Offices
Lillehammer, Norway
807

 
November 2013
 
One (6 mos.)
 
Services and Offices
Loppem, Belgium
4,036

 
March 2015
 
—
 
Warehouse and Offices
Mondsee, Austria
1,508

 
March 2014
 
One (3 yr.)
 
Warehouse and Offices
Mondsee, Austria
767

 
March 2013
 
One (3 yr.)
 
Offices
Oporto, Portugal
88,270

 
November 2015
 
One (1 yr.)
 
Manufacturing, Warehouse and Offices
Oporto, Portugal
88,270

 
November 2015
 
One (1 yr.)
 
Manufacturing, Warehouse and Offices
Oskarshamn, Sweden
1,076

 
December 2012
 
One (1 yr.)
 
Warehouse
Oslo, Norway
24,262

 
April 2016
 
One (6 mos.)
 
Manufacturing, Warehouse and Offices
Pencoed, United Kingdom
150,000

 
December 2019
 
None
 
Manufacturing and Offices
Porta Westfalica, Germany
134,563

 
November 2021
 
Two (5yr.)
 
Manufacturing, Warehouse and Offices
Porta Westfalica, Germany
8,930

 
February 2013
 
One (1 yr.)
 
Warehouse
Spanga, Sweden
16,146

 
Own
 
—
 
Warehouse and Offices
Thiene, Italy
21,528

 
Own
 
—
 
Warehouse and Offices
Thiene, Italy
10,764

 
October 2012
 
None
 
Warehouse
Tromso, Norway
678

 
June 2016
 
One (6 mos.)
 
Services and Offices
Trondheim, Norway
5,027

 
December 2013
 
One (6 mos.)
 
Services and Offices
Witterswil, Switzerland
40,343

 
March 2015
 
One (5 yr.)
 
Manufacturing, Warehouse and Offices
Witterswil, Switzerland
2,241

 
Month to Month
 
None
 
Warehouse
Witterswil, Switzerland
2,241

 
Month to Month
 
None
 
Warehouse

Item 3.        Legal Proceedings.

In the ordinary course of its business, Invacare is a defendant in a number of lawsuits, primarily product liability actions in which various plaintiffs seek damages for injuries allegedly caused by defective products. All of the product liability lawsuits have been referred to the company’s captive insurance company and/or excess insurance carriers and generally are contested vigorously. The coverage territory of the company’s insurance is worldwide with the exception of those countries with respect to which, at the time the product is sold for use or at the time a claim is made, the U.S. government has suspended or prohibited diplomatic or trade relations. Management does not believe that the outcome of any of these actions will have a material adverse effect upon the company’s business or financial condition.

In December 2010, the FDA requested that the company agree to a consent decree of injunction at the company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the proposed terms of which would require the suspension of certain operations at those facilities until they are certified by the company and then determined by FDA to be in compliance with FDA quality system regulations. The company is in the process of negotiating with the FDA on the terms of the consent decree. There can be no assurance that the company will be able to successfully conclude its negotiations with the FDA. In addition, in December 2010, the company received a warning letter from the FDA related to quality system processes and procedures at the company's Sanford, Florida facility. See Item 1A. Risk Factors. At the time of this filing, these matters remain pending.

As previously disclosed, on August 23, 2011, the City of Lansing Police and Fire Retirement System (the “Lansing Retirement System”), a holder of approximately 3,400 common shares of the company, filed a shareholder derivative action in the Court of Common Pleas in Lorain County, Ohio against the company's board of directors and the company nominally. In March 2011, a lawyer for the Lansing Retirement System sent the company's board of directors a letter demanding that the company initiate a lawsuit against members of its board and any other culpable parties for damages allegedly suffered by the company primarily in connection with certain matters relating to the warning letter from the FDA following inspections in 2010. The company's board

I-28

appointed a special committee of independent directors that worked with independent counsel to review and recommend a response to these allegations. After a thorough review of the shareholder's allegations by the special committee, the board determined that it was not in the company's best interests to pursue any of the actions requested in the letter. The Lansing Retirement System then filed this litigation, which the company has removed to the U.S. District Court, Northern District of Ohio, Eastern Division.

On February 2, 2012, another shareholder derivative lawsuit asserting similar claims to those asserted by the Lansing Retirement System was filed by a purported shareholder of the company, Mary Witmer (“Witmer”), who has not issued a demand letter, against substantially all of the directors and the company nominally in the U.S. District Court, Northern District of Ohio, Eastern Division. The Witmer complaint also alleges claims of unjust enrichment and waste of corporate assets, as well as requesting specific corporate governance reforms.

In accordance with the company's organizational documents and indemnification agreements entered into between the company and its executive officers and directors, the costs of the shareholder derivative lawsuits brought by both the Lansing Retirement System and Witmer will be borne by the company. The company has notified its directors' and officers' insurance carrier of the Witmer and the Lansing Retirement System matters.

The company received a subpoena in 2006 from the U.S. Department of Justice seeking documents relating to three long-standing and well-known promotional and rebate programs maintained by the company. The company believes that the programs described in the subpoena are in compliance with all applicable laws and the company has cooperated fully with the government investigation.  As of February 2012, the subpoena remains pending.


Item 4.        Mine Safety Disclosures.
None.

Executive Officers of the Registrant.*

The following table sets forth the names of the executive officers of Invacare, each of whom serves at the pleasure of the Board of Directors, as well as certain other information.
 
Name
Age
Position
A. Malachi Mixon, III
71
Chairman of the Board of Directors
Gerald B. Blouch
65
President and Chief Executive Officer and Director
Robert K. Gudbranson
48
Senior Vice President, Chief Financial Officer and Treasurer
Anthony C. LaPlaca
53
Senior Vice President—General Counsel and Secretary
Joseph B. Richey, II
75
President—Invacare Technologies, Senior Vice
President—Electronics and Design Engineering and Director
Louis F.J. Slangen
64
Senior Vice President—Corporate Marketing and Chief Product Officer
Patricia A. Stumpp
50
Senior Vice President—Human Resources
Carl E. Will
41
Senior Vice President—Global Commercial Operations
 ________________________
*
The description of executive officers is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.

A. Malachi Mixon, III has been a director since 1979. Mr. Mixon served as Chief Executive Officer from 1979 through 2010 and as President until 1996. He has served as Chairman of the Board since 1983. Mr. Mixon serves on the Board of Directors of The Sherwin-Williams Company (NYSE), Cleveland, Ohio, a manufacturer and distributor of coatings and related products and Park-Ohio Holdings Corp. (NASDAQ), Cleveland, Ohio, a diversified manufacturing services and products holding company. Mr. Mixon serves as Chairman Emeritus of the Board of Trustees of The Cleveland Clinic Foundation, Cleveland, Ohio, one of the world’s leading academic medical centers. Mr. Mixon previously served on the Board of Directors of Lamson & Sessions from 1990 until it was sold in November 2007.

Gerald B. Blouch has been President and a director of Invacare since November 1996. Effective January 1, 2011, Mr. Blouch became Chief Executive Officer of Invacare, after serving as interim Chief Executive Officer from April 2010 through December 2010. Mr. Blouch served as Chief Operating Officer from December 1994 through December 2010 and has served as Chairman—Invacare International since December 1993. Previously, Mr. Blouch was President—Homecare Division from March 1994 to December 1994 and Senior Vice President—Homecare Division from September 1992 to March 1994. Mr. Blouch served as Chief

I-29

Financial Officer of Invacare from May 1990 to May 1993 and Treasurer of Invacare from March 1991 to May 1993.

Robert K. Gudbranson was appointed Senior Vice President and Chief Financial Officer in April 2008. From October 2005 until his appointment at Invacare, Mr. Gudbranson served as Vice President of Strategic Planning and Acquisitions at Lincoln Electric Holdings, Inc. (NASDAQ: LECO), a $2.0 billion global manufacturer of welding, brazing and soldering products located in Cleveland, Ohio. Prior to joining Lincoln Electric, Mr. Gudbranson served as Director of Business Development and Investor Relations at Invacare from June 2002 to October 2005. Mr. Gudbranson has also served as Invacare’s Assistant Treasurer and as the European Finance Director.

Anthony C. LaPlaca was appointed Senior Vice President, General Counsel and Secretary effective January 2009. Previously, Mr. LaPlaca served as Vice President and General Counsel for six and a half years with Bendix Commercial Vehicle Systems LLC, a member of the Knorr-Bremse group, a supplier of commercial vehicle safety systems. Prior to that, he served as Vice President and General Counsel to Honeywell Transportation & Power Systems and General Counsel to Honeywell Commercial Vehicle Systems LLC.

Joseph B. Richey, II has been a director since 1980 and in September 1992 was named President—Invacare Technologies Division and Senior Vice President—Electronic and Design Engineering. Previously, Mr. Richey was Senior Vice President of Product Development from July 1984 to September 1992 and Senior Vice President and General Manager of North American Operations from September 1989 to September 1992. Mr. Richey is also a member of the Board of Trustees for Case Western Reserve University and The Cleveland Clinic Foundation. Mr. Richey previously served on the Board of Directors of Steris Corporation from 1987 to July 2009.

Louis F. J. Slangen was named Senior Vice President—Corporate Marketing and Chief Product Officer in September 2010. Previously, Mr. Slangen served as Senior Vice President—Global Market Development from June 2004 to September 2010; Senior Vice President—Sales & Marketing from December 1994 to June 2004 and from September 1989 to December 1994 was Vice President—Sales and Marketing. Mr. Slangen was also President—Rehab Division from March 1994 to December 1994 and Vice President and General Manager—Rehab Division from September 1992 to March 1994.

Patricia A. Stumpp has been the Senior Vice President—Human Resources since September 2009. Mrs. Stumpp joined Invacare in 1991 and was promoted to her current position in 2009. Previously, Mrs. Stumpp served as Director of Compensation & Benefits from January 2001 to August 2009 and as Director of the Human Resources Group from August 2006 until August 2009. She also has prior experience in healthcare, small business and the services industry. She holds a B.A. in Psychology and M.B.A. from The University of Toledo.

Carl E. Will has been Senior Vice President—Global Commercial Operations since September 2010. Mr. Will served as Senior Vice President—North American Homecare from January 2007 through September 2010 previously serving as Group Vice President of Standard Products and IPG. Mr. Will is responsible for revenue and earnings across all lines of business, channels and geographies, as well as expanding Invacare’s global market share. Prior to joining Invacare, Mr. Will was responsible for commercial operations at General Electric in the Light Emitting Diode (LED) division and served as a strategic consultant at McKinsey and Company. He received a B.S. degree in Accounting from The Ohio State University and an M.B.A. from the Fuqua School of Business at Duke University.


I-30

PART II

Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Invacare’s Common Shares, without par value, trade on the New York Stock Exchange (NYSE) under the symbol “IVC.” Ownership of the company’s Class B Common Shares (which are not listed on NYSE) cannot be transferred, except, in general, to family members without first being converted into Common Shares. Class B Common Shares may be converted into Common Shares at any time on a share-for-share basis. The number of record holders of the company Common Shares and Class B Common Shares at February 23, 2012 was 2,931 and 23, respectively. The closing sale price for the Common Shares on February 23, 2012 as reported by NYSE was $17.29. The prices set forth below do not include retail markups, markdowns or commissions.

The range of high and low quarterly prices of the Common Shares and dividends in each of the two most recent fiscal years were as follows:
 
 
2011
 
2010
 
High
 
Low
 
Cash Dividends
Declared
 
High
 
Low
 
Cash Dividends
Declared
Quarter Ended:
 
 
 
 
 
 
 
 
 
 
 
December 31
$
24.80

 
$
14.70

 
$
0.0125

 
$
30.71

 
$
26.52

 
$
0.0125

September 30
34.29

 
22.85

 
0.0125

 
26.51

 
20.00

 
0.0125

June 30
33.58

 
30.99

 
0.0125

 
27.50

 
21.02

 
0.0125

March 31
31.12

 
27.64

 
0.0125

 
30.16

 
24.52

 
0.0125


During 2011 and 2010, the Board of Directors also declared annualized dividends of $0.045 per Class B Common Share. For information regarding limitations on the payment of dividends in the company loan and note agreements, see Long Term Debt in the Notes to the Consolidated Financial Statements included in this report. The Common Shares are entitled to receive cash dividends at a rate of at least 110% of cash dividends paid on the Class B Common Shares.

I-31


SHAREHOLDER RETURN PERFORMANCE GRAPH

The following graph compares the yearly cumulative total return on Invacare’s common shares against the yearly cumulative total return of the companies listed on the Standard & Poor’s 500 Stock Index, the Russell 2000 Stock Index and the S&P Healthcare Equipment & Supplies Index*.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Invacare Corporation, The S&P 500 Index,
The Russell 2000 Index and S&P Healthcare Equipment & Supplies

 
12/06
 
12/07
 
12/08
 
12/09
 
12/10
 
12/11
Invacare Corporation
$
100.00

 
$
102.90

 
$
63.53

 
$
102.35

 
$
123.97

 
$
63.01

S&P 500
100.00

 
105.49

 
66.46

 
84.05

 
96.71

 
98.75

Russell 2000
100.00

 
98.43

 
65.18

 
82.89

 
105.14

 
100.75

S&P Healthcare Equipment & Supplies
100.00

 
109.61

 
77.87

 
98.82

 
101.01

 
100.02

Copyright © 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
________________________
*
The S&P Healthcare Equipment & Supplies Index is a capitalization-weighted average index comprised of health care companies in the S&P 500 Index.

The graph assumes $100 invested on December 31, 2006 in the common shares of Invacare Corporation, S&P 500 Index, Russell 2000 Index and the S&P Healthcare Equipment & Supplies Index, including reinvestment of dividends, through December 31, 2011.

I-32


The following table presents information with respect to repurchases of common shares made by the company during the three months ended December 31, 2011.
 
Period
 
 
Total Number of
Shares Purchased (1)
 
Average Price
Paid Per Share
 
Total Number of Shares
Purchased as Part of
Publicly  Announced
Plans or Programs
 
Maximum Number
of Shares That May Yet
Be Purchased Under
the Plans or Programs (2)
10/1/2011
-
10/31/11
30,425

 
$
21.20

 
—

 
2,453,978

11/1/2011
-
11/30/11
—

 
—

 
—

 
2,453,978

12/1/2011
-
12/31/11
—

 
—

 
—

 
2,453,978

Total
 
 
30,425

 
$
21.20

 
—

 
2,453,978

________________________ 
(1)
All 30,425 shares repurchased between October 1, 2011 and October 31, 2011 were surrendered to the company by employees for minimum tax withholding purposes in conjunction with the vesting of restricted shares awarded to the employees under the company’s 2003 Performance Plan.
(2)
In 2001, the Board of Directors authorized the company to purchase up to 2,000,000 Common Shares, excluding any shares acquired from employees or directors as a result of the exercise of options or vesting of restricted shares pursuant to the company’s performance plans. The Board of Directors reaffirmed its authorization of this repurchase program on November 5, 2010, and on August 17, 2011 authorized an additional 2,046,500 shares for repurchase under the plan. To date, the company has purchased 1,592,522 shares under this program, with authorization remaining to purchase 2,453,978 shares. The company purchased 750,422 shares pursuant to this Board authorized program during 2011.

During 2011, the company purchased a total of $63,351,000 in principal amount of its outstanding 4.125% Convertible Senior Subordinated Debentures due 2027 in open market transactions for an aggregate of approximately $87,447,000, plus accrued and unpaid interest. The company may continue from time to time seek to retire or purchase the company’s outstanding 4.125% Convertible Senior Subordinated Debentures due 2027, in open market purchases, privately negotiated transactions or otherwise.

The equity compensation plan information required under Item 201(d) of Regulation S-K is incorporated by reference to the information under the caption "Equity Compensation Plan Information" in the company's definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.


Item 6.        Selected Financial Data.
The selected consolidated financial data set forth below with respect to the company’s consolidated statements of operations, cash flows and shareholders’ equity for the fiscal years ended December 31, 2011, 2010 and 2009, and the consolidated balance sheets as of December 31, 2011 and 2010 are derived from the Consolidated Financial Statements included elsewhere in this Form 10-K. The consolidated statements of operations, cash flows and shareholders’ equity data for the fiscal years ended December 31, 2008 and 2007 and consolidated balance sheet data for the fiscal years ended December 31, 2009, 2008 and 2007 are derived from the company’s previously filed Consolidated Financial Statements. The data set forth below should be read in conjunction with Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the company’s Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.

I-33

 
2011 *
 
2010 **
 
2009 ***
 
2008 ****
 
2007 *****
 
(In thousands, except per share and ratio data)
Earnings
 
 
 
 
 
 
 
 
 
Net Sales
$
1,801,130

 
$
1,722,081

 
$
1,693,136

 
$
1,755,694

 
$
1,602,237

Net Earnings (loss)
(4,113
)
 
25,341

 
41,179

 
34,857

 
(1,714
)
Net Earnings (loss) per Share—Basic
(0.13
)
 
0.78

 
1.29

 
1.09

 
(0.05
)
Net Earnings (loss) per Share—Assuming Dilution
(0.13
)
 
0.78

 
1.29

 
1.09

 
(0.05
)
Dividends per Common Share
0.05

 
0.05

 
0.05

 
0.05

 
0.05

Dividends per Class B Common Share
0.04545

 
0.04545

 
0.04545

 
0.04545

 
0.04545

Balance Sheet
 
 
 
 
 
 
 
 
 
Current Assets
$
528,770

 
$
526,159

 
$
528,464

 
$
551,058

 
$
591,085

Total Assets
1,281,054

 
1,280,400

 
1,359,501

 
1,314,473

 
1,500,042

Current Liabilities
287,939

 
290,308

 
290,327

 
284,998

 
326,611

Working Capital
240,831

 
235,851

 
238,137

 
266,060

 
264,474

Long-Term Debt
260,440

 
238,090

 
272,234

 
407,707

 
457,233

Other Long-Term Obligations
106,150

 
99,591

 
95,703

 
88,826

 
106,046

Shareholders’ Equity
626,525

 
652,411

 
701,237

 
532,942

 
610,152

Other Data
 
 
 
 
 
 
 
 
 
Research and Development Expenditures
$
27,556

 
$
25,954

 
$
25,725

 
$
24,764

 
$
22,491

Capital Expenditures
22,160

 
17,353

 
17,999

 
19,957

 
20,068

Depreciation and Amortization
38,883

 
36,804

 
40,562

 
43,744

 
43,717

Key Ratios
 
 
 
 
 
 
 
 
 
Return on Sales %
(0.2
)
 
1.5

 
2.4

 
2.0

 
(0.1
)
Return on Average Assets %
(0.3
)
 
1.9

 
3.1

 
2.5

 
(0.1
)
Return on Beginning Shareholders’ Equity %
(0.6
)
 
3.6

 
7.7

 
5.7

 
(0.4
)
Current Ratio
1.8:1

 
1.8:1

 
1.8:1

 
1.9:1

 
1.8:1

Debt-to-Equity Ratio
0.4:1

 
0.4:1

 
0.4:1

 
0.8:1

 
0.7:1

  ________________________
*
Reflects loss on debt extinguishment including debt finance charges and associated fees of $24,200 ($24,200 after tax or $0.76 per share assuming dilution) as a result of the company’s decision to extinguish higher interest rate debt; asset write-downs for goodwill and intangibles of $49,480 ($48,719 after tax or $1.52 per share assuming dilution); restructuring charge of $10,870 ($10,599 after tax or $0.33 per share assuming dilution); and a tax benefit in Germany of $4,947 ($4,947 after tax or $0.15 per share assuming dilution).

**
Reflects loss on debt extinguishment including debt finance charges and associated fees of $40,164 ($40,164 after tax or $1.23 per share assuming dilution) as a result of the company’s decision to extinguish higher interest rate debt.

***
Reflects restructuring charge of $4,804 ($4,124 after tax or $.13 per share assuming dilution); loss on debt extinguishment including debt fees $2,878 ($2,878 after tax or $.09 per share assuming dilution); asset write-downs for intangibles and investments of $8,409 ($7,909 after tax or $.25 per share assuming dilution).

****
Reflects restructuring charge of $4,766 ($4,516 after tax or $.14 per share assuming dilution).

*****
Reflects restructuring charge of $11,408 ($10,478 after tax or $.33 per share assuming dilution) and $13,408 expense related to finance charges, interest and fees associated with the company’s previously reported debt covenant violations ($13,408 after tax or $.42 per share assuming dilution).


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Item 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations.

OUTLOOK

In December 2011, the FDA requested that the company agree to a consent decree of injunction at the company’s corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the proposed terms of which would require the suspension of certain operations at those facilities until they are certified by the company and then determined by the FDA to be in compliance with FDA quality system regulations (QSR). Since the company is in the process of negotiating with the FDA on the terms of the consent decree, the company is currently unable to provide guidance for 2012. Once the company is able to analyze the final terms of the FDA’s proposed consent decree of injunction, it plans on providing guidance. While the final terms of the consent decree have not been determined, it will impact orders and sales in 2012. See Item 1A. Risk Factors.
In the meantime, the company is working expeditiously to make systemic improvements to ensure full compliance with the FDA’s QSR. The company continues to add resources in order to support these efforts, which in the fourth quarter of 2011, cost the company an incremental $2,100,000. The company expects at least a similar incremental spend in each of the quarters of 2012. The company has also diverted some internal resources in order to accelerate progress on regulatory and compliance improvements. Any such diversion of resources could impact other areas of the company’s business in 2012, such as, for example, delays in new product development and the globalization initiative. However, these efforts will make Invacare, which is already the market leader in the home and long-term care industries, an even better company.

RESULTS OF OPERATIONS

2011 Versus 2010

Net Sales. Consolidated net sales for 2011 increased 4.6% for the year, to $1,801,130,000 from $1,722,081,000 in 2010. Foreign currency translation increased net sales 2.2 percentage points while acquisitions increased sales by 0.7 of a percentage point. The organic net sales increase was 1.7% which was driven by growth in all segments except Asia/Pacific.
 
North America/Home Medical Equipment (NA/HME)
NA/HME net sales increased 1.1% in 2011 versus the prior year to $746,782,000 from $738,441,000 with foreign currency translation increasing net sales by 0.3 of a percentage point. The organic net sales increase of 0.8% was driven by respiratory therapy partially offset by net sales declines in mobility and seating products. Specifically, net sales increases in stationary and portable oxygen concentrators and Invacare® Homefill® Oxygen systems were partially offset by decreases in net sales of powered mobility products including custom and consumer power wheelchairs.

Invacare Supply Group (ISG)
ISG net sales increased 0.7% in 2011 over the prior year to $299,491,000 from $297,517,000. The net sales increase was primarily the result of volume increases in urological and ostomy products, partially offset by declines in infusion and enteral products.
 
Institutional Products Group (IPG)
IPG net sales increased 27.4% in 2011 over the prior year to $124,121,000 from $97,419,000. Foreign currency translation increased net sales by 0.5 of a percentage point and acquisitions increased net sales by 12.0 percentage points. The organic net sales increase of 14.9% was largely driven by net sales increases in beds and dialysis chairs. As a result of an acquisition that expanded the company's North American rental operations, management re-evaluated its rental operations and determined that net sales are more closely aligned with institutional customers and as a result, these operations are now included and evaluated as part of the Institutional Products Group. Last year, the North American rental operations were included in the NA/HME segment. Prior year segment information has been restated for this change.

Europe
European net sales increased 7.6% in 2011 compared to the prior year to $544,537,000 from $506,069,000 with foreign currency translation increasing net sales by 5.4 percentage points. Organic net sales increased 2.2% attributable to increases in mobility and seating, respiratory therapy and lifestyle products.

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Asia/Pacific
Asia/Pacific net sales increased 4.3% in 2011 from the prior year to $86,199,000 from $82,635,000. Foreign currency translation increased net sales by 10.3 percentage points. The organic net sales decline of 6.0% was driven by the company's Australian and New Zealand distribution businesses. Changes in exchange rates, particularly with the Euro and U.S. Dollar, have had, and may continue to have, a significant impact on sales in this segment.
 
Gross Profit. Consolidated gross profit as a percentage of net sales was 28.8% in 2011 as compared to 29.6% in 2010. The margin decline was principally related to sales mix favoring lower margin product lines and lower margin customers, pricing pressure, primarily in the European segment, and increased warranty costs. Gross profit as a percentage of net sales for IPG and Asia/Pacific segments were favorable as compared to the prior year with NA/HME and European segments unfavorable to the prior year.
 
NA/HME gross profit as a percentage of net sales decreased by 3.0 percentage points in 2011 from the prior year. The decline in margins was principally due to an unfavorable sales mix favoring lower margin customers and product lines, and increased warranty costs.
 
ISG gross profit as a percentage of net sales was flat to the prior year. While freight costs increased as compared to last year, this was offset by a favorable customer mix and volume increases.
 
IPG gross profit as a percentage of net sales increased 5.3 percentage points in 2011 from the prior year. The increase in margin is primarily attributable to volume increases, reduced freight cost and favorable impact from the rental acquisition in the current year.
 
Gross profit in Europe as a percentage of net sales declined 0.4 percentage points in 2011 from the prior year. The decrease was primarily a result of unfavorable product mix toward lower margin product and lower margin customers, pricing pressures primarily in personal care products and unfavorable foreign currency transactions.
 
Gross profit in Asia/Pacific as a percentage of net sales increased by 1.4 percentage points in 2011 from the prior year. The improvement was primarily as a result of favorable foreign currency impact principally due to the strengthening of the U.S. dollar partially offset by volume declines.
 
Selling, General and Administrative. Consolidated selling, general and administrative (SG&A) expenses as a percentage of net sales were 23.4% in 2011 and 23.9% in 2010. The overall dollar increase was $10,586,000 or 2.6%, with foreign currency translation increasing expenses by $12,669,000 or 3.1 percentage points and acquisitions increasing expenses by $7,944,000 or 1.9 percentage points. Excluding acquisitions and the impact of foreign currency translation, SG&A expenses decreased $10,027,000 or 2.4%. This decrease is primarily attributable to reduced bad debt and product liability expenses, as well as decreased associate costs, including certain retirement plan costs, partially offset by increased legal, regulatory and compliance costs as well as unfavorable foreign currency transactions.
 
SG&A expenses for NA/HME decreased 5.0% or $10,615,000 in 2011 compared to 2010 with foreign currency translation increasing SG&A expense by $704,000. Excluding the foreign currency translation, SG&A expense decreased $11,319,000 or 5.4% primarily due to reduced bad debt and product liability expenses, as well as decreased associate costs, including certain retirement plan costs, partially offset by increased legal, regulatory and compliance costs.
 
SG&A expenses for ISG decreased by 2.7% or $718,000 in 2011 compared to 2010 principally due to reduced bad debt expense.
 
SG&A expenses for IPG increased by 37.6% or $9,484,000 in 2011 compared to 2010. Acquisitions increased SG&A expenses by 31.5 percentage points or $7,944,000, while foreign currency translation increased expense by $48,000 or 0.2 of a percentage point. Excluding the impact of acquisitions and foreign currency translation, SG&A expenses increased by $1,492,000 or 5.9% due to increased associate costs, including commission expense, partially offset by favorable currency transaction effects associated with the Canadian Dollar versus the U.S. Dollar.
 
European SG&A expenses increased by 7.2% or $8,725,000 in 2011 compared to 2010. Foreign currency translation increased SG&A expenses by approximately $8,815,000. Excluding the foreign currency translation impact, SG&A expenses decreased by $90,000.
 

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Asia/Pacific SG&A expenses increased 13.4% or $3,710,000 in 2011 compared to 2010. Foreign currency translation increased expenses by $3,102,000. Excluding the foreign currency translation impact, SG&A expenses increased $608,000 or 2.2% primarily due to increased associate costs.

 Asset write-downs to goodwill and intangible assets. The company undertakes its annual impairment test of goodwill and intangible assets in accordance with ASC 350, Intangibles - Goodwill and Other, as of October 1 each year. As a result of the reduced forecasted profitability of its Asia/Pacific segment, the company recorded an impairment charge of $39,729,000 ($39,729,000 after tax), which represented the entire goodwill amount for the segment. In December 2011, the FDA requested that the company agree to a consent decree of injunction at the company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the proposed terms of which would require the suspension of certain operations at those facilities until they are certified by the company and then determined by the FDA to be in compliance with FDA regulations. The significant decline in the company's stock price and market capitalization, as occurred following the announcement of the consent decree, were considered by the company as indicators of possible impairment that required an interim assessment of goodwill for impairment. The company believes the suspension of operations at its wheelchair manufacturing facility as required under the consent decree would primarily impact the company's NA/HME segment. As a result, the company reassessed its goodwill for the NA/HME segment and recorded an estimated impairment charge related for all the goodwill in this segment of $7,990,000 ($7,336,000 after tax).

In addition, the company completed its annual impairment test for intangible assets and recorded impairment charges totaling $1,761,000 ($1,654,000 after tax) related to certain intangible assets in the NA/HME, Institutional Products Group, Europe and Asia/Pacific segments.

Debt Finance Charges and Fees . In 2011, the company extinguished $63,351,000 in principal amount of its outstanding 4.125% convertible senior subordinated debentures due in February 2027. This early debt extinguishment resulted in debt fees and premium expenses of $24,200,000 comprised of $22,646,000 of premiums paid and losses recorded as a result of early debt extinguishment and $1,554,000 of expense related to deferred financing fee write-offs, which were previously capitalized.

In 2010, as part of the company's refinancing, proceeds of the refinancing were used by the company to repay amounts outstanding on its then existing $250,000,000 revolving credit facility which was not due to expire until February 2013 and repurchase all of its outstanding 9.75% Senior Notes which were not due until February 2015. During 2010, the company also extinguished $57,799,000 in principal amount of its outstanding 4.125% convertible senior subordinated debentures due in February 2027. This early debt extinguishment resulted in debt fees and premium expenses of $40,164,000 for all of these debt instruments.
Related to the revolving credit facility, the company expensed $1,228,000 of deferred financing fees, which were previously capitalized. Related to the senior notes, the company incurred the following debt fees and premium expenses: debt deferred financing fees of $3,764,000, which were previously capitalized and premiums and fees associated with the early extinguishment of the debt of $14,907,000. Related to the convertible senior subordinated debentures, the company incurred $18,763,000 of premiums paid and losses recorded as a result of early debt extinguishment and expensed deferred financing fees of $1,502,000, which were previously capitalized.
 
All of these charges in 2011 and 2010 are included in the All Other segment.

 Charge Related to Restructuring Activities. As disclosed previously and as a result of the company's ongoing globalization initiative to reduce complexity within its global footprint, the company finalized the closure of two facilities in the current year: one in the European segment and the other in the NA/HME segment. The assembly activities have been transferred to other company facilities or outsourced to third parties. In addition, the company, as a continuation of its cost reduction and profit improvement initiatives, reduced headcount, primarily in the U.S. during the fourth quarter of 2011. As a result, the company incurred restructuring charges in 2011 of $10,870,000 of which $277,000 was recorded in cost of goods sold, since it related 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 2011 were principally related to severance and other associated closure costs.

Interest. Interest expense decreased to $7,963,000 in 2011 from $20,647,000 in 2010, representing a 61.4% decrease. This decrease was attributable to lower borrowing rates in 2011 as compared to 2010, and to a lesser extent, debt reduction. Interest income in 2011 was $1,444,000 as compared to $724,000 in 2010, primarily due to increased interest rates charged on financing provided to customers.
 
Income Taxes. The company had an effective tax rate of 173.6% in 2011 and 33.4% in 2010. The company's effective tax rate in 2011 is higher than the expected U.S. federal statutory rate due to goodwill and intangible write-offs without tax benefit and the negative impact of the company not being able to record tax benefits related to losses in countries which had tax valuation

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allowances for the year, more than offsetting the benefit of foreign income taxed at rates below the U.S. statutory rate. In addition, during 2011, the company recognized a $4,947,000 tax benefit as a result of a tax settlement in Germany as the German government agreed to follow a European Court of Justice case and a German Tax Court case that impacted an open tax return year. The company's effective tax rate in 2010 is lower than the expected U.S. federal statutory rate due to earnings abroad being taxed at rates lower than the U.S. statutory rate. In both years, the company's rate was higher than it otherwise would have been due to losses without benefit, and due to valuation allowances in the United States, Denmark, Australia and New Zealand. See “Income Taxes” in the Notes to the Consolidated Financial Statements included elsewhere in this report for more detail. 

Research and Development. The company continues to invest in research and development activities to maintain its competitive advantage. The company dedicates funds to applied research activities to ensure that new and enhanced design concepts are available to its businesses. Research and development expenditures, which are included in costs of products sold, increased to $27,556,000 in 2011 from $25,954,000 in 2010. The expenditures, as a percentage of net sales, were 1.5% and 1.5% in 2011 and 2010, respectively.

2010 Versus 2009
Net Sales. Consolidated net sales for 2010 increased 1.7% for the year, to $1,722,081,000 from $1,693,136,000 in 2009. Foreign currency translation increased net sales by 0.3 of a percentage point while acquisitions increased sales by 0.4 of a percentage point. The organic net sales increase was 1.0% which was driven by growth in ISG, Europe and Asia/Pacific segments.

North America/Home Medical Equipment
NA/HME net sales decreased 1.1% in 2010 versus the prior year to $738,441,000 from $747,018,000. Foreign currency translation increased net sales by 0.8 of a percentage point. The organic net sales decline of 1.9% was driven by a decline in the Respiratory product line partially offset by increases in Standard and Mobility and Seating product lines. Respiratory product line net sales decreased by 16.9% in 2010, primarily driven by lower sales of both concentrators and HomeFill® oxygen delivery systems to national providers. Standard product line net sales improved by 2.6% in 2010, driven by increased volumes in standard wheelchairs, beds and therapeutic support surfaces. Mobility and Seating product line net sales increased by 2.0% in 2010 primarily driven by increases in custom power products.
 
Invacare Supply Group
ISG net sales increased 6.1% in 2010 over the prior year to $297,517,000 from $280,295,000. The net sales increase was primarily in the result of volume increases in diabetic, incontinence, ostomy and urological products.
 
Institutional Products Group
IPG net sales increased 7.3% in 2010 over the prior year to $97,419,000 from $90,806,000 with an acquisition increasing net sales by 7.1 percentage points while foreign currency translation increased net sales by 0.7 of a percentage point. The organic net sales decrease of 0.5 percentage points was largely driven by continued weakness in capital expenditures by nursing home customers, due primarily to budgetary pressures in state Medicaid programs.
Europe
European net sales increased 0.6% in 2010 compared to the prior year to $506,069,000 from $503,084,000 with foreign currency translation decreasing net sales by 1.9 percentage points. Organic net sales increased 2.5% attributable to increases in France, U.K., Germany and Sweden and increases in Standard and Respiratory product lines.
 
Asia/Pacific
Asia/Pacific net sales increased 14.9% in 2010 from the prior year to $82,635,000 from $71,933,000. Foreign currency translation increased net sales by 12.9 percentage points. The organic net sales growth of 2.0% was driven by the company's New Zealand distribution business and increased demand for product from the company's subsidiary which produces microprocessor controllers.
 
Gross Profit. Consolidated gross profit as a percentage of net sales was 29.6% in 2010 as compared to 29.1% in 2009. The margin improvement was primarily the result of volume increases and cost reduction activities, including warranty costs. Gross profit as a percentage of net sales for NA/HME, IPG and Asia/Pacific segments were favorable as compared to the prior year with ISG and European segments unfavorable to the prior year.
 

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NA/HME gross profit as a percentage of net sales increased by 1.0 percentage points in 2010 versus 2009. The improvement in margins was primarily a result of cost reduction initiatives including freight and warranty expenses.

ISG gross profit as a percentage of net sales decreased 0.6 percentage points in comparison to the prior year. The decrease was primarily as a result of unfavorable product mix to lower margin diabetic and ostomy products partially offset by volume increases and cost reduction programs including freight costs.
 
IPG gross profit as a percentage of net sales increased 4.5 percentage points in 2010 from the prior year. The increased in margin is primarily attributable to favorable mix toward rental business, which had higher margins, and cost reduction activities which were partially offset by reduced volumes.
 
Gross profit in Europe as a percentage of net sales declined 0.4 percentage points in 2010 from the prior year. The decrease was primarily a result of unfavorable product mix toward lower margin product and unfavorable foreign currency transactions partially offset by cost reduction activities associated with commodity costs.
 
Gross profit in Asia/Pacific as a percentage of net sales increased by 4.3 percentage points in 2010 from the prior year. The improvement was primarily as a result of increased volumes and favorable foreign currency impact principally due to the strengthening of the U.S. dollar.
 
Selling, General and Administrative. Consolidated selling, general and administrative expenses as a percentage of net sales were 23.9% in 2010 and 23.5% in 2009. The overall dollar increase was $12,867,000 or 3.2%, with foreign currency translation increasing expenses by $4,869,000 or 1.2 percentage points and an acquisition increasing expenses by approximately $4,455,000 or 1.1 percentage points. Excluding acquisitions and the impact of foreign currency translation, selling, general and administrative (SG&A) expenses increased $3,543,000 or 0.9%. This increase is primarily attributable to increased associate costs and higher legal expenses related to enforcement of intellectual property rights.
 
SG&A expenses for NA/HME increased 2.1% or $4,267,000 in 2010 compared to 2009. Foreign currency increased SG&A expense by $1,672,000. Excluding the acquisition and foreign currency translation, SG&A expense increased $2,595,000 or 1.3% primarily due to increased associate costs, and higher legal expenses related to enforcement of intellectual property rights. In addition, the SG&A expenses for 2010 include an impairment charge related to a customer list of $248,000 recorded as a result of the company's 2010 intangible impairment review.
 
SG&A expenses for ISG decreased by 4.8% or $1,357,000 in 2010 compared to 2009. The decrease is primarily attributable to a decrease in distribution and marketing costs partially offset by increased bad debt expense.
 
SG&A expenses for IPG increased by 48.8% or $8,282,000 in 2010 compared to 2009. An acquisition increased these expenses by $4,455,000 while foreign currency translation increased SG&A expenses by $242,000 or 1.4 percentage points. Excluding the impact of acquisitions and foreign currency translation, SG&A expenses increased by $3,585,000 due to increased associate costs and unfavorable currency transaction effects associated with the Canadian Dollar versus the U.S. Dollar. In addition, the SG&A expenses for 2010 include an impairment charge related to a trademark of $336,000 recorded as a result of the company's 2010 intangible impairment review.
 
European SG&A expenses decreased by 0.5% or $568,000 in 2010 compared to 2009. Foreign currency translation decreased SG&A expenses by approximately $390,000. Excluding the foreign currency translation impact, SG&A expenses decreased by $178,000.
 
Asia/Pacific SG&A expenses increased 8.8% or $2,243,000 in 2010 compared to 2009. Foreign currency translation increased expenses by $3,345,000. Excluding the foreign currency translation impact, SG&A expenses decreased $1,102,000 or 4.3% primarily due to favorable currency transactions partially offset by increased associate costs.
 
Debt Finance Charges and Fees Associated with Debt Refinancing. In 2010, as part of the company's refinancing, proceeds of the refinancing were used by the company to repay amounts outstanding on its $150,000,000 revolving credit facility which was not due to expire until February 2012 and repurchase all of its outstanding 9.75% Senior Notes which were not due until February 2015. During 2010, the company also extinguished $57,799,000 in principal amount of its outstanding 4.125% convertible senior subordinated debentures due in February 2027. This early debt extinguishment resulted in debt fees and premium expenses of $40,164,000 for all of these debt instruments.
 
Related to the revolving credit facility, the company expensed $1,228,000 of deferred financing fees, which were previously capitalized. Related to the senior notes, the company incurred the following debt fees and premium expenses: debt deferred

I-39

financing fees of $3,764,000, which were previously capitalized and premiums and fees associated with the early extinguishment of the debt of $14,907,000. Related to the convertible senior subordinated debentures, the company incurred $18,763,000 of premiums paid and losses recorded as a result of early debt extinguishment and expensed deferred financing fees of $1,502,000, which were previously capitalized.
 
In 2009, the company fully repaid its $250,000,000 term loan facility which was not due to expire until February 2013. As a result, deferred financing fees of $2,878,000, which were previously capitalized, were expensed. All of these charges in 2010 and 2009 are included in the All Other segment.
 
Asset write-downs to intangibles and investments. The company has made other investments in limited partnerships and non-marketable equity securities, which are accounted for using the cost method, adjusted for any estimated declines in value. These investments were acquired in private placements and there are no quoted market prices or stated rates of return and the company does not have the ability to easily sell these investments. In 2009, the company recognized an impairment charge totaling $6,713,000 on investments along with an impairment charge of $1,696,000 on its intangibles. The company completed an evaluation of the residual value related to its investments in the fourth quarter of 2010 and recognized an immaterial loss. These charges are included in the All Other Segment.

 Charge Related to Restructuring Activities. The company recorded restructuring charges which commenced in 2005 and concluded in the first quarter of 2009. For 2009, the company recorded restructuring charges of $4,804,000 of which $298,000 was recorded in cost of goods sold, since it related to inventory markdowns, and the remaining charge amount was included in the Charge Related to Restructuring Activities in the Consolidated Statement of Operations. The previous charges were related to a multi-year cost reduction plan.

Interest. Interest expense decreased to $20,647,000 in 2010 from $33,150,000 in 2009, representing a 37.7% decrease. This decrease was attributable to debt reduction during the year and, to a lesser extent, decreased borrowing rates in 2010 compared to 2009. Interest income in 2010 was $724,000, which was lower than the prior year amount of $1,674,000, primarily due to decreased volume of financing provided to customers.
 
Income Taxes. The company had an effective tax rate of 33.4% in 2010 and 12.9% in 2009. The company's effective tax rate is lower than the expected U.S. federal statutory rate due to earnings abroad being taxed at rates lower than the U.S. statutory rate. In both years, the company's rate was higher than it otherwise would have been due to losses without benefit, and due to valuation allowances in the United States, Australia and New Zealand. In addition, the 2009 tax rate was lower than the 2010 rate primarily due to a loss carryback, resulting from a tax law change in the United States, which previously was fully offset by a valuation allowance. See “Income Taxes” in the Notes to the Consolidated Financial Statements included elsewhere in this report for more detail.
 
Research and Development. Research and development expenditures, which are included in costs of products sold, increased to $25,954,000 in 2010 from $25,725,000 in 2009. The expenditures, as a percentage of net sales, were 1.5% and 1.5% in 2010 and 2009, respectively.

INFLATION
 
Although the company cannot determine the precise effects of inflation, management believes that inflation does continue to have an influence on the cost of materials, salaries and benefits, utilities and outside services. The company attempts to minimize or offset the effects through increased sales volumes, capital expenditure programs designed to improve productivity, alternative sourcing of material and other cost control measures.
LIQUIDITY AND CAPITAL RESOURCES

The company continues to maintain an adequate liquidity position through its unused bank lines of credit (see Long-Term Debt in the Notes to Consolidated Financial Statements included in this report) and working capital management.

The company's total debt outstanding, inclusive of the debt discount included in equity in accordance with FSB APB 14-1, decreased by $1,664,000 to $269,537,000 at December 31, 2011 from $271,201,000 as of December 31, 2010. The company's balance sheet reflects the impact of ASC 470-20, which reduced debt and increased equity by $4,053,000 and $25,137,000 as of December 31, 2011 and December 31, 2010, respectively. The debt discount decreased $21,084,000 during 2011, primarily as a result of the extinguishment of convertible debt. The company's cash and cash equivalents were $34,924,000 at December 31, 2011, down from $48,462,000 at the end of 2010. At December 31, 2011, the company had outstanding $247,063,000 on its revolving line of credit compared to $184,932,000 as of December 31, 2010.

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The company's borrowing capacity and cash on hand were utilized for acquisitions of $42,430,000, purchase $21,548,000 in company common shares and to pay a premium of $24,113,000 associated with the repurchase of $63,351,000 principal amount of Convertible Senior Subordinated Debentures due 2027.  Debt repurchases, acquisitions, the timing of vendor payments and other activity can have a significant impact on the company's borrowings outstanding such that the debt reported at the end of a given period may be materially different than debt levels during a given period. During 2011, the outstanding borrowings on the company's revolving credit facility varied from a low of $182,000,000 to a high of $325,000,000. While the company has cash balances in various jurisdictions around the world, there are no material restrictions regarding the use of such cash for dividends, loans or other purposes.

The company's senior secured revolving credit agreement (the “Credit Agreement”) provides for a $400 million senior secured revolving credit facility maturing in October 2015. Pursuant to the terms of the Credit Agreement, the company may from time to time borrow, repay and re-borrow up to an aggregate outstanding amount at any one time of $400 million, subject to customary conditions. The Credit Agreement also provides for the issuance of swing line loans. Borrowings under the Credit Agreement bear interest, at the company's election, at (i) the London Inter-Bank Offer Rate (“LIBOR”) plus a margin; or (ii) a Base Rate Option plus a margin. The applicable margin is currently 1.75% per annum for LIBOR loans and 0.75% for the Base Rate Option loans based on the company's leverage ratio. In addition to interest, the company is required to pay commitment fees on the unused portion of the Credit Agreement. The commitment fee rate is currently 0.30% per annum. Like the interest rate spreads, the commitment fee is subject to adjustment based on the company's leverage ratio. The obligations of the borrowers under the Credit Agreement are secured by substantially all of the company's U.S. assets and are guaranteed by substantially all of the company's material domestic and foreign subsidiaries.

The Credit Agreement contains certain covenants that are customary for similar credit arrangements, including covenants relating to, among other things, financial reporting and notification, compliance with laws, preservation of existence, maintenance of books and records, use of proceeds, maintenance of properties and insurance, and limitations on liens, dispositions, issuance of debt, investments, payment of dividends, repurchases of capital stock, acquisitions, transactions with affiliates, and capital expenditures. There also are financial covenants that require the company to maintain a maximum leverage ratio (consolidated funded indebtedness to consolidated EBITDA, each as defined in the Credit Agreement) of no greater than 3.50 to 1, and a minimum interest coverage ratio (consolidated EBITDA to consolidated interest charges, each as defined in the Credit Agreement) of no less than 3.50 to 1. As of December 31, 2011, the company's leverage ratio was 1.81 and the company's interest coverage ratio was 23.80 compared to a leverage ratio of 1.89 and an interest coverage ratio of 8.40 as of December 31, 2010. As of December 31, 2011, the company was in compliance with all covenant requirements and under the most restrictive covenant of the company's borrowing arrangements, the company had the capacity to borrow up to an additional $152,937,000.

The company may from time to time seek to retire or purchase its 4.125% Convertible Senior Subordinated Debentures due 2027, in open market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, the company's liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. In 2011, the company repurchased and extinguished $63,351,000 principal amount of its Convertible Senior Subordinated Debentures compared to $57,799,000 in 2010. At December 31, 2011, the company had $13,850,000 par value outstanding of its Convertible Senior Subordinated Debentures.

While there is general concern about the potential for rising interest rates, the company believes that its exposure to interest rate fluctuations is manageable given that portions of the company's debt are at fixed rates into 2013, the company has the ability to utilize swaps to exchange variable rate debt for fixed rate debt, if needed, and the company's free cash flow should allow it to absorb any modest rate increases in the months ahead without any material impact on its liquidity or capital resources. In 2011, the company entered into interest rate swap agreements to effectively convert a portion of floating rate revolving credit facility debt to fixed rate debt to avoid the risk of changes in market interest rates. Specifically, interest rate swap agreements for notional amounts of $18,000,000 and $22,000,000 through September 2013, $20,000,000 and $25,000,000 through May 2013 and $15,000,000 through February 2013 were entered into that fix the LIBOR component of the interest rate on that portion of the revolving credit facility debt at rates of 0.625%, 0.46%, 1.08%, 0.73% and 1.05%, respectively, for effective aggregate rates of 2.375%, 2.21%, 2.83%, 2.48% and 2.80%, respectively. As of December 31, 2011, the weighted average floating interest rate on all borrowings was 2.54% compared to 3.29% as of December 31, 2010.

In the current economic environment, the company is exposed to a number of risks. These risks include the possibility, among other things, that: one or more of the lenders participating in the company's revolving credit facility may be unable or unwilling to extend credit to the company; the third party company that provides lease financing to the company's customers may refuse or be unable to fulfill its financing obligations or extend credit to the company's customers; interest rates on the company's variable rate debt could increase significantly; one or more customers of the company may be unable to pay for purchases of the company's products on a timely basis; one or more key suppliers may be unable or unwilling to provide critical goods or services

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to the company; and one or more of the counterparties to the company's hedging arrangements may be unable to fulfill its obligations to the company. Although the company has taken actions in an effort to mitigate these risks, during periods of economic downturn, the company's exposure to these risks increases. Events of this nature may adversely affect the company's liquidity or sales and revenues, and therefore have an adverse effect on the company's business and results of operations.

CAPITAL EXPENDITURES

There are no individually material capital expenditure commitments outstanding as of December 31, 2011. The company estimates that capital investments for 2012 could approximate between $25,000,000 and $30,000,000, compared to actual capital expenditures of $22,160,000 in 2011. The company believes that its balances of cash and cash equivalents, together with funds generated from operations and existing borrowing facilities, will be sufficient to meet its operating cash requirements and fund required capital expenditures for the foreseeable future.

CASH FLOWS

Cash flows provided by operating activities were $99,078,000 in 2011, compared to $122,207,000 in the previous year. The decline in operating cash flows in 2011 was primarily attributable to an increase in net working capital assets specifically inventories, as well as declines in current assets and other long-term liabilities.

Cash flows used for investing activities were $65,263,000 in 2011, compared to $30,617,000 in 2010. The increase in cash used was primarily attributable to acquisitions of $42,430,000 in the IPG segment in 2011.

Cash flows required by financing activities in 2011 were $47,082,000, compared to cash flows required of $77,634,000 in 2010. The decrease in cash used was primarily attributable to reduced debt repayment partially offset purchases of treasury stock.

During 2011, the company generated free cash flow of $80,603,000 compared to free cash flow of $104,890,000 in 2010. The decrease is due primarily to an increase in net working capital assets and increased purchases of property and equipment. Free cash flow is a non-GAAP financial measure that is comprised of net cash provided by operating activities, excluding net cash impact related to restructuring activities, less net purchases of property and equipment, net of proceeds from sales of property and equipment. Management believes that this financial measure provides meaningful information for evaluating the overall financial performance of the company and its ability to repay debt or make future investments (including acquisitions, etc.).

The non-GAAP financial measure is reconciled to the GAAP measure as follows (in thousands):
 
Twelve Months Ended
December 31,
 
2011
 
2010
Net cash provided by operating activities
$
99,078

 
$
122,207

Plus: Net cash impact related to restructuring activities
3,621

 
—

Less: Purchases of property and equipment—net
(22,096
)
 
(17,317
)
Free Cash Flow
$
80,603

 
$
104,890


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CONTRACTUAL OBLIGATIONS

The company’s contractual obligations as of December 31, 2011 are as follows (in thousands):
 
Payments due by period
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
4.125% Convertible Senior Subordinated Debentures due 2027
$
22,492

 
$
571

 
$
1,143

 
$
1,143

 
$
19,635

Revolving Credit Agreement due 2015
268,779

 
9,872

 
11,249

 
247,658

 
—

Operating lease obligations
69,373

 
22,711

 
27,876

 
12,014

 
6,772

Capital lease obligations
11,037

 
1,578

 
2,921

 
2,837

 
3,701

Purchase obligations (primarily computer systems contracts)
7,893

 
3,823

 
3,073

 
997

 
—

Product liability
21,748

 
3,468

 
8,838

 
4,220

 
5,222

Supplemental Executive Retirement Plan
27,879

 
391

 
2,068

 
2,640

 
22,780

Other, principally deferred compensation
10,043

 
106

 
260

 
396

 
9,281

Total
$
439,244

 
$
42,520

 
$
57,428

 
$
271,905

 
$
67,391


“Other” includes an estimated payment of $50,000 in less than 1 year for liabilities recorded for uncertain tax positions. The table does not include any other payments related to liabilities recorded for uncertain tax positions as the company cannot make a reasonably reliable estimate as to any other payments. See Income Taxes in the Notes to the Consolidated Financial Statements included in this report.


DIVIDEND POLICY

It is the company’s policy to pay a nominal dividend in order for its stock to be more attractive to a broader range of investors. The current annual dividend rate remains at $0.05 per Common Share and $0.045 per Class B Common Share. It is not anticipated that this will change materially as the company believe that capital should be kept available for use in growth opportunities through internal development and acquisitions. For 2011, annualized dividends of $0.05 per Common Share and $0.045 per Class B Common Share were declared and paid.


CRITICAL ACCOUNTING POLICIES

The Consolidated Financial Statements included in the report include accounts of the company and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Consolidated Financial Statements and related footnotes. In preparing the financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

The following critical accounting policies, among others, affect the more significant judgments and estimates used in preparation of the company’s consolidated financial statements.

Revenue Recognition

Invacare’s revenues are recognized when products are shipped or services provided to unaffiliated customers. Revenue Recognition, ASC 605, provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The company has concluded that its revenue recognition policy is appropriate and in accordance with GAAP and ASC 605. Shipping and handling costs are included in cost of goods sold.



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Sales are made only to customers with whom the company believes collection is reasonably assured based upon a credit analysis, which may include obtaining a credit application, a signed security agreement, personal guarantee and/or a cross corporate guarantee depending on the credit history of the customer. Credit lines are established for new customers after an evaluation of their credit report and/or other relevant financial information. Existing credit lines are regularly reviewed and adjusted with consideration given to any outstanding past due amounts.

The company offers discounts and rebates, which are accounted for as reductions to revenue in the period in which the sale is recognized. Discounts offered include: cash discounts for prompt payment, base and trade discounts based on contract level for specific classes of customers. Volume discounts and rebates are given based on large purchases and the achievement of certain sales volumes. Product returns are accounted for as a reduction to reported sales with estimates recorded for anticipated returns at the time of sale. The company does not ship any goods on consignment.

Distributed products sold by the company are accounted for in accordance with the revenue recognition guidance in ASC 605-45-05. The company records distributed product sales gross as a principal since the company takes title to the products and has the risks of loss for collections, delivery and returns.

Product sales that give rise to installment receivables are recorded at the time of sale when the risks and rewards of ownership are transferred. Interest income is recognized on installment agreements in accordance with the terms of the agreements. Installment accounts are monitored and if a customer defaults on payments, interest income is no longer recognized. All installment accounts are accounted for using the same methodology, regardless of duration of the installment agreements.

Allowance for Uncollectible Accounts Receivable

The estimated allowance for uncollectible amounts is based primarily on management's evaluation of the financial condition of the customer. In addition, as a result of the third party financing arrangement, management monitors the collection status of these contracts in accordance with the company's limited recourse obligations and provides amounts necessary for estimated losses in the allowance for doubtful accounts and establishing reserves for specific customers as needed.
The company continues to closely monitor the credit-worthiness of its customers and adhere to tight credit policies. During the first quarter of 2011, the Centers for Medicare and Medicaid Services implemented the single payment amounts for Round 1 of the National Competitive Bidding program in nine metropolitan statistical areas (MSAs). The single payment amounts are used to determine the price that Medicare pays for certain durable medical equipment, prosthetics, orthotics and supplies. The company believes the changes announced could have a significant impact on the collectability of accounts receivable for those customers which are in the MSA locations impacted and which have a portion of their revenues tied to Medicare reimbursement. As a result, this is an additional risk factor which the company considers when assessing the collectability of accounts receivable.

Invacare has an agreement with DLL, a third party financing company, to provide the majority of future lease financing to Invacare's North America customers. The DLL agreement provides for direct leasing between DLL and the Invacare customer. The company retains a recourse obligation for events of default under the contracts. The company monitors the collections status of these contracts and has provided amounts for estimated losses in its allowances for doubtful accounts.

Inventories and Related Allowance for Obsolete and Excess Inventory

Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out method. Inventories have been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on management’s review of inventories on hand compared to estimated future usage and sales. A provision for excess and obsolete inventory is recorded as needed based upon the discontinuation of products, redesigning of existing products, new product introductions, market changes and safety issues. Both raw materials and finished goods are reserved for on the balance sheet.

In general, Invacare reviews inventory turns as an indicator of obsolescence or slow moving product as well as the impact of new product introductions. Depending on the situation, the company may partially or fully reserve for the individual item. The company continues to increase its overseas sourcing efforts, increase its emphasis on the development and introduction of new products, and decrease the cycle time to bring new product offerings to market. These initiatives are sources of inventory obsolescence for both raw material and finished goods.

Goodwill, Intangible and Other Long-Lived Assets

Property, equipment, intangibles and certain other long-lived assets are amortized over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue. Under Intangibles-Goodwill and Other, ASC

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350, goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. The company's measurement date for its annual goodwill impairment test is October 1. Furthermore, goodwill and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

To review goodwill for impairment in accordance with ASC 350, the company first estimates the fair value of each reporting unit and compares the calculated fair value to the carrying value of the each reporting unit. A reporting unit is defined as an operating segment or one level below. The company has determined that its reporting units are the same as its operating segments. The company completes its annual impairment tests in the fourth quarter of each year. To estimate the fair values of the reporting units, the company utilizes a discounted cash flow method (DCF) in which the company forecasts income statement and balance sheet amounts based on assumptions regarding future sales growth, profitability, inventory turns, days' sales outstanding, etc. to forecast future cash flows. The cash flows are discounted using a weighted average cost of capital discount rate where the cost of debt is based on quoted rates for 20-year debt of companies of similar credit risk and the cost of equity is based upon the 20-year treasury rate for the risk free rate, a market risk premium, the industry average beta and a small cap stock adjustment. The discount rates used have a significant impact upon the discounted cash flow methodology utilized in the company's annual impairment testing as higher discount rates decrease the fair value estimates. The assumptions used are based on a market participant's point of view and yielded a discount rate of 9.27% in 2011 for the company's annual impairment analysis compared to 9.59% in 2010 and 10.74% in 2009.
The company also utilizes an EV (Enterprise Value) to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) Method to compute the fair value of its reporting units which considers potential acquirers and their EV to EBITDA multiples adjusted by an estimated premium. While more weight is given to the discounted cash flow method, the EV to EBITDA method does provide corroborative evidence of the reasonableness of the discounted cash flow method results.
The results of the company's Step I annual impairment test indicated a potential impairment in the Asia/Pacific segment. As a result, the company completed a Step II impairment test for this segment. Pursuant to Property, Plant and Equipment, ASC 360, the company compared the forecasted un-discounted cash flows of the Asia/Pacific segment to the carrying value of the net assets, which indicated no impairment of any other long-lived assets. As part of the Step II test, the company calculated the fair value of all recorded and unrecorded assets and liabilities to determine the goodwill impairment amount. As a result of reduced profitability in the Asia/Pacific segment in the fourth quarter of 2011, uncertainty associated with future market conditions, and based on the Step II calculated results, the company recorded an impairment charge related to goodwill in the Asia/Pacific segment of $39,729,000 in the fourth quarter of 2011, which represented the entire goodwill amount for the reporting unit.
In December 2011, the FDA requested that the company agree to a consent decree of injunction at the company's corporate facility and its wheelchair manufacturing facility in Elyria, Ohio, the proposed terms of which would require the suspension of certain operations at those facilities until they are certified by the company and then determined by the FDA to be in compliance with FDA quality system regulations. The significant decline in the company's stock price and market capitalization, as occurred following the announcement of the consent decree, were considered by the company as indicators of possible impairment that required an interim assessment of goodwill for impairment. The company believes the suspension of operations at its wheelchair manufacturing facility as required under the consent decree would primarily impact the company's NA/HME segment.
The company is in the process of negotiating with the FDA on the terms of the consent decree. As of December 31, 2011, the company updated the assumptions and variables in its DCF model in regards to the NA/HME segment and factored in a 230 basis point risk premium to the discount rate used to reflect the increased uncertainty with the company's forecasted cash flows for the reporting unit. The risk premium adjustment was calculated by the company by considering the decline in the company's stock price as well as the company's EBITDA multiple. The premium adjustment was made as the company was not able to produce a range of cash flows given the lack of clarity on the final terms of the consent decree. The results of the calculation as of December 31, 2011 confirmed that the carrying value of the NA/HME reporting unit exceeded its fair value. Pursuant to ASC 360, the company compared the forecasted un-discounted cash flows of the NA/HME segment to the carrying value of the net assets, which indicated no impairment of any other long-lived assets. The company then conducted a preliminary Step II test in which the fair values of all recorded and unrecorded assets and liabilities were calculated to determine the estimated impairment charge of $7,990,000, which represented the entire goodwill amount for the reporting unit. The company expects to finalize the Step II analysis and record any adjustment in the first quarter of 2012.
While there was no indication of impairment in 2011 related to goodwill for the Europe, ISG or IPG segments, a future potential impairment is possible for each or any of the company's segments should actual results differ materially from forecasted results used in the valuation analysis. Furthermore, the company's annual valuation of goodwill can differ materially if the market inputs used to determine the discount rate change significantly. For instance, higher interest rates or greater stock price volatility would increase the discount rate and thus increase the chance of impairment. In consideration of this potential, the company reviewed the results if the discount rate used were 100 basis points higher for the 2011 impairment analysis and determined that

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there still would not be any indicator of potential impairment for the Europe, ISG or IPG segments.
The company's intangible assets consist of intangible assets with defined lives as well as intangible assets with indefinite lives. Defined-lived intangible assets consist principally of customer lists, developed technology, license agreements, patents and other miscellaneous intangibles such as non-compete agreements. The company's indefinite lived intangible assets consist entirely of trademarks.
The company evaluates the carrying value of definite-lived assets whenever events or circumstances indicate possible impairment. Definite-lived assets are determined to be impaired if the future un-discounted cash flows expected to be generated by the asset are less than the carrying value. Actual impairment amounts for definite-lived assets are then calculated using a discounted cash flow calculation. The company reviews indefinite-lived assets for impairment annually in the fourth quarter of each year and whenever events or circumstances indicate possible impairment. Any impairment amounts for indefinite-lived assets are calculated as the difference between the future discounted cash flows expected to be generated by the asset less than the carrying value for the asset.
During the fourth quarter of 2011, the company recognized an intangible impairment charge of $1,761,000. In the IPG segment, the company recognized a $625,000 impairment related to a customer list which had a remaining life of five years. In the NA/HME segment, a $508,000 impairment, representing the entire carrying value, was recognized related to a customer list which had a remaining life of seven years. In the Europe segment, a $427,000 indefinite-lived trademark impairment was recognized as the calculated fair value was less than its carrying value. In the Asia/Pacific segment, a $201,000 impairment, representing the entire carrying value, was recognized related to intellectual property which had a remaining life of approximately 10 years. The fair value of the customer lists were calculated using an excess earnings method, using a discounted cash flow model. Estimated cash flow returns to the customer relationship were reduced by the cash flows required to satisfy the return requirements of each of the assets employed with the residual cash flow then discounted to value the customer relationship. The fair value of the trademark was calculated using a relief from royalty payment methodology which requires applying an estimated market royalty rate to forecasted net sales and discounting the resulting cash flows to determine fair value. The intellectual properly intangible asset was impaired as the intellectual property was determined to be no longer viable and is no longer being used.

Product Liability

The company’s captive insurance company, Invatection Insurance Co., currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in aggregate losses per policy year arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s current insurance levels will continue to be adequate or available at affordable rates.

Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon third-party actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration by the third-party actuary to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate.

Estimates made are adjusted on a regular basis and can be impacted by actual loss awards and settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company is responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices.

Warranty

Generally, the company’s products are covered from the date of sale to the customer by warranties against defects in material and workmanship for various periods depending on the product. Certain components carry a lifetime warranty. A provision for estimated warranty cost is recorded at the time of sale based upon actual experience. The company continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily used to determine the company’s warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However, the company does consider other events, such as a product recall, which could warrant additional warranty reserve provision. See Warranty Costs in the Notes to the Condensed Consolidated Financial Statements included in this report for a reconciliation of the changes in the warranty accrual.

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Accounting for Stock-Based Compensation

The company accounts for share based compensation under the provisions of Compensation—Stock Compensation, ASC 718. The company has not made any modifications to the terms of any previously granted options and no changes have been made regarding the valuation methodologies or assumptions used to determine the fair value of options granted and the company continues to use a Black-Scholes valuation model. As of December 31, 2011, there was $16,031,000 of total unrecognized compensation cost from stock-based compensation arrangements granted under the 2003 Performance Plan, which is related to non-vested options and shares, and includes $5,227,000 related to restricted stock awards. The company expects the compensation expense to be recognized over a four-year period for a weighted-average period of approximately two years.

The substantial majority of the options awarded have been granted at exercise prices equal to the market value of the underlying stock on the date of grant. Restricted stock awards granted without cost to the recipients are expensed on a straight-line basis over the vesting periods.

Income Taxes

As part of the process of preparing its financial statements, the company is required to estimate income taxes in various jurisdictions. The process requires estimating the company’s current tax exposure, including assessing the risks associated with tax audits, as well as estimating temporary differences due to the different treatment of items for tax and accounting policies. The temporary differences are reported as deferred tax assets and or liabilities. Substantially all of the company’s U.S. and New Zealand deferred tax assets are offset by a valuation allowance. The company also must estimate the likelihood that its deferred tax assets will be recovered from future taxable income and whether or not valuation allowances should be established. In the event that actual results differ from its estimates, the company’s provision for income taxes could be materially impacted. The company does not believe that there is a substantial likelihood that materially different amounts would be reported related to its critical accounting policies.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05 or the ASU). ASU 2011-05 requires comprehensive income to be reported in either a single statement or in two consecutive statements reporting net income and other comprehensive income (OCI). The ASU does not change what is required to be reported in OCI or the requirement to disclose reclassifications of items from OCI to net income. The company is analyzing the impact of ASU 2011-05, which is required to be adopted for the company's first quarter 2012 Form 10-Q. The company does not believe ASU 2011-05 will have a material impact on the company's financial position, results of operations or cash flows.

Item 7A.    Quantitative and Qualitative Disclosure about Market Risk.

The company is exposed to market risk through various financial instruments, including fixed rate and floating rate debt instruments. The company does at times use interest swap agreements to mitigate its exposure to interest rate fluctuations. Based on December 31, 2011 debt levels, a 1% change in interest rates would impact annual interest expense by approximately $1,471,000. Additionally, the company operates internationally and, as a result, is exposed to foreign currency fluctuations. Specifically, the exposure results from intercompany loans, intercompany sales or payments and third party sales or payments. In an attempt to reduce this exposure, foreign currency forward contracts are utilized to hedge intercompany purchases and sales as well as third party purchases and sales. The company does not believe that any potential loss related to these financial instruments would have a material adverse effect on the company’s financial condition or results of operations.

In 2011, the company entered into interest rate swap agreements to effectively convert a portion of floating rate revolving credit facility debt to fixed rate debt to avoid the risk of changes in market interest rates. Specifically, interest rate swap agreements for notional amounts of $18,000,000 and $22,000,000 through September 2013, $20,000,000 and $25,000,000 through May 2013 and $15,000,000 through February 2013 were entered into that fix the LIBOR component of the interest rate on that portion of the revolving credit facility debt at rates of 0.625%, 0.46%, 1.08%, 0.73% and 1.05%, respectively, for effective aggregate rates of 2.375%, 2.21%, 2.83%, 2.48% and 2.80%, respectively.

On October 28, 2010, the company entered into the Credit Agreement which provides for a $400,000,000 senior secured revolving credit facility maturing in October 2015 at variable rates. As of December 31, 2011, the company had outstanding $13,850,000 in principal amount of 4.125% Convertible Senior Subordinated Debentures due in February 2027, of which $4,053,000 is included in equity. Accordingly, while the company is exposed to increases in interest rates, its exposure to the

I-47

volatility of the current market environment is limited as the company does not currently need to re-finance any of its debt. However, the company’s Credit Agreement contains covenants with respect to, among other items, consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage, as defined in the agreement. The company is in compliance with all covenant requirements, but should it fall out of compliance with these requirements, the company would have to attempt to obtain alternative financing and thus likely be required to pay much higher interest rates.

Item 8.        Financial Statements and Supplementary Data.

Reference is made to the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Shareholders’ Equity, Notes to Consolidated Financial Statements and Financial Statement Schedule, which appear on pages FS-1 to FS-49 of this Annual Report on Form 10-K.
 
Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.    Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures
As of December 31, 2011, an evaluation was performed, under the supervision and with the participation of the company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company’s disclosure controls and procedures were effective as of December 31, 2011, in ensuring that information required to be disclosed by the company in the reports it files and submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (2) accumulated and communicated to the company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

(b) Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining a system of adequate internal control over financial reporting that provides reasonable assurance that assets are safeguarded and that transactions are authorized, recorded and reported properly. The system includes self-monitoring mechanisms; regular testing by the company’s internal auditors; a Code of Conduct; written policies and procedures; and a careful selection and training of employees. Actions are taken to correct deficiencies as they are identified. An effective internal control system, no matter how well designed, has inherent limitations—including the possibility of the circumvention or overriding of controls—and therefore can provide only reasonable assurance that errors and fraud that can be material to the financial statements are prevented or would be detected on a timely basis. Further, because of changes in conditions, internal control system effectiveness may vary over time.

Management’s assessment of the effectiveness of the company’s internal control over financial reporting is based on the Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission.

In management’s opinion, internal control over financial reporting is effective as of December 31, 2011.

(c) Attestation Report of the Independent Registered Public Accounting Firm
The company’s independent registered public accounting firm, Ernst & Young LLP, audited the company’s internal control over financial reporting and, based on that audit, issued an attestation report regarding the company’s internal control over financial reporting, which is included in this Annual Report on Form 10-K on page FS-2.

(d) Changes in Internal Control Over Financial Reporting
There have been no changes in the company’s internal control over financial reporting that occurred during the company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

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Item 9B.    Other Information.

None.


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PART III

Item 10.        Directors, Executive Officers and Corporate Governance.

Information required by Item 10 as to the executive officers of the company is included in Part I of this Annual Report on Form 10-K. The other information required by Item 10 as to the directors of the company, the Audit Committee, the audit committee financial expert, the procedures for recommending nominees to the Board of Directors, compliance with Section 16(a) of the Exchange Act and corporate governance is incorporated herein by reference to the information set forth under the captions “Election of Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Compliance” in the company’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
 
Item 11.        Executive Compensation.

The information required by Item 11 is incorporated by reference to the information set forth under the captions “Executive Compensation” and “Corporate Governance” in the company’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
 
Item 12.        Security Ownership of Certain Beneficial Owners and Management.

The information required by Item 12 is incorporated by reference to the information set forth under the caption “Share Ownership of Principal Holders and Management” in the company’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.

Information regarding the securities authorized for issuance under the company’s equity compensation plans is incorporated by reference to the information set forth under the captions “Compensation of Executive Officers” and “Compensation of Directors” in the company’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
 
Item 13.        Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 is incorporated by reference to the information set forth under the caption “Certain Relationships and Related Transactions” in the company’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
 
Item 14.        Principal Accountant Fees and Services.

The information required by Item 14 is incorporated by reference to the information set forth under the caption “Independent Auditors” and “Pre-Approval Policies and Procedures” in the company’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.


I-50

PART IV

Item 15.        Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements.
The following financial statements of the company are included in Part II, Item 8:
Consolidated Statement of Operations—years ended December 31, 2011, 2010 and 2009
Consolidated Balance Sheet—December 31, 2011 and 2010
Consolidated Statement of Cash Flows—years ended December 31, 2011, 2010 and 2009
Consolidated Statement of Shareholders’ Equity—years ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules.
The following financial statement schedule of the company is included in Part II, Item 8:
Schedule II—Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.

(a)(3) Exhibits.
See Exhibit Index at page number I-53 of this Report on Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 27, 2012.
 
 
INVACARE CORPORATION
 
 
 
 
By:
  /s/    GERALD B. BLOUCH    
 
 
Gerald B. Blouch
 
 
President and Chief Executive Officer


I-51

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of February 27, 2012.
 
 
 
Signature
  
Title
 
 
/s/    A. MALACHI MIXON, III        
  
Chairman of the Board of Directors
A. Malachi Mixon, III
 
 
 
/s/    GERALD B. BLOUCH        
  
President and Chief Executive Officer and Director (Principal Executive Officer)
Gerald B. Blouch
 
 
 
/s/    ROBERT K. GUDBRANSON        
  
Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)
Robert K. Gudbranson
 
 
 
/s/    JAMES C. BOLAND        
  
Director
James C. Boland
 
 
 
/s/    MICHAEL F. DELANEY        
  
Director
Michael F. Delaney
 
 
 
/s/    C. MARTIN HARRIS, M.D.       
  
Director
C. Martin Harris, M.D.
 
 
 
/s/    JAMES L. JONES        
  
Director
James L. Jones
 
 
 
/s/    DALE C. LAPORTE        
  
Director
Dale C. LaPorte
 
 
 
/s/    DAN T. MOORE, III       
  
Director
Dan T. Moore, III
 
 
 
/s/    JOSEPH B. RICHEY, II        
  
President—Invacare Technologies, Senior Vice President—Electronics and Design Engineering and Director
Joseph B. Richey, II
 
 
 
/s/    CHARLES S. ROBB        
  
Director
Charles S. Robb
 
 
 
/s/ BAIJU R. SHAH
 
Director
Baiju R. Shah
 
 
 
 
 
/s/ ELLEN O. TAUSCHER
 
Director
Ellen O. Tauscher
 
 
 
 
 
/s/    WILLIAM M. WEBER       
  
Director
William M. Weber
 



I-52


INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2011.
Exhibit Index
 
Official
Exhibit No.
Description
 
Sequential
Page No.
3(a)
Second Amended and Restated Articles of Incorporation
 
(K)
3(b)
Code of Regulations, as amended on May 21, 2009
 
(M)
3(c)
Amendment to Code of Regulations, adopted May 20, 2010
 
(R)
4(a)
Specimen Share Certificate for Common Shares
 
(F)
4(b)
Specimen Share Certificate for Class B Common Shares
 
(F)
4(c)
Rights agreement between Invacare Corporation and National City Bank (as predecessor in interest to Wells Fargo Bank, N.A.) dated as of July 8, 2005
 
(E)
4(d)
Indenture, dated as of February 12, 2007, by and among Invacare Corporation, the Guarantors named therein and Wells Fargo Bank, N.A., as trustee (including the Form of 4.125% Convertible Senior Subordinated Debenture due 2027 and related Guarantee attached as Exhibit A)
 
(H)
4(f)
Amendment No. 1 to Rights agreement between Invacare Corporation and Wells Fargo Bank, N.A. dated as of October 28, 2009
 
(N)
10(a)
Invacare Corporation 1994 Performance Plan approved January 28, 1994
 
(D)*
10(b)
Amendment No. 1 to the Invacare Corporation 1994 Performance Plan approved May 28, 1998
 
(D)*
10(c)
Amendment No. 2 to the Invacare Corporation 1994 Performance Plan approved May 24, 2000
 
(A)*
10(d)
Amendment No. 3 to the Invacare Corporation 1994 Performance Plan approved March 13, 2003
 
(B)*
10(e)
Invacare Retirement Savings Plan, effective January 1, 2001, as amended
 
(I)*
10(f)
Agreement entered into by and between the company and its Chief Financial Officer
 
(C)*
10(g)
Invacare Corporation 401(K) Plus Benefit Equalization Plan, effective January 1, 2003, as amended and restated
 
(I)*
10(h)
Invacare Corporation Amended and Restated 2003 Performance Plan
 
(L)*
10(i)
Form of Change of Control Agreement entered into by and between the company and certain of its executive officers and schedule of all such agreements with current executive officers
 
(S)*
10(j)**
Form of Indemnity Agreement entered into by and between the company and its directors and certain of its executive officers and schedule of all such agreements with directors and executive officers
 
*
10(k)
Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005, as amended August 19, 2009 and on November 23, 2010
 
(S)*
10(l)
Invacare Corporation Death Benefit Only Plan, effective January 1, 2005, as amended
 
(I)*
10(m)
Supplemental Executive Retirement Plan, as amended and restated effective February 1, 2000
 
(D)*
10(n)
Form of Director Stock Option Award under Invacare Corporation 1994 Performance Plan
 
(D)*
10(o)
Form of Director Stock Option Award under Invacare Corporation 2003 Performance Plan
 
(I)*
10(p)
Form of Director Deferred Option Award under Invacare Corporation 2003 Performance Plan
 
(S)*
10(q)**
Form of Restricted Stock Option Award under Invacare Corporation 2003 Performance Plan
 
 
10(r)
Form of Stock Option Award under Invacare Corporation 2003 Performance Plan
 
(I)*
10(s)
Form of Executive Stock Option Award under Invacare Corporation 2003 Performance Plan
 
(I)*

I-53

Official
Exhibit No.
Description
 
Sequential
Page No.
10(t)
Form of Switzerland Stock Option Award under Invacare Corporation 2003 Performance Plan
 
(I)*
10(u)
Form of Switzerland Executive Stock Option Award under Invacare Corporation 2003 Performance Plan
 
(I)*
10(v)**
Director Compensation Schedule
 
*
10(w)
Invacare Corporation Executive Incentive Bonus Plan, as amended March 9, 2010
 
(P)*
10(x)
Purchase Agreement by and among Invacare Corporation, the Subsidiary Guarantors named therein, and the Initial Purchasers named therein dated as of February 5, 2007
 
(G)
10(y)
Form of Rule 10b5-1 Sales Plan entered into between the company and certain of its executive officers and other employees and a schedule of all such agreements with executive officers and other employees
 
(S)
10(z)
A. Malachi Mixon, III Retirement Benefit Agreement
 
(I)*
10(aa)
Cash Balance Supplemental Executive Retirement Plan, as amended and restated, effective December 31, 2008
 
(J)*
10(ab)
Form of Participation Agreement, for current participants in the Cash Balance Supplemental Executive Retirement Plan, as of December 31, 2008, entered into by and between the company and certain participants and a schedule of all such agreements with participants
 
(J)*
10(ac)
Amended and Restated Severance Protection Agreement, between the company and Gerald B. Blouch, effective December 31, 2008
 
(J)*
10(ad)
Amendment No. 1 to the Cash Balance Supplemental Executive Retirement Plan, effective August 19, 2009
 
(O)*
10(ae)
$400,000,000 Revolving Credit Facility Credit Agreement by and among Invacare Corporation, the other borrowers, guarantors and lenders thereto; PNC Bank, National Association, as Administrative Agent; Keybank National Association and Bank of America, N.A. as Co-Syndication Agents; and RBS Citizens, N.A. as Documentation Agent.
 
(Q)
10(af)
Amendment No. 1 to the $400,000,000 Revolving Credit Facility Credit Agreement by and among Invacare Corporation, the other borrowers, guarantors and lenders thereto; PNC Bank, National Association, as Administrative Agent; Keybank National Association and Bank of America, N.A. as Co-Syndication Agents; and RBS Citizens, N.A. as Documentation Agent.
 
(T)
10(ag)**
Amendment No. 2 to the $400,000,000 Revolving Credit Facility Credit Agreement by and among Invacare Corporation, the other borrowers, guarantors and lenders thereto; PNC Bank, National Association, as Administrative Agent; Keybank National Association and Bank of America, N.A. as Co-Syndication Agents; and RBS Citizens, N.A. as Documentation Agent.
 
 
10(ah)**
2012 Non-employee Directors Deferred Compensation Plan, effective January 1, 2012
 
*
10(ai)**
Amendment No. 3 to Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005

 
*
21**
Subsidiaries of the company
 
 
23**
Consent of Independent Registered Public Accounting Firm
 
 
31.1**
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2**
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1**
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
32.2**
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS***

XBRL instance document

 
 
101.SCH***

XBRL taxonomy extension schema

 
 
101.CAL***

XBRL taxonomy extension calculation linkbase