Charges Related to Restructuring Activities

The Company's restructuring charges recorded since 2011 were necessitated primarily by continued declines in Medicare and Medicaid reimbursement by the U.S. government, as well as similar healthcare reimbursement pressures abroad, which negatively affect the Company's customers (e.g. home health care providers) and continued pricing pressures faced by the Company as a result of outsourcing by competitors to lower cost locations. In addition, restructuring decisions were also the result of reduced profitability in the North America/HME segment impacted by the FDA consent decree. While the Company's restructuring efforts have been executed on a timely basis resulting in operating cost savings, the savings have been more than offset by continued margin decline, principally as a result of product mix, reduced volumes and regulatory and compliance costs related to quality system improvements which are unrelated to the restructuring actions. The Company expects any near-term cost savings from restructuring will be offset by the continued investment in regulatory and compliance costs related to quality system improvements at least until the Company has completed its quality systems remediation efforts, and reduced net sales in the North America/HME segment at least until the Company has successfully completed the previously described third-party expert certification audit and FDA inspection and has received written notification from the FDA that the Company may resume full operations.

The Company's restructuring commenced in the second quarter of 2011 with the Company's decision to close the Hong, Denmark assembly facility as part of the Company's ongoing globalization initiative to reduce complexity in the Company's supply chain, which is intended to reduce expenses to help offset pricing pressures. In the third quarter of 2011, the Company continued to execute on the closure of the Hong, Denmark assembly facility and initiated the closure of a smaller facility in the U.S. Charges for the quarter ended December 31, 2011 were primarily incurred at the Company's corporate headquarters for severance, with additional costs incurred as a result of the closure of the Hong, Denmark facility. The facility closures were completed in 2012 in addition to the elimination of various positions principally in the North America/Home Medical Equipment (HME) and Asia/Pacific segments.

Charges for the year ended December 31, 2011 totaled $10,534,000 including charges for severance ($8,352,000), contract exit costs primarily related to the closure of the Hong, Denmark assembly facility ($1,788,000) and inventory write-offs ($277,000) recorded in cost of products sold and other miscellaneous costs ($117,000). The majority of the 2011 North America/HME charges were incurred for severance, primarily at the corporate headquarters as the result of the elimination of various positions principally in sales and administration in Elyria, Ohio. These eliminations were permanent reductions in workforce which primarily resulted in reduced selling, general and administrative expenses. In Europe, the charges were the result of the closure of the Company's Hong, Denmark facility. The assembly activities were transferred to other Company facilities or outsourced to third parties. This closure enabled the Company to reduce fixed operating costs related to the facility and reduce headcount with the transfer of a portion of the production to other Company facilities. The 2011 charges have been fully paid/utilized and were funded with operating cash flows.

Charges for the year ended December 31, 2012 totaled $11,395,000 including charges for severance ($6,775,000), lease termination costs ($1,725,000), building and asset write-downs, primarily related to the closure of the Hong, Denmark assembly facility, and other miscellaneous charges in Europe and Asia/Pacific ($2,404,000) and inventory write-offs ($491,000) in Asia/Pacific recorded in cost of products sold. Severance charges were primarily incurred in the North America/HME segment ($4,242,000), Asia/Pacific segment ($1,681,000) and Europe segment ($817,000). The charges were incurred as a result of the elimination of various positions as part of the Company's globalization initiatives. In addition, a portion of the North America/HME segment severance was related to positions eliminated, principally in sales and marketing as well as manufacturing, at the Company's Taylor Street facility as a result of the FDA consent decree. The savings from these charges have been reflected primarily in reduced selling, general and administrative expenses and manufacturing expenses for the Company. In Europe, positions were eliminated as a result of finalizing the exit from the manufacturing facility in Denmark and an elimination of a senior management position in Switzerland. In Asia/Pacific, at the end of October 2012, the Company's management approved a plan to restructure the Company's operations in this segment. In Australia, the Company consolidated offices / warehouses, decreased staffing and exited various activities while returning to a focus on distribution. At the Company's subsidiary, which produces microprocessor controllers, the Company decided to cease the contract manufacturing business for companies outside of the healthcare industry. Restructuring payments/utilization for the year ended December 31, 2012 were $9,381,000 and the cash payments were funded with operating cash flows. The 2012 charges have now been fully paid and were funded with operating cash flows.

Charges for the year ended December 31, 2013 totaled $9,336,000 including charges for severance ($8,282,000), lease termination costs ($698,000) and other miscellaneous charges principally in North America/HME ($356,000). Severance charges were primarily incurred in the North America/HME segment ($5,405,000), Europe segment ($1,640,000) and Asia/Pacific segment ($970,000). The charges were incurred as a result of the elimination of various positions as part of the Company's globalization initiatives. North America/HME segment severance was principally related to positions eliminated due to lost sales volumes resulting from the impact of the FDA consent decree. The savings from these charges have been reflected primarily in reduced selling, general and administrative expenses and manufacturing expenses for the Company. In Europe, severance was incurred for the elimination of certain sales and supply chain positions. In Asia/Pacific, severance was principally incurred at the Company's microprocessor controller production subsidiary as a result of the Company's decision in 2012 to cease the contract manufacturing business for companies outside of the healthcare industry. The lease termination costs were principally related to Australia as a result of the restructuring announced in 2012. Restructuring payments/utilization for the year ended December 31, 2013 were $11,844,000 and the cash payments were funded with operating cash flows and cash on hand. The majority of the 2013 charges are expected to be paid during 2014.

Restructuring continued during 2014, including the work force reduction announced during the third quarter of 2014, resulting in restructuring charges of $8,407,000 in the first nine months of 2014 related to severance costs ($6,733,000) and other costs ($1,674,000), which principally included building write-downs in the Europe and IPG segments. The severance costs were incurred primarily in the NA/HME segment, and to a lesser extent the Europe and IPG segments. The building write-down in the IPG segment was associated with the previously announced closure of the London, Canada facility. The building write-down in the European segment was associated with a facility in Sweden, which the Company exited in 2011. Restructuring payments/utilization for the nine months ended September 30, 2014 were $7,809,000 and the cash payments were funded with the Company's credit facility. The majority of the outstanding charge accruals at September 30, 2014 are expected to be paid during the next twelve months.

There have been no material changes in accrued balances related to the charges, either as a result of revisions in the plan or changes in estimates. In addition, the savings anticipated as a result of the Company's restructuring plans have been or are expected to be achieved, primarily resulting in reduced salary and benefit costs principally impacting Selling, General and Administrative expenses, and to a lesser extent, Costs of Products Sold. However, the Company expects any near-term cost savings from restructuring will be offset by the continued investment in regulatory and compliance costs related to quality system improvements at least until the Company has completed its quality systems remediation efforts.

A progression by reporting segment of the accruals recorded as a result of the restructuring is as follows (in thousands):



	Severance			Product Line Discontinuance			Contract Terminations			Other			Total
December 31, 2010 Balance
Total	$	—		$	—		$	—		$	—		$	—
Charges
NA/HME	4,755			—			—			4			4,759
IPG	123			—			—			—			123
Europe	3,288			277			1,788			113			5,466
Asia/Pacific	186			—			—			—			186
Total	8,352			277			1,788			117			10,534
Payments
NA/HME	(1,663		)	—			—			(4		)	(1,667		)
IPG	(52		)	—			—			—			(52		)
Europe	(1,546		)	(277		)	(1,714		)	(113		)	(3,650		)
Asia/Pacific	(186		)	—			—			—			(186		)
Total	(3,447		)	(277		)	(1,714		)	(117		)	(5,555		)
December 31, 2011 Balance
NA/HME	3,092			—			—			—			3,092
IPG	71			—			—			—			71
Europe	1,742			—			74			—			1,816
Asia/Pacific	—			—			—			—			—
Total	$	4,905		$	—		$	74		$	—		$	4,979



	Severance			Product Line Discontinuance			Contract Terminations			Other			Total
Charges
NA/HME	$	4,242		$	—		$	5		$	—		$	4,247
IPG	35			—			—			—			35
Europe	817			—			53			1,223			2,093
Asia/Pacific	1,681			491			1,667			1,181			5,020
Total	6,775			491			1,725			2,404			11,395
Payments
NA/HME	(3,587		)	—			(5		)	—			(3,592		)
IPG	(106		)	—			—			—			(106		)
Europe	(1,964		)	—			(127		)	(1,223		)	(3,314		)
Asia/Pacific	(812		)	(340		)	(42		)	(1,175		)	(2,369		)
Total	(6,469		)	(340		)	(174		)	(2,398		)	(9,381		)
December 31, 2012 Balance
NA/HME	3,747			—			—			—			3,747
IPG	—			—			—			—			—
Europe	595			—			—			—			595
Asia/Pacific	869			151			1,625			6			2,651
Total	5,211			151			1,625			6			6,993
Charges
NA/HME	5,405			—			164			353			5,922
IPG	267			—			—			—			267
Europe	1,640			—			—			—			1,640
Asia/Pacific	970			—			534			3			1,507
Total	8,282			—			698			356			9,336
Payments
NA/HME	(6,347		)	—			(164		)	(353		)	(6,864		)
IPG	(175		)	—			—			—			(175		)
Europe	(1,146		)	—			—			—			(1,146		)
Asia/Pacific	(1,839		)	(151		)	(1,660		)	(9		)	(3,659		)
Total	(9,507		)	(151		)	(1,824		)	(362		)	(11,844		)
December 31, 2013 Balance
NA/HME	2,805			—			—			—			2,805
IPG	92			—			—			—			92
Europe	1,089			—			—			—			1,089
Asia/Pacific	—			—			499			—			499
	3,986			—			499			—			4,485
Charges
NA/HME	803			—			—			—			803
IPG	340			—			—			719			1,059
Europe	378			—			—			—			378
Asia/Pacific	—			—			—			—			—
Total	$	1,521		$	—		$	—		$	719		$	2,240



	Severance			Product Line Discontinuance		Contract Terminations			Other			Total
Payments
NA/HME	$	(1,120	)	$	—	$	—		$	—		$	(1,120	)
IPG	(35		)	—		—			(719		)	(754		)
Europe	(597		)	—		—			—			(597		)
Asia/Pacific	—			—		(154		)	—			(154		)
Total	(1,752		)	—		(154		)	(719		)	(2,625		)
March 31, 2014 Balance
NA/HME	2,488			—		—			—			2,488
IPG	397			—		—			—			397
Europe	870			—		—			—			870
Asia/Pacific	—			—		345			—			345
	3,755			—		345			—			4,100
Charges
NA/HME	845			—		—			—			845
IPG	394			—		—			264			658
Europe	58			—		—			525			583
Asia/Pacific	—			—		4			—			4
Total	1,297			—		4			789			2,090
Payments
NA/HME	(1,303		)	—		—			—			(1,303		)
IPG	(32		)	—		—			(264		)	(296		)
Europe	(226		)	—		—			(525		)	(751		)
Asia/Pacific	—			—		—			—			—
Total	(1,561		)	—		—			(789		)	(2,350		)
June 30, 2014 Balance
NA/HME	2,030			—		—			—			2,030
IPG	759			—		—			—			759
Europe	702			—		—			—			702
Asia/Pacific	—			—		349			—			349
	3,491			—		349			—			3,840
Charges
NA/HME	3,041			—		—			—			3,041
IPG	429			—		—			162			591
Europe	69			—		—			—			69
Asia/Pacific	376			—		—			—			376
Total	3,915			—		—			162			4,077
Payments
NA/HME	(1,466		)	—		—			—			(1,466		)
IPG	(618		)	—		—			(162		)	(780		)
Europe	(240		)	—		—			—			(240		)
Asia/Pacific	(348		)	—		—			—			(348		)
Total	$	(2,672	)	$	—	$	—		$	(162	)	$	(2,834	)



	Severance		Product Line Discontinuance		Contract Terminations		Other		Total
September 30, 2014 Balance
NA/HME	$	3,605	$	—	$	—	$	—	$	3,605
IPG	570		—		—		—		570
Europe	531		—		—		—		531
Asia/Pacific	28		—		349		—		377
	$	4,734	$	—	$	349	$	—	$	5,083