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 and Asia/Pacific segments. The company expects any near-term cost savings from restructuring will be offset by other costs as a result of pressures on the business.

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/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 that 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 paid out.

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). 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 were 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. Payments for the year ended December 31, 2012 were $9,381,000 and were funded with operating cash flows. The 2012 charges have been paid out.

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 were 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 subsidiary, which produces microprocessor controllers, 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. Payments for the year ended December 31, 2013 were $11,844,000 and were funded with operating cash flows and cash on hand. The 2013 charges have been paid out.

Charges for the year ended December 31, 2014 totaled $11,112,000 including charges for severance ($9,841,000), other charges in IPG and Europe ($1,286,000) principally related to building write-downs, and lease termination cost reversals ($15,000). Severance charges were incurred in the North America/HME segment ($4,404,000), Other ($2,978,000), IPG segment ($1,163,000), Asia/Pacific segment ($769,000) and Europe segment ($527,000). The North America/HME segment severance was principally related to additional positions eliminated due to lost sales volumes resulting from the continued impact of the FDA consent decree. The Other severance related to the elimination of two senior corporate executive positions. IPG segment severance related principally to the closure of the London, Canada facility. Europe and Asia/Pacific severance related to the elimination of certain positions as a result of general restructuring efforts. The savings from these charges will be reflected primarily in reduced selling, general and administrative expenses and manufacturing expenses for the company. Payments for the year ended December 31, 2014 were $11,131,000 and were funded with operating cash flows and cash on hand. The majority of the 2014 charges have been paid out other than certain executive charge payments which will be paid out over the next few years.

Charges for the year ended December 31, 2015 totaled $1,971,000 including charges for severance ($1,678,000) and charges primarily in the North America/HME segment ($293,000) principally related to a building lease termination. Severance charges were incurred in the North America/HME segment ($1,069,000), Europe segment ($510,000), IPG segment ($73,000) and Asia/Pacific segment ($26,000) related to the elimination of certain positions as a result of general restructuring efforts. The savings from these charges will be reflected primarily in reduced selling, general and administrative expenses and manufacturing expenses for the company. Payments for the year ended December 31, 2015 were $3,723,000 and were funded with operating cash flows and cash on hand. The majority of the 2015 charges are expected to be paid out in 2016.

Restructuring charges continued in 2016 resulting in charges of $1,299,000 in the first nine months of 2016 related to severance costs incurred in the North America/HME segment ($808,000) and the Asia/Pacific segment ($86,000) and building lease termination costs in the North America/HME segment ($405,000). Restructuring payments/utilization for the nine months ended September 30, 2016 were $2,190,000 and the cash payments were funded with company's cash on hand. The majority of the 2016 charges are expected to be paid out within twelve months.

There have been no material changes in accrued balances related to the charges, either as a result of revisions to the plans 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, in general, these savings have been more than offset by the general business decline, higher regulatory and compliance costs related to quality system improvements, and more recently, higher interest expense. To date, the company's liquidity has not been materially impacted.

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	$	—		$	—		$	—		$	—		$	—
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	)



	Severance			Product Line Discontinuance			Contract Terminations			Other			Total
December 31, 2011 Balance
NA/HME	$	3,092		$	—		$	—		$	—		$	3,092
IPG	71			—			—			—			71
Europe	1,742			—			74			—			1,816
Total	4,905			—			74			—			4,979
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
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
Total	$	3,986		$	—		$	499		$	—		$	4,485



	Severance			Product Line Discontinuance		Contract Terminations			Other			Total
Charges
NA/HME	$	4,404		$	—	$	—		$	—		$	4,404
IPG	1,163			—		—			761			1,924
Europe	527			—		—			525			1,052
Asia/Pacific	769			—		(15		)	—			754
Other	2,978			—		—			—			2,978
Total	9,841			—		(15		)	1,286			11,112
Payments
NA/HME	(6,547		)	—		—			—			(6,547		)
IPG	(1,107		)	—		—			(761		)	(1,868		)
Europe	(1,195		)	—		—			(525		)	(1,720		)
Asia/Pacific	(769		)	—		(227		)	—			(996		)
Total	(9,618		)	—		(227		)	(1,286		)	(11,131		)
December 31, 2014 Balance
NA/HME	662			—		—			—			662
IPG	148			—		—			—			148
Europe	421			—		—			—			421
Asia/Pacific	—			—		257			—			257
Other	2,978			—		—			—			2,978
Total	4,209			—		257			—			4,466
Charges
NA/HME	1,069			—		292			—			1,361
IPG	73			—		—			—			73
Europe	510			—		—			—			510
Asia/Pacific	26			—		1			—			27
Total	1,678			—		293			—			1,971
Payments
NA/HME	(1,069		)	—		(55		)	—			(1,124		)
IPG	(221		)	—		—			—			(221		)
Europe	(619		)	—		—			—			(619		)
Asia/Pacific	(26		)	—		(258		)	—			(284		)
Other	(1,475		)	—		—			—			(1,475		)
Total	(3,410		)	—		(313		)	—			(3,723		)
December 31, 2015 Balance
NA/HME	662			—		237			—			899
Europe	312			—		—			—			312
Other	1,503			—		—			—			1,503
Total	2,477			—		237			—			2,714
Charges
NA/HME	61			—		—			—			61
Asia/Pacific	41			—		—			—			41
Total	$	102		$	—	$	—		$	—		$	102



	Severance			Product Line Discontinuance		Contract Terminations			Other		Total
Payments
NA/HME	$	(488	)	$	—	$	(133	)	$	—	$	(621	)
Europe	(292		)	—		—			—		(292		)
Asia/Pacific	(41		)	—		—			—		(41		)
Other	(236		)	—		—			—		(236		)
Total	(1,057		)	—		(133		)	—		(1,190		)
March 31, 2016 Balance
NA/HME	235			—		104			—		339
Europe	20			—		—			—		20
Other	1,267			—		—			—		1,267
Total	1,522			—		104			—		1,626
Charges
NA/HME	271			—		391			—		662
Asia/Pacific	27			—		—			—		27
Total	298			—		391			—		689
Payments
NA/HME	(291		)	—		(86		)	—		(377		)
Europe	(20		)	—		—			—		(20		)
Asia/Pacific	(27		)	—		—			—		(27		)
Total	(338		)	—		(86		)	—		(424		)
June 30, 2016 Balance
NA/HME	215			—		409			—		624
Other	1,267			—		—			—		1,267
Total	1,482			—		409			—		1,891
Charges
NA/HME	476			—		14			—		490
Asia/Pacific	18			—		—			—		18
Total	494			—		14			—		508
Payments
NA/HME	(260		)	—		(298		)	—		(558		)
Asia/Pacific	(18		)	—		—			—		(18		)
Total	(278		)	—		(298		)	—		(576		)
September 30, 2016 Balance
NA/HME	431			—		125			—		556
Other	1,267			—		—			—		1,267
Total	$	1,698		$	—	$	125		$	—	$	1,823