INVACARE CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2001

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 0-12938

INVACARE CORPORATION
(Exact name of Registrant as specified in its charter)

Ohio 95-2680965
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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

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 New York Stock Exchange
Rights to Purchase Commons Shares of New York Stock Exchange
Invacare, without par value

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required
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 X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ ]

As of February 12, 2002, 29,613,441 Common Shares and 1,112,187 Class B Common
Shares were outstanding. At that date, the aggregate market value of the
26,596,434 Common Shares of the Registrant held by non-affiliates was
$891,512,468 and the aggregate market value of the 32,013 Class B Common Shares
of the Registrant held by non-affiliates was $1,073,076. 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 New York Stock Exchange
on February 12, 2002, which was $33.52. For purposes of this information, the
3,017,007 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.

Documents Incorporated By Reference
-----------------------------------

Part of Form 10-K Document Incorporated By Reference
- ----------------- ----------------------------------
Part III (Items 10, 11, Portions of the Registrant's
12 and 13) definitive Proxy Statement to
be used in connection with
its 2002 Annual Meeting of
Shareholders.

Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 2001.

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PART I
------

Item 1. Business.

(a) General Development of Business.

Invacare Corporation is the world's leading manufacturer and distributor of
non-acute health care products based upon its distribution channels, the breadth
of its product line and its 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, retail and extended care markets.
Invacare continuously revises and expands its product lines to meet changing
market demands and currently offers over two dozen product lines. The company's
products are sold principally to over 10,000 home health care and medical
equipment provider locations in the U.S., Australia, Canada, Europe and New
Zealand, with the remainder of its sales being primarily to government agencies
and distributors. 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 related supplies manufactured
by others.

Invacare is committed to design, manufacture and distribute the best value in
mobility products and medical equipment for people with disabilities and those
requiring care in the non-acute environment. Invacare intends to achieve this
vision by:

* designing and developing innovative and technologically
superior products;
* ensuring continued focus on our primary market - the non-
acute health care market;
* marketing our broad range of products under the "Total One
Stop Shopping(sm)" strategy;
* providing the industry's most professional and cost-
effective sales, customer service and distribution
organization;
* supplying superior and innovative provider support and
aggressive product line extensions;
* building a strong referral base among health care
professionals;
* building brand preference with consumers;
* handling the retail channel through a dedicated sales and
marketing structure;
* continuous advancement/recruitment of top management
candidates;
* empowering all employees;
* providing a performance-based reward environment; and
* continually striving for total quality throughout the
organization.

When the company was acquired in December 1979 by a group of investors,
including certain members of management and the Board of Directors, it had $19.5
million in net sales and a limited product line of standard wheelchairs and
patient aids. In 2001, Invacare reached $1,054 million in net sales,
representing a 20% compound average sales growth rate since 1979, and currently
is the leading company in the industry which manufactures, distributes and
markets products in each of the following major non-acute medical equipment
categories: power and manual wheelchairs, patient aids, home care beds, home
respiratory products, low air loss therapy products, seating and positioning
products, bathing equipment and distributed products.

The company executive offices are located at One Invacare Way, Elyria, Ohio 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.

(b) Financial Information About Industry Segments.

The company operates predominantly in the home medical equipment (HME) industry
segment. For information relating to net sales, operating income, identifiable
assets and other information for this industry segment, see the Consolidated
Financial Statements of the company.

(c) Narrative Description of Business.

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THE HOME MEDICAL EQUIPMENT INDUSTRY

North America and Australasia
The home medical equipment market includes home health care products, physical
rehabilitation products and other non-disposable products used for the recovery
and long-term care of patients. The company believes that sales of domestic home
medical equipment products will continue to grow during the next decade as a
result of several factors, including:

Growth in population over age 65. The nation's overall life expectancy
continues to increase, and the current life expectancy based on 1999 data
is now an all-time high of approximately 76.7 years. Based on a 1999 U.S.
government report, 13% of the U.S. population in 1997 was 65 or older, and
this percentage is expected to increase to 20% by 2030. The over-65 age
group represents the vast majority of home health care patients and
continues to grow. A significant percentage of people using home and
community-based health care services are also 65 years of age and older.

Treatment trends. Many medical professionals and patients prefer home
health care over institutional care because they believe that it results in
greater patient independence, increased patient responsibility and improved
responsiveness to treatment because familiar surroundings are believed to
be conducive to improved patient outcomes. Health care professionals,
public payors and private payors agree that home care is a cost effective,
clinically appropriate alternative to facility-based care. Recent surveys
show that approximately 70% of adults would rather recover from accident or
illness in their home, while approximately 90% of the older population
showed preference for home-based long-term care.

Technological trends. Technological advances have made medical equipment
increasingly adaptable for use in the 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.

Healthcare cost containment trends. In 1999, spending on health care in the
U.S. totaled $1.2 trillion dollars, approximately 13% of the Gross Domestic
Product (GDP), the highest among industrialized countries. In 2007, the
nation's health care spending is projected to increase to $2.1 trillion,
averaging annual increases of 7%. Over this same period, spending on health
care is expected to increase to approximately 17% as a share of GDP. The
rising cost of health care has caused many payors of health care expenses
to look for ways to contain costs. Home health care has gained wide-spread
acceptance among health care providers and public policy makers as a cost
effective, clinically appropriate and patient preferred alternative to
facility-based care for a variety of acute and long-term illnesses and
disabilities. Thus, the company believes that home health care and home
medical equipment will play a significant role in reducing health care
costs.

Society's mainstreaming of people with disabilities. People with
disabilities are part of the fabric of society, and this has increased, in
large part, due to the Americans with Disabilities Act, which became law in
1991. This legislation provides mainstream opportunities to people with
disabilities. The Americans with Disabilities Act imposes requirements on
certain components of society to make reasonable accommodations to
integrate people with disabilities into the community and the workplace.

Distribution channels. The changing home health care market continues to
provide new ways of reaching the end user. The distribution network for
products has expanded to include not only specialized home health care
providers and extended care facilities but retail drug stores, surgical
supply houses, rental, hospital and HMO-based stores, home health agencies,
mass merchandisers, direct sales and the Internet.

Europe
The company believes that, while many of the market factors influencing
demand in the U.S. are also present in Europe - aging of the population,
technological trends and society's acceptance of people with disabilities - each
of the major national markets within Europe has distinctive characteristics. The
European health care industry is more heavily socialized and; therefore, is more
influenced by government regulation and fiscal policy. Variations in product
specifications, regulatory approvals, distribution requirements and
reimbursement policies require the company to tailor its approach to each
market. Management believes that as the European markets become more homogeneous
and the company continues to refine its distribution channels, the company can
more effectively penetrate these markets.

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GEOGRAPHICAL SEGMENTS AND PRODUCT CATEGORIES

North America
North American operations are aligned into five primary product groups which
manufacture and market products in all of the major home medical equipment
categories. In Canada, the company sells Invacare products manufactured in the
U.S and Canada.

REHAB 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. Power
wheelchair lines are marketed under the Invacare(R) Storm Series(R) and
Xterra(TM) brand names and include a full range of powered mobility
products. The new 3G Storm Series with TrueTrack, introduced in 2001,
utilizes proprietary technology that improves the directional control of
the wheelchair, especially for consumers who drive on rough terrain or have
difficulty controlling conventional wheelchairs. The Xterra(TM) GT(TM),
also new for 2001, is designed with the patent-pending SureStep(TM)
Technology to smoothly handle inclines, obstacles and transitions.

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(R) and Invacare Top
End(R) 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, skiing and tennis.

Scooters. Invacare distributes three- and four-wheeled motorized scooters,
including rear-wheel drive models for both outdoor and indoor use, and
markets them under the Invacare(R) brand name which includes scooters under
the Lynx(TM) and Panther(TM) product names.

Seating and positioning products. Invacare markets seat cushions, back
supports and accessories under three series. Invacare(R) Essential(TM)
Series provides simple seating solutions for comfort, fit and function.
Invacare Infinity(TM) Series includes versatile modular seating, providing
optimal rehab solutions. Invacare PinDot(R) Series offers custom seating
solutions personalized for the most challenged clients. In 2001, Invacare
introduced the Personal Seat VF, providing a more affordable option in a
pressure-relieving cushion. The Infinity DualFlex(TM)10 Back and
UniBack(TM)10 offer improved flexibility and support compared to original
Infinity backs and the improved hardware allows for setup in less than 10
minutes.

STANDARD PRODUCTS

Manual wheelchairs. Invacare's manual wheelchairs are sold for use inside
and outside the home, institutional settings, or public places (e.g.,
airports, malls, etc.). Our clients include people who are chronically or
temporarily disabled and require basic mobility performance with little or
no frame modification. Examples of Invacare manual wheelchair lines, which
are marketed under the Invacare(R) brand name, include the 9000 and
Tracer(R) product lines. These lines offer wheelchairs which are designed
to accommodate the diverse capabilities and unique needs of the individual
from petite to bariatric sizes.

Personal care. Invacare manufactures and/or distributes a full line of
personal care products, including ambulatory aids such as crutches, canes,
walkers and wheeled walkers. This line also features one of Invacare's
latest product innovations, the Rollite(TM) Rollator, a truly unique
solution in patient mobility. 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.

Home care beds. Invacare manufactures and distributes a wide variety of
manual, semi-electric and fully-electric beds for home use under the
Invacare(R) brand name. Home care bed accessories include bedside rails,
mattresses, overbed tables, trapeze bars and traction equipment. Also
available are the new bariatric beds and accompanying accessories to serve
the special needs of bariatric patients.

Low air loss therapy products. Invacare manufactures and markets a complete
line of mattress overlays and replacement products, under the Invacare(R)
brand name. These products, which use air flotation to redistribute weight
and move moisture away from patients, assist in the total care of those who
are immobile and spend a great deal of time in bed.

Patient Transport. Invacare manufactures and markets 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 and
institutional settings, these products include patient lifts and slings,
and a new series of mobile multi-functional recliners.

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RESPIRATORY PRODUCTS

Home respiratory products. Invacare manufactures and/or distributes home
respiratory products including oxygen concentrators, nebulizer compressors
and respiratory disposables, sleep therapy products, portable compressed
oxygen systems and liquid oxygen systems. Invacare home respiratory
products are marketed predominantly under the Invacare(R) brand name.

DISTRIBUTED PRODUCTS

Distributed products. Invacare distributes numerous lines of branded
medical supplies including ostomy, incontinence, diabetic, wound care, and
miscellaneous home medical products, as well as HME aids to daily living.

CONTINUING CARE

Health Care Furnishings. Invacare, operating as Invacare Continuing Care
Group, is a manufacturer and distributor of beds and furnishings for the
non-acute care markets.

OTHER PRODUCTS

Accessory Products. Invacare also manufactures, markets and distributes
many accessory products, including spare parts, wheelchair cushions, arm
rests, wheels and respiratory parts. In some cases, Invacare's accessory
items are built to be interchangeable so that they can be used to replace
parts on products manufactured by others.

Australasia
The company's Australasia operations consist of Invacare Australia, which
imports and distributes the Invacare range of products and manufactures and
distributes the Rollerchair line of custom power wheelchairs, Dynamic Controls,
a New Zealand manufacturer of operating components used in power wheelchairs,
and Invacare New Zealand, a distribution business and a manufacturer of the
Thompson line of mobility products.

Europe
The company's European operations operate as a "common market" company with
sales throughout Europe. The European operation currently sells a line of
products providing significant room for growth as Invacare continues to broaden
its product line offerings to mirror that of the North American operations.

Most wheelchair products sold in Europe are designed and manufactured locally to
meet specific market requirements. However, as a result of Invacare's worldwide
development efforts, the Action 2000, a manual lightweight design that
originated in the U.S., was the first wheelchair in Europe to meet the high
standards of quality required to receive the Community European (CE) mark. In
addition, certain power wheelchair products sold in the United States are
adaptations of products originally designed for the European markets. With the
acquisition of Scandinavian Mobility, Invacare not only has improved access of
such products to Nordic markets, but has expanded the company's range of premium
designs which are exported worldwide including the Far East and Southern Europe.

The company manufactures and/or assembles both manual and power wheelchair
products at six of its European facilities - Invacare Ltd. in the U.K., Invacare
Poirier S.A. in France, Invacare Deutschland GmbH in Germany, Invacare Portugal
Lda. in Portugal, Invacare AG in Switzerland, and Invacare Rea AB in Sweden.
Motorized scooters are manufactured in Germany. Beds are manufactured at
Invacare EC Hoeng in Denmark. Self-care products, bathtubs, patient lifts and
slings also are manufactured in the United Kingdom, France, and Holland. Oxygen
products are imported from Invacare's U.S. operations.

WARRANTY
Generally, the company's products are covered by warranties against defects in
material and workmanship for periods up to six years from the date of sale to
the customer. Certain components carry a lifetime warranty.

COMPETITION
In each of the company's major product lines, both domestically and
internationally, there are a limited number of significant national competitors
and a number of multi-national competitors. In some countries or in certain
product lines, the company may face competition from other manufacturers that
have larger market shares, greater resources or other competitive advantages.
Invacare believes that it is the leading home medical equipment manufacturer
based on its distribution channels, breadth of product line and sales.

I-5

North America and Australasia
The home medical equipment market is highly competitive and Invacare products
face significant competition from other well-established manufacturers. 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 products, the range of products offered, the technical expertise of
the sales force, the effectiveness of the company distribution system, the
strength of the dealer and distributor network and the availability of prompt
and reliable service for its products. The company believes that its "Total One
Stop Shopping(sm)" approach provides the competitive advantage necessary for
continuing profitability and market share growth. Various manufacturers have,
from time to time, instituted price-cutting programs in an effort to gain market
share. There can be no assurance that other HME manufacturers will not attempt
to implement such aggressive pricing 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 them becoming
regional leaders in specific product lines.

MARKETING AND DISTRIBUTION

North America and Australasia
Invacare's products are marketed in the United States and Australasia primarily
to providers who in turn sell or rent these products directly to consumers
within the non-acute care setting. Invacare's primary customer is the HME
provider. 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 domestic sales and marketing organization consists primarily of a
home care sales force, which markets and sells Invacare(R) branded products to
HME providers. Each member of Invacare's home care 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 direct sales force and distributed through regional
distribution centers in British Columbia, Ontario and Quebec to health care
providers throughout Canada. Manufacturers' representatives market and sell
Invacare products through the company's Invacare Continuing Care Group to the
non-acute care market.

To complement its outside direct sales force, and to support its efforts to
increase business with smaller-to-medium-sized customers, the company formed an
Inside Sales Department in 2000. The Inside Sales Department was established to
significantly grow sales to customers with annual purchases up to $100,000.
Working in tandem with the company's outside sales force, the inside sales
representatives support their customers with a targeted telesales effort.
Customer response has continued to be very positive in the second year of the
program, resulting in a sales increase in the targeted accounts in excess of 31%
in 2001.

In 2001, the company further enhanced the Service Referral Network, which it
launched in 2000. Through the Service Referral Network, the company introduced a
Warranty Labor Reimbursement Program, which enables service providers who make
repairs under warranty claims to receive reimbursement for the labor expense
associated with such claims for certain Invacare products. The reimbursement
program gives service providers the opportunity to honor Invacare's product
warranties while at the same time establishing a relationship with consumers
that may lead to future purchases. Invacare launched the Service Referral
Network to help ensure that all consumers using Invacare products receive
quality service and support that is consistent with the Invacare brand promise.

The company sells distributed products, primarily soft goods and disposable
medical supplies, through the Invacare Supply Group (ISG). ISG is an important
addition to Invacare's "Total One Stop Shopping(sm)" program, through which
Invacare offers HME providers of all sizes the broadest range of products and
services at the total lowest cost. ISG products include ostomy, incontinence,
wound care and diabetic supplies, as well as other soft goods and disposable
products. These products are complementary to Invacare products and are
purchased by many of the same customers that buy Invacare equipment products.
ISG markets its products through an inside telesales and customer service
department, the Internet and Invacare's greater than 100-person HME field sales
force. ISG also markets a Home Delivery Program to HME 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 orders and delivery is made
within 24 to 48 hours nationwide.

In 2001, at the industry's largest trade show, Medtrade, the company announced
Arnold Palmer as its worldwide spokesperson. Mr. Palmer will become an integral
part of Invacare's "Yes, you can(TM)" promotional and marketing efforts to
encourage consumers to achieve personal independence and participate in the
activities of life, facilitated by the home health care products which Invacare
manufactures and markets throughout the world. The company believes that Mr.
Palmer, serving as it spokesperson, will help

I-6

accomplish three objectives: (i) create attention and awareness for the category
of home health care products, (ii) accelerate the acceptance of these products
as lifestyle enhancing so that consumers want these products and not just need
them, and (iii) establish the Invacare brand as the consumer category-brand for
home health care products. Mr. Palmer will be featured throughout Invacare's
marketing communications, including Invacare direct-response television
commercials, print advertising, point-of-purchase displays, and other
merchandising and marketing materials. The company expects to launch its new,
direct-response television campaign featuring Mr. Palmer during the first half
of 2002.

As part of its ongoing effort to continue building the company's leadership
position in e-commerce in the HME industry, Invacare further enhanced its web
site at www.invacare.com with the implementation of BroadVision Inc.'s suite of
personalized e-business applications. The BroadVision software now allows
Invacare to offer web site visitors a personalized experience through dynamic,
customized web pages. The package supports Invacare's extensive online product
catalog, in addition to other web-based content. It provides a "shopping cart"
function and platform for conducting business-to-business transactions with
Invacare's HME provider-customers. Customers also can easily access their own
personalized account information, including order status, credit availability
and other account specific information. The new web site conforms to the World
Wide Web Consortium guidelines for web content accessibility for people with
disabilities.

In 2001, Invacare expanded its strategic advertising campaign in home health
care magazines and trade publications which complement the company's focused
brand strategy through the use of four-page and eight-page advertising inserts
versus the traditional two-page spread ads which the company had run for a
number of years. The company also contributed extensively to editorial coverage
in trade publications on articles concerning the products it manufactures.
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 and consumers.

Invacare continues to generate greater consumer awareness of the company and its
products, as evidenced by enhancements made to its consumer marketing program in
2001 through sponsorship of a variety of wheelchair events and support of
various philanthropic causes which benefit the consumers of its products.
Invacare continued for the eighth year as a National Corporate Partner with
Easter Seals, one of the most recognized charities in the United States that
meets the needs of both children and adults with various types of disabilities.
The company further continued its sponsorship of 75 individual wheelchair
athletes and teams, including several of the top-ranked men and women racers and
handcyclists, and several of the top-ranked men and women wheelchair tennis
players in the world. Invacare participated for the sixth year in a row as the
title sponsor of the Invacare World Team Cup Tennis Tournament, which took place
during the summer in Sion, Switzerland. The company also continued its support
of disabled veterans through its sponsorship of the 21st National Veterans
Wheelchair Games, the largest annual wheelchair sporting event in the world. The
games bring a competitive and recreational sports experience to all military
service veterans who use wheelchairs for their mobility needs due to spinal cord
injury, neurological conditions or amputation.

The company's top ten customers accounted for approximately 15% of 2001 net
sales. The loss of business of one or more of these customers or buying groups
may have a significant impact on the company, although no single customer
accounted for more than 5% of the company's 2001 net sales. Providers, who are
part of a buying group, generally make individual purchasing decisions and are
invoiced directly by the company.

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 the United Kingdom, France, Germany, Belgium,
Portugal, Spain, Denmark, Sweden, Switzerland, Norway and the Netherlands, and
sells through distributors elsewhere in Europe. In markets where the company has
its own sales force, product sales are typically made through dealers of medical
equipment and, in certain markets, directly to government agencies. In most
markets, government health care and reimbursement policies play an important
role in determining the types of equipment sold and price levels for such
products.

PRODUCT LIABILITY COSTS
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
aggregate policy losses of $5 million of the company's domestic product
liability exposure. The company also has additional layers of coverage insuring
$90 million in annual aggregate losses arising from individual claims that
exceed the captive insurance company policy limits. ISG distributed products are
covered under a conventional insurance program with third party carriers on a
guaranteed cost basis and layered limits up to $76 million. There can be no
assurance that Invacare's current insurance levels will continue to be adequate
or available at an affordable rate.

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PRODUCT DEVELOPMENT AND ENGINEERING
Invacare is committed to continuously improving, expanding and broadening its
existing product lines. In 2001, new product development was given an even
stronger emphasis as part of Invacare's strategy to gain market share and
maintain competitive advantage. To this end, the company introduced 75 new
products in 2001.

The following are some of the most significant introductions:

North America
The Invacare(R) 3G Storm Series(R) with TrueTrack power wheelchairs,
featuring sporty looks and breakthrough improvements in navigation;

The Invacare(R) Xterra(TM) GT(TM) power wheelchair for active users who
want powered mobility with new styling on a durable, two-inch steel frame;

The Invacare(R) Nutron(TM) Series, a traditional rear-wheel-drive power
chair offering a wide range of configurations;

The Invacare(R) Pronto(TM) M71 power wheelchair featuring the
patent-pending SureStep(TM) suspension system that enables the chair to
power over two-inch obstacles easily and smoothly;

The redesigned Invacare(R) MVP(TM) and MVP(TM) Jr. custom manual
wheelchairs for active consumers of all ages who want the convenience of a
folding chair without sacrificing performance;

The Invacare(R) Rollite(TM) Rollator, a cross between a traditional walker
and a rollator offering a wide variety of features to meet diverse
ambulatory and support needs;

The Invacare(R) Overnight Hand-Held Printing Pulse Oximeter, making it
easier than ever to help qualify or re-qualify patients for supplemental
oxygen use;

The Invacare(R) Poseidon Passover Humidifier, an easy-to-maintain
humidifier that interfaces with a variety of CPAP systems; and

An expanded Invacare(R) Bariatric line of products, including new
innovations such as the Bariatric commode, Bariatric Crutches and Bariatric
Trapeze, to accommodate higher weight levels, while enhancing the safety
and comfort of patients and caregivers alike.

Australasia
While no major new product introductions were made in Australasia during 2001,
various design improvements were made to their existing product line.

Europe
During 2001, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 2001 included:

The Invacare(R) Storm 3 next generation of Storm power wheelchairs designed
and manufactured in Europe which have new styling, improved functionality
and are product rationalizations of the former Scandinavian Mobility
International AS (SMI) and Invacare products for this segment across all
European markets. Improved functionality includes a forward moving seat
riser, additional seating options and seat height adjustment standard on
all chairs.

The Invacare(R) Auriga Scooters are new 3 and 4 wheel midsize scooters
cooperatively designed in Europe and the Far East, manufactured in the Far
East and currently sold in the United Kingdom and German markets. The
product line includes a unique combination of competitive features,
including higher 150-kilogram user weight, longer range, user-friendly
adjustable tiller and the latest design aesthetics to differentiate from
other low price scooters.

I-8

The Invacare(R) Wheeler pediatric wheelchair creates a new market segment
in innovative modular rigid pediatric wheelchairs that are highly
adjustable, modular and can grow with the child's size and ability. The
wide range of wheelchair types include comfort, all around transport and
tilt-in-space versions that have interchangeable parts and accessories.
This new segment covers Germany, France, Scandinavian and the Benelux
markets.

The Invacare(R) Variable Plus wheelchair replaces two existing wheelchairs
and incorporates updated styling, improved functionality with a reclining
backrest and swing in/ swing out footrest, and interchangeable options for
the range of Invacare standard steel wheelchairs. Improved profitability
and market share maintenance are in the United Kingdom, French, Belgian and
Dutch markets.

The Invacare(R) Swan Ceiling hoist is a new innovative hoist that offers
the most comprehensive range of safety devices and repositions Invacare in
the United Kingdom and Scandinavia to grow market share. Features include
emergency stop and mechanical lower functions coupled with a "fail safe"
centrifugal stop system. The versatile hoist is available in motorized or
manual traverse models and capable of running on ceiling tracks or
gantries.

The Invacare(R) Alize is a new range of eight bath and shower products for
elderly or handicap people. The additional products complete Invacare's
bath and shower product range and generate cross selling opportunities with
other patient aid product ranges. Alize products share the same seat and
backrest ergonomical components, designed to bring an unsurpassed comfort
to the user.

The Invacare(R) SOLO Bed is a cost competitive bed which addresses the new
regulations in the German market for improved electrical safety. In
addition, the Invacare SOLO bed has increased lifting range and wooden bed
ends and siderails specially designed for use in home care facilities.

The Invacare(R) Staccata bed is for hospitals and institutions and
addresses new market segments for Invacare in Spain, Portugual, the United
Kingdom and export markets and also improves the product offering in
Holland and Scandinavian markets. The bed offers increased functionality,
including quick release of the backrest for Cardiopulmonary Resuscitation
and blocking of electrical functions.

The Invacare(R) Blade II pediatric wheelchair is the next generation of
foldable, active, low-end wheelchairs. Improved functionality with swing
away footrests, armrests and outrigger caster options make this a more
competitive chair for the United Kingdom and French markets.

MANUFACTURING AND SUPPLIERS
The company's objective is to maintain its commitment to be the highest quality
and lowest-cost manufacturer in its industry. The company believes that it is
achieving this objective not only through improved product design, but also by
taking a number of steps to lower manufacturing costs. The company initiated
plans to close and consolidate several distribution and manufacturing
operations, the cost of which was included in a charge taken in the fourth
quarter of 2000. These plans were completed during 2001.

The company opened up a new Far East sourcing office during 2001. While the
company believes the opportunities are significant to reduce overall costs, the
short-term emphasis will be on building the professional disciplines in the area
of sourcing, quality and logistics focusing on sourcing components and finished
goods to each of the business segments.

North America / Australasia
The company has vertically integrated its manufacturing processes by
fabricating, coating, plating and assembling many of the components of each
product. The company designs and manufactures electronics for power wheelchairs,
from insertion of components into printed circuit boards to final assembly and
testing.

Invacare has focused on value engineering which reduces manufacturing costs by
eliminating product complexity and using common components. Value engineering
has been applied to all product introductions in the last three years, including
the latest generation of oxygen concentrators, electronic controls, wheelchairs,
patient lifts, beds and bath safety products.

Investments continue to be made in manufacturing automation. The company has
initiated lean manufacturing programs to reduce manufacturing lead times,
shorten production cycles, increase associate training, encourage employee
involvement in decision-making and improve manufacturing quality. Associate
involvement teams participate in engineering, production and processing
strategies and associates have been given responsibility for their own quality
assurance.

I-9

The manufacturing operations for the company wheelchairs and replacement parts,
patient aids and home care beds consist of a variety of metal fabricating
procedures, electronics production, coating, plating and assembly operations.
Manufacturing operations for the company oxygen concentrators, nebulizer
compressors, and seating and positioning products consist primarily of assembly
operations. The company purchases raw materials, fabricated components and
services from a variety of suppliers. Where appropriate, Invacare does employ
long-term contracts with its suppliers, both domestically and from the Far East.
In those situations in which long-term contracts are not advantageous, the
company believes its relationship with those suppliers to be satisfactory with
alternative sources of supply readily available.

Europe
As in other areas, manufacturing and operational issues faced in the U.S. are
also present in Europe. The European operation has challenged and rationalized
the mission of each manufacturing location allowing for the realization of
significant synergies and has identified areas for further cost reductions and
improved efficiencies for 2002.

ACQUISITIONS
During 2001, the company did not make any significant acquisitions. However, as
a result of the company's ongoing search for opportunities, coupled with the
industry trend toward consolidation, various acquisition opportunities were
evaluated in 2001. The company focuses on acquisitions intended to fulfill the
following objectives:

Tactical. Grow market share or extend current product lines.

Strategic. Enter new market segments that complement existing
businesses or utilize the company's distribution
strengths.

Geographic. Enable rapid entry into new foreign markets.

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 the U.S.,
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 changes in federal programs are
often imitated by private insurance companies. 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.

In late 2000, Congress enacted legislation (the Benefits Improvement and
Protection Act or BIPA) that provides several victories for the homecare and HME
services industries. First, Congress provided a full restoration of the annual
cost-of-living adjustment for the Durable Medical Equipment Industry (DME) for
fiscal 2001. This will amount to a 3.27% increase in the Medicare fee schedules
for most Invacare products. BIPA also provides a measure of security for home
health agencies by questioning the need for a 15% reduction in fees paid for
home health services. BIPA also called for a study of the way supplies and
equipment are billed to Medicare when the patient is enrolled in a plan of care
through a home health agency.

A final ruling implementing the consumer choice, or DME Upgrade, provision
originally contained in the Balanced Budget Act of 1997 was issued on October
22, 2001. This provision makes it easier for consumers to choose more functional
products than the minimally medically necessary items currently paid for by
Medicare. Invacare anticipates this rule will have a positive impact on the
sales of high-end products in every product line. The new rule was effective on
January 1, 2002.

The company continues its aggressive, pro-active efforts to shape public policy
that impacts home and community-based, non-acute health care. We are currently
supporting legislation that would extend Medicare coverage to products such as
patient lifts, bath safety products and other items designed to provide physical
safety and well being. Invacare believes these efforts give the company a
competitive advantage in two ways. First is the frequently expressed
appreciation of our customers for our efforts on behalf of the entire industry.
The other is the ability to anticipate and plan for changes in public policy,
unlike most other HME manufacturers who must react to change after it occurs.

I-10

Congress and the new Administration once again have placed Medicare reform high
on the priority list for change. Another item being discussed is prescription
drug coverage. Both these areas will provide ample opportunities to re-educate
policymakers on the fact that homecare is a clinically appropriate,
cost-effective and patient preferred alternative to facility based care. As the
"graying of America" continues, homecare will play an increasingly important
role in meeting the health care needs of our citizens.

The Safe Medical Devices Act of 1990 and Medical Device Amendments of 1976 to
the Federal Food, Drug and Cosmetics Act of 1938 (the Acts) provide for
regulation by the United States Food and Drug Administration (the FDA) of the
manufacture and sale of medical devices. Under the Acts, medical devices are
classified as Class I, Class II or Class III devices. The company 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. Manufacturers of all medical devices are subject to
periodic inspections by the FDA. Furthermore, state, local and foreign
governments have adopted regulations relating to the manufacture and marketing
of health care products. The company believes that it is presently in material
compliance with applicable regulations promulgated by the FDA for which the
failure to comply would have a material adverse effect.

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, 2001, the company had approximately 5,400 employees.

(d) Financial Information about Foreign and Domestic Operations and Export
Sales.

The company also markets its products for export to other foreign countries. 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 and domestic operations, see Business Segments in the
Notes to the Consolidated Financial Statements.

Item 2. Properties.

The company owns or leases its warehouses, offices and manufacturing facilities
and believes these facilities to be well maintained, adequately insured and
suitable for their present and intended uses. Information concerning certain
leased facilities of the company as of December 31, 2001 is set forth in Leases
and Commitments in the Notes to the Consolidated Financial Statements of the
company and in the table below:

I-11

I-12

I-13

Item 3. Legal Proceedings.

Invacare is a defendant in a number of product liability actions in which
various plaintiffs seek damages for injuries allegedly caused by defective
products. All of these actions have been referred to the company's insurance
carriers and are being vigorously contested. Coverage territory is worldwide
with the exception of those countries with respect to which, at the time 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 its business or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

Executive Officers of the Registrant.*

The following table sets forth the names of the executive officers and certain
other key employees of Invacare, each of whom serves at the pleasure of the
Board of Directors, as well as certain other information.

I-14

Name Age Position
- --------------------- ---- ------------------------------------------------------

Joseph B. Richey, II 65 President - Invacare Technologies, Senior Vice
President - Electronics and Design Engineering
and Director

Louis F.J. Slangen 54 Senior Vice President - Sales & Marketing

Thomas Kroeger 52 Senior Vice President - Human Resources

Kenneth A. Sparrow 54 President - Invacare Europe

Neal J. Curran 44 Vice President - Engineering and Product Development

David A. Johnson 39 Vice President - Operations and Logistics

Michael A. Perry 47 Vice President - Distributed Products

Hugh L. Martyn 43 Managing Director - Australasia

CORPORATE OFFICERS
- ------------------
A. Malachi Mixon, III has been Chief Executive Officer and a Director of the
company since December 1979, and Chairman of the Board since September 1983. Mr.
Mixon had been President of the company from December 1979 until November 1996.

Gerald B. Blouch was named President and a Director of the company in November
1996. Mr. Blouch was Chief Operating Officer since December 1994 and Chairman -
Invacare International since December 1993. Previously, Mr. Blouch was President
- - Home Care Division from March 1994 to December 1994 and Senior Vice President
- - Home Care Division from September 1992 to March 1994. Mr. Blouch served as
Chief Financial Officer from May 1990 to May 1993 and Treasurer from March 1991
to May 1993.

Thomas R. Miklich has been Chief Financial Officer and General Counsel since May
1993 and in September 1993 was named Corporate Secretary. Mr. Miklich is a
director of the OM Group, a NYSE listed company. Mr. Miklich was Interim Vice
President - Human Resources from March 2000 until May 2001 and Treasurer from
May 1993 until October 1999. Previously, Mr. Miklich was Executive Vice
President and Chief Financial Officer of Van Dorn Company from 1991 to 1993 and
Chief Financial Officer of The Sherwin-Williams Company from 1986 to 1991.

Joseph B. Richey, II has been a Director since 1980 and in September 1992 was
named President - Invacare Technologies and Senior Vice President - Electronics
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.

Louis F. J. Slangen was named Senior Vice President - Sales & Marketing in
December 1994 and from September 1989 to December 1994 was Vice President -
Sales and Marketing. Mr. Slangen was previously President - Rehab Division from
March 1994 to December 1994 and Vice President and General Manager - Rehab
Division from September 1992 to March 1994.

Thomas Kroeger joined Invacare as Senior Vice President - Human Resources in May
2001. Before coming to Invacare, Mr. Kroeger was the Executive Vice President -
Organization and People for Office Depot from July 1997 until April 2001 and
Corporate Vice President - Human Resources for The Sherwin-Williams Company from
October 1987 to July 1997.

OPERATING OFFICERS
- ------------------
Kenneth A. Sparrow was named President - Invacare Europe in September 2001.
Previously, Mr. Sparrow was Director of Australasia from January 1998 to
September 2001. Before coming to Invacare, Mr. Sparrow was General Manager of
Operations for the Lyttelton Port Company from December 1995 to January 1998 and
Divisional General Manager for Skellerup Industries from July 1992 to November
1995.

I-15

Neal J. Curran was named Vice President of Engineering and Product Development
in August 2000. Mr. Curran has been with the company since 1983 and has
previously held positions as Vice President - Rehab Group July 1999 to August
2000, Vice President - Respiratory Group July 1998 to July 1999, Vice President
- - Seating and Custom Mobility Products October 1997 to July 1998 and General
Manager of the Custom Manual Business Unit from December 1994 to October 1997.
Prior to 1994, Mr. Curran held the positions of Power Business Unit leader
September 1992 to December 1994 and Vice President of Rehab engineering January
1991 to September 1992.

David A. Johnson was named Vice President of Operations and Logistics in
November 2000. Previous positions include Vice President - Rehab Group and
Personal Care Products from August 2000 until November 2000, and Vice President
- - Invacare Continuing Care Group and Home Medical Equipment Group from November
1998 until August 2000. Previously, Mr. Johnson had been Director
Business/Systems Integration for Herman Miller, Inc. from 1997 to November 1998.
Mr. Johnson was also General Manager of The Chattanooga Group, Inc. from 1994 to
1997. From 1990 to 1994, Mr. Johnson held various operations positions for the
Stryker Corporation-Medical Group.

Michael A. Perry was named Vice President of Distributed Products in July of
1998. Previously, Mr. Perry was General Manager of Account Services, Vice
President of National Accounts, Vice President of Retail Sales and Vice
President of Clinical Application Consumer Marketing since 1995. In 1994, Mr.
Perry served as Area Vice President of Sales.

Hugh L. Martyn was named Managing Director of Australasia in September 2001.
Previously, Mr. Martyn was Chief Executive Officer of Dynamic Controls Ltd. from
September 1998 to September 2001. Prior to this, Mr. Martyn was the Managing
Director of Whisper-Tech Limited from December 1997 to September 1998, and the
General Manager, Country Fare Bakeries (Christchurch, NZ) Ltd. from September
1996 to December 1997.

* The description of executive officers is included pursuant to Instruction 3 to
Section (b) of Item 401 of Regulation S-K.

PART II
-------

Item 5. Market for Registrant Common Equity and Related Stockholder Matters.

Invacare Common Shares, without par value, began trading on the New York Stock
Exchange (NYSE) under the symbol IVC on June 25, 1999. Prior to listing the
Common Shares on the NYSE, the Common Shares were included for trading and
quotation on the NASDAQ National Market System under the symbol IVCR. Ownership
of the company Class B Common Shares (which are not listed on NYSE) cannot be
transferred, except, in general, to family members. Class B Common Shares may be
converted into Common Shares at any time on a share-for-share basis. The
approximate number of record holders of the company Common Shares and Class B
Common Shares at February 12, 2002 was 5,652 and 30, respectively. The closing
sale price for the Common Shares on February 12, 2002 as reported by NYSE, was
$33.52. 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 in each of the
two most recent fiscal years are as follows:

2001 2000
---- ----
Quarter Ended: High Low High Low
------------- ------ ------ ------ ------

December 31 $38.84 $28.91 $34.38 $24.19
September 30 40.98 35.16 32.19 22.75
June 30 40.00 34.20 27.13 24.69
March 31 39.52 31.38 28.00 18.63

During 2001, the Board of Directors declared dividends of $.05 per Common Share
and $.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
Obligations in the Notes to the Consolidated Financial Statements. 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-16

Item 6. Selected Financial Data

2001* 2000 1999** 1998 1997***
---- ---- ---- ---- ----
(In thousands, except per share and ratio data)

Earnings
Net Sales $1,053,639 $1,013,162 $882,774 $801,189 $654,409
Net Earnings 35,190 59,911 41,494 45,792 1,563
Net Earnings per Share - Basic 1.15 1.99 1.38 1.53 .05
Net Earnings per Share - Assuming
Dilution 1.11 1.95 1.36 1.50 .05
Dividends per Common Share .05000 .05000 .05000 .05000 .05000
Dividends per Class B Common
Share .04545 .04545 .04545 .04545 .04545

2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet
Current Assets $428,401 $432,408 $418,620 $336,742 $275,211
Total Assets 914,537 951,855 955,285 738,756 529,923
Current Liabilities 175,423 203,436 177,471 133,964 109,553
Working Capital 252,978 228,972 241,149 202,778 165,658
Long-Term Obligations 357,564 398,646 458,942 323,904 183,955
Shareholders' Equity 381,550 349,773 318,872 280,888 236,415

Other Data
Research and Development
Expenditures $ 17,394 $ 16,231 $ 15,534 $ 12,980 $ 12,706
Capital Expenditures, net of
Disposals 19,486 26,268 32,155 39,505 37,962
Depreciation and Amortization 33,448 31,469 25,978 23,754 18,348

Key Ratios
Return on Sales 3.3% 5.9% 4.7% 5.7% .2%
Return on Average Assets 3.8% 6.3% 4.9% 7.2% .3%
Return on Beginning
Shareholders' Equity 10.1% 18.8% 14.8% 19.4% .7%
Current Ratio 2.4:1 2.1:1 2.4:1 2.5:1 2.5:1
Debt-to-Equity Ratio .9:1 1.1:1 1.4:1 1.2:1 .8:1

* Reflects non-recurring impairment reserves of $31,950 ($25,250 or $.80 per share assuming dilution after tax)
primarily related to certain investments and notes receivable.
** Reflects non-recurring and unusual charge of $14,800 ($9,028 or $.29 per share assuming dilution after tax).
*** Reflects non-recurring and unusual charge of $61,039 ($38,839 or $1.28 per share assuming dilution after tax).

I -17

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

RESULTS OF OPERATIONS

2001 Versus 2000

Reclassifications. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations reflect certain reclassifications
made to the prior years' consolidated financial statements to conform to the
presentation used for the year ended December 31, 2001.

Non-recurring and Unusual Items. The review of results that follows excludes the
impact of the non-recurring and unusual items recorded in 2001 and 2000. In
2001, the company recorded a fourth quarter non-cash charge of approximately
$31,950,000 ($25,250,000 after tax) to reserve the value of certain investments
and notes receivable. The decline in value of these investments was determined
to be other than temporary due in part to the recent economic decline and
tightening of the capital markets which has made obtaining the additional
funding they require difficult.

In 2000, as a result of repaying EURO and DKK denominated debt, the company
realized a non-recurring pre-tax foreign currency gain of approximately
$20,130,000. The gain was offset by charges in the fourth quarter aggregating
$8,700,000 related primarily to closing two distribution centers and a
manufacturing plant ($3,700,000), severance costs due to staff reductions (nine
individuals) primarily at the corporate office ($1,000,000) and costs associated
with the settlement of litigation ($4,000,000). In addition, during the fourth
quarter of 2000, the company also increased its bad debt reserve impacting
selling, general and administrative expenses by approximately $8,000,000.

Net Sales. Consolidated net sales for 2001 increased 4% for the year despite a
2% negative impact from foreign currency translation. Net sales increased in all
three business segments excluding currency. Sales gains were lower than last
year due to the slowing economy and tightening of the credit markets. Growth
also was impacted by the economic shock and market uncertainty resulting from
the September terrorist attacks. However, the company believes its sales grew
faster than the overall industry, resulting in market share gains. This sales
growth was due in part to additional marketing and branding programs and its
cost-effective "Total One Stop Shopping(sm)" distribution system that is
supported by the company's broad range of products and services.

North American Operations

North American sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, seating and scooters), Standard (manual wheelchairs, personal care,
bed products, patient transport and low air loss therapy), Continuing Care (beds
and furniture), Respiratory (oxygen concentrators, liquid oxygen, aerosol
therapy, sleep and associated respiratory) and Distributed (ostomy,
incontinence, wound care and other medical supplies) products grew 5% over the
prior year excluding the negative impact of currency translation. All major
product lines showed growth for the year. The largest gains were recorded in
Continuing Care, Respiratory, and Rehab primarily due to the increased unit
volumes of these products. Distributed sales increased approximately 5%.

Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had a 5% sales increase for the year primarily as a result of
volume increases.

Australasia Operations

The Australasia products group consists of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand
manufacturer of operating components used in power wheelchairs and Invacare New
Zealand, a distribution business. Sales for the Australasia group increased
$10,134,000 or 30% from the prior year. Excluding the impact of foreign
exchange, sales increased 41% for the year. The increase was the result of
continued expansion into the market, with volume increases in Standard
wheelchairs and Respiratory products.

European Operations

European sales improved 4% over the prior year excluding a 5% negative impact
from foreign currency translation. European sales were less than expected due to
reimbursement pressure in key markets throughout the year and the weak Euro.
Sales growth was driven by volume increases in Patient Aids, Homecare Beds and
Patient Transport product lines.

I-18

Gross Profit. Consolidated gross profit as a percentage of net sales was 30% in
2001 and 31% in 2000, primarily due to product mix, pricing pressures and the
decline in the Euro. Continued productivity improvements and cost reduction
activities partially offset these negative impacts.

North American gross profit from operations as a percentage of net sales was
flat as a result of depressed margins due to pricing pressures in the Supplies
business offset by productivity improvements and cost reduction activities
realized in the North American plants.

Gross profit in Australasia as a percentage of sales was down by one percent
from last year. A negative impact from foreign currency was offset by continued
cost reduction activities.

Gross profit in Europe as a percent to sales declined by two percentage points
from prior year. The decline is attributable to the unfavorable impact of both
product and country mix, unfavorable pricing particularly in the beds and power
wheelchair product lines, the negative impact of the Euro and rising freight
costs.

Selling, General and Administrative. Consolidated selling, general and
administrative expense, excluding the non-recurring charge taken in the fourth
quarter of 2000, as a percentage of net sales was approximately 19% in 2001 and
2000. The overall dollar increase was $2,031,000 or 1%, with currency
translation decreasing selling, general and administrative costs by
approximately $3,668,000 or 2%. The minimal increase is the result of
administrative cost control and the utilization of activity-based budgeting
aimed at allocating the expense dollars to the programs that most effectively
support the company's business strategy.

North American operations' selling, general and administrative expenses as a
percentage of net sales increased 2% or $3,005,000 compared to 2000.

Australasia operations' selling, general and administrative expenses decreased
approximately 8% from the prior year. The overall dollar decline between years
was $702,000 primarily due to the strong dollar, which reduced the expense by
$590,000.

European operations' selling, general and administrative expenses increased
$265,000 or 1% from the prior year. European selling, general and administrative
expenses were positively impacted by continued cost containment initiatives and
the strong dollar, which reduced selling, general and administrative expenses
reported in dollars by $2,803,000.

Interest. Interest income decreased in 2001 to $7,303,000 from $7,807,000 in the
prior year, representing a 7% decrease. The decrease was primarily due to a 37%
decrease in installment sales volume booked in 2001, partially offset by loan
origination fees received on new business written as a result of our third-party
financing arrangement with DLL, a subsidiary of Rabo Bank of the Netherlands.
Interest expense decreased to $22,764,000 from $27,853,000 representing an 18%
decrease. This was attributable to the declining interest rate environment
throughout 2001, in conjunction with a decrease in our average borrowings
outstanding under our revolver facility. The company's debt-to-equity ratio
decreased to .9:1 from 1.1:1 in the prior year.

Income Taxes. The company had an effective tax rate of 38.5% in 2001 and 39.0%
in 2000, excluding the effects of the unusual and non-recurring charge recorded
in 2001. The effective rate for 2001 including the unusual and non-recurring
charge was 47% as a result of the valuation reserve recorded in the fourth
quarter of 2001 which was not entirely deductible for tax purposes due to
limitations on capital losses. The effective tax rate for 2002 is expected to be
approximately 33% as a result of tax restructuring completed in the fourth
quarter of 2001 and the benefit of the change in accounting for goodwill. See
Income Taxes and Non-Recurring and Unusual Items in the Notes to Consolidated
Financial Statements for further discussion.

Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $17,394,000 from
$16,231,000 in 2000. The expenditures, as a percentage of sales, increased to
1.7% from 1.6% in the prior year.

2000 Versus 1999

Non-recurring and Unusual Items. The review of results that follows excludes the
impact of the non-recurring and unusual items recorded in 2000 and 1999. In
2000, as a result of repaying EURO and DKK denominated debt, the company
realized a non-recurring pre-tax foreign currency gain of approximately
$20,130,000. The gain was offset by charges in the fourth quarter aggregating
$8,700,000 related primarily to closing two distribution centers and a
manufacturing plant ($3,700,000), severance costs due to staff reductions (nine
individuals) primarily at the corporate office ($1,000,000) and costs associated
with the settlement of litigation

I-19

($4,000,000). In addition, during the fourth quarter of 2000, the company also
increased its bad debt reserve impacting selling, general and administrative
expenses by approximately $8,000,000.

In 1999, the company announced non-recurring and unusual charges of $11,500,000
in the fourth quarter primarily related to the consolidation and integration of
the operations of SMI and Invacare. The charges included reserves for employee
severance ($3,000,000), plant shutdowns and lease terminations ($4,400,000), and
asset write-downs and other non-recurring items ($4,100,000). The personnel
reductions and shut down of facilities are related to the integration of SMI and
are required to obtain the expected synergies from the acquisition. In addition,
during the fourth quarter of 1999, the company also increased its bad debt
reserve impacting selling, general and administrative expenses by approximately
$3,300,000.

Net Sales. Consolidated net sales for 2000 increased 15% for the year despite a
3% negative impact from foreign currency translation. Acquisitions contributed
9% of the increase. Net sales increased in two of the three business segments
while Europe sales were flat. The overall increase was principally due to an
increase in unit volume. The Standard and Distributed operations posted the
largest dollar increases primarily as a result of increased unit volumes. The
company believes that its sales grew faster than the overall industry, resulting
in market share gains. This was due in part to additional marketing programs and
its cost-effective "Total One Stop Shopping(sm)" distribution system that is
supported by the company's broad range of products and services.

North American Operations

North American sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, seating and scooters), Standard (manual wheelchairs, personal care,
bed products, patient transport and low air loss therapy), Continuing Care (beds
and furniture), Respiratory (oxygen concentrators, liquid oxygen, aerosol
therapy, sleep and associated respiratory) and Distributed (ostomy,
incontinence, wound care and other medical supplies) products net of
acquisitions and divestitures grew 11% over the prior year. The gain was due
primarily to Standard products, up 14%, as manual wheelchairs, personal care and
bed products had strong sales increases. Distributed product sales increased 17%
from the prior year. Sales for the Rehab product line, driven by Seating and
Custom Manual, also increased 7% over the prior year. Respiratory sales were up
approximately 4% offset by a similar decline in Continuing Care products.

Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had an 11% sales increase for the year. Sales for the
company's Canadian operation increased 9%. The increase was a result of volume
increases.

Australasia Operations

The Australasia products group consists of Invacare Australia, which imports and
distributes the Invacare range of products and manufactures and distributes the
Rollerchair range of custom power wheelchairs, Dynamic Controls, a New Zealand
manufacturer of operating components used in power wheelchairs and Invacare New
Zealand, a distribution business. Sales for the Australasia group increased
$12,291,000 or 48% from the prior year, excluding a negative impact from foreign
currency translation of 21% and a 4% impact from acquisitions. The increase was
due to an increase in market share in the Australasian market.

European Operations

On a pro-forma basis, European sales were flat for the year excluding a 13%
negative impact from foreign currency translation. European sales were less than
expected due to the weak Euro and the company's focus on the integration of SMI.

Gross Profit. Consolidated gross profit as a percentage of net sales was 31% in
2000 and 1999. This was a result of the company's continued focus on redesigning
products in order to lower manufacturing costs while improving quality and
reliability and other cost reductions made to remain competitive and improve
profitability.

North American gross profit from operations as a percentage of net sales
remained constant with the prior year as a result of a shift in product mix to
lower margin products.

Gross profit in Australasia increased as a percentage of net sales to 30% from
28% in the prior year. The $2,965,000 increase includes the continued effects of
a strong U.S. dollar which negatively impacted margins. Excluding the negative
impact of foreign currency translation and a slight impact from acquisitions,
gross profit increased $5,905,000 from the prior year.

I-20

Gross profit in Europe as a percentage of net sales increased over one
percentage point from the prior year. The increase in European profitability is
primarily a result of productivity improvements and cost containment programs
introduced by new European management put in place during the third quarter of
1998. The management team has simplified and improved accountability while
reducing costs to be more in line with its sales levels. In addition, greater
emphasis is being placed on leveraging U.S. research and development efforts to
accelerate new product development in a cost-effective manner.

Inventory turns improved slightly for 2000, as inventory control initiatives
instituted throughout the company's existing business were implemented at the
SMI locations.

Selling, General and Administrative. Consolidated selling, general and
administrative expense, excluding unusual charges, as a percentage of net sales
were approximately 19% in 2000 and 1999. The overall dollar increase was
$26,522,000 or 16%, with acquisitions increasing selling, general and
administrative costs by approximately $21,267,000 or 13%. High distribution
costs in 2000 throughout the company resulted in the same expense as a
percentage of net sales as last year.

North American operations' selling, general and administrative costs as a
percentage of net sales remained flat compared to 1999. Selling, general and
administrative costs increased $15,693,000 or 13% with acquisitions accounting
for $776,000 or 1% of the increase from the prior year. The company utilized
activity-based budgeting aimed at allocating the expense dollars to the programs
that most effectively supported the company's business strategy.

Australasia operations' selling, general and administrative expenses increased
approximately 34% from the prior year. The increase is primarily a result of the
increased growth in business in Australasia. The overall dollar increase between
years was $2,224,000. The strong dollar reduced selling, general and
administrative expense for Australasia operations by $1,479,000.

European operations' selling, general and administrative expenses increased
$6,816,000 or 15% from the prior year. The increase was primarily a result of
the acquisition of SMI. European selling, general and administrative expenses
were positively impacted by continued cost containment initiatives implemented
throughout 1999 and the strong dollar, which reduced selling, general and
administrative expenses reported in dollars by $5,077,000.

Interest. Interest income decreased in 2000 to $7,807,000 from $7,929,000 in the
prior year, representing a 2% decrease. The decrease was due to a 32% decrease
in new installment receivables booked throughout 2000. Interest expense
increased to $27,853,000 from $22,093,000 representing a 26% increase resulting
from additional borrowings in the first half of the year related to the
Scandinavian Mobility acquisition, and also to an increasing interest rate
environment. However, as a result of debt paydown efforts in the third and
fourth quarters, the company's debt-to-equity ratio decreased to 1.1:1 from
1.4:1 in the prior year.

Income Taxes. The company had an effective tax rate of 39% in both 2000 and
1999. See Income Taxes in the Notes to Consolidated Financial Statements for
further discussion.

Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $16,231,000 from
$15,534,000 in 1999. The expenditures, as a percentage of sales, decreased to
1.6% from 1.8% in the prior year.

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
volume, capital expenditure programs designed to improve productivity,
alternative sourcing of material and other cost control measures. In 2001 and
2000, the company was able to offset the majority of the impact of price
increases from suppliers by productivity improvements and other cost reduction
activities.

LIQUIDITY AND CAPITAL RESOURCES

The company continues to maintain an adequate liquidity position through its
unused bank lines of credit (see Long-Term Obligations in the Notes to
Consolidated Financial Statements) and working capital management. The company
maintains various bank lines of credit to finance its worldwide operations. In
2001, the company completed a $325,000,000 multi-currency, long-term revolving
credit agreement which expires on October 17, 2006 and a $100,000,000 364- day
facility which expires on October 16, 2002, or such later

I-21

dates as mutually agreed upon by the company and the banks. These agreements
terminate all commitments under the replaced 1997 credit agreement.
Additionally, the company maintains various other demand lines of credit
totaling a U.S. dollar equivalent of approximately $20,110,000 as of December
31, 2001. The lines of credit have been and will continue to be used to fund the
company's domestic and foreign working capital, capital expenditures and
acquisition requirements. As of December 31, 2001, the company had approximately
$200,681,000 available under its various lines of credit, excluding debt
covenant restrictions.

The company's borrowing arrangements contain covenants with respect to interest
coverage, net worth, dividend payments, working capital, funded debt to
capitalization and interest coverage, as defined in the company's bank
agreements and agreement with its note holders. The company is in compliance
with all covenant requirements. Under the most restrictive covenant of the
company's borrowing arrangements, the company has the capacity to borrow up to
an additional $50,665,000 as of December 31, 2001.

While there is general concern about the potential for rising interest rates,
exposure to interest fluctuations is manageable as a portion of the debt is at
fixed rates through 2004. The fixed interest debt coupled with free cash flow
should allow Invacare to absorb the expected modest rate increases in the months
ahead without any material impact on our liquidity or capital resources.

CAPITAL EXPENDITURES

There are no individually material capital expenditure commitments outstanding
as of December 31, 2001. The company estimates that capital investments for 2002
will approximate $22,000,000. 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 $58,478,000, compared to
$78,426,000 last year. The decrease is due primarily to changes in working
capital accounts including payments made in 2001 on restructuring items and
legal liabilities.

Cash flows required for investing activities decreased $17,524,000. The decrease
is principally a result of payments received on existing installment
receivables. The company no longer enters into installment contracts as a result
of its third party financing arrangement with DLL. In addition, current year
capital expenditures were lower than in 2000 as many of the company's systems
improvements were completed in 2000 and prior years.

Cash flows required by financing activities in 2001 were $35,305,000, compared
to $49,480,000 in 2000. The decrease was principally a result of the company
paying down less debt in 2001 than in 2000 partially offset by the impact of the
purchases of treasury shares in 2001. In addition to acquisition activities, the
effect of foreign currency translation results in amounts being shown for cash
flows in the Consolidated Statement of Cash Flows that are different from the
changes reflected in the respective balance sheet captions.

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 $.05 per Common Share and $.045 per Class B Common Share. It is
not anticipated that this will change materially as the company continues to
have available significant growth opportunities through internal development and
acquisitions. For 2001, a dividend of $.05 per Common Share and $.045 per Class
B Common Share was declared and paid.

EURO CONVERSION

On January 1, 1999, 11 of the 15 member countries of the European Union (the
"participating countries") established a fixed rate between their existing
sovereign currencies (the "legacy currencies") and the Euro. On January 1, 2002,
the Euro currency was introduced and the legacy currencies will be withdrawn
from circulation by July 1, 2002. The company believes that, with the
modifications made to existing computer software and conversion to new software,
the Euro conversion issue will not pose significant operational problems to its
normal business activities. The company does not expect costs associated with
the Euro conversion project to have a material effect on the company's results
of operations or financial position.

NON-RECURRING AND UNUSUAL ITEMS

In 2001, the company recorded a fourth quarter non-cash charge of approximately
$31,950,000 ($25,250,000 after tax) to reserve the value of certain investments
and notes receivable. The decline in value of these investments was determined
to be other than temporary due in part to the recent economic decline and
tightening of the capital markets which has made obtaining the additional
funding they require difficult.
I-22

In 2000, as a result of repaying EURO and DKK denominated debt, the company
realized a non-recurring pre-tax foreign currency gain of approximately
$20,130,000. The gain was offset by charges in the fourth quarter aggregating
$8,700,000 related primarily to closing two distribution centers and a
manufacturing plant ($3,700,000), severance costs due to staff reductions (nine
individuals) primarily at the corporate office ($1,000,000) and costs associated
with the settlement of litigation ($4,000,000). Of these charges, $3,035,000
have been utilized related to closing two distribution centers and a
manufacturing plant, $957,000 have been utilized related to severance costs, and
$4,000,000 related to settlement of litigation. In addition, during the fourth
quarter of 2000, the company also increased its bad debt reserve impacting
selling, general and administrative expenses by approximately $8,000,000.

In 1999, the company announced non-recurring and unusual charges of $11,500,000
in the fourth quarter primarily related to the consolidation and integration of
the operations of SMI and Invacare. The charges included reserves for employee
severance ($3,000,000), plant shutdowns and lease terminations ($4,400,000), and
asset write-downs and other non-recurring items ($4,100,000). The personnel
reductions and shut down of facilities are related to the integration of SMI and
are required to obtain the expected synergies from the acquisition. Of these
charges, $2,885,000 has been utilized related to employee severance, $4,400,000
has been utilized related to plant shutdown and lease termination, and
$3,566,000 has been utilized related to asset write-downs and other
non-recurring items. In addition, during the fourth quarter of 1999, the company
also increased its bad debt reserve impacting selling, general and
administrative expenses by approximately $3,300,000.

All initiatives for which charges were reported have been substantially
completed at December 31, 2001.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements 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 these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. The
Company does not believe there is a great likelihood that materially different
amounts would be reported related to the accounting policies described below.
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.

Revenue Recognition
Invacare's revenues are recognized when products are shipped to unaffiliated
customers. The Securities and Exchange Commission's Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition" 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 generally accepted accounting principles and SAB No. 101.

Allowance for Uncollectible Accounts Receivable
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. Substantially all of the company's receivables are
due from health care, medical equipment dealers and long term care facilities
located throughout the United States, Australia, Canada, New Zealand and Europe.
A significant portion of products sold to dealers, both foreign and domestic,
are ultimately funded through government reimbursement programs such as Medicare
and Medicaid. In addition, the company has seen significant shift in
reimbursement to customers from managed care entities. As a consequence, changes
in these programs can have an adverse impact on dealer liquidity and
profitability. 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 with DLL,
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.

Inventories and Related Allowance for Obsolete and Excess Inventory
Inventories are valued at the lower of cost or market value and 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.

Goodwill, Intangible and Other Long-Lived Assets
Property, plant and equipment, goodwill, intangible 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.
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

I-23

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
aggregate policy losses of $5 million of the company's domestic product
liability exposure. The company also has additional layers of coverage insuring
$90 million in annual aggregate losses arising from individual claims that
exceed the captive insurance company policy limits. Invacare Supply Group's
distributed products are covered under a conventional insurance program with
third party carriers on a guaranteed cost basis and layered limits up to $76
million. There can be no assurance that Invacare's current insurance levels will
continue to be adequate or available at an affordable rate. The company provides
reserves for product liability using an estimation process that considers
company specific and industry data as well as management's assumptions.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144, which supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, provides a single accounting model for long-lived
assets to be disposed of. Although retaining many of the fundamental recognition
and measurement provisions of SFAS No. 121, SFAS No. 144 significantly changes
the criteria that would have to be met to classify an asset as held-for-sale.
The distinction is important because assets held-for-sale are stated at the
lower of their fair values or carrying amounts and depreciation is no longer
recognized. The adoption of the statement effective January 1, 2002, did not
have a material impact on the consolidated financial position or results of
operations of the company.

In June 2001, the FASB issued SFAS No. 141, Accounting for Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective
for fiscal years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

The company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of SFAS No. 142 is expected to result in an increase
in net income for the year. The company will perform the first of the required
impairment tests under SFAS No. 142 of the goodwill and indefinite lived
intangible assets as of January 1, 2002. The company's current policy for
measuring goodwill impairment is based upon an analysis of undiscounted cash
flows, which does not result in an indicated impairment as of December 31, 2001.
Under SFAS No. 142, goodwill must be assigned to reporting units and measured
for impairment based upon the fair value of the reporting units. The Company has
not yet determined its reporting units under SFAS No. 142 and what the effect of
these new impairment tests will be on its consolidated financial position or
results of operations.

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 uses
interest swap agreements to mitigate its exposure to interest rate fluctuations.
Based on December 31, 2001 debt levels, a 1% change in interest rates would
impact interest expense by approximately $2,454,000. Additionally, the company
operates internationally and as a result is exposed to foreign currency
fluctuations. Specifically, the exposure includes intercompany loans, and third
party sales or payments. In an attempt to reduce this exposure, foreign currency
forward contracts are utilized. FASB No. 133, Accounting for Derivative
Instruments and Hedging Activities (Statement 133), requires companies to
recognize all of its derivative instruments as either assets or liabilities in
the consolidated balance sheet at fair value. The company adopted the statement
on January 1, 2001 and, accordingly, recognized a cumulative effect adjustment
to other comprehensive income of $802,000. 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.

PRIVATE SECURITIES LITIGATION REFORM ACT

The statements contained in this form 10-K constitute 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," "achieve,"
"increase," "plan," "can," "expect," "pursue," "benefit," "continue," "exceed,"
"improve," "believe," "anticipate," "build," "strengthen," "new," "lower,"
"drive," "seek," "hope," and "create," as well as similar comments, are
forward-looking in nature. 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: pricing pressures, increasing
raw material costs, the consolidations of health care customers and competitors,
government reimbursement issues including those that affect the viability of
customers, the effect of offering customers competitive financing terms,
Invacare's ability to effectively identify, acquire and integrate strategic
acquisition candidates, the difficulties in managing and

I-24

operating businesses in many different foreign jurisdictions, the timely and
efficient completion of facility consolidations, the difficulties in acquiring
and maintaining a proprietary intellectual property ownership position, the
overall economic, market and industry growth conditions, foreign currency and
interest rate risk, Invacare's ability to improve financing terms and reduce
working capital, as well as the risks described from time to time in Invacare's
reports as filed with the Securities and Exchange Commission. The company
undertakes no obligation to update any of the forward-looking or other
information contained herein.

Item 8. Financial Statements and Supplementary Data.

Reference is made to the Report of Independent Auditors, Consolidated Balance
Sheet, Consolidated Statement of Earnings, 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-22
of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

PART III
--------
Item 10. Directors and Executive Officers of the Registrant.

The information required by Item 10 as to the directors of the company is
incorporated herein by reference to the information set forth under the caption
Election of Directors in the company's definitive Proxy Statement for the 2002
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company fiscal year pursuant to Regulation 14A. Information required by Item
10 as to the executive officers of the company is included in Part I of this
Report on Form 10-K.

Item 11. Executive Compensation.

The information required by Item 11 is incorporated by reference to the
information set forth under the captions Compensation of Executive Officers and
Compensation of Directors in the company definitive Proxy Statement for the 2002
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company fiscal year pursuant to Regulation 14A.

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 2002 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.

Item 13. Certain Relationships and Related Transactions.

The information required by Item 13 is incorporated by reference to the
information set forth under the caption Compensation Committee Interlocks and
Insider Participation in the company definitive Proxy Statement for the 2002
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company fiscal year pursuant to Regulation 14A.

PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)(1) Financial Statements

The following financial statements of the company are included in Part II,
Item 8:

Consolidated Statement of Earnings - years ended December 31, 2001, 2000
and 1999

Consolidated Balance Sheet - December 31, 2001 and 2000

I-25

Consolidated Statement of Cash Flows - years ended December 31, 2001,
2000, and 1999

Consolidated Statement of Shareholders' Equity - years ended December 31,
2001, 2000, and 1999

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-28 of this Report on Form 10-K.

(b) Reports on Form 8-K.
An 8-K was filed on November 20, 2001 under Item 5, Other Events. The
filing included the 5-year credit agreement dated October 17, 2001 and
the 364-day credit agreement dated October 17, 2001 which were filed as
exhibits 10(ax) and 10(ay).

An 8-K was filed on December 12, 2001 under Item 5, Other Events. The
filing contained Invacare Corporation's news release dated December 12,
2001.

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 on February 15, 2002.

INVACARE CORPORATION

By: /S/ A. Malachi Mixon, III
--------------------------
A. Malachi Mixon, III Chairman of the Board of
Directors and Chief Executive Officer

I-26

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 on February 15, 2002.

Signature Title
--------- -----

/S/ A. Malachi Mixon, III Chairman of the Board of Directors
--------------------- and Chief Executive Officer
A. Malachi Mixon, III (Principal Executive Officer)

/S/ Gerald B. Blouch President, Chief Operating Officer
--------------------- and Director
Gerald B. Blouch

/S/ Thomas R. Miklich Chief Financial Officer, General
--------------------- Counsel, Corporate Secretary
Thomas R. Miklich (Principal Financial and Accounting
Officer)

/S/ James C. Boland Director
---------------------
James C. Boland

/S/ Frank B. Carr Director
---------------------
Frank B. Carr

/S/ Michael F. Delaney Director
---------------------
Michael F. Delaney

/S/ Whitney Evans Director
---------------------
Whitney Evans

/S/ Bernadine P. Healy, M.D. Director
---------------------
Bernadine P. Healy, M.D.

/S/ John R. Kasich Director
---------------------
John R. Kasich

/S/ Dan T. Moore, III Director
---------------------
Dan T. Moore, III

/S/ E. P. Nalley Director
---------------------
E. P. Nalley

/S/ Joseph B. Richey, II Director
---------------------
Joseph B. Richey, II

/S/ William M. Weber Director
---------------------
William M. Weber

I-27

INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2001.
Exhibit Index
Official Sequential
Exhibit No Description Page No.
- ---------- ----------- ----------

3(a) - Amended and Restated Articles of Incorporation, as amended through (A)
May 29, 1987

3(b) - Code of Regulations, as amended on May 22, 1996 (V)

3(c) - Amended and Restated Articles of Incorporation, as amended through February 2, 1996 (T)

4(a) - Specimen Share Certificate for Common Shares, as revised (H)

4(b) - Specimen Share Certificate for Class B Common Shares (H)

4(d) - Rights agreement between Invacare Corporation and Rights Agent dated as of (S)
July 7, 1995

10(a) - Stock Option Plan, adopted in February 1984 (B)*

10(b) - Amendment to Stock Option Plan, adopted in May 1987 (C)*

10(c) - Amendment to Stock Option Plan, adopted in May 1988 (D)*

10(d) - Amendment to Stock Option Plan, adopted in May 1991 (I)*

10(h) - Assignment of Patent Application and License of Know-how dated January 14, 1981, and an (E)
amendment thereto dated October 12, 1981, with respect to certain royalty payments to be
made to the former owners of the company's home care bed subsidiary

10(p) - Form of Indemnity Agreement entered into by and between the company and certain of its (H)
Directors and officers and Schedule of all such Agreements with current Directors and
officers

10(r) - Master Note, between Invacare Corporation and Sanwa Bank, Limited (J)

10(s) - Employees' Stock Bonus Trust and Plan as amended and restated effective (G)*
January 1, 1988 and as amended on April 13, 1988, April 3, 1990, and May 24, 1991

10(t) - Profit Sharing and Savings Trust and Plan effective as of January 1, 1988 and as amended (G)*
on November 28, 1988, September 12, 1990, October 9, 1990, and May 24, 1991

10(u) - Agreement between Invacare Corporation and Weber, Wood, Medinger, Inc. (J)

10(v) - Real Property Purchase Agreement by and between Invacare Corporation and Taylor Street (N)
limited partnership

10(z) - Note Agreement dated February 1, 1993 among Invacare Corporation and five purchasers of (P)
an aggregate of $25,000,000, 7.45% Senior Notes due February 1, 2003

10(aa) - Amendments to Stock Option Plan adopted in May 1992 (M)*

10(ab) - 1992 Non-Employee Directors Stock Option Plan adopted in May 1992 (K)

10(ac) - Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992 (L)

I-28

10(ad) - Shares Purchase and Contribution Agreement dated July 27, 1992 (O)

10(af) - Invacare Corporation 1994 Performance Plan approved January 28, 1994 (Q)*

10(ag) - Real Property Purchase Agreement between Mobilite Building Corporation (a newly formed (R)
subsidiary of Invacare Corporation as of February 15, 1994) and I-M Associates, LTD.
dated February 28, 1994

10(ar) - First Amendment to Note Agreement among Invacare Corporation and five purchasers of (U)
Senior Notes dated March 20, 1997

10(as) - Loan Agreement by and among Invacare Corporation, the Banks, certain borrowing (F)
subsidiaries, the Banks named therein, NBD Bank, as agent for the Banks and KeyBank
National Association, as co-agent for the Banks

10(at) - Agreement and Plan of Merger, dated December 17, 1997, between Invacare Corporation, (W)
Inva Acquisition Corp. and Invacare Supply Group, formerly Suburban Ostomy Supply
Company, Inc.

10(au) - Note Purchase Agreement dated as of February 27, 1998 for $80,000,000 6.71% Series A (X)
Senior Notes Due February 27, 2008 and $20,000,000 6.60% Series B Senior Notes Due
February 27, 2005

10(av) - Amendment No. 1 to the Invacare Corporation 1994 Performance Plan approved May 28, 1998. (Z)

10(aw) - Amendment No. 2 to the Invacare Corporation 1994 Performance Plan approved May 24, 2000. (AA)

10(ax) - Five-Year Credit Agreement between Invacare Corporation and Subsidiaries, the banks (AB)
named therein, Bank One, as agent for the banks, dated October 17, 2001.

10(ay) - 364-Day Credit Agreement between Invacare Corporation and Subsidiaries, the banks (AC)
named therein, Bank One, as agent for the banks, dated October 17, 2001.

21 - Subsidiaries of the company

23 - Consent of Independent Auditors

99(a) - Executive Liability and Defense Coverage Insurance Policy (H)

99(b) - Supplemental Executive Retirement Plan (Y)

* Management contract, compensatory plan or arrangement

(A) Reference is made to Exhibit A of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 28, 1987,
which Exhibit is incorporated herein by reference.

(B) Reference is made to the appropriate Exhibit of the company Report on Form
10-K for the fiscal year ended December 31, 1984, which Exhibit is incorporated
herein by reference.

(C) Reference is made to the appropriate Exhibit of the company's report on Form
10-K for the fiscal year ended December 31, 1987, which Exhibit is incorporated
herein by reference.

(D) Reference is made to Exhibit A of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 25, 1988,
which Exhibit is incorporated herein by reference.

I-29

(E) Reference is made to the appropriate Exhibit of the company Form 8 Amendment
No. 1 (filed on September 23, 1987) to its Registration Statement on Form 8-A
(Reg. No. 0-12938, effective as of October 21, 1986), which Exhibit is
incorporated herein by reference.

(F) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1997, as amended, which is
incorporated herein by reference.

(G) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1990, as amended, which is
incorporated herein by reference.

(H) Reference is made to the appropriate Exhibit of the company Registration
Statement on Form S-3 (Reg. No. 33-40168), effective as of April 26, 1991, which
Exhibit is incorporated herein by reference.

(I) Reference is made to Exhibit A of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 24, 1991,
which Exhibit is incorporated herein by reference.

(J) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1991, as amended, which is
incorporated herein by reference.

(K) Reference is made to Exhibit A of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 27, 1992,
which Exhibit is incorporated herein by reference.

(L) Reference is made to Exhibit B of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 27, 1992,
which Exhibit is incorporated herein by reference.

(M) Reference is made to Exhibit C of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 27, 1992,
which Exhibit is incorporated herein by reference.

(N) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended June 30, 1992, which Exhibit is incorporated herein
by reference.

(O) Reference is made to Exhibit 2 of the company report on Form 8-K, dated
October 29, 1992, which Exhibit is incorporated herein by reference.

(P) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1992, which Exhibit is incorporated
herein by reference.

(Q) Reference is made to Exhibit A of the company Definitive Proxy Statement
used in connection with the Annual Meeting of Shareholders held on May 23, 1994,
which Exhibit is incorporated herein by reference.

(R) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1993, which Exhibit is incorporated
herein by reference.

(S) Reference is made to Exhibit 1 of the company report on Form 8-A, dated July
18, 1995, which Exhibit is incorporated herein by reference.

(T) Reference is made to the appropriate Exhibit of the company Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders held on May
22, 1996, which Exhibit is incorporated herein by reference.

(U) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended March 31, 1997, which Exhibit is incorporated herein
by reference.

(V) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended September 30, 1996, which Exhibit is incorporated
herein by reference.

(W) Reference is made to the appropriate Exhibit to the company report on Form
8-K, dated January 23, 1998, which Exhibit is incorporated herein by reference.

I-30

(X) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended March 31, 1998, which Exhibit is incorporated herein
by reference.

(Y) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1996, which Exhibit is incorporated
herein by reference.

(Z) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 1999, which Exhibit is incorporated
herein by reference.

(AA) Reference is made to the appropriate Exhibit of the company report on Form
S-8, dated March 30, 2001, which Exhibit is incorporated herein by reference.

(AB) Reference is made to Exhibit 10.1 of the company report on Form 8-K, dated
October 17, 2001, which Exhibit is incorporated herein by reference.

(AC) Reference is made to Exhibit 10.2 of the company report on Form 8-K, dated
October 17, 2001, which Exhibit is incorporated herein by reference.

I-31

Report of Independent Auditors

Shareholders and Board of Directors
Invacare Corporation

We have audited the accompanying consolidated balance sheet of Invacare
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a)(2).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Invacare Corporation and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

ERNST & YOUNG LLP

Cleveland, Ohio
January 16, 2002

FS-1

CONSOLIDATED STATEMENT OF EARNINGS

INVACARE CORPORATION AND SUBSIDIARIES

Years Ended December 31,
2001 2000 1999
------- ------- -------
(In thousands, except per share data)

Net sales $1,053,639 $1,013,162 $882,774
Cost of products sold 735,292 695,888 611,587
------- ------- -------

Gross Profit 318,347 317,274 271,187

Selling, general and administrative expenses 195,574 201,543 170,321

Amortization of goodwill 8,972 8,899 7,258

Non-recurring and unusual items 31,950 (11,430) 11,500

Interest expense 22,764 27,853 22,093

Interest income (7,303) (7,807) (7,929)
------ ------ ------

Earnings before Income Taxes 66,390 98,216 67,944

Income taxes 31,200 38,305 26,450
------ ------ ------

Net Earnings $ 35,190 $ 59,911 $ 41,494
====== ====== ======

Net Earnings per Share - Basic $ 1.15 $ 1.99 $ 1.38
====== ====== ======

Weighted Average Shares Outstanding - Basic 30,620 30,128 30,138
====== ====== ======
Net Earnings per Share - Assuming Dilution $ 1.11 $ 1.95 $ 1.36
====== ====== ======
Weighted Average Shares Outstanding -
Assuming Dilution 31,683 30,761 30,619
====== ====== ======

See notes to consolidated financial statements.

FS-2

CONSOLIDATED BALANCE SHEET

INVACARE CORPORATION AND SUBSIDIARIES

December 31, December 31,
2001 2000
------- -------
(In thousands)

Assets

Current Assets
Cash and cash equivalents $ 16,683 $ 12,357
Marketable securities 1,188 845
Trade receivables, net 219,844 211,372
Installment receivables, net 35,423 56,659
Inventories, net 111,868 105,295
Deferred income taxes 24,125 31,605
Other current assets 19,270 14,275
------- -------
Total Current Assets 428,401 432,408

Other Assets 50,398 74,305
Property and Equipment, net 132,202 134,913
Goodwill, net 303,536 310,229
------- -------
Total Assets $914,537 $951,855
======= =======

Liabilities and Shareholders' Equity

Current Liabilities
Accounts payable $ 74,133 $ 81,316
Accrued expenses 76,000 92,453
Accrued income taxes 16,207 23,860
Current maturities of long-term obligations 9,083 5,807
------- -------
Total Current Liabilities 175,423 203,436

Long-Term Debt 342,724 384,316

Other Long-Term Obligations 14,840 14,330

Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) 0 0
Common Shares (Authorized 100,000 shares; 29,838 and
29,186 issued in 2001 and 2000, respectively) 7,466 7,301
Class B Common Shares (Authorized 12,000 shares;
1,112 and 1,372, issued and outstanding in
2001 and 2000, respectively) 278 343
Additional paid-in-capital 87,209 79,105
Retained earnings 344,032 310,367
Accumulated other comprehensive loss (48,129) (43,430)
Treasury shares (249 and 177 shares in
2001 and 2000, respectively) (9,306) (3,913)
------- -------
Total Shareholders' Equity 381,550 349,773

Total Liabilities and Shareholders' Equity $914,537 $951,855
======= =======

See notes to consolidated financial statements.
FS-3

CONSOLIDATED STATEMENT OF CASH FLOWS

INVACARE CORPORATION AND SUBSIDIARIES

Years Ended December 31,
2001 2000 1999
------- ------- -------
(In thousands)

Operating Activities
Net earnings $ 35,190 $ 59,911 $ 41,494
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Non-recurring and unusual items 29,950 1,070 5,810
Depreciation and amortization 33,448 31,469 25,978
Provision for losses on trade and installment receivables 7,150 14,109 10,333
Provision for deferred income taxes 6,220 (178) 4,608
Provision for other deferred liabilities 267 868 559
Changes in operating assets and liabilities:
Trade receivables (11,114) (38,341) (22,402)
Inventories (7,010) (6,494) (7,465)
Other current assets (6,165) (3,192) (729)
Accounts payable (6,835) 24,195 3,345
Accrued expenses (22,623) (4,991) 11,309
------- ------- -------
Net Cash Provided by Operating Activities 58,478 78,426 72,840

Investing Activities
Purchases of property and equipment (20,182) (26,445) (32,808)
Proceeds from sale of property and equipment 696 177 653
Installment sales contracts, net 25,946 12,440 (14,191)
Marketable securities (165) 516 858
Business acquisitions, net of cash acquired - (2,814) (141,536)
Increase in other investments (1,642) (4,257) (3,609)
Increase in other long-term assets (13,817) (8,745) (9,700)
Other (1,063) 1,377 2,178
------- ------- -------
Net Cash Required for Investing Activities (10,227) (27,751) (198,155)

Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 304,778 109,588 344,908
Principal payments on revolving lines of credit,
long-term debt and capital lease obligations (339,941) (163,534) (208,033)
Proceeds from exercise of stock options 8,854 5,965 1,441
Payment of dividends (1,525) (1,499) (1,493)
Purchase of treasury stock (7,471) 0 (2,661)
------- ------- -------
Net Cash Provided (Required) by Financing Activities (35,305) (49,480) 134,162

Effect of exchange rate changes on cash (8,620) (7,096) (49)
------- ------- -------
Increase (decrease) in cash and cash equivalents 4,326 (5,901) 8,798

Cash and cash equivalents at beginning of year 12,357 18,258 9,460
------- ------- -------
Cash and cash equivalents at end of year $ 16,683 $ 12,357 $ 18,258
======= ======= =======

See notes to consolidated financial statements.

FS-4

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

INVACARE CORPORATION AND SUBSIDIARIES

(In thousands) Accumulated
Additional Retained Other
Common Stock Class B Stock Paid-in- Earnings Comprehensive Treasury Stock
Amount Shares Amount Shares Capital (Loss) Earnings(Loss) Amount Shares Total
-------- -------- -------- ------ ----------- ---------- ------------- ---------- --------- --------

January 1, 1999 Balance $ 7,267 29,066 $358 1,434 $79,863 $211,954 $ (7,712) $ (10,842) (607) $280,888

Conversion of shares
from Class B to Common 1 (1) -
Exercise of stock
options, including tax
benefit 15 58 (393) 2,286 148 1,908
Net earnings 41,494 41,494
Foreign currency
translation adjustments (1,561) (1,561)
Marketable securities
holding gain, net of tax 297 297
Total comprehensive
income 40,230
Dividends - $.05 per
common share, $.045 per
class B share (1,493) (1,493)
Repurchase of treasury
shares (2,661) (120) (2,661)
- ------------------------- -------- -------- -------- ------ ----------- ---------- ------------- ---------- --------- --------
December 31, 1999 7,282 29,125 358 1,433 79,470 251,955 (8,976) (11,217) (579) 318,872
Balance
Conversion of shares
from Class B to Common 15 61 (15) (61) -
Exercise of stock
options, including tax
benefit 4 (365) 7,304 402 6,943
Net earnings 59,911 59,911
Foreign currency
translation adjustments (34,793) (34,793)
Marketable securities
holding gain, net of tax 339 339
Total comprehensive
income 25,457
Dividends - $.05 per
common share, $.045 per
class B share (1,499) (1,499)
- ------------------------- -------- -------- -------- ------ ----------- ---------- ------------- ---------- --------- --------
December 31, 2000 7,301 29,186 343 1,372 79,105 310,367 (43,430) (3,913) (177) 349,773
Balance
Conversion of shares
from Class B to Common 65 260 (65) (260) -
Exercise of stock
options, including tax
benefit 94 368 7,932 2,078 128 10,104
Stock Awards 6 24 172 178
Net earnings 35,190 35,190
Foreign currency
translation adjustments (3,342) (3,342)
Cumulative effect upon
adoption of FAS 133,
net of tax 521 521
Unrealized losses on
cash flow hedges, net of tax (1,561) (1,561)
Marketable securities
holding (loss), net of tax (317) (317)
Total comprehensive
income 30,491
Dividends - $.05 per
common share, $.045 per
class B share (1,525) (1,525)
Repurchase of treasury
shares (7,471) (200) (7,471)
- ------------------------- -------- -------- -------- ------ ----------- ---------- ------------- ---------- --------- --------
December 31, 2001 $7,466 29,838 $278 1,112 $87,209 $344,032 $(48,129) $(9,306) (249) $381,550
Balance

See notes to consolidated financial statements.
FS-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVACARE CORPORATION AND SUBSIDIARIES

ACCOUNTING POLICIES

Nature of Operations: Invacare Corporation and its subsidiaries (the "company")
is the leading home medical equipment manufacturer in the world based on its
distribution channels, the breadth of its product line and sales. The company
designs, manufactures and distributes an extensive line of medical equipment for
the home health care, retail and extended care markets. The company's products
include standard manual wheelchairs, motorized and lightweight prescription
wheelchairs, seating and positioning systems, motorized scooters, patient aids,
home care beds, low air loss therapy products, respiratory products and
distributed products.

Principles of Consolidation: The consolidated financial statements include the
accounts of the company and its majority owned subsidiaries. Certain foreign
subsidiaries are consolidated using a November 30 fiscal year end. All
significant intercompany transactions are eliminated.

Reclassifications: Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the presentation used for the
year ended December 31, 2001.

Use of Estimates: The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States
which require management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results may differ from these estimates.

Accounting Policy for Derivative Instruments: Financial Accounting Standards
Board Statement (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, requires companies to recognize all of its derivative
instruments as either assets or liabilities in the consolidated balance sheet at
fair value. The company adopted the statement on January 1, 2001 and,
accordingly, recognized a pre-tax cumulative effect adjustment to other
comprehensive income of $802,000.

A majority of the company's derivative instruments are designated and qualify as
cash flow hedges. Accordingly, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income
and reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized in current earnings
during the period of change. The derivatives designated as fair value hedges are
perfectly effective; thus, the entire gain or loss associated with the
derivative instrument directly affects the value of the debt by increasing or
decreasing its carrying value.

The company has entered into interest rate swap agreements that qualify as cash
flow hedges and effectively convert $45 million of its floating-rate debt to a
fixed-rate basis, thus reducing the impact of interest-rate changes on future
interest expense. The company has also entered into interest rate swap
agreements that qualify as fair value hedges and effectively convert $50 million
of fixed-rate debt to floating-rate debt, so the company can avoid paying higher
than market interest rates. For the year, the company recognized a net loss of
$1,041,000 related to its swap agreements, which is reflected in interest
expense on the statement of earnings.

To protect against decreases/increases in forecasted foreign currency cash flows
resulting from inventory purchases/sales over the next year, the company
utilizes cash flow hedges to hedge portions of its forecasted purchases/sales
denominated in foreign currencies. The company recognized a net loss of $828,000
on foreign currency cash flow hedges for the year, which is included in cost of
products sold and selling, general and administrative costs.

The company used forward contracts that do not qualify for special hedging, but
do effectively limit the company's exposure to foreign currency fluctuations
between the peso and U.S. dollar. During 2001, the company recognized a $953,000
gain related to the forward contracts which is included in costs of products
sold on the statement of earnings.

The company recognized no gain or loss related to hedge ineffectiveness or
discontinued cash flow hedges. If it is later determined that a hedged
forecasted transaction is unlikely to occur, any gains or losses on the forward
contracts would be reclassified from other comprehensive income into earnings.
The company does not expect this to occur during the next twelve months.

Recently Issued Accounting Pronouncements: In August, 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144, which supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, provides a single accounting model for long-

FS-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

ACCOUNTING POLICIES-Continued

lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, the statement
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. The distinction is important because assets
held-for-sale are stated at the lower of their fair values or carrying amounts
and depreciation is no longer recognized. The adoption of the statement
effective January 1, 2002, did not have a material impact on the consolidated
financial position or results of operations of the company.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Accounting for Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is expected to result in an
increase in net income for the year. The Company will perform the first of the
required impairment tests under SFAS No. 142 of the goodwill and indefinite
lived intangible assets as of January 1, 2002. The Company's current policy for
measuring goodwill impairment is based upon an analysis of undiscounted cash
flows, which does not result in an indicated impairment as of December 31, 2001.
Under SFAS No. 142, goodwill must be assigned to reporting units and measured
for impairment based upon the fair value of the reporting units. The Company has
not yet determined its reporting units under SFAS No. 142 and what the effect of
these new impairment tests will be on its consolidated financial position or
results of operations.

Marketable Securities: Marketable securities consist of short-term investments
in repurchase agreements, government and corporate securities, certificates of
deposit and equity securities. Marketable securities with original maturities of
less than three months are treated as cash equivalents. The company has
classified its marketable securities as available for sale. The securities are
carried at their fair value and net unrealized holding gains and losses, net of
tax, are carried as a component of accumulated other comprehensive earnings
(loss).

Inventories: Inventories are stated at the lower of cost or market with cost
principally determined for domestic manufacturing inventories by the last-in,
first-out (LIFO) method and for non-domestic inventories and domestic finished
products purchased for resale ($72,025,000 and $74,878,000 at December 2001 and
2000, respectively) by the first-in, first-out (FIFO) method. Market costs are
based on the lower of replacement cost or estimated net realizable value.

Property and Equipment: Property and equipment are stated on the basis of cost.
The company principally uses the straight-line method of depreciation for
financial reporting purposes based on annual rates sufficient to amortize the
cost of the assets over their estimated useful lives. Accelerated methods of
depreciation are used for Federal income tax purposes. Expenditures for
maintenance and repairs are charged to expense as incurred.

Estimated Liability for Future Warranty Cost: Generally, the company's products
are covered by warranties against defects in material and workmanship for
periods up to six years from the date of sale to the customer. Certain
components carry a lifetime warranty. A provision for estimated warranty cost is
recorded at the time of sale based upon actual experience.

Research and Development: Research and development costs are expensed as
incurred. The company's annual expenditures for product development and
engineering were approximately $17,394,000, $16,231,000, and $15,534,000 for
2001, 2000, and 1999, respectively.

Revenue Recognition: The company recognizes revenue when the product is shipped
and provides an appropriate allowance for estimated returns and adjustments. The
cost of shipping products is treated as a component of costs of products sold
and the related revenue from shipping products is treated as a component of net
sales.

Income Taxes: The company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities in the
balance sheet. The liability method requires that deferred income taxes reflect
the tax consequences of currently enacted rates for differences between the tax
and financial reporting bases of assets and liabilities. Undistributed earnings
of the company's foreign subsidiaries are considered to be indefinitely
reinvested and, accordingly, no provision for U.S. or state income taxes has
been provided.
FS-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

ACCOUNTING POLICIES-Continued

Net Earnings Per Share: Basic earnings per share are computed based on the
weighted-average number of Common Shares and Class B Common Shares outstanding
during the year. Diluted earnings per share are computed based on the
weighted-average number of Common Shares and Class B Common Shares outstanding
plus the effects of dilutive stock options outstanding during the year.

Foreign Currency Translation: Substantially all the assets and liabilities of
the company's foreign subsidiaries are translated into U.S. dollars at year end
exchange rates. Revenues and expenses are translated at weighted average
exchange rates. Gains and losses resulting from translation are included in
accumulated other comprehensive earnings (loss).

Goodwill: The excess of the aggregate purchase price over the fair value of net
assets acquired is amortized by use of the straight-line method for periods
ranging from 20 to 40 years. The accumulated amortization was $45,186,000 and
$36,187,000 at December 31, 2001 and 2000, respectively. The carrying value of
goodwill is reviewed at each balance sheet date to determine whether goodwill
has been impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the company's carrying value of
the goodwill would be reduced by the estimated shortfall of discounted cash
flows. Based on the company's review as of December 31, 2001, no impairment of
goodwill was evident.

Advertising: Advertising costs are expensed as incurred and included in selling,
general and administrative expenses. Advertising expenses amounted to
$18,792,000, $18,261,000 and $17,391,000 for 2001, 2000, and 1999, respectively.

RECEIVABLES

Trade receivables are net of allowances for doubtful accounts of $14,043,000 and
$13,048,000 in 2001 and 2000, respectively.

Installment receivables as of December 31, 2001 and 2000 consist of the
following:

2001 2000
---- ----
Long- Long-
(In thousands) Current Term* Total Current Term* Total
------- ------- ------- ------- ------- -------

Installment receivables $50,218 $4,370 $54,588 $75,306 $15,865 $91,171
Less:
Unearned interest (1,111) (94) (1,205) (2,868) (1,047) (3,915)
Allowance for doubtful accounts (13,684) (1,070) (14,754) (15,779) (1,910) (17,689)
------- ------- ------- ------- ------- -------
$35,423 $3,206 $38,629 $56,659 $12,908 $69,567
======= ======= ======= ======= ======= =======

Beginning in the fourth quarter of 2000, the company is not entering into any
new installment receivables. See the "Concentration of Credit Risk" footnote for
a description of the current third party financing arrangement.

* Long-term installment receivables are included in "Other Assets" on the
consolidated balance sheet.

INVENTORIES

Inventories as of December 31, 2001 and 2000 consist of the following:
2001 2000
---- ----
(In thousands)
Raw materials $ 35,333 $ 29,417
Work in process 11,326 15,039
Finished goods 65,209 60,839
------- -------
$ 111,868 $ 105,295
======= =======

The value of inventory on the LIFO method is approximately equal to its current
cost as of December 31, 2001 and as of December 31, 2000.

FS-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2001 and 2000 consist of the
following:
2001 2000
---- ----
(In thousands)
Machinery and equipment $186,622 $176,885
Land, buildings and improvements 54,308 55,760
Furniture and fixtures 14,516 13,443
Leasehold improvements 11,648 10,308
------- -------
267,094 256,396
Less allowance for depreciation 134,892 121,483
------- -------
$ 132,202 $ 134,913
======= =======

CURRENT LIABILITIES

Accrued expenses as of December 31, 2001 and 2000 consist of the following:
2001 2000
---- -----
(In thousands)
Accrued salaries and wages $ 21,538 $ 29,124
Acquisition reserves 5,750 10,286
Accrued insurance 1,784 4,452
Accrued warranty cost 7,607 7,917
Accrued rebates 3,083 4,137
Accrued interest 7,909 4,350
Accrued product liability,
current portion 2,469 679
Accrued freight 3,766 3,172
Accrued SERP liability 8,039 6,049
Other accrued items 14,055 22,287
------ ------
$ 76,000 $ 92,453
====== ======

ACQUISITIONS

Effective July 31, 1999, the company acquired substantially all of the
outstanding shares of Scandinavian Mobility International A/S ("SMI"), a Danish
corporation for approximately $142 million in cash. The acquisition was
accounted for under the purchase method of accounting. The excess of the
purchase price over the estimated fair value of the common stock acquired is
being amortized over 40 years. SMI is a producer and distributor of
rehabilitation products, mobility aids and related products in Europe.

In connection with the acquisition, the purchase price allocation included
restructuring reserves consisting of accruals for severance and other employee
related costs ($9.8 million) and costs associated with the closure of facilities
($10.8 million). As of December 31, 2001, the accruals for severance and other
employee related costs have been fully utilized and the company expects the
remaining accruals of $5.8 million for costs associated with the closure of
facilities to be utilized during 2002.

LEASES AND COMMITMENTS

The company leases a substantial portion of its facilities, transportation
equipment, data processing equipment and certain other equipment. These leases
have terms of up to 10 years and provide for renewal options. Generally, the
company is required to pay taxes and normal expenses of operating the facilities
and equipment. As of December 31, 2001, the company is committed under
non-cancelable operating leases which have initial or remaining terms in excess
of one year and expire on various dates through 2008. Lease expenses were
approximately $12,045,000 in 2001, $11,269,000 in 2000, and $9,178,000 in 1999.
Future minimum operating lease commitments as of December 31, 2001, are as
follows:

FS-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

LEASES AND COMMITMENTS-Continued

Year Amount
---- ------
(In thousands)
2002 $ 9,797
2003 7,389
2004 4,444
2005 2,088
2006 738
Thereafter 300
------
Total Future Minimum Lease Payments $24,756
======

The amount of buildings and equipment capitalized in connection with capital
leases was $4,429,000 and $4,360,000 at December 31, 2001 and 2000,
respectively. At December 31, 2001 and 2000, accumulated amortization was
$2,326,000 and $2,033,000, respectively.

RETIREMENT AND BENEFIT PLANS

Effective January 1, 2001, the Employee Stock Bonus Trust and Plan was merged
into the Profit Sharing Plan and the Profit Sharing Plan was renamed the
Invacare Retirement Savings Plan. Substantially all full-time salaried and
hourly domestic employees are included in the Retirement Savings Plan sponsored
by the company. The company makes matching contributions in the form of cash up
to 66.7% of the first 3% of employees' contributions and may make discretionary
contributions to the domestic plans based on an annual resolution of the Board
of Directors.

The company sponsors a 401(k) Benefit Equalization Plan covering certain
employees, which provides for retirement payments so that the total retirement
payments equal amounts that would have been payable from the company's principal
retirement plans if it were not for limitations imposed by income tax
regulations.

Contribution expense for the above plans in 2001, 2000 and 1999 was $5,788,000,
$5,071,000, and $5,328,000, respectively.

The company also sponsors a non-qualified defined benefit Supplemental Executive
Retirement Plan (SERP) for certain key executives to recapture benefits lost due
to governmental limitations on qualified plan contributions. The projected
benefit obligation related to this unfunded plan was $25,254,000 at December 31,
2001. Pension expense for the plan in 2001, 2000 and 1999 was $2,059,000,
$1,714,000, and $1,168,000, respectively.

SHAREHOLDERS' EQUITY TRANSACTIONS

At December 31, 2001, the company had 100,000,000 authorized Common Shares,
without par value, and 12,000,000 authorized Class B Common Shares, without par
value. In general, the Common Shares and the Class B Common Shares have
identical rights, terms and conditions and vote together as a single class on
most issues, except that the Class B Common Shares have ten votes per share,
carry a 10% lower cash dividend rate and, in general, can only be transferred to
family members. Holders of Class B Common Shares are entitled to convert their
shares into Common Shares at any time on a share-for-share basis.

At December 31, 2001, the company had 300,000 shares of Serial Preferred Shares
authorized, none of which were issued or outstanding. Serial Preferred Shares
are entitled to one vote per share.

During 1994, the Board of Directors adopted and the Shareholders approved the
1994 Performance Plan (the "1994 Plan"). In May, 2000, the 1994 Plan was amended
to increase the number of Common Shares reserved for issuance by 2,000,000
Common Shares. The 1994 Plan, as amended, provides for the issuance of up to
5,500,000 Common Shares in connection with stock options and other awards
granted under the 1994 Plan. The 1994 Plan, as amended, allows the Compensation
Committee of the Board of Directors (the "Committee") to grant incentive stock
options, non-qualified stock options, stock appreciation rights and stock awards
(including the use of restricted stock). The Committee has the authority to
determine the employees and directors that will receive awards, the amount of
the awards and the other terms and conditions of the awards. Payments of the
stock appreciation rights may be made in cash,

FS-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

SHAREHOLDERS' EQUITY TRANSACTIONS -Continued

Common Shares or a combination thereof. There were no stock appreciation rights
outstanding at December 31, 2001, 2000 or 1999. During 2001, the Committee,
under the 1994 Plan, granted 561,885 non-qualified stock options for a term of
ten years at 100% of the fair market value of the underlying shares on the date
of grant.

In 2001, restricted stock awards for 24,020 shares were granted without cost to
the recipients. Under the terms of the restricted stock awards, the shares
granted vest four years after the award date. Unearned restricted stock
compensation of $949,000, determined as the market value of the shares at the
date of grant, is being amortized on a straight-line basis over the four-year
vesting period. Compensation expense of $178,000 was recognized in 2001. No
other restricted awards have been granted.

The company also has a Stock Option Plan for non-employee Directors. The plan
was approved May 27, 1992 and provides for the granting of up to a maximum of
100,000 options to eligible new Directors. Directors will receive grants with
exercise prices at 100% of the fair market value of the company's stock on the
date of grant. At December 31, 2001, there were 12,550 options outstanding under
this plan. During 2001, no options were granted under this plan.

The Plans have provisions for the net share settlement of options. Under these
provisions, the company settled 124,823 treasury shares for $4,781,114 in 2001,
79,922 treasury shares for $2,663,062 in 2000 and 78,433 treasury shares for
$1,860,663 in 1999.

As of December 31, 2001, an aggregate of 9,789,744 Common Shares were reserved
for conversion of Class B Common Shares, future rights (as defined below) and
the exercise and future grant of options.

Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2001 Price 2000 Price 1999 Price
---- ----- ---- ----- ---- -----

Options outstanding at January 1, 4,289,763 $21.08 4,059,133 $18.70 3,057,020 $16.90
Granted 585,905 33.59 1,082,056 24.33 1,397,080 20.75
Exercised (636,933) 16.84 (659,187) 11.35 (285,575) 7.39
Canceled (36,792) 22.31 (192,239) 22.37 (109,392) 23.70
--------- ------ --------- ------ --------- ------
Options outstanding at December 31, 4,201,943 $23.27 4,289,763 $21.08 4,059,133 $18.70
========= ====== ========= ====== ========= ======

Options price range at December 31, $ 9.30 to $ 7.50 to $ 2.19 to
$ 37.56 $ 31.25 $ 27.50

Options exercisable at December 31, 2,101,706 1,965,220 2,018,674
Options available for grant at December 31, 917,530 1,466,643 356,460

The company utilizes the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Accordingly, no compensation cost has been recognized for the stock option
plans, except the expense recorded related to the 24,020 restricted stock
awards. Had compensation cost for the company's stock option plans been
determined based on the fair value at the grant date for awards in 2001, 2000
and 1999 consistent with the provisions of SFAS 123, the company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below:

(In thousands except per share data) 2001 2000 1999
--------------------------------------------------------------------------------------------------------------

Net earnings - as reported $35,190 $59,911 $41,494
Net earnings - pro forma $30,744 $55,839 $38,639
Earnings per share as reported - basic $ 1.15 $ 1.99 $ 1.38
Earnings per share as reported - assuming dilution $ 1.11 $ 1.95 $ 1.36

Pro forma earnings per share - basic $ 1.00 $ 1.85 $ 1.28
Pro forma earnings per share - assuming dilution $ .97 $ 1.82 $ 1.26

FS-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

SHAREHOLDERS' EQUITY TRANSACTIONS -Continued

The assumption regarding the stock options issued in 2001, 2000 and 1999 was
that 25% of such options vested in the year following issuance. The stock
options awarded during the year provided a four-year vesting period whereby
options vest equally in each year. Current and prior years pro forma disclosures
may be adjusted for forfeitures of awards that will not vest because service or
employment requirements have not been met.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001: dividend yield of .90%; expected volatility
of 33.8%; risk-free interest rate of 4.53%; and an expected life of 6.0 years.
The weighted-average fair value of options granted during the year 2001, per the
Black-Scholes model based on the expected exercise year of 2007, is $12.24.

The plans provide that shares granted come from the company's authorized but
unissued common stock or treasury shares. Pursuant to the plan, the Committee
has established that the 2001 grants may not be exercised within one year from
the date granted and options must be exercised within ten years from the date
granted. The weighted-average remaining contractual life of options outstanding
at December 31, 2001 is 7.4 years.

On July 7, 1995, the company adopted a Rights Plan whereby each holder of a
Common Share and Class B Common Share received one purchase right (the "Rights")
for each share owned. Under certain conditions, each Right may be exercised to
purchase one-tenth of one Common Share at a price of $8 per one-tenth of a
share. The Rights may only be exercised 10 days after a third party has acquired
30% or more of the company's outstanding voting power or 10 days after a third
party commences a tender offer for 30% or more of the voting power (an
"Acquiring Party"). In addition, if an Acquiring Party merges with the company
and the company's Common Shares are not changed or exchanged, or if an Acquiring
Party engages in one of a number of self-dealing transactions, each holder of a
Right (other than the Acquiring Party) will have the right to receive that
number of Common Shares or similar securities of the resulting entity having a
market value equal to two times the exercise price of the Right. The company may
redeem the Rights at a price of $.005 per Right at any time prior to 10 days
following a public announcement that an Acquiring Party has acquired beneficial
ownership of 30% or more of the company's outstanding voting power, and in
certain other circumstances as approved by the Board of Directors. The Rights
will expire on July 7, 2005.

NET EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net earnings per common share.
2001 2000 1999
---- ---- ----
(In thousands except per share data)

Basic
Average common shares outstanding 30,620 30,128 30,138

Net earnings $35,190 $59,911 $41,494

Net earnings per common share $ 1.15 $ 1.99 $ 1.38

Diluted
Average common shares outstanding 30,620 30,128 30,138
Stock options 1,063 633 481
------ ------ ------
Average common shares assuming dilution 31,683 30,761 30,619

Net earnings $35,190 $59,911 $ 41,494

Net earnings per common share $ 1.11 $ 1.95 $1.36

FS-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

OTHER COMPREHENSIVE EARNINGS (LOSS)

The components of other comprehensive earnings (loss) are as follows:
(In thousands)

Unrealized
Unrealized Gain (Loss)on
Currency Gain (Loss)on Derivative
Translation Available-for- Financial
Adjustments Sale Securities Instruments Total
---------------- ----------------- ----------------- ------------

Balance at January 1, 1999 $ (8,136) $ 424 $ 0 $ (7,712)
Foreign currency translation adjustments (1,561) (1,561)
Unrealized gain (loss) on available for sale securities 487 487
Deferred tax (expense) benefit relating to unrealized gain
(loss) on available for sale securities (190) (190)
---------------- ----------------- ----------------- ------------
Balance at December 31, 1999 (9,697) 721 0 (8,976)

Foreign currency translation adjustments (34,793) (34,793)
Unrealized gain (loss) on available for sale securities 556 556
Deferred tax (expense) benefit relating to unrealized gain
(loss) on available for sale securities (217) (217)
---------------- ----------------- ----------------- ------------
Balance at December 31, 2000 (44,490) 1,060 0 (43,430)

Foreign currency translation adjustments (3,342) (3,342)
Unrealized gain (loss) on available for sale securities (515) (515)
Deferred tax (expense) benefit relating to unrealized gain
(loss) on available for sale securities 198 198
Cumulative effect upon adoption of FAS 133 802 802
Current period unrealized gain (loss) on cash flow hedges (2,402) (2,402)
Deferred tax (expense) benefit relating to unrealized gain
(loss) on derivative financial instruments 560 560
---------------- ----------------- ----------------- ------------
Balance at December 31, 2001 $(47,832) $ 743 $ (1,040) $(48,129)
================ ================= ================= ============

During 2001, a net loss of $1,975,000 was reclassified into earnings related to
derivative instruments designated and qualifying as cash flow hedges.

FS-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

LONG-TERM OBLIGATIONS

Long-term obligations as of December 31, 2001 and 2000 consist of the following:

2001 2000
---- ----
(In thousands)

$25,000,000 senior notes at 7.45%, mature in February 2003 $7,143 $10,715
$80,000,000 senior notes at 6.71%, due in February 2008 78,822 80,000
$20,000,000 senior notes at 6.60%, due in February 2005 20,000 20,000
Revolving credit agreement ($425,000,000 multi-currency) at .185% to
.375% above local interbank offered rates, replaced October 17, 2001 - 271,584
Revolving credit agreements ($325,000,000 multi-currency), at .675% to
1.40% above local interbank offered rates, expires October 17, 2006 237,177 -
------- -------
Senior notes and revolver debt 343,142 382,299

Notes and mortgages payable, secured by buildings, equipment and
other assets 5,416 4,215
Capitalized lease obligations 1,859 2,465
Product liability 3,347 2,201
Deferred federal income taxes 217 2,886
Other, principally deferred compensation 12,666 10,387
------- -------
Other debt 23,505 22,154

Total long-term and short-term obligations 366,647 404,453
Less current maturities of long-term obligations 9,083 5,807
------- -------
Total long-term obligations $357,564 $398,646
======= =======

In 2001, the company entered into a $325,000,000 5-year, multi-currency
revolving credit agreement and a $100,000,000 364 day facility with a group of
commercial banks, which expire on October 17, 2006 and October 16, 2002
respectively, or such later dates as mutually agreed upon by the company and the
banks. Borrowings denominated in foreign currencies aggregated $22,915,000 at
December 31, 2001 and $45,220,000 at December 31, 2000. The borrowing rates
under the agreements are determined based on the debt to earnings before
interest, taxes, depreciation and amortization (EBITDA) of the company as
defined in the agreement and range from .675% to 1.40% above the various
interbank offered rates. As of December 31, 2001 and 2000, the weighted average
floating interest rate on U.S. borrowings was 4.22% and 6.15%, respectively. The
agreement requires the company to maintain certain conditions with respect to
net worth, funded debt to capitalization, and interest coverage as defined in
the agreement. At December 31, 2001, $164,569,092 of retained earnings is
available for dividends pursuant to the most restrictive covenants. Under the
most restrictive covenants of the company's borrowing arrangements, the company
has the capacity to borrow up to an additional $50,665,000 as of December 31,
2001.

In December 2001, the company exchanged the fixed rate of 6.71% on $50,000,000
of the $80,000,000 in Senior Notes due in February 2008. The three agreements
for $25,000,000, $15,000,000 and $10,000,000 exchange the fixed rate of 6.71%
for variable rates equal to LIBOR plus 1.9%, 1.71% and 1.62% respectively. The
effect of these swaps is to exchange a fixed rate of 6.71% for floating rates to
avoid paying higher than market interest rates.

In March 2000, the company fixed the interest rate on $25,000,000 of its U.S.
dollar borrowings through two interest rate swap agreements. One agreement is
for $15,000,000 U.S. dollars and the other agreement is for $10,000,000 U.S.
dollars. The effect of the swaps is to exchange a short-term floating interest
rate for a fixed rate of 7.03% on one agreement and 7.04% on the other
agreement.

In May 1999, the company fixed the interest rate on $20,000,000 of its U.S.
dollar borrowings through two interest rate swap agreements. Each agreement is
for $10,000,000 U.S. dollars. The effect of the swaps is to exchange a
short-term floating interest rate for a fixed rate of 5.63% for a four-year term
on both agreements.

The notes and mortgages payable financed the purchase of certain buildings,
equipment and other assets which secure the obligations. The notes and mortgages
payable bear interest at rates from 5.7% to 12.3% and mature through 2021.

FS-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

LONG-TERM OBLIGATIONS -Continued

The capital leases are principally for manufacturing facilities with payments
due through 2009.

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
aggregate policy losses of $5 million of the company's domestic product
liability exposure. The company also has additional layers of coverage insuring
$90,000,000 in annual aggregate losses arising from individual claims that
exceed the captive insurance company policy limits. Invacare Supply Group's
distributed products are covered under a conventional insurance program with
third party carriers on a guaranteed cost basis and layered limits up to
$76,000,000. There can be no assurance that Invacare's current insurance levels
will continue to be adequate or available at an affordable rate.

The aggregate minimum combined maturities of long-term obligations are
approximately $9,083,000 in 2002, $4,496,000 in 2003, $372,000 in 2004,
$20,353,000 in 2005, $240,738,000 in 2006 and $81,146,000 thereafter. Interest
paid on borrowings was $26,361,000, $29,987,000 and $21,646,000 in 2001, 2000
and 1999, respectively.

INCOME TAXES

Earnings before income taxes consist of the following:

2001 2000 1999
---- ---- ----
(In thousands)

Domestic $ 38,848 $ 67,730 $ 52,924
Foreign 27,542 30,486 15,020
------ ------ ------
$ 66,390 $ 98,216 $ 67,944
====== ====== ======

The company has provided for income taxes as follows:
2001 2000 1999
---- ---- ----
(In thousands)
Current:
Federal $ 11,985 $ 24,704 $ 10,157
State 3,800 4,100 2,800
Foreign 9,195 11,134 8,755
------ ------ ------
24,980 39,938 21,712

Deferred:
Federal 5,170 (2,192) 7,698
Foreign 1,050 559 (2,960)
------ ------ ------
6,220 (1,633) 4,738
------ ------ ------
Income Taxes $ 31,200 $ 38,305 $ 26,450
====== ====== ======

At December 31, 2001, the company had foreign tax loss carryforwards of
approximately $6,000,000 of which $4,800,000 are non-expiring, and $1,200,000
expire between 2002 and 2005.

The company made income tax payments of $27,104,000, $28,626,000 and $13,264,000
during the years ended December 31, 2001, 2000 and 1999, respectively.

FS-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

INCOME TAXES -Continued

A reconciliation to the effective income tax rate from the federal statutory
rate follows:

2001 2000 1999
---- ---- ----

Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
Federal income tax benefit 3.7 2.7 2.7
Tax credits (1.8) (1.9) (2.1)
Goodwill 4.8 3.2 3.8
Valuation reserve for investments 7.5
Other, net (2.2) - (.5)
---- ---- ----

47.0% 39.0% 38.9%
==== ==== ====

Significant components of deferred income tax assets and liabilities at December
31, 2001 and 2000 are as follows:

2001 2000
---- ----
(In thousands)

Current deferred income tax assets, net:
Bad debt $ 9,132 $ 12,360
Warranty 1,912 1,794
Inventory 2,611 2,102
Other accrued expenses and reserves 2,548 5,680
State and local taxes 3,242 1,932
Litigation reserves 2,209 3,730
Compensation and benefits 1,282 2,422
Product liability 335 254
Loss carryforwards 300 1,555
Other, net 554 (224)
------ ------
$ 24,125 $ 31,605
====== ======

Long-term deferred income tax assets (liabilities), net:
Fixed assets (10,469) (9,477)
Product liability 600 899
Loss carryforwards 1,550 1,015
Compensation and benefits 5,438 4,590
State and local taxes 2,400 2,400
Valuation reserve (1,414) (1,092)
Other, net 1,678 (1,221)
------ ------
$ (217) $ (2,886)
------ ------
Net Deferred Income Taxes $ 23,908 $ 28,719
====== ======

FS-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

INTERIM FINANCIAL INFORMATION (UNAUDITED)

QUARTER ENDED
-------------
(In thousands, except per share data)
2001 March 31, June 30, September 30, December 31,
---- ------- -------- -------- --------

Net sales $254,149 $265,704 $272,210 $261,576
Gross profit 76,890 80,855 83,838 76,764
Earnings (loss) before income taxes 18,791 26,123 31,452 (9,976)
Net earnings (loss) 11,556 16,066 19,343 (11,775)
Net earnings (loss) per share - basic .38 .52 .63 (.38)
Net earnings (loss) per share - assuming
dilution .37 .51 .61 (.37)

2000 March 31, June 30, September 30, December 31,
---- ------- -------- -------- --------
Net sales $245,593 $247,542 $251,728 $268,299
Gross profit 72,880 79,669 79,324 85,401
Earnings before income taxes 16,351 22,440 28,551 30,874
Net earnings 9,974 13,689 17,416 18,832
Net earnings per share - basic .33 .46 .58 .62
Net earnings per share - assuming dilution .33 .45 .57 .61

See non-recurring and unusual items footnote for disclosure of credits/charges
taken in the fourth quarter of 2001 and 2000.

BUSINESS SEGMENTS

The company operates in three primary business segments based on geographical
area: North America, Europe and Australasia. The three reportable segments
represent operating groups which offer products to different geographic regions.

The North America segment consists of five operating groups which sell the
following products: wheelchairs, scooters, seating products, self care products,
home care beds, low air loss therapy products, patient transport products,
distributed products, extended care, beds and furniture products, respiratory
and other products. The Europe segment consists of one operating group that
sells primarily wheelchairs, scooters, self care products, beds, patient lifts,
slings and oxygen products. The Australasia segment consists of two operating
groups which sell primarily custom power wheelchairs, electronic wheelchair
controllers, oxygen products and patient aids. Each business segment sells to
the home health care, retail and extended care markets.

The company evaluates performance and allocates resources based on profit or
loss from operations before income taxes for each reportable segment. The
accounting policies of each segment are the same as those described in the
summary of significant accounting policies for the company's consolidated
financial statements. Intersegment sales and transfers are based on the costs to
manufacture plus a reasonable profit element. Therefore, intercompany profit or
loss on intersegment sales and transfers is not considered in evaluating segment
performance. Intersegment revenue for reportable segments are $66,565,000,
$61,372,000 and $57,027,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

The information by segment is as follows (In thousands):

Year ended December 31, 2001
North Australia/ All
America Europe Asia Other* Consolidated
--------- --------- --------- --------- ---------

Revenues from external customers $773,713 $236,093 $43,833 - $1,053,639
Depreciation and amortization 15,590 7,974 2,047 7,837 33,448
Net interest expense 16,154 6,459 9 (7,161) 15,461
Earnings (loss) before income taxes 126,861 8,444 14,009 (82,924) 66,390
Assets 507,943 276,152 32,781 97,661 914,537
Expenditures for assets 5,532 6,401 1,734 6,515 20,182

FS-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS-Continued

Year ended December 31, 2000
North Australia/ All
America Europe Asia Other* Consolidated
--------- --------- --------- --------- ---------

Revenues from external customers $741,255 $238,208 $ 33,699 - $1,013,162
Depreciation and amortization 15,307 8,814 1,585 5,763 31,469
Net interest expense 19,867 7,342 195 (7,358) 20,046
Earnings (loss) before income taxes 125,188 12,142 10,859 (49,973) 98,216
Assets 535,067 278,591 32,601 105,596 951,855
Expenditures for assets 7,738 7,922 1,639 9,146 26,445

Year ended December 31, 1999
North Australia/ All
America Europe Asia Other* Consolidated
--------- --------- --------- --------- ---------
Revenues from external customers $667,658 $189,371 $ 25,745 - $882,774
Depreciation and amortization 14,400 6,230 1,633 3,715 25,978
Net interest expense 14,792 1,605 459 (2,692) 14,164
Earnings (loss) before income taxes 109,134 (541) 8,590 (49,239) 67,944
Assets 529,397 302,465 29,679 93,744 955,285
Expenditures for assets 11,672 3,586 2,140 15,410 32,808

* Consists of the Invacare captive insurance unit, domestic export unit and
corporate selling, general and administrative costs, which do not meet the
quantitative criteria for determining reportable segments.

Net sales by product, are as follows:

North America 2001 2000 1999
------------- ------- ------- --------
Rehab $196,524 $190,228 $176,022
Standard Wheelchairs 111,865 110,101 97,108
Distributed 127,975 122,991 104,264
Personal Care/Patient Transport/Beds 168,073 162,675 138,672
Respiratory 88,833 84,074 80,021
Institutional products 36,033 30,833 32,223
Parts 20,817 19,472 18,671
Other 23,593 20,881 20,677
------- ------- --------
$773,713 $741,255 $667,658
======= ======= =======

Europe 2001 2000 1999
------------- ------- ------- --------
Rehab $ 89,272 $ 92,668 $50,579
Standard Wheelchairs 37,969 46,401 76,705
Personal Care/Patient Transport/Beds 53,966 46,218 39,184
Respiratory 7,476 7,150 6,321
Institutional products 11,393 11,349 -
Parts 36,017 28,714 -
Other - 5,708 16,582
------- ------- --------
$236,093 $238,208 $189,371
======= ======= =======

FS-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

BUSINESS SEGMENTS-Continued

Australasia 2001 2000 1999
------------- ------- ------- --------
Rehab $ 20,251 $ 25,652 $ 20,502
Standard Wheelchairs 7,232 1,282 179
Distributed 395 221 -
Personal Care/Patient Transport/Beds - 1,138 256
Respiratory 12,449 4,817 4,808
Institutional products 2,893 - -
Other 613 589 -
------- ------- -------
$ 43,833 $ 33,699 $ 25,745
======= ======= =======

Total Consolidated $1,053,639 $1,013,162 $882,774
========= ========= =======

No single customer accounted for more than 5% of the company's sales.

CONCENTRATION OF CREDIT RISK

The company manufactures and distributes durable medical equipment and supplies
to the home health care, retail and extended care markets. The company performs
credit evaluations of its customers' financial condition. Prior to December
2000, the company leased equipment to the dealer for periods ranging from 6 to
39 months. The majority of these transactions were secured with a UCC-1 filing,
purchase money securities and/or personal guarantees.

In December 2000, Invacare entered into an agreement with DLL, a third party
financing company, to utilize DLL to provide all future lease financing to
Invacare's customers. The intent of Invacare is to collect the remaining
installment receivables on its books and cease entering into new installment
contracts with its customers.

The DLL agreement provides for direct leasing between DLL and the Invacare
customer. The company retains a limited recourse obligation ($4.5 million at
December 31, 2001) to DLL for events of default under the contracts (total
balance outstanding of $28.6 million at December 31, 2001). Accordingly, the
company monitors the collections status of these contracts and has provided
amounts for estimated losses in its allowances for doubtful accounts.

Substantially all of the company's receivables are due from health care, medical
equipment dealers and long term care facilities located throughout the United
States, Australia, Canada, New Zealand and Europe. A significant portion of
products sold to dealers, both foreign and domestic, are ultimately funded
through government reimbursement programs such as Medicare and Medicaid. In
addition, the company has seen significant shift in reimbursement to customers
from managed care entities. As a consequence, changes in these programs can have
an adverse impact on dealer liquidity and profitability. Credit losses are
provided for in the financial statements.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the company in estimating its
fair value disclosures for financial instruments:

Cash, cash equivalents and marketable securities: The carrying amount reported
in the balance sheet for cash, cash equivalents and marketable securities
approximates its fair value.

Installment receivables: The carrying amount reported in the balance sheet for
installment receivables approximates its fair value. The majority of the
portfolio contains receivables with terms less than three years, of which a
large concentration is due in less than one year. The interest rates associated
with these receivables have not varied significantly over the past three years.
Management believes that after consideration of the credit risk, the net book
value of the installment receivables approximates market value.

FS-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

FAIR VALUES OF FINANCIAL INSTRUMENTS -Continued

Long-term debt: The carrying amounts of the company's borrowings under its
long-term revolving credit agreements approximate their fair value. Fair values
for the company's senior notes are estimated using discounted cash flow
analyses, based on the company's current incremental borrowing rate for similar
borrowing arrangements.

Interest Rate Swaps: The company is a party to interest rate swap agreements
which are entered into in the normal course of business to reduce exposure to
fluctuations in interest rates. The agreements are with major financial
institutions which are expected to fully perform under the terms of the
agreements thereby mitigating the credit risk from the transactions. The
agreements are contracts to exchange floating rate payments with fixed rate
payments or fixed rate payments for floating rate payments over the life of the
agreements without the exchange of the underlying notional amounts. The notional
amounts of such agreements are used to measure interest to be paid or received
and do not represent the amount of exposure to credit loss. The amounts to be
paid or received under the interest rate swap agreements are accrued consistent
with the terms of the agreements and market interest rates. Fair value for the
company's interest rate swaps are based on independent pricing models.

Other investments: The company has made other investments in limited
partnerships and non-marketable equity securities which are accounted for using
the cost method. These investments were acquired in private placements and there
are no quoted market prices or stated rates of return. During 2001, a decline in
market value of certain of these investments was determined to be other than
temporary, and accordingly, a valuation reserve was established. See the
Non-Recurring and Unusual Items footnote.

The carrying amounts and fair values of the company's financial instruments at
December 31, 2001 and 2000 are as follows:

2001 2000
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
------ ------ ------ ------
(In thousands)

Cash and cash equivalents $ 16,683 $ 16,683 $12,357 $12,357
Marketable securities 1,522 1,522 2,060 2,060
Other investments 9,018 9,018 21,838 21,838
Installment receivables 38,629 38,629 69,567 69,567
Long-term debt (including current 348,558 347,193 386,514 381,649
maturities)
Interest rate swaps (2,903) (2,903) - (267)

Forward Contracts: The company operates internationally and as a result is
exposed to foreign currency fluctuations. Specifically, the exposure includes
intercompany loans, and third party sales or payments. In an attempt to reduce
this exposure, foreign currency forward contracts are utilized and accounted for
as hedging instruments. The company does not use derivative financial
instruments for speculative purposes.

The gains and losses that result from the majority of the forward contracts are
deferred and recognized when the offsetting gains and losses for the identified
transactions are recognized. At December 31, 2001 and 2000, the gain/(loss)
resulting from forward contracts was not material to the financial statements.

The following table represents the fair value of all outstanding forward
contracts at December 31, 2001 and 2000. The valuations are based on market
rates. All forward contracts noted below mature before January, 2003 and
January, 2002 respectively.

December 31, 2001
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
----------------------------------------------------------------------------------------------------------

Canadian Dollar 7,800 $103 7,903
Euro 7,500 87 7,587
New Zealand Dollar (11,050) (106) (11,156)
Swedish Kroner (6,750) 42 (6,708)

FS-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

FAIR VALUES OF FINANCIAL INSTRUMENTS -Continued

December 31, 2000
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
----------------------------------------------------------------------------------------------------------
British Pound $ 502 $ 9 $ 511
New Zealand Dollar (8,753) 95 (8,658)
Euro 13,035 979 14,014
Mexican Peso 3,344 (14) 3,330

NON-RECURRING AND UNUSUAL ITEMS

In 2001, the company recorded a fourth quarter non-cash charge of approximately
$31,950,000 ($25,250,000 after tax) to reserve the value of certain investments
and notes receivable. The decline in value of these investments was determined
to be other than temporary due in part to the recent economic decline and
tightening of the capital markets which has made obtaining the additional
funding they require difficult.

In 2000, as a result of repaying EURO and DKK denominated debt, the company
realized a non-recurring pre-tax foreign currency gain of approximately
$20,130,000. The gain was offset by charges in the fourth quarter aggregating
$8,700,000 related primarily to closing two distribution centers and a
manufacturing plant ($3,700,000), severance costs due to staff reductions (nine
individuals) primarily at the corporate office ($1,000,000) and costs associated
with the settlement of litigation ($4,000,000). Of these charges $3,035,000 have
been utilized related to closing two distribution centers and a manufacturing
plant, $957,000 have been utilized related to severance costs, and $4,000,000
related to settlement of litigation. In addition, during the fourth quarter of
2000, the company also increased its bad debt reserve impacting selling, general
and administrative expenses by approximately $8,000,000.

In 1999, the company announced non-recurring and unusual charges of $11,500,000
in the fourth quarter primarily related to the consolidation and integration of
the operations of SMI and Invacare. The charges included reserves for employee
severance ($3,000,000), plant shutdowns and lease terminations ($4,400,000), and
asset write-downs and other non-recurring items ($4,100,000). The personnel
reductions and shut down of facilities are related to the integration of SMI and
are required to obtain the expected synergies from the acquisition. Of these
charges $2,885,000 have been utilized related to employee severance, $4,400,000
have been utilized related to plant shutdown and lease termination and
$3,566,000 have been utilized related to asset write-downs and other
non-recurring items. In addition, during the fourth quarter of 1999, the company
also increased its bad debt reserve impacting selling, general and
administrative expenses by approximately $3,300,000.

All initiatives for which charges were reported have been substantially
completed at December 31, 2001.

FS-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

INVACARE CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------

ADDITIONS
---------
Balance Charged Charged To Balance
At To Other At
Beginning Cost And Accounts Deductions- End Of
Description Of Period Expenses Describe Describe Period
----------- --------- -------- -------- -------- -------
(In thousands)
Year Ended December 31, 2001
- ----------------------------
Deducted from asset accounts --
Allowance for doubtful accounts $30,737 $7,533 - $9,473(A) $28,797

Inventory obsolescence reserve 6,233 3,363 - 4,133(B) 5,463

Investments and related notes receivable - 29,000 - - 29,000

Accrued warranty cost 7,917 5,587 - 5,897(B) 7,607

Accrued product liability 2,881 8,029 - 5,094(D) 5,816

Year Ended December 31, 2000
- ----------------------------
Deducted from asset accounts --
Allowance for doubtful accounts $21,434 $ 13,731 - $4,428(A) $30,737

Inventory obsolescence reserve 10,682 3,970 - 8,419(B) 6,233

Accrued warranty cost 7,758 7,446 - 7,287(B) 7,917

Accrued product liability 6,825 7,114 - 11,058(D) 2,881

Year Ended December 31, 1999
- ----------------------------
Deducted from asset accounts --
Allowance for doubtful accounts $10,985 $10,139 $ 1,550(C) $1,240(A) $21,434

Inventory obsolescence reserve 6,296 4,606 3,875(C) 4,095(B) 10,682

Accrued warranty cost 6,619 8,056 - 6,917(B) 7,758

Accrued product liability 6,946 3,247 - 3,368(D) 6,825

NOTE (A)--Uncollectible accounts written off, net of recoveries.

NOTE (B)--Amounts written off or payments incurred.

NOTE (C)--Amounts recorded due to acquisition of subsidiaries.

NOTE (D)--Loss and loss adjustment.

FS-22

Exhibit 21
1. Invacare Ltd., a U.K. corporation and wholly owned subsidiary. *

2. Invacare Canada Inc., an Ontario corporation and wholly owned
subsidiary.

3. Invacare Deutschland GmbH, a German corporation and wholly owned
subsidiary.

4. Invacare International Corporation, an Ohio corporation and wholly
owned subsidiary.

5. Invacare Trading Company, Inc., a United States Territory of the
Virgin Islands corporation and wholly owned subsidiary.

6. Invamex, S.A. de R.L. C.V., a Mexican corporation and wholly owned
subsidiary.

7. Invacare Credit Corporation, an Ohio corporation and wholly owned
subsidiary.

8. Invatection Insurance company, a Vermont corporation and wholly owned
subsidiary.

9. Lam Craft Industries, a Missouri corporation and wholly owned
subsidiary.

10. Invacare Poirier S.A., a French corporation and wholly owned
subsidiary.

11. Dynamic Controls Ltd., a New Zealand corporation and wholly owned
subsidiary.

12. Quantrix Consultants Ltd., a New Zealand corporation and wholly owned
subsidiary.

13. Dynamic Europe Ltd., a U.K. corporation and wholly owned subsidiary.

14. Sci Des Hautes Roches, a French partnership and wholly owned
subsidiary.

15. Sci Des Roches, a French partnership and wholly owned subsidiary.

16. Mobilite Building Corporation, a Florida corporation and wholly owned
subsidiary.

17. Genus Medical Products USA, Inc., a New York corporation and wholly
owned subsidiary.

18. Invacare Florida, a Delaware corporation and wholly owned subsidiary.

19. Infusion Systems, Inc., a Delaware corporation and wholly owned
subsidiary.

20. Invacare New Zealand Ltd., a New Zealand corporation and wholly owned
subsidiary.

21. Invacare AG, a Switzerland corporation and wholly owned subsidiary.

22. Healthtech, Inc., a Missouri corporation and wholly owned subsidiary.

23. Invacare Portugual Lda., a Portugal company and wholly owned
subsidiary.

24. Production Research Corporation, a Maryland corporation and wholly
owned subsidiary.

25. Inva Acquisition Corporation, re-named Suburban Ostomy Supply Company,
Inc., a Massachusetts corporation and wholly owned subsidiary.

26. Roller Chair Pty. Ltd., an Australian corporation and wholly owned
subsidiary.

27. Silcraft Corporation, a Michigan corporation and wholly owned
subsidiary.

I-32

28. Invacare Supply Group, a Massachusetts corporation and wholly owned
subsidiary.

29. The Aftermarket Group, Inc., a Delaware corporation and wholly owned
subsidiary.

30. Invacare Holdings Denmark ApS, a Danish corporation and wholly owned
subsidiary.

31. Scandinavian Mobility International ApS, a Danish corporation and
wholly owned subsidiary.

32. Invacare EC-Hong A/S, a Danish corporation and wholly owned subsidiary.

33. Invacare A/S, a Danish corporation and wholly owned subsidiary.

34. Invacare AB, a Swedish corporation and wholly owned subsidiary.

35. Invacare NV, a Belgium corporation and wholly owned subsidiary.

36. Scandinavian Mobility Niltek A/S, a Danish corporation and wholly owned
subsidiary.

37. Scandinavian Mobility Radius A/S, a Danish corporation and wholly owned
subsidiary.

38. EC-Invest A/S, a Danish corporation and wholly owned subsidiary.

39. Invacare Holdings AS, a Norwegian corporation and wholly owned
subsidiary.

40. Groas A/S, a Norwegian corporation and wholly owned subsidiary.

41. Invacare Rea AB, a Swedish corporation and wholly owned subsidiary.

42. France Reval SA, a French corporation and wholly owned subsidiary.

43. Matia SA, a French corporation and wholly owned subsidiary.

44. R2P S.a.r.L., a French corporation and wholly owned subsidiary.

45. Scandinavian Mobility GmbH, a German corporation and wholly owned
subsidiary.

46. France Reval GmbH, a German corporation and wholly owned subsidiary.

47. Invacare B.V., a Netherlands corporation and wholly owned subsidiary.

48. Samarite B.V. a Netherlands corporation and wholly owned subsidiary.

49. Revato B.V. a Netherlands corporation and wholly owned subsidiary.

50. Scandinavian Mobility Medical Services B.V., a Netherlands corporation
and wholly owned subsidiary.

51. Invacare Australia Pty, Ltd., an Australian corporation and wholly
owned subsidiary.

52. Adaptive Switch Laboratories, Inc., a Texas corporation and wholly
owned subsidiary.

53. Adaptive Research Laboratories, Inc., a Texas corporation and wholly
owned subsidiary.

54. Garden City Medical, a Delaware corporation and wholly owned
subsidiary.

55. Hatfield Mobility Limited, a New Zealand corporation and wholly owned
subsidiary.

56. Pro Med Equipment Pty, Ltd., an Australian corporation and wholly owned
subsidiary.

I-33

57. Pro Med Australia Pty, Ltd., and Australian corporation and wholly
owned subsidiary.

58. Invacare, S.A., a Spanish corporation and wholly owned subsidiary.

59. Invacare Holdings Two AB, a Swedish corporation and wholly owned
subsidiary.

60. Invacare Holdings AB, a Swedish corporation and wholly owned
subsidiary.

61. Invacare Holdings CV, a Netherlands corporation and wholly owned
subsidiary.

62. Invacare Holdings BV, a Netherlands corporation and wholly owned
subsidiary.

63. Invacare Verwaltungs GmbH, a German corporation and wholly owned
subsidiary.

64. Invacare GmbH and Co. KG, a German corporation and wholly owned
subsidiary.

65. Invacare Holdings Two BV, a Netherlands corporation and wholly owned
subsidiary.

66. Invacare Holdings, a New Zealand corporation and wholly owned
subsidiary.
_____________________
* "Wholly owned subsidiary" refers to indirect, as well as direct, wholly
owned subsidiaries.

I-34

Exhibit 23

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 33-24619 dated October 10, 1988, No. 33-45993 dated February 24,
1992, No. 33-87052 dated December 5, 1994 and No. 33-57978 dated March 30, 2001)
pertaining to the Invacare Corporation stock option plans, of our report dated
January 16, 2002, with respect to the consolidated financial statements and
schedule of Invacare Corporation and subsidiaries included in the Annual Report
(Form 10-K) for the year ended December 31, 2001.

ERNST & YOUNG LLP

Cleveland, Ohio
February 14, 2002

I-35