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, 2003

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,
without par value New York Stock Exchange

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

Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days.

Yes 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 of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark if the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes X No
----- -----

As of June 30, 2003, the aggregate market value of the 27,037,903 Common Shares
of the Registrant held by non-affiliates was $892,250,799 and the aggregate
market value of the 31,849 Class B Common Shares of the Registrant held by
non-affiliates was $1,051,017. While the Class B Common Shares are not listed
for public trading on any exchange or market system, shares of that class are
convertible into Common Shares at any time on a share-for-share basis. The
market values indicated were calculated based upon the last sale price of the
Common Shares as reported by The New York Stock Exchange on June 30, 2003, which
was $33.00. For purposes of this information, the 2,743,574 Common Shares and
1,080,174 Class B Common Shares which were held by Executive Officers and
Directors of the Registrant were deemed to be the Common Shares and Class B
Common Shares held by affiliates.

As of February 27, 2004, 30,101,146 Common Shares and 1,112,023 Class B Common
Shares were outstanding.

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

Portions of the Registrant's definitive Proxy Statement to be filed in
connection with its 2004 Annual Meeting of Shareholders are incorporated by
reference into Part III (Items 10, 11, 12, 13 and 14) of this report.

Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 2003.

I-1

I-2

PART I

Item 1. Business.
- -----------------
GENERAL
- -------
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 net sales. The company designs, manufactures and
distributes an extensive line of health care products for the non-acute care
environment, including the home health care, 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 25,000 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 deliver the best value in
medical products, which promote recovery and active lifestyles for people
requiring home and other non-acute health care. Invacare will 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 and 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 current members of the Board of
Directors, it had $19.5 million in net sales and a limited product line of
standard wheelchairs and patient aids. In 2003, Invacare reached $1.247 billion
in net sales, representing a 19% compound average sales growth rate since 1979,
and currently is the leading company in the industry that 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 operates in a single industry, 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.

The company's 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.

I-3

THE HOME MEDICAL EQUIPMENT INDUSTRY
- -----------------------------------
North America
- -------------
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 and
beyond as a result of several factors, including:

Growth in population over age 65. The nation's overall life expectancy
continues to increase. The latest report from the U.S. Department of Health
and Human Services (DHHS) states that the average life expectancy for men
and women who reach the age of 65 is now 81 and 84, respectively. The DHHS
also reports that people age 65 or older, which represent the vast majority
of home health care patients, will increase from 12% of the population in
2000 to 20% of the population by the year 2050. A significant percentage of
people using home and community-based health care services are 65 years of
age and older.

Treatment trends. Many medical professionals and patients prefer home
health care over institutional care because they believe that home health
care results in greater patient independence, increased patient
responsibility and improved responsiveness to treatment because familiar
surroundings are 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 an 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.

Health care cost containment trends. In 2001, health care expenditures in
the U.S. totaled $1.4 trillion dollars or approximately 14.1% of the Gross
Domestic Product (GDP), the highest among industrialized countries. In
2012, the nation's health care spending is projected to increase to $3.1
trillion, growing at an average annual rate of 7.3%. Over this same period,
spending on health care is expected to increase to approximately 17.7% 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 widespread 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 1991 Americans with Disabilities Act (ADA). This
legislation provides mainstream opportunities to people with disabilities.
The ADA 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/Australasia
- ------------------
The company believes that while many of the market factors influencing demand in
the U.S. are also present in Europe and Australasia - aging of the population,
technological trends and society's acceptance of people with disabilities - each
of the major national markets within Europe and in Australasia have distinctive
characteristics. The 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 national 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.
Likewise, the company expects to increase its sales in the highly fragmented
Australian and New Zealand markets.

I-4

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 primarily sells Invacare products
manufactured in the U.S.

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 Pronto(TM) Series Power Wheelchairs with SureStep(TM),
introduced in 2002, feature center-wheel drive performance for exceptional
maneuverability and intuitive driving.

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.

Personal Mobility. In 2003, Invacare introduced the HMV(TM) (Highly
Maneuverable Vehicle) product, which in 2004 will replace the three and
four-wheeled motorized scooters, including rear-wheel drive models for both
outdoor and indoor use, marketed under the Invacare(R) brand name that
include 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.

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 that 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.

I-5

RESPIRATORY PRODUCTS

Home respiratory products. Invacare manufactures and/or distributes home
respiratory products, including oxygen concentrators, nebulizer compressors
and respiratory disposables, sleep therapy products and portable compressed
oxygen systems. Invacare home respiratory products are marketed
predominantly under the Invacare(R) brand name. The Invacare Venture
HomeFill(TM) II Oxygen Compressor enables people to safely and easily make
compressed oxygen in their home and store it in cylinders for future use.

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 for 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. In addition, certain home medical equipment also is
sold through this channel.

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 Australasian operations consist of Invacare Australia, which
imports and distributes the Invacare range of products and manufactures and
distributes the Rollerchair range of custom power wheelchairs and Pro Med lifts;
Dynamic Controls, a New Zealand manufacturer of electronic operating components
used in power wheelchairs and scooters; and Invacare New Zealand, a manufacturer
of wheelchairs and beds and a distributor of a wide range of home medical
equipment.

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

Most wheelchair products sold in Europe are designed and manufactured locally to
meet specific market requirements. With the acquisition of Scandinavian Mobility
in 1999, Invacare not only has improved access of such products to Nordic
markets, but also has expanded the company's range of premium designs.

The company manufactures and/or assembles both manual and power wheelchair
products at the following European facilities - Invacare (UK) Ltd. in the United
Kingdom, Invacare Poirier S.A.S. in France, Invacare Deutschland GmbH in
Germany. Manual wheelchair products are also manufactured and/or assembled at
Invacare Lda. in Portugal, Invacare AG in Switzerland (the Kuschall Range), and
Invacare Rea AB in Sweden. Beds and patient lifts are manufactured at Invacare
Hong A/S in Denmark. A range of patient lifts is also assembled at Invacare (UK)
Ltd. in the United Kingdom. Oxygen products are imported from Invacare U.S.
operations. During the year, the company acquired the balance of shares it did
not already own in the Italian company, Mecc San SrL. In addition to
distributing the Invacare range of products, Invacare Mecc San SrL manufactures
beds, patient lifts and commodes specifically for the Italian market.

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

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 net sales.

I-6

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, from
time to time, have 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 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 home medical
equipment 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, as well as to consumers who express a product or brand preference.

Invacare domestic sales and marketing organization consists primarily of a
homecare sales force, which markets and sells Invacare(R) branded products to
HME providers. Each member of the Invacare 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 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.

The Inside Sales Department was created in 2000 to increase sales coverage and
to increase the efficiency of the field sales force. Inside Sales offers
cost-effective sales coverage through a targeted telesales effort in
coordination with TBMs. Inside Sales has delivered exceptional sales growth in
each of its four years of existence.

In 2003, the Invacare Service and Parts Division (ISP) consolidated its
operations into a single distribution facility in North Ridgeville, OH. The
consolidation will allow management to focus on streamlining the parts
operations and eliminate the need for partial shipments from multiple locations.
In addition, all of the technical support/repair functions also were
consolidated, eliminating the need for redundant operations and enhancing
overall service to providers. ISP's Technical Training department launched
updated service schools designed to help improve repair technicians'
productivity. Over 1,100 technicians attended forty-six schools, held at various
locations throughout the country. The Service Referral Network grew to 643
providers. This network of servicing providers helps 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
component of the Invacare "Total One Stop Shopping(sm)" program, through which
Invacare offers HME providers of all sizes a broader range of products and
services at a lower total cost. ISG products include ostomy, incontinence, wound
care and diabetic supplies, as well as other soft goods and disposables which
complement other Invacare products that are purchased by many of the same
customers who buy Invacare equipment. ISG markets its products through an inside
telesales and customer service department, the Internet and the Invacare 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 order
requirements and delivery is made within 24 to 48 hours nationwide. In 2003, ISG
launched an Invacare-branded line of products, including incontinence supplies;
diabetic test strips, meters and lancets; home diagnostics; wound care; and
personal protection products; in addition to expanding its offering in enterals
with both products and programs.
I-7

In 2003, Invacare continued to offer through its co-op advertising program
direct response television commercials designed to generate demand for Invacare
power chairs and scooters sold by the HME provider. These commercials feature
Arnold Palmer, Invacare's worldwide spokesperson. Mr. Palmer has become an
integral part of Invacare's "Yes, you can(TM)" promotional and marketing efforts
encouraging consumers to achieve personal independence and participate in the
activities of life, facilitated by the home health care products which Invacare
manufactures, distributes and/or markets throughout the world. The company
believes that Mr. Palmer, serving as its spokesperson, is helping accomplish
three objectives: (i) creating attention and awareness for the category of home
health care products, (ii) accelerating the acceptance of these products as
lifestyle enhancing so that consumers want these products and not just need
them, and (iii) establishing the Invacare brand as the consumer category-brand
of choice for home health care products. Mr. Palmer is 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 also launched a direct-to-consumer marketing effort for the
HomeFill(TM) Oxygen System in 2003. Print ads were developed and successfully
tested in numerous markets throughout the U.S. A direct response television ad
featuring Arnold Palmer also was developed and tested late in the year, with the
expectation to roll it out nationwide in 2004.

Invacare continues to grow its on-line marketing, customer services and product
information capabilities through www.invacare.com, maintaining its position as
the leader in e-commerce in the HME industry. New online offerings include
self-service warranty registration and contact information updates. "Ask
Invacare", a new knowledge database application, was launched in November 2003
and is a searchable centralized repository of information on Invacare products
and services. Invacare's extensive online product catalog is supported by
BroadVision's suite of personalized e-business applications and includes product
specifications and an interactive comparison chart, along with a complete
product literature search of price lists, glossy sell sheets, and owners
manuals. The product catalog also contains many interactive 3-D product and
technical instruction demos. Invacare expanded e-commerce globally by creating
versions of www.invacare.com specific to Canadian, Australia, and International
customers. Email capabilities were expanded, so customers can now sign up for
quote, order acknowledgement and advanced shipment notification emails. Email
notifications about Invacare products, services, and specials also launched in
2003, enabling quick communication to customers. Invacare continued to increase
the dollar volume of its online transactions in 2003.

Also in 2003, Invacare continued its advertising campaign in key trade
publications that reach the providers of home medical equipment. The company
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
2003 through sponsorships of a variety of wheelchair sporting events and support
of various philanthropic causes that benefit the consumers of its products. For
the tenth consecutive year, Invacare continued 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 sponsorships of 75 individual
wheelchair athletes and teams, including several of the top-ranked male and
female racers, hand cyclists, and wheelchair tennis players in the world.
Invacare was the title sponsor for the eighth year in a row, of the Invacare
World Team Cup Tennis Tournament, which took place in June in Sopot, Poland. The
company also continued its support of disabled veterans through its sponsorship
of the 23rd National Veterans Wheelchair Games, the largest annual wheelchair
sports event in the world, which was held in Long Beach, California. The games
bring a competitive and recreational sports experience to military service
veterans who use wheelchairs for their mobility needs due to spinal cord injury,
neurological conditions or amputation.

The company's top ten customers accounted for approximately 13% of 2003 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 2003 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 where appropriate, distribution centers, in the United Kingdom, France,
Germany, Belgium, Portugal, Spain, Italy, 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. I-8

PRODUCT LIABILITY COSTS
- -----------------------
The company's wholly-owned captive insurance company, Invatection Insurance Co.,
currently has a policy year that runs from September 1 to August 31 and insures
annual policy losses of $10 million per occurrence and $10 million in the
aggregate of the company's North American product liability exposure. The
company also has additional layers of external insurance coverage insuring $90
million in annual aggregate losses arising from individual claims that exceed
the captive insurance company policy limits. Invatection records product
liability reserves based upon independent actuarial valuations. There can be no
assurance that Invacare's current insurance levels will continue to be adequate
or available at affordable rates.

PRODUCT DEVELOPMENT AND ENGINEERING
- -----------------------------------
Invacare is committed to continuously improving, expanding and broadening its
existing product lines. Continuing in 2003, 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 40 new
products. The following are some of the most significant product introductions:

North America
- -------------
The Invacare(R) HMV(TM) (Highly Maneuverable Vehicle) is a new concept in
personal mobility. The HMV provides consumers with the aesthetics and ease
of operation that they seek in scooters along with the maneuverability that
previously could only be found on high-performance power wheelchairs. The
result is an HMV that works as well indoors - in tight spaces and sharp
corners - as it does outdoors - on paved or grassy surfaces.

The Invacare(R) Pronto(TM) M91 Heavy Duty Power Wheelchair is the newest
entry to the Pronto Series of consumer power wheelchairs. It is a
heavy-duty model that provides the maneuverability and performance of the
Pronto Series with an increased weight capacity of up to 500 pounds. It
features the same center-wheel drive, six-wheel base, high-speed motors,
and SureStep(TM) suspension that characterize the Invacare Pronto Series.

The Invacare(R) Pronto(TM) M71 Jr. is a pediatric version of the adult
Pronto(TM) M71(TM) power wheelchair offering the ultimate in
maneuverability and performance for children in a compact, stylish design.
It features true center-wheel drive to provide the tight turning radius
that makes the chair more maneuverable in everyday environments and more
intuitive to drive.

The Invacare A4(TM) and A4(TM) Titanium with LSS (Lightweight Shock
Stopper) Suspension are super-lightweight rigid wheelchairs for everyday or
recreational use by demanding, active consumers. The range and simplicity
of adjustment features enable consumers to be fitted for an A4 sooner than
otherwise possible because the chair can be adjusted, as the consumer's
needs change.

The Invacare(R) IVC(TM) Home Care Bed is an innovative, patents-pending
product line designed to create long-term savings over the lifecycle of the
bed for providers. It is more durable, easy to clean, and is
interchangeable with the previous Invacare(R) Bed Fleet. The many new
features are designed to reduce cleaning and repair costs while making
delivery and set-up easier.

Australasia
- -----------
Dynamic Controls continued various range extensions and design improvements to
products during 2003. Additionally, design work was started on a New Generation
Scooter Controller and extending functionality in the "Shark" wheelchair
controller, both of which are planned for release in late 2004 or early 2005.

Europe
- ------
During 2003, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 2003 included:

The Invacare(R) Typhoon is a center wheel drive power wheelchair designed
and manufactured in Europe. It features the Invacare "sure step" technology
and a gearless brushless (GB) motor with the "true track" option. It is a
high speed and high torque chair that will ensure superior ability to
overcome any road or path obstacle, while featuring exceptional
maneuverability.

The Invacare(R) Tornado is a center wheel drive power wheelchair designed
and manufactured in Europe. It is an indoor/outdoor wheelchair that
features the Invacare "sure step" technology. Its outstanding compact
dimensions and low seat height make it highly maneuverable.

The Invacare(R) Mirage is a rear wheel drive power wheelchair designed and
manufactured in Europe for the UK and Southern European markets. It easily
negotiates objects inside and outside the home, is foldable and features a
sling seat. It is attractive to users who seek a reasonable driving range,
speed and transportability.

I-9

The Invacare(R) Focus is a manual wheelchair designed and manufactured in
Europe for the medium active "permanent segment" of the Nordic and Benelux
markets. It is a customized folding wheelchair for users requiring
positioning, support and stable seating on a solid base, which also
provides rigidity for smooth rolling and easy handling.

The Invacare(R) Spirea 2 is a manual wheelchair designed and manufactured
in Europe for the medium active "short term segment" of the Danish and
Swedish markets. It is a lightweight, folding wheelchair for users who can
position themselves easily. It is easy to transport and has light rolling
characteristics. It has limited configuration and sizes and is designed for
refurbishment and ease of adjustment.

The Kuschall(R) Fusion is a manual wheelchair designed and manufactured in
Europe for the "high active segment" of the European markets. Its rigid
frame construction combined with its lightweight provides the highest
degree of agility and driving performance. It provides an exceptional
variety of seat height adjustment to ensure optimum positioning. Extremely
easy to transport, this wheelchair will maximize the user's mobility
without compromising on performance.

MANUFACTURING AND SUPPLIERS
- ---------------------------
The company's objective is to be the highest quality and lowest-cost
manufacturer in its industry. The company believes that it will achieve this
objective not only through improved product design, but also by taking a number
of steps to lower manufacturing costs. During 2003, the company closed its
respiratory plant in Florida and consolidated its operations into the company's
existing beds plant in Florida. The company also moved an additional portion of
its standard wheelchair production from Elyria, Ohio to the Reynosa plant in
Mexico, with the remaining balance of standard wheelchair production to be moved
in 2004. Invacare received a business license to start manufacturing in Suzhou
Industrial Park near Shanghai and is pursuing other opportunities to add further
Chinese manufacturing capability in 2004. With these actions, Invacare expects
to regain its position as the lowest cost producer of standard products in the
industry.

Of the many opportunities to reduce overall costs, the short-term emphasis will
be on building the professional disciplines in the areas of sourcing, quality
and logistics, with particular focus on sourcing components and finished goods
for 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.

The company continues to make investments 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.

The manufacturing of wheelchairs, replacement parts, patient aids and home care
beds consists of a variety of metal fabricating procedures, electronics
production, coating, plating and assembly operations. Manufacturing of oxygen
concentrators, nebulizer compressors, and seating and positioning products
consists 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 that its relationships with
those suppliers are satisfactory and that alternative sources of supply are
readily available.

Europe
- ------
As in other areas, manufacturing and operational issues faced in the U.S. are
also present in Europe. The European manufacturing operations have streamlined,
allowing for the realization of significant synergies and additional cost
reductions and improved efficiencies are planned going forward.

I-10

ACQUISITIONS
- ------------
In 2003, Invacare acquired for cash the following four businesses at a total
cost of $70,555,000:
o The assets of Pinnacle Medsources Inc., a Georgia corporation and
distributor of home medical equipment.
o Mecc San SrL, an Italian corporation and manufacturer of home medical
equipment.
o Carroll Healthcare, Inc. ("Carroll"), a Canadian corporation and a
leading manufacturer of beds and furniture for the long-term care
industry in North America.
o Motion Concepts, Inc. ("Motion"), a Canadian corporation and a leading
manufacturer of seating and positioning products in North America.

The total cost for 2003 acquisitions of $70,555,000 excludes certain contingent
consideration, which has not yet been determined. As part of the Carroll
purchase agreement, the company agreed to pay additional consideration based
upon earnings before interest, taxes, depreciation and amortization from
September 1, 2003 through August 31, 2004 calculated under Canadian generally
accepted accounting principles with no defined maximum amount. Pursuant to the
Motion purchase agreement, the Company agreed to pay contingent consideration
based upon earnings before interest and taxes over the three years subsequent to
the acquisition up to a maximum of approximately $16,000,000. When the
contingencies related to both of the acquisitions are settled, any additional
consideration paid will increase the respective purchase price and reported
goodwill.

As a result of the company's ongoing search for opportunities, coupled with the
industry trend toward consolidation, other acquisitions were evaluated in 2003.
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 some countries,
most notably 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 private insurance companies often
imitate changes made in federal programs. Reimbursement guidelines in the home
health care industry have a substantial impact on the nature and type of
equipment an end user can obtain and, thus, affect the product mix, pricing and
payment patterns of the company's customers who are the HME providers.

The company continues its pro-active efforts to shape public policy that impacts
home and community-based, non-acute health care. 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 that these efforts give the company a
competitive advantage in two ways. First, customers frequently express
appreciation for our efforts on behalf of the entire industry. Second, we have
the ability to anticipate and plan for changes in public policy, unlike most
other HME manufacturers who must react to change after it occurs.

The 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. Domestic and foreign manufacturers of medical devices
distributed commercially in the U.S. are subject to periodic inspections by the
FDA. Furthermore, state, local and foreign governments have adopted regulations
relating to the manufacture and marketing of health care products. During the
past year, the company was inspected by the FDA at several of its locations and
is cooperating fully with the FDA in the resolution of the inspectional
findings. From time to time, the company may undertake voluntary recalls of its
products to maintain ongoing customer relationships as well as its reputation
for adhering to high standards of quality and safety. The company is presently
strengthening its programs to better ensure compliance with applicable
regulations for which the failure to comply would have a material adverse
effect.
I-11

Although there are a number of reimbursement related issues in most of the
countries in which Invacare competes, the issues of primary importance are
currently in the United States. There are two critical issues for Invacare:
eligibility of power wheelchairs for elderly patients and the provisions of the
legislation related to prescription drug coverage under Medicare. With regard to
power wheelchairs, there is currently a regulatory push by the Centers for
Medicare and Medicaid Services (CMS) towards limiting eligibility to patients
who cannot take a single step on their own. This limitation would confine many
elderly patients, who are now mobile in power wheelchairs, to their beds.
Invacare and the home care industry will work hard to convince CMS and The Bush
Administration that this change would not benefit the elderly and would likely
lead to less active patients who could end up in costly nursing homes and
hospitals, and thereby counteract any cost savings attributed to limiting the
eligibility for power wheelchairs.

In November of 2003, Congress passed legislation related to providing
prescription drug coverage for the elderly under the Medicare program. As part
of funding the costs of this new program, a number of changes to Medicare home
care reimbursement rules will take effect over the next few years. First, the
home care provider, who is Invacare's customer, will not receive a
cost-of-living adjustment in 2004, 2005 and 2006. Second, in 2005, Medicare
reimbursement for oxygen, along with certain types of home care beds,
wheelchairs, nebulizers and supplies, will be lowered to the median
reimbursement levels in the Federal Employee Health Benefit Plans. Third,
starting in 2007, Congress has authorized competitive bidding in the largest 10
metropolitan regions of the U.S. for six or fewer items and services. In 2009,
the program would be extended to 80 metropolitan regions.

Although none of these changes are beneficial to the home care industry,
Invacare believes it can still grow and thrive in this environment. The home
care industry has not received any cost-of-living adjustments over the last few
years and will try to respond with improved productivity to address the lack of
support from Congress. In terms of the 2005 price reductions, although we do not
yet know what price reduction will be applied to oxygen reimbursement, it is
anticipated that the blended cut for all items will be around 8%. If we estimate
the impact that the 2005 cuts could have on our revenue stream, they should be
around 1% of consolidated net sales. However, Invacare's new products, for
example the low cost oxygen delivery system of HomeFill(TM), can help address
the cuts the home care provider has to endure. We will continue to focus on
developing products that help the provider improve profitability. With such
products, Invacare believes it can grow and offset the risks. Additionally,
Invacare will accelerate its activities in China to make sure that we are one of
the lowest cost manufacturers and distributors to the home care provider.

In terms of competitive bidding, Invacare has strong positions with the likely
consolidators who will probably gain share as we approach 2007 and enter the new
reimbursement environment. We believe that we are well-positioned to combat
pricing pressures with volume gains and productivity improvements. Despite our
actions, there will be ongoing uncertainty in the industry over the extent and
depth of these cuts to the home care industry. Invacare is concerned that, once
implemented, competitive bidding will likely generate poorer service in the home
care arena as providers look to remain profitable. Likewise, it will likely lead
to further consolidation of the provider base as small entrepreneurs may look to
exit a less profitable business model. Invacare will keep a close watch on its
extension of credit in this environment and will work with the industry to
pressure Congress to reconsider its actions. We believe that home care is the
least costly and most preferred environment in which an individual can recover
from an operation or illness and that government actions should encourage home
care rather than lead to more expensive alternatives.

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, 2003, the company had approximately 5,300 employees.

FOREIGN 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 operations, see Business Segments in the Notes to the Consolidated
Financial Statements.

AVAILABLE INFORMATION
- ---------------------
The company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and any amendments thereto, as well as proxy
statements and other documents with the Securities and Exchange Commission
(SEC). The public may read and copy any material that the company files with the
SEC at the SEC's Public Reference Room located at 450 Fifth Street, NW,
Washington D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
I-12

maintains a website, www.sec.gov, that contains all reports, proxy statements
and other information filed by the company with the SEC.

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

Item 2. Properties.
- --------------------
The company owns or leases its warehouses, offices and manufacturing facilities
and believes that these facilities are well maintained, adequately insured and
suitable for their present and intended uses. Information concerning certain
leased facilities of the company as of December 31, 2003 is set forth in Leases
and Commitments in the Notes to the Consolidated Financial Statements of the
company and in the table below:

I-13

I-14

I-15

Item 3. Legal Proceedings.
- --------------------------
In the ordinary course of its business, Invacare is a defendant in a number of
lawsuits, primarily product liability actions in which various plaintiffs seek
damages for injuries allegedly caused by defective products. All of the product
liability lawsuits have been referred to the company's insurance carriers and
are being contested vigorously. Coverage territory is worldwide with the
exception of those countries with respect to which, at the time the product is
sold for use or at the time a claim is made, the U.S. government has suspended
or prohibited diplomatic or trade relations. Management does not believe that
the outcome of any of these actions will have a material adverse effect upon its
business or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
During the fourth quarter of 2003, no matter was submitted to a vote of our
security holders.

Executive Officers of the Registrant.*
- ------------------------------------
The following table sets forth the names of the executive officers of Invacare,
each of whom serves at the pleasure of the Board of Directors, as well as
certain other information.

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.

Gregory C. Thompson was named Senior Vice President and Chief Financial Officer
in November 2002. Before coming to Invacare, Mr. Thompson served as Senior Vice
President and Chief Financial Officer of Sensormatic Electronics Corporation, a
global manufacturer of electronic security products, from October 2000 to
January 2002 and was Vice President and Controller from February 1997 to October
2000. Previously, Mr. Thompson was Vice President and Corporate Controller for
Wang Laboratories from August 1994 to February 1997 and Assistant Corporate
Controller from October 1990 to August 1994.

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.

Kenneth A. Sparrow was named President - Invacare International with
responsibility for the company's European and Asia-Pacific operations in
September 2003. Previously, he was President of Invacare - Europe from September
2001 to September 2003 and Managing 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.

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

I-16

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- -------------------------------------------------------------------------------
Invacare Common Shares, without par value, trade on the New York Stock Exchange
(NYSE) under the symbol IVC. 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 27, 2004 was 5,107
and 29, respectively. The closing sale price for the Common Shares on February
27, 2004 as reported by NYSE, was $44.68. 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 were as follows:

2003 2002
---- ----
Quarter Ended: High Low High Low
------------- ----- ----- ----- -----
December 31 $43.74 $38.78 $34.85 $30.59
September 30 40.00 32.99 36.40 29.28
June 30 34.00 30.29 39.80 33.86
March 31 34.15 30.02 37.59 31.98

During 2003 and 2002, the Board of Directors declared dividends of $0.05 per
Common Share and $0.045 per Class B Common Share. For information regarding
limitations on the payment of dividends in the company loan and note agreements,
see Long Term Debt in the Notes to the Consolidated Financial Statements. 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.

Information regarding the securities authorized for issuance under equity
compensation plans is incorporated by reference to the information set forth
under the captions Compensation of Executive Officers and Compensation of
Directors in the company's definitive Proxy Statement for the 2004 Annual
Meeting of Shareholders.

I-17

Item 6. Selected Financial Data
- --------------------------------

* Reflects non-recurring and unusual charge of $31,950 ($25,250 after tax or
$0.80 per share assuming dilution).
** Reflects non-recurring and unusual charge of $14,800 ($9,028 after tax or
$0.29 per share assuming dilution).
*** Amortization of goodwill ceased in 2002, net earnings for prior years
includes amortization expense of $8,972 in 2001, $8,899 in 2000 and $7,258
in 1999.

I-18

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

OUTLOOK
- -------
For 2004, the Company will continue to execute on its strategic plans. However,
changing Medicare rules on the eligibility of power wheelchairs for the elderly
and the recent passage of the Medicare prescription drug bill will temper an
aggressive positioning for 2004 guidance. As the industry approaches 2005, when
the cuts in reimbursement for nine durable medical equipment items will be
implemented as provided in the Medicare prescription drug bill, purchases by
providers for their rental fleets may be adversely affected (See
"Business-Government Regulation" for more information on these governmental
trends that are likely to impact the company's business). In light of this
likely pressure, the Company believes that, in 2004, it will have a net sales
increase of between 10% and 12% and earnings per share of between $2.45 and
$2.55 for 2004.

RESULTS OF OPERATIONS
- ---------------------
2003 Versus 2002

Net Sales. Consolidated net sales for 2003 increased 15% for the year, to
$1,247,176,000 from $1,089,161,000, with net sales increasing in all business
segments on a reported basis. Foreign currency translation accounted for 6% of
the net sales increase, while acquisitions contributed an additional 3%. The
overall growth was primarily driven by volume increases in North America and
Australasia.

North American Operations

North American net sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, personal mobility and seating and positioning), Standard (manual
wheelchairs, personal care, home care beds, low air loss therapy and patient
transport), Continuing Care (beds and furniture), Respiratory (oxygen
concentrators, aerosol therapy, sleep, homefill and associated respiratory) and
Distributed (ostomy, incontinence, diabetic, wound care and other medical
supplies) products increased 13% over the prior year, with currency translation
having less than a one percentage point impact and acquisitions accounting for
3%.

For the year, the net sales increase was attributable to increases in
Respiratory products (43%), Rehab products (30%), Distributed products (11%) and
Continuing Care products (20%), which were partially offset by declines in
Standard products (6%). Excluding acquisitions, Rehab product net sales
increased by 26% and Continuing Care product net sales declined by 4%. The net
sales improvements were led by strong sales growth in oxygen concentrators, the
HomeFill(TM) product line and consumer power products. Declines were primarily
attributable to continued pricing pressures in Standard products and weaker
sales to nursing homes through Invacare Continuing Care Group as a result of the
continued uncertainty surrounding government reimbursement programs.

Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had an 8% net sales increase primarily as a result of volume
increases.

European Operations

European net sales increased 11% over the prior year to $279,782,000 from
$251,443,000. Adjusting for foreign currency and acquisition, European net sales
decreased 8%. The decline was primarily due to slower than expected sales in the
Nordic region and reimbursement pressures in Germany.

Australasia Operations

Australasian net sales increased 59% from the prior year to $70,186,000 from
$44,254,000. Excluding the impact of foreign exchange, net sales increased 27%
for the year. The increase was primarily the result of sales at Dynamic Controls
due in part to a significant increase in sales to a non-healthcare customer.

Gross Profit. Consolidated gross profit as a percentage of net sales was 30.0%
in 2003 and 30.1% in 2002. Margins remained relatively flat, as the company was
able to offset pricing pressures with improved manufacturing performance.

North American gross profit as a percentage of net sales was 30.3% in 2003
versus 30.0% in 2002. The increase was primarily attributable to continued cost
reduction efforts and improved product and customer mix.

Gross profit in Europe as a percentage of net sales improved 1.0 percentage
point from the prior year. The improvement is attributable to favorable sales
mix towards higher margin products and cost reduction efforts.

I-19

Gross profit in Australasia as a percentage of net sales decreased by 6.1
percentage points from last year. The decline was due in part to increased sales
of lower margin products in the company's Dynamic Controls subsidiary and
increased costs to support the growth in the business.

Selling, General and Administrative. Consolidated selling, general and
administrative expenses as a percentage of net sales were 21.0% in 2003 and
20.2% in 2002. The overall dollar increase was $41,719,000 or 19% with currency
translation increasing selling, general and administrative costs by
approximately $13,103,000 or 6% and acquisitions by $6,800,000 or 3%. Selling,
general and administrative expenses also increased as a result of accruals for
management bonuses as a result of improved profitability, increased distribution
and commission costs related to increased volumes, continued investments in
marketing and branding programs, and increased insurance costs.

North American operations selling, general and administrative expenses increased
15% or $21,789,000 compared to 2002. The increase is primarily attributable to
acquisitions, continued investments in marketing and branding programs,
additional provisions for bad debt and increases in insurance costs.

European operations selling, general and administrative expenses increased 30%
or $15,721,000 from the prior year. European selling, general and administrative
expenses were negatively impacted by foreign currency translation and
acquisitions, which increased expenses, reported in dollars by $9,993,000 or 19%
and $1,547,000 or 3%, respectively. The remaining increase was primarily
attributable to additional programs to re-establish sales growth.

Australasian operations selling, general and administrative expenses increased
40% or $2,264,000 with foreign currency increasing the expense by $1,522,000 or
27%. Australasian selling, general and administrative costs grew at a slower
rate than sales principally as a result of aggressive expense control.

Interest. Interest expense decreased to $11,710,000 in 2003 from $15,122,000 in
2002, representing a 23% decrease. This decrease was attributable to the
continued favorable interest rate environment in 2003 and to a decrease in the
company's average borrowings outstanding under the company's revolving credit
facility. The company's debt-to-equity ratio decreased to 0.4:1 as of December
31, 2003 from 0.5:1 as of the end of the prior year. Interest income increased
in 2003 to $5,473,000 from $4,550,000 in the prior year, primarily attributable
to an increase in loan origination fees received from De Lage Landen Inc. (DLL).
Since December 2000, Invacare customers primarily utilize the third-party
financing arrangement with DLL, a subsidiary of Rabo Bank of the Netherlands, to
provide financing.

Income Taxes. The company had an effective tax rate of 32.9% in both 2003 and
2002, which is lower than the United States federal statutory rate as a
significant portion of the company earnings are outside of the United States and
taxed at lower rates.

Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. The company
dedicates dollars to applied research activities to ensure that new and enhanced
design concepts are available to its businesses. Research and development
expenditures, which are included in costs of products sold, increased to
$19,130,000 in 2003 from $17,934,000 in 2002. The expenditures, as a percentage
of net sales, were 1.5% in 2003 and 1.6% in the prior year.

2002 Versus 2001

Net Sales. Consolidated net sales for 2002 increased 3%, to $1,089,161,000 from
$1,053,639,000, for the year with net sales increasing in all business segments
on a reported basis. Excluding the impact of foreign currency, North America and
Europe achieved sales gains of 3% and 2%, while Australasian sales declined 8%.
The overall growth was primarily driven by new product introductions.

North American Operations

North American net sales, consisting of Rehab (power wheelchairs, custom manual
wheelchairs, scooters and seating and positioning), Standard (manual
wheelchairs, personal care, home care beds, low air loss therapy and patient
transport), Continuing Care (beds and furniture), Respiratory (oxygen
concentrators, aerosol therapy, sleep, homefill and associated respiratory) and
Distributed (ostomy, incontinence, diabetic, wound care and other medical
supplies) products grew 4% in 2002 over 2001, adjusting for the exit of two
product lines with currency translation having no material impact.

For 2002, net sales of Rehab products increased by 9% driven by the continued
strengthening in sales of consumer power products introduced during 2002. Net
sales of distributed products increased by 15%. However, standard and
respiratory product net sales were down 4% and 7%, respectively, or 2% and 5%,
respectively, adjusting for the exit of two product lines. The standard products
net sales decline was primarily due to pricing pressure from low cost imports
from the Far East, the company's exit from the lift out chair product

I-20

line, and slow transition by customers to the new standard wheelchair product
line introduced in the fourth quarter. The decline in respiratory net sales was
driven by slow purchases by national accounts and the company's exit from the
liquid oxygen product line. With reimbursement and economic uncertainty, many
dealers limited their purchases of replacement products for their rental fleets
in order to preserve cash. Other products, consisting primarily of the company's
Canadian and aftermarket parts businesses, had a 3% net sales decrease for 2002,
primarily as a result of volume increases.

European Operations

European net sales improved 7% in 2002 over 2001, which included a 5% positive
impact from foreign currency translation. Sales growth was driven by volume
increases in power wheelchairs, manual wheelchairs, high-action wheelchairs,
patient aids and scooters.

Australasia Operations

Net sales for the Australasia group increased 1% in 2002 from 2001 levels.
Excluding the impact of foreign exchange, net sales decreased 8% for the year.
The decrease was the result of volume declines, primarily in the company's
Dynamic Controls subsidiary. Weak global economic conditions tend to have a more
significant impact on this business than the other businesses of the company.

Gross Profit. Consolidated gross profit as a percentage of net sales was 30.1%
in 2002 and 30.2% in 2001. Margins remained flat in 2002, as the company was
able to offset unfavorable product mix and pricing pressures with improved
manufacturing performance.

North American gross profit from operations as a percentage of net sales was
30.0% in 2002 compared with 30.7% in 2001. The decrease was primarily
attributable to a shift towards lower margin product lines (distributed,
respiratory, and consumer power products) and higher freight and warranty costs.

Gross profit in Europe as a percentage of net sales improved 2.2 percentage
points in 2002 from 2001. The improvement was attributable to a shift in product
mix towards higher margin products, outsourcing projects that improved the
European cost position and favorable currency translation.

Gross profit in Australasia was down by 4.3 percentage points in 2002 from 2001.
The decline was due principally to volume declines in core markets and an
increase in mix towards lower margin products, which was partially offset by
manufacturing cost reductions.

Selling, General and Administrative. Consolidated selling, general and
administrative expenses, as a percentage of net sales, were 20.2% in 2002
compared with 21.6% in 2001. The overall dollar decrease was $7,228,000 or 3%
with currency translation increasing selling, general and administrative costs
by approximately $1,970,000 or 1%. The decrease was primarily in North America
as current year results were favorable to prior year as a result of a charge
taken in 2001. The impact was partially offset by continued investment in
marketing and branding programs being implemented to drive future growth, higher
employee benefit costs, increased investment in additional headcount, additional
provision for bad debts and significant increases in insurance costs largely due
to general market conditions. The non-recurring and unusual charge taken in 2001
was 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
economic decline and tightening of the capital markets, which made obtaining the
additional funding that these entities require difficult.

North American operations selling, general and administrative expenses decreased
4% or $7,598,000, compared to 2001. As noted above, the overall decrease was due
to the fact that a charge was taken in 2001, which was partially offset by an
increase in marketing and branding programs, additional provision for bad debt,
higher employee benefit costs and significant increases in insurance costs.

European operations selling, general and administrative expenses increased
$2,284,000 or 5% from 2001. European selling, general and administrative
expenses were negatively impacted by foreign currency translation, which
increased selling, general and administrative expenses reported in dollars by
$1,581,000. The remaining increase was due to increased systems costs and
depreciation expense.

Australasia operations selling, general and administrative expenses decreased
approximately 25% from 2001. The overall dollar decline between years was
$1,883,000 despite foreign currency increasing the expense by $458,000. The
decline was due to tight expense controls.

I-21

Interest. Interest expense decreased to $15,122,000 in 2002 from $22,764,000 in
2001, which represented a 34% decrease. This decrease was attributable to the
reduction in borrowings outstanding under the company's revolving credit
facility and also a reduction in borrowing costs due to the low interest rate
environment in 2002. The company's debt-to-equity ratio decreased to 0.5:1 as of
December 31, 2002 from 0.9:1 as of the end of the prior year. Interest income
decreased in 2002 to $4,550,000 from $7,303,000 in the prior year, representing
a 38% decrease. The decrease was a direct result of the minimal amount of new
installment contracts that were written internally. Interest income primarily
represents loan origination fees received from De Lage Landen Inc. (DLL). Since
December 2000, Invacare customers primarily utilize the third-party financing
arrangement with DLL, a subsidiary of Rabo Bank of the Netherlands, to provide
financing.

Income Taxes. The company had an effective tax rate of 32.9% in 2002 compared
with 38.5% in 2001, 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 lower effective tax rate for 2002 was
primarily due to 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 of these items.

Research and Development. The company continued to increase its research and
development activities in 2002 in order to maintain its competitive advantage.
While the competitive environment required that research and development
expenditures be focused on the cost reduction of products while increasing
functionality and reliability, the company continued to dedicate dollars to
applied research activities to ensure that new and enhanced design concepts were
available to its businesses in the future. Research and development
expenditures, which were included in costs of products sold, increased to
$17,934,000 in 2002 from $17,394,000 in 2001. The expenditures, as a percentage
of net sales, were 1.6% in 2002 and 1.7% 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 2003 and
2002, 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 Debt 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 2003, the
company issued $100,000,000 in senior notes, which are due between 2007 and
2010. In 2001, the company completed a $325,000,000 multi-currency, long-term
revolving credit agreement, which expires on October 17, 2006 or such later
dates as mutually agreed upon by the company and the banks. Additionally, the
company maintains various other demand lines of credit totaling a U.S. dollar
equivalent of approximately $3,572,000 as of December 31, 2003. The lines of
credit along with cash generated from operations 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, 2003, the company
had approximately $307,700,000 available under its various lines of credit,
excluding debt covenant restrictions, compared to $307,604,000 at December 31,
2002.

The company's borrowing arrangements contain covenants with respect to, among
other items, interest coverage, net worth, dividend payments, working capital,
and funded debt to capitalization, 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 $248,871,000 as of December 31, 2003, compared to $209,457,000 at
December 31, 2002.

While there is general concern about the potential for rising interest rates,
exposure to interest rate fluctuations is manageable given that a portion of the
debt is at fixed rates through 2010. In addition, the ability to utilize
interest rate swaps to fix a higher percentage of the company's 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. As of December 31, 2003, the weighted average floating
interest rate on U.S. borrowings was 2.69%.

I-22

CAPITAL EXPENDITURES
- --------------------
There are no individually material capital expenditure commitments outstanding
as of December 31, 2003. The company estimates that capital investments for 2004
could approximate up to $35,000,000, compared to actual capital expenditures of
$30,660,000 in 2003. 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 $109,526,000 in 2003, compared
to $124,181,000 last year. The decrease is due primarily to increases in
receivables and inventory resulting from increases in revenues, partially offset
by increases in accounts payable and accrued expenses, compared to the same
periods a year ago.

Cash flows used for investing activities were $94,880,000 in 2003, compared to
$9,398,000 in 2002. The increase was largely due to the acquisition of four
companies in 2003. In addition, purchases of property and equipment activity in
2003 was higher compared to the prior year while cash received from installment
sales contracts decreased significantly due to the fact that the company no
longer enters into new installment contracts as a result of its third party
financing arrangement with DLL.

Cash flows used for financing activities in 2003 were $13,955,000, compared to
$120,157,000 in 2002. Financing activities for 2003 were impacted by
acquisitions made during the year, for which the company borrowed funds.
However, the amounts borrowed were more than offset by payments to reduce debt.
In addition to acquisition activities, the effect of foreign currency
translation results in amounts being shown in the Consolidated Statement of Cash
Flows that are different from the changes reflected in the respective balance
sheet captions.

CONTRACTUAL OBLIGATIONS
- -----------------------

DIVIDEND POLICY
- ---------------
It is the company's policy to pay a nominal dividend in order for its stock to
be more attractive to a broader range of investors. The current annual dividend
rate remains at $0.05 per Common Share and $0.045 per Class B Common Share. It
is not anticipated that this will change materially as the company continues to
have available significant growth opportunities through internal development and
acquisitions. For 2003, dividends of $0.05 per Common Share and $0.045 per Class
B Common Share were declared and paid.

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 that these entities require difficult.

I-23

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. 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," as updated by SAB No. 104, 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, is
ultimately funded through government reimbursement programs such as Medicare and
Medicaid. In addition, the company has seen a 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 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 by the first-in, first-out (FIFO) method. Inventories have
been reduced by an allowance for excess and obsolete inventories. The estimated
allowance is based on management's review of inventories on hand compared to
estimated future usage and sales.

Goodwill, Intangible and Other Long-Lived Assets
Property, equipment, intangibles and certain other long-lived assets are
amortized over their useful lives. Useful lives are based on management's
estimates of the period that the assets will generate revenue. As a result of
the adoption of Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets in 2002, goodwill and intangible assets
deemed to have indefinite lives are subject to annual impairment tests in
accordance with the Statement. Furthermore, goodwill and other long-lived assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The company
completed the required initial analysis of goodwill as of January 1, 2002 as
well the annual impairment tests in the fourth quarter of 2002 and 2003. The
results of these analyses indicated no impairment of goodwill.

Product Liability
The company's captive insurance company, Invatection Insurance Co., currently
has a policy year that runs from September 1 to August 31 and insures annual
policy losses of $10 million per occurrence and $10 million in the aggregate of
the company's North American product liability exposure. The company also has
additional layers of external insurance coverage insuring $90 million in annual
aggregate losses arising from individual claims that exceed the captive
insurance company policy limits. Invatection records product liability reserves
based upon independent actuarial valuations. There can be no assurance that
Invacare's current insurance levels will continue to be adequate or available at
affordable rates.

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. A provision for
estimated warranty cost is recorded at the time of sale based upon actual
experience. The company continuously assesses the adequacy of its product
warranty accrual and makes adjustments as needed. See Current Liabilities in the
Notes to the Consolidated Financial Statements for a reconciliation of the
changes in the warranty accrual.
I-24

Accounting for Stock-Based Compensation
The company accounts for options under its stock-based compensation plans using
the intrinsic value method proscribed in Accounting Principles Board Opinion
(APBO) No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. The majority of the options awarded have been granted at
exercise prices equal to the market value of the underlying stock on the date of
grant; thus, no compensation cost has been reflected in the Consolidated
Statement of Earnings for these options. In addition, restricted stock awards
have been granted without cost to the recipients and are being expensed on a
straight-line basis over the vesting periods. If the company had applied the
fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for all stock options granted, net earnings per share assuming
dilution would have been reduced by $0.14 in 2003, $0.15 in 2002 and $0.14 in
2001.

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. This
statement provides guidance for those companies wishing to voluntarily change to
the fair value based method of accounting for stock-based compensation. The
statement also amends the disclosure requirements of SFAS No. 123. While
Invacare continues to utilize the disclosure-only provisions of SFAS No. 123,
the company has modified its disclosures to comply with the new statement. See
the company's Accounting Policies and Shareholders' Equity Transactions in the
Notes to the Consolidated Financial Statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46), which was revised in December 2003 and,
which among other things, deferred the implementation date of FIN 46 until
periods after March 15, 2004. This interpretation requires consolidation of an
entity if the company is subject to a majority of the risk of loss from the
variable interest entity's (VIE) activities or entitled to receive a majority of
the entity's residual returns, or both. A company that consolidates a VIE is
known as the primary beneficiary of that entity.

As of December 31, 2003, the company had an investment in a development stage
company, which is currently pursuing FDA approval to market a product focused on
the treatment of post-stroke shoulder pain in the United States. The amount of
net advances and investment recorded on the company's books is approximately
$3,100,000 at December 31, 2003. Based on the provisions of FIN 46 and the
company's preliminary analysis, the company does not believe that its investment
is a VIE.

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, 2003 debt levels, a 1% change in interest rates would
impact interest expense by approximately $1,809,000. 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. 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," "plan," "intend,"
"expect," "continue," "believe," "anticipate" and "seek," 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, the success of the Company's ongoing efforts to reduce cost,
increasing raw material costs, the consolidations of health care customers and
competitors, government reimbursement issues (including those that affect the
sales of and margins on product, along with the viability of customers), the
ability to design, manufacture, distribute and achieve market acceptance of new
products with higher functionality and lower costs, the effect of offering
customers competitive financing terms, Invacare's ability to successfully
identify, acquire and integrate strategic acquisition candidates, the
difficulties in managing and operating businesses in many different foreign
jurisdictions, the timely completion of facility consolidations, the vagaries of
any litigation or regulatory investigations that the Company may be or become
involved in at any time, the difficulties in acquiring and maintaining a
proprietary intellectual property ownership position, the overall economic,
market and industry growth conditions (including, the impact that acts of
terrorism may have on such growth conditions), foreign currency and interest
rate risks, 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. We undertake no obligation
to review or update these forward-looking statements or other information
contained herein.
I-25

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-23
of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
None.

Item 9A. Controls and Procedures.
- ---------------------------------
As of December 31, 2003, an evaluation was performed under the supervision and
with the participation of the company's management, including the CEO and CFO,
of the effectiveness of the design and operation of the company's disclosure
controls and procedures. Based on that evaluation, the company's management,
including the CEO and CFO, concluded that the company's disclosure controls and
procedures were effective as of December 31, 2003 in ensuring that information
required to be disclosed by the company in the reports it files and submits
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms. There have been no significant changes in the company's
internal controls over financial reporting that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the company's internal controls over financial reporting.

PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
We have adopted a Code of Business Conduct and Ethics that applies to all
Directors, officers and employees. We also have adopted a separate Financial
Code of Ethics that applies to our Chief Executive Officer (our principal
executive officer) and our Chief Financial Officer (our principal financial
officer and principal accounting officer). You can find both codes on our
website no later than the date of our Annual Meeting of Shareholders scheduled
to be held on May 26, 2004, at www.invacare.com by clicking on the link for
Investor Relations. We will post any amendments to the codes, as well as any
waivers that are required to be disclosed pursuant to the rules of either the
Securities and Exchange Commission or the New York Stock Exchange, on our
website.

Our Board of Directors has adopted Corporate Governance Guidelines and new
charters for the Audit Committee, Compensation, Management Development and
Corporate Governance Committee, Nominating Committee and Investment Committee of
the Board of Directors. We will post these documents on our website no later
than the date of our Annual Meeting of Shareholders scheduled to be held on May
26, 2004, at www.invacare.com by clicking on the link for Investor Relations.

You also can obtain printed copies of any of the materials referred to above,
free of charge, by writing to: Shareholder Relations Department, Invacare
Corporation, One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125.

Information required by Item 10 as to the executive officers of the company is
included in Part I of this Annual Report on Form 10-K, the other information
required by Item 10 as to the directors of the company 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 2004 Annual Meeting of
Shareholders.

Item 11. Executive Compensation.
- --------------------------------
The information required by Item 11 is incorporated by reference to the
information set forth under the captions Compensation of Executive Officers and
Compensation of Directors in the company's definitive Proxy Statement for the
2004 Annual Meeting of Shareholders.

Item. 12. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
The information required by Item 12 is incorporated by reference to the
information set forth under the caption Share Ownership of Principal Holders and
Management in the company's definitive Proxy Statement for the 2004 Annual
Meeting of Shareholders.

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's definitive Proxy Statement for the 2004
Annual Meeting of Shareholders.

Item 14. Principal Accounting Fees and Services.
- ------------------------------------------------
The information required by Item 14 is incorporated by reference to the
information set forth under the caption Independent Auditors in the company's
definitive Proxy Statement for the 2004 Annual Meeting of Shareholders.
I-26

PART IV
-------

Item 15. 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, 2003, 2002
and 2001

Consolidated Balance Sheet - December 31, 2003 and 2002

Consolidated Statement of Cash Flows - years ended December 31, 2003, 2002,
and 2001

Consolidated Statement of Shareholders' Equity - years ended December 31,
2003, 2002, and 2001

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-29 of this Report on Form 10-K.

(b) Reports on Form 8-K.
-------------------
A Form 8-K was filed on October 1, 2003 under Item 5, Other Events and
Regulation FD Disclosure and Item 7, Financial Statements and Exhibits. The
Form 8-K contained Invacare Corporation's press release announcing the sale
of $100,000,000 in senior notes through a private placement to
institutional investors.

A Form 8-K was furnished on October 16, 2003 under Item 12, Results of
Operations and Financial Condition. The Form 8-K contained Invacare
Corporation's earnings release, dated October 16, 2003, which disclosed the
company's 2003 third quarter results.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized as of
March 12, 2004.

INVACARE CORPORATION

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

I-27

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of March 12, 2004.

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/ Gregory C. Thompson Senior Vice President and
- ------------------------------------ Chief Financial Officer
Gregory C. Thompson (Principal Financial and
Accounting Officer)

/s/ James C. Boland Director
- ------------------------------------
James C. Boland

/s/ Michael F. Delaney Director
- ------------------------------------
Michael F. Delaney

/s/ Whitney Evans Director
- ------------------------------------
Whitney Evans

/s/ C. Martin Harris, M.D Director
- ------------------------------------
C. Martin Harris, M.D

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

/s/ William M. Weber Director
- ------------------------------------
William M. Weber

I-28

INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2003.

I-29

* Management contract, compensatory plan or arrangement
** Filed herein.

(A) 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.

(B) 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.

(C) 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.

(D) 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.

(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.

I-30

(F) 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.

(G) 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.

(H) 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.

(I) 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.

(J) 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.

(K) 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.

(L) 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.

(M) 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.

(N) 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.

(O) Reference is made to Exhibit 10.1 of the company report on Form 10-Q,
dated September 30, 2002, 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, 1996, which Exhibit
is incorporated herein by reference.

(Q) Reference is made to the appropriate Exhibit of the company report on
Form 10-K for the fiscal year ended December 31, 2002, which Exhibit
is incorporated herein by reference.

(R) Reference is made to the appropriate Exhibit of the company report on
Form 10-Q for the quarter ended March 31, 2003, which Exhibit is
incorporated herein by reference.

(S) Reference is made to Exhibit 4.5 of Invacare Corporation Form S-8
filed on October 17, 2003.

(T) Reference is made to the appropriate Exhibit of the company report on
Form 10-Q for the quarter ended September 30, 2003, 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, 2003 and 2002, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2003. Our audits also
included the financial statement schedule listed in the Index at Item 15 (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, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, 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.

As discussed in "Goodwill" in the Notes to the Consolidated Financial
Statements, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective
January 1, 2002.

ERNST & YOUNG LLP

Cleveland, Ohio
February 20, 2004

FS-1

CONSOLIDATED STATEMENT OF EARNINGS

INVACARE CORPORATION AND SUBSIDIARIES

See notes to consolidated financial statements.

FS-2

CONSOLIDATED BALANCE SHEET

INVACARE CORPORATION AND SUBSIDIARIES

See notes to consolidated financial statements.

FS-3

CONSOLIDATED STATEMENT OF CASH FLOWS

INVACARE CORPORATION AND SUBSIDIARIES

See notes to consolidated financial statements.

FS-4

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

INVACARE CORPORATION AND SUBSIDIARIES
(In thousands)

See notes to consolidated financial statements.

FS-5

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 net 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.

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.

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 method and for non-domestic inventories and domestic finished products
purchased for resale ($99,607,000 and $81,180,000 at December 2003 and 2002,
respectively) by the first-in, first-out method. Market costs are based on the
lower of replacement cost or estimated net realizable value. The value of
inventory on the LIFO method is approximately equal to its current cost as of
December 31, 2003 and 2002.

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.

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. The asset
would be considered impaired when the future net undiscounted cash flows
generated by the asset are less than its carrying value. An impairment loss
would be recognized based on the amount by which the carrying value of the asset
exceeds its fair value.

Goodwill and Other Intangibles: Effective January 1, 2002, Invacare adopted SFAS
No. 142, Goodwill and Other Intangible Assets, and accordingly, discontinued
amortization of goodwill. SFAS No. 142 changes the accounting for goodwill from
an amortization approach to a non-amortization approach requiring periodic
testing for impairment. For purposes of the impairment test, the fair value of
each reporting unit is estimated by forecasting cash flows and discounting those
cash flows using appropriate discount rates. The fair values are then compared
to the carrying value of the net assets of each reporting unit. The company
completed the required initial analysis as of January 1, 2002 as well as the
annual impairment tests in the fourth quarter of 2002 and 2003. The results of
these tests indicated no impairment of goodwill.

Accrued 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. The company continuously assesses the
adequacy of its product warranty accrual and makes adjustments as needed. See
the "Current Liabilities" footnote for a reconciliation of the changes in the
warranty accrual.

FS-6

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACCOUNTING POLICIES--Continued

Product Liability Cost: The company's captive insurance company, Invatection
Insurance Co., currently has a policy year that runs from September 1 to August
31 and insures annual policy losses of $10 million per occurrence and $10
million in the aggregate of the company's North American product liability
exposure. The company also has additional layers of external insurance coverage
insuring $90 million in annual aggregate losses arising from individual claims
that exceed the captive insurance company policy limits. Invatection records
product liability reserves based upon independent actuarial valuations. There
can be no assurance that Invacare's current insurance levels will continue to be
adequate or available at affordable rates.

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 cost of products sold and
the related revenue from shipping products is treated as a component of net
sales.

Research and Development: Research and development costs are expensed as
incurred and included in cost of products sold. The company's annual
expenditures for product development and engineering were approximately
$19,130,000, $17,934,000, and $17,394,000 for 2003, 2002, and 2001,
respectively.

Advertising: Advertising costs are expensed as incurred and included in selling,
general and administrative expenses. Advertising expenses amounted to
$22,806,000, $20,905,000 and $19,198,000 for 2003, 2002 and 2001, respectively.

Stock-Based Compensation Plans: The company accounts for options under its
stock-based compensation plans using the intrinsic value method proscribed in
APBO No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. The majority of the options awarded have been granted at
exercise prices equal to the market value of the underlying stock on the date of
grant, thus no compensation cost has been reflected in the consolidated
statement of earnings for these options. In addition, restricted stock awards
have been granted without cost to the recipients and are being expensed on a
straight-line basis over the vesting periods. Invacare continues to utilize the
disclosure-only provisions of SFAS No. 123, Accounting for Stock Based
Compensation. If the company had applied the fair value recognition provisions
of SFAS No. 123, the company's net earnings and earnings per share in 2003, 2002
and 2001 would have been reduced to the pro forma amounts indicated below:

Income Taxes: The company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities on 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 United States federal income taxes
has been provided.

FS-7

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACCOUNTING POLICIES--Continued

Derivative Instruments: The company recognizes its derivative instruments as
assets or liabilities in the consolidated balance sheet measured at fair value.

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 fair value 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 $20,000,000 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
$180,000,000 of fixed-rate debt to floating-rate debt, so the company can avoid
paying higher than market interest rates. The company recognized net gains of
$2,872,000 and $773,000, respectively, related to its swap agreements in 2003
and 2002, which is reflected in interest expense on the consolidated 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 net gains in 2003 and
2002 of $1,410,000 and $1,252,000, respectively, versus a net loss of $828,000
in 2001 on foreign currency cash flow hedges. The gains or losses are included
in cost of products sold and selling, general and administrative expenses on the
consolidated statement of earnings.

The company uses forward contracts that do not qualify for special hedging
treatment, but do effectively limit the company's exposure to foreign currency
fluctuations between the Mexican Peso and U.S. Dollar. During 2003 and 2002, the
company recognized losses of $118,000 and $68,000 versus a gain of $953,000 in
2001 related to these forward contracts, which are included in costs of products
sold on the consolidated 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.

Foreign Currency Translation: The functional currency of the company's
subsidiaries outside the United States is the applicable local currency. 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).

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.

Recently Issued Accounting Pronouncements: In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46),
which was revised in December 2003 and among other things deferred the
implementation date of FIN 46 until periods ending after March 15, 2004. This
interpretation requires consolidation of an entity if the company is subject to
a majority of the risk of loss from the variable interest entity's (VIE)
activities or entitled to receive a majority of the entity's residual returns,
or both. A company that consolidates a VIE is known as the primary beneficiary
of that entity.

As of December 31, 2003, the company had an investment in a development stage
company, which is currently pursuing FDA approval to market a product focused on
the treatment of post-stroke shoulder pain in the United States. The net
advances and investment recorded on the company's books is approximately
$3,100,000 at December 31, 2003. Based on the provisions of FIN 46 and the
company's preliminary analysis, the company does not believe that its investment
is a VIE.

FS-8

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACCOUNTING POLICIES--Continued

RECEIVABLES

Trade accounts receivable are reduced by an allowance for amounts that may
become uncollectible in the future. The estimated allowance for uncollectible
amounts ($16,775,000 in 2003 and $19,067,000 in 2002) is based primarily on
management's evaluation of the financial condition of the customer.

Installment receivables as of December 31, 2003 and 2002 consist of the
following:

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. See the "Concentration
of Credit Risk" footnote for a description of the financing arrangement.
Long-term installment receivables are included in "Other Assets" on the
consolidated balance sheet.

INVENTORIES

Inventories as of December 31, 2003 and 2002 consist of the following:

2003 2002
------ ------
(In thousands)
Raw materials $41,573 $35,457
Work in process 18,711 12,789
Finished goods 70,695 63,136
------ -------
$130,979 $111,382
======= =======
PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2003 and 2002 consist of the
following:
2003 2002
------ ------
(In thousands)
Machinery and equipment $216,459 $199,448
Land, buildings and improvements 67,364 55,232
Furniture and fixtures 20,737 15,641
Leasehold improvements 14,946 13,874
------- -------
319,506 284,195
Less allowance for depreciation (169,455) (153,232)
------- -------
$150,051 $130,963
======= =======

FS-9

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACQUISITIONS

In 2003, Invacare Corporation acquired the following businesses at a total cost
of $70,555,000, which was paid in cash:

o The assets of Pinnacle Medsources Inc., a Georgia corporation, and
distributor of home medical equipment.
o Mecc San SrL, an Italian corporation, and manufacturer of home medical
equipment.
o Carroll Healthcare, Inc., a Canadian Corporation, and a leading
manufacturer of beds and furniture for the long-term care industry in
North America.
o Motion Concepts, Inc., a Canadian Corporation, and leading
manufacturer of seating and positioning products in North America.

Goodwill recognized in these transactions amounted to approximately $53,100,000,
the majority of which is not expected to be deductible for tax purposes.
Goodwill of $49,700,000 was assigned to the North American segment and
$3,400,000 was assigned to the European segment. As part of the Carroll purchase
agreement, the Company agreed to pay additional consideration based upon
earnings before interest, taxes, depreciation and amortization from September 1,
2003 through August 31, 2004 calculated under Canadian generally accepted
accounting principles with no defined maximum amount. Pursuant to the Motion
purchase agreement, the Company agreed to pay contingent consideration based
upon earnings before interest and taxes over the three years subsequent to the
acquisition up to a maximum of approximately $16,000,000. When the contingencies
related to both of the acquisitions are settled, any additional consideration
paid will increase the respective purchase price and reported goodwill.

GOODWILL

In accordance with the provisions of SFAS No. 142, effective January 1, 2002,
the company ceased amortization of goodwill. The following comparative
disclosure shows the impact on 2001 as if SFAS No. 142 had been adopted as of
the beginning of each year.

The carrying amount of goodwill by operating segment is as follows:

FS-10

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

OTHER INTANGIBLES

All of the company's other intangible assets have definite lives and continue to
be amortized over their useful lives, except for $4,268,000 related to
trademarks, which have indefinite lives. The company's intangibles consist of
the following:

Amortization expense related to other intangibles was $1,506,000 and $1,288,000
for 2003 and 2002, respectively. Estimated amortization expense for each of the
next five years is expected to be $2,150,000 for 2004, $1,793,000 in 2005,
$1,291,000 in 2006, $1,224,000 in 2007 and $1,103,000 in 2008.

CURRENT LIABILITIES

Accrued expenses as of December 31, 2003 and 2002 consist of the following:

2003 2002
------ ------
(In thousands)
Accrued salaries and wages $31,960 $20,266
Accrued rebates 13,595 3,669
Accrued warranty cost 12,688 11,448
Accrued interest 9,114 3,504
Accrued freight 4,524 3,548
Accrued taxes other than income taxes 3,661 4,628
Accrued insurance 2,470 2,304
Accrued product liability, current portion 2,245 2,996
Accrued legal and professional 2,029 1,478
Other accrued items 14,862 13,346
------ ------
$97,148 $67,187
======= =======

Changes in accrued warranty costs were as follows:
2003 2002
---- ----
(In thousands)
Balance as of January 1 $11,448 $7,607
Warranties provided during the period 8,557 7,571
Settlements made during the period (8,288) (7,854)
Changes in liability for pre-existing
warranties during the period,
including expirations 971 4,124
------- --------
Balance as of December 31 $12,688 $11,448
======= =======

FS-11

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

LONG-TERM DEBT

Long-term debt as of December 31, 2003 and 2002 consist of the following:

The carrying values of the senior notes have been increased by the gains on the
interest rate swaps accounted for as fair value hedges.

In October 2003, Invacare Corporation issued $100,000,000 in senior notes,
maturing between 2007 and 2010. 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. The 364-day facility expired in
October 2003; the multi-currency revolving credit agreement does not expire
until October 17, 2006 or such later date as mutually agreed upon by the company
and the banks.

Borrowings denominated in foreign currencies aggregated $872,000 at December 31,
2003 and $12,842,000 at December 31, 2002. The borrowing rates under the
revolver agreement is determined based on the ratio of debt to earnings before
interest, taxes, depreciation and amortization (EBITDA) of the company as
defined in the agreement and range from 0.675% to 1.40% above the various
interbank offered rates. As of December 31, 2003 and 2002, the weighted average
floating interest rate on U.S. borrowings was 2.69% and 3.66%, respectively. The
revolver agreement, as amended, requires the company to maintain certain
conditions with respect to net worth, funded debt to capitalization, and
interest coverage as defined in the agreements. In addition, the 2003 note
issuance agreements requires the company to maintain conditions with respect to
net worth, consolidated debt and priority debt. At December 31, 2003,
$229,578,000 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 $248,871,000 as of December 31, 2003.

In October 2003, the company exchanged the fixed rates of 3.97%, 4.74% and 5.05%
on the $50,000,000, $30,000,000 and $20,000,000 Senior Notes due in October
2007, October 2009 and October 2010 for variable rates based on LIBOR plus
0.01%, LIBOR plus 0.14% and LIBOR plus 0.26%, respectively. The effect of these
swaps is to exchange fixed rates for the lower floating rates currently
available.

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 exchanged the fixed rate for
variable rates equal to LIBOR plus 1.9%, 1.71% and 1.62%, respectively. In
January 2002, the company exchanged the fixed rate of 6.71% on the remaining
$30,000,000 of the $80,000,000 in Senior Notes due in February 2008. The two
agreements for $10,000,000 and $20,000,000 exchanged the fixed rate for variable
rates equal to LIBOR plus 1.05% and 1.08%, respectively. The effect of these
swaps is to exchange a fixed rate of 6.71% for the lower floating rates
currently available.

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 these swaps is to exchange a
short-term floating interest rate for a fixed rate of 5.63% for a five-year term
on both agreements.

The aggregate minimum maturities of long-term debt for each of the next five
years are as follows: $2,171,000 in 2004, $20,746,000 in 2005, $20,728,000 in
2006, $50,668,000 in 2007, and $80,582,000 in 2008. Interest paid on borrowings
was $9,450,000, $13,465,000 and $26,361,000 in 2003, 2002 and 2001,
respectively.

FS-12

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

OTHER LONG-TERM OBLIGATIONS

Other long-term obligations as of December 31, 2003 and 2002 consist of the
following:

2003 2002
------- -------
(In thousands)
Supplemental Executive Retirement Plan liability $11,048 $9,460
Product liability 9,664 5,276
Deferred federal income taxes 2,337 -
Other, principally deferred compensation 11,334 9,295
------- -------
Total long-term obligations $34,383 $24,031
======= =======

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 18 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, 2003, 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 2014. Lease expenses were
approximately $15,803,000 in 2003, $12,575,000 in 2002, and $12,045,000 in 2001.
Future minimum operating lease commitments as of December 31, 2003, are as
follows:

Year Amount
---- ------
(In thousands)
2004 $12,235
2005 8,957
2006 5,120
2007 2,756
2008 786
Thereafter 160
-------
Total Future Minimum Lease Payments $30,014
=======

The amount of buildings and equipment capitalized in connection with capital
leases was $7,767,000 and $4,567,000 at December 31, 2003 and 2002,
respectively. At December 31, 2003 and 2002, accumulated amortization was
$3,003,000 and $2,508,000, respectively.

RETIREMENT AND BENEFIT PLANS

Substantially all full-time salaried and hourly domestic employees are included
in the Invacare Retirement Savings Plan sponsored by the company. The company
makes matching cash contributions up to 66.7% of employees' contributions up to
3% of compensation, quarterly contributions based upon 4% of qualified wages and
may make discretionary contributions to the domestic plans based on an annual
resolution by the Board of Directors.

The company also sponsors a non-qualified 401(k) Plus Benefit Equalization Plan
covering certain employees, which provides for employee elective deferrals and
company retirement deferrals so that the total retirement deferrals equal
amounts that would have been contributed to the company's principal retirement
plans if it were not for limitations imposed by income tax regulations.
Contribution expense for the plans in 2003, 2002 and 2001 was $5,619,000,
$5,444,000, and $5,788,000, respectively.

The company also sponsors a non-qualified defined benefit Supplemental Executive
Retirement Plan for certain key executives. The projected benefit obligation
related to this unfunded plan was $27,618,000 and $21,603,000 at December 31,
2003 and 2002, respectively, of which approximately $11,517,000 and $9,823,000,
at December 31, 2003 and 2002, respectively, has been accrued. Expense for the
plan in 2003, 2002, and 2001 was $2,108,000, $2,147,000, and $2,059,000,
respectively.

In conjunction with these non-qualified plans, the company has invested in life
insurance policies related to certain employees to satisfy these future
obligations. The current cash surrender value of the policies approximates the
current benefit obligations. In addition, the projected policy benefits exceed
the projected benefit obligations.

FS-13

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

SHAREHOLDERS' EQUITY TRANSACTIONS

The Common Shares and the Class B Common Shares generally 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.

The 2003 Performance Plan (the "2003 Plan") allows the Compensation Committee of
the Board of Directors (the "Committee") to grant up to 2,000,000 Common Shares
in connection with incentive stock options, non-qualified stock options, stock
appreciation rights and stock awards (including the use of restricted stock).
The 1994 Performance Plan (the "1994 Plan"), as amended, expires in 2004 and
allowed the Compensation Committee of the Board of Directors (the "Committee")
to grant up to 5,500,000 Common Shares. The Committee has the authority to
determine which employees and directors will receive awards, the amount of the
awards and the other terms and conditions of the awards. During 2003, the
Committee granted 351,350 and 353,267 non-qualified stock options for a term of
ten years at the fair market value of the company's Common Shares on the date of
grant under the 2003 Plan and the 1994 Plan, respectively. There were no stock
appreciation rights outstanding at December 31, 2003, 2002 or 2001.

Restricted stock awards for 28,894, 37,289 and 24,020 shares were granted in
years 2003, 2002 and 2001 without cost to the recipients. Under the terms of the
restricted stock awards, 83,703 of the shares granted vest four years after the
award date and 6,500 of the shares granted vest 2 years after the award date.
Unearned restricted stock compensation of $897,000 in 2003, $1,190,000 in 2002
and $949,000 in 2001, determined as the market value of the shares at the date
of grant, is being amortized on a straight-line basis over the vesting period.
Compensation expense of $643,000, $757,000 and $178,000 was recognized in 2003,
2002 and 2001, respectively, related to restricted stock awards granted in 2003,
2002 and 2001.

The 1994 Plan and the 2003 Plan have provisions that allow employees to exchange
mature shares to pay the exercise price and surrender shares for the options to
cover the minimum tax withholding obligation. Under these provisions, the
company acquired 85,704 treasury shares for $3,079,810 in 2003, 85,043 treasury
shares for $2,868,514 in 2002 and 124,823 treasury shares for $4,781,114 in
2001.

As of December 31, 2003, an aggregate of 11,028,556 Common Shares were reserved
for conversion of Class B Common Shares, future rights (as defined below) and
the exercise and future grant of options.

* Options available for grant as of December 31, 2003 reduced by net
restricted stock award activity of 88,203.

The company utilizes the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plans, except the expense recorded related to the 90,203 restricted stock awards
granted in years 2001 through 2003.

The assumption regarding the stock options issued in 2003, 2002 and 2001 was
that 25% of such options vested in the year following issuance. The stock
options awarded during such years 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.

FS-14

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

SHAREHOLDERS' EQUITY TRANSACTIONS--Continued

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:

2003 2002 2001
---- ---- ----
Expected dividend yield .75% .80% .90%
Expected stock price volatility 29.6% 31.4% 33.8%
Risk-free interest rate 3.31% 3.26% 4.53%
Expected life (years) 5.5 5.4 6.0

The weighted-average fair value of options granted during 2003, 2002 and 2001,
based upon an expected exercise year of 2008, was $11.03, $10.71 and $12.24,
respectively.

The plans provide that shares granted come from the company's authorized but
unissued Common Shares or treasury shares. Pursuant to the plans, the Committee
has established that the 2003 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, 2003 is 6.9 years.

On July 7, 1995, the company adopted a Rights Plan whereby each holder of a
Common Share and a 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 $8.00 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 $0.005 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.

CAPITAL STOCK

Capital stock activity for 2003, 2002 and 2001 consisted of the following (In
thousands of shares):

Stock option exercises include deferred share activity, which increased common
shares by 75,000 shares and treasury shares by 5,000 shares.

FS-15

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

OTHER COMPREHENSIVE EARNINGS (LOSS)

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

A net gain of $500,000 and net losses of $402,000 and $1,975,000 were
reclassified into earnings related to derivative instruments designated and
qualifying as cash flow hedges in 2003, 2002 and 2001, respectively.

INCOME TAXES

Earnings before income taxes consist of the following:
2003 2002 2001
-------- ------- -------
(In thousands)
Domestic $59,027 $51,512 $38,848
Foreign 47,382 45,018 27,542
-------- ------- -------
$106,409 $96,530 $66,390
======== ======= =======

FS-16

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

INCOME TAXES --Continued

The company has provided for income taxes as follows:

2003 2002 2001
---- ---- ----
(In thousands)
Current:
Federal $16,635 $21,415 $11,985
State 3,200 2,200 3,800
Foreign 11,960 11,195 9,195
------- ------- -------
31,795 34,810 24,980

Deferred:
Federal 1,625 (4,620) 5,170
Foreign 1,580 1,570 1,050
------- ------- -------
3,205 (3,050) 6,220
------- ------- -------
Income Taxes $35,000 $31,760 $31,200
======= ======= =======

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

2003 2002 2001
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax benefit 2.0 1.5 3.7
Tax credits (1.4) (2.3) (1.8)
Goodwill - - 4.8
Valuation reserve for investments - - 7.5
Foreign taxes at less than the federal
statutory rate, excluding goodwill (2.9) (2.6) (1.7)
Other, net .2 1.3 (.5)
---- ---- ----
32.9% 32.9% 47.0%
==== ==== ====

Significant components of deferred income tax assets and liabilities at December
31, 2003 and 2002 are as follows:

2003 2002
------ ------
(In thousands)
Current deferred income tax assets, net:
Bad debt $7,773 $11,669
Warranty 3,094 2,378
Inventory 1,931 2,278
Other accrued expenses and reserves 2,118 2,600
State and local taxes 2,422 3,242
Litigation reserves 2,177 2,171
Compensation and benefits 968 674
Product liability 291 292
Loss carryforwards 1,162 860
Other, net 2,637 (111)
------ ------
$24,573 $26,053
------ ------

FS-17

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

INCOME TAXES --Continued
2003 2002
------ ------
(In thousands)
Long-term deferred income tax assets (liabilities), net:
Fixed assets (11,003) (11,012)
Product liability 1,282 1,282
Loss carryforwards 1,001 768
Compensation and benefits 8,219 6,172
State and local taxes 2,400 2,400
Valuation reserve (1,001) (768)
Other, net (3,235) 2,047
------ ------
$ (2,337) $ 889
------ ------
Net Deferred Income Taxes $22,236 $26,942
====== ======

At December 31, 2003, the company had foreign tax loss carryforwards of
approximately $6,130,000 of which $5,306,000 are non-expiring and $824,000 are
expiring in 2010. The company made income tax payments of $25,173,000,
$28,769,000 and $27,104,000 during the years ended December 31, 2003, 2002 and
2001, respectively.

NET EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net earnings
per common share.

At December 31, 2003, 501,067 shares were excluded from the average common
shares assuming dilution, as they were anti-dilutive. The majority of the
anti-dilutive shares were granted at an exercise price of $37.70, which was
higher than the average fair market value price of $35.29 for 2003.

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 certain customers for periods ranging from
6 to 39 months. In December 2000, Invacare entered into an agreement with DLL, a
third party financing company, to provide all future lease financing to
Invacare's customers. The DLL agreement provides for direct leasing between DLL
and the Invacare customer. The company retains a limited recourse obligation
($20,100,000 at December 31, 2003) to DLL for events of default under the
contracts (total balance outstanding of $63,500,000 at December 31, 2003).
Accordingly, the company monitors the collections status of these contracts and
has provided amounts for estimated losses in its allowances for doubtful
accounts.
FS-18

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

CONCENTRATION OF CREDIT RISK--Continued

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, is ultimately funded
through government reimbursement programs such as Medicare and Medicaid. In
addition, the company has seen a 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, which are due in less than one year. The
interest rates associated with these receivables have not varied significantly
since inception. Management believes that after consideration of the credit
risk, the net book value of the installment receivables approximates market
value.

Long-term debt: 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, adjusted for any estimated declines in value. These investments
were acquired in private placements and there are no quoted market prices or
stated rates of return.

The carrying amounts and fair values of the company's financial instruments at
December 31, 2003 and 2002 are as follows:

FS-19

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued

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 forward contracts are entered into to hedge the
following currencies: USD, NZD, CAD, EUR, SEK, DKK and MXP. 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. The company recognized gains of $1,292,000 in 2003,
$1,184,000 in 2002 and $125,000 in 2001 on forward contracts, which were
recognized in cost of products sold and selling, general and administrative
expenses.

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 that these entities require difficult.

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 sells each of five primary product lines, which
includes: standard, rehab, distributed, respiratory, and continuing care
products. Europe and Australasia sell the same product lines with the exception
of distributed products. 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 $74,835,000,
$61,178,000 and $66,565,000 for the years ended December 31, 2003, 2002 and
2001, respectively.

FS-20

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

BUSINESS SEGMENTS--Continued

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

2003 2002 2001
----------------------------------------------------------------------------
Revenues from external customers
North America $897,208 $793,464 $773,713
Europe 279,782 251,443 236,093
Australasia 70,186 44,254 43,833
----------- ----------- -----------
Consolidated $1,247,176 $1,089,161 $1,053,639
=========== =========== ===========

Depreciation and amortization
North America $18,551 $19,232 $23,365
Europe 6,315 5,699 7,974
Australasia 2,261 1,623 2,047
All Other (1) 108 84 62
------- ------- -------
Consolidated $27,235 $26,638 $33,448
======= ======= =======

Net interest expense (income)
North America $7,780 $11,910 $16,154
Europe 4,220 5,256 6,459
Australasia (602) (282) 9
All Other (1) (5,161) (6,312) (7,161)
------- ------- -------
Consolidated $6,237 $10,572 $15,461
======= ======= =======

Earnings (loss) before income taxes
North America $88,299 $76,548 $84,208
Europe 19,132 19,020 8,444
Australasia 5,997 5,740 4,739
All Other (1) (7,019) (4,778) 949
Non-recurring and unusual item - - (31,950)
------- ------- -------
Consolidated $106,409 $96,530 $66,390
======== ======= =======

Assets
North America $616,352 $510,135 $575,238
Europe 348,063 295,085 254,970
Australasia 56,403 41,185 32,727
All Other (1) 87,395 60,298 51,602
------- ------- -------
Consolidated $1,108,213 $906,703 $914,537
========== ======== ========

Expenditures for assets
North America $12,513 $11,172 $11,980
Europe 11,933 7,956 6,401
Australasia 6,203 2,381 1,734
All Other (1) 11 600 67
------- ------- -------
Consolidated $30,660 $22,109 $20,182
======= ======= =======

(1) Consists of the domestic export unit, un-allocated corporate selling,
general and administrative costs, the Invacare captive insurance unit and
inter-company profits, which do not meet the quantitative criteria for
determining reportable segments.

FS-21

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

BUSINESS SEGMENTS--Continued

Net sales by product, are as follows (In thousands):

North America 2003 2002 2001
------------- -------- -------- --------
Standard $274,959 $282,627 $293,889
Rehab 273,063 211,096 195,955
Distributed 162,645 146,573 127,975
Respiratory 118,115 82,528 88,915
Continuing Care 48,321 40,452 39,970
Other 20,105 30,188 27,009
-------- -------- --------
$897,208 $793,464 $773,713
======== ======== ========

Europe 2003 2002 2001
------ -------- -------- --------
Standard $142,777 $130,617 $125,685
Rehab 129,167 113,162 102,801
Respiratory 7,838 7,664 7,607
-------- -------- --------
$279,782 $251,443 $236,093
======== ======== ========

Australasia 2003 2002 2001
----------- -------- -------- --------
Rehab $46,832 $32,752 $33,154
Respiratory 6,584 4,207 5,440
Standard 6,427 4,680 4,276
Other 10,343 2,615 963
-------- -------- --------
$70,186 $44,254 $43,833
======== ======== ========
Total Consolidated $1,247,176 $1,089,161 $1,053,639
========== ========== ==========

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

INTERIM FINANCIAL INFORMATION (UNAUDITED)

FS-22

INVACARE CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

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

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

Note (C) - Loss and loss adjustment.

FS-23

Exhibit 21

1. Invacare (UK) Limited, 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. Invacare Poirier S.A.S., a French corporation and wholly owned subsidiary.

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

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

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

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

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

15. Invacare Florida Corporation, a Delaware corporation and wholly owned
subsidiary.

16. Invacare New Zealand, a New Zealand corporation and wholly owned
subsidiary.

17. Invacare AG, a Swiss corporation and wholly owned subsidiary.

18. Invacare International Sarl, a Swiss corporation and wholly owned
subsidiary.

19. Healthtech Products, Inc., a Missouri corporation and wholly owned
subsidiary.

20. Invacare Lda., a Portugal company and wholly owned subsidiary.

21. Invacare Supply Group, Inc. (formerly Suburban Ostomy Supply Company,
Inc.), a Massachusetts corporation and wholly owned subsidiary.

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

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

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

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

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

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

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

I-32

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

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

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

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

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

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

35. Samarite B.V., a Netherlands corporation and wholly owned subsidiary.

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

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

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

39. Hatfield Mobility Unlimited, a New Zealand corporation and wholly owned
subsidiary.

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

41. Invacare AS, a Norwegian corporation and wholly owned subsidiary.

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

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

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

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

46. Invacare Holdings CV, a Netherlands wholly owned partnership subsidiary.

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

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

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

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

51. Invacare Holdings New Zealand, a New Zealand corporation and wholly owned
subsidiary.

52. Invacare Bencraft Ltd., a U.K. corporation and wholly owned subsidiary.

53. Invacare Holdings LLC, an Ohio limited liability corporation and wholly
owned subsidiary

54. 2030604 Ontario, Inc., an Ontario corporation and wholly owned subsidiary.

55. 3080359 Nova Scotia Company, a Nova Scotia corporation and wholly owned
subsidiary.

56. 6123449 Canada, Inc., a Canadian corporation and wholly owned subsidiary.

57. Carroll Healthcare, a Canadian corporation and wholly owned subsidiary.

I-33

58. Carroll Healthcare (USA) Inc., a Nevada corporation and wholly owned
subsidiary.

59. Carroll Healthcare Inc. (Chile) Limitada, a Chilean corporation and wholly
owned subsidiary.

60. Invacare Canadian Holdings, Inc., a Delaware corporation and wholly owned
subsidiary.

61. Invacare Mauritius Holdings, a Republic of Mauritius Company and wholly
owned subsidiary.

62. Invacare Mecc San SrL, an Italian corporation and wholly owned subsidiary.

63. Motion Concepts, L.P., an Ontario wholly owned partnership.

64. Perpetual Motion Enterprises, an Ontario corporation and wholly owned
subsidiary.

65. Invacare Holdings LLC, an Ohio limited liability corporation and wholly
owned subsidiary.

66. Medbloc, Inc., a Delaware corporation and wholly owned subsidiary.

Note, "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. 33-45993 dated February 24, 1992, No. 33-87052 dated December 5,
1994, No. 33-57978 dated March 30, 2001 and No. 333-109794 dated October 17,
2003) pertaining to the Invacare Corporation stock option plans, of our report
dated February 20, 2004, 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, 2003.

ERNST & YOUNG LLP

Cleveland, Ohio
March 10, 2004

I-35