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, 2004

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
incorporation or organization) Identification Number)

One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (440) 329-6000
------------------

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, New York Stock Exchange
without par value

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

Indicate by check mark whether the Registrant (1) has filed all reports 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, 2004, the aggregate market value of the 27,329,710 Common Shares
of the Registrant held by non-affiliates was $1,222,184,631 and the aggregate
market value of the 31,803 Class B Common Shares of the Registrant held by
non-affiliates was $1,422,230. 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, 2004, which
was $44.72. For purposes of this information, the 2,724,495 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 24, 2005, 30,322,573 Common Shares and 1,111,965 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 2005 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, 2004.

I-1

INVACARE CORPORATION
2004 ANNUAL REPORT ON FORM 10-K CONTENTS

Page
Item
PART I:

1. Business I-3

2. Properties I-14

3. Legal Proceedings I-17

4. Submission of Matters to a Vote of Security Holders I-17

Executive Officers of the Registrant I-17

PART II:

5. Market for the Registrant's Common Equity, Related Stockholder I-19
Matters and Issuer Purchases of Equity Securities

6. Selected Financial Data I-20

7. Management's Discussion and Analysis of Financial Condition and I-21
Results of Operations

7A.Quantitative and Qualitative Disclosures About Market Risk I-29

8. Financial Statements and Supplementary Data I-29

9. Changes in and Disagreements with Accountants on Accounting and I-29
Financial Disclosure

9A. Controls and Procedures I-29

PART III:

10. Directors and Executive Officers of the Registrant I-30

11. Executive Compensation I-30

12. Security Ownership of Certain Beneficial Owners and Management I-31

13. Certain Relationships and Related Transactions I-31

14. Principal Accounting Fees and Services I-31

PART IV:

15. Exhibits and Financial Statement Schedules I-31

Signatures I-32

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 pursues 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;
* 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;
* 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 of our current officers and Directors, it had $19.5 million in
net sales and a limited product line of standard wheelchairs and patient aids.
In 2004, Invacare reached $1.403 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. A recent 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 and life
expectancy at birth is now 74 for men and almost 80 for women. The DHHS
also reports that people age 65 or older represent the vast majority of
home health care patients and 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 payers and private payers 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 2002, health care expenditures in
the U.S. totaled $1.5 trillion dollars or approximately 14.9% of the Gross
Domestic Product (GDP), the highest among industrialized countries. In
2013, the nation's health care spending is projected to increase to $3.4
trillion, growing at an average annual rate of 7.3%. Over this same period,
spending on health care is expected to increase to approximately 18.4% as a
share of GDP. The rising cost of health care has caused many payers 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/Asia/Pacific
- -------------------
The company believes that, while many of the market factors influencing demand
in the U.S. are also present in Europe and Asia/Pacific - aging of the
population, technological trends and society's acceptance of people with
disabilities - each of the major national markets within Europe and in
Asia/Pacific 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, New Zealand and Asian 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 Storm Series(R) was expanded in 2004 with the introduction of
the TDX(TM) line of power wheelchairs which offer an unprecedented
combination of power, stability and maneuverability. The Pronto(TM) Series
Power Wheelchairs with SureStep(TM), introduced in 2002, feature
center-wheel drive performance for exceptional maneuverability and
intuitive driving. The power tilt and recline systems are now offered also
as a result of the company's acquisition of Motion Concepts, Inc.

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 replaced 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. The company has
also expanded its product line of seating products and wheelchairs for the
pediatric market with the acquisition of Freedom Designs, Inc.

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.
In 2004, Invacare introduced its own private label brand of certain medical
supplies.

CONTINUING CARE

Health Care Furnishings. Invacare, operating as Invacare Continuing Care
Group, is a manufacturer and distributor of beds and furnishings for the
long-term 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.

Asia/Pacific
- ------------
The company's Asia/Pacific 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; Invacare New Zealand, a manufacturer of
wheelchairs and beds and a distributor of a wide range of home medical
equipment; and Invacare Asia Sales, which imports and distributes home medical
equipment to the Asia markets.

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 locally to meet specific
market requirements. 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, and 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. In addition to distributing the Invacare
range of products, Invacare Mecc San SrL in Italy manufactures beds, patient
lifts and commodes specifically for the local market.

With the acquisition in September 2004 of WP Domus GmbH (Domus), the European
product range has been enhanced and market share increased. Domus is a
European-based holding company that manufactures several complementary product
lines to Invacare's product lines, including power add-on products, bath lifts
and walking aids. Domus has three divisions: Alber, Aquatec and Dolomite.

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.

I-6

North America and Asia/Pacific
- ------------------------------
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. 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 Asia/Pacific
- ------------------------------
Invacare's products are marketed in the United States and Asia/Pacific primarily
to providers who in turn sell or rent these products directly to consumers
within the non-acute care setting. Invacare's primary customer is the home
medical equipment (HME) provider. The company also employs a "pull-through"
marketing strategy to medical professionals, including physical and occupational
therapists, who refer their patients to HME providers to obtain specific types
of home medical equipment, as well as to consumers, who express a product or
brand preference.

Invacare's domestic sales and marketing organization consists primarily of a
home care sales force, which markets and sells Invacare(R)-branded products to
HME providers. Each member of Invacare's home care sales force functions as a
Territory Business Manager (TBM) and handles all product and service needs for
an account, thus saving customers valuable time. The TBM also provides training
and servicing information to providers, as well as product literature,
point-of-sale materials and other advertising and merchandising aids. In Canada,
products are sold by a 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 provides increased sales coverage of smaller
accounts and complements the efforts of the field sales force. Inside Sales
offers cost-effective sales coverage through a targeted telesales effort, and
has delivered excellent sales growth in each of its five years of existence.

The Invacare Service and Parts Division (ISP) focuses on improving operations
and enhancing overall service to its customers. Recent initiatives included the
pre-packaging of parts and adding a bar code to the label, the kitting of
upholstery with associated hardware, and introducing 15 new power wheelchair and
scooter accessories. ISP's Technical Education department recently consolidated
its Power Wheelchair and Respiratory schools into a four-day format and
continued its emphasis on improving providers repair technicians' productivity.
The Service Referral Network includes over 600 providers who honor Invacare's
product warranties regardless of where the product was purchased. 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 Invacare's "Total One Stop Shopping" 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 Invacare's 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 2004, ISG completed the
purchase and integration of ACS, a home infusion company, opening up a new
market for ISG. ISG also added more than 150 SKUs to its Invacare-branded
consumable line. The company opened a new state-of-the-art distribution facility
in Jamesburg, New Jersey and closed its existing Edison, New Jersey facility.
The move more than doubled available space, while also enhancing Invacare Supply
Group's ability to effectively pick, pack and ship customer orders.

I-7

In 2004, Invacare, through its co-op advertising program, continued to offer
direct response television commercials designed to generate demand for Invacare
Power Chairs, Scooters and the HomeFill Oxygen System sold by the HME provider.
These commercials feature Arnold Palmer, Invacare's worldwide spokesperson, who
has become an integral part of Invacare's "Yes, you can(TM)" promotional and
marketing efforts. This program encourages 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 signed an extended agreement with Arnold
Palmer through the end of 2006. Mr. Palmer, serving as Invacare's 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
don't just need them, and (iii) establishing the Invacare brand as the consumer
category-brand 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.

Invacare continues to enhance www.invacare.com, maintaining its position as the
leader in e-commerce in the HME industry. In 2004, Invacare's website
utilization continued to increase. Thirty-two-percent of all standard domestic
orders were placed over the web. Another 14% of orders were EDI, for a total of
46% of all orders being placed electronically, resulting in a significant cost
savings. New online offerings in 2004 included online financing for Invacare
providers, resulting in additional transactional cost savings for the company. A
full transactional web site for Invacare Canada went live in March. Major
enhancements to the administration tools for the online Product Catalog were
developed. A web version of the tool makes updating the online catalog quicker
and easier. Users can make faster updates to product PDF documents in the online
product catalog, streamlining the content management process. The integration of
Invacare's website with the new Oracle ERP system began in 2004 and will
continue into 2005. Increasing web transactions are reducing the number of calls
to the customer service call center, which also results in significant cost
savings. This integration is expected to further improve the online customer
experience by adding additional website features such as contract pricing,
financing options, coupons and product security.

In 2004, Invacare continued its strategic advertising campaign in key trade
publications that reach the providers of home medical equipment. The company
also contributed extensively to editorial coverage in trade publications
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. This was evidenced by enhancements made to its consumer-marketing
program in 2004 through sponsorships of a variety of wheelchair sporting events
and support of various philanthropic causes benefiting the consumers of its
products. For the eleventh 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 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 ninth year in a row of the Invacare World
Team Cup of Wheelchair Tennis Tournament, which took place in January in
Christchurch, New Zealand. The company also continued its support of disabled
veterans through its sponsorship of the 24th National Veterans Wheelchair Games,
the largest annual wheelchair sports event in the world, which was held in St.
Louis, Missouri. 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 year
2004 also was a Paralympic year. Team Invacare had more than 30 athletes
participating in the competition who brought home more than 30 gold, silver and
bronze medals at the games, which were held in September in Athens, Greece,
following the Olympic Games.

The company's top 10 customers accounted for approximately 14% of 2004 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 2004 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 captive insurance company, Invatection Insurance Co., currently
has a policy year that runs from September 1 to August 31 and insures annual
policy losses of $10,000,000 per occurrence and $11,000,000 in the aggregate of
the company's North American product liability exposure. The company also has
additional layers of external insurance coverage insuring $100,000,000 in annual
aggregate losses arising from individual claims anywhere in the world that
exceed the captive insurance company policy limits. There can be no assurance
that Invacare's current insurance levels will continue to be adequate or
available at affordable rates.

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

PRODUCT DEVELOPMENT AND ENGINEERING
- -----------------------------------
Invacare is committed to continuously improving, expanding and broadening its
existing product lines. In 2004, new product development continued to receive an
even stronger emphasis as part of Invacare's strategy to gain market share and
maintain competitive advantage. To this end, the company introduced 53 new
products. The following are some of the most significant product introductions:

North America
- -------------
The At'm Take Along Chair, Invacare's newest power wheelchair, provides
consumers a light-weight and compact chair to fit in the trunk of a car and
assemble easily in just 60 seconds. The consumer's caregiver can open the
seat, snap it on the lightweight base, and add the battery. Assembly
requires absolutely no tools.

Formula(TM) Powered Seating, combines three systems: the Formula(TM) PTO
Plus, the Formula(TM) Invisible Super Low(TM) Tilt, and Formula(TM) TRE to
meet the rehab positioning needs of consumers from simple to complex. This
all-new Formula Powered Seating package offers the best integration of
powered seating upon the number-one bases with the number-one electronics
in the HME industry, all from a single company, Invacare.

The Zoom 220 HMV(TM), the newest entrant to the Zoom family of HMVs (Highly
Maneuverable Vehicles), is compact, portable, lightweight and economical
for active consumers. The Zoom line combines the power wheelchair
technology of center-wheel drive with the aesthetics of traditional scooter
products for indoor maneuverability and outdoor performance.

The HomeFill(TM) II Patient Convenience Pack ML4, is an all-new portable
oxygen supply system that is lightweight -- 3 1/2 pounds - and easy to
transport for oxygen patients. The HomeFill Oxygen System offers HME
providers 3-to-1 cost savings in servicing their ambulatory oxygen patients
since the patient can fill cylinders themselves in their own home, which
gives them freedom and independence - they no longer have to wait for
cylinder deliveries.

The Polaris(TM) EX(TM) with SoftX(TM) Technology and the Polaris(TM) EX(TM)
Heated Humidifier have been integrated as one product rather than two
separate units. The Polaris EX CPAP features Invacare's SoftX technology,
which tracks the patient's breathing pattern and reduces the patient's work
of breathing during exhalation, providing effortless exhalation for the
patient.

Web Ox is a PC-based, high-tech solution to the oxygen qualification
problem facing the industry today. For a minimal quarterly fee, Web Ox
allows providers to subscribe to an unlimited number of tests, allowing
faster Medicare billing for oxygen patients, thus improving the provider's
cash flow.

A new Bariatrics Program offers a complete solutions approach for the
bariatric provider and their clients, and features the full line of
Invacare bariatric products. Making it easy to find the right product, the
bariatric catalog employs color-coding to sort products by weight capacity.
The catalog also offers cross-selling or complementary product suggestions
to help educate providers, clinicians and consumers about additional
product they may need, and at the same time establishes Invacare as the
leading manufacturer offering bariatric solutions.

I-9

Court-Side Glides(TM) for Invacare walkers are an innovative product that
takes the homemade tennis ball solution for walker glide tips a step
further. For years, consumers and therapists have been slashing tennis
balls, sometimes injuring themselves in the process, to create makeshift
walker glide tips that are durable for indoor and outdoor use and safe for
flooring surfaces. Invacare has enhanced the homemade tennis ball solution
to create a walker glide tip that is longer lasting, easy to install and
replace.

The Invacare Full Electric Low Bed is ideal for circumstances where rails
are not desirable or appropriate, but injuries from falling out of bed are
still a concern. It is the newest split-spring low bed available on the
market today, allowing easy, one-person delivery to home or long-term care
locations. The split-spring design, which Invacare pioneered, combines
easy, one-person delivery with the benefits of a low bed.

Asia/Pacific
- ------------
Dynamic Controls continued various range extensions and design improvements to
products during 2004. Additionally, design work was continued on a New
Generation Scooter Controller to be introduced in late 2005 and extending
functionality in the "Shark" wheelchair controller, which was introduced in
2004.

Europe
- ------
During 2004, European operations introduced less new products than in 2003, but
updated a number of existing products as required by the market. Key
introductions and updates in 2004 included:

The Invacare(R) Dragon is a rear wheel drive power wheelchair designed and
manufactured in Europe. It is a solid and cost efficient power wheelchair
that provides excellent indoor and outdoor mobility in the suburban
environment. It is easy to drive, and the seat can be adjusted to the
physical requirements of the user.

The Invacare(R) Robin is a ceiling hoist designed in Europe. It provides
the most innovative way of transfer with care for nursing staff. Ensuring
excellent personal contact, the two-strap design offers comfort and
efficiency in a safe patient handling environment. Without the need for a
spreader bar, a secure and dignified transfer can be achieved.

The Invacare(R) Clematis is a manual wheelchair primarily for use in the
French market. Excellent comfort, quality and elegance describe this
folding chair equipped with pneumatic actuators. The seat positioning of
the Clematis offers the user a real sensation of relaxation and wellbeing.

The Invacare(R) Mistral3 power wheelchair is an updated folding chair with
seat positioning. It replaces the Mistral and Mistral Plus.

The Invacare(R) Mistral3 Junior power wheelchair is a version of the
Mistral3 with a reclining rigid seat base which is width and length
adjustable from 30cm to 36cm and provides ultimate comfort to children or
younger teenagers whether they are installed in a shell or not.

The Invacare(R) Action3 manual wheelchair, which was released in 2002 has
been improved with the following; new locking pin on hanger and elevating
leg-rest, folding backrest, reclining backrest with gas spring, leg-rest
adaptor, angle adjustable backrest and hemi motion armrest.

The Invacare(R) Action 2000 & MB2 manual wheelchairs have been improved
with the following; new arm-pads - short and long and shorter brake shoe.

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 can achieve this
objective not only through improved product design, but also by taking a number
of steps to lower manufacturing costs. During 2004, the company opened
manufacturing locations in China at Suzhou Industrial Park and Kunshan City,
both of which are near Shanghai, to manufacture components, including bases for
consumer power wheelchairs. The company has plans to further utilize its Hong
Kong office to increase local sourcing of components in China in order to lower
costs. With these actions, Invacare expects to regain its position as one of the
lowest cost producers 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.

I-10

North America / Asia/Pacific
- ----------------------------
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. This process
will continue and will now include the integration of the Domus businesses.

ACQUISITIONS
- ------------
In 2004, Invacare acquired for cash the following six businesses at a total cost
of $343,554,000:

o The assets of ACS, a New York distributor of medical supplies
with a focus on infusion therapy.
o The assets of Decpac, an Australian company that designs and
manufactures portable folding access ramps for use with
wheelchairs and scooters.
o Freedom Designs, Inc., a California-based company that designs
and manufactures seating products and wheelchairs with a
particular focus on the pediatric marketplace.
o WP Domus GmbH, a European-based holding company which
manufactures several complementary product lines to Invacare's
product lines.
o Champion Manufacturing, LLC , an Indiana company that designs and
manufactures medical recliners.
o The assets of Premier Designs, a California company from which
Invacare acquired assets and designs for a lightweight, easily
transportable power wheelchair.

On September 9, 2004 the company finalized the acquisition of 100% of the shares
of WP Domus GmbH, a European-based holding company that manufactures several
complementary product lines to Invacare's product lines, including power add-on
products, bath lifts and walking aids, from WP Domus LLC. Domus has three
divisions: Alber, Aquatec and Dolomite. The acquisition allows the company to
expand its product line and reach new markets. The preliminary purchase price
was $227,382,000 including acquisition costs of $3,670,000, which was paid in
cash, and is subject to final determination of the estimated costs of possible
office closures, sales agency transfers and other consolidation efforts expected
to be finalized by the end of the third quarter of 2005. The acquisition was
consummated after satisfaction of certain conditions, including receipt of all
requisite regulatory approvals. Invacare entered into a 100,000,000 Euro bridge
loan agreement and utilized its existing revolving credit line to fund the
acquisition. Invacare's reported results reflect the operating results of Domus
since the date of the acquisition.

Carroll Healthcare, Inc. was purchased in 2003 and as part of the 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 (U.S. GAAP has been used for company reporting purposes)
in accordance with the purchase agreement, with no defined maximum amount. The
payment amount was finalized and paid in October 2004 at 74,667,000 Canadian
Dollars, or $60,992,335 U.S. Dollars, which increased goodwill.

I-11

Motion Concepts, Inc. ("Motion") also was purchased in 2003 and 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. Based upon 2004
results, no additional consideration was paid. When the contingency calculations
are completed in 2005 and 2006 related to the acquisition, any additional
consideration paid will increase the 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 2004.
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 very active
with federal legislation and regulatory policy makers. Invacare believes that
these efforts give the company a competitive advantage in two ways. First,
customers frequently express appreciation for our efforts on behalf of the
entire industry. Second, sometimes 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 multiple locations and found
to be acceptable, with only minor inspectional findings needing attention. From
time to time, the company may undertake voluntary recalls of its products to
maintain ongoing customer relationships and to enhance its reputation for
adhering to high standards of quality and safety. The company continues to
strengthen its programs to better ensure compliance with applicable regulations
for which the failure to comply would have a material adverse effect.

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 for reimbursement 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 has been 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 has confined many elderly patients, who could be mobile in power
wheelchairs, to their beds. Invacare and the home care industry are working hard
to convince CMS and the Bush administration that this change does not benefit
the elderly and is leading to less active patients who could end up in costly
nursing homes and hospitals, and thereby would counteract any cost savings
attributable to limiting the eligibility for power wheelchairs. The
Administration is scheduled to soon issue new power wheelchair eligibility
criteria, which we expect to provide more predictability and improved access to
this benefit.

I-12

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, did not receive a cost-of-living
adjustment in 2004 and will not receive an update in 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 ten of the
largest metropolitan regions of the U.S. for home medical items and services. In
2009, the program would be extended to eighty of the largest metropolitan
regions.

Although none of these changes are beneficial to the home care industry,
Invacare believes that 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 approximately 8%. If we
estimate the impact that the 2005 cuts could have on our revenue stream, they
are expected to 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 that 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. Nevertheless,
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, 2004, the company had approximately 6,100 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
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.

I-13

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, 2004 is set forth in Leases
and Commitments in the Notes to the Consolidated Financial Statements of the
company and in the table below:

I-14

I-15

I-16

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 2004, 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.

I-17

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

Joseph B. Richey, II 68 President - Invacare Technologies, Senior Vice
President - Electronics and Design Engineering and Director

Louis F.J. Slangen 57 Senior Vice President - Global Market Development

Joseph Usaj 53 Senior Vice President - Human Resources

A. Malachi Mixon, III has been a Director since 1979. Mr. Mixon has been Chief
Executive Officer since 1979 and Chairman of the Board since 1983 and also
served as President until 1996, when Gerald B. Blouch, Chief Operating Officer,
was elected President.

Gerald B. Blouch has been President and a Director of Invacare since November
1996. Mr. Blouch has been Chief Operating Officer since December 1994 and
Chairman-Invacare International since December 1993. Previously, Mr. Blouch was
President-Homecare Division from March 1994 to December 1994 and Senior Vice
President-Homecare Division from September 1992 to March 1994. Mr. Blouch served
as Chief Financial Officer of Invacare from May 1990 to May 1993 and Treasurer
of Invacare from March 1991 to May 1993. Mr. Blouch is also a director of
NeuroControl Corporation, Cleveland, Ohio, a privately held company, which
develops and markets electromedical stimulation systems for stroke patients.

Gregory C. Thompson was named Senior Vice President and Chief Financial Officer
in November 2002. In January 2005, he was assigned the additional position of
President - Home Medical Equipment Group. 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. Mr. Richey is also a director of NeuroControl Corporation,
Cleveland, Ohio, a privately held company, which develops and markets
electromedical stimulation systems for stroke patients.

Louis F. J. Slangen was named Senior Vice President - Global Market Development
in June 2004. Previously, Mr. Slangen was Senior Vice President - Sales &
Marketing from December 1994 to June 2004 and from September 1989 to December
1994 was Vice President - Sales and Marketing. Mr. Slangen was previously
President - Rehab Division from March 1994 to December 1994 and Vice President
and General Manager - Rehab Division from September 1992 to March 1994.

Joseph Usaj has been the Senior Vice President - Human Resources since May 2004.
Before coming to Invacare, Mr. Usaj served as Vice President - Human Resources
for Ferro Corporation, a global manufacturer of performance materials in the
electronics, automotive, consumer products and pharmaceutical industries, from
August 2002 to December 2003. Previously, Mr. Usaj was Vice President - Human
Resources for Phillips Medical Systems from 1998 to 2002.

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

I-18

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Repurchases of Equity Securities.
- --------------------------------------------------------------------------------
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 24, 2005 was 4,813
and 27, respectively. The closing sale price for the Common Shares on February
24, 2005 as reported by NYSE, was $46.57. 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:

2004 2003
---- ----
Quarter Ended: High Low High Low
------------- ---- --- ---- ---
December 31 $52.00 $43.72 $43.74 $38.78
September 30 47.16 39.74 40.00 32.99
June 30 46.50 39.34 34.00 30.29
March 31 46.50 39.63 34.15 30.02

During 2004 and 2003, 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 2005 Annual
Meeting of Shareholders.

I-19

Item 6. Selected Financial Data

2004 2003 2002 2001* 2000
---- ---- ---- ---- ----

(In thousands, except per share and ratio data)
Earnings
Net Sales $1,403,327 $1,247,176 $1,089,161 $1,053,639 $1,013,162
Net Earnings ** 75,197 71,409 64,770 35,190 59,911
Net Earnings per Share - Basic 2.41 2.31 2.10 1.15 1.99
Net Earnings per Share -
Assuming Dilution 2.33 2.25 2.05 1.11 1.95
Dividends per Common Share 0.05000 0.05000 0.05000 0.05000 0.05000
Dividends per Class B Common Share 0.04545 0.04545 0.04545 0.04545 0.04545

2004 2003 2002 2001* 2000
---- ---- ---- ---- ----
Balance Sheet
Current Assets $565,151 $474,722 $398,812 $ 428,401 $432,408
Total Assets 1,628,124 1,108,213 906,703 914,537 951,855
Current Liabilities 258,141 223,488 168,226 167,453 197,387
Working Capital 307,010 251,234 230,586 260,948 235,021
Long-Term Debt 547,974 232,038 234,134 342,724 384,316
Shareholders' Equity 753,438 618,304 480,312 381,550 349,773

Other Data
Research and Development
Expenditures $21,638 $19,130 $17,934 $17,394 $16,231
Capital Expenditures, net of
Disposals 41,400 30,129 19,718 19,486 26,268
Depreciation and Amortization 32,316 27,235 26,638 33,448 31,469

Key Ratios
Return on Sales 5.4% 5.7% 5.9% 3.3% 5.9%
Return on Average Assets 5.5% 7.1% 7.1% 3.8% 6.3%
Return on Beginning
Shareholders' Equity 12.2% 14.9% 17.0% 10.1% 18.8%
Current Ratio 2.2:1 2.1:1 2.4:1 2.6:1 2.2:1
Debt-to-Equity Ratio 0.7:1 0.4:1 0.5:1 0.9:1 1.1:1

* Reflects non-recurring and unusual charge of $31,950 ($25,250 after
tax or $0.80 per share assuming dilution).

** Amortization of goodwill ceased in 2002, net earnings in 2001 and 2002
include amortization expense of $8,972 and $8,899, respectively.

The comparability of the Selected Financial Data provided in the above table is
limited as acquisitions made, in particular, the Domus acquisition in 2004,
materially impacted the company's reported results. See Acquisitions in the
Notes to the Consolidated Financial Statements, which provides pro-forma
results.

I-20

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

OUTLOOK
- -------
Uncertainty related to Medicare's reimbursement policies for power wheelchairs
is now expected to continue throughout 2005. The new proposed criteria from CMS
require public comment before implementation. The resulting ambiguity that is
impacting the consumer power wheelchair market likely will not be clarified
until late 2005, although CMS has recently indicated it will try and finalize
the new criteria in the first half of 2005. Adding to the problems arising from
the reimbursement difficulties, there will be additional confusion resulting
from Medicare's plan to expand coding of the power wheelchair reimbursement
system from 4 codes to 49 codes in January 2006. Despite the reimbursement
pressures, the Company believes that it will have a net sales increase of
between 18% and 20%, with acquisitions contributing between 11% and 13% and
currency translation contributing a minimal amount. Earnings per share is
expected to be between $2.75 and $2.90 in 2005, excluding the impact from the
stock option accounting standard recently announced by the Financial Accounting
Standards Board.

Invacare believes it can still grow and thrive despite the fact that the home
care industry has not received any cost-of-living adjustments over the last few
years and government regulatory landscape is uncertain. The company expects that
the blended cut for the items affected by recent government regulations will be
around 8%, which should negatively affect consolidated net sales by around 1%.
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.

RESULTS OF OPERATIONS
- ---------------------
2004 Versus 2003

Reclassifications. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations reflect certain reclassifications
made to the prior years' consolidated financial statements to conform to the
presentation used for the year ended December 31, 2004.

Net Sales. Consolidated net sales for 2004 increased 13% for the year, to
$1,403,327,000 from $1,247,176,000. Acquisitions accounted for 8 percentage
points of the net sales increase while foreign currency translation contributed
an additional 3 percentage points. The overall growth was primarily driven by
volume increases in North America.

North American Operations

North American net sales, increased 12% over the prior year, with acquisitions
accounting for 8% of the increase and currency translation having less than a
one percentage point impact. These sales consist 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.

For the year, the net sales increase was attributable to volume increases in:
Respiratory products (37%), largely due to continued strong performance in the
Homefill(TM) oxygen system product line; Distributed products (26%), with
acquisitions contributing 15 percentage points of the improvement; and
Continuing Care products (59%) with acquisitions contributing 52 percentage
points of the improvement. These were partially offset by declines in Standard
products (6%) as a result of reduced pricing and flat Rehab product sales. Sales
of Rehab products were negatively impacted by Medicare and Medicaid related
reimbursement pressures. In particular, CMS was expected to release new
guidelines for power chairs in the fourth quarter of 2004, it instead circulated
proposed criteria that required public comment before implementation. While the
proposed criteria are favorable and are based on CMS' own medical study, the
ambiguity that is impacting the power wheelchair market has resulted in
significant declines in this market segment.

Other products, consisting primarily of the company's Canadian and aftermarket
parts businesses, had a 10% net sales increase principally as a result of volume
increases.

European Operations

European net sales increased 20% over the prior year to $336,792,000 from
$279,782,000. Acquisitions contributed 12 percentage points of the increase and
foreign currency accounted for 10 percentage points of the increase. The decline
in organic growth was primarily due to reduced volumes in the Nordic countries
and continued reimbursement pressures in Germany.

I-21

Asia/Pacific Operations

Asia/Pacific net sales declined 8% from the prior year to $64,262,000 from
$70,186,000. Excluding the impact of foreign exchange, net sales declined 18%
for the year. The decline was primarily the result of reduced volumes of
microprocessor controllers, resulting from the global slowdown in the production
of power wheelchairs caused in large part by the Medicare reimbursement
challenges in the United States described above. The Asia/Pacific segment
transacts a substantial amount of its business with customers outside of their
region in various currencies other than their functional currency, the New
Zealand Dollar. As a result, changes in exchange rates particularly with the
Euro and U.S. Dollar can have a significant impact on sales and cost of sales.

Gross Profit. Consolidated gross profit as a percentage of net sales was 29.8%
in 2004 and 30.0% in 2003. The margin decline was attributable to continued
competitive pricing pressures and increased freight costs partially offset by
continued cost reduction initiatives.

North American gross profit as a percentage of net sales was 30.2% in 2004
versus 30.3% in 2003. The decline was primarily attributable to reduced pricing
in Standard products partially offset by continued cost reduction efforts.

Gross profit in Europe as a percentage of net sales declined .7 of a percentage
point from the prior year. The decline is attributable to unfavorable sales mix
toward lower margin products and additional costs related to new product
introductions.

Gross profit in Asia/Pacific as a percentage of net sales decreased by 3.5
percentage points from the prior year. The decline was due in part to increased
sales of lower margin products in the company's Dynamic Controls subsidiary,
reduced volumes and unfavorable foreign currency associated with normal
operating transactions.

Selling, General and Administrative. Consolidated selling, general and
administrative expenses as a percentage of net sales were 21.2% in 2004 and
21.0% in 2003. The overall dollar increase was $35,109,000 or 13%, with
acquisitions increasing selling, general and administrative costs by
approximately $20,263,000 or 8% and currency translation by $9,409,000 or 4%.
Selling, general and administrative expenses also increased as a result of
increased distribution and commission costs related to increased volumes,
continued investments in marketing and branding programs, and increased legal
costs. These were partially offset by reduced bad debt expense and management
bonuses as a result of reduced profitability from plan.

Selling, general and administrative expenses for North American operations
increased 9% or $16,562,000 compared to 2003 with acquisitions accounting for 7
percentage points of the increase. The remaining increase is primarily
attributable to continued investments in marketing and branding programs,
increased distribution and commission costs related to increased volume and
higher legal costs. These increases were partially offset by reduced bad debt
expense and management bonuses.

European operations' selling, general and administrative expenses increased 26%
or $17,290,000 from the prior year. European selling, general and administrative
expenses increased due to acquisitions and foreign currency translation.
Increases, primarily for acquisitions, were $7,791,000 or 12% and for currency
translation totaled $7,305,000 or 11%. The remaining increase was primarily
attributable to additional programs to re-establish sales growth.

Asia/Pacific operations' selling, general and administrative expenses increased
16% or $1,257,000 with foreign currency increasing the expense by $961,000 or
12%. The remaining increase was primarily attributable to additional systems
costs related to an Enterprise Resource Planning (ERP) implementation and sales
and marketing costs associated with the development of the Asia market.

Interest. Interest expense increased to $16,282,000 in 2004 from $11,710,000 in
2003, representing a 39% increase. This increase was attributable to increased
borrowings under the Company's revolving credit facility, and to new borrowings
under an interim bridge loan financing facility. The company's debt-to-equity
ratio increased to 0.7:1 as of December 31, 2004 from 0.4:1 as of the end of the
prior year. Interest income in 2004 was $5,186,000, which was comparable to
$5,473,000 in the prior year. 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 31.9% in 2004 and 32.9%
in 2003. The effective tax rate declined due to a change in the mix of earnings
and permanent deductions. The Company's effective tax rate is lower than the
federal statutory rate primarily due to tax credits and earnings abroad being
taxed at rates lower than the federal statutory rate.

I-22

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
$21,638,000 in 2004 from $19,130,000 in 2003. The expenditures, as a percentage
of net sales, were 1.5% in 2004 and 1.5% in the prior year.

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
Asia/Pacific.

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. Foreign currency and acquisitions contributed 16 percentage points
and 3 percentage points, respectively, of the net sales increase. The organic
decline of 8% was primarily due to slower than expected sales in the Nordic
region and reimbursement pressures in Germany.

Asia/Pacific Operations

Asia/Pacific 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 were 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.

Gross profit in Asia/Pacific 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.

I-23

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.

Asia/Pacific operations' selling, general and administrative expenses increased
40% or $2,264,000 with foreign currency increasing the expense by $1,522,000 or
27%. Asia/Pacific 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.

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 2004 and
2003, 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 was replaced on January 14, 2005, along with a
100,000,000 Euro bridge agreement entered into in 2004, by a new $450,000,000
multi-currency, long-term revolving credit agreement. In February 2005, the new
$450,000,000 multi-currency, long-term revolving credit agreement was also used
to pay off the $20,000,000 senior notes at 6.60%. Additionally, the company
maintains various other demand lines of credit totaling a U.S. dollar equivalent
of approximately $4,229,000 as of December 31, 2004. 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, 2004, the company had
approximately $126,734,000 available under its various lines of credit,
excluding debt covenant restrictions.

I-24

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 $60,800,000 as of December 31, 2004 and up to $108,000,000, effective
February 2005, pursuant to the covenants of the company's new $450,000,000
multi-currency, long-term revolving credit agreement.

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 terminate
existing swaps that exchange fixed rate debt to variable and 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, 2004, the weighted average floating interest rate
on U.S. borrowings was 3.36%.

CAPITAL EXPENDITURES
- --------------------
There are no individually material capital expenditure commitments outstanding
as of December 31, 2004. The company estimates that capital investments for 2005
could approximate up $37,000,000, compared to actual capital expenditures of
$41,403,000 in 2004. 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 $98,324,000 in 2004, compared
to $116,204,000 last year. The decrease is due primarily to increases in
installment receivables and inventory and a decline in accrued expenses
primarily related to reduced customer rebates. These were partially offset by an
increase in accounts payable.

Cash flows used for investing activities were $389,022,000 in 2004, compared to
$101,558,000 in 2003. The increase was primarily attributable to costs
associated with acquired businesses with the Domus acquisition being the most
significant. In addition, purchases of property and equipment activity in 2004
was higher compared to the prior year as the company is in the process of
implementing Enterprise Resource Planning Systems in North America, Europe and
Asia/Pacific.

Cash flows provided by financing activities in 2004 were $307,051,000, compared
to cash flows required of $13,955,000 in 2003. Financing activities for 2004
were impacted by an increase in the company's borrowings of $303,188,000
primarily related to acquisitions. 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.

During 2004, the company generated free cash flow of $56,921,000 compared to
free cash flow of $85,544,000 in 2003. The decrease was primarily attributable
to additional capital expenditures made in 2004, primarily for enterprise
resource planning systems as well as increases in installment receivables and
inventory coupled with a decline in accrued expenses, primarily related to
reduced customer rebates. Free cash flow is a non-GAAP financial measure that is
comprised of net cash provided by operating activities less purchases of
property and equipment. Management believes that this financial measure provides
meaningful information for evaluating the overall financial performance of the
Company and its ability to repay debt or make future investments (including
acquisitions, etc.). The non-GAAP financial measure is reconciled to the GAAP
measure as follows (in thousands):

Twelve Months Ended
December 31,
2004 2003
----------------------------------------------------------------------------
Net cash provided by operating activities $98,324 $116,204
Adjusted for:
Purchases of property and equipment (41,403) (30,660)
------- -------
Free Cash Flow $56,921 $85,544
======= =======

I-25

CONTRACTUAL OBLIGATIONS
- -----------------------
(In thousands) Payments due by period
Total Less than 1 year 1-3 years 3-5 years More than 5 years
-------- ---------------- --------- --------- -----------------

Long-term debt obligations
Senior Notes $234,595 $8,054 $68,065 $116,629 $41,847
Revolving credit agreements 382,755 10,647 20,648 20,648 330,812
Other notes 1,415 162 324 324 605
Operating lease obligations 37,354 15,680 14,909 5,050 1,715
Capital lease obligations 21,539 1,751 3,285 3,064 13,439
Purchase obligations
(primarily computer systems 6,975 6,468 507 - -
contracts)
Other long-term obligations
Product liability 17,045 2,595 7,263 3,227 3,960
SERP 13,371 424 1,658 1,559 9,730
Other, principally deferred
compensation 16,680 339 3,068 612 12,661
-------- ------- -------- -------- ---------
Total $731,729 $46,120 $119,727 $151,113 $414,769
======== ======= ======== ======== ========

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 2004, dividends of $0.05 per Common Share and $0.045 per Class
B Common Share were declared and paid.

CRITICAL ACCOUNTING POLICIES
- ----------------------------
The consolidated financial statements 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.

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

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

Distributed products sold by the company are accounted for in accordance with
EITF 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The
company records Distributed product sales gross as a principal since the company
takes title to the products and has the risks of loss for collections, delivery
and returns.

I-26

Product sales that give rise to installment receivables are recorded at the time
of sale when the risks and rewards of ownership are transferred. In December
2000, the company entered into an agreement with DLL, a third party financing
company, to provide the majority of future lease financing to Invacare
customers. As such, interest income is recognized based on the terms of the
installment agreements. Installment accounts are monitored and if a customer
defaults on payments, interest income is no longer recognized. All installment
accounts are accounted for using the same methodology, regardless of duration of
the installment agreements.

Allowance for Uncollectible Accounts Receivable
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. A provision
for excess and obsolete inventory is recorded as needed based upon the
discontinuation of products, redesigning of existing products, new product
introductions, market changes and safety issues. Both raw materials and finished
goods are reserved for on the balance sheet.

In general, we review inventory turns as an indicator of obsolescence or slow
moving product as well as the impact of new product introductions. Depending on
the situation, the individual item may be partially or fully reserved for. No
inventory that was reserved for has been sold at prices above their new cost
basis. In 2004, individual items were both partially and fully written down. The
company continued to increase its overseas sourcing efforts, increase its
emphasis on the development and introduction of new products, and decrease the
cycle time to bring new product offerings to market. These initiatives are
sources of inventory obsolescence for both raw material and finished goods.

Goodwill, Intangible and Other Long-Lived Assets
Property, equipment, intangibles and certain other long-lived assets are
amortized over their useful lives. Useful lives are based on management's
estimates of the period that the assets will generate revenue. 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, 2003 and 2004.
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 $10,000,000 per occurrence and $11,000,000 in the aggregate of
the company's North American product liability exposure. The company also has
additional layers of external insurance coverage insuring $100,000,000 in annual
aggregate losses arising from individual claims anywhere in the world that
exceed the captive insurance company policy limits. There can be no assurance
that Invacare's current insurance levels will continue to be adequate or
available at affordable rates.

Product liability reserves are recorded for individual claims based upon
historical experience, industry expertise and indications from the third-party
actuary. Additional reserves, in excess of the specific individual case
reserves, are provided for incurred but not reported claims based upon
third-party actuarial valuations at the time such valuations are conducted.
Historical claims experience and other assumptions are taken into consideration
by the third-party actuary to estimate the ultimate reserves. For example, the
actuarial analysis assumes that historical loss experience is an indicator of
future experience, the distribution of exposures by geographic area and nature
of operations for ongoing operations is expected to be very similar to
historical operations with no dramatic changes and that the government indices
used to trend losses and exposures are appropriate. Estimates made are adjusted
on a regular basis and can be impacted by actual loss award settlements on
claims. While actuarial analysis is used to help determine adequate reserves,
the company accepts responsibility for the determination and recording of
adequate reserves in accordance with accepted loss reserving standards and
practices.
I-27

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. Historical analysis is
primarily used to determine the company's warranty reserves. Claims history is
reviewed and provisions are adjusted as needed. However, the company does
consider other events, such as a product recall, which could warrant additional
warranty reserve provision. No material adjustments to warranty reserves were
necessary in the current year. See Current Liabilities in the Notes to the
Consolidated Financial Statements for a reconciliation of the changes in the
warranty accrual.

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 2004, $0.14 in 2003 and $0.15 in
2002.

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.

Income Taxes
As part of the process of preparing our financial statements, we are required to
estimate income taxes in various jurisdictions. The process requires estimating
our current tax exposure, including assessing the risks associated with tax
audits, as well as estimating temporary differences due to the different
treatment of items for tax and accounting policies. The temporary differences
are reported as deferred tax assets and or liabilities. The company also must
estimate the likelihood that its deferred tax assets will be recovered from
future taxable income and whether or not valuation allowances should be
established. In the event that actual results differ from our estimates, the
company's provision for income taxes could be materially impacted.

The company does not believe that there is a substantial likelihood that
materially different amounts would be reported related to its critical
accounting policies.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In December 2004, FASB issued Statement of Financial Accounting Standards
("SFAS") No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"), which
requires companies to expense stock options and other share-based payments. SFAS
123R supersedes SFAS No. 123, which permitted either expensing stock options or
providing pro forma disclosure. The provisions of this Statement, which is
effective July 1, 2005, apply to all awards granted, modified, cancelled or
repurchased after July 1, 2005 as well as the unvested portion of prior awards.
The company will adopt the standard as of the effective date and estimates that
the impact to the company's reported results will be similar to the pro forma
results shown in the company's Accounting Policy Note to the Consolidated
Financial Statements.

The American Jobs Creation Act of 2004 (the Act) was signed into law in October
2004. The Act provides for a tax deduction on qualified production activities
and introduced a special one-time dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer, provided certain
criteria are met. The FASB issued FASB Staff Position 109-1 to provide guidance
on the application of SFAS No. 109, Accounting for Income Taxes, and FASB Staff
Position 109-2 to provide accounting and disclosure guidance for the
repatriation provision. The company is reviewing the implication of the new Act,
recently released treasury guidance, and the FASB staff positions but does not
intend to repatriate any foreign earnings under the Act and does not expect the
Act will have a material impact on the company's financial position, results of
operations or cash flows.

I-28

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, 2004 debt levels, a 1% change in interest rates would
impact interest expense by approximately $5,107,000. 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 as "will," "should," "plan,"
"intend," "expect," "continue," "forecast", "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 costs,
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 products, along with the viability of customers)both at
the federal and state level, 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 (including the recent Domus acquisition), 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 (including the previously-disclosed litigation with Respironics), 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.

Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Reference is made to the Report of Independent Registered Public Accounting
Firm, 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-27 of this Annual Report on Form
10-K.

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

Item 9A. Controls and Procedures.
- ---------------------------------
(a) Evaluation of Disclosure Controls and Procedures
- ----------------------------------------------------
Under the supervision and with the participation of the company's management,
including the Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the company's disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, the
company's management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the company's disclosure controls and procedures were
effective to provide reasonable assurance that we record, process, summarize and
report the information we must disclose in reports that we file or submit under
the Securities Exchange Act of 1934, as amended, within the time periods
specified by the SEC.

I-29

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

Management's assessment of the effectiveness of the company's internal control
over financial reporting is based on the Internal Control -Integrated Framework
published by the Committee of Sponsoring Organizations of the Treadway
Commission and was limited as explained in the Scope of Management's Report,
which follows this report.

In management's opinion, internal control over financial reporting is effective
as of December 31, 2004.

The Company's independent registered public accounting firm, Ernst & Young LLP,
audited management's assessment of internal control over financial reporting
and, based on that audit, issued their report included in this Annual Report.

Scope of Management's Report
- ----------------------------
Management's assessment of the effectiveness of internal control over financial
reporting excludes the WP Domus GmbH acquisition, which was finalized on
September 9, 2004. WP Domus GmbH represents approximately 19% of the total
assets and approximately 2% of the net sales, respectively, of the consolidated
financial statements as of December 31, 2004 and the year ended December 31,
2004.

(c) Changes in Internal Control Over Financial Reporting
- --------------------------------------------------------
There have been no significant changes in the company's internal control 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 control 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 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 the Securities and Exchange Commission
and the New York Stock Exchange, on our website.

Our Board of Directors has adopted Corporate Governance Guidelines and charters
for the Audit Committee, Compensation, Management Development and Corporate
Governance Committee, Nominating Committee and Investment Committee of the Board
of Directors. These documents can be found on our website 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.

We submitted the New York Stock Exchange ('NYSE') Section 12(a) Annual CEO
Certification as to our compliance with the NYSE corporate governance listing
standards to the NYSE in June 2004. In addition, we have filed the
certifications of our Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality
of our public disclosures as exhibits to this Annual Report on Form 10-K.

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 2005 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 2005 Annual Meeting of Shareholders.
I-30

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 2005 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 2005
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 2005 Annual Meeting of Shareholders.

PART IV
-------
Item 15. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
(a)(1) Financial Statements
--------------------
The following financial statements of the company are included in Part II, Item
8:

Consolidated Statement of Earnings - years ended December 31, 2004,
2003 and 2002

Consolidated Balance Sheet - December 31, 2004 and 2003

Consolidated Statement of Cash Flows - years ended December 31, 2004,
2003, and 2002

Consolidated Statement of Shareholders' Equity - years ended December
31, 2004, 2003, and 2002

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-33 of this Report on Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized as of March 11, 2005.

INVACARE CORPORATION

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

I-31

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 11, 2005.

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 Chief Financial Officer
- ------------------------------ (Principal Financial and Accounting Officer)
Gregory C. Thompson

/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-32

INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2004.

Exhibit Index

Official Sequential
Exhibit No Description Page No.
- ---------- ----------- ----------

2.1 Sale and Purchase Agreement Regarding the Sale and Purchase of All Shares in WP Domus GmbH by (A)
and among WP Domus LLC, Mr. Peter Schultz and Mr. Wilhelm Kaiser, Invacare GmbH & Co. KG and
Invacare Corporation dated as of July 31, 2004

2.2 Guarantee Letter Agreement of Warburg, Pincus Ventures, L.P. and Warburg, Pincus International, (A)
L.P. dated as of September 9, 2004

3(a) ** Amended and Restated Articles of Incorporation, as amended through February 2, 1996

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

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

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

4(c) Rights agreement between Invacare Corporation and Rights Agent dated as of July 7, 1995 (C)

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

10(b) ** 1992 Non-Employee Directors Stock Option Plan adopted in May 1992

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

10(d) ** Invacare Corporation 1994 Performance Plan approved January 28, 1994

10(e) Amendment No. 3 to the Invacare Corporation 1994 Performance Plan (H)*

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

10(g) ** Amendment No. 1 to the Invacare Corporation 1994 Performance Plan approved May 28, 1998 *

10(h) Amendment No. 2 to the Invacare Corporation 1994 Performance Plan approved May 24, 2000 (E)*

10(i) Invacare Retirement Savings Plan, effective January 1, 2001 (F)

10(j) Employment Agreement entered into by and between the company and Chief Operating Officer (G)*

10(k) Amendment No. 1 to Invacare Corporation 401(K) Plus Benefit Equalization Plan (L)

10(l) Invacare Corporation 401(K) Plus Benefit Equalization Plan (As amended and restated effective (L)
January 1, 2003)

10(m) Invacare Corporation Note Purchase Agreement dated as of October 1, 2003 for $50,000,000 3.97% (J)
Series A Senior Notes Due October 1, 2007; $30,000,000 4.74% Series B Senior Notes Due October
1, 2009 and $20,000,000 5.05% Series C Senior Notes Due October 1, 2010

I-33

Official Sequential
Exhibit No Description Page No.
- ---------- ----------- ----------

10(n) First Amendment, dated as of October 1, 2003, to Note Purchase Agreement dated as of February (K)
27, 1998 for $80,000,000 6.71% Series A Senior Notes Due February 27, 2008 and $20,000,000 6.60%
Series B Senior Notes Due February 27, 2005

10(o) Invacare Corporation 2003 Performance Plan (I)*

10(p) Form of Change of Control Agreement entered into by and between the company and certain of (G)*
its executive officers and Schedule of all such agreements with current executive officers

10(q) Form of Indemnity Agreement entered into by and between the company and certain of its Directors (G)*
and executive officers and Schedule of all such Agreements with current Directors and executive
officers

10(r) Employment Agreement entered into by and between the company and Chief Financial Officer (G)*

10(s) Credit Agreement dated as of January 14, 2005 among Invacare Corporation and Certain Borrowing (M)
Subsidiaries, the Banks named therein, and JPMorgan Chase Bank, N.A. as Agent, Keybank National
Association as Syndication Agent, J.P. Morgan Securities, Inc. and Keybank National Association,
as Co-Lead Arrangers.

10(t)** Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005 *

10(u)** Invacare Corporation Death Benefit Only Plan, effective January 1, 2005 *

10(v)** A. Malachi Mixon, III 10b5-1 Plan, effective February 14, 2005 *

10(w)** Gerald B. Blouch 10b5-1 Plan, effective February 22, 2005 *

10(x)** Gregory C. Thompson 10b5-1 Plan, effective February 21, 2005 *

10(y) ** Supplemental Executive Retirement Plan (As amended and restated effective February 1, 2000) *

10(z)** Form of Director Stock Option Award under Invacare Corporation 1994 Performance Plan *

10(aa)** Form of Director Stock Option Award under Invacare Corporation 2003 Performance Plan *

10(ab)** Form of Director Deferred Option Award under Invacare Corporation 2003 Performance Plan *

10(ac)** Form of Restricted Stock Option Award under Invacare Corporation 2003 Performance Plan *

10(ad)** Form of Stock Option Award under Invacare Corporation 2003 Performance Plan *

10(ae)** Director Compensation Schedule *

21 Subsidiaries of the company

23 Consent of Independent Registered Public Accounting Firm

31.1 ** Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

31.2 ** Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002

I-34

Official Sequential
Exhibit No Description Page No.
- ---------- ----------- ----------

32.1 ** Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 ** Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

(A) Reference is made to the appropriate Exhibit to the company report on Form
8-K, dated September 9, 2004, which Exhibit is incorporated herein by
reference.

(B) 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.

(C) 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.

(D) 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.

(E) 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.

(F) 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.

(G) 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.

(H) 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.

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

(J) 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.

(K) Reference is made to the appropriate Exhibit of the company report on Form
10-K for the fiscal year ended December 31, 2003, which Exhibit is
incorporated herein by reference.

(L) Reference is made to the appropriate Exhibit of the company report on Form
10-Q for the quarter ended June 30, 2004, which Exhibit is incorporated
herein by reference.

(M) Reference is made to the appropriate Exhibit of the company report on Form
8-K, dated January 14, 2005, which is incorporated herein by reference.

I-35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Invacare Corporation

We have audited the accompanying consolidated balance sheets of Invacare
Corporation and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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, 2004 and 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles. 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.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Invacare
Corporation's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 4, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Cleveland, Ohio
March 4, 2005

FS-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Invacare Corporation

We have audited management's assessment, included in the accompanying Management
Report on Internal Control Over Financial Reporting, that Invacare Corporation
maintained effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Invacare Corporation's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

As indicated in the accompanying Management Report on Internal Control Over
Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of WP Domus GmbH, which is included in the 2004 consolidated
financial statements of Invacare Corporation and constituted 19% of total assets
as of December 31, 2004 and 2% of net sales for the year then ended. Our audit
of internal control over financial reporting of Invacare Corporation also did
not include an evaluation of the internal control over financial reporting of WP
Domus GmbH.

In our opinion, management's assessment that Invacare Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Invacare Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Invacare Corporation as of December 31, 2004 and 2003 and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 2004 of Invacare
Corporation and our report dated March 4, 2005 expressed an unqualified opinion
thereon.

/s/ ERNST & YOUNG LLP

Cleveland, Ohio
March 4, 2005
FS-2

CONSOLIDATED STATEMENT OF EARNINGS

INVACARE CORPORATION AND SUBSIDIARIES

Years Ended December 31,
2004 2003 2002
---- ---- ----

(In thousands, except per share data)

Net sales $1,403,327 $1,247,176 $1,089,161
Cost of products sold 984,735 872,515 761,763
------- ------- -------

Gross Profit 418,592 374,661 327,398

Selling, general and administrative expenses 297,124 262,015 220,296
Interest expense 16,282 11,710 15,122
Interest income (5,186) (5,473) (4,550)
------- ------- -------

Earnings before Income Taxes 110,372 106,409 96,530

Income taxes 35,175 35,000 31,760
------- ------- -------

Net Earnings $75,197 $71,409 $64,770
======= ======= =======

Net Earnings per Share - Basic $2.41 $2.31 $2.10
======= ======= =======

Weighted Average Shares Outstanding - Basic 31,153 30,862 30,867
======= ======= =======

Net Earnings per Share - Assuming Dilution $2.33 $2.25 $2.05
======= ======= =======

Weighted Average Shares Outstanding -
Assuming Dilution 32,347 31,729 31,664
======= ======= =======

See notes to consolidated financial statements.

FS-3

CONSOLIDATED BALANCE SHEETS

INVACARE CORPORATION AND SUBSIDIARIES

December 31, December 31,
2004 2003
------- -------

(In thousands)
Assets
- ------
Current Assets
Cash and cash equivalents $32,567 $16,074
Marketable securities 199 214
Trade receivables, net 287,950 255,534
Installment receivables, net 13,422 7,755
Inventories, net 175,883 130,979
Deferred income taxes 21,730 24,573
Other current assets 33,400 39,593
------- -------
Total Current Assets 565,151 474,722

Other Assets 55,634 53,263
Other Intangibles 98,212 14,678
Property and Equipment, net 191,163 150,051
Goodwill 717,964 415,499
------- -------
Total Assets $1,628,124 $1,108,213
========== ==========

Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable $149,413 $110,178
Accrued expenses 98,850 92,032
Accrued income taxes 7,816 19,107
Current maturities of long-term debt 2,062 2,171
------- -------
Total Current Liabilities 258,141 223,488

Long-Term Debt 547,974 232,038

Other Long-Term Obligations 68,571 34,383

Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) - -
Common Shares (Authorized 100,000 shares; 31,209 and
30,739 issued in 2004 and 2003, respectively) - par $0.25 7,803 7,686
Class B Common Shares (Authorized 12,000 shares; 1,112, issued and
outstanding) - par $0.25 278 278
Additional paid-in-capital 123,793 109,015
Retained earnings 550,753 477,113
Accumulated other comprehensive earnings 104,629 51,057
Unearned compensation on stock awards (1,557) (1,458)
Treasury shares (934 and 770 shares in
2004 and 2003, respectively) (32,261) (25,387)
------- -------
Total Shareholders' Equity 753,438 618,304
------- -------

Total Liabilities and Shareholders' Equity $1,628,124 $1,108,213
========== ==========

See notes to consolidated financial statements.

FS-4

CONSOLIDATED STATEMENT OF CASH FLOWS

INVACARE CORPORATION AND SUBSIDIARIES

Years Ended December 31,
2004 2003 2002
---- ---- ----

(In thousands)
Operating Activities
Net earnings $75,197 $71,409 $64,770
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 32,316 27,235 26,638
Provision for losses on trade and installment receivables 11,222 13,760 10,792
Provision for deferred income taxes 4,250 3,205 (3,050)
Provision for other deferred liabilities 4,091 2,587 3,342
Changes in operating assets and liabilities:
Trade receivables (19,978) (37,122) 19,740
Installment sales contracts, net (2,911) 6,678 11,435
Inventories (15,781) (4,607) 6,208
Other current assets (516) (3,447) (4,193)
Accounts payable 19,718 13,351 2,576
Accrued expenses (11,281) 17,943 (2,534)
Other long-term liabilities 1,997 5,212 (108)
------- ------- -------
Net Cash Provided by Operating Activities 98,324 116,204 135,616

Investing Activities
Purchases of property and equipment (41,403) (30,660) (22,109)
Proceeds from sale of property and equipment 3 531 2,391
Marketable securities - 1,130 (43)
Business acquisitions, net of cash acquired (343,554) (70,555) -
Increase in other investments (603) (64) (317)
Increase in other long-term assets (3,133) (1,898) (1,834)
Other (332) (42) 1,079
------- ------ -------
Net Cash Required for Investing Activities (389,022) (101,558) (20,833)

Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 844,432 474,583 254,512
Payments on revolving lines of credit and
long-term borrowings (541,244) (483,725) (377,582)
Proceeds from exercise of stock options 9,850 5,063 6,154
Payment of dividends (1,557) (1,531) (1,567)
Purchase of treasury stock (4,430) (8,345) (1,674)
------- ------- -------
Net Cash Provided (Required) by Financing Activities 307,051 (13,955) (120,157)

Effect of exchange rate changes on cash 140 2,297 1,777
------- ------- -------

Increase (decrease) in cash and cash equivalents 16,493 2,988 (3,597)

Cash and cash equivalents at beginning of year 16,074 13,086 16,683
------- ------- -------

Cash and cash equivalents at end of year $32,567 $16,074 $13,086
======= ======= =======

See notes to consolidated financial statements.

FS-5

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

INVACARE CORPORATION AND SUBSIDIARIES
(In thousands)

Accumulated
Additional Other
Common Class B Paid-in- Retained Comprehensive Unearned Treasury
Stock Stock Capital Earnings Earnings(Loss) Compensation Stock Total
------ ------- ---------- -------- -------------- ------------ --------- ---------

January 1, 2002 Balance $7,466 $278 $87,980 $344,032 $(48,129) $(771) $(9,306) $381,550
Exercise of stock options, including
tax benefit 105 9,834 (2,863) 7,076
Restricted stock awards 9 1,181 (1,190) -
Restricted stock award expense 757 757

Net earnings 64,770 64,770
Foreign currency translation
adjustments 28,214 28,214
Unrealized gains on cash flow hedges 1,349 1,349
Marketable securities holding loss (163) (163)
-----
Total comprehensive income 94,170

Dividends (1,567) (1,567)
Purchase of treasury shares (1,674) (1,674)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2002 Balance 7,580 278 98,995 407,235 (18,729) (1,204) (13,843) 480,312

Exercise of stock options, including
tax benefit 99 9,130 (3,199) 6,030
Restricted stock awards 7 890 (897) -
Restricted stock award expense 643 643

Net earnings 71,409 71,409
Foreign currency translation
adjustments 66,185 66,185
Unrealized gains on cash flow hedges 3,506 3,506
Marketable securities holding gain 95 95
-----
Total comprehensive income 141,195

Dividends (1,531) (1,531)
Purchase of treasury shares (8,345) (8,345)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2003 Balance 7,686 278 109,015 477,113 51,057 (1,458) (25,387) 618,304

Exercise of stock options, including
tax benefit 112 13,872 (2,444) 11,540
Restricted stock awards 5 906 (911) -
Restricted stock award expense 812 812

Net earnings 75,197 75,197
Foreign currency translation
adjustments 57,903 57,903
Unrealized losses on cash flow hedges (4,322) (4,322)
Marketable securities holding loss (9) (9)
-----
Total comprehensive income 128,769

Dividends (1,557) (1,557)
Purchase of treasury shares (4,430) (4,430)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 Balance $7,803 $278 $123,793 $550,753 $104,629 $(1,557) $(32,261) $753,438
====== ==== ======== ======== ======== ======= ======= ========

See notes to consolidated financial statements.

FS-6

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES

Nature of Operations: Invacare Corporation and its subsidiaries ("Invacare" or
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, represented by the European segment, are consolidated using a
November 30 fiscal year end. No material subsequent events have occurred related
to the European segment, which would require disclosure or adjustment to the
company's financial statements. 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 ($138,845,000 and $99,607,000 at December 2004 and 2003,
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, 2004 and 2003. 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.

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 changed 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, 2003 and 2004. The
results of these tests indicated no impairment of goodwill.

FS-7

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACCOUNTING POLICIES--Continued

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.
Historical analysis is primarily used to determine the company's warranty
reserves. Claims history is reviewed and provisions are adjusted as needed.
However, the company does consider other events, such as a product recall, which
could warrant additional warranty reserve provision. No material adjustments to
warranty reserves were necessary in the current year. See Current Liabilities in
the Notes to the Consolidated Financial Statements for a reconciliation of the
changes in the warranty accrual.

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 $10,000,000 per occurrence and
$11,000,000 in the aggregate of the company's North American product liability
exposure. The company also has additional layers of external insurance coverage
insuring $100,000,000 in annual aggregate losses arising from individual claims
anywhere in the world that exceed the captive insurance company policy limits.
There can be no assurance that Invacare's current insurance levels will continue
to be adequate or available at affordable rates.

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

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.

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

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

Distributed products sold by the company are accounted for in accordance with
EITF 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The
company records Distributed product sales gross as a principal since the company
takes title to the products and has the risks of loss for collections, delivery
and returns.

FS-8

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACCOUNTING POLICIES--Continued

Product sales that give rise to installment receivables are recorded at the time
of sale when the risks and rewards of ownership are transferred. In December
2000, the company entered into an agreement with DLL, a third party financing
company, to provide the majority of future lease financing to Invacare
customers. As such, interest income is recognized based on the terms of the
installment agreements. Installment accounts are monitored and if a customer
defaults on payments, interest income is no longer recognized. All installment
accounts are accounted for using the same methodology, regardless of duration of
the installment agreements.

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
$21,638,000, $19,130,000, and $17,934,000 for 2004, 2003, and 2002,
respectively.

Advertising: Advertising costs are expensed as incurred and included in selling,
general and administrative expenses. The company has a co-op advertising program
in which the company reimburses customers up to 50% of their costs of qualifying
advertising expenditures. Invacare product, brand logos and corporate
spokesperson, Arnold Palmer, must appear in all advertising. Invacare requires
customers to submit proof of advertising with their claims for reimbursement.
Invacare receives advertising and in return reimburses customers for a portion
of their advertising costs. The company's cost of the program is included in
SG&A expense on the consolidated statement of earnings at the time the liability
is estimated. Reimbursement is made on an annual basis and within 3 months of
submission and approval of the documentation. The company receives monthly
reporting from those in the program of their qualified advertising dollars spent
and accrues based upon information received. Advertising expenses amounted to
$24,999,000, $22,806,000 and $20,905,000 for 2004, 2003 and 2002, 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 2004, 2003
and 2002 would have been reduced to the pro forma amounts indicated below (in
thousands except per share data):

2004 2003 2002
---- ---- ----

Net earnings - as reported * $75,197 $71,409 $64,770
Less: compensation expense determined based on the
fair-value method for all awards granted at
market value, net of related tax effects 4,226 4,529 4,504
------- ------- -------
Net earnings - pro forma $70,971 $66,880 $60,266
======= ======= =======

Earnings per share as reported - basic $2.41 $2.31 $2.10
Earnings per share as reported - assuming dilution $2.33 $2.25 $2.05

Pro forma earnings per share - basic $2.28 $2.17 $1.95
Pro forma earnings per share - assuming dilution $2.19 $2.11 $1.90

* Includes stock compensation expense, net of tax, on
restricted awards granted without cost of: $528 $418 $492

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-9

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 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 also had interest rate swap agreements, which expired in
2004, that qualified as cash flow hedges and effectively converted $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 recognized net
gains of $4,577,000, $2,872,000 and $773,000, respectively, related to its swap
agreements in 2004, 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 2004,
2003 and 2002 of $6,961,000, $1,410,000 and $1,252,000, respectively on foreign
currency cash flow hedges. The gains are included in cost of products sold and
selling, general and administrative expenses on the consolidated statement of
earnings.

The company has used 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 related to these forward
contracts, which are included in costs of products sold on the consolidated
statement of earnings. No Mexican Peso forward contracts were entered into in
2004.

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.

Reclassifications: Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the presentation used for the
year ended December 31, 2004.

Recently Issued Accounting Pronouncements: In December 2004, FASB issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"), which requires companies to expense stock
options and other share-based payments. SFAS 123R supersedes SFAS No. 123, which
permitted either expensing stock options or providing pro forma disclosure. The
provisions of this Statement, which is effective July 1, 2005, apply to all
awards granted, modified, cancelled or repurchased after July 1, 2005 as well as
the unvested portion of prior awards. The company will adopt the standard as of
the effective date and estimates that the impact to the company's reported
results will be similar to the pro forma results shown in the company's
Accounting Policy Note to the Consolidated Financial Statements.

FS-10

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACCOUNTING POLICIES--Continued

The American Jobs Creation Act of 2004 (the Act) was signed into law in October
2004. The Act provides, among other things, for a tax deduction on qualified
domestic production activities and introduced a special one-time dividends
received deduction on the repatriation of certain foreign earnings to a U.S.
taxpayer, provided certain criteria are met. The FASB issued FASB Staff
Positions 109-1 to provide guidance on the application of SFAS No. 109,
Accounting for Income Taxes, and FASB Staff Positions 109-2 to provide
accounting and disclosure guidance for the repatriation provision. The company
is reviewing the implication of the new Act, recently released treasury
guidance, and the FASB staff positions but does not intend to repatriate any
foreign earnings under the Act and does not expect the Act will have a material
impact on the company's financial position, results of operations or cash flows.

RECEIVABLES

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 ($9,857,000 in 2004 and
$16,775,000 in 2003) is based primarily on management's evaluation of the
financial condition of the customer. The decrease in the allowance for
uncollectible accounts in 2004 compared to 2003 is primarily attributable to
significant write-offs of accounts previously reserved for as all collection
efforts were exhausted in 2004.

Installment receivables as of December 31, 2004 and 2003 consist of the
following (in thousands):

2004 2003
---- -----
Current Long-Term Total Current Long-Term Total
------- ---------- ------- ------- --------- -------

Installment receivables $19,576 $1,324 $20,900 $18,930 $578 $19,508
Less:
Unearned interest (435) - (435) (246) (54) (300)
Allowance for doubtful accounts (5,719) - (5,719) (10,929) - (10,929)
------- ------ ------- ------ ------ ------
$13,422 $1,324 $14,746 $7,755 $524 $8,279
======= ====== ======= ====== ===== ======

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. 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, 2004 and 2003 consist of the following (in
thousands):
2004 2003
------ -------
Raw materials $60,548 $41,573
Work in process 16,156 18,711
Finished goods 99,179 70,695
------ -------
$175,883 $130,979
======= ========
PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2004 and 2003 consist of the following
(in thousands):
2004 2003
------ -------
Machinery and equipment $243,335 $216,459
Land, buildings and improvements 95,041 67,364
Furniture and fixtures 27,494 20,737
Leasehold improvements 14,275 14,946
------- -------
380,145 319,506
Less allowance for depreciation (188,982) (169,455)
------ -------
$191,163 $150,051
======= =======
FS-11

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACQUISITIONS

In 2004, Invacare acquired for cash the following six businesses at a total cost
of $343,554,000:

o The assets of ACS, a New York distributor of medical supplies
with a focus on infusion therapy.
o The assets of Decpac, an Australian company that designs and
manufactures portable folding access ramps for use with
wheelchairs and scooters.
o Freedom Designs, Inc., a California-based company that designs
and manufactures seating products and wheelchairs with a
particular focus on the pediatric marketplace.
o WP Domus GmbH, a European-based holding company which
manufactures several complementary product lines to Invacare's
product lines.
o Champion Manufacturing, LLC , an Indiana company that designs and
manufactures medical recliners.
o The assets of Premier Designs, a California company from which
Invacare acquired assets and designs for a lightweight, easily
transportable power wheelchair.

Carroll Healthcare, Inc. was purchased in 2003 and as part of the 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 (U.S. GAAP used for company reporting purposes) in
accordance with the purchase agreement with no defined maximum amount. The
payment amount was finalized and paid in October 2004 at 74,667,000 Canadian
Dollars, $60,992,000 U.S. Dollars, which increased goodwill.

Motion Concepts, Inc. ("Motion") was also purchased in 2003 and 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. Based upon 2004
results, no additional consideration was paid. When the contingency related to
the acquisitions is settled, any additional consideration paid will increase the
purchase price and reported goodwill.

On September 9, 2004 the company finalized the acquisition of 100% of the shares
of WP Domus GmbH, a European-based holding company that manufactures several
complementary product lines to Invacare's product lines, including power add-on
products, bath lifts and walking aids, from WP Domus LLC. Domus has three
divisions: Alber, Aquatec and Dolomite. The acquisition allows the company to
expand its product line and reach new markets. The preliminary purchase price
was $227,382,000 including acquisition costs of $3,670,000, which was paid in
cash, and is subject to final determination of the estimated costs of possible
office closures, sales agency transfers and other consolidation efforts expected
to be finalized by the end of the third quarter of 2005. The acquisition was
consummated after satisfaction of certain conditions, including receipt of all
requisite regulatory approvals. Invacare entered into a 100,000,000 Euro bridge
loan agreement and utilized its existing revolving credit line to fund the
acquisition. Invacare's reported results reflect the operating results of Domus
since the date of the acquisition.

Supplemental pro forma information is presented below as though the business
combination had been completed as of the beginning of the period being reported
on. The pro forma information does not necessarily reflect the results of
operations that would have occurred if Domus had been a wholly owned entity of
Invacare as of the beginning of the periods presented (in thousands).

Years Ended December 31
2004 2003
---------- ----------
Net sales $1,490,140 $1,363,763
Net earnings 80,410 75,859
Earnings per share - assuming
dilution $2.49 $2.39

The pro forma results for 2004 included non-recurring stock option plan expense
of $1,410,000. The pro forma results for 2003 included non-recurring stock
option plan expense of $2,208,000 and a one-time shipment to a Japanese
distributor of approximately $9,512,000.

FS-12

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

ACQUISITIONS--Continued

The following summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition (in thousands):

Trade receivables $10,845
Inventories 8,470
Other current assets 5,380
Other intangibles 68,965
Property and equipment 17,673
Goodwill 161,486
-------
Total assets acquired 272,819

Accounts payable (3,985)
Accrued expenses (17,655)
Long-term debt (7,771)
Other long-term obligations (16,026)
--------
Total liabilities assumed (45,437)
--------
Net assets acquired $227,382
========

GOODWILL

The carrying amount of goodwill by operating segment is as follows (in
thousands):

2004 2003
---------------------------------------------------- ----------------------------------------------------
North North
America Europe Asia/Pacific Consolidated America Europe Asia/Pacific Consolidated
-------- ------ ------------ ------------ ------- ------ ------------ ------------

Balance as of
January 1 $210,047 $192,508 $12,944 $415,499 $153,683 $157,325 $10,110 $321,118
Acquisitions 95,344 161,486 71 256,901 49,723 3,397 - 53,120
Foreign
currency
translation 7,936 36,617 1,011 45,564 6,641 31,786 2,834 41,261
-------- -------- -------- -------- -------- -------- -------- --------
Balance as of
December 31 $313,327 $390,611 $14,026 $717,964 $210,047 $192,508 $12,944 $415,499
======== ======== ======= ======== ======== ======== ======= ========

Of the $256,901,000 in goodwill recorded from acquisitions, $67,557,000 is
expected to be deductible for tax purposes, of which $53,716,000 is deductible
related to the acquisition of Domus.

All of the company's other intangible assets have definite lives and continue to
be amortized over their useful lives, except for $27,732,000 related to
trademarks, which have indefinite lives. The company's intangibles consist of
the following (in thousands):

December 31, 2004 December 31, 2003
----------------- -----------------
Accumulated Accumulated
Historical Cost Amortization Historical Cost Amortization
--------------- ------------ --------------- ------------

Customer Lists $57,788 $2,737 $6,105 $ 936
Trademarks 27,732 - 4,268 -
License agreements 6,518 5,051 6,455 4,464
Developed Technology 5,842 80 - -
Patents 4,137 1,443 2,180 1,109
Other 7,348 1,842 3,406 1,227
------- ------- ------- ------
$109,365 $11,153 $22,414 $7,736
======= ======= ======= ======

FS-13

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

OTHER INTANGIBLES

The intangibles recorded on the date of acquisition due to the Domus acquisition
were as follows (in thousands):
Weighted Average
Fair Value Amortization Period
---------- -------------------
Customer relationships $ 42,731 13 years
Trademarks - Indefinite lives 20,521 Indefinite
Developed Technology 5,311 17 years
Other 402 5 years
---------
Total $ 68,965 13 years
=========

Amortization expense related to other intangibles was $3,417,000 and $1,506,000
for 2004 and 2003, respectively. Estimated amortization expense for each of the
next five years is expected to be $7,333,000 for 2005, $6,591,000 in 2006,
$6,427,000 in 2007, $6,128,000 in 2008 and $5,868,000 in 2009.

INVESTMENT IN AFFILIATED COMPANY

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, 2004, 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
$3,000,000 at December 31, 2004. Certain of the Company's officers and directors
have small minority equity ownership positions in this company. Based on the
provisions of FIN 46 and the company's preliminary analysis, the company does
not believe that its investment is a VIE as of December 31, 2004. Subsequent to
December 31, 2004, the company's board of directors approved an additional
funding commitment. Accordingly, the company will be required to consolidate
this investment on a prospective basis for the quarter ended March 31, 2005 as
the company will be deemed the primary beneficiary of this variable interest
entity.

CURRENT LIABILITIES

Accrued expenses as of December 31, 2004 and 2003 consist of the following (in
thousands):
2004 2003
------ ------
Accrued salaries and wages $35,280 $31,960
Accrued warranty cost 13,998 12,688
Accrued rebates 7,427 13,595
Accrued taxes other than income taxes 6,419 3,661
Accrued interest 5,274 3,998
Accrued legal and professional 4,761 2,029
Accrued freight 2,894 4,524
Accrued insurance 2,656 2,470
Accrued product liability, current portion 2,595 2,245
Other accrued items 17,546 14,862
------ ------
$98,850 $92,032
====== ======

Accrued rebates relate to several volume incentive programs the company offers
its customers. The company accounts for these rebates as a reduction of revenue
when the products are sold in accordance with the guidance in EITF 01-09:
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products). The company has experienced significant
pricing pressure in the U.S. market for standard products in recent years and
has partially reduced prices to our customers in the form of a volume rebate
such that the rebates would typically apply only if customers increased their
standard product purchases from the company. The decrease in rebates from
December 31, 2003 to December 31, 2004 is attributable to the fact that rebate
programs in place at December 31, 2003 targeted at Standard Products customers
in the U.S. expired during 2004 and were not renewed.

FS-14

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

CURRENT LIABILITIES --Continued

Changes in accrued warranty costs were as follows (in thousands):

2004 2003
------ ------
Balance as of January 1 $12,688 $11,448
Warranties provided during the period 8,665 8,557
Settlements made during the period (7,977) (8,288)
Changes in liability for pre-existing
warranties during the period,
including expirations 622 971
------ ------
Balance as of December 31 $13,998 $12,688
====== ======

LONG-TERM DEBT

Long-term debt as of December 31, 2004 and 2003 consist of the following (in
thousands):

2004 2003
------ ------

$80,000,000 senior notes at 6.71%, due in February 2008 $83,304 $85,462
$20,000,000 senior notes at 6.60%, due in February 2005 20,000 20,000
$50,000,000 senior notes at 3.97%, due in October 2007 50,081 50,560
$30,000,000 senior notes at 4.74%, due in October 2009 30,485 30,532
$20,000,000 senior notes at 5.05%, due in October 2010 20,433 20,386
Revolving credit agreement ($325,000,000 multi-currency), at 0.675% to
1.40% above local interbank offered rates, expires October 17, 2006 230,382 20,002
Bridge Credit Agreement 100,000 -
Other notes 15,351 7,267
------ ------
550,036 234,209
Less current maturities (2,062) (2,171)
------ ------
$547,974 $232,038
======== ========

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

On January 14, 2005, Invacare Corporation entered into a $450,000,000
multi-currency revolving credit agreement, which expires on January 14, 2010.
The facility provides that Invacare, may, upon consent of its lenders, increase
the amount of the facility by an additional $100,000,000. The borrowing rates
under the revolving credit agreement are 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 ranges from LIBOR plus 0.35% to
0.675%.

On September 1, 2004, Invacare Corporation entered into a 364-day,
multi-currency bridge credit agreement with a group of commercial banks, with an
expiration date of August 31, 2005 or such later date as mutually agreed upon by
the company and the banks. Pursuant to the agreement, the company borrowed
100,000,000 Euros in order to provide funds for the company's general corporate
purposes, including financing the Domus acquisition and expenses incurred in
connection therewith.

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 with a group of commercial
banks. The multi-currency revolving credit agreement was to expire on October
17, 2006 or such later date as mutually agreed upon by the company and the
banks.

In January 2005, amounts outstanding under both the $325,000,000 revolving
credit agreement and the 100,000,000 Euro bridge credit agreement were paid off
with the $450,000,000 multi-currency revolving credit agreement described above.
In addition, the $20,000,000 senior notes at 6.60%, due in February 2005 were
paid off with the new $450,000,000 facility and thus were classified as
long-term as of December 31, 2004 as the company had the intent and the ability
to pay-off the notes with long-term debt.

Borrowings denominated in foreign currencies aggregated $179,084,000 at December
31, 2004 and $872,000 at December 31, 2003. The borrowing rates under the
revolving credit agreement are determined based on the ratio of debt to 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, 2004 and 2003, the
weighted average floating interest rate on U.S. borrowings was 3.36% and 2.69%,
respectively.

FS-15

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

LONG-TERM DEBT --Continued

The revolving credit agreement, as amended, bridge credit agreement and senior
notes all require the company to maintain certain conditions with respect to net
worth, funded debt to capitalization, and interest coverage as defined in the
agreements. Under the most restrictive covenants of the company's borrowing
arrangements, the company has the capacity to borrow up to an additional
$60,800,000 as of December 31, 2004 and up to $108,000,000, effective February
2005, pursuant to the covenants of the new $450,000,000 multi-currency,
long-term revolving credit agreement.

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.

The aggregate minimum maturities of long-term debt for each of the next five
years are as follows: $2,062,000 in 2005, $1,308,000 in 2006, $217,578,000 in
2007, $81,089,000 in 2008, and $31,108,000 in 2009. Interest paid on borrowings
was $15,348,000, $9,450,000 and $13,465,000 in 2004, 2003 and 2002,
respectively.

Other long-term obligations as of December 31, 2004 and 2003 consist of the
following (in thousands):
2004 2003
------ ------
Supplemental Executive Retirement Plan liability $12,947 $11,048
Product liability 14,450 9,664
Deferred federal income taxes 24,833 2,337
Other, principally deferred compensation 16,341 11,334
------ ------
Total long-term obligations $68,571 $34,383
======= =======

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, 2004, 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 $18,663,000 in 2004, $15,803,000 in 2003, and $12,575,000 in 2002.

The amount of buildings and equipment capitalized in connection with capital
leases was $16,545,000 and $7,767,000 at December 31, 2004 and 2003,
respectively. At December 31, 2004 and 2003, accumulated amortization was
$3,590,000 and $3,003,000, respectively.

Future minimum operating and capital lease commitments as of December 31, 2004,
are as follow (in thousands):

Year Capital Leases Operating Leases
---- -------------- ----------------
2005 $1,751 $15,680
2006 1,699 9,039
2007 1,586 5,870
2008 1,538 3,178
2009 1,526 1,872
Thereafter 13,439 1,715
------- -------
Total future minimum lease payments 21,539 $37,354
=======
Amounts representing interest (8,262)
Present value of minimum lease payments $13,277
=======
FS-16

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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 2004, 2003 and 2002 was $5,860,000,
$5,619,000, and $5,444,000, 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 $30,631,000 and $27,618,000 at December 31,
2004 and 2003, respectively, of which approximately $13,371,000 and $11,517,000,
at December 31, 2004 and 2003, respectively, has been accrued. Expense for the
plan in 2004, 2003, and 2002 was $2,278,000, $2,108,000, and $2,147,000,
respectively.

In conjunction with these non-qualified plans, the company has invested in life
insurance policies related to certain employees to satisfy certain of 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.

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, expired 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 2004, the
Committee granted 615,450 and 11,000 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, 2004, 2003 or 2002.

Restricted stock awards for 20,510, 28,894 and 37,289 shares were granted in
years 2004, 2003 and 2002 without cost to the recipients. Under the terms of the
restricted stock awards, which were initially granted in 2001, 104,213 of the
shares granted vest ratably over the four years after the award date and 6,500
of the shares granted vest ratably over the 2 years after the award date.
Unearned restricted stock compensation of $911,000 in 2004, $897,000 in 2003 and
$1,190,000 in 2002, 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 $812,000, $643,000 and $757,000 was recognized in 2004,
2003 and 2002, respectively, related to restricted stock awards granted since
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 approximately 53,000 treasury shares for $2,444,000 in 2004,
110,000 treasury shares for $3,199,000 in 2003 and 85,000 treasury shares for
$2,863,000 in 2002.

FS-17

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

SHAREHOLDERS' EQUITY TRANSACTIONS--(Continued)

As of December 31, 2004, an aggregate of 10,389,393 Common Shares were reserved
for conversion of Class B Common Shares, future rights (as defined below) and
the exercise and future grant of options.

Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2004 Price 2003 Price 2002 Price
---- ----- ---- ----- ---- -----

Options outstanding at January 1 4,518,890 $27.34 4,257,422 $25.23 4,201,943 $23.27
Granted 626,450 43.89 704,617 36.73 619,868 33.59
Exercised (449,374) 24.13 (340,665) 19.08 (418,432) 18.28
Canceled (57,561) 34.75 (102,484) 33.02 (145,957) 27.32
--------- ------ --------- ------ --------- ------
Options outstanding at December 31 4,638,405 $29.81 4,518,890 $27.34 4,257,422 $25.23
========= ====== ========= ====== ========= ======

Options price range at December 31 $16.03 to $15.13 to $11.88 to
$47.35 $43.37 $36.84

Options exercisable at December 31 2,963,385 2,796,100 2,347,721
Options available for grant at December 31* 1,033,858 1,670,600 296,860

* Options available for grant as of December 31, 2004 reduced by net
restricted stock award activity of 108,713.

The following table summarizes information about stock options outstanding at
December 31, 2004:

Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Average Number
Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices At 12/31/04 Contractual Life Exercise Price At 12/31/04 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------

$16.03 - $19.50 513,873 3.8 years $18.25 513,873 $18.25
$20.06 - $24.75 1,266,484 3.9 $23.67 1,066,484 $23.72
$25.13 - $29.85 723,042 4.4 $25.30 723,042 $25.30
$30.02 - $34.54 694,753 7.4 $32.54 387,718 $32.82
$36.10 - $37.70 823,891 8.3 $37.29 272,268 $37.06
$40.07 - $47.35 616,362 9.7 $44.29 - -
--------- --- ------ --------- ------
Total 4,638,405 6.0 $29.41 2,963,385 $25.57

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 110,713 restricted stock
awards granted in years 2001 through 2004.

The assumption regarding the stock options issued in 2004, 2003 and 2002 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.

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:

2004 2003 2002
---- ---- ----
Expected dividend yield .63% .75% .80%
Expected stock price volatility 28.8% 29.6% 31.4%
Risk-free interest rate 3.67% 3.31% 3.26%
Expected life (years) 5.6 5.5 5.4

The weighted-average fair value of options granted during 2004, 2003 and 2002,
based upon an expected exercise year of 2010, was $13.58, $11.03 and $10.71,
respectively.
FS-18

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

SHAREHOLDERS' EQUITY TRANSACTIONS --Continued

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 2004 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, 2004 is 6.0 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 2004, 2003 and 2002 consisted of the following (in
thousands of shares):

Common Stock Class B Treasury
Shares Shares Shares
----------------------------------------

January 1, 2002 Balance 29,838 1,112 (249)
Exercise of stock options 419 - (85)
Stock awards 37 - -
Repurchase of treasury shares - - (53)
--------------------------------------------------------------------------------------------------------------
December 31, 2002 Balance 30,294 1,112 (387)
Exercise of stock options 416 - (110)
Stock awards 29 - -
Repurchase of treasury shares - - (273)
--------------------------------------------------------------------------------------------------------------
December 31, 2003 Balance 30,739 1,112 (770)
Exercise of stock options 449 - (53)
Stock awards 21 - -
Repurchase of treasury shares - - (111)
--------------------------------------------------------------------------------------------------------------
December 31, 2004 Balance 31,209 1,112 (934)
====== ===== =====

Stock option exercises in 2003 include deferred share activity, which increased
common shares by 75,000 shares and treasury shares by 5,000 shares.

FS-19

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued

OTHER COMPREHENSIVE EARNINGS (LOSS)

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

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

Balance at January 1, 2002 $(47,832) $ 743 $(1,040) $(48,129)
Foreign currency translation adjustments 28,214 28,214
Unrealized loss on available for sale securities (251) (251)
Deferred tax benefit relating to unrealized loss on available
for sale securities 88 88
Current period unrealized gain on cash flow hedges, net of
reclassifications 2,074 2,074
Deferred tax expense relating to unrealized gain on derivative
financial instruments (725) (725)
---------------------------------------------------------------
Balance at December 31, 2002 (19,618) 580 309 (18,729)

Foreign currency translation adjustments 66,185 66,185
Unrealized gain on available for sale securities 146 146
Deferred tax liability relating to unrealized gain on available
for sale securities (51) (51)
Current period unrealized gain on cash flow hedges, net of
reclassifications 5,394 5,394
Deferred tax expense relating to unrealized gain on derivative
financial instruments (1,888) (1,888)
---------------------------------------------------------------
Balance at December 31, 2003 46,567 675 3,815 51,057

Foreign currency translation adjustments 57,903 57,903
Unrealized loss on available for sale securities (14) (14)
Deferred tax benefit relating to unrealized loss on available
for sale securities 5 5
Current period unrealized loss on cash flow hedges, net of
reclassifications (6,649) (6,649)
Deferred tax benefit relating to unrealized loss on derivative
financial instruments 2,327 2,327
---------------------------------------------------------------
Balance at December 31, 2004 $104,470 $666 $(507) $104,629
===============================================================

Net gains of $6,650,000 and $500,000 and a net loss of $402,000 were
reclassified into earnings related to derivative instruments designated and
qualifying as cash flow hedges in 2004, 2003 and 2002, respectively.

INCOME TAXES

Earnings before income taxes consist of the following (in thousands):

2004 2003 2002
------- ------- -------
Domestic $57,557 $59,027 $51,512
Foreign 52,815 47,382 45,018
------- ------- -------
$110,372 $106,409 $96,530
======= ======= ======

FS-20

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

INCOME TAXES --Continued

The company has provided for income taxes as follows (in thousands):

2004 2003 2002
------- ------- -------
Current:
Federal $14,075 $16,635 $21,415
State 2,800 3,200 2,200
Foreign 14,050 11,960 11,195
------- ------- -------
30,925 31,795 34,810

Deferred:
Federal 2,225 1,625 (4,620)
Foreign 2,025 1,580 1,570
------- ------- -------
4,250 3,205 (3,050)
------- ------- -------
Income Taxes $35,175 $35,000 $31,760
======= ======= =======

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

2004 2003 2002
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax benefit 1.6 2.0 1.5
Tax credits (1.6) (1.4) (2.3)
Foreign taxes at less than the federal
statutory rate (2.1) (2.9) (2.6)
Other, net (1 0) .2 1.3
---- ---- ----
31.9% 32.9% 32.9%
==== ==== ====

Significant components of deferred income tax assets and liabilities at December
31, 2004 and 2003 are as follows (in thousands):

2004 2003
----- -----
Current deferred income tax assets, net:
Loss carryforwards $7,620 $1,162
Bad debt 4,366 7,773
Warranty 3,157 3,094
State and local taxes 3,048 2,422
Other accrued expenses and reserves 2,219 2,118
Inventory 1,816 1,931
Litigation reserves - 2,177
Compensation and benefits 1,240 968
Product liability 292 291
Other, net (2,028) 2,637
----- -----
$21,730 $24,573

FS-21

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

INCOME TAXES --Continued
2004 2003
----- -----
(In thousands)
Long-term deferred income tax assets
(liabilities), net:
Goodwill & intangibles (35,431) (3,310)
Fixed assets (15,169) (11,003)
Compensation and benefits 9,642 8,219
Loss carryforwards 6,429 1,001
Product liability 3,391 1,282
State and local taxes 2,400 2,400
Valuation reserve - (1,001)
Other, net 3,905 75
----- -----
$ (24,833) $ (2,337)
----- -----
Net Deferred Income Taxes $(3,103) $22,236
====== ======

At December 31, 2004, the company had federal foreign tax loss carryforwards of
approximately $47,625,000 of which $43,990,000 are non-expiring, $890,000 are
expiring in 2009 and $2,745,000 are expiring in 2010. At December 31, 2004 the
company also has $17,550,000 of local foreign tax loss carryforwards, which are
non-expiring. The loss carryforward amounts include $43,200,000 of federal and
$17,550,000 of local loss carryforwards acquired in 2004 acquisitions. The
company made income tax payments of $30,180,000, $25,173,000 and $28,769,000
during the years ended December 31, 2004, 2003 and 2002, respectively.

NET EARNINGS PER COMMON SHARE

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

2004 2003 2002
---- ---- ----
(In thousands except per share data)
Basic
Average common shares outstanding 31,153 30,862 30,867

Net earnings $75,197 $71,409 $64,770

Net earnings per common share $2.41 $2.31 $2.10

Diluted
Average common shares outstanding 31,153 30,862 30,867
Stock options 1,194 867 797
---- ---- ----
Average common shares assuming dilution 32,347 31,729 31,664

Net earnings $75,197 $71,409 $64,770

Net earnings per common share $2.33 $2.25 $2.05

At December 31, 2004 and 2003, 21,167 and 501,067 shares, respectively were
excluded from the average common shares assuming dilution, as they were
anti-dilutive. In 2004, the majority of the anti-dilutive shares were granted at
an exercise price of $47.35, which was higher than the average fair market value
price of $44.39 for 2004. In 2003, 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.

FS-22

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 financed 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 the majority of 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 ($50,010,000 at December 31, 2004) to DLL for events of default under
the contracts (total balance outstanding of $104,447,000 at December 31, 2004).
Financial Accounting Standards Board (FASB) Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, requires the company to record a guarantee
liability as it relates to the limited recourse obligation. As such, the company
has recorded a liability for this guarantee obligation. The company monitors the
collections status of these contracts and has provided amounts for estimated
losses in its allowances for doubtful accounts in accordance with SFAS No. 5,
Accounting for Contingencies. Credit losses are provided for in the financial
statements.

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 also 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. In
addition, reimbursement guidelines in the home health care industry have a
substantial impact on the nature and type of equipment an end user can obtain as
well as the timing of reimbursement and, thus, affect the product mix, pricing
and payment patterns of the company's customers.

FAIR VALUES OF FINANCIAL INSTRUMENTS

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

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 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.

FS-23

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FAIR VALUES OF FINANCIAL INSTRUMENTS --Continued

The carrying amounts and fair values of the company's financial instruments at
December 31, 2004 and 2003 are as follows (in thousands):

2004 2003
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
------- ------ ------- ------
Cash and cash equivalents $32,567 $32,567 $16,074 $16,074
Marketable securities 199 199 214 214
Other investments 8,213 8,213 7,642 7,642
Installment receivables 14,746 14,746 8,279 8,279
Long-term debt (including
current maturities) 550,036 551,431 234,209 237,584
Interest rate swaps 4,302 4,302 6,615 6,615
Forward contracts (780) (780) 6,196 6,196

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 AUD. 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 $6,961,000 in 2004,
$1,292,000 in 2003, and $1,184,000 in 2002, which were recognized in cost of
products sold and selling, general and administrative expenses.

BUSINESS SEGMENTS

The company operates in three primary business segments based on geographical
area: North America, Europe and Asia/Pacific. 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 Asia/Pacific 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 $83,135,000,
$74,835,000 and $61,178,000 for the years ended December 31, 2004, 2003 and
2002, respectively.

FS-24

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

BUSINESS SEGMENTS--Continued

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

2004 2003 2002
----------------------------------------------------------------------------
Revenues from external customers
North America $1,002,273 $897,208 $793,464
Europe 336,792 279,782 251,443
Asia/Pacific 64,262 70,186 44,254
--------- --------- ---------
Consolidated $1,403,327 $1,247,176 $1,089,161
========= ========= =========

Depreciation and amortization
North America $20,644 $18,551 $19,232
Europe 8,687 6,315 5,699
Asia/Pacific 2,911 2,261 1,623
All Other (1) 74 108 84
--------- --------- ---------
Consolidated $32,316 $27,235 $26,638
========= ========= =========

Net interest expense (income)
North America $8,940 $7,780 $11,910
Europe 4,924 4,220 5,256
Asia/Pacific (664) (602) (282)
All Other (1) (2,104) (5,161) (6,312)
--------- --------- ---------
Consolidated $11,096 $6,237 $10,572
========= ========= =========

Earnings (loss) before income taxes
North America $95,883 $88,299 $76,548
Europe 18,705 19,132 19,020
Asia/Pacific 1,430 5,997 5,740
All Other (1) (5,646) (7,019) (4,778)
--------- --------- ---------
Consolidated $110,372 $106,409 $96,530
========= ========= =========

Assets
North America $778,820 $616,352 $510,135
Europe 710,510 348,063 295,085
Asia/Pacific 69,685 56,403 41,185
All Other (1) 69,109 87,395 60,298
--------- --------- ---------
Consolidated $1,628,124 $1,108,213 $906,703
========= ========= =========

Long-lived assets
North America $428,308 $307,736 $252,624
Europe 548,843 236,591 194,212
Asia/Pacific 31,797 24,492 15,831
All Other (1) 53,905 64,672 45,224
--------- --------- ---------
Consolidated $1,062,853 $633,491 $507,891
========= ========= =========

Expenditures for assets
North America $14,897 $12,513 $11,172
Europe 20,064 11,933 7,956
Asia/Pacific 6,441 6,203 2,381
All Other (1) 1 11 600
--------- --------- ---------
Consolidated $41,403 $30,660 $22,109
========= ========= =========

(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-25

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

BUSINESS SEGMENTS--Continued

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

North America 2004 2003 2002
------------- --------- -------- --------
Standard $257,668 $274,959 $282,627
Rehab 280,339 273,063 211,096
Distributed 205,130 162,645 146,573
Respiratory 161,247 118,115 82,528
Continuing Care 76,578 48,321 40,452
Other 21,311 20,105 30,188
--------- -------- --------
$1,002,273 $897,208 $793,464
========= ======== ========

Europe 2004 2003 2002
------ --------- -------- --------
Standard $200,064 $142,777 $130,617
Rehab 128,316 129,167 113,162
Respiratory 8,412 7,838 7,664
--------- -------- --------
$336,792 $279,782 $251,443
========= ======== ========

Asia/Pacific 2004 2003 2002
------------ --------- -------- --------
Rehab $34,273 $46,832 $32,752
Respiratory 8,162 6,584 4,207
Standard 7,721 6,427 4,680
Other 14,106 10,343 2,615
--------- -------- --------
$64,262 $70,186 $44,254
========= ======== ========

Total Consolidated $1,403,327 $1,247,176 $1,089,161
========= ========= =========

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

INTERIM FINANCIAL INFORMATION (UNAUDITED)

QUARTER ENDED
-------------
(In thousands, except per share data)
2004 March 31, June 30, September 30, December 31,
---- --------- --------- --------- ---------

Net sales $321,343 $339,288 $349,507 $393,189
Gross profit 93,379 102,124 106,076 117,013
Earnings before income taxes 21,041 26,698 32,614 30,019
Net earnings 14,201 18,023 22,529 20,444
Net earnings per share - basic .46 .58 .72 .65
Net earnings per share - assuming
dilution .44 .56 .70 .63

2003 March 31, June 30, September 30, December 31,
---- --------- --------- --------- ---------
Net sales $276,673 $300,114 $327,366 $343,023
Gross profit 80,451 87,834 98,452 107,924
Earnings before income taxes 18,267 23,022 29,812 35,308
Net earnings 12,257 15,447 20,007 23,698
Net earnings per share - basic .40 .50 .65 .76
Net earnings per share - assuming
dilution .39 .49 .63 .74

FS-26

INVACARE CORPORATION AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

(In thousands) COL A. COL B. COL C. COL D.
------ ------ ------ ------

Balance Charged To Balance
At Beginning Cost And Deductions At End
Of Period Expenses Describe Of Period
Year Ended December 31, 2004 ------------ -------- ---------- ---------
----------------------------
Deducted from asset accounts -

Allowance for doubtful accounts $27,704 $11,222 $(23,350)(A) $15,576

Inventory obsolescence reserve 8,715 2,609 (1,792)(B) 9,532

Investments and related notes 29,540 - - 29,540
receivable

Accrued warranty cost 12,688 9,287 (7,977)(B) 13,998

Accrued product liability 11,909 8,202 (3,066)(C) 17,045

Year Ended December 31, 2003
----------------------------
Deducted from asset accounts -

Allowance for doubtful accounts $32,732 $13,760 $(18,788)(A) $27,704

Inventory obsolescence reserve 5,337 6,623 (3,245)(B) 8,715

Investments and related notes 29,000 540 - 29,540
receivable

Accrued warranty cost 11,448 9,528 (8,288)(B) 12,688

Accrued product liability 8,272 8,058 (4,421)(C) 11,909

Year Ended December 31, 2002
----------------------------
Deducted from asset accounts -

Allowance for doubtful accounts $28,797 $10,792 $(6,857)(A) $32,732

Inventory obsolescence reserve 5,463 2,137 (2,263)(B) 5,337

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

Accrued warranty cost 7,607 11,695 (7,854)(B) 11,448

Accrued product liability 5,816 5,086 (2,630)(C) 8,272

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

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

Note (C) - Loss and loss adjustment.

FS-27

Exhibit 21
Invacare Corporation Subsidiaries
- ---------------------------------
1. 2030604 Ontario, Inc., an Ontario corporation and wholly owned subsidiary.

2. 3080359 Nova Scotia Company, a Nova Scotia corporation and wholly owned
subsidiary.

3. 6123449 Canada, Inc., a Canadian corporation and wholly owned subsidiary.

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

5. Alber GmbH, Wurenlos, a Swiss corporation and wholly owned subsidiary.

6. Aquatec GmbH, Isny, a German limited liability company.

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

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

9. Carroll Healthcare, Inc., an Ontario corporation and wholly owned
subsidiary.

10. Champion Manufacturing Inc., a Delaware corporation.

11. Dolomite AB, Gislaved, a Swedish corporation and wholly owned subsidiary.

12. Dolomite Holding AB, Gislaved, a Swedish corporation and wholly owned
subsidiary.

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

14. Dynamic Europe Limited, a U.K. corporation and wholly owned subsidiary.

15. EC-Hong AS, a Danish corporation and wholly owned subsidiary.

16. Freedom Designs, Inc., a California corporation and wholly owned subsidiary

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

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

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

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

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

22. Invacare AS, a Danish corporation and wholly owned subsidiary.

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

24. Invacare Australia Pty Limited, an Australian corporation and wholly owned
subsidiary.

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

26. Invacare BV, a Netherlands corporation and wholly owned subsidiary.

27. Invacare Canada Holdings, Inc., a Canadian corporation and wholly owned
subsidiary.

I-36

Invacare Corporation Subsidiaries
- ---------------------------------
28. Invacare Canada Inc., an Ontario corporation and wholly owned subsidiary.

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

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

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

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

33. Invacare Germany Holding GmbH, a German corporation and wholly owned
subsidiary

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

35. Invacare Holding AB, a Swedish corporation and wholly owned subsidiary.

36. Invacare Holding BV, a Netherlands corporation and wholly owned subsidiary.

37. Invacare Holding Two AB, a Swedish corporation and wholly owned subsidiary.

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

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

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

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

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

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

44. Invacare International SARL, a Swiss corporation and wholly owned
subsidiary.

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

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

47. Invacare MeccSan SrL, an Italian corporation and wholly owned subsidiary.

48. Invacare Medical Equipment (Kunshan) Company, Ltd., a Chinese company and
wholly owned subsidiary.

49. Invacare Medical Equipment (Suzhou) Company, Ltd., a Chinese company and
wholly owned subsidiary.

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

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

52. Invacare Poirier SAS, a French corporation and wholly owned subsidiary.

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

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

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

I-37

Invacare Corporation Subsidiaries
- ---------------------------------
56. Invacare Verwaltungs GmbH, a German corporation and wholly owned
subsidiary.

57. Invacare(Portugual) - Sociedade Industrial e Comercial de Ortopedia., Lda.,
a Portugal company and wholly owned subsidiary.

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

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

60. Invatection Insurance Company, a Vermont corporation and wholly owned
subsidiary.

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

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

63. Mobitec Mobilitatshilfen Ges.m.b.H., Tiefgraben, an Austrian corporation
and wholly owned subsidiary.

64. Mobitec Rehab AG, Wurenlos, a Swiss corporation and wholly owned
subsidiary.

65. Mobitec S.a.r.l., Venissieux, A French corporation and wholly owned
subsidiary.

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

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

68. Pro-Med Australia Pty. Limited., an Australian corporation and wholly owned
subsidiary.

69. Pro-Med Equipment Pty. Limited, an Australian corporation and wholly owned
subsidiary.

70. Roller Chair Pty. Limited, an Australian corporation and wholly owned
subsidiary.

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

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

73. Scandinavian Mobility International AS, a Danish corporation and wholly
owned subsidiary.

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

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

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

77. Ulrich Alber GmbH, Albstadt, a German limited liability company.

78. WP Domus GmbH, a German corporation and wholly owned subsidiary.

79. WP Gesundheits Verwaltungs GmbH, a German limited liability company .

- --------------------------------------------------------------------------------
Note, "Wholly owned subsidiary" refers to indirect, as well as direct, wholly
owned subsidiaries.

I-38

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 reports
dated March 4, 2005, with respect to the consolidated financial statements and
schedule of Invacare Corporation and subsidiaries, Invacare Corporation
management's assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of
Invacare Corporation, included in this Annual Report (Form 10-K) for the year
ended December 31, 2004.

/S/ ERNST & YOUNG LLP

Cleveland, Ohio
March 4, 2005

I-39