The following discussion and analysis should be read in conjunction with the company's Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in the company's Current Report on Form 8-K as furnished to the Securities and Exchange Commission on April 23, 2009.

OUTLOOK

The company's first quarter earnings were in line with internal planning on a consolidated basis, with the NA/HME region outperforming and the Asia/Pacific region underperforming the Company's expectations along with portions of Europe. Pricing and reimbursement pressures continue in Germany. Reimbursement pressures also remain in France where payments from nursing homes for beds and certain wheelchairs will likely limit sales growth. For the Australian distribution business, sales growth will likely continue to be impacted by slow purchases by long term care facilities. For the IPG business, the Obama administration's budget supporting state Medicaid programs may help nursing homes pursue expenditures that have been deferred.

In the NA/HME region, the company did not see a meaningful impact from the previously announced Medicare reimbursement cuts of 9.5% for those product categories which had been included in phase one of the then delayed National Competitive Bidding program or from the limit of 36 months of rental payments for home oxygen. As the year progresses, there may be more influence from the reimbursement changes; however, Invacare's respiratory products (for example, the low cost HomeFill® oxygen delivery system) can help our customers offset the impact of Medicare cuts. Overall, the Company continues to expect a strong performance from NA/HME for the year and all divisions to benefit from lower commodity costs compared to the first quarter, as the company continues the recovery toward more normal profit margins which have been earned in the past. Organic sales growth, earnings and cash flow for 2009 are expected, as of the date of this filing, to be consistent with the guidance provided in the Company's April 23, 2009 press release.

RESULTS OF OPERATIONS

NET SALES

Net sales for the quarter decreased 4.4% to $397,995,000 versus $416,278,000 for the first quarter last year. Foreign currency translation decreased net sales by seven percentage points and acquisitions increased net sales by less than a percentage point. Organic net sales for the quarter grew 2.1% over the same period last year driven primarily by organic net sales performance in NA/HME, which grew 7.1%. while European net sales for the quarter decreased by 14.0%, organic net sales grew 0.6%.

North American/Home Medical Equipment (NA/HME)

NA/HME net sales increased 6.2% for the quarter to $186,703,000 as compared to $175,781,000 for the same period a year ago, driven by sales increases in Respiratory, Standard and Rehab product lines. Foreign currency decreased net sales by two percentage points while acquisitions increased net sales by less than one percentage point. The increase for the quarter was principally due to net sales increases in each of the segment's major product categories.

Rehab product line net sales increased by 2.6% compared to the first quarter last year despite declines in the consumer power product line. Excluding consumer power products, Rehab product line net sales increased 5.8% compared to the first quarter of last year, driven by volume increases in custom power and custom manual wheelchairs. Standard product line net sales for the first quarter increased 11.1% compared to the first quarter of last year, driven by increased volumes in manual wheelchairs, patient aids and beds. Respiratory product line net sales increased 14.3%, driven by volume increases in oxygen concentrators and strong purchases by national accounts.

Invacare Supply Group (ISG)

ISG net sales for the quarter increased less than one percent to $65,313,000 compared to $65,256,000 for the first quarter last year driven by an increase in home delivery program sales which were largely offset by decreased sales volumes with larger providers.

Institutional Products Group (IPG)

IPG net sales for the quarter decreased by 10.0% to $22,774,000 compared to $25,297,000 for the first quarter last year. Foreign currency translation decreased net sales by three percentage points for the quarter. Excluding currency, the net sales decrease was experienced across most product categories along with a decrease in sales to national accounts. Expenditures by nursing home customers have been constrained in the current economic environment in part due to budgetary pressures in state Medicaid programs.

Europe

European net sales decreased 14.0% for the quarter to $108,387,000 as compared to $126,003,000 for the same period a year ago. Foreign currency translation decreased net sales by fifteen percentage points. Net sales performance continued to be strong in most countries; however, business performance in Germany continued to be negatively impacted by pricing and reimbursement pressures in the market place.

Asia/Pacific

Asia/Pacific net sales decreased 38.1% for the quarter to $14,818,000 as compared to $23,941,000 for the same period a year ago. Foreign currency decreased net sales by twenty seven percentage points. Net sales performance was disappointing in the company's Australian distribution business and at the company's subsidiary which manufactures microprocessor controllers. The distribution business had lower sales due in large part to long term care facilities which have deferred purchases, while the subsidiary manufacturing controllers had customers who lowered inventory levels in response to the economic environment.

GROSS PROFIT

Gross profit as a percentage of net sales for the three month period ended March 31, 2009 was 27.3% compared to 27.2% in the same period last year. The gross margin improvement was the result of increased volumes, cost reduction activities, price increases and reduced freight costs which were largely offset by an unfavorable product mix, commodity cost increases and unfavorable foreign currency impact from the weakness of the Euro as compared to the U.S. dollar and the British pound as compared to the Euro.

For the first three months of the year, NA/HME margins as a percentage of net sales increased to 31.2% compared with 30.5% in the same period last year primarily due to cost reduction activities and pricing increases implemented in the second half of 2008 offset by commodity cost increases. ISG gross margins increased by less than one percentage point due to benefits from freight recovery programs. IPG gross margin increased by 6.9 percentage points primarily due to benefits from freight recovery programs and favorable foreign currency impact from the movement of the Canadian dollar. In Europe, gross margin as a percentage of net sales declined by 1.5 percentage points primarily due to an unfavorable sales mix away from higher margin product and unfavorable foreign currency impact from the weakness of the British pound as compared to the Euro and the Euro as compared to the U.S. dollar. Gross margin, as a percentage of net sales in Asia/Pacific, decreased by 5.4 percentage points, primarily due to unfavorable foreign currency impact due to the strengthening of the U.S. dollar.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative ("SG&A") expense as a percentage of net sales for the three months ended March 31, 2009 was 23.7% compared to 23.5% for the same period a year ago. SG&A expense decreased by $3,562,000 or 3.6% for the quarter ended March 31, 2009 compared to the first quarter of last year. Acquisitions increased these expenses by $662,000 in the quarter while foreign currency translation decreased these expenses by $7,268,000 in the quarter compared to the same period a year ago. Excluding the impact of foreign currency translation and acquisitions, SG&A expense increased 3.1% for the quarter compared to the same period a year ago. The increase in SG&A expense is attributable to increased bad debt expense, in addition to higher sales and marketing costs in anticipation of future sales growth.

NA/HME SG&A expense increased $2,487,000, or 5.2%, for the quarter compared to the same period a year ago. Foreign currency translation decreased SG&A by $864,000 while acquisitions increased SG&A by $662,000. Excluding foreign currency translation and acquisitions, SG&A expense increased by $2,689,000 or 5.7% primarily attributable to increased bad debt expense, stock option expense, employee benefit expenses and higher sales and marketing costs in anticipation of future sales growth.

ISG SG&A expense decreased $44,000, or 0.7%, for the quarter compared to the same period a year ago.

IPG SG&A expense decreased $502,000, or 12.7%, for the quarter compared to the same period a year ago. Foreign currency translation decreased SG&A by $31,000. The decrease in expense for the first three months of 2009 is primarily attributable to cost reduction activities and favorable currency transactions.

European SG&A expense decreased $4,335,000, or 13.4%, for the quarter compared to the same period a year ago. For the quarter, foreign currency translation decreased SG&A by $3,790,000, or 11.7%. Excluding the impact of foreign currency translation, the decrease in expense is primarily due to cost reduction activities.

Asia/Pacific SG&A expense decreased $1,168,000, or 16.1%, for the quarter compared to the same period a year ago. For the quarter, foreign currency translation decreased SG&A expense by $2,583,000, or 35.6%. Excluding the impact of foreign currency translation, SG&A expense increased 19.5% as compared to last year, primarily due to increases in sales and marketing costs for people and marketing programs to drive future sales growth and unfavorable foreign currency transactions.

CHARGE RELATED TO RESTRUCTURING ACTIVITIES

Previously, the company announced multi-year cost reductions and profit improvement actions, which included: reducing global headcount, outsourcing improvements utilizing the company's China manufacturing capability and third parties, shifting substantial resources from product development to manufacturing cost reduction activities and product rationalization, reducing freight exposure through freight auctions and changing the freight policy, general expense reductions and exiting manufacturing and distribution facilities.

The restructuring was necessitated by the continued decline in reimbursement, continued pricing pressures faced by the company as a result of outsourcing by competitors to lower cost locations and commodity cost increases for steel, aluminum and fuel.

Restructuring charges of $776,000 were incurred in the first three months of 2009, none of which was recorded in cost of products sold, since none related to inventory markdowns. The entire charge amount is included on the Charge Related to Restructuring Activities in the Condensed Consolidated Statement of Operations as part of operations.

The restructuring charges included $218,000 in NA/HME, $171,000 in IPG, $286,000 in Europe and $101,000 in Asia/Pacific. Of the total charges incurred to date, $635,000 remained unpaid as of March 31, 2009 with $252,000 unpaid related to NA/HME; $161,000 unpaid related to IPG; and $222,000 unpaid related to Europe. There have been no material changes in accrued balances related to the charge, either as a result of revisions in the plan or changes in estimates, and the company expects to utilize the accruals recorded through March 31, 2009 during 2009. With additional actions to be undertaken during the remainder of 2009, the company anticipates recognizing pre-tax restructuring charges of approximately $5,000,000 for the year.

INTEREST

Interest expense decreased $1,348,000 for the first quarter of 2009 compared to the same period last year due to lower debt levels. Interest income for the first quarter of 2009 decreased $257,000 compared to the same period last year, primarily due to interest on lower average foreign cash balances.

INCOME TAXES

The Company had an effective tax rate of 46.1% and 54.0% on earnings before tax compared to an expected rate at the US statutory rate of 35% for the three month period ended March 31, 2009 and 2008, respectively. The Company's effective tax rate for the three month period ended March 31, 2009 and 2008 was higher than the U.S. federal statutory rate as a result of the company not being able to record tax benefits related to losses in countries which had tax valuation allowances, while normal tax expense was recognized in countries without tax allowances.

LIQUIDITY AND CAPITAL RESOURCES

The company's reported level of debt decreased by $13,457,000 from December 31, 2008 to $465,363,000 at March 31, 2009, excluding the impact of adoption of FSP APB 14-1, as a result of improved utilization of the company's cash. The company's balance sheet reflects the adoption of FSP APB 14-1. As a result of adopting FSP APB 14-1, the company recorded a debt discount, which reduced debt and increased equity by $51,422,000 and $52,414,000 as of March 31, 2009 and December 31, 2008, respectively.

The company's cash and cash equivalents were $28,627,000 at March 31, 2009, down from $47,516,000 at the end of the year. The cash was primarily utilized to pay down debt.

The company's borrowing arrangements contain covenants with respect to maximum amount of debt, minimum loan commitments, interest coverage, net worth, dividend payments, working capital, and funded debt to capitalization, as defined in the company's bank agreements and agreements with its note holders. As of March 31, 2009, the company was in compliance with all covenant requirements. Under the most restrictive covenant of the company's borrowing arrangements as of March 31, 2009, the company had the capacity to borrow up to an additional $146,400,000.

CAPITAL EXPENDITURES

The company had no individually material capital expenditure commitments outstanding as of March 31, 2009. The company estimates that capital investments for 2009 could approximate $20,000,000 to $22,000,000 as compared to $19,957,000 in 2008. 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 to fund required capital expenditures for the foreseeable future.

CASH FLOWS

Cash flows used by operating activities were $2,514,000 for the first three months of 2009 compared to $18,455,000 used in the first three months of 2008. Operating cash flows for the first three months of 2009 were significantly improved compared to the same period a year ago even though net earnings in the first quarter of 2009 were basically flat to the prior year. This improvement was the result of higher accounts receivable collections and improved inventory management compared to the first quarter of 2008.

Cash used for investing activities was $3,361,000 for the first three months of 2009 compared to $2,254,000 used in the first three months of 2008. Cash used for investing activities for the first three months of 2008 includes a benefit of cash received from company-owned life insurance policies. In addition, purchases of property, plant and equipment in the first three months of 2009 were less than in the first three months of 2008.

Cash used by financing activities was $12,835,000 for the first three months of 2009 compared to cash provided of $913,000 in the first three months of 2008 and reflects the company's utilization of cash to pay down debt.

During the first three months of 2009, the company used free cash flow of $4,530,000 compared to free cash flow of $23,890,000 used by the company in the first three months of 2008. The increase was primarily attributable to the same items as noted above which impacted operating cash flows. Free cash flow is a non-GAAP financial measure that is comprised of net cash provided by operating activities, excluding net cash impact related to restructuring activities, less net purchases of property and equipment, net of proceeds from sales 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, for example, acquisitions). However, it should be noted that the company's definition of free cash flow may not be comparable to similar measures disclosed by other companies because not all companies calculate free cash flow in the same manner.

The non-GAAP financial measure is reconciled to the GAAP measure as follows (in thousands):

                                                          Three Months Ended March 31,
                                                               2009                    2008
Net cash used by operating activities                 $      (2,514 )       $       (18,455 )
Net cash impact related to restructuring activities           1,140                   1,078
Less: Purchases of property and equipment - net              (3,156 )                (6,513 )
Free Cash Flow                                        $      (4,530 )       $       (23,890 )

DIVIDEND POLICY

On February 12, 2009, the company's Board of Directors declared a quarterly cash dividend of $0.0125 per Common Share to shareholders of record as of April 6, 2009, which was paid on April 14, 2009. At the current rate, the cash dividend will amount to $0.05 per Common Share on an annual basis.

The Consolidated Financial Statements included in this Quarterly Report on Form 10-Q include accounts of the company and all wholly-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 the 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.

The following critical accounting policies, among others, affect the more significant judgments and estimates used in preparation of the company's consolidated financial statements.

Revenue Recognition
Invacare's revenues are recognized when products are shipped to unaffiliated customers. The SEC'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 (GAAP) to selected revenue recognition issues. The company has concluded that its revenue recognition policy is appropriate and in accordance with GAAP and SAB No. 101. Shipping and handling costs are included in cost of goods sold.

Sales are made only 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 Emerging Issues Task Force, or "EITF" No. 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.

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. 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, 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.

The company continues to closely monitor the credit-worthiness of its customers and adhere to tight credit policies. Due to delays in the implementation of various government reimbursement policies, including national competitive bidding, there still remains significant uncertainty as to the impact that those changes will have on the company's customers.

Invacare has an agreement with De Lage Landen, Inc. ("DLL"), a third party financing company, to provide the majority of future lease financing to Invacare's North America customers. The DLL agreement provides for direct leasing between DLL and the Invacare customer. The company retains a recourse obligation for events of default under the contracts. The company monitors the collections status of these contracts and has provided amounts for estimated losses in its allowances for doubtful accounts.

Inventories and Related Allowance for Obsolete and Excess Inventory Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out 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, Invacare reviews 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 company may partially or fully reserve for the individual item. The company continues 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. Under SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. 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 completes its annual impairment tests in the fourth quarter of each year. The discount rates used have a significant impact upon the discounted cash flow methodology utilized in our annual impairment testing as higher discount rates decrease the fair value estimates used in our testing.

The company utilizes a discounted cash flow method model to analyze reporting units for impairment in which the company forecasts income statement and balance sheet amounts based on assumptions regarding future sales growth, profitability, inventory turns, days' sales outstanding, etc. to forecast future cash flows. The cash flows are discounted using a weighted average cost of capital discount rate where the cost of debt is based on quoted rates for 20-year debt of companies of similar credit risk and the cost of equity is based upon the 20-year treasury rate for the risk free rate, a market risk premium, the industry average beta, a small cap stock adjustment and company specific risk premiums. The assumptions used are based on a market participant's point of view and yielded a discount rate of 8.90% to 9.90% in 2008 compared to 9.25% to 10.25% in 2007. The discount rate has fluctuated in the last 3 years by less than 50 basis points. If the discount rate used were 50 basis points higher for the 2008 impairment analysis, the company would still not have an impairment for any of the reporting units.

While there was no indication of impairment in 2008 related to goodwill or intangibles for any reporting units, a future potential impairment is possible for any of the company's reporting units should actual results differ materially from forecasted results used in the valuation analysis. Furthermore, the company's annual valuation of goodwill can differ materially if the market inputs used to determine the discount rate change significantly. For instance, higher interest rates or greater stock price volatility would increase the discount rate and thus increase the chance of impairment.

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 $13,000,000 in the aggregate of the company's North American product liability exposure. The company also has . . .