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 October 22, 2009.

OUTLOOK

For the nine months ended September 30, 2009, the Company's earnings were in line with internal planning on a consolidated basis and ahead of plan on both cash flow and debt repayment. For the fourth quarter, the Company expects continued improvements from cost reduction activities compared to last year. However, commodity costs have started to rise recently compared to earlier in 2009. Compared to the third quarter, these higher costs will pressure margins in the fourth quarter. Offsetting that impact, foreign currency rates have recently strengthened against the U.S. dollar.

The Company remains more focused on delivering cash flow and operating performance over sales growth, in some cases, limiting business with customers who do not provide an adequate return. Additionally, pricing and reimbursement pressures are expected to continue in certain European markets, particularly in France where funding rules have changed for nursing homes. For the IPG business and the Australian distribution business, delays in purchases by long-term care facilities will likely continue to negatively impact sales growth. In the NA/HME region, organic sales growth in the fourth quarter should improve compared to the third quarter in part due to higher Respiratory product line sales. The Company's organic sales growth, effective tax rate, 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 October 22, 2009 press release.

RESULTS OF OPERATIONS

NET SALES

Net sales for the three months ended September 30, 2009 were $434,031,000, compared to $461,836,000 for the same period a year ago, representing a 6.0% decrease. Foreign currency translation decreased net sales by four percentage points while acquisitions increased net sales by less than a percentage point. Organic net sales for the quarter declined 2.2% compared to the same period last year driven by organic net sales declines in North America/Home Medical Equipment, Asia/Pacific and Institutional Products Group, which were partially offset by an organic net sales increase for Invacare Supply Group. For the nine months ended September 30, 2009, net sales decreased 6.1% to $1,244,567,000 compared to $1,325,266,000 for the same period a year ago. Foreign currency translation decreased net sales by six percentage points while acquisitions increased net sales by less than a percentage point. Organic net sales for the nine months ended September 30, 2009 decreased 0.3% compared to the same period last year.

North American/Home Medical Equipment (NA/HME)

NA/HME net sales decreased 3.2% for the quarter to $185,072,000 as compared to $191,218,000 for the same period a year ago. Foreign currency translation decreased net sales by less than one percentage point while acquisitions increased net sales by approximately one percentage point. The decrease for the quarter was principally due to net sales decreases in Respiratory and Rehab product lines. For the first nine months of 2009, net sales increased 1.0% to $559,851,000 as compared to $554,162,000 for the same period a year ago. Foreign currency translation decreased net sales by approximately one percentage point while acquisitions increased net sales by approximately one percentage point.

Standard product line net sales for the third quarter increased 2.5% compared to the third quarter of last year, driven by increased volumes in home care beds and low air loss therapy products. Rehab product line net sales decreased by 1.8% compared to the third quarter last year, driven primarily by declines in sales of the Top EndŽ sports wheelchair, custom manual and consumer power product lines. Primarily driven by cash sales, Top EndŽ has been negatively impacted by the economic downturn. Reliant on reimbursement, sales of custom manual wheelchairs have been negatively impacted by coverage rules, such as the State of Ohio's recent change related to ceasing reimbursement at nursing homes for HME products. Respiratory product line net sales decreased 20.2%, primarily driven by lower sales of HomeFillŽ oxygen delivery systems, largely due to continued inventory adjustments by some customers.

Invacare Supply Group (ISG)

ISG net sales for the quarter increased 4.8% to $70,825,000 compared to $67,604,000 in the third quarter last year. The net sales increase was primarily in wound care, incontinence and enteral products. In addition, increased home delivery program sales were offset in part by decreased sales to larger providers. For the first nine months of 2009, net sales increased 3.7% to $204,688,000 as compared to $197,383,000 for the same period a year ago.

Institutional Products Group (IPG)

IPG net sales for the quarter decreased by 10.9% to $23,462,000 compared to $26,320,000 for the third quarter last year. Foreign currency translation decreased net sales by less than one percentage point. The net sales decrease was largely driven by continued weakness in capital expenditures by nursing home customers, due primarily to budgetary pressures in state Medicaid programs. For the first nine months of 2009, net sales decreased 9.8% to $67,469,000 as compared to $74,794,000 for the same period a year ago. Foreign currency translation decreased net sales by two percentage points.

Europe

European net sales decreased 11.1% for the quarter to $134,604,000 as compared to $151,478,000 for the same period a year ago. Foreign currency translation decreased net sales by eleven percentage points. Organic net sales for the quarter were basically flat, with sales growth in the U.K. and certain other markets, offset primarily by a sales decline in France, where the sales of beds and wheelchairs into nursing homes continued to weaken as a result of changed funding rules. European net sales for the first nine months of 2009 decreased 14.9% to $360,209,000 as compared to $423,458,000 for the same period a year ago. Foreign currency translation decreased net sales by fourteen percentage points.

Asia/Pacific

Asia/Pacific net sales decreased 20.4% for the quarter to $20,068,000 as compared to $25,216,000 for the same period a year ago. Foreign currency translation decreased net sales by five percentage points. The sales decline at the Company's subsidiary which manufactures controllers was largely due to external customers whose demand for inventory remained weak in the current economic environment. The Company's Australian distribution business had lower sales due in large part to weak demand from long-term care facilities which continue to delay capital purchases. For the first nine months of 2009, net sales decreased 30.6% to $52,350,000 as compared to $75,469,000 for the same period a year ago. Foreign currency translation decreased net sales by sixteen percentage points.

GROSS PROFIT

Gross profit as a percentage of net sales for the three and nine-month periods ended September 30, 2009 was 30.3% and 28.8%, respectively, compared to 28.4% and 27.8%, respectively, in the same periods last year. The margin improvement compared to the prior year in virtually all segments was the result of cost reduction activities, including commodity cost and freight reductions, along with a favorable customer mix toward higher margin customers, which were partially offset by volume declines and currency weakness in Asia Pacific related to purchases of sourced product.

For the first nine months of the year, NA/HME margins as a percentage of net sales increased to 33.5% compared with 30.7% in the same period last year primarily due to cost reduction activities, including commodity cost and freight reductions, along with a favorable customer mix toward higher margin customers. ISG gross margins increased by 1.5 percentage points primarily due to benefits from cost reduction activities, including freight reduction programs, and favorable customer mix towards higher margin customers. IPG gross margin increased by 6.7 percentage points primarily as a result of cost reduction activities, including the benefits of freight recovery programs. In Europe, gross margin as a percentage of net sales declined by 1.2 percentage points primarily due to the 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 8.3 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 and nine months ended September 30, 2009 was 24.0% and 23.8%, respectively, compared to 23.0% and 23.3% for the same periods a year ago. The dollar decreases were $1,837,000 and $11,980,000, or 1.7% and 3.9%, respectively, for the quarter and first nine months of the year, as compared to the same period a year ago. Acquisitions increased these expenses by $574,000 in the quarter and $1,804,000 in the first nine months of the year, while foreign currency translation decreased these expenses by $3,879,000 in the quarter and $19,017,000 in the first nine months of the year compared to the same periods a year ago. Excluding the impact of foreign currency translation and acquisitions, selling, general and administrative expense increased 1.4% for the quarter and 1.7% for the first nine months of 2009 as compared to the same periods a year ago. The dollar increase, excluding foreign currency translation and acquisitions, was $1,468,000 and $5,233,000 for the quarter and first nine months of the year, as compared to the same periods a year ago. The year to date increase is primarily attributable to increases in bad debt and stock compensation expense as well as unfavorable foreign currency transactions related to the Euro and the British Pound.

North American/HME SG&A expense increased $2,621,000, or 4.9%, for the quarter and $5,249,000, or 3.4%, in the first nine months of 2009 compared to the same periods a year ago. For the quarter, foreign currency translation decreased SG&A expense by $225,000, or .4%, while acquisitions increased SG&A expense by $574,000, or 1.1%. For the first nine months of 2009, foreign currency translation decreased SG&A expense by $1,578,000 or 1.0% while acquisitions increased SG&A by $1,804,000 or 1.2%. Excluding the impact of foreign currency translation and acquisitions, SG&A expense increased by 4.3% for the quarter and increased by 3.3% year to date. The year to date increase is primarily attributable to increased bad debt expense and stock compensation expense.

Invacare Supply Group SG&A expense increased $509,000, or 7.6%, for the quarter and increased by $1,065,000, or 5.4%, in the first nine months of 2009 compared to the same periods a year ago with the year to date increase primarily due to increased bad debt expense.

Institutional Products Group SG&A expense decreased $336,000, or 8.6%, for the quarter and decreased $399,000, or 3.3%, in the first nine months of 2009 compared to the same periods a year ago. Foreign currency translation decreased SG&A expense by $32,000, or 0.8%, for the quarter and $224,000, or 1.9%, for the first nine months of the year. Excluding the impact of foreign currency translation, SG&A expense decreased 7.8% and 1.5% for the quarter and first nine months of 2009, respectively, as compared to last year. The year to date decline is attributable to reduced commission expense driven by the net sales decline.

European SG&A expense decreased $3,457,000, or 9.9%, for the quarter and $14,725,000, or 14.4%, for the first nine months of 2009 compared to the same periods a year ago. For the quarter, foreign currency translation decreased SG&A by $3,195,000, or 9.2%. For the first nine months of 2009, foreign currency translation decreased SG&A expense by $12,483,000, or 12.2%. Excluding the impact of foreign currency translation, SG&A expense decreased by 0.8% and 2.2% for the quarter and first nine months of the year, respectively, as compared to the same periods a year ago.

Asia/Pacific SG&A expense decreased $1,174,000, or 15.8%, for the quarter and $3,170,000, or 14.4%, in the first nine months of the year compared to the same periods a year ago. For the quarter, foreign currency translation decreased SG&A expense by $427,000, or 5.8%. For the first nine months of 2009, foreign currency translation decreased SG&A by $4,732,000, or 21.4%. Excluding the impact of foreign currency translation, SG&A expense decreased 10.1% for the quarter and increased by 7.1% for first nine months of 2009, respectively as compared to last year. The year to date decrease is primarily attributable to unfavorable foreign currency transactions related to the Euro.

CHARGE RELATED TO RESTRUCTURING ACTIVITIES

In 2005, 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 and general expense reductions. 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 $2,155,000 and $4,055,000 were incurred in the three and nine month periods ended September 30, 2009, including $298,000 for the three and nine month periods ended September 30, 2009 which was recorded in cost of products sold as it related to inventory markdowns. The remaining charge amount is included on the Charge Related to Restructuring Activities in the Condensed Consolidated Statement of Operations as part of operations.

For the first nine months of 2009, restructuring charges included $255,000 in NA/HME, $60,000 in ISG, $171,000 in IPG, $2,434,000 in Europe and $1,135,000 in Asia/Pacific. Of the total charges incurred to date, $1,509,000 remained unpaid as of September 30, 2009 with $107,000 unpaid related to NA/HME; $115,000 unpaid related to IPG; and $1,287,000 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 September 30, 2009 during 2009. With additional actions to be undertaken during the remainder of 2009, the company anticipates recognizing pre-tax restructuring charges of approximately $6,000,000 for the year.

INTEREST

Interest expense decreased $2,810,000 and $5,964,000 for the third quarter and first nine months of 2009, respectively, compared to the same periods last year due to lower debt levels and lower interest rates. Interest income for the third quarter and first nine months of 2009 decreased $470,000 and $1,267,000, respectively, compared to the same periods last year, which was primarily on the result of maintaining lower average foreign cash balances.

INCOME TAXES

The Company had an effective tax rate of 24.2% and 28.2% on earnings before tax for the three and nine month periods ended September 30, 2009, respectively, compared to an expected rate at the US statutory rate of 35%. For the three and nine month periods ended September 30, 2008, the company had an effective rate of 26.8% and 36.0%, respectively, compared to an expected rate at the US statutory rate of 35%. The company's effective tax rate for the three and nine month periods ended September 30, 2009 and three month period ending September 30, 2008 was lower 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 and earnings abroad being taxed at rates generally lower than the U.S. federal statutory rate. For the nine month period ended September 30, 2008, the effective tax rate 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 valuation allowances.

LIQUIDITY AND CAPITAL RESOURCES

The company's debt decreased by $105,972,000 from December 31, 2008 to $372,848,000 at September 30, 2009, excluding the impact of adoption of ASC 470-20, as a result of improved cash flow generation. The company's balance sheet reflects the adoption of ASC 470-20. As a result of adopting ASC 470-20, the company recorded a debt discount, which reduced debt and increased equity by $49,352,000 as of September 30, 2009 and $52,414,000 as of December 31, 2008, respectively.

The company's cash and cash equivalents were $27,821,000 at September 30, 2009, down from $47,516,000 at the end of the year.

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. There are three significant financial covenants: leverage ratio, interest coverage ratio and fixed charge ratio. As of September 30, 2009, the company was in compliance with all covenant requirements. Under the most restrictive covenant of the company's borrowing arrangements as of September 30, 2009, the company had the capacity to borrow up to an additional $146,747,000.

The leverage ratio is defined as Consolidated Funded Indebtedness at the balance sheet date as compared to Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the previous twelve months. As of September 30, 2009, the maximum leverage ratio permitted by the borrowing arrangements was 5.0 to 1.0. The actual leverage ratio as of September 30, 2009 was 2.64 to 1.0. On October 1, 2009, the maximum leverage ratio permitted by the borrowing arrangements decreased to 4.0 to 1.0.

The interest coverage ratio is defined as Consolidated EBITDA for the previous twelve months as compared to Consolidated Interest Charges for the previous twelve months. As of September 30, 2009, the minimum interest coverage ratio permitted by the borrowing arrangements was 2.5 to 1.0. The actual interest coverage ratio as of September 30, 2009 was 4.34 to 1.0. On October 1, 2009, the minimum interest coverage ratio permitted by the borrowing arrangements decreased to 3.0 to 1.0.

The fixed charge ratio takes into consideration several items including: Consolidated EBITDA, rent and lease expense, capital expenditures, interest charges, regularly scheduled principal payments and federal, state and local taxes paid. As of September 30, 2009, the minimum fixed charge ratio permitted by the borrowing arrangements was 1.4 to 1.0. The actual fixed charge ratio as of September 30, 2009 was 2.07 to 1.0. On October 1, 2009, the minimum interest coverage ratio permitted by the borrowing arrangements increased to 1.6 to 1.0.

CAPITAL EXPENDITURES

The company had no individually material capital expenditure commitments outstanding as of September 30, 2009. The company estimates that capital investments for 2009 could approximate $15,000,000 to $17,000,000 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 provided by operating activities were $86,007,000 for the first nine months of 2009 compared to cash provided by operating activities of $15,634,000 in the first nine months of 2008. Operating cash flows for the first nine months of 2009 were significantly improved compared to the same period a year ago primarily due to improved profitability and better working capital management as accounts receivable collections were higher, inventory levels were reduced and accounts payable increased primarily in NA/HME as a result of improved asset management.

Cash used for investing activities was $10,136,000 for the first nine months of 2009 compared to $11,283,000 used in the first nine months of 2008. Purchases of property, plant and equipment in the first nine months of 2009 were less than in the first nine months of 2008 while the first nine months of 2008 included a benefit of cash received from company-owned life insurance policies.

Cash used by financing activities was $99,115,000 for the first nine months of 2009 compared to cash used of $28,759,000 in the first nine months of 2008. The increase in cash flow used by financing activities is the result of a reduction in debt outstanding from strong cash flow generated during the year and utilization of cash on the balance sheet.

During the first nine months of 2009, the company generated free cash flow of $79,814,000 compared to $3,394,000 generated by the company in the first nine 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):

                                                      Nine Months Ended September 30,
                                                                 2009             2008
Net cash provided by operating activities             $        86,007       $   15,634
Net cash impact related to restructuring activities             3,212            2,709
Less: Purchases of property and equipment - net                (9,405 )        (14,949 )
Free Cash Flow                                        $        79,814       $    3,394

DIVIDEND POLICY

On August 19, 2009, the company's Board of Directors declared a quarterly cash dividend of $0.0125 per Common Share to shareholders of record as of October 5, 2009, which was paid on October 13, 2009. At the current rate, the cash dividend will amount to $0.05 per Common Share on an annual basis.

CRITICAL ACCOUNTING POLICIES

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. Revenue Recognition, ASC 605, 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 GAAP and ASC 605. 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 the revenue recognition guidance in ASC 605-45-05. 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 De Lage Landen, Inc. ("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 home health care dealers, medical equipment dealers and long term care facilities located throughout the United States, Australia, Canada, New Zealand . . .