Charges Related to Restructuring Activities

The company's restructuring charges were necessitated primarily by continued declines in Medicare and Medicaid reimbursement by the U.S. government, as well as similar healthcare reimbursement pressures abroad, which negatively affect the company's customers (e.g. home health care providers) and continued pricing pressures faced by the company as a result of outsourcing by competitors to lower cost locations. While the company's restructuring efforts have been executed on a timely basis resulting in operating cost savings, the savings have been more than offset by continued margin decline, principally as a result of product mix, and higher regulatory and compliance costs related to quality system improvements which are unrelated to the restructuring actions. The company expects any near-term cost savings from restructuring will be offset by higher regulatory and compliance costs related to quality system improvements at least until the company has completed its quality systems remediation efforts.

The company's restructuring commenced in the second quarter of 2011 with the company's decision to close the Hong, Denmark assembly facility as part of the company's ongoing globalization initiative to reduce complexity in the company's supply chain which is intended to reduce expenses to help offset pricing pressures. In the third quarter of 2011, the company continued to execute on the closure of the Hong, Denmark assembly facility and initiated the closure of a smaller facility in the U.S. Charges for the quarter ended December 31, 2011 were primarily incurred at the company's corporate headquarters for severance, with additional costs incurred as a result of the closure of the Hong, Denmark facility. The facility closures were completed in 2012 in addition to the elimination of various positions principally in the North America/Home Medical Equipment (HME) and Asia/Pacific segments.

Charges for the year ended December 31, 2011 totaled $10,534,000 including charges for severance ($8,352,000), contract exit costs primarily related to the closure of the Hong, Denmark assembly facility ($1,788,000) and inventory write-offs ($277,000) recorded in cost of products sold and miscellaneous costs ($117,000). The majority of the 2011 North America/HME charges were incurred for severance, primarily at the corporate headquarters as the result of the elimination of various positions principally in sales and administration in Elyria, Ohio. These eliminations were permanent reductions in workforce which primarily resulted in reduced selling, general and administrative expenses. In Europe, the charges were the result of the closure of the company's Hong, Denmark facility. The assembly activities were transferred to other company facilities or outsourced to third parties. This closure enabled the company to reduce fixed operating costs related to the facility and reduce headcount with the transfer of a portion of the production to other company facilities. The majority of the 2011 charges have now been paid out and were funded with operating cash flows.

Charges for the year ended December 31, 2012 totaled $11,395,000 including charges for severance ($6,775,000), lease termination costs ($1,725,000), building and asset write-downs, primarily related to the closure of the Hong, Denmark assembly facility, and other miscellaneous charges in Europe and Asia/Pacific ($2,404,000) and inventory write-offs ($491,000) in Asia/Pacific recorded in cost of products sold. Severance charges were primarily incurred in the North America/HME segment ($4,242,000), Asia/Pacific segment ($1,681,000) and Europe segment ($817,000). The charges were incurred as a result of the elimination of various positions as part of the company's globalization initiatives. In addition, a portion of the North America/HME segment severance was related to positions eliminated, principally in sales and marketing as well as manufacturing, at the company's Taylor Street facility as a result of the FDA consent decree. The savings from these charges will be reflected primarily in reduced selling, general and administrative expenses and manufacturing expenses for the company. In Europe, positions were eliminated as a result of finalizing the exit from the manufacturing facility in Denmark and an elimination of a senior management position in Switzerland. In Asia/Pacific, the company's management approved in the fourth quarter of 2012 a plan to restructure the company's operations in this segment. In Australia, the company consolidated offices / warehouses, decreased staffing and exited various activities while returning to a focus on distribution. At the company's subsidiary, which produces microprocessor controllers, the company decided to cease the contract manufacturing business for companies outside of the healthcare industry. Payments for the year ended December 31, 2012 were $9,381,000 and were funded with operating cash flows. The majority of the 2012 charges are expected to be paid out during 2013.

Restructuring continued during the quarter ended March 31, 2013 resulting in restructuring charges of $2,522,000 in the first three months of 2013 principally for severance in NA/HME and Asia/Pacific and to a lesser extent Europe and IPG as a result of the permanent elimination of certain management positions. Payments for the quarter ended March 31, 2013 were $4,022,000 and were funded with operating cash flows. The majority of the outstanding charge accruals at March 31, 2013 are expected to be paid out within the next twelve months.

There have been no material changes in accrued balances related to the charges, either as a result of revisions in the plan or changes in estimates. In addition, the savings anticipated as a result of the company's restructuring plans have been or are expected to be achieved, primarily resulting in reduced salary and benefit costs principally impacting selling, general and administrative expenses, and to a lesser extent, costs of products sold. However, these savings have been more than offset by continued margin decline, principally as a result of product mix, and higher regulatory and compliance costs related to quality system improvements, which are unrelated to the restructuring actions. To date, the company's liquidity has not been materially impacted by the company's restructuring charges.

A progression by reporting segment of the accruals recorded as a result of the restructuring is as follows (in thousands):



	Severance			Product Line Discontinuance			Contract Terminations			Other			Total
December 31, 2010 Balance
Total	$	—		$	—		$	—		$	—		$	—
Charges
NA/HME	4,755			—			—			4			4,759
IPG	123			—			—			—			123
Europe	3,288			277			1,788			113			5,466
Asia/Pacific	186			—			—			—			186
Total	8,352			277			1,788			117			10,534
Payments
NA/HME	(1,663		)	—			—			(4		)	(1,667		)
IPG	(52		)	—			—			—			(52		)
Europe	(1,546		)	(277		)	(1,714		)	(113		)	(3,650		)
Asia/Pacific	(186		)	—			—			—			(186		)
Total	(3,447		)	(277		)	(1,714		)	(117		)	(5,555		)
December 31, 2011 Balance
NA/HME	3,092			—			—			—			3,092
IPG	71			—			—			—			71
Europe	1,742			—			74			—			1,816
Asia/Pacific	—			—			—			—			—
Total	4,905			—			74			—			4,979
Charges
NA/HME	4,242			—			5			—			4,247
IPG	35			—			—			—			35
Europe	817			—			53			1,223			2,093
Asia/Pacific	1,681			491			1,667			1,181			5,020
Total	6,775			491			1,725			2,404			11,395
Payments
NA/HME	(3,587		)	—			(5		)	—			(3,592		)
IPG	(106		)	—			—			—			(106		)
Europe	(1,964		)	—			(127		)	(1,223		)	(3,314		)
Asia/Pacific	(812		)	(340		)	(42		)	(1,175		)	(2,369		)
Total	(6,469		)	(340		)	(174		)	(2,398		)	(9,381		)
December 31, 2012 Balance
NA/HME	3,747			—			—			—			3,747
IPG	—			—			—			—			—
Europe	595			—			—			—			595
Asia/Pacific	869			151			1,625			6			2,651
Total	5,211			151			1,625			6			6,993



	Severance			Product Line Discontinuance			Contract Terminations			Other			Total
Charges
NA/HME	1,679			—			—			$	—		1,679
IPG	189			—			—			—			189
Europe	115			—			—			—			115
Asia/Pacific	453			—			86			—			539
Total	2,436			—			86			—			2,522
Payments
NA/HME	(2,005		)	—			—			—			(2,005		)
IPG	(17		)	—			—			—			(17		)
Europe	(461		)	—			—			—			(461		)
Asia/Pacific	(618		)	(151		)	(766		)	(4		)	(1,539		)
Total	(3,101		)	(151		)	(766		)	(4		)	(4,022		)
March 31, 2013 Balance
NA/HME	3,421			—			—			—			3,421
IPG	172			—			—			—			172
Europe	249			—			—			—			249
Asia/Pacific	704			—			945			2			1,651
	$	4,546		$	—		$	945		$	2		$	5,493