Invacare 2006 Annual Report Download - page 24

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the health care professionals that use, prescribe and recommend the company’s products. The company could have
product recalls or field actions that result in significant costs to the company in the future, and these actions could
have a material adverse effect on the company’s business.
The company’s reported results may be adversely affected by increases in reserves for uncollectible
accounts receivable.
The company has a large balance of accounts receivable and has established a reserve for the portion of such
accounts receivable that the company estimates will not be collected because of the company’s customers’ non-
payment. The reserve is based on historical trends and current relationships with the company’s customers and
providers. Changes in the company’s collection rates can result from a number of factors, including turnover in
personnel, changes in the payment policies or practices of payors or changes in industry rates or pace of
reimbursement. As a result of recent changes in Medicare reimbursement regulations, specifically changes to
the qualification processes and reimbursement levels of consumer power wheelchairs and custom power wheel-
chairs, the business viability of several of the company’s customers has become questionable. The company’s
reserve for uncollectible receivables has fluctuated in the past and will continue to fluctuate in the future. Changes
in rates of collection or fluctuations, even if they are small in absolute terms, could require the company to increase
its reserve for uncollectible receivables beyond its current level. The company has reviewed the accounts
receivables associated with many of its customers that are most exposed to these issues. As part of the company’s
2006 financial results, the company recorded an incremental reserve against accounts receivable of $26.8 million.
Difficulties in implementing a new Enterprise Resource Planning system have disrupted the company’s
business.
During the fourth quarter of 2005, the company implemented the second phase of the company’s Enterprise
Resource Planning, or “ERP,” system. Primarily as a result of the complexities and business process changes
associated with this implementation, the company encountered a number of issues related to the start-up of the
system, including difficulties in processing orders, customer disruptions and the loss of some business. While the
company believes that the difficulties associated with implementing and stabilizing the company’s ERP system
were temporary and have been addressed, there can be no assurance that the company will not experience additional
ongoing disruptions or inefficiencies in the company’s business operations as a result of this new system
implementation, the final phase of which is to be completed in late 2007 or in 2008.
The company may be adversely affected by legal actions or regulatory proceedings.
The company may be subject to claims, litigation or other liabilities as a result of injuries caused by allegedly
defective products, acquisitions the company has completed or in the intellectual property area. Any such claims or
litigation against the company, regardless of the merits, could result in substantial costs and could harm the
company’s business. Intellectual property litigation or claims also could require the company to:
• cease manufacturing and selling any of the company’s products that incorporate the challenged intellectual
property;
• obtain a license from the holder of the infringed intellectual property right alleged to have been infringed,
which license may not be available on commercially reasonable terms, if at all; or
• redesign or rename the company’s products, which may not be possible and could be costly and time
consuming.
The results of legal proceedings are difficult to predict and the company cannot provide any assurance that an
action or proceeding will not be commenced against the company, or that the company will prevail in any such
action or proceeding. An unfavorable resolution of any legal action or proceeding could materially and adversely
affect the company’s business, results of operations, liquidity or financial condition.
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