Invacare 2011 Annual Report Download - page 29

The company’s products are subject to recalls, which could harm the company’s reputation and business.
The company is subject to ongoing medical device reporting regulations that require the company to report
to the FDA or similar governmental authorities in other countries if the company’s products cause, or contribute
to, death or serious injury, or if they malfunction and would be likely to cause, or contribute to, death or serious
injury if the malfunction were to recur. The FDA and similar governmental authorities in other countries could
force the company to do a field correction or recall the company’s products in the event of material deficiencies
or defects in design or manufacturing. In addition, in light of a deficiency, defect in design or manufacturing or
defect in labeling, the company may voluntarily elect to recall or correct the company’s products. A government
mandated or voluntary recall/field correction by the company could occur as a result of component failures,
manufacturing errors or design defects, including defects in labeling. Any recall/field correction would divert
managerial and financial resources and could harm the company’s reputation with its customers, product users
and 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 revenues and profits are subject to exchange rate and interest rate fluctuations that could
adversely affect its results of operations or financial position.
Currency exchange rates are subject to fluctuation due to, among other things, changes in local, regional or
global economic conditions, the imposition of currency exchange restrictions and unexpected changes in
regulatory or taxation environments. The functional currency of the company’s subsidiaries outside the
United States is the predominant currency used by the subsidiaries to transact business. Through the company’s
international operations, the company is exposed to foreign currency fluctuations, and changes in exchange rates
can have a significant impact on net sales and elements of cost. The company conducts a significant number of
transactions in currencies other than the U.S. dollar. In addition, because certain of the company’s costs and
revenues are denominated in other currencies, the company’s results of operations are exposed to foreign
exchange rate fluctuations as the financial results of those operations are translated from local currency into U.S.
dollars upon consolidation.
The company uses forward contracts primarily to help reduce its exposure to transactional exchange rate
risk. Despite the company’s efforts to mitigate these risks, however, the company’s revenues and profitability
may be materially adversely affected by exchange rate fluctuations. The company does not have a meaningful
way to hedge translation.
The company also is exposed to market risk through various financial instruments, including fixed rate and
floating rate debt instruments. The company does at times use interest swap agreements to mitigate its exposure
to interest rate fluctuations, but those efforts may not adequately protect the company from significant interest
rate risks. Interest on much of the company’s debt is based on the London Interbank Offered Rate (LIBOR),
which is currently historically low. Increases in LIBOR could have a significant impact on the company’s
reported interest expense.
The company is subject to certain risks inherent in managing and operating businesses in many different
foreign jurisdictions.
The company has significant international operations, including operations in Australia, Canada,
New Zealand, Mexico, Asia (primarily China) and Europe. There are risks inherent in operating and selling
products internationally, including:
• different regulatory environments and reimbursement systems;
• difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
• foreign customers who may have longer payment cycles than customers in the United States;
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