Assumptions regarding demographic trends are important factors in Össur’s business decisions. The Company expects, for example, that the population of elderly will continue to grow, that an increasing proportion of this population will live an active lifestyle and that the number of people with diabetes will increase in the future. No assurance can be made that these assumptions will prove to be correct or that these demographic trends will result in a demand for the Company’s products and services.

Headquartered in Reykjavík, Iceland, Össur has significant operations in the U.S. and Europe, as well as operations in Asia, Australia, Africa and South-America. Össur’s business and operations are therefore subject to various risks inherent to international operations. Such risks include, among others, recessionary trends, inflation, instability of financial markets, exposure to different legal standards and enforcement mechanisms, trade barriers, rules regarding the origins of products, labor unrest, foreign exchange controls, human rights, corruption and political and social instability.

Össur is responsible for the safety and effectiveness of its products. Össur engages in internal quality control and product testing procedures to mitigate the risk and also carries insurance. However, the Company cannot guarantee that it won’t be found liable for a product liability claim in the future or that the insurance coverage is sufficient or will continue to be available on commercially reasonable terms.

Most of Össur’s products and services are reimbursed by third-party payers, including both government healthcare programs and private health insurance plans. All third-party payers have developed and continue to develop increasingly sophisticated or aggressive methods of controlling healthcare costs, including review of claims, selective contracting and competitive bidding. These cost-control methods also potentially limit, or even eliminate the coverage and the amount of payment for which third-party payers may be willing to pay for medical products and services. As such, the continuing efforts of both governmental and private payers of healthcare to contain or reduce costs could lead to patients being unable to obtain approval for payment from these third-party payers. If that were to occur, sales of Össur’s products and services may decline significantly and its customers may reduce or eliminate purchases. Reviews of claims may lead to repayment of prior sales. Future legislative or regulatory initiatives directed at reducing costs could be introduced. In addition, changing healthcare trends such as increasing premiums or deductibles for patients may have an adverse effect on Össur’s business. The Company cannot predict the impact of future legislative or regulatory initiatives on its business.

Insurance coverage varies greatly between countries and considerable sales and profit in Össur’s O&P clinics are directly dependent on government contracts and tender business. Government contracts are subject to policy changes and subsequent loss in sales and profit. Tender contracts for O&P clinical services are regularly renewed and can be lost to competitors with a direct negative impact on the business.

Össur’s products are medical devices that are subject to extensive global regulations by the respective authorities in countries where Össur conducts its business. Such regulation can restrict virtually all aspects of a medical device’s design and testing, manufacture, safety, labeling, storage, recordkeeping, reporting, clearance and approval, promotion, distribution and services. Failure to comply with the regulatory requirements of the applicable authority may subject a company to administrative or judicially imposed sanctions ranging from warning letters to criminal penalties or product withdrawal. Össur’s failure to comply with regulatory requirements or receive regulatory clearance and approval for its products or operations, including healthcare fraud and abuse laws and regulations, would adversely affect Össur’s sales and potential for future growth.

Assumptions regarding demographic trends are important factors in Össur’s business decisions. The Company expects, for example, that the population of elderly will continue to grow, that an increasing proportion of this population will live an active lifestyle and that the number of people with diabetes will increase in the future. No assurance can be made that these assumptions will prove to be correct or that these demographic trends will result in a demand for the Company’s products and services.

Össur has operations all around the world and the Company’s business and operations are therefore subject to various risks inherent to international operations. Such risks include, among others, recessionary trends, inflation, instability of financial markets, exposure to different legal standards and enforcement mechanisms, trade barriers, rules regarding the origins of products, labor unrest, foreign exchange controls, human rights, corruption, and political and social instability.

Össur is responsible for the safety and effectiveness of its products. Össur engages in internal quality control and product testing procedures to mitigate the risk and carries insurance. However, the Company cannot guarantee that it won’t be found liable for a product liability claim in the future or that the insurance coverage is sufficient or will continue to be available on commercially reasonable terms.

Insurance coverage varies greatly between countries and considerable sales and profit in Össur’s O&P clinics are directly dependent on government contracts and tender business. Government contracts are subject to policy changes and subsequent loss in sales and profit. Tender contracts for O&P clinical services are regularly renewed and can be lost to competitors with a direct negative impact on the business.

Össur has an international shareholder base and is therefore exposed to risk of litigation from international investors.

Össur continuously works to attract and retain qualified and competent employees to maintain Össur’s innovative edge and financial success. Failing to attract and retain key employees, managers, and experts, or not developing them adequately, puts the Company at risk.

Össur is exposed to risk of litigation and regulatory sanctions for employment practices. The Company mitigates these risks by adhering to relevant policies and procedures, educating managers on best practices, monitoring changes to employment legislation and carrying insurance. However, the Company cannot guarantee that it will not be found liable in the future or that insurance coverage is sufficient or will continue to be available on commercially reasonable terms. Össur is also exposed to risk related to strikes.

A substantial proportion of Össur’s growth in recent years has been driven by acquisitions. No assurance can be given that Össur will be successful in identifying appropriate acquisition targets in the key markets in which the Company operates or desires to operate. Acquisitions involve several risks, including diversion of management resources and management focus, integration risk, unexpected or high integration costs, failure to retain key employees of the acquired business and failure to realize expected synergies. To mitigate risk, Össur conducts due diligence on the operations of acquisition targets and seeks protection through representations and warranties from the sellers.

As a global business Össur is exposed to various risk factors originating in the international financial markets, among which are liquidity risk, interest rate risk, foreign exchange risk, credit risk and counterparty risk on cash held with financial institutions. These risk factors are managed according to internal rules that are outlined in the Company’s treasury policy.

Össur’s functional and reporting currency is the U.S. dollar, hence fluctuations in local currencies can have an impact on the operations of the Company. Fluctuation in the exchange rates between the U.S. dollar, Euro, Icelandic krona, and other currencies where Össur operates can have a significant impact on the financial condition and results of Össur’s operations. In 2017 Össur entered into forward contract covering approximately half of the estimated ISK costs in 2017. However, even with the hedge, the profitability of Össur can be significantly impacted.

Össur is committed to complying with tax rules and paying all legally required taxes. At the same time, the Company has a responsibility to the shareholders to legally minimize costs and maximize earnings. Össur’s tax strategy is to strive for optimizing taxes. The goal is to balance benefits against risks and costs while at the same time meeting reporting obligations, compliance obligations and corporate social responsibilities. Össur recognizes that some areas are not free from doubt and that differing legal interpretations may be possible, meaning that from time to time, tax authorities may not share or question Össur’s interpretation. Also, relevant laws and regulations may change, resulting in higher taxes or requiring the company to change the tax and legal structure.

Össur’s business is supported by several systems. The systems that are classified as mission critical are the ERP, warehouse, phone, and email systems, as well as infrastructure like servers, networks, databases, and storage systems. Failure in these systems can have a serious impact on the business, such as reduced or lost ability to receive orders, complete deliveries, or manufacture products. To improve business continuity, Össur consolidated its IT systems into two reliable datacenters in EMEA and the U.S. that both serve as primary and disaster recovery sites where mission critical systems and data is replicated between centers.

Data privacy laws and regulations, including the General Data Protection Regulation in Europe and the Health Insurance Portability and Accountability Act in the U.S. regulate the processing, transmission, maintenance, use and disclosure of personally identifiable information, including protected health information. There are costs and administrative burdens associated with ongoing compliance with these data privacy laws and any failure to comply with current and applicable future requirements could lead to significant fines and severely damage Össur’s reputation.

Össur’s main products are intended to improve the quality of life for individuals suffering the effects of injuries, amputations, or illnesses. No assurance can be given that Össur’s target market will not be materially diminished by advances in medical science or that Össur will be able to generate comparable sales from alternative market segments.

Össur relies on a combination of patents, trademarks, trade secrets and non-disclosure and non-competition agreements to protect its intellectual property, and will continue to do so. While Össur intends to defend itself against any threats to its intellectual property, there can be no assurance that these patents, trademarks, trade secrets or other agreements will adequately protect Össur. Although Össur’s product design process has mechanisms in place to create, to the best possible extent, IPR freedom for the commercial exploitation of new products, the Company may be exposed to accusations of intellectual property rights infringement.

Third-party agents and distributors sell a portion of Össur’s products. The Company’s largest wholesale customer accounted for 5% of the Company’s net sales at yearend 2017. Other distributors accounted for less than 2% of net sales for the same period. These agents and distributors are not employees of Össur and Össur may be unable to influence their actions and performance.

Össur’s sales depend primarily on the prescriptions and recommendations of its products by healthcare professionals. The Company has developed and maintained close relationships with several orthopaedic and prosthetic (O&P) clinics that support and recommend the Company’s products. A failure to maintain the support of such orthopaedic professionals and O&P clinics, or a failure to develop relationships with new healthcare professionals and O&P clinics, could adversely affect Össur’s business and results of operations.

Össur’s production and distribution facilities may be adversely affected by man-made or natural disasters. Össur has worked on certain risk ranking programs in all its main manufacturing and distribution facilities, and successfully reduced the level of risk and increased awareness among employees. However, a disruption of Össur’s production facilities could adversely affect the Company’s production output, which, in turn, would impair the Company’s ability to fulfill customer orders. This could lead to a decline in sales and increased costs due to necessary shift in production within the Company and the possible need to outsource some production. The Company maintains insurance to cover such losses. No assurance can be given, however, that insurance payments would be sufficient to cover the full loss resulting from a disruption in Össur’s production or that Össur’s insurance would cover the event that causes the disruption.

Össur is dependent on suppliers that manufacture products for the Company. Failure to deliver products could adversely affect the financial results of the Company. To mitigate this risk Össur audits its critical suppliers on a regular basis and carries safety stock of all products. Össur’s products furthermore require silicone, carbon fibers, metals, and other raw materials. Failure of supply of critical raw materials could adversely affect the financial results of the Company. To mitigate this risk Össur carefully selects suppliers of critical raw materials and carries safety stock of the raw materials.