Invacare 2011 Annual Report Download - page 31

Even if the company is successful in defending against any liability claims, these claims could nevertheless
distract the company’s management, result in substantial costs, harm the company’s reputation, adversely affect
the sales of all the company’s products and otherwise harm the company’s business. If there is a significant
increase in the number of product liability claims, the company’s business could be adversely affected.
The company’s captive insurance company, Invatection Insurance Company, currently has a policy year that
runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and
$13,000,000 in the aggregate of the company’s North American product liability exposure. The company also
has additional layers of external insurance coverage insuring up to $75,000,000 in aggregate losses per policy
year arising from individual claims anywhere in the world that exceed the captive insurance company policy
limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance
that the company’s current insurance levels will continue to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon historical experience, industry
expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual
case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such
valuations are conducted. Historical claims experience and other assumptions are taken into consideration to
estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an
indicator of future experience, that the distribution of exposures by geographic area and nature of operations for
ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the
government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular
basis and can be impacted by actual loss awards and settlements on claims. While actuarial analysis is used to
help determine adequate reserves, the company is responsible for the determination and recording of adequate
reserves in accordance with accepted loss reserving standards and practices.
In addition, as a result of a product liability claim or if the company’s products are alleged to be defective,
the company may have to recall some of its products, may have to incur significant costs or may suffer harm to
its business reputation.
Decreased availability or increased costs of raw materials could increase the company’s costs of producing
its products.
The company purchases raw materials, fabricated components, some finished goods and services from a
variety of suppliers. Raw materials such as plastics, steel, and aluminum are considered key raw materials.
Where appropriate, the company employs contracts with its suppliers, both domestic and international. In those
situations in which contracts are not advantageous, the company believes that its relationships with its suppliers
are satisfactory and that alternative sources of supply are readily available. From time to time, however, the
prices and availability of these raw materials fluctuate due to global market demands, which could impair the
company’s ability to procure necessary materials, or increase the cost of these materials. Inflationary and other
increases in costs of these raw materials have occurred in the past and may recur from time to time. In addition,
freight costs associated with shipping and receiving product and sales are impacted by fluctuations in the cost of
oil and gas. A reduction in the supply or increase in the cost of those raw materials could impact the company’s
ability to manufacture its products and could increase the cost of production. As an example, inflation in China
has in the past and will probably in the future increase costs and an appreciation of the Yuan or an increase in
labor rates could have an unfavorable impact on the cost of key components and some finished goods. Demand in
China and other developing countries for raw materials may result in increases in the cost of key commodities
and could have a negative impact on the profits of the company if these increases cannot be passed onto the
company’s customers.
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