Invacare 2013 Annual Report Download - page 29

I-23
The factors described above also could disrupt the Company’s product manufacturing/assembling and key suppliers located
outside of the United States. For example, the Company increasingly relies on its manufacturing and sourcing operations in China
for the production of its products. Disruptions in the Company’s foreign operations, particularly those in China or Mexico, may
impact the Company’s revenues and profitability.
The Company may be adversely affected by legal actions or regulatory proceedings.
In addition to the risks associated with the impact of the FDA consent decree, 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 or its reputation. 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
and could result in lost revenues and market share.
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 or its reputation.
Product liability claims may harm the Company’s business, particularly if the number of claims increases significantly or
the Company’s product liability insurance proves inadequate.
The manufacture and sale of home health care devices and related products exposes the Company to a significant risk of
product liability claims. From time to time, the Company has been, and is currently, subject to a number of product liability claims
alleging that the use of the Company’s products has resulted in serious injury or even death.
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 is self-insured in North America for product liability exposures through its captive insurance company,
Invatection Insurance Company, which currently has a policy year that runs from September 1 to August 31 and insures annual
policy losses up to $10,000,000 per occurrence and $13,000,000 in the aggregate. 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.