Invacare 2013 Annual Report Download - page 26

I-20
provides new ways to serve more Medicaid beneficiaries in home and community-based settings. Fourteen states have approved
Health Home State Plan Amendments to integrate and coordinate primary, acute, behavioral health, and long term services and
supports for Medicaid beneficiaries. An additional Affordable Care Act program, "Independence at Home," tests whether providing
chronically ill beneficiaries with primary care in the home will help them stay healthy and out of the hospital. Fifteen physician
practices and three consortia of physician practices are participating in the Independence at Home Demonstration.
The Affordable Care Act and the programs implemented by the law may reduce reimbursements for the Company's products,
may impact the demand for the Company’s products and may impact the prices at which the Company sells its products. In
addition, various healthcare programs and regulations may be ultimately implemented at the federal or state level. Such changes
could have a material adverse effect on the Company’s business, results of operations and/or financial condition.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) enacted in 2010, and the rules
and regulations enacted thereunder by the SEC and the Commodity Futures Trading Commission (CFTC), institute a wide range
of reforms, certain of which may impact the Company. Among other things, the Dodd-Frank Act contains significant corporate
governance and executive compensation-related provisions that authorize or require the SEC to adopt additional rules and
regulations in these areas, such as shareholder “say on pay” voting and proxy access. The Dodd-Frank Act also provides for new
statutory and regulatory requirements for derivative transactions, including foreign exchange and interest rate hedging transactions,
and new requirements will be implemented over time. The Company enters into foreign exchange contracts, interest rate swaps
and foreign currency forward contracts from time to time to manage its exposure to commodity price risk, foreign currency
exchange risk and interest rate risk. The Company does not enter into derivative transactions for speculative purposes. Unless
exempt, certain of these transactions, such as interest rate swaps and foreign exchange swaps, are required to be cleared by a
registered derivatives clearing organization and subject to exchange trading requirements. If a derivative is required to be cleared,
the Company would be subject to cash and securities initial and variation margin posting, increasing the cost to the Company of
mitigating commercial risk and impacting its strategic hedging activity. The contractual counterparties in hedging arrangements
are likewise subject to increased costs as a result of compliance with the Dodd-Frank Act and it is anticipated these costs will be
passed on to their customers. Derivative activities are subject to further regulatory and rule making activities by the SEC and
CFTC as a result of the Dodd-Frank Act, creating uncertainty as to the impact of the Dodd-Frank Act on the Company's business.
The Company will continue to analyze the suitability of particular hedging arrangements and to invest appropriate resources to
comply with both existing and evolving standards.
In addition, the Dodd-Frank Act contains provisions to improve transparency and accountability concerning the sourcing
of “conflict minerals” from mines located in the conflict zones of the Democratic Republic of Congo (DRC) and its adjoining
countries. The term “conflict minerals” currently encompasses tantalum, tin, tungsten (or their ores) and gold. Conflict minerals
can be found in a vast array of products. This legislation requires manufacturers, such as the Company, to investigate and disclose
their use of any conflict minerals originating in the DRC or adjoining countries. It also implements guidelines to assist the
manufacturer in preventing, by way of performing due diligence in its supply chain, any such sourcing from, or potentially financing
or benefiting, armed groups in this area. The initial conflict materials report is to be filed with the SEC by May 31, 2014. The
Company may be required to undertake a significant due diligence process requiring considerable investments of human resources
and finances in order to comply with the conflict minerals due diligence and disclosure requirements. If the Company's suppliers
are unable or unwilling to provide it with requested information and to take other steps to ensure that there is no financing or
benefiting of armed groups in the DRC and there are no conflict minerals included in materials or components supplied to the
Company, it may be forced to disclose in its SEC filings about the use of conflict minerals in its supply chain, which may expose
the Company to reputational risks, which in turn could materially adversely affect its business, financial condition and results of
operations.
If the Company’s cost reduction efforts are ineffective, the Company’s profitability could be negatively impacted.
In response to reimbursement reductions and competitive pricing pressures, the Company continues to initiate numerous
cost reduction and organizational efficiency efforts, including globalization of its product lines. The Company may not be successful
in achieving the operating efficiencies and operating cost reductions expected from these efforts, and the Company may experience
business disruptions associated with the restructuring and cost reduction activities. These efforts may not produce the full efficiency
and cost reduction benefits that the Company expects. Further, these benefits may be realized later than expected, and the costs
of implementing these measures may be greater than anticipated. If these measures are not successful, the Company may undertake
additional cost reduction efforts, which could result in future charges. Moreover, the Company’s ability to achieve other strategic
goals and business plans and the Company’s financial performance may be adversely affected and the Company could experience
business disruptions with customers and elsewhere if the Company’s cost reduction and restructuring efforts prove ineffective.