Medtronic 2015 Annual Report Download - page 19

organize our marketing and sales teams around physician specialties. This focus enables us to develop highly knowledgeable
and dedicated sales representatives who are able to foster strong relationships with physicians and other customers and enhance
our ability to cross-sell complementary products. We believe that we maintain excellent working relationships with physicians
and others in the medical industry that enable us to gain a detailed understanding of therapeutic and diagnostic developments,
trends, and emerging opportunities and respond quickly to the changing needs of physicians and patients. We attempt to
enhance our presence in the medical community through active participation in medical meetings and by conducting
comprehensive training and educational activities. We believe that these activities contribute to physician expertise.
In keeping with the increased emphasis on cost-effectiveness in health care delivery, the current trend among hospitals and other
customers is to consolidate into larger purchasing groups to enhance purchasing power. This enhanced purchasing power may
lead to pressure on pricing and increased use of preferred vendors. Our customer base continues to evolve to reflect such
economic changes across the geographic markets we serve. We are not dependent on any single customer for more than 10
percent of our total net sales.
Competition and Industry
We compete in both the therapeutic and diagnostic medical markets in approximately 160 countries throughout the world. These
markets are characterized by rapid change resulting from technological advances and scientific discoveries. Our product lines
face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers offering a
limited selection of products. In addition, we face competition from providers of other medical therapies such as pharmaceutical
companies.
Major shifts in industry market share have occurred in connection with product problems, physician advisories, safety alerts,
and publications about our products, reflecting the importance of product quality, product efficacy, and quality systems in the
medical device industry. In addition, in the current environment of managed care, economically motivated customers,
consolidation among health care providers, increased competition, and declining reimbursement rates, we have been
increasingly required to compete on the basis of price. In order to continue to compete effectively, we must continue to create or
acquire advanced technology, incorporate this technology into proprietary products, obtain regulatory approvals in a timely
manner, maintain high-quality manufacturing processes, and successfully market these products.
Worldwide Operations
Our global operations are accompanied by certain financial and other risks. Relationships with customers and effective terms of
sale vary by country; often with longer-term receivables than are typical in the U.S. Foreign currency exchange rate fluctuations
can affect revenues, net of expenses, and cash flows from operations outside the U.S. We use operational and economic hedges,
as well as currency exchange rate derivative contracts, to manage the impact of currency exchange rate changes on earnings and
cash flow. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and Note 9 to the consolidated financial
statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. In addition, the
repatriation of earnings of certain subsidiaries outside the U.S. may result in substantial U.S. tax cost.
For financial reporting purposes, net sales and property, plant, and equipment attributable to significant geographic areas are
presented in Note 18 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this
Annual Report on Form 10-K.
Production and Availability of Raw Materials
We manufacture most of our products at 80 manufacturing facilities located in various countries throughout the world. The
largest of these manufacturing facilities are located in Ireland, the U.S. (in thirteen states), Puerto Rico, Canada, Costa Rica,
Dominican Republic, France, Germany, Israel, Italy, Japan, Mexico, The People’s Republic of China, Singapore, and
Switzerland. We purchase many of the components and raw materials used in manufacturing these products from numerous
suppliers in various countries. For reasons of quality assurance, sole source availability, or cost effectiveness, certain
components and raw materials are available only from a sole supplier. We work closely with our suppliers to help ensure
continuity of supply while maintaining high quality and reliability. Due to the U.S. FDA’s requirements regarding
manufacturing of our products, we may not be able to quickly establish additional or replacement sources for certain
components or materials. Generally, we have been able to obtain adequate supplies of such raw materials and components.
However, a sudden or unexpected reduction or interruption in supply, and an inability to develop alternative sources for such
supply, could adversely affect our operations. We have reporting and disclosure requirements related to the use of certain
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