Medtronic 2015 Annual Report Download - page 38

The medical device industry is the subject of numerous governmental investigations into marketing and other business
practices. These investigations could result in the commencement of civil and/or criminal proceedings, substantial fines,
penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our
financial condition and results of operations.
We are subject to rigorous regulation by the U.S. FDA and numerous other federal, state, and foreign governmental authorities.
These authorities have been increasing their scrutiny of our industry. We occasionally receive subpoenas or other requests for
information from state and federal governmental agencies, including, among others, the U.S. DOJ and the Office of Inspector
General of HHS. These investigations typically relate primarily to financial arrangements with health care providers, regulatory
compliance, and product promotional practices.
We cooperate with these investigations and respond to such requests. However, when an investigation begins, we cannot predict
when it will be resolved, the outcome of the investigation, or its impact on us. An adverse outcome in one or more of these
investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or
administrative remedies, including exclusion from government reimbursement programs, entry into Corporate Integrity
Agreements (CIAs) with governmental agencies and amendments to existing CIAs. In addition, resolution of any of these
matters could involve the imposition of additional and costly compliance obligations. Finally, if these investigations continue
over a long period of time, they could divert the attention of management from the day-to-day operations of our business and
impose significant administrative burdens, including cost, on us. These potential consequences, as well as any adverse outcome
from these investigations or other investigations initiated by the government at any time, could have a material adverse effect on
our financial condition and results of operations.
Our substantial leverage and debt service obligations could adversely affect our business.
As of April 24, 2015, our total consolidated external debt was approximately $36.2 billion. We may also incur additional
indebtedness in the future. Our substantial indebtedness could have adverse consequences, including:
•making it more difficult for us to satisfy our financial obligations;
•increasing our vulnerability to adverse economic, regulatory and industry conditions, and placing us at a
disadvantage compared to our competitors that are less leveraged;
•limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business
and the industry in which we operate;
•limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions and
general corporate or other purposes; and
•exposing us to greater interest rate risk.
Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal in
indebtedness instead of for other corporate purposes, including funding future expansion of our business and ongoing capital
expenditures, which could impede our growth. Our ability to make payments on, and to refinance, our indebtedness, and to fund
capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial,
competitive, legislative, regulatory and other factors, many of which are beyond our control.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition
and results of operations.
We are subject to income taxes as well as non-income based taxes, in both the U.S. and various jurisdictions outside the U.S.
We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have taken
and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of
our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the
actual outcomes of these audits could have a material impact on our consolidated earnings and financial condition. Additionally,
changes in tax laws or tax rulings could materially impact our effective tax rate. For example, legislation in 2010 imposed a 2.3
percent excise tax on medical device manufacturers for U.S. sales of medical devices beginning in January 2013. Proposals for
fundamental U.S. corporate tax reform, if enacted, could have a material impact on our financial condition and results of
operations.
28