Medtronic 2013 Annual Report Download - page 30

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Table of Contents
Impact of Business Outside of the U.S.
Our operations in countries outside the U.S. 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 flows. 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 certain earnings of subsidiaries outside the U.S. may result in substantial U.S. tax cost.
Production and Availability of Raw Materials
We manufacture most of our products at 43 manufacturing facilities located in various countries throughout the world. The largest
of these manufacturing facilities are located in Arizona, California, Colorado, Connecticut, Florida, Indiana, Massachusetts,
Minnesota, New Jersey, Texas, Puerto Rico, Canada, France, Ireland, Italy, Mexico, The Netherlands, 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. Moreover, pursuant to the conflict minerals requirements promulgated by the SEC as a part of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank), we are required to report on the source of any conflict minerals used
in our products, as well as the process we use to determine the source of such minerals. These new requirements have required,
and will continue to require, due diligence efforts for the 2013 calendar year, with annual disclosure beginning in May 2014. We
will incur expenses as we work with our suppliers to evaluate the source of any conflict minerals in our products, and compliance
with these requirements could adversely affect the sourcing, supply, and pricing of our raw materials.
Working Capital Practices
Our goal is to carry sufficient levels of inventory to ensure adequate supply of raw materials from suppliers and meet the product
delivery needs of our customers. We also provide payment terms to customers in the normal course of business, and rights to return
product under warranty to meet the operational demands of our customers.
Employees
On April 26, 2013, we employed more than 46,000 employees (including full-time equivalent employees). Our employees are
vital to our success. We believe we have been successful in attracting and retaining qualified personnel in a highly competitive
labor market due to our competitive compensation and benefits, and our rewarding work environment.
Seasonality
Worldwide sales, including U.S. sales, do not reflect any significant degree of seasonality; however, the number of procedures is
generally lower during summer months, due to summer vacation schedules in the northern hemisphere, particularly in European
countries.
Government Regulation and Other Considerations
Our medical devices are subject to regulation by numerous government agencies, including the U.S. FDA and similar agencies
outside the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the
development, testing, manufacturing, labeling, marketing, and distribution of our medical devices.
Authorization to commercially distribute a new medical device in the U.S. is generally received in one of two ways. The first,
known as pre-market notification or the 510(k) process, requires us to demonstrate that our new medical device is substantially
equivalent to a legally marketed medical device. In this process, we must submit data that supports our equivalence claim. If
human clinical data is required, it must be gathered in compliance with U.S. FDA investigational device exemption regulations.
We must receive an order from the U.S. FDA finding substantial equivalence to another legally marketed medical device before
we can commercially distribute the new medical device. Modifications to cleared medical devices can be made without using the
510(k) process if the changes do not significantly affect safety or effectiveness. A very small number of our devices are exempt
from pre-market review.
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