Medtronic 2013 Annual Report Download - page 40

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Table of Contents
Our international operations expose us to legal and regulatory risks, which could have a material effect on our business.
In addition to market and financial risks, our profitability and international operations are, and will continue to be, subject to risks
relating to changes in foreign medical reimbursement programs and policies and changes in foreign legal and regulatory
requirements. In addition, our international operations are governed by various U.S. laws and regulations, including FCPA and
other similar laws that prohibit us and our business partners from making improper payments or offers of payment to foreign
governments and their officials and political parties for the purpose of obtaining or retaining business. Global enforcement of anti-
corruption laws has increased substantially in recent years, with more frequent voluntary self-disclosures by companies, aggressive
investigations and enforcement proceedings by U.S. and foreign governmental agencies, and assessment of significant fines and
penalties against companies and individuals. Our international operations create the risk of unauthorized payments or offers of
payments by one of our employees, consultants, sales agents, or distributors, because these parties are not always subject to our
control. It is our policy to implement safeguards to discourage these practices. However, our existing safeguards and any future
improvements may prove to be less than effective, and our employees, consultants, sales agents, or distributors may engage in
conduct for which we might be held responsible. Any alleged or actual violations of these regulations may subject us to government
scrutiny, severe criminal or civil sanctions and other liabilities, including exclusion from government contracting, and could
negatively affect our business, reputation, operating results, and financial condition. In addition, the government may seek to hold
us liable for successor liability FCPA violations committed by any companies in which we invest or that we acquire.
Consolidation in the health care industry could have an adverse effect on our revenues and results of operations.
Many health care industry companies, including health care systems, are consolidating to create new companies with greater
market power. As the health care industry consolidates, competition to provide goods and services to industry participants will
become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions
for medical devices that incorporate components produced by us. If we are forced to reduce our prices because of consolidation
in the health care industry, our revenues would decrease and our consolidated earnings, financial condition, and/or cash flows
would suffer.
Our business is indirectly subject to health care industry cost-containment measures that could result in reduced sales of
medical devices containing our components.
Most of our customers, and the health care providers to whom our customers supply medical devices, rely on third-party payers,
including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which
medical devices that incorporate components we manufacture or assemble are used. The continuing efforts of governmental
authorities, insurance companies, and other payers of health care costs to contain or reduce these costs could lead to patients being
unable to obtain approval for payment from these third-party payers. If third-party payer payment approval cannot be obtained
by patients, sales of finished medical devices that include our components may decline significantly and our customers may reduce
or eliminate purchases of our components. The cost-containment measures that health care providers are instituting, both in the
U.S. and internationally, could harm our ability to operate profitably. For example, managed care organizations have successfully
negotiated volume discounts for pharmaceuticals. While this type of discount pricing does not currently exist for medical devices,
if managed care or other organizations were able to affect discount pricing for devices, it could result in lower prices to our
customers from their customers and, in turn, reduce the amounts we can charge our customers for our medical devices.
Our research and development efforts rely upon investments and investment collaborations, and we cannot guarantee that any
previous or future investments or investment collaborations will be successful.
Our strategy to provide a broad range of therapies to restore patients to fuller, healthier lives requires a wide variety of technologies,
products, and capabilities. The rapid pace of technological development in the medical industry and the specialized expertise
required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological
solutions. In addition to internally generated growth through our research and development efforts, historically we have relied,
and expect to continue to rely, upon investments and investment collaborations to provide us access to new technologies both in
areas served by our existing businesses as well as in new areas.
We expect to make future investments where we believe that we can stimulate the development of, or acquire, new technologies
and products to further our strategic objectives and strengthen our existing businesses. Investments and investment collaborations
in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future
investments or investment collaborations will be successful or will not materially adversely affect our consolidated earnings,
financial condition, and/or cash flows.
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