Medtronic 2016 Annual Report Download - page 12

Table of Contents
9
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. 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 8 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 17 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 89 manufacturing facilities located in various countries throughout the world. For additional
information related to our manufacturing facilities refer to Item 2. in this Annual Report on Form 10-K. 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 minerals, known as "conflict minerals" (tantalum, tin, tungsten (or their ores), and gold) which are mined
from the Democratic Republic of the Congo and adjoining countries. Pursuant to these requirements, we are required to report on
Form SD the procedures we employ to determine the sourcing of such minerals and metals produced from those minerals. There
are costs associated with complying with these disclosure requirements, including for diligence in regards to the sources of any
conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources
of supply as a consequence of such verification activities. In addition, the implementation of these rules could adversely affect
the sourcing, supply, and pricing of materials used in our products. As of the date of our conflict minerals report for the 2015
calendar year, we were unable to obtain the necessary information on conflict minerals from all of our suppliers and were unable
to determine that all of our products are conflict free. We may continue to face difficulties in gathering this information in the
future. We may face reputational challenges if we determine that certain of our products contain minerals not determined to be
conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures
we implement.
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 29, 2016, we employed more than 88,000 full-time 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 a significant degree of seasonality; however, the number of medical procedures
incorporating Medtronic products is generally lower during summer months, due to summer vacation schedules in the northern
hemisphere, particularly in European countries. In addition, pulse oximetry sales can be impacted by flu season.
Government Regulation and Other Considerations
Our products 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 products. Our business is also affected by patient privacy laws,
cost containment initiatives and environmental health and safety laws and regulations. The primary laws and regulations that affect
our business are described below.