Medtronic 2012 Annual Report Download - page 29

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
For financial reporting purposes, net sales and long-lived assets attributable to significant geographic
areas are presented in Note 19 to the consolidated financial statements in “Item 8. Financial Statements
and Supplementary Data” in this Annual Report on Form 10-K.
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. Inventory management is an important business concern due to the potential for
obsolescence and long lead times from sole source providers. 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 10 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 38 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, Germany, Ireland, Italy, Mexico, The Netherlands, 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, the reduction or interruption in supply,
and an inability to develop alternative sources for such supply, could adversely affect our operations.
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.
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United
States
$8,828
Outside U.S.
$7,356
United
States
$8,872
Outside U.S.
$6,636
United
States
$9,136
Outside U.S.
$6,256
Fiscal Year 2012
(dollars in millions)
Fiscal Year 2011
(dollars in millions)
Fiscal Year 2010
(dollars in millions)
41%
59%
Consolidated Net Sales $16,184 Consolidated Net Sales $15,508 Consolidated Net Sales $15,392
43%
57%
45%
55%