Medtronic 2012 Annual Report Download - page 38

with respect to product liability risks. Product liability claims or product recalls in the future, regardless of
their ultimate outcome, could have a material adverse effect on our business and reputation and on our
ability to attract and retain customers for our products.
Health care policy changes, including U.S. health care reform legislation signed in 2010, may have
a material adverse effect on us.
In response to perceived increases in health care costs in recent years, there have been and continue to
be proposals by the federal government, state governments, regulators, and third-party payers to control
these costs and, more generally, to reform the U.S. health care system. Certain of these proposals could limit
the prices we are able to charge for our products or the amounts of reimbursement available for our products
and could limit the acceptance and availability of our products. The adoption of some or all of these
proposals could have a material adverse effect on our financial position and results of operations.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and
the Health Care and Education Affordability Reconciliation Act of 2010. The legislation imposes significant
new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales
beginning in January 2013. Under the legislation, the total cost to the medical device industry is expected
to be approximately $20 billion over ten years. This significant increase in the tax burden on our industry
could have a material, negative impact on our results of operations and our cash flows. We currently estimate
that our annual excise tax fee would be within the range of $125 to $175 million after tax. Other elements
of this legislation, such as comparative effectiveness research, an independent payment advisory board,
payment system reforms, including shared savings pilots, and other provisions, could meaningfully change
the way health care is developed and delivered, and may materially impact numerous aspects of our business.
Our self-insurance program may not be adequate to cover future losses.
We have elected to self-insure most of our insurable risks. We made this decision based on conditions
in the insurance marketplace that have led to increasingly higher levels of self-insurance retentions,
increasing numbers of coverage limitations, and dramatically higher insurance premium rates. We continue
to monitor the insurance marketplace to evaluate the value to us of obtaining insurance coverage in the
future. While based on historical loss trends we believe that our self-insurance program accruals will be
adequate to cover future losses, we cannot guarantee that this will remain true. Historical trends may not
be indicative of future losses. These losses could have a material adverse impact on our consolidated
earnings, financial condition, and/or cash flows.
If we experience decreasing prices for our goods and services and we are unable to reduce our expenses,
our results of operations will suffer.
We may experience decreasing prices for our goods and services due to pricing pressure experienced
by our customers from managed care organizations and other third-party payers, increased market power
of our customers as the medical device industry consolidates, and increased competition among medical
engineering and manufacturing services providers. If the prices for our goods and services decrease and we
are unable to reduce our expenses, our results of operations will be adversely affected.
Continuing worldwide economic instability, including challenges faced by the Eurozone countries,
could adversely affect our revenues, financial condition or results of operations.
Since fiscal year 2008, the global economy has been impacted by the sequential effects of an ongoing
global financial crisis. This global financial crisis, including the European sovereign debt crisis, has caused
extreme disruption in the financial markets, including severely diminished liquidity and credit availability.
There can be no assurance that there will not be further deterioration in the global economy. Our customers
and vendors may experience financial difficulties or be unable to borrow money to fund their operations
which may adversely impact their ability to purchase our products or to pay for our products on a timely
basis, if at all. As with our customers and vendors, these economic conditions make it more difficult for us
to accurately forecast and plan our future business activities. In addition, a significant amount of our trade
receivables are with national health care systems in many countries (including, but not limited to, Greece,
Ireland, Portugal, and Spain). Repayment of these receivables is dependent upon the financial stability of
the economies of those countries. In light of the current economic state of many countries outside the U.S.,
we continue to monitor their creditworthiness. Failure to receive payment of all or a significant portion of
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