Medtronic 2015 Annual Report Download - page 25

The laws and regulations of health care goods and services that are applicable to us, including those described above, are subject
to evolving interpretations and enforcement discretion. If a governmental authority were to conclude that we are not in
compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and
civil financial penalties, including, for example, exclusion from participation as a supplier of product to beneficiaries covered by
Medicare. Any failure to comply with laws and regulations relating to reimbursement and health care goods and services could
adversely affect our reputation, business, financial condition and cash flows.
Our profitability and operations are subject to risks relating to changes in U.S. and foreign legislative, regulatory and
reimbursement policies and decisions as well as changes to private payer reimbursement coverage and payment decisions and
policies. Implementation of further legislative or administrative reforms to the reimbursement system in the U.S. and abroad, or
adverse decisions relating to our products by administrators of these systems in coverage or reimbursement, could significantly
reduce reimbursement or result in the denial of coverage, which could have an impact on the acceptance of and demand for our
products and the prices that our customers are willing to pay for them.
Environmental Health and Safety Laws
We are also subject to various environmental health and safety laws and regulations both within and outside the U.S. Like other
companies in our industry, our manufacturing and other operations involve the use and transportation of substances regulated
under environmental health and safety laws including those related to the transportation of hazardous materials. To the best of
our knowledge at this time, we do not expect that compliance with environmental protection laws will have a material impact on
our consolidated results of operations, financial position, or cash flows.
Litigation Risks
Patent Litigation We operate in an industry characterized by extensive patent litigation. Patent litigation can result in
significant damage awards and injunctions that could prevent the manufacture and sale of affected products or result in
significant royalty payments in order to continue selling the products. At any given time, we are involved as both a plaintiff and
a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.
While it is not possible to predict the outcome of patent litigation incidents to our business, we believe the outcomes associated
with this type of litigation could have a material adverse impact on our consolidated results of operations, financial position, or
cash flows. For additional information, see “Item 1A. Risk Factors — We are substantially dependent on patent and other
proprietary rights and failing to protect such rights or to be successful in litigation related to our rights or the rights of others
may result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell
current or future products, or prohibit us from enforcing our patent and other proprietary rights against others.” and Note 16 to
the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on
Form 10-K.
Product Liability and Other Claims We operate in an industry susceptible to significant product liability claims. These
claims may be brought by individuals seeking relief on their own behalf or purporting to represent a class. We are also
susceptible to other litigation, including private securities litigation, shareholder derivative suits and contract litigation. These
claims may be asserted against us in the future based on events we are not aware of at the present time. While it is not possible
to predict the outcome of product liability litigation, we believe the outcomes associated with this type of litigation could have a
material adverse impact on our consolidated results of operations, financial position, or cash flows. For additional information,
see “Item 1A. Risk Factors — Quality problems with, and product liability claims in connection with, our processes, goods, and
services, could lead to recalls or safety alerts, harm our reputation and have a material adverse effect on our business, results of
operations, financial condition and our cash flows.” and Note 16 to the consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data” in this Annual Report on Form 10-K.
Self-Insurance
With the exception of insurance that Covidien currently holds for certain risks, 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 maintain a directors and officers insurance policy providing limited coverage and we continue to monitor the
insurance marketplace to evaluate the value to us of obtaining insurance coverage for other categories of losses in the future.
Based on historical loss trends, we believe that our self-insurance program accruals and our existing insurance coverage will be
adequate to cover future losses. Historical trends, however, may not be indicative of future losses. The absence of third-party
insurance coverage for other categories of losses increases our exposure to unanticipated claims and these losses could have a
material adverse impact on our consolidated earnings, financial condition and/or cash flows.
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