Medtronic 2016 Annual Report Download - page 30

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In addition, the expansion of our services and solutions business model will expose us to, or increase our exposure to, a variety
of regulations in the various countries we provide services and solutions, including regulations related to government payments,
fraud and abuse, patient privacy, and the corporate practice of medicine. Compliance with these regulations may prove to be more
costly than we anticipate, and we may not successfully comply with such regulations. These regulatory costs may slow our
expansion into these business areas and may have a negative effect on our results of operations, cash flows, and financial condition.
The medical device industry is the subject of numerous governmental investigations into marketing and other business practices.
These investigations could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/
or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and
results of operations.
We are subject to rigorous regulation by the U.S. FDA and numerous other federal, state, and non-U.S. governmental authorities.
These authorities have been increasing their scrutiny of our industry. We occasionally receive subpoenas or other requests for
information from state and federal governmental agencies, including, among others, the U.S. Department of Justice and the Office
of Inspector General of HHS. These investigations typically relate primarily to financial arrangements with health care providers,
regulatory compliance, and product promotional practices.
We cooperate with these investigations and respond to such requests. However, when an investigation begins, we cannot predict
when it will be resolved, the outcome of the investigation, or its impact on us. An adverse outcome in one or more of these
investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or
administrative remedies, including exclusion from government reimbursement programs, entry into Corporate Integrity
Agreements (CIAs) with governmental agencies and amendments to existing CIAs. In addition, resolution of any of these matters
could involve the imposition of additional and costly compliance obligations. Finally, if these investigations continue over a long
period of time, they could divert the attention of management from the day-to-day operations of our business and impose significant
administrative burdens, including cost, on us. These potential consequences, as well as any adverse outcome from these
investigations or other investigations initiated by a government at any time, could have a material adverse effect on our financial
condition and results of operations.
Our substantial leverage and debt service obligations could adversely affect our business.
As of April 29, 2016, our total consolidated external debt was approximately $31.2 billion. We may also incur additional
indebtedness in the future. Our substantial indebtedness could have adverse consequences, including:
• making it more difficult for us to satisfy our financial obligations;
• increasing our vulnerability to adverse economic, regulatory and industry conditions, and placing us at a disadvantage
compared to our competitors that are less leveraged;
• limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry
in which we operate;
• limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions and general corporate
or other purposes; and
• exposing us to greater interest rate risk.
Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal on indebtedness
instead of for other corporate purposes, including funding future expansion of our business, acquisitions, and ongoing capital
expenditures, which could impede our growth. Our ability to make payments on, and to refinance, our indebtedness, and to fund
capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial,
competitive, legislative, regulatory and other factors, many of which are beyond our control.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition
and results of operations.
We are subject to income taxes as well as non-income based taxes, in both the U.S. and various jurisdictions outside the U.S. We
are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with certain positions we have taken and
assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our
tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual
outcomes of these audits could have a material impact on our consolidated earnings and financial condition. Additionally, changes
in tax laws or tax rulings could materially impact our effective tax rate. For example, legislation in 2010 imposed a 2.3 percent
excise tax on medical device manufacturers for U.S. sales of medical devices beginning in January 2013. Proposals for fundamental
U.S. corporate tax reform, if enacted, could have a material impact on our financial condition and results of operations.