January 20, 2015 Policy 501: Expenditure and Contract Signing Authorization Training.

January 20, 2015

Policy 501: Expenditure and Contract Signing AuthorizationTraining

2 | Medtronic Confidential

• Policy 501 establishes who can approve expenditures and who can sign contracts.

• This policy sets the minimum requirements. An individual functional group, business unit or geography may establish more restrictive policies.

• The policy is found in the Medtronic World-Wide Finance Manual– Prior to legacy Covidien employees obtaining access to the World-Wide Finance Manual,

the policy can be found at legacy Covidien “Controller’s Portal”– The policy will also be available at the website where all harmonized policies impacting

all employees will be contained (Medtronic.com/employeepolicies). It will go live on January 26, 2015 and be available for ~100 days.

• For questions, call one of the Subject Matter Experts in Legal or Finance (Reference slide 20)

Summary


• Provide an overview of Medtronic PLC’s delegation of authority policy effective Day 1– Add clarity to required approval processes to increase operational

efficiency– Ensure that appropriate review occurs to minimize financial risk and

legal exposure• Key components of policy

– Expenditure authority matrix based on expenditure amounts and an employees pay band

– Contract signing authority– Certain types of contracts requiring additional process steps– Capital authorization request process– Exceptions

Training Objectives and Key Policy Components


• Employees are authorized to commit to expend funds in an amount up to the amount designated for the employee’s pay band– Example: approve a purchase requisition

• Only officers are authorized to sign a contract for the legal entity of which they are an officer– Officers are named to subsidiary boards– Officers (VP and above) are appointed to MDT, Inc. by CEO– Signing authority may be delegated under Policy 501

This policy applies to ALL types of expenditures

Authorization Limits and Contract Signing


Authorization Limits

Exceptions: If you feel that the approval authority amount is too low and will create operational inefficiencies, a policy exception form may be completed, approved and submitted to the Corporate Controller’s office for consideration ([email protected]; [email protected]).

Medtronic Payband

Covidien Payband Approval Level

CEO - 105 $50,000,000 CFO/COO - 104 $25,000,000

103 $10,000,000 102 $5,000,000 101 C $5,000,000 100 D $1,000,000 99A E $1,000,000 99B F $350,000

99/S4 G $200,000 98/S3 H $100,000 97/S2 I $25,000 96/S1 J/K $10,000 95-94 L/M/N $2,500 93-92 O/P/Q/R $1,500

Amounts are based on actual cash expenditure.

Approval Authority Matrix

mailto:[email protected]


• Who can sign?– Determine which MDT legal entity – Officers of that legal entity can sign up to their approval $ amount in the

matrix• When do you need legal review?

– Contracts that are not on standard MDT/COV forms or are not using standard templates approved by legal that are greater than $250k

– Contracts with expected spend greater than $1 million through the life of the contract

Contract Signing


• Can you delegate your authority?– An approved Purchase Order will delegate signing authority to that entity’s

officers for the contract specified in the Purchase Requisition– Officers can also delegate signing authority within their approval limits

• Must be in writing (email is ok) with specifics identified– Legal entities may also delegate authority by resolution

• For example, certain COV US entities, by resolution, have delegated signing authority to be consistent with expenditure authority, which are in accordance with Policy 501

– “Blanket” delegations must utilize a form and be approved by the corporate secretary’s office

• Anne Ziebell is contact: [email protected]

• Some geographies will have more formal country-specific signing requirements such as powers of attorney or notarization. Please consult with local legal team.

Contract Signing, cont’d

mailto:[email protected]


• An R&D director in Santa Rosa (pay band 98) would like to enter into a supply agreement to purchase a piece of lab equipment for $75,000. Can the director authorize the purchase of the equipment?– Yes. The spend is within the director’s authorization limit. The purchase requisition can

be approved by the director.• Medtronic, Inc will enter into a supply agreement to receive a warranty

from the vendor. Can the director utilize a standard agreement provided by legal and sign the agreement?– No, the director cannot sign the agreement. The director is not an officer and has not

been delegated authority to sign the contract.• But, an officer of Medtronic, Inc. can delegate authority to the director

such as through an email:– “George, I believe that the agreement with XYZ Company for the purchase of the scope

for $75,000 should be ready for signature this week. I will be traveling, so you have my approval to sign the contract. Thanks, Susan, VP of Medtronic, Inc.”

Example 1


• What if immediately before signing the tax group advises that it is more appropriate for Medtronic Japan Co., Ltd. to be the contracting party? Can George still sign the contract?– No. The contract will need to be signed either by an officer of Medtronic Japan Co., Ltd.

or an officer of that entity will need to delegate authority to another employee (including George).

Example 1, cont’d


• Contracts greater than $250k which do not use a standard Medtronic template require legal review

• Contracts greater than $1M whether using a standard template or not (additional approvers also required as outlined on next slide)

• Certain types of higher risk contracts should also be reviewed or drafted by legal

• If you have questions, discuss with a member of the legal group

Legal Review


• In addition to legal approval for contracts expected to spend over $1 Million, the sourcing group, operational VP, and finance director must also approve the contract.

• Exceptions to this rule include:– financial services including audit services– contracts with customers including clinical agreements and contracted

Business Conduct Standards services– Strategic Transactions– Contracts for real estate and lease agreements– Contracts with physician groups or patient organizations including convention

agreements

Contracts where more than $1 Million spend is expected


• A Medtronic, Inc VP who is pay band 99A has been negotiating with a new supplier for Swiss chocolate. The contract is to purchase $900,000 and uses a Medtronic standard agreement. The contract needs to be executed by a Swiss entity, so the contract is drafted with the contracting entity as Medtronic Sarl. The VP is not an officer of Medtronic Sarl. Can the VP authorize the purchase and sign the contract?– $900,000 is within the VP’s spending limits– But, an officer of Medtronic Sarl will need to sign the contract. Being named a VP of

Medtronic, Inc. does not make the officer a VP of all entities.

• What if the contract is for $900,000 of chocolate today with an option of purchasing an additional $250,000 of chocolate within 6 months?– A higher level of authorization would be required as the total contract

is expected to be $1,150,000– The contract would also require a review by sourcing, the finance

director and legal

Example 2


• Hospitality services has routed its annual purchase order for the purchase of cleaning supplies. The purchase order is for $9 million and has been duly approved by Gary Ellis, Medtronic’s CFO. The vendor also sends a contract with Medtronic, Inc. that is reviewed and approved by legal.– Who needs to sign the contract? Any officer of Medtronic, Inc. as Gary has already

approved the PO. Gary can also sign the contract because he is an officer.– The contract also does require review from Sourcing

• Excerpt from policy:

Example 3


• Purchase orders (Sourcing policy 111)• Real estate • Facility modifications or Manufacturing process changes • IT expenses and investments• Royalty payments in executed agreements • Tax payments

Situations where additional rules apply


• Litigation settlements• Business Conduct Standards• Policy 503 for acquisitions, investments, licenses and divestitures• Purchasing card policy• Travel & Entertainment policy• Individual policies of business groups, functional areas or geographies

Situations where additional rules apply


• Bob is a business development associate and has been working on the acquisition of a start-up company. The total acquisition cost would be $5 million. Can Gary Ellis as CFO approve the investment?– No. Policy 503 requires additional approvers for MDT investments.

Example 4


• Sun Hee is a Covidien finance manager (Covidien level J) working for A&E Products Korea Ltd. in Korea. Her business has traditionally required that all expenditures be approved by a director. She has been scheduling hotel space for a surgeon meeting and would like to book it. The cost is $8000 which is within her pay band authority under Policy 501. Can she approve the expenditure?– No. While she could approve per Policy 501, if her business has more

restrictive policies, she must follow the business policies.

Example 5


Capital and Real Estate transactions > $250,000 requires the completion of a CAR – Capital Authorization Request

• Capital includes expenditures for items of property, plant, or equipment that should be capitalized under Policy 801

• A CAR form must be completed (COV’s CER is allowed until process is integrated)

• CARs/CERs greater than of $2,000,000 must also be approved by the Corporate Controller; and greater than $5,000,000 must be approved by the Chief Financial Officer.

• Financial amount is based on capital and expense expected for the project.

Capital Authorization Requests


Capital Authorization Request Example

• John is a marketing manager in France. He wants to purchase $1,100,000 of software licenses with $200,000 annual software maintenance. The licenses are expected to be used for 5 years.

• A CAR needs to be done. The total cost will be $2,100,000 which includes $1,100,000 of capital and $1,000,000 of maintenance expense for the 5 years.

• The CAR will need to be approved by:• Someone with $2,100,000 approval authority in John’s

organization• Corporate Controller because the total cost is over

$2,000,000• The Chief Information Officer because the purchase is for

software


CARs, PO’s, and Contracts

OK to sign Contract

CAR

Business Sponsorship of

Project

CAR Approved

Contract Draft

Legal review

Contract Approved

Purchase Requisition

(Shopping Cart)

$ Approval for Individual Purchases

Purchase Requisition Approved -

Purchase Order issued

Contract signed by someone authorized for the Legal Entity in the contract. If unsure, ask. Don’t assume.

PO and/or Contract Sent to Vendor

Requestor is responsible to ensure process is followed and completed

CARs, Purchase Orders, and Contracts

Contract Required?

Other Expenditures

$ Approval w/in policy limits

Expenditure Approved

NO

Expenditure Authorized

YES

Contract prep/review can begin at same time or before approval process initiated


Subject Matter Experts

If you have questions please contact one of the subject matter experts listed below:

Legal: Contact your local legal team member. For additional information: Carmen Pinkerton, MDT Corp Legal, 763 505 0181

[email protected]:


Conclusion

• Look to Policy 501 to determine approval authority required• Expenditures• Contract signing

• Officers of the contracting entity can sign• Delegation

• Be aware of situations where additional review or approvals may be required

• If you have questions, contact one of the subject matter experts


Appendix


Exceptions Form

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January 20, 2015 Policy 501: Expenditure and Contract Signing Authorization Training.

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