Medtronic 2008 Annual Report Download - page 59

method over the estimated useful lives of the various assets. Property,
plant and equipment balances and corresponding lives are as follows:
April 25,
2008
April 27,
2007
Lives
(in years)
Land and land improvements $ 123 $ 95 Up to 20
Buildings and leasehold improvements 1,240 1,007 Up to 40
Equipment 3,066 2,784 3–7
Construction in progress 314 423 —
Subtotal 4,743 4,309
Less: Accumulated depreciation (2,522) (2,247)
Property, plant and equipment, net
$ 2,221
$ 2,062
Depreciation expense of $417, $401 and $369 was recognized in fiscal
years 2008, 2007 and 2006, respectively.
Goodwill Goodwill is the excess of purchase price of an acquired entity
over the amounts assigned to assets acquired and liabilities assumed in
a business combination. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible
Assets,” goodwill is not amortized. Goodwill is tested for impairment
annually and when an event occurs or circumstances change that
would indicate the carrying amount may be impaired. Impairment
testing for goodwill is done at a reporting unit level. An impairment loss
is recognized when the carrying amount of the reporting unit’s net
assets exceeds the estimated fair value of the reporting unit. The
estimated fair value is determined using a discounted future cash flows
analysis. The Company completed its annual goodwill impairment test
in the third quarter of fiscal years 2008, 2007 and 2006 and determined
that no goodwill was impaired.
Intangible Assets Intangible assets include patents, trademarks and
purchased technology. Intangible assets with a definite life are
amortized on a straight-line or accelerated basis, as appropriate,
with estimated useful lives ranging from 3 to 20 years. Intangible
assets with a definite life are tested for impairment whenever events or
circumstances indicate that a carrying amount of an asset (asset group)
may not be recoverable. Impairment is calculated as the excess of the
asset’s carrying value over its fair value. Fair value is generally determined
using a discounted future cash flows analysis. As of April 25, 2008, all of
the Company’s intangible assets are definite lived and amortized on a
straight-line basis.
Warranty Obligation The Company offers a warranty on various
products. The Company estimates the costs that may be incurred under
its warranties and records a liability in the amount of such costs at the
time the product is sold. Factors that affect the Company’s warranty
liability include the number of units sold, historical and anticipated rates
of warranty claims and cost per claim. The Company periodically
assesses the adequacy of its recorded warranty liabilities and adjusts
the amounts as necessary. The amount of the reserve recorded is equal
to the costs to repair or otherwise satisfy the claim. The Company
includes the covered costs associated with field actions, if any, in
warranty expense.
Changes in the Company’s product warranty obligations during the
years ended April 25, 2008 and April 27, 2007 consisted of the following:
Balance April 28, 2006 $ 41
Warranty claims provision 27
Settlements made (34)
Balance April 27, 2007 34
Warranty claims provision 22
Settlements made (13)
Balance April 25, 2008
$ 43
Self-Insurance It is the Company’s policy to self-insure the vast majority
of its insurable risks including medical and dental costs, disability
coverage, physical loss to property, business interruptions, workers’
compensation, comprehensive general, director and officer and product
liability. Insurance coverage is obtained for those risks required to be
insured by law or contract. A provision for losses under the self-insured
program is recorded and revised quarterly. The Company uses claims
data and historical experience, as applicable, to estimate liabilities
associated with the exposures that the Company has self-insured.
Based on historical loss trends, the Company believes that its
self-insurance program accruals are adequate to cover future losses.
Historical trends, however, may not be indicative of future losses. These
losses could have a material adverse impact on the Company’s
consolidated financial statements.
Retirement Benefit Plan Assumptions The Company sponsors various
retirement benefit plans, including defined benefit pension plans,
post-retirement medical plans, defined contribution savings plans
and termination indemnity plans, covering substantially all U.S.
employees and many employees outside the U.S. Pension benefit plan
costs include assumptions for the discount rate, retirement age,
compensation rate increases and the expected return on plan assets.
Post-retirement medical plan costs include assumptions for the discount
rate, retirement age, expected return on plan assets, and healthcare cost
trend rate assumptions.
Annually, the Company evaluates the discount rate, retirement age,
compensation rate increases, expected return on plan assets and
healthcare cost trend rates of its pension benefit and post-retirement
medical plans. In evaluating these assumptions, many factors are
considered, including an evaluation of assumptions made by other
companies, historical assumptions compared to actual results, current
55Medtronic, Inc.