Medtronic 2009 Annual Report Download - page 23

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Medtronic, Inc.
discussion and analysis for more information on the results of
our significant operating segments.
We remain committed to our Mission of developing lifesaving
and life enhancing therapies to alleviate pain, restore health and
extend life. The diversity and depth of our current product
offerings enable us to provide medical therapies to patients
worldwide. We work to improve patient access through well
planned studies, which show the safety, efficacy and cost-
effectiveness of our therapies, and our alliance with patients,
clinicians, regulators and reimbursement agencies. Our
investments in research and development, strategic acquisitions,
expanded clinical trials and infrastructure provide the foundation
for our growth. We are confident in our ability to drive long-term
shareholder value using principles of our Mission, our strong
product pipelines and continued commitment to innovative
research and development.
Certain Litigation Charges Recorded—
Subsequent Event
On June 1, 2009, the U.S. Court of Appeals for the Federal Circuit
affirmed a December 2007 ruling of infringement stemming from
the Vertex line of multiaxial screws in our litigation with DePuy
Spine (formerly DePuy/AcroMed), a subsidiary of Johnson &
Johnson (J&J), and Biedermann Motech GMbH (collectively,
DePuy). As a result of the U.S. Court of Appeals’ decision, we
recorded a reserve of $178 million which is expected to cover the
revised damages award and pre- and post-judgment interest.
Since the ruling provided additional evidence about conditions
that existed at the balance sheet date, the charge was included in
the consolidated financial statements for the fiscal year ended
April 24, 2009. See the “Special, Restructuring, Certain Litigation
and IPR&D Charges and Certain Tax Adjustments” section of this
management’s discussion and analysis and Note 16 to the
consolidated financial statements for additional information.
Other Matters
In January 2007, we announced a voluntary suspension of U.S.
shipments of Physio-Control products manufactured at our
facility in Redmond, Washington in order to address quality
system issues. In the months following the suspension of U.S.
shipments, we worked diligently with the U.S. Food and Drug
Administration (FDA) to address the quality system issues and
resumed limited shipments to critical need customers. On May
9, 2008, the U.S. District Court for the Western District of
Washington approved the consent decree that was signed with
the FDA regarding quality system improvements for our external
defibrillator products. The agreement addresses issues raised by
the FDA during inspections regarding Physio-Control’s quality
system processes and outlines the actions Physio-Control must
take in order to resume unrestricted distribution of our external
defibrillators. We continue to work diligently to implement the
required actions necessary to resolve the quality issues addressed
by the FDA.
Critical Accounting Estimates
We have adopted various accounting policies to prepare the
consolidated financial statements in accordance with accounting
principles generally accepted in the U.S. (U.S. GAAP). Our most
significant accounting policies are disclosed in Note 1 to the
consolidated financial statements.
The preparation of the consolidated financial statements, in
conformity with U.S. GAAP, requires us to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying Notes. Our estimates and
assumptions, including those related to bad debts, inventories,
intangible assets, asset impairment, legal proceedings, IPR&D,
warranty obligations, product liability, self-insurance, pension and
post-retirement obligations, sales returns and discounts, stock-
based compensation, valuation of equity and debt securities and
income tax reserves are updated as appropriate, which in most
cases is quarterly. We base our estimates on historical experience,
actuarial valuations or various assumptions that are believed to
be reasonable under the circumstances.
Estimates are considered to be critical if they meet both of the
following criteria: (1) the estimate requires assumptions about
material matters that are uncertain at the time the accounting
estimates are made, and (2) material changes in the estimates are
reasonably likely to occur from period to period. Our critical
accounting estimates include the following:
Legal Proceedings We are involved in a number of legal actions
involving both product liability and intellectual property disputes.
The outcomes of these legal actions are not within our complete
control and may not be known for prolonged periods of time. In
some actions, the claimants seek damages as well as other relief,
including injunctions barring the sale of products that are the
subject of the lawsuit, that could require significant expenditures
or result in lost revenues. In accordance with Financial Accounting
Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 5, “Accounting for Contingencies,” (SFAS No.
5) we record a liability in our consolidated financial statements
for these actions when a loss is known or considered probable
and the amount can be reasonably estimated. If the reasonable