Medtronic 2010 Annual Report Download - page 56

52Medtronic, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Operations Medtronic, Inc. (Medtronic or the Company)
is the global leader in medical technology—alleviating pain,
restoring health and extending life for millions of people around
the world. The Company provides innovative products and
therapies for use by medical professionals to meet the healthcare
needs of their patients. Primary products include those for cardiac
rhythm disorders, cardiovascular disease, neurological disorders,
spinal conditions and musculoskeletal trauma, urological and
digestive disorders, diabetes and ear, nose and throat conditions.
The Company is headquartered in Minneapolis, Minnesota, and
markets its products primarily through a direct sales force in the
United States (U.S.) and a combination of direct sales
representatives and independent distributors in international
markets. The primary markets for products are the U.S., Western
Europe and Japan.
Principles of Consolidation The consolidated financial statements
include the accounts of Medtronic, Inc., and all of its subsidiaries.
All significant intercompany transactions and accounts have been
eliminated. U.S. generally accepted accounting principles (U.S.
GAAP) are applied when determining whether an entity is subject
to consolidation.
Fiscal Year-End The Company utilizes a 52/53-week fiscal year,
ending the last Friday in April. The Company’s fiscal years 2009
and 2008 ended on April 24, 2009 and April 25, 2008, respectively,
both of which were 52-week years. Fiscal year 2010 ended April 30,
2010 and was a 53-week year.
Use of Estimates The preparation of the financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ materially from those estimates.
Cash Equivalents The Company considers highly liquid investments
with maturities of three months or less from the date of purchase
to be cash equivalents. These investments are carried at cost,
which approximates fair value.
Investments Investments in marketable equity securities and debt
securities that are classified and accounted for as available-for-
sale at April 30, 2010 and April 24, 2009 include corporate debt
securities, U.S. and foreign government and agency securities,
certificates of deposit and mortgage backed and other asset
backed securities including auction rate securities. The Company
invests in available-for-sale securities to promote business and
strategic objectives. Available-for-sale debt securities are recorded
at fair value in both short-term and long-term investments and
marketable equity securities are recorded at fair value in long-
term investments on the consolidated balance sheets. The change
in fair value for available-for-sale securities is recorded, net of
taxes, as a component of accumulated other comprehensive loss on
the consolidated balance sheets.
Investments in securities that are classified and accounted for
as trading securities at April 30, 2010 include exchange-traded
funds. The Company did not have any trading securities at April 24,
2009. Trading securities are recorded at fair value in long-term
investments on the consolidated balance sheets. The Company’s
trading securities seek to offset changes in liabilities related to
equity and other market risks of certain deferred compensation
arrangements. The change in fair value for trading securities
is recorded as a component of interest expense, net on the
consolidated statements of earnings. Management determines
the appropriate classification of its investments in debt and
equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date.
Certain of the Company’s investments in equity and other
securities are long-term, strategic investments in companies that
are in varied stages of development. The Company accounts for
these investments under the cost or the equity method of
accounting, as appropriate. The valuation of equity and other
securities accounted for under the cost method considers all
available financial information related to the investee, including
valuations based on recent third-party equity investments in the
investee. If an unrealized loss for any investment is considered
to be other-than-temporary, the loss will be recognized in
the consolidated statements of earnings in the period the
determination is made. Equity securities accounted for under
the equity method are initially recorded at the amount of the
Company’s investment and adjusted each period for the
Company’s share of the investee’s income or loss and dividends
paid. Equity securities accounted for under both the cost and
equity methods are reviewed quarterly for changes in circumstance
or the occurrence of events that suggest the Company’s investment
may not be recoverable. See Note 6 for discussion of the gains
and losses recognized on equity and other securities.
Accounts Receivable The Company grants credit to customers in
the normal course of business, but generally does not require
collateral or any other security to support its receivables. The
Company maintains an allowance for doubtful accounts for
potential credit losses. Uncollectible accounts are written-off