Medtronic 2011 Annual Report Download - page 56

52 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
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
against the allowance when it is deemed that a customer account
is uncollectible.
Inventories Inventories are stated at the lower of cost or market,
with cost determined on a first-in, first-out basis. Inventory
balances are as follows:
(in millions)
April 2 9,
2011
April 30,
2010
Finished goods $1,067 $ 896
Work in process 263 269
Raw materials 365 316
Total $1,695 $1,481
Property, Plant, and Equipment Property, plant, and equipment is
stated at cost. Additions and improvements that extend the lives
of the assets are capitalized while expenditures for repairs and
maintenance are expensed as incurred. Depreciation is provided
using the straight-line method over the estimated useful lives of
the various assets. Property, plant, and equipment balances and
corresponding lives are as follows:
(in millions)
April 2 9,
2011
April 30,
2010
Lives
(in years)
Land and land improvements $ 137 $ 137 Up to 20
Buildings and leasehold
improvements 1,489 1,427 Up to 40
Equipment 3,888 3,525 3–7
Construction in progress 303 269 —
Subtotal 5,817 5,358
Less: Accumulated depreciation (3,306) (2,937)
Property, plant, and equipment, net $ 2,511 $ 2,421
Depreciation expense of $464 million, $454 million, and $418
million was recognized in fiscal years 2011, 2010, and 2009,
respectively.
Goodwill Goodwill is the excess of purchase price of an acquired
business over the amounts assigned to assets acquired and
liabilities assumed in a business combination. In accordance with
U.S. GAAP, goodwill is not amortized. Goodwill is tested for
impairment annually or whenever 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 exceed the estimated fair value of
the reporting unit. The estimated fair value is determined using
a discounted future cash flow analysis. The Company completed
its annual goodwill impairment test in the third quarter of fiscal
years 2011, 2010, and 2009 and determined that no goodwill
was impaired.
Intangible Assets Intangible assets include patents, trademarks,
purchased technology, and in-process research and development
(IPR&D) (since April 25, 2009). Intangible assets with a definite
life are amortized on a straight-line or accelerated basis, as
appropriate, with estimated useful lives ranging from three to 20
years. Intangible assets are tested for impairment annually or
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 flow analysis.
IPR&D When the Company acquires another entity, the purchase
price is allocated, as applicable, between IPR&D, other identifiable
intangible assets, and net tangible assets, with the remainder
recognized as goodwill. During fiscal year 2010, the Company
adopted authoritative guidance related to business combinations.
Under this guidance, IPR&D is capitalized. Prior to the adoption of
this guidance, IPR&D was immediately expensed. The adoption of
the authoritative guidance did not change the requirement to
expense IPR&D immediately with respect to asset acquisitions.
These IPR&D charges are included within acquisition-related items
in the Company’s consolidated statements of earnings. IPR&D has
an indefinite life and is not amortized until completion and
development of the project at which time the IPR&D becomes an
amortizable asset. If the related project is not completed in a
timely manner, the Company may have an impairment related to
the IPR&D, calculated as the excess of the asset’s carrying value
over its fair value.
The Company’s policy defines IPR&D as the value assigned to
those projects for which the related products have not received
regulatory approval and have no alternative future use.
Determining the portion of the purchase price allocated to IPR&D
requires the Company to make significant estimates. The amount
of the purchase price allocated to IPR&D is determined by
estimating the future cash flows of each project or technology