Medtronic 2010 Annual Report Download - page 59

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Medtronic, Inc.
Revenue Recognition The Company sells its products primarily
through a direct sales force in the U.S. and a combination of
direct sales representatives and independent distributors in
international markets. The Company recognizes revenue when
title to the goods and risk of loss transfers to customers, provided
there are no material remaining performance obligations required
of the Company or any matters requiring customer acceptance. In
cases where the Company utilizes distributors or ships product
directly to the end user, it recognizes revenue upon shipment
provided all revenue recognition criteria have been met. A portion
of the Company’s revenue is generated from inventory maintained
at hospitals or with field representatives. For these products,
revenue is recognized at the time the product has been used or
implanted. For multiple-element arrangements, the Company
allocates revenue from the arrangement to the elements based
on the relative fair value of each element, which is based on
reliable and objective evidence. The fair value is generally based
on the relative sales price of each element when sold separately.
The Company records estimated sales returns, discounts and
rebates as a reduction of net sales in the same period revenue
is recognized.
Research and Development Research and development costs are
expensed when incurred. Research and development costs
include costs of all basic research activities as well as other
research, engineering and technical effort required to develop a
new product or service or make significant improvement to an
existing product or manufacturing process. Research and
development costs also include pre-approval regulatory and
clinical trial expenses.
Other Expense, Net Other expense, net includes intellectual
property amortization expense, royalty income and expense,
realized equity security gains and losses, realized foreign currency
transaction and derivative gains and losses and impairment
charges on equity securities.
Stock-Based Compensation The Company’s compensation
programs include share-based payments. All awards under share-
based payment programs are accounted for at fair value and
these fair values are generally amortized on a straight-line basis
over the vesting terms into cost of products sold, research and
development expense and selling, general and administrative
expense in the consolidated statements of earnings, as appropriate.
Refer to Note 13 for additional information.
Foreign Currency Translation Assets and liabilities of non-U.S.
functional currency entities are translated to U.S. dollars at period-
end exchange rates, and the resulting gains and losses arising
from the translation of those net assets are recorded as a
cumulative translation adjustment, a component of accumulated
other comprehensive loss on the consolidated balance sheets.
Elements of the consolidated statements of earnings are translated
at average currency exchange rates in effect during the period
and foreign currency transaction gains and losses are included in
other expense, net in the consolidated statements of earnings.
Comprehensive Income and Accumulated Other Comprehensive
Loss In addition to net earnings, comprehensive income includes
changes in currency exchange rate translation adjustments
(including the change in current exchange rates, or spot rates, of
net investment hedges), unrealized gains and losses on currency
exchange rate derivative contracts qualifying and designated as
cash flow hedges, net changes in retirement obligation funded
status and unrealized gains and losses on available-for-sale
marketable securities. Comprehensive income in fiscal years 2010,
2009 and 2008 was $2.997 billion, $2.153 billion and $1.931 billion,
respectively.