Medtronic 2016 Annual Report Download - page 74

Table of Contents
Medtronic plc
Notes to Consolidated Financial Statements (Continued)
71
(in millions) April 29, 2016 April 24, 2015
Finished goods $ 2,242 $ 2,268
Work in-process 499 509
Raw materials 732 686
Total $ 3,473 $ 3,463
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. The Company assesses
property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of
property, plant, and equipment assets may not be recoverable. Depreciation is provided using the straight-line method over the
estimated useful lives of the various assets. Depreciation expense of $889 million, $573 million, and $501 million was recognized
in fiscal years 2016, 2015, and 2014, respectively.
Property, plant, and equipment balances and corresponding lives are as follows:
(in millions) April 29, 2016 April 24, 2015 Lives (in years)
Land and land improvements $ 215 $ 217 Up to 20
Buildings and leasehold improvements 2,394 2,314 Up to 40
Equipment 6,328 5,649 Generally 3-7, up to 15
Construction in progress 777 683 —
Subtotal 9,714 8,863
Less: Accumulated depreciation (4,873)(4,164)
Property, plant, and equipment, net $ 4,841 $ 4,699
Goodwill and Intangible Assets Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired
businesses. In accordance with U.S. GAAP, goodwill is not amortized. The Company assesses the impairment of goodwill annually
in the third quarter and 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 exceeds the estimated fair value of the reporting unit. The estimated fair value is determined using
a discounted future cash flow analysis.
Intangible assets include patents, trademarks, tradenames, customer relationships, purchased technology, and in-process research
and development (IPR&D). Intangible assets with a definite life are amortized on a straight-line basis with estimated useful lives
ranging from three to 20 years. Intangible assets with a definite life are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount of an intangible asset (asset group) may not be recoverable. Indefinite-lived
intangible assets are tested for impairment annually in the third quarter and whenever events or changes in circumstances indicate
that the carrying amount may be impaired. 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 represents the fair value of those research and development (R&D) projects for which the related products have not received
regulatory approval and have no alternative future use. IPR&D acquired in a business combination is initially capitalized at its
fair value as an indefinite-lived intangible asset. Determining the fair value of IPR&D requires the Company to make significant
estimates. The fair value of IPR&D is determined by estimating the future cash flows of each R&D project or technology and
discounting the net cash flows back to their present values. The discount rate used is determined at the time of measurement in
accordance with accepted valuation methodologies. IPR&D has an indefinite life and is not amortized until regulatory approval
is received and the product is launched, at which time the IPR&D becomes an amortizable asset.
At the time of acquisition, the Company expects that all acquired IPR&D will reach technological feasibility, but there can be no
assurance that the commercial viability of these products will actually be achieved. The nature of the efforts to develop the acquired
technologies into commercially viable products consists principally of planning, designing, and conducting clinical trials necessary
to obtain regulatory approvals. The risks associated with achieving commercialization include, but are not limited to, delays or
failure to obtain regulatory approvals to conduct clinical trials, delays or failure to obtain required market clearances, or delays or
issues with patent issuance, validity, and litigation. If commercial viability were not achieved, the Company would likely look to