Medtronic 2009 Annual Report Download - page 58

54 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
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 24,
2009
April 25,
2008
Finished goods $ 854 $ 7 8 4
Work in process 251 250
Raw materials 321 246
Total $1,426 $1,280
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 24,
2009
April 25,
2008
Lives
(in years)
Land and land improvements $ 124 $ 123 Up to 20
Buildings and leasehold improvements 1,296 1,240 Up to 40
Equipment 3,144 3,066 3–7
Construction in progress 323 314 —
Subtotal 4,887 4,743
Less: Accumulated depreciation (2,608) (2,522)
Property, plant and equipment, net $ 2,279 $ 2,221
Depreciation expense of $418 million, $417 million and $401
million was recognized in fiscal years 2009, 2008 and 2007,
respectively.
Goodwill Goodwill is the excess of purchase price of an acquired
entity over the amounts assigned to assets acquired and liabilities
assumed in a business combination. In accordance with Statement
of Financial Accounting Standards (SFAS) No. 142, “Goodwill and
Other Intangible Assets,” goodwill is not amortized. Goodwill
is tested for impairment annually and when 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 flows analysis.
The Company completed its annual goodwill impairment test
in the third quarter of fiscal years 2009, 2008 and 2007 and
determined that no goodwill was impaired.
Intangible Assets Intangible assets include patents, trademarks
and purchased technology. Intangible assets with a definite
life are amortized on a straight-line or accelerated basis, as
appropriate, with estimated useful lives ranging from 3 to 20
years. Intangible assets with a definite life are tested for
impairment 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 flows analysis. As of April 24, 2009,
all of the Company’s intangible assets are definite lived and
amortized on a straight-line basis.
Warranty Obligation The Company offers a warranty on various
products. The Company estimates the costs that may be incurred
under its warranties and records a liability in the amount of
such costs at the time the product is sold. Factors that affect the
Company’s warranty liability include the number of units sold,
historical and anticipated rates of warranty claims and cost per
claim. The Company periodically assesses the adequacy of its
recorded warranty liabilities and adjusts the amounts as necessary.
The amount of the reserve recorded is equal to the costs to repair
or otherwise satisfy the claim. The Company includes the covered
costs associated with field actions, if any, in warranty expense.
Changes in the Company’s product warranty obligations during
the years ended April 24, 2009 and April 25, 2008 consisted of the
following:
(in millions)
Balance April 27, 2007 $ 34
Warranty claims provision 22
Settlements made (13)
Balance April 25, 2008 $ 43
Warranty claims provision 23
Settlements made (31)
Balance April 24, 2009 $ 35
Self-Insurance It is the Company’s policy to self-insure the vast
majority of its insurable risks including medical and dental
costs, disability coverage, physical loss to property, business
interruptions, workers’ compensation, comprehensive general,
director and officer and product liability. Insurance coverage
is obtained for those risks required to be insured by law or
contract. A provision for losses under the self-insured program
is recorded and revised quarterly. The Company uses claims data
and historical experience, as applicable, to estimate liabilities