Medtronic 2010 Annual Report Download - page 23

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Medtronic, Inc.
operating segments. Sales outside the United States (U.S.) were
$6.451 billion compared to $5.612 billion for the prior fiscal year.
Growth outside the U.S. continued to be strong, with six of our
operating segments achieving double digit growth rates. See our
discussion in the “Net Sales” section of this management’s
discussion and analysis for more information on the results of our
significant operating segments.
We remain committed to our Mission of developing lifesaving
and life-enhancing therapies to alleviate pain, restore health and
extend life. The diversity and depth of our current product
offerings enable us to provide medical therapies to patients
worldwide. We work to improve patient access through well-
planned studies which show the safety, efficacy and cost-
effectiveness of our therapies, and our alliances with patients,
clinicians, regulators and reimbursement agencies. Our investments
in research and development, strategic acquisitions, expanded
clinical trials and infrastructure provide the foundation for our
growth. We are confident in our ability to drive long-term
shareholder value using principles of our Mission, our strong
product pipelines and continued commitment to innovative
research and development.
Other Matters
We routinely interact with physicians and other healthcare
providers in order to foster innovations in support of our Mission
to improve the lives of individuals. In particular, we pay consulting
fees for education and training, clinical trial design and
administration, and product design and safety, and we pay
royalties to physicians who make inventive contributions. To
increase transparency about our policies relating to payments to
physicians, we have voluntarily decided to disclose our payments
of $5,000 or more made to U.S. physicians for consulting fees,
royalties or honoraria, beginning in May 2010. The registry of
physician payments can be accessed at www.medtronic.com/
collaboration.
Critical Accounting Estimates
We have adopted various accounting policies to prepare the
consolidated financial statements in accordance with accounting
principles generally accepted in the U.S. (U.S. GAAP). Our most
significant accounting policies are disclosed in Note 1 to the
consolidated financial statements.
The preparation of the consolidated financial statements, in
conformity with U.S. GAAP, requires us to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying Notes. Our estimates and
assumptions, including those related to bad debts, inventories,
intangible assets, asset impairment, legal proceedings, IPR&D,
warranty obligations, product liability, self-insurance, pension and
post-retirement obligations, sales returns and discounts, stock-
based compensation, valuation of equity and debt securities and
income tax reserves are updated as appropriate, which in most
cases is quarterly. We base our estimates on historical experience,
actuarial valuations or various assumptions that are believed to
be reasonable under the circumstances.
Estimates are considered to be critical if they meet both of the
following criteria: (1) the estimate requires assumptions about
material matters that are uncertain at the time the accounting
estimates are made, and (2) material changes in the estimates are
reasonably likely to occur from period to period. Our critical
accounting estimates include the following:
Legal Proceedings We are involved in a number of legal actions
involving both product liability and intellectual property disputes.
The outcomes of these legal actions are not within our complete
control and may not be known for prolonged periods of time. In
some actions, the claimants seek damages as well as other relief,
including injunctions barring the sale of products that are the
subject of the lawsuit, that could require significant expenditures
or result in lost revenues. In accordance with U.S. GAAP, we record
a liability in our consolidated financial statements for these actions
when a loss is known or considered probable and the amount can
be reasonably estimated. If the reasonable estimate of a known or
probable loss is a range, and no amount within the range is a
better estimate than any other, the minimum amount of the
range is accrued. If a loss is possible, but not known or probable,
and can be reasonably estimated, the estimated loss or range of
loss is disclosed in the notes to the consolidated financial
statements. In most cases, significant judgment is required to
estimate the amount and timing of a loss to be recorded. Our
significant legal proceedings are discussed in Note 17 to the
consolidated financial statements. While it is not possible to
predict the outcome for most of the matters discussed in Note 17
to the consolidated financial statements, we believe it is
possible that costs associated with them could have a material
adverse impact on our consolidated earnings, financial position or
cash flows.
Tax Strategies Our effective tax rate is based on income, statutory
tax rates and tax planning opportunities available to us in the
various jurisdictions in which we operate. We establish reserves
when, despite our belief that our tax return positions are fully
supportable, we believe that certain positions are likely to be