Goodwill and Intangible Assets Accounting Policy
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. Medtronic 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 Medtronic 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, Medtronic 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 Medtronic'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, Medtronic may have an impairment related to the IPR&D, calculated as the excess of the asset's carrying value over its fair value.
Medtronic'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 Medtronic 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 and discounting the net cash flows back to their present values. The discount rate used is determined at the time of acquisition in accordance with accepted valuation methods. These methodologies include consideration of the risk of the project not achieving commercial feasibility.
At the time of acquisition, Medtronic expects 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, delay or failure to obtain regulatory approvals to conduct clinical trials, delay or failure to obtain required market clearances, and patent issuance, and validity and litigation, if any. If commercial viability were not achieved, Medtronic would likely look to other alternatives to provide these therapies.
Source: Medtronic Inc., Annual Report
Goodwill and Intangible Assets Disclosure
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Medtronic Inc., Statement of Financial Position, Goodwill and Intangible Assets
Source: Based on data from Medtronic Inc. Annual Reports
| Item |
Description |
The company |
| Goodwill |
Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. |
Medtronic Inc.'s goodwill increased from 2009 to 2010 and from 2010 to 2011.
|
| Goodwill and other intangible assets |
Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. |
Medtronic Inc.'s goodwill and other intangible assets increased from 2009 to 2010 and from 2010 to 2011.
|
Analyst Adjustments: Removal of Goodwill
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Medtronic Inc., adjustments to financial data
Adjusted Ratios: Removal of Goodwill (Summary)
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Medtronic Inc., adjusted ratios
| Ratio |
Description |
The company |
| Adjusted total asset turnover |
An activity ratio calculated as total revenue divided by adjusted total assets. |
Medtronic Inc.'s adjusted total asset turnover deteriorated from 2009 to 2010 and from 2010 to 2011.
|
| Adjusted financial leverage |
A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Medtronic Inc.'s adjusted financial leverage declined from 2009 to 2010 but then increased from 2010 to 2011 not reaching 2009 level.
|
| Adjusted ROE |
A profitability ratio calculated as net income divided by adjusted shareholders' equity. |
Medtronic Inc.'s adjusted ROE improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011.
|
| Adjusted ROA |
A profitability ratio calculated as net income divided by adjusted total assets. |
Medtronic Inc.'s adjusted ROA improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.
|
Adjusted Total Asset Turnover
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted total asset turnover |
An activity ratio calculated as total revenue divided by adjusted total assets. |
Medtronic Inc.'s adjusted total asset turnover deteriorated from 2009 to 2010 and from 2010 to 2011.
|
Adjusted Financial Leverage
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted financial leverage |
A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Medtronic Inc.'s adjusted financial leverage declined from 2009 to 2010 but then increased from 2010 to 2011 not reaching 2009 level.
|
Adjusted Return On Equity (ROE)
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted ROE |
A profitability ratio calculated as net income divided by adjusted shareholders' equity. |
Medtronic Inc.'s adjusted ROE improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011.
|
Adjusted Return On Assets (ROA)
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted ROA |
A profitability ratio calculated as net income divided by adjusted total assets. |
Medtronic Inc.'s adjusted ROA improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.
|
