Medtronic 2010 Annual Report Download - page 98

94Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
The following table provides a reconciliation of the beginning
and ending balances of non-U.S. pension benefits assets measured
at fair value that used significant unobservable inputs (Level 3):
April 30,
2010
Beginning Balance $5
Purchases, issuances and settlements 2
Ending Balance $7
Post-Retirement Benefits
Fair Value Fair Value Measurements
at Using Inputs Considered as
April 30, 2010 Level 1 Level 2 Level 3
Short-term investments $ 6 $ 6 $— $—
U.S. government securities 42 2 —
Corporate debt securities 4— 4 —
Medtronic, Inc.
common stock 77 — —
Other common stock 29 29 — —
Fixed income
mutual funds 25 25 — —
Partnership units 89 — — 89
Total 164 $69 $ 6 $89
Other items to reconcile
to fair value of
plan assets (6)
$158
The following table provides a reconciliation of the beginning
and ending balances of post-retirement benefits assets measured
at fair value that used significant unobservable inputs (Level 3):
April 30,
2010
Beginning Balance $69
Total realized losses and other-than temporary impairment
losses included in earnings (2)
Total unrealized losses included in other comprehensive income 19
Purchases, issuances and settlements 3
Ending Balance $89
Retirement Benefit Plan Funding It is the Company’s policy to
fund retirement costs within the limits of allowable tax deductions.
During fiscal year 2010, the Company made discretionary
contributions of approximately $81 million to the U.S. pension
plan and approximately $26 million to fund post-retirement
benefits. Internationally, the Company contributed approximately
$47 million for pension benefits during fiscal year 2010. During
fiscal year 2011, the Company anticipates that its contribution for
pension benefits and post-retirement benefits will be consistent
with those contributions made during fiscal year 2010. Based on
the guidelines under the U.S. Employee Retirement Income
Security Act of 1974 and the various guidelines which govern the
plans outside the U.S., the majority of anticipated fiscal year 2011
contributions will be discretionary.
Retiree benefit payments, which reflect expected future service,
are anticipated to be paid as follows:
(in millions)
U.S.
Pension
Benefits
Non-U.S.
Pension
Benefits Post-Retirement Benefits
Fiscal Year
Gross
Payments
Gross
Payments
Gross
Payments
Gross Medicare
Part D Receipts
2011 $ 36 $ 14 $ 9 $ 1
2012 41 15 10 1
2013 46 16 11 1
2014 50 18 13 1
2015 54 19 14 1
2015–2019 341 115 109 14
Total $568 $197 $166 $19
In March 2010, President Obama signed into law the Patient
Protection and Affordable Care Act (PPACA) and the Reconciliation
Act. Included among the major provisions of these laws is a
change in the tax treatment of the Medicare Part D subsidy. The
subsidy came into existence with the enactment of the Medicare
Modernization Act (MMA) in 2003 and is available to sponsors
of retiree health benefit plans with a prescription drug benefit
that is actuarially equivalent to the benefit provided by the
Medicare Part D program. Prior to the enactment of the PPACA
and the Reconciliation Act, the Company was allowed to deduct
the full cost of its retiree drug plans without reduction for
subsidies received.
Under U.S. GAAP, the Company records a liability on its balance
sheet for the expected cost of earned future retiree health benefits.
When MMA was enacted in 2003, this liability was reduced to
reflect expected future subsidies from the Medicare Part D
program. In addition, the Company recorded a reduction to the
deferred tax liability on the balance sheet for the value of future
tax deductions for these retiree health benefits. Each year, as
additional benefits are earned and benefit payments are made,
the Company adjusts the postretirement benefits liability and
deferred tax liability.
After the passage of the PPACA and the Reconciliation Act, the
Company must reduce the tax deduction for retiree drug benefits
paid by the amount of the Medicare Part D subsidy beginning in
2013. U.S. GAAP requires the impact of a change in tax law to be
recognized immediately in the income statement in the period
that includes the enactment date, regardless of the effective date