Medtronic 2010 Annual Report Download - page 99

Download and view the complete annual report

Please find page 99 of the 2010 Medtronic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 110

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

95
Medtronic, Inc.
of the change in tax law. As a result of this change in tax law, the
Company recorded a non-cash charge of $15 million in fiscal year
2010 to increase the deferred tax liability. As a result of this
legislation, the Company will be evaluating prospective changes to
the active and retiree healthcare benefits offered by the Company.
In August 2006, the Pension Protection Act was signed into law
in the U.S. The Pension Protection Act replaces the funding
requirements for defined benefit pension plans by subjecting
defined benefit plans to 100 percent of the current liability
funding target. Defined benefit plans with a funding status of less
than 80 percent of the current liability are defined as being “at
risk.” The Pension Protection Act was effective for the 2008 plan
year. The Company’s U.S. qualified defined benefit plans are
funded in excess of 80 percent, and therefore the Company
expects that the plans will not be subject to the “at risk” funding
requirements of the Pension Protection Act and that the law will
not have a material impact on future contributions.
The initial healthcare cost trend rates for post-retirement
benefit plans was 8.00 percent for pre-65 and 7.75 percent for
post-65 at April 30, 2010. Based on actuarial data, the trend rates
are expected to decline to 5.0 percent over a five-year period.
Assumed healthcare cost trend rates have a significant effect on
the amounts reported for the healthcare plans. A one-percentage-
point change in assumed healthcare cost trend rates would have
the following effects:
(in millions)
One-Percentage-
Point Increase
One-Percentage-
Point Decrease
Effect on post-retirement
benefit cost $2 $(1)
Effect on post-retirement
benefit obligation 9 (8)
Defined Contribution Savings Plans The Company has defined
contribution savings plans that cover substantially all U.S.
employees and certain non-U.S. employees. The general purpose
of these plans is to provide additional financial security during
retirement by providing employees with an incentive to make
regular savings. Company contributions to the plans are based on
employee contributions and Company performance and starting
in fiscal year 2006 the entire match is made in cash. Expense
under these plans was $110 million, $103 million and $85 million
in fiscal years 2010, 2009 and 2008, respectively.
Effective May 1, 2005, the Company froze participation in the
existing defined benefit pension plan in the U.S. and implemented
two new plans including an additional defined benefit pension
plan and a new defined contribution pension plan, respectively:
the Personal Pension Account (PPA) and the Personal Investment
Account (PIA). Employees in the U.S. hired on or after May 1, 2005
have the option to participate in either the PPA or the PIA.
Participants in the PPA receive an annual allocation of their salary
and bonus on which they will receive an annual guaranteed rate
of return which is based on the 10-year Treasury bond rate.
Participants in the PIA also receive an annual allocation of their
salary and bonus; however, they are allowed to determine how to
invest their funds among identified fund alternatives. The cost
associated with the PPA is included in the U.S. Pension Benefits
in the tables presented earlier. The defined contribution cost
associated with the PIA was approximately $41 million, $37 million
and $30 million in fiscal years 2010, 2009 and 2008, respectively.
16. Leases
The Company leases office, manufacturing and research facilities
and warehouses, as well as transportation, data processing and
other equipment under capital and operating leases. A substantial
number of these leases contain options that allow the Company
to renew at the fair rental value on the date of renewal.
Future minimum payments under capitalized leases and non-
cancelable operating leases at April 30, 2010 are:
(in millions)
Fiscal Year
Capitalized
Leases
Operating
Leases
2011 $— $106
2012 1 78
2013 1 58
2014 1 44
2015 1 27
2016 and thereafter 20 47
Total minimum lease payments $24 $360
Less amounts representing interest (6) N/A
Present value of net minimum
lease payments $18 N/A
Rent expense for all operating leases was $154 million, $150
million and $135 million in fiscal years 2010, 2009 and 2008,
respectively.
In April 2006, the Company entered into a sale-leaseback
agreement with a financial institution whereby cer tain
manufacturing equipment was sold to the financial institution
and is being leased by the Company over a seven-year period.
The transaction was recorded as a capital lease. Payments for the
remaining balance of the sale-leaseback agreement were due
semi-annually. The lease provided for an early buyout option
whereby the Company, at its option, could repurchase the
equipment at a predetermined fair market value in calendar year