Medtronic 2011 Annual Report Download - page 58

54 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
The Company evaluates the discount rate, retirement age,
compensation rate increases, expected return on plan assets, and
health care cost trend rates of its pension benefits and post-
retirement benefits annually. In evaluating these assumptions,
many factors are considered, including an evaluation of
assumptions made by other companies, historical assumptions
compared to actual results, current market conditions, asset
allocations, and the views of leading financial advisors and
economists. In evaluating the expected retirement age
assumption, the Company considers the retirement ages of past
employees eligible for pension and medical benefits together
with expectations of future retirement ages. Refer to Note 14
for additional information regarding the Company’s retirement
benefit plans.
Revenue Recognition The Company sells its products primarily
through a direct sales force in the U.S. and a combination of
direct sales representatives and independent distributors in
international markets. The Company recognizes revenue when
title to the goods and risk of loss transfers to customers, provided
there are no material remaining performance obligations required
of the Company or any matters requiring customer acceptance. In
cases where the Company utilizes distributors or ships product
directly to the end user, it recognizes revenue upon shipment
provided all revenue recognition criteria have been met. A portion
of the Company’s revenue is generated from inventory maintained
at hospitals or with field representatives. For these products,
revenue is recognized at the time the product has been used or
implanted. For multiple-element arrangements, the Company
allocates revenue from the arrangement to the elements based
on the relative fair value of each element, which is based on
reliable and objective evidence. The fair value is generally based
on the relative sales price of each element when sold separately.
The Company records estimated sales returns, discounts, and
rebates as a reduction of net sales in the same period revenue is
recognized.
Research and Development Research and development costs are
expensed when incurred. Research and development costs
include costs of all basic research activities as well as other
research, engineering, and technical effort required to develop a
new product or service or make significant improvement to
an existing product or manufacturing process. Research and
development costs also include pre-approval regulatory and
clinical trial expenses.
Other Expense, Net Other expense, net includes intellectual
property amortization expense, royalty income and expense,
realized equity security gains and losses, realized foreign currency
transaction and derivative gains and losses, impairment charges
on equity securities, and the Puerto Rico excise tax.
Stock-Based Compensation The Company’s compensation
programs include share-based payments. All awards under share-
based payment programs are accounted for at fair value and
these fair values are generally amortized on a straight-line basis
over the vesting terms into cost of products sold, research and
development expense, and selling, general, and administrative
expense in the consolidated statements of earnings, as appropriate.
Refer to Note 12 for additional information.
Foreign Currency Translation Assets and liabilities of non-U.S.
functional currency entities are translated to U.S. dollars at period-
end exchange rates, and the resulting gains and losses arising
from the translation of those net assets are recorded as a
cumulative translation adjustment, a component of accumulated
other comprehensive loss on the consolidated balance sheets.
Elements of the consolidated statements of earnings are translated
at average currency exchange rates in effect during the period
and foreign currency transaction gains and losses are included in
other expense, net in the consolidated statements of earnings.
Comprehensive Income and Accumulated Other Comprehensive
Loss In addition to net earnings, comprehensive income includes
changes in currency exchange rate translation adjustments,
unrealized gains and losses on currency exchange rate derivative
contracts qualifying and designated as cash flow hedges, net
changes in retirement obligation funded status, and unrealized
gains and losses on available-for-sale marketable securities.
Comprehensive income in fiscal years 2011, 2010, and 2009 was
$3.179 billion, $2.997 billion, and $2.153 billion, respectively.