Medtronic 2010 Annual Report Download - page 60

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56 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
Presented below is a summary of activity for each component of accumulated other comprehensive loss for fiscal years 2010, 2009
and 2008:
(in millions)
Unrealized Gain/
(Loss) on
Investments
Cumulative
Translation
Adjustments
Net Change
in Retirement
Obligations
Unrealized Gain/
(Loss) on Foreign
Currency
Exchange Rate
Derivatives
Accumulated
Other
Comprehensive
(Loss)/Income
Balance April 27, 2007 $ 6 $ 195 $ (209) $ (55) $ (62)
Other comprehensive (loss)/income (47) 14 37 (211) (207)
Adjustment to deferred tax benefit recorded on adoption
of new authoritative guidance for accounting for defined
benefit pension and other post-retirement plans — — (17) — (17)
Balance April 25, 2008 $ (41) $ 209 $ (189) $(266) $ (286)
Other comprehensive (loss)/income (54) (147) (210) 494 83
Adjustment for change in plan measurement date pursuant
to the new authoritative guidance for accounting for
defined benefit pension and other post-retirement plans — — 1 — 1
Balance April 24, 2009 $ (95) $ 62 $ (398) $ 228 $ (202)
Other comprehensive (loss)/income 68 181 (214) (137) (102)
Reclassification of other-than-temporary losses on
marketable securities included in net income (3) — — — (3)
Balance April 30, 2010 $(30) $ 243 $(612) $ 91 $(307)
Translation adjustments are not adjusted for income taxes as
substantially all translation adjustments relate to permanent
investments in non-U.S. subsidiaries. The tax expense/(benefit) on
the unrealized gain/(loss) on foreign exchange derivatives in fiscal
years 2010, 2009 and 2008 was $(75) million, $320 million and
$(132) million, respectively. The tax benefit related to the net
change in retirement obligations was $112 million, $109 million
and $17 million in fiscal years 2010, 2009 and 2008, respectively.
The Company adopted new measurement date authoritative
guidance for defined benefit plans in the fourth quarter of fiscal
year 2009, which resulted in a one-time adjustment to retained
earnings and accumulated other comprehensive income in that
period. The tax expense on the adjustment to other comprehensive
income for the change in measurement date was less than
$1 million. The tax expense/(benefit) on the unrealized gain/(loss)
on investments in fiscal years 2010, 2009 and 2008 was $35
million, $(33) million and $(26) million, respectively.
Derivatives U.S. GAAP requires companies to recognize all
derivatives as assets and liabilities on the balance sheet and to
measure the instruments at fair value through earnings unless the
derivative qualifies as a hedge. If the derivative is a hedge,
depending on the nature of the hedge and hedge effectiveness,
changes in the fair value of the derivative will either be recorded
currently through earnings or recognized in accumulated other
comprehensive loss on the consolidated balance sheets until the
hedged item is recognized in earnings upon settlement/
termination. The changes in the fair value of the derivative are
intended to offset the change in fair value of the hedged asset,
liability, net investment or probable commitment. The Company
evaluates hedge effectiveness at inception and on an ongoing
basis. If a derivative is no longer expected to be highly effective,
hedge accounting is discontinued. Hedge ineffectiveness, if any, is
recorded in earnings.
The Company uses derivative instruments, primarily forward
currency exchange rate contracts, to manage its exposure related
to currency exchange rate changes. The Company enters into
contracts with major financial institutions that change in value as
currency exchange rates change. These contracts are designated
either as cash flow hedges, net investment hedges or freestanding
derivatives. It is the Company’s policy to enter into forward
currency exchange rate derivative contracts only to the extent
true exposures exist; the Company does not enter into forward
currency exchange rate derivative contracts for speculative
purposes. Principal currency exchange rates hedged to the U.S.
dollar are the Euro and the Japanese Yen. All derivative instruments
are recorded at fair value on the consolidated balance sheets, as
a component of prepaid expenses and other current assets, other
long-term assets, other accrued expenses or other long-term liabilities
depending upon the gain or loss position of the contract and
contract maturity date.