Medtronic 2014 Annual Report Download - page 80

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Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
Changes in the Company’s product warranty obligations during the years ended April 25, 2014 and April 26, 2013 consisted of
the following:
(in millions)
Balance as of April 27, 2012 $31
Warranty claims provision 25
Settlements made (21)
Balance as of April 26, 2013 $35
Warranty claims provision 25
Settlements made (28)
Balance as of April 25, 2014 $32
Self-Insurance It is the Company’s policy to self-insure the vast majority of its insurable risks including medical and dental
costs, disability coverage, physical loss to property, business interruptions, workers’ compensation, comprehensive general, and
product liability. Insurance coverage is obtained for those risks required to be insured by law or contract. The Company uses
claims data and historical experience, as applicable, to estimate liabilities associated with the exposures that the Company has
self-insured. Based on historical loss trends, the Company believes that its self-insurance program accruals and its existing
insurance coverage will be adequate to cover future losses. Historical trends, however, may not be indicative of future losses.
These losses could have a material adverse impact on the Company’s consolidated financial statements.
Retirement Benefit Plan Assumptions The Company sponsors various retirement benefit plans, including defined benefit
pension plans (pension benefits), post-retirement medical plans (post-retirement benefits), defined contribution savings plans,
and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. Pension
benefit costs include assumptions for the discount rate, retirement age, compensation rate increases, and the expected return on
plan assets. Post-retirement medical benefit costs include assumptions for the discount rate, retirement age, expected return on
plan assets, and health care cost trend rate assumptions.
The Company evaluates the assumptions, including discount rate, retirement age, compensation rate increases, expected return
on plan assets, and health care cost trend assumptions 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.
Accrued Certain Litigation Charges As of April 25, 2014 and April 26, 2013, accrued certain litigation charges were $917
million and $161 million, respectively. The Company includes accrued certain litigation charges in other accrued expenses on
the Company’s consolidated balance sheets.
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. The Company records estimated sales returns,
discounts, and rebates as a reduction of net sales in the same period revenue is recognized.
For multiple-element arrangements, the Company allocates arrangement consideration to the deliverables by use of the relative
selling price method. The selling price used for each deliverable is based on vendor–specific objective evidence (VSOE) if
available, third–party evidence (TPE) if VSOE is not available, or best estimated selling price (BESP) if neither VSOE nor TPE
72