Medtronic 2016 Annual Report Download - page 77

Table of Contents
Medtronic plc
Notes to Consolidated Financial Statements (Continued)
74
Changes in the Company’s product warranty obligations during the years ended April 29, 2016 and April 24, 2015 consisted of
the following:
(in millions) Warranty Obligation
Balance as of April 25, 2014 $ 32
Fair value of warranty obligation acquired from Covidien 23
Technology upgrade commitment 74
Warranty claims provision 30
Settlements made (24)
Balance as of April 24, 2015 $ 135
Warranty claims provision 64
Settlements made (91)
Balance as of April 29, 2016 $ 108
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 benefit costs include assumptions for the discount rate, retirement age, expected return on plan assets, and health
care cost trend rate assumptions.
The Company changed the methodology used to estimate the service and interest cost components of net periodic pension cost
and net periodic postretirement benefit cost for the Company’s pension and other post-retirement benefits, effective April 30, 2016.
Previously, the Company estimated such cost components utilizing a single weighted-average discount rate derived from the
market-observed yield curves of high-quality fixed income securities used to measure the pension benefit obligation and
accumulated post-retirement benefit obligation. The new methodology utilizes a full yield curve approach in the estimation of
these cost components by applying the specific spot rates along the yield curve to their underlying projected cash flows and provides
a more precise measurement of service and interest costs by improving the correlation between projected cash flows and their
corresponding spot rates. The change does not affect the measurement of the Company’s pension obligation or accumulated post-
retirement benefit obligation. The Company has accounted for this change prospectively as a change in accounting estimate.
Revenue Recognition The Company sells its products through direct sales representatives and independent distributors. The
Company recognizes revenue when title to the goods and risk of loss transfers to customers, which may be upon shipment or upon
delivery to the customer site, based on the contract terms or legal requirements in non-U.S. jurisdictions, 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 generally 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 sales in the same period revenue is recognized.
Rebates are estimated based on sales terms, historical experience, and trend analysis. In estimating rebates, the Company considers
the lag time between the point of sale and the payment of the rebate claim, contractual commitments, including stated rebate rates,
and other relevant information. The Company adjusts reserves to reflect differences between estimated and actual experience, and
records such adjustment as a reduction of sales in the period of adjustment.
In certain circumstances, the Company enters into arrangements in which it provides multiple deliverables to its customers.
Arrangements with multiple deliverables are divided into separate units of accounting. Total revenue is first allocated among the