Medtronic 2008 Annual Report Download - page 61

Presented below is a summary of activity for each component of accumulated other comprehensive (loss)/income for fiscal years 2008, 2007 and 2006:
Unrealized
Gain/(Loss) on
Investments
Cumulative
Translation
Adjustments
Net Change
in Retirement
Obligations
Unrealized (Loss)/
Gain on Foreign
Exchange
Derivatives
Accumulated
Other
Comprehensive
(Loss)/Income
Balance April 29, 2005 $ (15) $ 190 $ (15) $ (11) $ 150
Other comprehensive (loss)/income 1 (13) (9) 26 5
Balance April 28, 2006 (14) 177 (24) 15 155
Other comprehensive (loss)/income 20 18 24 (70) (8)
Adoption of SFAS No. 158 — — (209) — (209)
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 SFAS No. 158 — — (17) — (17)
Balance April 25, 2008
$ (41
)
$ 209
$ (189
)
$ (266
)
$ (286
)
Translation adjustments are not adjusted for income taxes as
substantially all translation adjustments relate to permanent investments
in non-U.S. subsidiaries. The tax (benefit)/expense on the unrealized
(loss)/gain on derivatives in fiscal years 2008, 2007 and 2006 was $(132),
$(38) and $14, respectively. The tax benefit on the minimum pension
liability was $5 in fiscal year 2006. The minimum pension liability was
eliminated at the end of fiscal year 2007 as a result of the Company’s
adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans — an amendment of FASB
Statements No. 87, 88, 106 and 132(R)” (SFAS No. 158). The tax benefit
related to SFAS No. 158 was $17 and $92 in fiscal years 2008 and 2007,
respectively. The tax expense/(benefit) on the unrealized gain/(loss)
on investments in fiscal years 2008, 2007 and 2006 was $(26), $11 and
$1, respectively.
Derivatives SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” (SFAS No. 133) as amended, 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)/income
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 will 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
exchange contracts, to manage its exposure related to foreign exchange
rate changes. The Company enters into contracts with major financial
institutions that change in value as foreign 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 exchange derivative contracts only to the
extent true exposures exist; the Company does not enter into forward
exchange derivative contracts for speculative purposes. Principal
currencies hedged 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.
Forward contracts designated as cash flow hedges are designed to
hedge the variability of cash flows associated with forecasted
transactions denominated in a foreign currency that will take place in
the future. Changes in value of derivatives designated as cash flow
hedges are recorded in accumulated other comprehensive (loss)/income on
the consolidated balance sheets until earnings are affected by the variability
of the underlying cash flows. At that time, the applicable amount of gain
or loss from the derivative instrument, that is deferred in shareholders’
equity, is reclassified to earnings and is included in other expense, net or
cost of products sold in the consolidated statements of earnings,
depending on the underlying transaction that is being hedged.
The purpose of net investment hedges is to hedge the long-term
investment (equity) in foreign operations. The gains and losses related
to the change in the forward exchange rates of the net investment
hedges are recorded currently in earnings as other expense, net. The
gains and losses based on changes in the current exchange rates, or
spot rates, are recorded as a cumulative translation adjustment, a
component of accumulated other comprehensive (loss)/income on the
consolidated balance sheets.
57Medtronic, Inc.