Medtronic 2011 Annual Report Download - page 92

Download and view the complete annual report

Please find page 92 of the 2011 Medtronic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

88 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
The actuarial assumptions are as follows:
U.S. Pension Benefits Non-U.S. Pension Benefits Post-Retirement Benefits
Fiscal Year Fiscal Year Fiscal Year
2011 2010 2009 2011 2010 2009 2011 2010 2009
Weighted average assumptions —
projected benefit obligation:
Discount rate 5.80% 6.05% 8.25% 4.75% 4.68% 5.41% 5.80% 6.05% 8.25%
Rate of compensation increase 3.80% 3.80% 4.00% 2.97% 3.05% 2.90% N/A N/A N/A
Initial health care cost trend rate pre-65 N/A N/A N/A N/A N/A N/A 7.75% 8.00% 8.50%
Initial health care cost trend rate post-65 N/A N/A N/A N/A N/A N/A 7.50% 7.75% 8.50%
Weighted average assumptions —
net periodic benefit cost:
Discount rate 6.05% 8.25% 6.75% 4.68% 5.41% 5.37% 6.05% 8.25% 6.75%
Expected return on plan assets 8.25% 8.25% 8.75% 5.71% 5.78% 5.97% 8.25% 8.25% 8.75%
Rate of compensation increase 3.80% 4.00% 4.24% 3.05% 2.90% 3.10% N/A N/A N/A
Initial health care cost trend rate pre-65 N/A N/A N/A N/A N/A N/A 8.00% 8.50% 9.00%
Initial health care cost trend rate post-65 N/A N/A N/A N/A N/A N/A 7.75% 8.00% 9.00%
The Company’s discount rates are determined by considering
current yield curves representing high quality, long-term fixed
income instruments. The resulting discount rates are consistent
with the duration of plan liabilities.
The expected long-term rate of return on plan assets
assumptions are determined using a building block approach,
considering historical averages and real returns of each asset
class. In certain countries, where historical returns are not
meaningful, consideration is given to local market expectations of
long-term returns.
Retirement Benefit Plan Investment Strategy The Company has an
account that holds the assets for both the U.S. pension plan and
other post-retirement benefits, primarily retiree medical benefits.
For investment purposes, the plans are managed in an identical
way, as their objectives are similar.
The Company has a Qualified Plan Committee (the Plan
Committee) that sets investment guidelines with the assistance of
an external consultant. These guidelines are established based on
market conditions, risk tolerance, funding requirements, and
expected benefit payments. The Plan Committee also oversees
the investment allocation process, selects the investment
managers, and monitors asset performance. As pension liabilities
are long-term in nature, the Company employs a long-term total
return approach to maximize the long-term rate of return on plan
assets for a prudent level of risk. An annual analysis on the risk
versus the return of the investment portfolio is conducted to
justify the expected long-term rate of return assumption.
The investment portfolio contains a diversified portfolio of
investment categories, including equities, fixed income securities,
hedge funds, and private equity. Securities are also diversified in
terms of domestic and international securities, short- and long-
term securities, growth and value styles, large cap and small cap
stocks, active and passive management, and derivative-based
styles. The Plan Committee believes with prudent risk tolerance
and asset diversification, the account should be able to meet its
pension and other post-retirement obligations in the future.
Outside the U.S., pension plan assets are typically managed
by decentralized fiduciary committees. There is significant
variation in policy asset allocation from country to country.
Local regulations, local funding rules, and local financial and tax
considerations are part of the funding and investment allocation
process in each country.
Plan assets also included investments in the Company’s
common stock of $56 million as of April 30, 2010. The Plan did not
hold any investments in the Company’s common stock as of April
29, 2011.
The Company’s pension plan target allocations at April 29, 2011
and April 30, 2010, by asset category, are as follows:
U.S. Plans
Target
Allocation
2011 2010
Asset Category
Equity securities 50% 55%
Debt securities 20 20
Other 30 25
Total100% 100%