BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION

Balance Sheet Details

The following tables provide details of selected balance sheet items (in millions):


	As of
Inventory	September 30, 2019		December 31, 2018
Raw materials	$	208.1	$	164.1
Work-in-process	70.9		40.0
Finished goods	300.6		204.9
Total inventory	$	579.6	$	409.0


	As of
Other accrued liabilities—short-term	September 30, 2019		December 31, 2018
Taxes payable	$	26.2	$	39.1
Litigation-related accruals	5.9		55.0
Other accrued liabilities	170.6		133.1
Current portion of deferred purchase consideration payments	59.8		4.6
Current portion of contingent consideration	41.0		—
Total other accrued liabilities—short-term	$	303.5	$	231.8


	As of
Other long-term liabilities	September 30, 2019		December 31, 2018
Income taxes—long-term	$	258.6	$	270.2
Deferred revenue—long-term	27.9		33.0
Other long-term liabilities	136.8		35.4
Total other long-term liabilities	$	423.3	$	338.6

Goodwill and Intangible Assets

The increases in goodwill and intangible assets from December 31, 2018, to September 30, 2019, primarily relate to two transactions accounted for as business combinations.

Chindex

During the first quarter of 2019, the Company’s majority-owned Joint Venture with Fosun Pharma acquired certain assets from Chindex and its affiliates, a subsidiary of Fosun Pharma, including distribution rights, customer relationships, and certain personnel on January 5, 2019, which collectively met the definition of a business. Chindex was the Company’s distributor of da

Vinci products and services in China. The transaction enhances the Company’s ability to serve patients, surgeons, and hospitals in China.

The total purchase consideration of $66.0 million, as of the acquisition date, included a contingent consideration liability of $64.7 million and an upfront cash payment of $1.3 million. The amount and timing of the future contingent consideration payments are based upon the underlying performance of the business in 2019 and 2020. As of the acquisition date, the estimated total undiscounted contingent consideration was approximately $81 million. The undiscounted contingent consideration has decreased by approximately $6 million as of September 30, 2019, due to a change in the timing of the projected future revenues. The contingent consideration liability was measured at estimated fair value using a discounted cash flow model, which requires significant inputs not observable in the market and, thus, represents a Level 3 measurement. Key assumptions include (1) the probability and timing of milestone achievements based on projected future revenues in 2019 and 2020, and (2) the discount rate used to calculate the present value of the milestone payments. On each reporting period until the contingent consideration is settled, the Company will re-measure the contingent consideration liability and record changes in fair value within selling, general and administrative expenses. For the nine months ended September 30, 2019, the contingent consideration liability changed due to payments of $8.5 million and net additional expense of $4.1 million. Changes to the contingent consideration liability can result from adjustments to discount rates, accretion due to the passage of time, or changes in estimates in the performance of the business. The assumptions related to determining the fair value of contingent consideration include a significant amount of judgment, and any changes in the underlying estimates could have a material impact on the amount of contingent consideration adjustment recorded in any given period.

The Company recorded $1.7 million of net tangible assets, $58.6 million of intangible assets, and $5.7 million of residual goodwill. Intangible assets included distribution rights of $48.2 million and customer relationships of $10.4 million, which are being amortized over a weighted-average period of 2.9 years. The goodwill is not amortizable for income tax purposes. The allocation of purchase consideration was completed in the third quarter of 2019. There were no adjustments to the provisional amounts in the measurement period.

Schölly

During the third quarter of 2019, the Company acquired certain assets and operations from Schölly Fiberoptic GmbH (“Schölly”), including manufacturing process technology, a non-compete agreement, certain personnel, and net tangible assets on August 31, 2019, which collectively met the definition of a business. The Company believes that the transaction strengthens the Company’s supply chain and manufacturing capacity for imaging products used in the Company's da Vinci systems. The total purchase consideration of $100.6 million, as of the acquisition date, consisted of an initial cash payment of $34.4 million and deferred cash payments totaling approximately $66.2 million. The timing of the future payments is based upon achieving certain integration steps, which occur during 2019 and 2020 and are expected to be completed around the end of 2020.

The Company preliminarily recorded $10.8 million of net tangible assets, which included $6.1 million of inventory and $1.5 million of cash, $30.5 million of intangible assets, and $59.3 million of residual goodwill. Intangible assets included manufacturing process technology and non-compete provisions, which are being amortized over a weighted-average period of 6.6 years. The allocation of purchase consideration is considered preliminary with provisional amounts primarily related to intangible assets and working capital. Goodwill primarily consists of the manufacturing and other synergies of the combined operations and the value of the assembled workforce. The majority of goodwill is not deductible for income tax purposes.

The Company has included the results of the acquired businesses, since their acquisition dates, in its Financial Statements, and the revenues and earnings have not been material to date. Pro forma results of operations related to the acquisitions have not been presented, because the operating results of the acquired businesses are not considered material to the Financial Statements.

Supplemental Cash Flow Information

The following table provides supplemental non-cash investing and financing activities (in millions):


	Nine Months Ended September 30,
	2019		2018
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	$	147.6	$	84.4
Deferred payments and contingent consideration related to business combinations	$	130.9	$	16.7