XML 22 R10.htm IDEA: XBRL DOCUMENT
v3.3.1.900

Acquisitions and Acquisition-Related Items | 9 Months Ended
--- | ---
Jan. 29, 2016
Business Combinations [Abstract] |
Acquisitions and Acquisition-Related Items | Acquisitions and Acquisition-Related Items The Company had various acquisitions and other acquisition-related activity during the first three quarters of fiscal years 2016 and 2015. Certain acquisitions were accounted for as business combinations as noted below. In accordance with authoritative guidance on business combination accounting, the assets and liabilities of the companies acquired were recorded and consolidated as of the acquisition date at their respective fair values. Unless otherwise disclosed, the pro forma impact of these acquisitions was not significant, either individually or in the aggregate, to the results of the Company for the three and nine months ended January 29, 2016 or January 23, 2015. The results of operations related to each company acquired have been included in the Company's condensed consolidated statements of income since the date each company was acquired. Acquisition of Covidien public limited company On January 26, 2015 (Acquisition Date), pursuant to the transaction agreement, dated as of June 15, 2014 (the Transaction Agreement), the Company acquired Covidien plc (Covidien), and Covidien and Medtronic, Inc. became subsidiaries of Medtronic (collectively, the Transactions). In connection with the consummation of the Transactions, Medtronic re-registered as a public limited company organized under the laws of Ireland. On January 26, 2015, (a) each Covidien ordinary share was converted into the right to receive $35.19 in cash and 0.956 of a newly issued Medtronic plc ordinary share (the Arrangement Consideration) in exchange for each Covidien share held by such shareholders, and (b) each share of Medtronic, Inc. common stock was converted into the right to receive one Medtronic plc ordinary share. Total consideration was approximately $50 billion, consisting of $16 billion cash and $34 billion of non-cash consideration. Based on the number of outstanding shares of Medtronic, Inc. and Covidien as of January 23, 2015 (the last business day prior to the close of the transaction), former Medtronic, Inc. and Covidien shareholders held approximately 69 percent and 31 percent, respectively, of the Company's ordinary shares after giving effect to the acquisition. Covidien was a global leader in the development, manufacture, and sale of healthcare products for use in clinical and home settings. The operating results for Covidien are included in the Minimally Invasive Therapies Group, Cardiac and Vascular Group, and Restorative Therapies Group segments. Fair Value of Assets Acquired and Liabilities Assumed The Company accounted for the acquisition of Covidien as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed were recorded at their respective fair values as of the Acquisition Date. The fair value of assets acquired and liabilities assumed was finalized during the third quarter of fiscal year 2016. During the measurement period, which ended January 26, 2016, adjustments were made to finalize Covidien's preliminary fair value estimates related primarily to other current assets, intangible assets, goodwill, certain property value, contingent liabilities and the related deferred tax impacts. Based upon the acquisition valuation, the Company acquired $18.3 billion of customer-related intangible assets, $7.1 billion of technology-based intangible assets, $0.4 billion of tradenames, with weighted average estimated useful lives of 18, 16, and 6 years, respectively, $0.4 billion of in-process research and development (IPR&D), and $30.0 billion of goodwill. The fair values of the assets acquired and liabilities assumed in connection with the Transactions are as follows:
(estimated in millions) | January 26, 2015 (as previously reported) |  | Adjustments |  | January 26, 2015 (as adjusted)
Accounts receivable | $ | 1,349 |  |  | $ | — |  |  | $ | 1,349 |
Inventories | 2,222 |  |  | (3 | ) |  | 2,219 |
Other current assets | 2,949 |  |  | 232 |  |  | 3,181 |
Property, plant, and equipment | 2,354 |  |  | (61 | ) |  | 2,293 |
Goodwill | 29,586 |  |  | 393 |  |  | 29,979 |
Intangible assets | 26,265 |  |  | (55 | ) |  | 26,210 |
Other assets | 747 |  |  | 14 |  |  | 761 |
Total assets acquired | 65,472 |  |  | 520 |  |  | 65,992 |
Short-term borrowings | 1,011 |  |  | — |  |  | 1,011 |
Other current liabilities | 2,331 |  |  | 103 |  |  | 2,434 |
Long-term debt | 4,623 |  |  | — |  |  | 4,623 |
Long-term deferred tax liabilities | 4,736 |  |  | 9 |  |  | 4,745 |
Other long-term liabilities | 2,783 |  |  | 408 |  |  | 3,191 |
Total liabilities assumed | 15,484 |  |  | 520 |  |  | 16,004 |
Net assets acquired | $ | 49,988 |  |  | $ | — |  |  | $ | 49,988 |
Contingent liabilities assumed as part of the Transactions total $2.7 billion and are included within accrued income taxes, other accrued expenses, long-term accrued income taxes, and other long-term liabilities in the condensed consolidated balance sheet. These contingent liabilities include $1.5 billion related to income taxes (including uncertain tax positions and guarantee commitments) and $1.2 billion related to legal claims (including product liability and environmental matters). Contingent liabilities are recorded at their estimated fair values, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. See Note 16 to the condensed consolidated financial statements for additional background on contingent liabilities. For additional information related to the Transactions, see Note 2 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended April 24, 2015. Fiscal Year 2016 The fair values of the assets acquired and liabilities assumed during the nine months ended January 29, 2016 are as follows:
(in millions) | Twelve, Inc. |  | RF Surgical Systems, Inc. |  | Medina Medical |  | All Other |  | Total
Other current assets | $ | 60 |  |  | $ | 43 |  |  | $ | 11 |  |  | $ | 40 |  |  | $ | 154 |
Property, plant, and equipment | — |  |  | 3 |  |  | — |  |  | 5 |  |  | 8 |
IPR&D | 192 |  |  | — |  |  | 122 |  |  | 143 |  |  | 457 |
Other intangible assets | — |  |  | 115 |  |  | — |  |  | 184 |  |  | 299 |
Goodwill | 301 |  |  | 132 |  |  | 126 |  |  | 238 |  |  | 797 |
Other assets | — |  |  | 2 |  |  | — |  |  | 15 |  |  | 17 |
Total assets acquired | 553 |  |  | 295 |  |  | 259 |  |  | 625 |  |  | 1,732 |
Current liabilities | 37 |  |  | 28 |  |  | 6 |  |  | 21 |  |  | 92 |
Long-term deferred tax liabilities, net | 44 |  |  | 27 |  |  | 34 |  |  | 56 |  |  | 161 |
Other liabilities | — |  |  | — |  |  | — |  |  | 2 |  |  | 2 |
Total liabilities assumed | 81 |  |  | 55 |  |  | 40 |  |  | 79 |  |  | 255 |
Net assets acquired | $ | 472 |  |  | $ | 240 |  |  | $ | 219 |  |  | $ | 546 |  |  | $ | 1,477 |
Twelve, Inc. On October 2, 2015, the Company's Coronary & Structural Heart division acquired Twelve, Inc. (Twelve), a privately-held medical device company focused on the development of a transcatheter mitral valve replacement device. Total consideration for the transaction was approximately $472 million, which included an upfront payment of $428 million and the estimated fair value of product development-based contingent consideration of $44 million. Based upon a preliminary acquisition valuation, the Company acquired $192 million of IPR&D and $301 million of goodwill. The acquired goodwill is not deductible for tax purposes. RF Surgical Systems, Inc. On August 11, 2015, the Company's Surgical Solutions division acquired RF Surgical Systems, Inc. (RF Surgical), a medical device company focused on the detection and prevention of retained surgical sponges. Total consideration for the transaction was approximately $240 million. Based upon a preliminary acquisition valuation, the Company acquired $68 million of technology-based intangible assets, $47 million of customer-related intangible assets, with estimated useful lives of 18 and 16 years, respectively, and $132 million of goodwill. The acquired goodwill is not deductible for tax purposes. Medina Medical On August 31, 2015, the Company's Neurovascular division acquired Medina Medical (Medina), a privately-held medical device company focused on commercializing treatments for vascular abnormalities of the brain, including cerebral aneurysms. Total consideration for the transaction was approximately $219 million, which includes an upfront payment of $155 million and the estimated fair value of revenue-based and product development-based contingent consideration of $64 million. Medtronic had previously invested in Medina and held an 11 percent ownership position. Net of this ownership position, the transaction value was approximately $195 million. Based upon a preliminary acquisition valuation, the Company acquired $122 million of IPR&D and $126 million of goodwill. The acquired goodwill is not deductible for tax purposes. The Company accounted for the acquisitions of Twelve, RF Surgical, and Medina and all other acquisitions as business combinations using the acquisition method of accounting. Acquisition-Related Items During the three and nine months ended January 29, 2016, the Company recorded acquisition-related items of $63 million and $183 million, respectively, primarily due to integration related costs incurred in connection with the Covidien acquisition, partially offset by income related to the change in fair value of contingent consideration associated with acquisitions subsequent to April 29, 2009. Fiscal Year 2015 The fair values of the assets acquired and liabilities assumed from acquisitions during fiscal year 2015, other than the Covidien acquisition, are as follows:
(in millions) | NGC Medical S.p.A. |  | Sapiens Steering Brain Stimulation |  | All Other |  | Total
Other current assets | $ | 55 |  |  | $ | 3 |  |  | $ | 12 |  |  | $ | 70 |
Property, plant, and equipment | 15 |  |  | 1 |  |  | 2 |  |  | 18 |
IPR&D | — |  |  | 30 |  |  | 39 |  |  | 69 |
Other intangible assets | 159 |  |  | — |  |  | 157 |  |  | 316 |
Goodwill | 197 |  |  | 170 |  |  | 108 |  |  | 475 |
Other assets | 3 |  |  | 3 |  |  | 49 |  |  | 55 |
Total assets acquired | 429 |  |  | 207 |  |  | 367 |  |  | 1,003 |
Current liabilities | 34 |  |  | 4 |  |  | 6 |  |  | 44 |
Long-term deferred tax liabilities, net | 51 |  |  | — |  |  | 66 |  |  | 117 |
Other liabilities | 4 |  |  | — |  |  | — |  |  | 4 |
Total liabilities assumed | 89 |  |  | 4 |  |  | 72 |  |  | 165 |
Net assets acquired | $ | 340 |  |  | $ | 203 |  |  | $ | 295 |  |  | $ | 838 |
The Company accounted for the acquisitions above as business combinations using the acquisition method of accounting. Other Acquisitions and Acquisition-Related Items During the three and nine months ended January 23, 2015, the Company recorded acquisition-related items of $80 million and $182 million, respectively, primarily due to costs incurred in connection with the Covidien acquisition. Contingent Consideration Certain of the Company’s business combinations involve the potential for the payment of future contingent consideration upon the achievement of certain product development milestones and/or various other favorable operating conditions. Payment of the additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels or achieving product development targets. For business combinations subsequent to April 24, 2009, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. For business combinations or purchases of intellectual property prior to April 24, 2009, the estimated maximum amount of undiscounted future contingent consideration payments that the Company expected to make was approximately $177 million at January 29, 2016. The Company estimates the milestones or other conditions associated with the contingent consideration will be reached in fiscal year 2016 and thereafter. The fair value of the contingent consideration is remeasured at each reporting period and the change in fair value recognized as income or expense within acquisition-related items in the condensed consolidated statements of income. The Company measures the liability on a recurring basis using Level 3 inputs. The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based considerations). Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected revenues are based on the Company’s most recent internal operational budgets and long-range strategic plans. Increases (decreases) in projected revenues, probabilities of payment, discount rates, or projected payment dates may result in a higher (lower) fair value measurement. The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:
|  | Fair Value at |  |  |  |  |  |
($ in millions) |  | January 29, 2016 |  | Valuation Technique |  | Unobservable Input |  | Range
|  |  |  |  |  | Discount rate |  | 11% - 27.2%
Revenue-based payments |  | $191 |  | Discounted cash flow |  | Probability of payment |  | 30% - 100%
|  |  |  |  |  | Projected fiscal year of payment |  | 2016 - 2025
|  |  |  |  |  | Discount rate |  | 0.3% - 5.5%
Product development-based payments |  | $180 |  | Discounted cash flow |  | Probability of payment |  | 75% - 100%
|  |  |  |  |  | Projected fiscal year of payment |  | 2016 - 2025
The fair value of contingent consideration associated with acquisitions subsequent to April 24, 2009, as of January 29, 2016 and April 24, 2015, was $371 million and $264 million, respectively. As of January 29, 2016, $311 million was reflected in other long-term liabilities and $60 million was reflected in other accrued expenses in the condensed consolidated balance sheets. As of April 24, 2015, $242 million was reflected in other long-term liabilities and $22 million was reflected in other accrued expenses in the condensed consolidated balance sheets. The portion of the contingent consideration paid related to the acquisition date fair value is reported as financing activities in the condensed consolidated statements of cash flows. Amounts paid in excess of the original acquisition date fair value are reported as operating activities in the condensed consolidated statements of cash flows. The following table provides a reconciliation of the beginning and ending balances of contingent consideration associated with acquisitions subsequent to April 24, 2009:
| Three months ended |  | Nine months ended
(in millions) | January 29, 2016 |  | January 23, 2015 |  | January 29, 2016 |  | January 23, 2015
Beginning Balance | $ | 368 |  |  | $ | 91 |  |  | $ | 264 |  |  | $ | 68 |
Purchase price contingent consideration | 14 |  |  | 6 |  |  | 149 |  |  | 29 |
Contingent consideration payments | (2 | ) |  | — |  |  | (22 | ) |  | (5 | )
Change in fair value of contingent consideration | (9 | ) |  | (4 | ) |  | (20 | ) |  | 1 |
Ending Balance | $ | 371 |  |  | $ | 93 |  |  | $ | 371 |  |  | $ | 93 |

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1500-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1524-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4922-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4934-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4926-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration