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Acquisitions and Acquisition-Related Items | 3 Months Ended
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Jul. 28, 2017
Business Combinations [Abstract] |
Acquisitions and Acquisition-Related Items | Acquisitions and Acquisition-Related Items HeartWare International, Inc. On August 23, 2016, the Company's Cardiac and Vascular Group acquired HeartWare International, Inc. (HeartWare), a medical device company that develops and manufactures miniaturized implantable heart pumps, or ventricular assist devices, to treat patients around the world suffering from advanced heart failure. Total consideration for the transaction was approximately $1.1 billion. The Company accounted for the acquisition as a business combination using the acquisition method of accounting. In accordance with authoritative guidance on business combination accounting, the assets and liabilities of the business acquired are recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from the business combination is largely attributable to future yet to be defined technologies, new customer relationships, existing workforce of the acquired business, and post-acquisition synergies. The results of operations of the acquired business have been included in the Company’s consolidated statements of income since the date the business was acquired. The Company acquired $602 million of technology-based and customer-related intangible assets and $23 million of tradenames, with estimated useful lives of 15 and 5 years, respectively, and $481 million of goodwill. The acquired goodwill is not deductible for tax purposes. In addition, the Company acquired $245 million of debt through the acquisition, of which the Company redeemed $203 million as part of a cash tender offer in August 2016 and the remaining $42 million of debt acquired is due December 2017. During the measurement period, which ended on August 22, 2017, adjustments were made to finalize the allocation of purchase price related to other assets, goodwill, and contingent liabilities. The acquisition date fair values of the assets and liabilities acquired are as follows:
(in millions) | HeartWare International, Inc.
Other current assets | $ | 351 |
Property, plant, and equipment | 14 |
Other intangible assets | 625 |
Goodwill | 481 |
Other assets | 84 |
Total assets acquired | 1,555 |
Current liabilities | 143 |
Deferred tax liabilities | 6 |
Long-term debt | 245 |
Other liabilities | 89 |
Total liabilities assumed | 483 |
Net assets acquired | $ | 1,072 |
For additional information on the Company's fiscal year 2017 acquisitions, refer to Note 2 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended April 28, 2017. Acquisition-Related Items During the three months ended July 28, 2017, the Company recognized acquisition-related items expense of $53 million, including $9 million recognized within cost of products sold in the consolidated statements of income. Acquisition-related items expense includes $46 million of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation, benefits harmonization, and accelerated and incremental stock compensation expense. Acquisition-related items expense also includes changes in the fair value of contingent consideration as a result of revised revenue forecasts and the timing of anticipated regulatory payments. During the three months ended July 29, 2016, the Company recognized acquisition-related items expense of $52 million, including $44 million of costs associated with the integration of Covidien manufacturing, distribution, and administrative facilities as well as information technology system implementation and benefits harmonization, and $8 million of accelerated and incremental stock compensation expense. Contingent Consideration Certain of the Company’s business combinations involve potential payments of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period using Level 3 inputs, and the change in fair value is recognized within acquisition-related items in the consolidated statements of income. Contingent consideration payments related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows. Amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows. 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 revenues are based on the Company's most recent internal operational budgets and long-range strategic plans. Changes in projected revenues, probabilities of payment, discount rates, and projected payment dates may result in adjustments to the fair value measurement. The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:
|  | Fair Value at |  |  |  |  |  |
(in millions) |  | July 28, 2017 |  | Valuation Technique |  | Unobservable Input |  | Range
|  |  |  |  |  | Discount rate |  | 11% - 32.5%
Revenue-based payments |  | $103 |  | Discounted cash flow |  | Probability of payment |  | 30% - 100%
|  |  |  |  |  | Projected fiscal year of payment |  | 2018 - 2026
|  |  |  |  |  | Discount rate |  | 0.3% - 5.5%
Product development-based payments |  | $139 |  | Discounted cash flow |  | Probability of payment |  | 75% - 100%
|  |  |  |  |  | Projected fiscal year of payment |  | 2018 - 2025
The fair value of contingent consideration at July 28, 2017 and April 28, 2017 was $242 million and $246 million, respectively. At July 28, 2017, $173 million was reflected in other liabilities and $69 million was reflected in other accrued expenses in the consolidated balance sheets. At April 28, 2017, $180 million was reflected in other liabilities and $66 million was reflected in other accrued expenses in the consolidated balance sheets. The following table provides a reconciliation of the beginning and ending balances of contingent consideration:
| Three months ended
(in millions) | July 28, 2017 |  | July 29, 2016
Beginning Balance | $ | 246 |  |  | $ | 377 |
Purchase price contingent consideration | — |  |  | 21 |
Payments | (3 | ) |  | (14 | )
Change in fair value | (1 | ) |  | (5 | )
Ending Balance | $ | 242 |  |  | $ | 379 |

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- 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 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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