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Business Combinations (Tables) | 6 Months Ended
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Jun. 30, 2018
Business Combinations [Abstract] |
Schedule of Business Acquisitions, by Acquisition | The following table presents the acquisition date fair value of the consideration transferred and the fair value of our interest in ImThera prior to the acquisition (in thousands):
Cash |  | $ | 78,332 |
Contingent consideration |  | 112,744 |
Fair value of our interest in ImThera prior to the acquisition (1) |  | 25,580 |
Fair value of consideration transferred |  | $ | 216,656 |
(1) | The fair value of our previously-held interest in ImThera was determined based on the fair value of total consideration transferred and application of a discount for lack of control. As a result, we recognized a gain of $11.5 million for the fair value in excess of our carrying value of $14.1 million. The gain is reflected as “Gain on acquisitions” on our condensed consolidated statement of income for the six months ended June 30, 2018.
The following table presents the acquisition date fair value of the consideration transferred (in thousands):
Cash |  | $ | 203,671 |
Contingent consideration |  | 40,190 |
Fair value of consideration transferred |  | $ | 243,861 |
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed | The following table presents the preliminary purchase price allocation at fair value for the TandemLife acquisition (in thousands):
In-process research and development (1) (2) (3) |  | $ | 110,977 |
Trade names (1) |  | 11,539 |
Developed technology (1) |  | 6,387 |
Goodwill |  | 118,917 |
Inventory |  | 10,296 |
Other assets and liabilities, net |  | 3,632 |
Deferred income tax liabilities, net (3) |  | (17,887 | )
Net assets acquired |  | $ | 243,861 |
(1) | The amounts above are included in “Intangible assets, net” in the condensed consolidated balance sheet at June 30, 2018. Trade names and developed technology are amortized over remaining useful lives of 15 and 2 years, respectively.
(2) | The fair value of in-process research and development ("IPR&D") was determined using the income approach, which is a valuation technique that provides a fair value estimate based on the market participant expectations of cash flows the asset would generate. The cash flows were discounted commensurate with the level of risk associated with the asset. The discount rates were developed after assigning a probability of success to achieving the projected cash flows based on the current stage of development, inherent uncertainty in reaching certain regulatory milestones and risks associated with commercialization of the product.
(3) | The amounts include provisional estimates based on the information available as of the acquisition date. The Company is gathering additional information necessary to finalize the estimated fair values for deferred tax assets acquired and IPR&D.
The following table presents the preliminary purchase price allocation at fair value for the ImThera acquisition including certain measurement period adjustments (in thousands):
|  | Initial Purchase Price Allocation |  | Measurement Period Adjustments (1) |  | Adjusted Purchase Price Allocation
In-process research and development (2) |  | $ | 151,605 |  |  | $ | 10,677 |  |  | $ | 162,282 |
Developed technology |  | 5,661 |  |  | (5,661 | ) |  | — |
Goodwill |  | 87,063 |  |  | (4,467 | ) |  | 82,596 |
Deferred income tax liabilities, net (3) |  | (27,980 | ) |  | (1,278 | ) |  | (29,258 | )
Other assets and liabilities, net |  | 836 |  |  | 200 |  |  | 1,036 |
Net assets acquired |  | $ | 217,185 |  |  | $ | (529 | ) |  | $ | 216,656 |
(1) | During the second quarter of 2018, measurement period adjustments were recorded based upon new information obtained about facts and circumstances that existed as of the acquisition date.
(2) | The fair value of in-process research and development ("IPR&D") was determined using the income approach, which is a valuation technique that provides a fair value estimate based on the market participant expectations of cash flows the asset would generate. The cash flows were discounted commensurate with the level of risk associated with the asset. The discount rates were developed after assigning a probability of success to achieving the projected cash flows based on the current stage of development, inherent uncertainty in reaching certain regulatory milestones and risks associated with commercialization of the product. The IPR&D amount is included in “Intangible assets, net” in the condensed consolidated balance sheet at June 30, 2018.
(3) | The amount includes a provisional estimate for deferred tax assets acquired.
Schedule of Business Acquisitions by Acquisition, Contingent Consideration | The TandemLife business combination involved a contingent consideration arrangement composed of potential cash payments upon the achievement of certain regulatory milestones. The arrangement is a Level 3 fair value measurement and includes the following significant unobservable inputs (in thousands):
TandemLife Acquisition |  | Fair value at April 4, 2018 |  | Valuation Technique |  | Unobservable Input |  | Ranges
Regulatory milestone-based payments |  | $ | 40,190 |  |  | Discounted cash flow |  | Discount rate |  | 4.2% - 4.8%
|  |  |  |  |  | Probability of payments |  | 75% - 95%
|  |  |  |  |  | Projected payment years |  | 2019 - 2020
The ImThera business combination involved contingent consideration arrangements composed of potential cash payments upon the achievement of a certain regulatory milestone and a sales-based earnout associated with sales of products covered by the purchase agreement. The sales-based earnout was valued using projected sales from our internal strategic plan. Both arrangements are Level 3 fair value measurements and include the following significant unobservable inputs (in thousands):
ImThera Acquisition |  | Fair value at January 16, 2018 |  | Valuation Technique |  | Unobservable Input |  | Ranges
Regulatory milestone-based payment |  | $ | 50,429 |  |  | Discounted cash flow |  | Discount rate |  | 4.3% - 4.7%
|  |  |  |  |  | Probability of payment |  | 85% - 95%
|  |  |  |  |  | Projected payment years |  | 2020 - 2021
Sales-based earnout |  | 62,315 |  |  | Monte Carlo simulation |  | Risk-adjusted discount rate |  | 11.5%
|  |  |  |  |  | Credit risk discount rate |  | 4.7% - 5.8%
|  |  |  |  |  | Revenue volatility |  | 29.3%
|  |  |  |  |  | Probability of payment |  | 85% - 95%
|  |  |  |  |  | Projected years of earnout |  | 2020 - 2025
|  | $ | 112,744 |  |  |  |  |  |  |

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- Definition Tabular disclosure of contingent payment arrangements including the terms that will result in payment and the accounting treatment that will be followed if such contingencies occur, including the potential impact on earnings per share if contingencies are to be settled in common stock of the entity. The description also may include the period over which amounts are expected to be paid, and changes in the amount since the previous reporting period. This also includes contingent options and commitments. + References No definition available. + Details
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- Definition Tabular disclosure of a material business combination completed during the period, including background, timing, and recognized assets and liabilities. This table does not include leveraged buyouts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=79982066&loc=d3e1486-128463 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=79982066&loc=d3e1392-128463 + Details
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- Definition Tabular disclosure of the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed. May include but not limited to the following: (a) acquired receivables; (b) contingencies recognized at the acquisition date; and (c) the fair value of noncontrolling interests in the acquiree. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=84161108&loc=d3e4845-128472 + Details
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