SEC Filings

10-Q
MEDTRONIC PLC filed this Form 10-Q on 12/04/2017
Entire Document
 
Medtronic plc
Notes to Consolidated Financial Statements
(Unaudited)


The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based consideration). 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)
 
October 27, 2017
 
Valuation Technique
 
Unobservable Input
 
Range
 
 
 
 
 
 
Discount rate
 
11% - 32.5%
Revenue-based payments
 
$85
 
Discounted cash flow
 
Probability of payment
 
30% - 100%
 
 
 
 
 
 
Projected fiscal year of payment
 
2018 - 2026
 
 
 
 
 
 
Discount rate
 
0.7% - 5.5%
Product development and other milestone-based payments
 
$105
 
Discounted cash flow
 
Probability of payment
 
50% - 100%
 
 
 
 
 
 
Projected fiscal year of payment
 
2018 - 2025
The fair value of contingent consideration at October 27, 2017 and April 28, 2017 was $190 million and $246 million, respectively. At October 27, 2017, $70 million was recorded in other liabilities and $120 million was recorded in other accrued expenses in the consolidated balance sheets. At April 28, 2017, $180 million was recorded in other liabilities and $66 million was recorded 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
 
Six months ended
(in millions)
October 27, 2017
 
October 28, 2016
 
October 27, 2017
 
October 28, 2016
Beginning Balance
$
242

 
$
379

 
$
246

 
$
377

Purchase price contingent consideration
15

 
11

 
15

 
32

Payments
(43
)
 
(25
)
 
(46
)
 
(39
)
Change in fair value
(24
)
 
(80
)
 
(25
)
 
(85
)
Ending Balance
$
190

 
$
285

 
$
190

 
$
285

4. Divestiture and Divestiture-Related Items
Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency Businesses
In April 2017, the Company entered into a definitive agreement for the sale of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses within the Minimally Invasive Therapies Group segment to Cardinal Health, Inc. (Cardinal). The divestiture was completed on July 29, 2017. As a result of the transaction, the Company received proceeds of $6.1 billion, which was recorded in the line item proceeds from sale of businesses in the consolidated statements of cash flows, and recognized a before-tax gain of $697 million, which was recognized within gain on sale of businesses in the consolidated statements of income. Among the product lines included in the divestiture are the dental and animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings. The divestiture also included 17 dedicated manufacturing sites. In connection with the transaction, the Company entered into Transition Service Agreements (TSAs) and Transition Manufacturing Agreements (TMAs) with Cardinal designed to ensure and facilitate an orderly transfer of business operations. The TSAs are primarily related to administrative services and are expected to continue for 12 months from the divestiture date, with an ability to extend upon mutual agreement of both parties. Under the TMAs, both the Company and Cardinal will manufacture and supply certain products to each other for a transition period of up to 5 years.
The divestiture of the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses did not meet the criteria to be classified as discontinued operations, as such, the results of operations of these businesses are included within net income through the date of the divestiture. The Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses met the criteria to be classified as held for sale in the fourth quarter of fiscal year 2017, at which time the Company ceased depreciation and amortization of property, plant, and equipment and intangible assets classified as held for sale. The following table presents information related to the assets and liabilities that were classified as held for sale in the consolidated balance sheets:

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