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Table of Contents
Medtronic plc
Notes to Consolidated Financial Statements (Continued)
83
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. The fair value of the contingent consideration is remeasured at each reporting period with the change in fair
value recognized as income or expense within acquisition-related items in the 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 higher (lower) fair value measurements. Fluctuations in any of the inputs may result in a
significantly lower (higher) fair value measurement.
The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:
($ in millions) Fair Value at
April 29, 2016 Valuation
Technique Unobservable Input Range
Discount rate 11% - 27%
Revenue-based payments $ 195 Discounted cash flow Probability of payment 30% - 100%
Projected fiscal year of payment 2017 - 2025
Discount rate 0.3% - 5.5%
Product development-based payments $ 182 Discounted cash flow Probability of payment 75% - 100%
Projected fiscal year of payment 2017 - 2025
At April 29, 2016, the estimated maximum potential amount of undiscounted future contingent consideration that the Company
is expected to make associated with all completed business combinations or purchases of intellectual property prior to April 24,
2009 was approximately $175 million. The Company estimates the milestones or other conditions associated with the contingent
consideration will be reached in fiscal year 2017 and thereafter.
The fair value of contingent consideration associated with acquisitions subsequent to April 24, 2009, as of April 29, 2016 and
April 24, 2015, was $377 million and $264 million, respectively. As of April 29, 2016, $311 million was reflected in other long-
term liabilities and $66 million was reflected in other accrued expenses in the 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 consolidated
balance sheets. The portion of the contingent consideration related to the acquisition date fair value is 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 following table provides a reconciliation of the beginning
and ending balances of contingent consideration:
Fiscal Year
(in millions) 2016 2015
Beginning Balance $ 264 $ 68
Acquired contingent consideration — 236
Purchase price contingent consideration 149 40
Contingent consideration payments (22)(85)
Change in fair value of contingent consideration (14) 5
Ending Balance $ 377 $ 264
3. Restructuring Charges, Net
Cost Synergies Initiative
The cost synergies initiative, initially referred to as the fiscal year 2015 initiative, was the beginning of the Company's restructuring
program primarily related to the acquisition of Covidien. This initiative is expected to contribute to the approximately $850
million in cost synergies expected to be achieved as a result of the Covidien acquisition through fiscal year 2018, including