Medtronic 2013 Annual Report Download - page 93

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Table of Contents
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
to bring to market the next generation of surgeon-directed and professionally supported spinal and cranial neuromonitoring
technologies, thereby expanding the availability of these technologies. Total consideration for the transaction, net of cash acquired,
was $62 million, which included the settlement of existing Axon debt. In connection with the acquisition of Axon, the Company
acquired $41 million of technology-based intangible assets that had an estimated useful life of 10 years at the time of acquisition,
$5 million of tangible assets, and $16 million of goodwill. The goodwill is deductible for tax purposes. The Company accounted
for the acquisition of Axon as a business combination and recorded the identifiable assets acquired and liabilities assumed at fair
value on the acquisition date.
Other Acquisitions and Acquisition-Related Items
During fiscal year 2011, the Company recorded $14 million of acquisition-related items including the items discussed below and
$14 million related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April
24, 2009.
During fiscal year 2011, the Company incurred a $15 million IPR&D charge related to two asset purchases in the Structural Heart
and Surgical Technologies businesses. The Company also incurred a $15 million IPR&D charge related to a milestone payment
under the existing terms of a royalty-bearing, non-exclusive patent cross-licensing agreement with NeuroPace, Inc. Product
commercialization related to this technology had not yet been achieved. As a result, in accordance with authoritative guidance,
the payments for these transactions were immediately expensed as IPR&D since technological feasibility had not yet been reached
and such technology has no future alternative use. These amounts are included within acquisition-related items in the consolidated
statements of earnings.
In connection with the Ardian acquisition, the Company recognized a gain of $85 million on its previously-held investment and
incurred approximately $10 million of certain acquisition-related costs, including banker fees and other professional service fees,
which were recorded within acquisition-related items in the consolidated statements of earnings.
In connection with the Osteotech acquisition, the Company began to assess and formulate a plan for the elimination of duplicative
positions and the termination of certain contractual obligations. As a result, the Company incurred approximately $21 million of
certain acquisition-related costs, including legal fees and severance costs, change in control costs, and contract termination, which
were recorded within acquisition-related items in the consolidated statements of earnings.
In connection with the ATS Medical acquisition, the Company began to assess and formulate a plan for the elimination of duplicative
positions and the termination of certain contractual obligations. As a result, the Company incurred approximately $24 million of
certain acquisition-related costs, including acquisition-related legal fees and severance costs, change in control costs, and contract
termination costs which were recorded within acquisition-related items in the consolidated statements of earnings.
Contingent Consideration
Certain of the Company’s business combinations and purchases of intellectual property 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. Contingent
consideration is recorded at the estimated fair value of the contingent milestone payments on the acquisition date for all acquisitions
subsequent to April 24, 2009. The fair value of the contingent milestone consideration is remeasured at the estimated fair value
at each reporting period with the change in fair value recognized as income or expense within acquisition-related items in the
consolidated statements of earnings. The Company measures the liability on a recurring basis using Level 3 inputs. See Note 6
for further information regarding fair value measurements.
Contingent consideration liabilities are measured to fair value using projected revenues, discount rates, probabilities of payment,
and projected payment dates. 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 and probabilities of payment may result in higher (lower) fair value
measurements. Increases (decreases) in discount rates and the projected time to payment may result in lower (higher) fair value
measurements. Increases (decreases) in any of those inputs in isolation may result in a significantly lower (higher) fair value
measurement.
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