Medtronic 2015 Annual Report Download - page 97

Medtronic plc
Notes to Consolidated Financial Statements (Continued)
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 24, 2015
Valuation
Technique Unobservable Input Range
Discount rate 0% - 27%
Revenue-based payments $ 159 Discounted cash flow Probability of payment 70% - 100%
Projected fiscal year of payment 2016 - 2025
Discount rate 0.5% - 5.5%
Product development-based
payments
$ 105 Discounted cash flow Probability of payment 75% - 100%
Projected fiscal year of payment 2016 - 2020
At April 24, 2015, 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 $193 million. The Company estimates the milestones or other conditions associated with the
contingent consideration will be reached in fiscal year 2016 and thereafter.
The fair value of contingent consideration associated with acquisitions subsequent to April 24, 2009, as of April 24, 2015 and
April 25, 2014, was $264 million and $68 million, respectively. 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. As of April 25,
2014, $51 million was reflected in other long-term liabilities and $17 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) 2015 2014
Beginning Balance $ 68 $ 142
Acquired contingent consideration 236 —
Purchase price contingent consideration 40 65
Contingent consideration payments (85) (1)
Change in fair value of contingent consideration 5 (138)
Ending Balance $ 264 $ 68
3. Restructuring Charges, Net
Fiscal Year 2015 Initiative
In the fourth quarter of fiscal year 2015, the Company recorded a $248 million restructuring charge, which consisted of
employee termination costs of $213 million, asset write-downs of $28 million, contract termination costs of $6 million, and
other related costs of $1 million. Of the $28 million of asset write-downs, $15 million related to inventory write-offs of
discontinued product lines and production-related asset impairments, and therefore, was recorded within cost of products sold in
the consolidated statements of income. The fiscal year 2015 initiative primarily relates to the Covidien acquisition, strategic
alignment of certain manufacturing processes, certain inventory rationalizations, and certain program cancellations.
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