Acquisitions and Acquisition-Related Items

3 Months Ended

Jul. 27, 2012

Business Combinations [Abstract]

Acquisitions and Acquisition-Related Items Disclosure

Note 4 – Acquisitions and Acquisition-Related Items

The Company had no significant acquisitions during the three months ended July 27, 2012 or July 29, 2011.

Acquisition-Related Items

During the three months ended July 27, 2012, the Company recorded acquisition-related items of $5 million related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009. During the three months ended July 29, 2011, the Company recorded acquisition-related items of $13 million, of which $8 million related to the change in fair value of contingent milestone payments associated with acquisitions subsequent to April 29, 2009, and $5 million related to transaction costs associated with the divestiture of Physio-Control previously recorded in acquisition-related items within continuing operations on the condensed consolidated statements of earnings and subsequently reclassified to discontinued operations in the third quarter of fiscal year 2012.

Contingent Consideration

Certain of the Company's business combinations or 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 paymentson 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 condensed consolidated statements of earnings. The Company measures the initial liability and remeasures the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. See Note8 for further information regarding fair value measurements.

Contingent consideration liabilities are remeasured to fair value each reporting period 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 in projected revenues and probabilities of payment may result in higher fair value measurements. Increases in discount rates and the projected time to payment may result in lower fair value measurements. Increases (decreases) in any of those inputs in isolation may result in a significantly lower (higher) fair value measurement.

The recurring Level 3 fair value measurements of the contingent consideration liability include the following significant unobservable inputs:

($ in millions)	Fair Value at July 27, 2012	Valuation Technique	Unobservable Input	Range
			Discount rate	13% - 24%
Revenue-based payments	$210	Discounted cash flow	Probability of payment	25% - 100%
			Projected fiscal year of payment	2013 - 2019
			Discount rate	5.9%
Product development-based payments	$5	Discounted cash flow	Probability of payment	100%
			Projected fiscal year of payment	2013

At July 27, 2012, 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 $228million. The milestones associated with the contingent consideration must be reached in future periods ranging from fiscal years 2013 to 2018 in order for the consideration to be paid.

The fair value of contingent milestone payments associated with acquisitions subsequent to April 24, 2009 was remeasured as of July 27, 2012 and April 27, 2012 at $215 million and $231 million, respectively. As of July 27, 2012, $184 million was reflected in other long-term liabilitiesand $31 million was reflected in other accrued expenses in the condensed consolidated balance sheet. As of April 27, 2012, $200 million was reflected in other long-term liabilities and $31million was reflected in other accrued expenses in the condensed consolidated balance sheet. The portion of the milestone payments related to the acquisition date fair value of contingent consideration has been reported as financing activities in the condensed consolidated statements of cash flows. Amounts paid in excess of the original acquisition date fair value of contingent consideration have been reported as operating activities in the condensed consolidated statements of cash flows. The following table provides a reconciliation of the beginning and ending balances of contingent milestone payments associated with acquisitions subsequent to April 24, 2009 measured at fair value that used significant unobservable inputs (Level 3):

	Three months ended
(in millions)	July 27, 2012		July 29, 2011
Beginning Balance	$	231	$	335
Purchase price contingent consideration		5		-
Contingent milestone payments		(26)		-
Change in fair value of contingent consideration		5		8
Ending Balance	$	215	$	343