Medtronic 2009 Annual Report Download - page 48

44 Medtronic, Inc.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
(continued)
treat the soft palate component of sleep breathing disorders,
including mild to moderate obstructive sleep apnea and snoring.
The pro forma impact of the above acquisitions were not
significant, individually or in the aggregate, to our results for the
fiscal years ended April 24, 2009 or April 25, 2008. The results of
operations related to each company have been included in our
consolidated statements of earnings since the date each company
was acquired.
In April 2008, we recorded an IPR&D charge of $42 million
related to the acquisition of NDI, a development stage company
focused on commercially developing technology to stimulate the
dorsal genital nerve as a means to treat urinary incontinence.
Total consideration for NDI was approximately $42 million which
included $39 million in cash and the forgiveness of $3 million of
pre-existing loans provided to NDI. The acquisition will provide us
with exclusive rights to develop and use NDI’s technology in the
treatment of urinary urge incontinence. This payment was
expensed as IPR&D since technological feasibility of the underlying
projects had not yet been reached and such technology has no
future alternative use.
In November 2007, we acquired Kyphon and it became our
wholly owned subsidiary. Kyphon develops and markets medical
devices designed to restore and preserve spinal function using
minimally invasive technology. Kyphon’s primary products are
used in balloon kyphoplasty for the treatment of spinal
compression fractures caused by osteoporosis or cancer, and in
the interspinous process decompression (IPD) procedure for
treating the symptoms of lumbar spinal stenosis. It is expected
that the acquisition of Kyphon will add to the growth of our
existing Spinal business by extending its product offerings and
enabling us to provide physicians with a broader range of
therapies for use at all stages of the care continuum.
Under the terms of the agreement announced in July 2007,
Kyphon shareholders received $71 per share in cash for each share
of Kyphon common stock they owned. Total consideration for
the transaction was $4.203 billion which includes payments to
Kyphon shareholders for the cancellation of outstanding shares,
the assumption and settlement of existing Kyphon debt and
payment of direct acquisition costs. Total debt assumed relates to
Kyphon’s obligations under existing credit and term loan facilities
and outstanding senior convertible notes. As of the date of the
transaction, the existing credit and term loan facilities were fully
paid and terminated. The senior convertible notes were converted
by the holders in the weeks following the close of the transaction
and have been included in the total purchase consideration
above. In addition, the total consideration includes the proceeds
of unwinding the related convertible note hedges and cancellation
and payment of the warrants to the hedge participants that were
originally issued by Kyphon in February 2007.
The transaction was financed through a combination of $3.303
billion cash on hand, the issuance of $600 million short-term
commercial paper and borrowing $300 million through a new
long-term unsecured revolving credit facility.
The results of operations related to Kyphon have been included
in our consolidated statements of earnings since the date of the
acquisition and include the full amortization of a $34 million
inventory write-up recorded as part of the Kyphon acquisition
accounting. The pro forma impact of Kyphon was significant to
our results for fiscal year 2008. See Note 4 to the consolidated
financial statements for the unaudited pro forma results of
operations for fiscal years 2008 and 2007.
In November 2007, we also acquired Setagon, Inc. (Setagon), a
development stage company focused on commercially developing
metallic nanoporous surface modification technology. The
acquisition will provide us with exclusive rights to use and
develop Setagon’s Controllable Elution Systems technology in
the treatment of cardiovascular disease. Total consideration
for Setagon was approximately $20 million in cash, subject to
purchase price increases, which would be triggered by the
achievement of certain milestones. The $20 million was expensed
as IPR&D since technological feasibility of the underlying projects
had not yet been reached and such technology has no future
alternative use.
In June 2007, we acquired substantially all of the O-Arm Imaging
System (O-Arm) assets of Breakaway Imaging, LLC (Breakaway),
a privately held company. Prior to the acquisition, we had the
exclusive rights to distribute and market the O-Arm. The O-Arm
provides multi-dimensional surgical imaging for use in spinal and
orthopedic surgical procedures. The acquisition is expected to
bring the O-Arm into a broad portfolio of image guided surgical
solutions. Total consideration for Breakaway was approximately
$26 million in cash, subject to purchase price increases, which
would be triggered by the achievement of certain milestones. The
pro forma impact of Breakaway was not significant to our results
for the fiscal year ended April 25, 2008.