Medtronic 2009 Annual Report Download - page 68

64 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
include consideration of the risk of the project not achieving
commercial feasibility and include a factor that takes into account
the uncertainty surrounding the successful development of
the IPR&D.
At the time of acquisition, the Company expects all acquired
IPR&D will reach technological feasibility, but there can be no
assurance that the commercial viability of these products will
actually be achieved. The nature of the efforts to develop the
acquired technologies into commercially viable products consists
principally of planning, designing and conducting clinical trials
necessary to obtain regulatory approvals. The risks associated
with achieving commercialization include, but are not limited to,
delay or failure to obtain regulatory approvals to conduct clinical
trials, delay or failure to obtain required market clearances, and
patent issuance, validity and litigation, if any. If commercial
viability were not achieved, the Company would likely look
to other alternatives to provide these therapies.
Fiscal Year 2009
CoreValve, Inc. In April 2009, the Company acquired privately held
CoreValve Inc. (CoreValve). Under the terms of the agreement
announced in February 2009, the transaction included an initial
up-front payment, including direct acquisition costs, of $700
million plus potential additional payments contingent upon
achievement of certain clinical and revenue milestones. CoreValve
develops percutaneous, catheter-based transfemoral aortic valve
replacement products that are approved in certain markets
outside the U.S.
The Company has accounted for the acquisition of CoreValve as
a business combination. Under business combination accounting,
the assets and liabilities of CoreValve were recorded as of the
acquisition date, at their respective fair values, and consolidated
with the Company. The purchase price allocation is based on
estimates of the fair value of assets acquired and liabilities
assumed. The preliminary purchase price has been allocated
as follows:
(in millions)
Current assets $ 20
Property, plant and equipment 7
IPR&D 123
Other intangible assets 291
Goodwill 433
Total assets acquired 874
Current liabilities 66
Long-term deferred tax liabilities 108
Total liabilities assumed 174
Net assets acquired $ 700
In connection with the acquisition of CoreValve, the Company
acquired $291 million of technology-based intangible assets with
an estimated useful life of 12 years. Also as part of the acquisition,
the Company recognized, in total, $123 million and $433 million
for IPR&D and goodwill, respectively. The IPR&D was expensed on
the date of acquisition and primarily relates to the future launch
of CoreValve’s catheter-based transfemoral aortic valve into the
U.S. market. For purposes of valuing the acquired IPR&D, the
Company estimated total costs to complete of approximately $80
million. The establishment of goodwill was primarily due to the
expected revenue growth that is attributable to increased market
penetration from future products and customers. The goodwill is
not deductible for tax purposes.
In conjunction with the acquisition, the Company began to
assess and formulate a plan for the elimination of duplicative
positions and the termination of certain contractual obligations.
The purchase accounting liabilities recorded in connection with
these activities were approximately $39 million and are included
as current liabilities in the purchase price allocation. The Company
continues to assess these liabilities and until the plan is finalized
and the integration activities are complete, the allocation of the
purchase price is subject to adjustment.
Ablation Frontiers, Inc. In February 2009, the Company acquired
privately held Ablation Frontiers, Inc. (Ablation Frontiers). Under
the terms of the agreement announced in January 2009, the
transaction included an initial up-front payment of $225 million
plus potential additional payments contingent upon achievement
of certain clinical and revenue milestones. Total consideration for
the transaction was approximately $235 million including the
assumption and settlement of existing Ablation Frontiers debt
and payment of direct acquisition costs. Ablation Frontiers
develops radiofrequency (RF) ablation solutions for treatment of
atrial fibrillation. Ablation Frontiers’ system of ablation catheters
and RF generator is currently approved in certain markets outside
the U.S.
The Company has accounted for the acquisition of Ablation
Frontiers as a business combination. Under business combination
accounting, the assets and liabilities of Ablation Frontiers were
recorded as of the acquisition date, at their respective fair
values, and consolidated with the Company. The purchase price
allocation is based on estimates of the fair value of assets acquired