Medtronic 2012 Annual Report Download - page 97

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The potential contingent payments consist of up to $75 million upon reaching a revenue milestone in
fiscal year 2011 and up to $75 million upon reaching a product development milestone by fiscal year 2013.
The Company has recorded, as of the acquisition date, the estimated fair value of the contingent milestone
payments of $118 million as a component of the consideration transferred as part of the acquisition of
Invatec. During fiscal year 2012, the Company paid $66 million upon reaching the revenue milestone and
$75 million upon reaching the product development milestone.
In connection with the acquisition of Invatec, the Company acquired $228 million of technology-based
intangible assets with an estimated useful life of 12 years. Also as part of the acquisition, the Company
recorded $114 million and $161 million of IPR&D and goodwill, respectively. The value attributable to
IPR&D has been capitalized as an indefinite-lived intangible asset. The IPR&D primarily relates to the
future launch of Invatec’s drug-eluting balloons into the U.S. market. Development costs incurred on the
project, estimated to be approximately $44 million, will be expensed as incurred. 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.
The Company accounted for the acquisition of Invatec as a business combination. The Company
recorded the identifiable assets acquired and liabilities assumed at fair value on the acquisition date
as follows:
(in millions)
__________
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77
Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . 32
IPR&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
______
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613
______
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Long-term deferred tax liabilities, net . . . . . . . . . . . . . . . 99
______
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
______
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 468
______
______
Other Acquisitions and Acquisition-Related Items
In connection with the acquisition of Invatec, 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 $12 million of acquisition-related costs in fiscal year 2010. In February
2010, the Company recorded an IPR&D charge of $11 million related to the asset acquisition of Arbor
Surgical Technologies, Inc.’s bovine pericardial heart valve technology. These amounts were recorded within
acquisition-related items in the consolidated statements of earnings.
In August 2009, the Company acquired certain intangible assets related to the distribution of coronary
products within the CardioVascular Japan business. In connection with the acquisition, the Company
recorded $29 million of intangible assets with an estimated useful life of five years.
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, achieving product development targets, or obtaining regulatory
approvals. As a result of the Company adopting authoritative guidance in fiscal year 2010 related to business
combinations, contingent consideration is recorded at the acquisition date at the estimated fair value of the
80
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)