Medtronic 2008 Annual Report Download - page 66

A summary of the activity related to the fiscal year 2007 initiative is
presented below:
Fiscal Year 2007 Initiative
Employee
Termination
Costs
Asset
Write-downs Total
Balance at April 28, 2006 $ — $ — $ —
Restructuring charges 28 8 36
Payments/write-downs (5) (8) (13)
Balance at April 27, 2007 23 — 23
Restructuring charges 10 — 10
Payments (33) — (33)
Balance at April 25, 2008
$ —
$ —
$ —
There were no restructuring charges in fiscal year 2006.
4. Acquisitions and IPR&D Charges
When the Company acquires another company or a group of assets, the
purchase price is allocated, as applicable, between IPR&D, other
identifiable intangible assets, net tangible assets and goodwill as
required by U.S. GAAP. Goodwill represents the excess of the aggregate
purchase price over the fair value of net assets, including IPR&D, of
acquired businesses. The values assigned to IPR&D and other identifiable
intangible assets are based on valuations that have been prepared
using methodologies and valuation techniques consistent with those
used by independent appraisers. These techniques include estimating
the future cash flows of each project or technology and discounting
the net cash flows back to their present values utilizing an appropriate
risk-adjusted rate of return (discount rate). The discount rate used is
determined at the time of the acquisition in accordance with accepted
valuation methods. For IPR&D, these methodologies 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 2008
Kyphon Acquisition On November 2, 2007, the Company consummated
the acquisition of Kyphon Inc. (Kyphon) and it became a wholly owned
subsidiary of the Company. 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 procedure for treating the symptoms of lumbar spinal
stenosis. It is expected that the acquisition of Kyphon will add to
the growth of the Company’s existing Spinal business by extending
its product offerings into some of the fastest growing product
segments of the spine market, enabling the Company 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 on July 27, 2007,
Kyphon shareholders received $71 per share in cash for each share of
Kyphon common stock they owned. Total consideration for the
transaction was approximately $4,203, 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. 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 approximately $3,303 cash on
hand, the issuance of $600 short-term commercial paper and borrowing
$300 through a new long-term unsecured revolving credit facility.
The Company has accounted for the acquisition of Kyphon as a
purchase under U.S. GAAP. Under the purchase method of accounting,
the assets and liabilities of Kyphon were recorded as of the acquisition
date, at their respective fair values, and consolidated with the Company.
The break down of the purchase price of Kyphon is as follows:
Cash acquisition of Kyphon outstanding common stock $ 3,300
Cash settlement of vested stock-based awards 218
Debt assumed and settled 570
Cash settlement of convertible debt warrants, net of
proceeds from convertible note hedges 87
Direct acquisition costs 28
Total purchase price
$ 4,203
Notes to Consolidated Financial Statements
(continued)
(dollars in millions, except per share data)
62 Medtronic, Inc.