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68 Medtronic, Inc.
Notes to Consolidated Financial Statements
(continued)
The pro forma information gives effect to actual operating
results prior to the acquisition, adjusted to reflect, among other
things, reduced interest income, additional intangible asset
amortization and interest expense that would have resulted from
the change in the accounting basis of certain assets and liabilities
due to the acquisition. Pro forma adjustments are tax-effected at
the Company’s statutory tax rate. No effect has been given to cost
reductions or operating synergies in this presentation. These pro
forma amounts are not necessarily indicative of the results that
would have been obtained if the acquisition had occurred as of
the beginning of the period presented or that may occur in the
future, and does not reflect future synergies, integration costs or
other such costs or savings. The unaudited pro forma condensed
consolidated financial information is presented for informational
purposes only.
Fiscal Year
(in millions, except per share data) 2008
Net sales $13,804
Net earnings $ 2,093
Earnings per share:
Basic $ 1.85
Diluted $ 1.83
The unaudited pro forma financial information for fiscal year
2008 includes a $290 million IPR&D charge and a $34 million
increase in cost of products sold related to the step-up to fair
value of inventory acquired, both of which are non-recurring.
Other Acquisitions and IPR&D Charges In April 2008, the Company
recorded an IPR&D charge of $42 million related to the acquisition
of NDI Medical (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
the Company 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, the Company recorded an IPR&D charge of
$20 million related to the acquisition of Setagon, Inc. (Setagon), a
development stage company focused on commercially developing
metallic nanoporous surface modification technology. The
acquisition will provide the Company 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. This payment was expensed
as IPR&D since technological feasibility of the underlying project
had not yet been reached and such technology has no future
alternative use.
In June 2007, the Company exercised a purchase option and
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, the Company 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.
In connection with the acquisition of Breakaway, the Company
acquired $22 million of technology-based intangible assets that
had an estimated useful life of 15 years at the time of acquisition,
$1 million of tangible assets and $3 million of goodwill. The
goodwill is deductible for tax purposes. The pro forma impact of
the acquisition of Breakaway was not significant to the results of
the Company for fiscal year 2008.
Additionally, during fiscal year 2008, the Company recorded
IPR&D charges of $25 million related to a milestone payment
under the existing terms of a royalty bearing, non-exclusive
patent cross-licensing agreement with NeuroPace, Inc. and $13
million for unrelated purchases of certain intellectual property.
These payments were expensed as IPR&D since technological
feasibility of the underlying products had not yet been reached
and such technology has no future alternative use.
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. While it
is not certain if and/or when these payments will be made,
the Company has developed an estimate of the maximum