Medtronic 2008 Annual Report Download - page 68

Fiscal Year
2008 2007
Net sales $ 13,804 $ 12,744
Net earnings $ 2,093 $ 2,321
Earnings per share:
B a s i c $ 1.85 $ 2.02
D i l u t e d $ 1.83 $ 2.00
The unaudited pro forma financial information for fiscal year 2008
and 2007 include a $290 IPR&D charge and a $34 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 On April 15, 2008, the Company
recorded an IPR&D charge of $42 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 which included $39 in cash and the forgiveness of
$3 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.
On November 1, 2007, the Company recorded an IPR&D charge of $20
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 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.
On June 25, 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 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 of technology-based intangible assets that had an
estimated useful life of 15 years at the time of acquisition, $1 of tangible
assets and $3 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 the fiscal years 2008 and 2007.
Additionally, during fiscal year 2008, the Company recorded IPR&D
charges of $25 related to a milestone payment under the existing terms
of a royalty bearing, non-exclusive patent cross-licensing agreement
with NeuroPace, Inc. and $13 for unrelated purchases of certain
intellectual property. These payments were expensed as IPR&D since
technological feasibility of the underlying projects had not yet been
reached and such technology has no future alternative use.
Fiscal Year 2007
On March 26, 2007, the Company acquired manufacturing assets,
know-how, and an exclusive license to intellectual property related to
the manufacture and distribution of EndoSheath products from
Vision-Sciences, Inc. (VSI), which was accounted for as a purchase of assets.
The license acquired from VSI expanded the Company’s existing U.S.
distribution rights of EndoSheath products to worldwide distribution
rights. The EndoSheath is a sterile disposable sheath that fits over a
fiberoptic endoscope preventing contamination of the scope during
procedures and allowing reuse of the scope without further sterilization.
The consideration paid was $27 in cash which was primarily allocated
to technology-based intangible assets with an estimated useful life of
10 years at the time of acquisition. The purchase price is subject to
increases triggered by the achievement of certain milestones.
On September 15, 2006, the Company acquired and/or licensed
selected patents and patent applications owned by Dr. Eckhard Alt
(Dr. Alt), or certain of his controlled companies in a series of transactions.
In connection therewith, the Company also resolved all outstanding
litigation and disputes with Dr. Alt and certain of his controlled
companies. The agreements required the payment of total consideration
of $75, $74 of which was capitalized as technology based intangible
assets that had an estimated useful life of 11 years at the time of
acquisition. The acquired patents or licenses pertain to the cardiac
rhythm disease management field and have both current application
and potential for future patentable commercial products.
On July 25, 2006, the Company acquired substantially all of the assets
of Odin Medical Technologies, Ltd. (Odin), a privately held company.
Prior to the acquisition, the Company had an equity investment in Odin,
which was accounted for under the cost method of accounting. Odin
focused on the manufacture of the PoleStar intra-operative Magnetic
Resonance Image (iMRI)-Guidance System which was already exclusively
distributed by the Company. This acquisition was expected to help the
Notes to Consolidated Financial Statements
(continued)
(dollars in millions, except per share data)
64 Medtronic, Inc.