Medtronic 2015 Annual Report Download - page 17

During fiscal years 2015, 2014, and 2013, we spent $1.640 billion (8.1 percent of net sales), $1.477 billion (8.7 percent of net
sales), and $1.557 billion (9.4 percent of net sales) on R&D, respectively. The Covidien acquisition contributed to the decline in
R&D as a percent of net sales during fiscal year 2015. Our R&D activities include improving existing products and therapies,
expanding their indications and applications for use, and developing new products. We continue to focus on optimizing
innovation, improving our R&D productivity, driving growth in emerging markets, clinical evidence generation, and assessing
our R&D programs based on their ability to deliver economic value to our customers.
Acquisitions and Investments
Our strategy to provide a broad range of therapies to restore patients’ health and extend lives requires a wide variety of
technologies, products, and capabilities. The rapid pace of technological development in the medical industry and the
specialized expertise required in different areas of medicine make it difficult for one company alone to develop an all-
encompassing portfolio of technological solutions. In addition to internally generated growth through our R&D efforts,
historically we have relied, and expect to continue to rely, upon acquisitions, investments, and alliances to provide access to
new technologies both in areas served by our existing businesses as well as in new areas and markets.
We expect to make future investments or acquisitions where we believe that we can stimulate the development of, or acquire
new technologies and products to further, our strategic objectives, and strengthen our existing businesses. Mergers and
acquisitions of medical technology companies are inherently risky and no assurance can be given that any of our previous or
future acquisitions will be successful or will not materially adversely affect our consolidated results of operations, financial
condition, and/or cash flows.
For additional information, see Note 2 to the consolidated financial statements in “Item 8. Financial Statements and
Supplementary Data” in this Annual Report on Form 10-K and “Item 1A. Risk Factors — Failure to integrate acquired
businesses into our operations successfully could adversely affect our business.”
Acquisition of Covidien plc
On January 26, 2015, pursuant to a transaction agreement, dated as of June 15, 2014 (the Transaction Agreement), Medtronic,
Inc. and Covidien became subsidiaries of the Company. The total cash and stock value of the Covidien acquisition was
approximately $50 billion. The operating results for Covidien are included in the Minimally Invasive Therapies Group, Cardiac
and Vascular Group and Restorative Therapies Group segments.
Based upon a preliminary acquisition valuation, the Company acquired $18.3 billion of customer-related intangible assets, $7.1
billion of technology-based intangible assets, $0.5 billion of tradenames, with weighted average estimated useful lives of 18, 16,
and 3 years, respectively, $0.4 billion of in-process research and development (IPR&D), and $29.6 billion of goodwill.
Other Fiscal Year 2015 Acquisitions
Sophono, Inc.
On March 26, 2015, the Company acquired Sophono, Inc. (Sophono), a privately-held developer and manufacturer of minimally
invasive, transcutaneous bone conduction hearing implants. Total consideration for the transaction was approximately $17
million, which included an upfront payment of $6 million and the estimated fair value of revenue-based contingent
consideration of $11 million. Based upon a preliminary acquisition valuation, the Company acquired $11 million of technology-
based intangible assets with an estimated useful life of 13 years at the time of the acquisition, $2 million of IPR&D, and $5
million of goodwill.
Diabeter
On March 26, 2015, the Company acquired Diabeter, an innovative Netherlands-based diabetes clinic and research center
dedicated to providing comprehensive and individualized care for children and young adults with diabetes. Total consideration
for the transaction was approximately $10 million. Based upon a preliminary acquisition valuation, the Company acquired $9
million of goodwill.
NGC Medical S.p.A.
On August 26, 2014, the Company acquired NGC Medical S.p.A. (NGC), a privately-held Italian company that offers a broad
suite of hospital management services. Total consideration for this transaction was approximately $340 million. Medtronic had
previously invested in NGC and held a 30 percent ownership position. Net of this ownership position, the transaction value was
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