This excerpt taken from the EYE 8-K filed Aug 26, 2008.
(1) The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2007 assumes that the Transactions took place on January 1, 2007.
(2) The purchase price includes cash consideration to IntraLase stockholders of $25.00 per each share of outstanding common stock and the individually determined cash value per share of outstanding stock options.
The above purchase price has been allocated based on the fair values of assets acquired and liabilities assumed.
The purchase price has been allocated as follows (in thousands):
The valuation of acquired intangible assets and in-process research and development was based on the actual net assets of IntraLase that existed as of the date of the completion of the acquisition. Of the $224.2 million of acquired intangible assets, $170.2 million was assigned to developed technology rights that have a weighted-average useful life of approximately 7 years, $10.1 million was assigned to customer relationships with a useful life of 5 years and $43.9 million was assigned to the IntraLase tradename with an indefinite useful life. The amounts assigned to intangible assets were based on managements estimate of the fair value. Developed technology rights recorded in connection with the acquisition of IntraLase were established as intangible assets under paragraph 39 of SFAS 141 as the underlying technologies are legally protected by patents covering the femtosecond laser and approved applications of the laser received from regulatory authorities in the United States and international locations. The developed technology rights are both transferable and separable from the acquired entity.
IntraLase had two development projects in-process as of the acquisition date. The first project involved technology advancements to reduce the pulse energy and provide smoother, more precise dissections, and enables thinner flaps with the femtosecond laser. The fair value assigned to this project was $81.3 million. The second project involved the development of technologies to allow for ease of transport of femtosecond lasers from one location to another. The fair value assigned to this project was $4.1 million.
The allocation of the purchase price assigned to IPR&D represented the estimated fair value of projects that, as of the acquisition date, had not reached technological feasibility and had no alternative future use. The fair value of these IPR&D projects was estimated by performing a discounted cash flow analysis using the income approach. Net cash flows attributable to the projects were discounted to their present values at a rate commensurate with the perceived risk, which for these projects was estimated between 14-16%. The following assumptions underlie the projected cash flows as of the IntraLase acquisition date.
In addition, solely for the purposes of estimating the fair value of the IPR&D projects, the following assumptions were made:
The major risks and uncertainties associated with the timely and successful completion of the first project consist of the ability to confirm the safety and efficacy of the technology based on the data from clinical trials and obtaining necessary regulatory approvals. In addition, no assurance can be given that the underlying assumptions used to forecast the cash flows or the timely and successful completion of this project will materialize, as estimated.
The in-process research and development and inventory step-up charges have been excluded from the unaudited pro forma condensed combined statement of operations as the charges are non-recurring.
(3) Reflects amortization of intangibles from January 1, 2007 up to April 2, 2007 related to the fair value of the intangible assets acquired.
(4) We incurred additional borrowings of $783.7 million to fund the cash consideration of the IntraLase acquisition and related costs, including approximately $17.1 million for related financing costs. Pro forma interest expense arising from the additional borrowings has been computed based upon an average interest rate of 7.4% and amortization of deferred financing costs of $2.0 million per annum.
(5) Represents the elimination of IntraLases interest income relating to the marketable securities that were liquidated to fund a portion of the purchase price and related acquisition costs.
(6) Reflects the pro forma tax effect of the above adjustments to yield an estimated combined effective tax rate of 40% for the year ended December 31, 2007.