BSX » Topics » Valuation of Business Combinations

These excerpts taken from the BSX 10-K filed Feb 28, 2008.
Valuation of Business Combinations

We record intangible assets acquired in business combinations under the purchase method of accounting. We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the dates of acquisition in accordance with FASB Statement No. 141, Business Combinations, including identifiable intangible assets and purchased research and development, which either arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets and purchased research and development on detailed valuations that use information and assumptions provided by management. We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired to goodwill.   In circumstances where the amounts assigned to assets acquired and liabilities assumed exceeds the cost of the acquired entity and the purchase agreement does not provide for contingent consideration that might result in an additional element of cost of the acquired entity that equals or exceeds the excess of fair value over cost, the excess is allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the acquired assets, including purchased research and development, except for a) financial assets, other than investments, accounted for under the equity method, b) assets to be disposed of by sale, c) deferred tax assets, d) prepaid assets relating to pension or other postretirement benefit plans and e) any other current assets.  In those circumstances where an acquisition involves contingent consideration, we recognize an amount equal to the lesser of the maximum amount of the contingent payment or the excess of fair value over cost as a liability.  As of December 31, 2007, the cost of each of our acquired entities exceeded the fair value amounts assigned to assets acquired and liabilities assumed.

Valuation of Business
Combinations



We record
intangible assets acquired in business combinations under the purchase method of
accounting. We allocate the amounts we pay for each acquisition to the assets we
acquire and liabilities we assume based on their fair values at the dates of
acquisition in accordance with FASB Statement No. 141, Business Combinations,
including identifiable intangible assets and purchased research and development,
which either arise from a contractual or legal right or are separable from
goodwill. We base the fair value of identifiable intangible assets and purchased
research and development on detailed valuations that use information and
assumptions provided by management. We allocate any excess purchase price over
the fair value of the net tangible and identifiable intangible assets acquired
to goodwill.   In circumstances where the amounts assigned to
assets acquired and liabilities assumed exceeds the cost of the acquired entity
and the purchase agreement does not provide for contingent consideration that
might result in an additional element of cost of the acquired entity that equals
or exceeds the excess of fair value over cost, the excess is allocated as a pro
rata reduction of the amounts that otherwise would have been assigned to all of
the acquired assets, including purchased research and development, except for a)
financial assets, other than investments, accounted for under the equity method,
b) assets to be disposed of by sale, c) deferred tax assets, d) prepaid assets
relating to pension or other postretirement benefit plans and e) any other
current assets.  In those circumstances where an acquisition involves
contingent consideration, we recognize an amount equal to the lesser of the
maximum amount of the contingent payment or the excess of fair value over cost
as a liability.  As of December 31, 2007, the cost of each of our
acquired entities exceeded the fair value amounts assigned to assets acquired
and liabilities assumed.



This excerpt taken from the BSX 10-K filed Mar 1, 2006.

Valuation of Business Combinations

        The Company records intangible assets acquired in recent business combinations under the purchase method of accounting. The Company accounts for acquisitions completed before July 1, 2001 in accordance with Accounting Principles Board (APB) Opinion No. 16, Business Combinations and accounts for acquisitions completed after June 30, 2001 in accordance with FASB Statement No. 141, Business Combinations. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the dates of acquisition. The Company then allocates the purchase price in excess of net tangible assets acquired to identifiable intangible assets, including purchased research and development. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.

        The valuation of purchased research and development represents the estimated fair value at the dates of acquisition related to in-process projects. The Company's purchased research and development represents the value of in-process projects that have not yet reached technological feasibility and have no alternative future uses as of the date of acquisition. The primary basis for determining the technological feasibility of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region. The Company expenses the value attributable to these in-process projects at the time of the acquisition. If the projects are not successful or completed in a timely manner, the Company may not realize the financial benefits expected for these projects, or for the acquisitions as a whole. In addition, the Company records certain costs associated with its strategic alliances as purchased research and development.

        The Company uses the income approach to determine the fair values of its purchased research and development. This approach determines fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected product introductions by competitors. In arriving at the value of the in-process projects, the Company considers, among other factors, the in-process projects' stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. The Company bases the discount rate used to arrive at a present value as of the date of acquisition on the time value of money and medical technology investment risk factors. For the in-process projects the Company acquired in connection with its recent acquisitions, it used the following risk-adjusted discount rates to discount its projected cash flows: in 2005, 18 percent to 27 percent; in 2004, 18 percent to 27 percent; and in 2003, 24 percent. The Company believes that the estimated purchased research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects.

"Valuation of Business Combinations" elsewhere:

LeMaitre Vascular (LMAT)
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