BUSINESS COMBINATIONS

Endosense S.A.: On August 19, 2013, the Company acquired all the outstanding shares of Endosense S.A. (Endosense) for the equivalent of $171 million (160 million Swiss Francs) in net cash consideration using available cash from outside the U.S. Endosense is based in Geneva, Switzerland and develops, manufactures and markets the TactiCath® irrigated ablation catheter to provide physicians a real-time, objective measure of the force to apply to the heart wall during a catheter ablation procedure. The Endosense force-sensing technology is CE Mark approved for atrial fibrillation and supra ventricular tachycarida ablation. Under the terms of the agreement, the transaction also provides for an additional cash payment of up to 150 million Swiss Francs (approximately $165 million at September 28, 2013), contingent upon both the achievement and timing of U.S. Food and Drug Administration (FDA) approval.

Consistent with the provisions of Accounting Standards Codification (ASC) Topic 805, Business Combinations (ASC Topic 805), the Company accrued the contingent payment after determining its fair value of $132 million in arriving at $303 million of total consideration, net of cash acquired. The contingent consideration accrual will be remeasured to fair value at each reporting period with changes in fair value reflected in the statement of earnings.

The preliminary allocation of the Endosense purchase price to the estimated fair values of net assets acquired was as follows (in millions):



	August 19, 2013
Assets acquired:
Current assets	$	2
Goodwill	258
Acquired in-process research and development (IPR&D)	33
Other intangible assets	20
Other long-term assets	1
Total assets acquired	314

Liabilities assumed:
Current liabilities	11
Net assets acquired	303

Cash paid	180
Cash acquired	(9		)
Net cash consideration	171
Contingent consideration	132
Total purchase consideration	$	303

The goodwill recorded as a result of the Endosense acquisition is not deductible for income tax purposes and was entirely allocated to the CATD reportable segment. The goodwill represents the strategic benefits of growing the Company's atrial fibrillation product portfolio and the expected revenue growth from increased market penetration from future products and customers. The Company now has the potential to integrate the force-sensing technology to offer a MediGuide™-enabled force-sensing ablation catheter and incorporate force sensing data into its EnSite Velocity™ Mapping System. In connection with the acquisition of Endosense, the Company recognized $20 million of developed technology intangible assets that have an estimated useful life of 7 years and $33 million of acquired in-process research and development (IPR&D) that was capitalized as an indefinite-lived intangible asset. Upon completion of the related development projects (when U.S. regulatory approval to market the product is obtained), the IPR&D will be amortized over its estimated useful life.

The results of Endosense since the date of acquisition and pro forma disclosures of the consolidated results of the Company with the full year effects of Endosense have not been separately presented since the impact to the Company's results of operations was not material.

Spinal Modulation, Inc.: On June 7, 2013, the Company made an equity investment of $40 million in Spinal Modulation, a privately-held company that is focused on the development of an intraspinal neuromodulation therapy that delivers spinal cord stimulation targeting the dorsal root ganglion to manage chronic pain. The investment agreement resulted in a 19% voting equity interest and provided the Company with the exclusive right, but not the obligation, to acquire Spinal Modulation for payments of up to $300 million during the period that extends through the completion of certain regulatory milestones. If the Company acquires Spinal Modulation, the contingent acquisition agreement also provides for additional consideration payments contingent upon the achievement of certain revenue-based milestones. In the event the Company acquires the noncontrolling interest of Spinal Modulation, the contingent payments would be recognized at the then-current fair value as an equity transaction. Additionally, in connection with the investment and contingent acquisition agreement, the Company also entered into an exclusive international distribution agreement, and obtained significant decision-making rights over Spinal Modulation's operations and economic performance. The Company also committed to providing additional debt financing to Spinal Modulation up to $15 million. Accordingly, effective June 7, 2013, the Company determined that Spinal Modulation was a VIE for which St. Jude Medical is the primary beneficiary. Therefore, as of June 7, 2013, the financial condition and results of operations of Spinal Modulation were included in St. Jude Medical's consolidated financial statements. The Company has a 19% voting equity interest in Spinal Modulation and allocates the losses attributable to Spinal Modulation's noncontrolling shareholders to noncontrolling interest in St. Jude Medical's statements of earnings and consolidated balance sheets. The results of Spinal Modulation since the date of its initial consolidation and pro forma disclosures of the consolidated results of the Company with the full year effects of Spinal Modulation have not been separately presented since the impact to the Company's results of operations was not material.

The initial consolidation of a VIE that is determined to be a business is accounted for as a business combination. The following table summarizes the estimated fair values of Spinal Modulation’s assets and liabilities included in St. Jude Medical's consolidated balance sheets as of the June 7, 2013 consolidation date, and as of September 28, 2013 after elimination of all intercompany balances and transactions (in millions):



	June 7, 2013		September 28, 2013
Cash and cash equivalents	$	41	$	31
Other current assets	9		6
Goodwill	82		82
Acquired in-process research and development (IPR&D)	45		45
Other intangible assets	7		7
Other long-term assets	1		1
Total assets	185		172

Current liabilities	6		5
Deferred income taxes, net	19		19
Total liabilities	25		24

Non-controlling interest	$	120	$	111

The initial allocation of Spinal Modulation’s assets and liabilities included in the Company’s consolidated balance sheet was based upon preliminary valuations, and the estimated fair values of assets and liabilities were subject to change as the valuations were finalized within the initial measurement period. In the three-month period ended September 28, 2013, the Company finalized the valuations and allocation of the estimated fair values of Spinal Modulation’s assets and liabilities and recorded a $35 million decrease to goodwill, a $5 million decrease to acquired IPR&D, a $3 million decrease to purchased technology intangible assets, a $3 million decrease to liabilities and a $40 million reduction to noncontrolling interest. These changes have been reflected retrospectively in the June 7, 2013 balances presented in the previous table.

The cash and cash equivalents balance of Spinal Modulation at June 7, 2013 includes $40 million of the Company’s equity investment proceeds. Assets recorded as a result of consolidating Spinal Modulation into the Company's consolidated balance sheet do not represent additional assets that could be used to satisfy claims against the Company's general assets. The creditors of Spinal Modulation do not have any recourse to the general credit of St. Jude Medical.

The goodwill recognized in connection with the Spinal Modulation transaction was not deductible for income tax purposes and was allocated entirely to the Company's IESD segment. The goodwill represents the strategic benefits of growing the Company's neuromodulation chronic pain portfolio as well as the expected revenue growth from increased market penetration. The Company recognized $45 million of indefinite-lived IPR&D intangible assets. Upon completion of the related development project (generally when regulatory approval to market the product is obtained), the IPR&D will be amortized over its estimated useful life. The Company also recognized $7 million of purchased technology intangible assets with an estimated useful life of 12 years.

CardioMEMS, Inc.: During 2010, the Company made an equity investment of $60 million in CardioMEMS, a privately-held company that is focused on the development of a wireless monitoring technology that can be placed directly into the pulmonary artery to assess cardiac performance via measurement of pulmonary artery pressure. The investment agreement resulted in a 19% voting equity interest and provided the Company with the exclusive right, but not the obligation, to acquire CardioMEMS for an additional payment of $375 million less any net debt payable to St. Jude Medical, Inc. during the period that extends through the completion of certain regulatory milestones.

In the first quarter of 2013, the Company obtained significant decision-making rights over CardioMEMS' operations and provided debt financing of $28 million to CardioMEMS which was collateralized by substantially all the assets of CardioMEMS including its intellectual property. In July 2013, the Company provided $9 million of additional debt financing to CardioMEMS. In accordance with ASC Topic 810, Consolidations (ASC Topic 810), the Company reconsidered and determined that effective February 27, 2013 CardioMEMS was a VIE for which St. Jude Medical is the primary beneficiary. As a result, as of February 27, 2013, the financial condition and results of operations of CardioMEMS were included in St. Jude Medical's consolidated financial statements. The Company recognized a $29 million charge to other expense (see Note 10) to adjust the carrying value of the pre-existing equity investment and fixed price purchase option to fair value. The Company continues to hold a 19% voting equity interest in CardioMEMS and allocates the losses attributable to CardioMEMS' noncontrolling shareholders to noncontrolling interest in St. Jude Medical's consolidated statements of earnings and consolidated balance sheets. The results of CardioMEMS since the date of acquisition and pro forma disclosures of the consolidated results of the Company with the full year effects of CardioMEMS have not been separately presented since the impact to the Company's results of operations was not material.

The initial consolidation of a VIE that is determined to be a business is accounted for as a business combination. The following table summarizes the estimated fair values of CardioMEMS’ assets and liabilities included in St. Jude Medical's consolidated balance sheets as of the February 27, 2013 consolidation date, and as of September 28, 2013 after elimination of all intercompany balances and transactions (in millions):



	February 27, 2013		September 28, 2013
Cash and cash equivalents	$	33	$	21
Other current assets	2		4
Goodwill	83		83
Acquired in-process research and development (IPR&D)	63		63
Other long-term assets	2		2
Total assets	183		173

Current liabilities	13		6
Deferred income taxes, net	23		23
Other liabilities	5		4
Total liabilities	41		33

Non-controlling interest	$	84	$	74

The initial allocation of CardioMEMS’ assets and liabilities included in the Company’s consolidated balance sheet was based upon preliminary valuations, and the estimated fair values of assets and liabilities were subject to change as the valuations were finalized within the initial measurement period. In the three-month period ended September 28, 2013, the Company finalized the valuations and allocation of the estimated fair values of CardioMEMS’ assets and liabilities and recorded a $1 million decrease to goodwill, a $6 million decrease to acquired IPR&D, a $2 million decrease to liabilities and a $5 million reduction to noncontrolling interest. These changes have been reflected retrospectively in the February 27, 2013 balances presented in the previous table.

The cash and cash equivalents balance of CardioMEMS at February 27, 2013 includes $28 million of the Company’s debt financing proceeds. Assets recorded as a result of consolidating CardioMEMS into the Company's consolidated balance sheet do not represent additional assets that could be used to satisfy claims against the Company's general assets. The other creditors of CardioMEMS do not have any recourse to the general credit of St. Jude Medical.

The goodwill recognized in connection with the CardioMEMS transaction was not deductible for income tax purposes and was allocated entirely to the Company's IESD segment. The goodwill represents the strategic benefits of growing the Company's cardiac rhythm management and heart failure therapy product portfolio as well as the expected revenue growth from increased market penetration. The Company recognized $63 million of indefinite-lived IPR&D intangible assets. Upon completion of the related development projects (generally when regulatory approval to market the product is obtained), the IPR&D will be amortized over its estimated useful life.

Nanostim, Inc.: As of September 28, 2013, the Company held an investment in Nanostim, Inc. (Nanostim), which provided the Company with an 18% voting equity interest. Nanostim is a development stage company, based in Sunnyvale, California that has developed a miniaturized and the first leadless cardiac pacemaker system, which received CE mark approval in August 2013. The Nanostim™ leadless pacemaker also received FDA conditional approval for its Investigation Device Exemption application and pivotal clinical trial protocol to begin evaluating the technology in the U.S. The terms of the Company’s original investment agreement with Nanostim included an exclusive fixed price purchase option to acquire the remaining 82% interest in Nanostim. The Company previously concluded that Nanostim was a VIE, but that St. Jude Medical was not the primary beneficiary of Nanostim as it did not retain power to direct the activities of Nanostim that most significantly impacted its economic performance. The Company has reflected its investment in Nanostim as a cost method investment in other assets.

On October 11, 2013, the Company exercised it exclusive purchase option and acquired all the outstanding shares of Nanostim for $118 million in net cash consideration. The Company's 18% voting equity interest in Nanostim will be remeasured to fair value as part of the Company's acquisition accounting. Under the terms of the agreement, the transaction also provides for additional cash payments of up to $65 million, contingent upon the achievement and timing of certain revenue-based milestones. As of the date of these financial statements, the Company had not fully completed its valuation of the net assets acquired from Nanostim and is unable to reasonably disclose the effects this business combination will have on the Company’s consolidated balance sheet. A preliminary valuation of the Company’s pre-existing equity interest and an allocation of the total purchase consideration to the estimated fair values of net assets acquired is expected to be completed in the fourth quarter of 2013.