## Notes to Consolidated Financial Statements (Continued) 

of the assets, liabilities, and results of activities. FIN 46R also requires certain disclosures by all holders of a significant variable interest in a VIE that are not the primary beneficiary. The Company does not have any material investments in variable interest entities; therefore, the adoption of this interpretation has not and is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. 

In January 2004, the FASB issued FASB Staff Position No. 106-1 (‘‘FSP’’) which allows companies to defer accounting for the effects of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the ‘‘Act’’) on its accumulated postretirement benefit obligation (‘‘APBO’’) and its net postretirement benefit costs. The Act introduces a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Due to uncertainties regarding the implementation of the Act, the Company is unable to determine the impact of the subsidy on our APBO and net postretirement benefit costs included in the consolidated financial statements. Accordingly, the Company has elected to defer accounting for the subsidy in accordance with the FSP. Specific authoritative guidance on accounting for the subsidy is pending and, when issued, could require the Company to change previously reported information depending upon the transition guidance ultimately approved by the FASB. 

## 3. ACQUISITIONS 

## Centerpulse AG and InCentive Capital AG 

On October 2, 2003 (the ‘‘Closing Date’’), the Company closed its exchange offer for Centerpulse AG (‘‘Centerpulse’’), a global orthopaedic medical device company headquartered in Switzerland that services the reconstructive joint, spine and dental implant markets. The Company also closed its exchange offer for InCentive Capital AG (‘‘InCentive’’), a company that, at the Closing Date, owned only cash and beneficially owned 18.3 percent of the issued Centerpulse shares. The primary reason for making the Centerpulse and InCentive exchange offers (the ‘‘Exchange Offers’’) was to create a global leader in the design, development, manufacture and marketing of orthopaedic reconstructive implants, including joint and dental, spine implants, and trauma products. The strategic compatibility of the products and technologies of the Company and Centerpulse is expected to provide significant earnings power and a strong platform from which it can actively pursue growth opportunities in the industry. For the Company, Centerpulse provides a unique platform for growth and diversification in Europe as well as in the spine and dental segments of the medical device industry. As a result of the Exchange Offers, the Company beneficially owns 98.7 percent of the issued Centerpulse shares (including the Centerpulse shares owned by InCentive) and 99.9 percent of the issued InCentive 

shares. Pursuant to Swiss law, the Company has initiated the compulsory acquisition process to acquire all of the outstanding shares of Centerpulse and InCentive that it does not already own, and expects to complete this process in April of 2004. 

The Exchange Offers were accounted for under the purchase method of accounting pursuant to SFAS No. 141, ‘‘Business Combinations’’. Accordingly, Centerpulse and InCentive results of operations have been included in the Company’s consolidated results of operations subsequent to the Closing Date, and their respective assets and liabilities have been recorded at their estimated fair values in the Company’s consolidated statement of financial position as of the Closing Date, with the excess purchase price being allocated to goodwill. 

The aggregate consideration paid by the Company in the Exchange Offers was $3,453.4 million, consisting of Company common stock valued at $2,223.8 million (44,538,770 shares exchanged), $1,187.1 million of cash and $42.5 million of direct acquisition costs. In accordance with EITF 99-12, ‘‘Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination’’, the fair value of the Company’s common stock issued pursuant to the Exchange Offers was determined to be $49.93 per share based upon the average closing price of the Company’s common stock two days before and after the date when sufficient Centerpulse and InCentive shares had been tendered to make the Exchange Offers binding (August 27, 2003). 

The Company completed the preliminary purchase price allocation in accordance with U.S. generally accepted accounting principles. The process included interviews with Centerpulse management, review of the economic and competitive environment in which Centerpulse operates and examination of assets including historical performance and future prospects. 

The purchase price allocation was based on information currently available to the Company, and expectations and assumptions deemed reasonable by the Company’s management. No assurance can be given, however, that the underlying assumptions used to estimate expected technology based product revenues, development costs or profitability, or the events associated with such technology, will occur as projected. Certain other fair value estimates require additional information before being finalized, including estimates of rights and contingent obligations pertaining to divested businesses, certain intellectual property and other matters, investments, and inventory and instruments associated with brands that the Company intends to discontinue. For these reasons, among others, the actual results may vary from the projected results. The final valuation and associated purchase price allocation is expected to be completed as soon as possible, but no later than one year from the Closing Date. To the extent that the estimates need to be adjusted, the Company will do so. 

