Medtronic 2013 Annual Report Download - page 50

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Table of Contents
IPR&D included in a business combination is capitalized as an indefinite-lived intangible asset. Development costs incurred after
the acquisition are expensed as incurred. Upon receipt of regulatory approval, the indefinite-lived intangible asset is then accounted
for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the R&D project is
abandoned, the indefinite-lived asset is charged to expense. IPR&D acquired outside of a business combination is expensed
immediately.
Due to the uncertainty associated with R&D projects, there is risk that actual results will differ materially from the original cash
flow projections and that the R&D project will result in a successful commercial product. The risks associated with achieving
commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, delay
or failure to obtain required market clearances, or delays or issues with patent issuance, or validity and litigation.
Contingent consideration is recorded at the acquisition date at the estimated fair value of the contingent consideration milestone
payments for all acquisitions subsequent to April 24, 2009. The acquisition date fair value is measured based on the consideration
expected to be transferred (probability-weighted), discounted back to present value. The discount rate used is determined at the
time of measurement in accordance with accepted valuation methods. The fair value of the contingent milestone consideration is
remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense
within acquisition-related items in our consolidated statements of earnings. Changes to the fair value of contingent consideration
liability can result from changes in discount rates and periods as well as changes in the timing and amount of revenue estimates
or in the timing or likelihood of achieving the milestones which trigger payment. Using different valuation assumptions including
revenue or cash flow projections, growth rates, discount rates or probabilities of achieving the milestones could result in different
purchase price allocations, amortization expense, and contingent consideration expense in the current or future periods.
Goodwill is the excess of the purchase price over the fair value of net assets, including IPR&D, of acquired businesses. Goodwill
is tested for impairment annually or whenever an event occurs or circumstances change that would indicate that the carrying
amount may be impaired. The test for impairment requires us to make several estimates about fair value, most of which are based
on projected future cash flows. Our estimates associated with the goodwill impairment test are considered critical due to the amount
of goodwill recorded on our consolidated balance sheets and the judgment required in determining fair value, including projected
future cash flows. Goodwill was $10.329 billion and $9.934 billion as of April 26, 2013 and April 27, 2012, respectively.
Other intangible assets include patents, trademarks, purchased technology, and IPR&D (since April 25, 2009). Intangible assets
with a definite life are amortized on a straight-line or accelerated basis, as appropriate, with estimated useful lives ranging from
three to 20 years, and are tested for impairment whenever events or changes in circumstances indicate that the carrying amount
of an intangible asset (asset group) may not be recoverable. Indefinite-lived intangible assets are tested for impairment annually
or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset (asset group) may not be
recoverable. Refer to Note 1 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data”
in this Annual Report on Form 10-K for additional information. Our impairment reviews are based on an estimated future cash
flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate
discount rate, asset groupings, and other assumptions and estimates. We use estimates that are consistent with our business plans
and a market participant view of the assets being evaluated. Actual results may differ from our estimates. Other intangible assets,
net of accumulated amortization, were $2.673 billion and $2.647 billion as of April 26, 2013 and April 27, 2012, respectively.
Discontinued Operations
On January 30, 2012, we completed the sale of the Physio-Control business to Bain Capital Partners, LLC. We have classified the
results of operations of the Physio-Control business, which were previously presented as a component of the Cardiac and Vascular
Group operating segment, as discontinued operations in the consolidated statements of earnings for all periods presented. For
more information regarding discontinued operations, refer to Note 16 to the consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data” in this Annual Report on Form 10-K.
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