Medtronic 2014 Annual Report Download - page 99

Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
investments. During fiscal years 2014, 2013, and 2012, the Company determined that the fair values of certain cost method
investments were below their carrying values and that the carrying values of these investments were not expected to be
recoverable within a reasonable period of time. As a result, the Company recognized $10 million, $21 million, and $10 million
in impairment charges in fiscal years 2014, 2013, and 2012, respectively. These investments fall within Level 3 of the fair value
hierarchy, due to the use of significant unobservable inputs to determine fair value, as the investments are privately-held entities
without quoted market prices. To determine the fair value of these investments, the Company used all pertinent financial
information available related to the entities, including financial statements and market participant valuations from recent and
proposed equity offerings.
The Company assesses the impairment of goodwill annually in the third quarter and whenever an event occurs or circumstances
change that would indicate that the carrying amount may be impaired. The aggregate carrying amount of goodwill was
$10.593 billion as of April 25, 2014 and $10.329 billion as of April 26, 2013, respectively.
Impairment testing for goodwill is performed at the reporting unit level. The test for impairment of goodwill requires the
Company to make several estimates about fair value, most of which are based on projected future cash flows. The Company
calculated the excess of each reporting unit’s fair value over its carrying amount, including goodwill, utilizing a discounted cash
flow analysis. As a result of the analysis performed, the fair value of each reporting unit’s goodwill was deemed to be greater
than the carrying value. The Company did not record any goodwill impairments during fiscal years 2014, 2013, or 2012.
The recently acquired businesses of Cardiocom and Kanghui are separate reporting units and are tested for goodwill impairment
independently; therefore, they are more sensitive to changes in assumptions impacting fair value. The carrying amount of
goodwill was $409 million and $123 million for the Kanghui and Cardiocom reporting units, respectively, as of April 25, 2014.
As of the date of the goodwill testing, the fair values of these two reporting units exceeded their respective carrying values by
more than 10 percent.
The Company assesses the impairment of IPR&D annually in the third quarter and whenever an event occurs or circumstances
change that would indicate that the carrying amount may be impaired. The aggregate carrying amount of IPR&D was
$119 million as of April 25, 2014 and $363 million as of April 26, 2013, respectively. The majority of IPR&D at April 25, 2014
is related to IN.PACT family of drug-eluting balloons. Similar to the goodwill impairment test, the IPR&D impairment test
requires the Company to make several estimates about fair value, most of which are based on projected future cash flows. The
Company calculated the excess of IPR&D asset fair values over their carrying values utilizing a discounted future cash flow
analysis. As a result of the analysis performed during fiscal year 2014, the fair value of certain IPR&D assets were deemed to be
less than their carrying value, resulting in an impairment loss of $207 million, primarily related to the Ardian acquisition, that
was recorded in acquisition-related items in the consolidated statements of earnings. The Ardian impairment resulted from the
Company’s January 2014 announcement that the U.S. pivotal trial in renal denervation for treatment-resistant hypertension,
Symplicity HTN-3, failed to meet its primary efficacy endpoint. Based on the results of the trial, the Company suspended
enrollment in the renal denervation hypertension trials that were being conducted in the U.S., Japan, and India. See discussion
below for additional information on impairments recorded on the Ardian long-lived asset group. As a result of the analysis
performed during fiscal year 2013, the fair value of IPR&D assets were deemed to be less than the carrying value, resulting in a
pre-tax impairment loss of $5 million that was recorded in acquisition-related items in the consolidated statements of earnings.
The Company did not record any IPR&D impairments during fiscal year 2012. Due to the nature of IPR&D projects, the
Company may experience future delays or failures to obtain regulatory approvals to conduct clinical trials, failures of such
clinical trials, delays or failures to obtain required market clearances or other failures to achieve a commercially viable product,
and as a result, may record impairment losses in the future.
The Company assesses intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an intangible asset (asset group) may not be recoverable. The aggregate carrying amount of intangible assets,
excluding IPR&D, was $2.167 billion as of April 25, 2014 and $2.310 billion as of April 26, 2013. When events or changes in
circumstances indicate that the carrying amount of an intangible asset may not be recoverable, the Company calculates the
excess of an intangible asset’s carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an
impairment loss is recorded based on the amount by which the carrying value exceeds the fair value. The inputs used in the fair
value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair
value. During fiscal years 2014, 2013 and 2012, the Company determined that a change in events and circumstances indicated
that the carrying amount of certain intangible assets, representing less than five percent of the total aggregate carrying amount
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