GOODWILL AND OTHER INTANGIBLE ASSETS

The gross carrying amount of goodwill and other intangible assets and the related accumulated amortization for intangible assets subject to amortization and accumulated write-offs of goodwill as of March 31, 2013 and December 31, 2012 is as follows:



	As of
	March 31, 2013					December 31, 2012
	Gross Carrying		Accumulated Amortization/			Gross Carrying		Accumulated Amortization/
(in millions)	Amount		Write-offs			Amount		Write-offs
Amortizable intangible assets
Technology-related	$	8,026	$	(3,088	)	$	8,020	$	(3,005	)
Patents	499		(315		)	559		(352		)
Other intangible assets	810		(440		)	810		(428		)
	$	9,335	$	(3,843	)	$	9,389	$	(3,785	)
Unamortizable intangible assets
Goodwill	$	15,452	$	(9,900	)	$	15,450	$	(9,477	)
Technology-related	242		—			242		—
	$	15,694	$	(9,900	)	$	15,692	$	(9,477	)

In addition, we had $443 million of purchased research and development intangible assets as of March 31, 2013 and December 31, 2012.

2013 Reorganization

We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. Effective as of January 1, 2013, we reorganized our business from geographic regions to fully operationalized global business units. Our reorganization changed our reporting structure and changed the composition of our reporting units for goodwill impairment testing purposes. Following the reorganization, based on information regularly reviewed by our chief operating decision maker, we have three new global reportable segments consisting of: Cardiovascular, Rhythm Management, and MedSurg. We determined our new global reporting units by identifying our operating segments and assessing whether any components of these segments constituted a business for which discrete financial information is available and whether segment management regularly reviews the operating results of any components. Through this process, we identified the following new global reporting units effective as of January 1, 2013: Interventional Cardiology, Peripheral Interventions, Cardiac Rhythm Management (CRM), Electrophysiology, Endoscopy, Urology/Women's Health, and Neuromodulation.

To determine the amount of goodwill within our new global reporting units, on a relative fair value basis we reallocated $1.764 billion of goodwill previously allocated to our former Europe, Middle East and Africa (EMEA), Asia Pacific, Japan, and Americas international reporting units to our new global reporting units. In addition, we reallocated the goodwill previously allocated to the former U.S. divisional reporting units to each respective new global reporting unit, with the exception of the goodwill allocated to the former U.S. Cardiovascular reporting unit. The $2.380 billion of goodwill allocated to the former U.S. Cardiovascular reporting unit was reallocated between the new global Interventional Cardiology and global Peripheral Interventions reporting units on a relative fair value basis.

The following represents our goodwill balance by new global reportable segment. We restated the prior period information to conform to the current presentation:



(in millions)	Cardiovascular		Rhythm Management			MedSurg		Total
Balance as of December 31, 2012 (restated)	$	3,249	$	577		$	2,147	$	5,973
Purchase price adjustments	2		—			—		2
Goodwill acquired	—		—			—		—
Goodwill written off	—		(423		)	—		(423		)
Balance as of March 31, 2013	$	3,251	$	154		$	2,147	$	5,552

2013 Goodwill Impairment Testing and Charge

We test our goodwill balances during the second quarter of each year for impairment, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. Following our reorganization from regions to global business units and our reallocation of goodwill on a relative fair value basis, we conducted the first step of the goodwill impairment test for all new global reporting units as of January 1, 2013. The first step requires a comparison of the carrying value of the reporting units to the fair value of these units. The fair value of each new global reporting unit exceeded its carrying value, with the exception of the global CRM reporting unit. The global CRM reporting unit carrying value exceeded its fair value primarily due to the carrying value of its amortizable intangible assets. The carrying value of amortizable intangible assets allocated to the global CRM reporting unit was $4.569 billion as of March 31, 2013. In accordance with ASC Topic 350, Intangibles—Goodwill and Other (Topic 350), we tested the global CRM amortizable intangible assets for impairment in conjunction with the interim goodwill impairment test of our global CRM reporting unit. We performed the impairment analysis of the amortizable intangible assets on an undiscounted cash flow basis, and concluded that these assets were not impaired.

The second step of the goodwill impairment test compares the estimated fair value of a reporting unit’s goodwill to its carrying value. We performed the second step of the goodwill impairment test on the global CRM reporting unit and recorded an estimated non-cash goodwill impairment charge of $423 million to write-down the goodwill to its implied fair value as of January 1, 2013. The amount of this charge is subject to finalization. We would recognize any necessary adjustment to this estimate in the second quarter of 2013, as we finalize the second step of the goodwill impairment test, in accordance with Topic 350. The primary driver of this impairment charge was our reorganization from geographic regions to global business units as of January 1, 2013, which changed the composition of our reporting units. As a result of the reorganization, any goodwill allocated to the global CRM reporting unit was no longer supported by the cash flows of other businesses. Under our former reporting unit structure, the goodwill allocated to our regional reporting units was supported by the cash flows from all businesses in each international region. The hypothetical tax structure of the global CRM business and the global CRM business discount rate applied were also contributing factors to the goodwill impairment charge. After recording the estimated impairment charge in the first quarter of 2013, there was no remaining goodwill allocated to the global CRM reporting unit as of March 31, 2013.

The goodwill impairment charge taken during the first quarter of 2013 was determined on a global CRM basis pursuant to our new organizational structure. We used the income approach, specifically the DCF method, to derive the fair value of the global CRM reporting unit. We completed a DCF model associated with our new global CRM business, including the amount and timing of future expected cash flows, tax attributes, the terminal value growth rate of approximately two percent and the appropriate market-participant risk-adjusted weighted average cost of capital (WACC) of approximately 12 percent.

As of March 31, 2013, we identified two global reporting units with goodwill that is at higher risk of potential failure of the first step of the goodwill impairment test in future reporting periods. These reporting units are comprised of our global Neuromodulation reporting unit, which had excess fair value over carrying value of approximately 17 percent and held $1.356 billion of allocated goodwill, and our global Electrophysiology reporting unit, which had excess fair value over carrying value of approximately 56 percent and held $154 million of allocated goodwill, each as of March 31, 2013. Future changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses could result in future impairments of goodwill within the global CRM reporting unit or other reporting units. Additionally, the recoverability of our CRM-related amortizable intangibles is sensitive to future cash flow assumptions and our global CRM business performance. Therefore, our CRM-related amortizable intangibles are at higher risk of potential failure of the first step of the amortizable intangible recoverability test in future reporting periods. An impairment of a material portion of our CRM-related amortizable intangibles carrying value would occur if the second step of the amortizable intangible test is required in a future reporting period.

On a quarterly basis, we monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test of our goodwill and intangible assets. The key variables that drive the cash flows of our reporting units and amortizable intangibles are estimated revenue growth rates and levels of profitability. Terminal value growth rate assumptions, as well as the WACC rate applied are additional key variables for reporting unit cash flows. These assumptions are subject to uncertainty, including our ability to grow revenue and improve profitability levels. Relatively small declines in the future performance and cash flows of a reporting unit or asset group or small changes in other key assumptions may result in the recognition of significant asset impairment charges. For example, keeping all other variables constant, an increase in the WACC applied of 80 basis points or a 90 basis point decrease in the revenue growth rates over the projection period would require that we perform the second step of the goodwill impairment test for the global Neuromodulation reporting unit. A 440 basis point increase in the WACC applied or a 420 basis point decrease in the revenue growth rates over the projection period would require that we perform the second step of the goodwill impairment test for the global Electrophysiology reporting unit. The estimates used for our future cash flows and discount rates represent management's best estimates, which we believe to be reasonable, but future declines in business performance may impair the recoverability of our goodwill and intangible asset balances.

Future events that could have a negative impact on the levels of excess fair value over carrying value of our reporting units and/or amortizable intangible assets include, but are not limited to:


•	decreases in estimated market sizes or market growth rates due to greater-than-expected declines in procedural volumes, pricing pressures, product actions, and/or competitive technology developments;


•	declines in our market share and penetration assumptions due to increased competition, an inability to develop or launch new and next-generation products and technology features in line with our commercialization strategies, and market and/or regulatory conditions that may cause significant launch delays or product recalls;


•	decreases in our forecasted profitability due to an inability to successfully implement and achieve timely and sustainable cost improvement measures consistent with our expectations, increases in our market-participant tax rate, and/or changes in tax laws;


•	negative developments in intellectual property litigation that may impact our ability to market certain products or increase our costs to sell certain products;


•	the level of success of on-going and future research and development efforts, including those related to recent acquisitions, and increases in the research and development costs necessary to obtain regulatory approvals and launch new products;


•	the level of success in managing the growth of acquired companies, achieving sustained profitability consistent with our expectations, establishing government and third-party payer reimbursement, supplying the market and increases in the costs and time necessary to integrate acquired businesses into our operations successfully;


•	changes in our reporting units or in the structure of our business as a result of future reorganizations, acquisitions or divestitures of assets or businesses;


•	increases in our market-participant risk-adjusted WACC; and


•	declines in revenue as a result of loss of key members of our sales force and other key personnel.

Negative changes in one or more of these factors, among others, could result in additional impairment charges.

The following is a rollforward of accumulated goodwill write-offs by global reportable segment. We restated the prior period information to conform to the current period presentation:



(in millions)	Cardiovascular			Rhythm Management			MedSurg			Total
Accumulated write-offs as of December 31, 2012 (restated)	$	(1,479	)	$	(6,537	)	$	(1,461	)	$	(9,477	)
Goodwill written off	—			(423		)	—			(423		)
Accumulated write-offs as of March 31, 2013	$	(1,479	)	$	(6,960	)	$	(1,461	)	$	(9,900	)

Intangible Asset Impairment Testing

On a quarterly basis, we monitor for events or other potential indicators of impairment that would warrant an interim impairment test of our intangible assets. See 2013 Goodwill Impairment Testing and Charge above for discussion of future events that would have a negative impact on the recoverability of our amortizable intangible assets.