Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

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, 2014 and December 31, 2013 are as follows:



	As of
	March 31, 2014					December 31, 2013
	Gross Carrying		Accumulated Amortization/			Gross Carrying		Accumulated Amortization/
(in millions)	Amount		Write-offs			Amount		Write-offs
Amortizable intangible assets
Technology-related	$	8,232	$	(3,431	)	$	8,272	$	(3,342	)
Patents	521		(332		)	513		(326		)
Other intangible assets	846		(493		)	845		(479		)
	$	9,599	$	(4,256	)	$	9,630	$	(4,147	)
Unamortizable intangible assets
Goodwill	$	15,597	$	(9,900	)	$	15,593	$	(9,900	)
Technology-related	197		—			197		—
	$	15,794	$	(9,900	)	$	15,790	$	(9,900	)

In addition, we had $262 million and $270 million of in-process research and development intangible assets as of March 31, 2014 and December 31, 2013, respectively.

The following represents our goodwill balance by global reportable segment:



(in millions)	Cardiovascular		Rhythm Management			MedSurg			Total
Balance as of December 31, 2013	$	3,252	$	294		$	2,147		$	5,693
Purchase price adjustments	—		(2		)	—			(2		)
Goodwill acquired	—		—			6			6
Goodwill written off	—		—			—			—
Other changes in carrying amount *	7		—			(7		)	—
Balance as of March 31, 2014	$	3,259	$	292		$	2,146		$	5,697

* In the first quarter of 2014, we reallocated $7 million of goodwill between Cardiovascular and MedSurg as a result of the realignment of certain product lines from Endoscopy to Peripheral Interventions as of January 1, 2014.

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 an impairment may exist. Refer to Note D - Goodwill and Other Intangible Assets contained in Item 8 of our 2013 Annual Report filed on Form 10-K for discussion of our most recent goodwill impairment test performed in the second quarter of 2013.

2013 Charge

Following our reorganization from regions to global business units and our reallocation of goodwill on a relative fair value basis as of January 1, 2013, we conducted the first step of the goodwill impairment test for all global reporting units. As of January 1, 2013, the fair value of each global reporting unit exceeded its carrying value, with the exception of the global Cardiac Rhythm Management (CRM) reporting unit. In accordance with ASC Topic 350, Intangibles—Goodwill and Other (Topic 350) and our accounting policies, we tested the global CRM intangible assets and goodwill for impairment and recorded a non-cash goodwill impairment charge of $423 million ($422 million after-tax) to write down the goodwill to its implied fair value as of January 1, 2013 as a result of this analysis. 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. Refer to Note D - Goodwill and Other Intangible Assets contained in Item 8 of our 2013 Annual Report filed on Form 10-K for details on the 2013 goodwill impairment charge.

The following is a rollforward of accumulated goodwill write-offs by global reportable segment:



(in millions)	Cardiovascular			Rhythm Management			MedSurg			Total
Accumulated write-offs as of December 31, 2013	$	(1,479	)	$	(6,960	)	$	(1,461	)	$	(9,900	)
Goodwill written off	—			—			—			—
Accumulated write-offs as of March 31, 2014	$	(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 an impairment that would warrant an interim impairment test of our intangible assets. Refer to Note D - Goodwill and Other Intangible Assets contained in Item 8 of our 2013 Annual Report filed on Form 10-K for a discussion of future events that would have a negative impact on the recoverability of our $4.305 billion of CRM-related amortizable intangible assets. 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 likely occur if the second step of the amortizable intangible test is required in a future reporting period. Refer to Critical Accounting Policies and Estimates within our Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 of our 2013 Annual Report filed on Form 10-K for a discussion of key assumptions used in our testing.

During the first quarter of 2014, as a result of lower estimates of the resistant hypertension market following the announcement of data from a competitor's clinical trial, we performed an interim impairment test of our in-process research and development projects and core technology associated with our acquisition of Vessix Vascular, Inc. (Vessix). The impairment assessments were based upon probability-weighted cash flows of potential future scenarios. Based on our impairment assessment, which included an initial undiscounted recoverability cash flow test for core technology, and lower expected future cash flows associated with our Vessix-related intangible assets, we recorded pre-tax impairment charges of $55 million in the first quarter of 2014 to write down the balance of these intangible assets to their fair value. We recorded this amount in the intangible asset impairment charges caption in our accompanying unaudited condensed consolidated statements of operations.

The nonrecurring Level 3 fair value measurements of our intangible asset impairment analysis included the following significant unobservable inputs:



Intangible Asset	Valuation Date	Fair Value	Valuation Technique	Unobservable Input	Rate
In-Process R&D	March 31, 2014	$6 million	Income Approach - Excess Earnings Method	Discount Rate	20%
Core Technology	March 31, 2014	$64 million	Income Approach - Excess Earnings Method	Discount Rate	15%

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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