Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE C – 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 are as follows:

	As of September 30, 2020				As of December 31, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization/ Write-offs		Gross Carrying Amount		Accumulated Amortization/ Write-offs
Technology-related	$	11,834	$	(6,102)	$	12,020	$	(5,706)
Patents	514		(407)		525		(408)
Other intangible assets	1,758		(1,183)		1,754		(1,081)
Amortizable intangible assets	$	14,106	$	(7,692)	$	14,299	$	(7,195)
Goodwill	$	20,037	$	(9,900)	$	20,076	$	(9,900)
IPR&D	$	263			$	662
Technology-related	120				120
Indefinite-lived intangible assets	$	383			$	782

Our technology-related intangible assets consist of technical processes, intellectual property and institutional understanding with respect to products and processes that we intend to leverage in future products or processes and will carry forward from one product generation to the next. We used the multi-period excess earnings method, a form of the income approach, to derive the fair value of the technology-related intangible assets and are amortizing them on a straight-line basis over their assigned estimated useful lives. Our IPR&D represents intangible assets that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region. In the first quarter of 2020, following receipt of CE Mark for certain products, we reclassified certain of our IPR&D intangible assets to amortizable technology-related assets and began amortization to reflect their use over their remaining lives.

The following represents our goodwill balance by global reportable segment and our separately presented Specialty Pharmaceuticals operating segment:

(in millions)	MedSurg		Rhythm and Neuro		Cardiovascular		Specialty Pharmaceuticals		Total
As of December 31, 2019	$	2,061	$	2,192	$	5,676	$	247	$	10,176
Impact of foreign currency fluctuations and other changes in carrying amount	(6)		2		(29)		(7)		(39)
As of September 30, 2020	$	2,056	$	2,194	$	5,646	$	241	$	10,137

Goodwill and Indefinite-Lived Intangible Asset Impairment Testing

We did not record any goodwill impairment charges in the third quarter and first nine months of 2020 or 2019. We test our goodwill balances in the second quarter of each year as of April 1 for impairment, or more frequently if impairment indicators are present or changes in circumstances suggest an impairment may exist. In the second quarter of 2020, we performed our annual goodwill impairment test for all of our reporting units and concluded that the fair value of each reporting unit exceeded its carrying value.

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. We identified the following reporting units in our 2020 annual goodwill impairment test: Interventional Cardiology, Peripheral Interventions, Cardiac Rhythm Management, Electrophysiology, Endoscopy, Urology and Pelvic Health, Neuromodulation and Specialty Pharmaceuticals. We aggregated the Cardiac Rhythm Management and Electrophysiology reporting units, components of the Rhythm Management operating segment, based on the criteria prescribed in FASB ASC Topic 350, Intangibles - Goodwill and Other.

In 2020, we utilized the qualitative assessment approach to test all of our reporting units. We assessed recent events, including the COVID-19 pandemic, as well as changes in macroeconomic factors, industry and market conditions, overall financial performance and other entity-specific factors since the most recently performed quantitative test. After assessing the totality of events, we determined that it is more likely than not that the fair value of each of our reporting units has sufficient excess over its carrying value, and concluded that goodwill was not impaired or at risk of impairment in the second quarter of 2020. There were no impairment indicators in the third quarter of 2020 that necessitated an interim impairment test.

We recorded Intangible asset impairment charges of $219 million in the third quarter of 2020, none in the third quarter of 2019, $452 million in the first nine months of 2020 and $105 million in the first nine months of 2019. The impairment charges recorded in the third quarter of 2020 were primarily associated with IPR&D acquired with Apama Medical Inc. following management’s decision to cancel the program. Intangible asset impairment charges in the first nine months of 2020 also included charges related to nVision and certain other intangible assets initially established following acquisition. In general, these charges were recorded as a result of management’s decision to change commercial launch plans or discontinue certain R&D programs based on cost to complete, time to market, overall economic viability or, specific to nVision, our understanding of the clinical evidence necessary to commercialize the technology.

We test our indefinite-lived intangible assets at least annually during the third quarter for impairment and reassess their classification as indefinite-lived assets. In addition, we review our indefinite-lived intangible assets for classification and impairment more frequently if impairment indicators exist. We assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that our indefinite-lived intangible assets are impaired. If we conclude that it is more likely than not that the asset is impaired, we then determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with FASB ASC Topic 350. If the carrying value exceeds the fair value of the indefinite-lived intangible asset, we write the carrying value down to the fair value. In the third quarter of 2020, we performed our annual IPR&D impairment test and evaluated our indefinite-lived core technology assets using the optional qualitative assessment approach and concluded a quantitative test was required for certain IPR&D assets, resulting in the ultimate impairment of the Apama assets discussed above. We also verified that the classification of IPR&D projects and our indefinite-lived core technology assets recognized within our unaudited condensed consolidated balance sheets continues to be appropriate.

We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. If we determine it is more likely than not that the asset is impaired based on our qualitative assessment of impairment indicators, we test the intangible asset for recoverability. If the carrying value of the intangible asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset or asset group, we will write the carrying value down to fair value in the period impairment is identified. In the third quarter of 2020, we determined a recoverability test was required for certain amortizable intangible assets based on our qualitative assessment of impairment indicators, and recorded intangible asset impairment charges as appropriate.

Refer to Critical Accounting Policies and Estimates within Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our most recent Annual Report on Form 10-K for further discussion of our annual goodwill and intangible asset impairment testing.