Medtronic 2013 Annual Report Download - page 101

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Table of Contents
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
(in millions) Total Level 3
Investments Corporate debt
securities Auction rate securities Mortgage- backed securities Other asset- backed securities
Balance as of April 29, 2011 $ 191 $ 17 $ 133 $ 35 $ 6
Total realized losses and other-than-
temporary impairment losses included in
earnings (3) (1) — (1) (1)
Total unrealized gains (losses) included
in other comprehensive income 9 1 8 (1) 1
Settlements (25) (7) (14) (4) —
Balance as of April 27, 2012 $ 172 $ 10 $ 127 $ 29 $ 6
Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis
Non-financial assets such as equity and other securities that are accounted for using the cost or equity method, goodwill and
IPR&D, intangible assets, and property, plant, and equipment are measured at fair value when there is an indicator of impairment
and recorded at fair value only when an impairment is recognized.
The Company holds investments in equity and other securities that are accounted for using the cost or equity method, which are
classified as other assets in the consolidated balance sheets. The aggregate carrying amount of these investments was $549 million
as of April 26, 2013 and $508 million as of April 27, 2012. These cost or equity method investments are measured at fair value
on a nonrecurring basis. The fair value of the Company’s cost or equity method investments is not estimated if there are no identified
events or changes in circumstance that may have a significant adverse effect on the fair value of these investments. During fiscal
years 2013, 2012, and 2011, 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 $21 million, $10 million, and $24 million in impairment charges in fiscal years 2013,
2012, and 2011, respectively, which were recorded in other expense, net in the consolidated statements of earnings. 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 that was available related to the entities, including financial statements and
market participant valuations from recent and proposed equity offerings.
The Company reviews 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 $2.310 billion as of April 26, 2013 and $2.277 billion as of April 27, 2012. 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. During fiscal years 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 of intangible assets, may not be fully recoverable. During fiscal year
2013, the carrying amount of one intangible asset was less than the undiscounted future cash flows, therefore the Company assessed
the asset's fair value and recorded an impairment of $2 million. The Company did not record any intangible asset impairments
during fiscal year 2012. During fiscal year 2011, the Company determined that changes in events and circumstances indicated
that the carrying amounts of certain intangible assets may not be fully recoverable. As a result of the analysis performed in fiscal
year 2011, the fair values of the intangible assets were deemed to be less than the carrying values, resulting in pre-tax impairment
losses of $28 million of which $19 million is related to the fiscal year 2011 restructuring initiative and was recorded in restructuring
charges, net and $9 million was recorded in other expense, net in the Company’s consolidated statements of earnings. 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.
The Company assesses the impairment of goodwill and IPR&D annually in the third quarter and whenever events or changes in
circumstances indicate that the carrying amount may be impaired. The aggregate carrying amount of goodwill was $10.329 billion
as of April 26, 2013 and $9.934 billion as of April 27, 2012. The aggregate carrying amount of IPR&D was $363 million as of
April 26, 2013 and $370 million as of April 27, 2012. During fiscal years 2013, 2012, and 2011, the Company performed its annual
impairment reviews of goodwill and IPR&D. The goodwill impairment review 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 goodwill fair value over its carrying value utilizing a discounted future cash flow analysis. As a result of the analysis
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