Medtronic 2012 Annual Report Download - page 105

Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
88
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, $24 million, and $40 million in impairment charges in fiscal years 2012, 2011, and 2010,
respectively. The impairment charges related to the cost method investments 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 assesses the impairment of intangible assets annually in the third quarter or whenever
events or changes in circumstances indicate that the carrying amount of an intangible asset may not be
recoverable. The aggregate carrying amount of intangible assets, excluding IPR&D, was $2.277 billion as of
April 27, 2012 and $2.387 billion as of April 29, 2011. These assets are measured at fair value on a
nonrecurring basis. The fair value of the Company’s intangible assets is not estimated if there is no change
in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.
During the third quarter of fiscal year 2012, the Company determined that changes in events and
circumstances indicated that the carrying amounts of certain intangible assets may not be fully recoverable.
The carrying amount of these certain intangible assets was less than five percent of the total aggregate
carrying amount of intangible assets as of January 27, 2012. To determine the potential impairments, the
Company calculated the excess of the intangible assets’ carrying values over their undiscounted future cash
flows. As a result of the analysis performed, the intangible assets were deemed to be recoverable, and
therefore, no impairments were recorded. 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 statement of earnings. The
Company did not record any intangible asset impairments during fiscal year 2010. 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 an event occurs or circumstances change that would indicate that the carrying amount may be
impaired. The aggregate carrying amount of goodwill was $9.934 billion as of April 27, 2012 and $9.520 billion
as of April 29, 2011. The aggregate carrying amount of IPR&D was $370 million as of April 27, 2012 and
$338 million as of April 29, 2011. During fiscal year 2012, 2011, and 2010, the Company performed its annual
impairment reviews of goodwill and IPR&D. The goodwill 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 each reporting unit’s goodwill carrying value over its fair value utilizing a discounted
future 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, resulting in no impairment loss. 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 the
IPR&D asset carrying values over their fair values utilizing a discounted future cash flow analysis. As a
result of the analysis performed, the fair value of each IPR&D asset was deemed to be greater than the
carrying value, resulting in no impairment loss. The Company did not record any goodwill or IPR&D
impairments during fiscal year 2012, 2011, or 2010. However, due to the nature of IPR&D projects, the
Company may experience 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 the impairment of property, plant, and equipment whenever events or changes
in circumstances indicate that the carrying amount of property, plant, and equipment assets may not be
recoverable. As part of the Company’s restructuring initiatives, the Company recorded property, plant, and
equipment impairments of $9 million, $13 million, and $8 million during fiscal years 2012, 2011, and 2010,
respectively. For further discussion of the restructuring initiatives refer to Note 4.