Goodwill and Other Intangible Assets | 9 Months Ended |
Sep. 27, 2014 |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets |
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The Business has one operating segment that represents the lowest level for which discrete financial information is available and the operating results are regularly reviewed by management. |
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During 2014 and 2013, the Business determined that the expected operating results for the Symmetry Surgical reporting unit were projected to be substantially lower than previous forecasts. Given this information, the Business conducted its interim and annual impairment tests, as applicable, and determined that impairment existed. The Business recorded pre-tax non-cash charges of $10,500 in 2014 for goodwill and $20,105 in 2013 for goodwill and other assets and these charges have been recorded in the Business's combined statements of operations within asset impairment. The impairment was primarily driven by lower revenue due to a sluggish hospital spending environment in the U.S. and previously disclosed integration challenges related to the 2011 acquisition of the surgical instruments portfolio of Codman and Shurtleff, Inc. from which the Business has not recovered as quickly as previously expected. |
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The Business determines the fair value of intangible assets using an income based approach. The approach calculates fair value by estimating the after-tax cash flows attributable to the asset and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. The calculated fair value is compared to the carrying value to determine if any impairment exists. |
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To derive the fair value of the reporting unit, as required in step one of the impairment test, the Business used the income approach, specifically the discounted cash flow method, to determine the fair value of the reporting unit and the associated amount of the impairment charges. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. This methodology is consistent with how the Business estimates the fair value of the reporting unit during its annual goodwill and indefinite lived intangible asset impairment tests. Inputs used to fair value the Business's reporting unit are considered Level 3 inputs of the fair value hierarchy and include the following: |
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• | The Business's financial projections for this reporting unit are based on management's assessment of macroeconomic variables, industry trends and market opportunities, as well as the Business's strategic objectives and future growth plans. Revenue growth rates assumed in 2014 and 2013 for the Business's reporting unit were approximately 4-6% for 2015 and beyond. | | | | | | | | | |
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• | The discount rate used to measure the present value of the projected future cash flows is set using a weighted-average cost of capital method that considers market and industry data, as well as the Business's specific risk factors that are likely to be considered by a market participant. The weighted-average cost of capital is the Business's estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. The discount rate used was approximately 12.0% in 2014 and 12.5% in 2013. | | | | | | | | | |
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For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could result in a significantly lower or higher fair value measurement. |
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In the second step, the Business assigned the reporting unit's fair value to all of its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment charge. This allocation process was performed only for the purposes of measuring the goodwill impairment and not to adjust the carrying values of the recognized assets and liabilities. |
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Prior to performing the annual goodwill impairment test step 1 analysis, the Business tested long-lived assets to be held and used for impairment on an undiscounted cash flow basis. Based on the results of this testing, no intangible assets were deemed impaired. |
As of September 27, 2014, the balances of intangible assets, other than goodwill, were as follows: |
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| Weighted-Average Amortization Period | Gross Intangible Assets | Accumulated Amortization | Net Intangible Assets |
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| (unaudited) | (unaudited) | (unaudited) | (unaudited) |
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Acquired customers | 19 | $ | 91,700 | | $ | (16,814 | ) | $ | 74,886 | |
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Trademarks | 10 | 3,325 | | (439 | ) | 2,886 | |
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Intangible assets subject to amortization | 19 | $ | 95,025 | | $ | (17,253 | ) | $ | 77,772 | |
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As of December 28, 2013, the balances of intangible assets, other than goodwill, were as follows: |
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| Weighted-Average Amortization Period | Gross Intangible Assets | Accumulated Amortization | Net Intangible Assets |
| (unaudited) | (unaudited) | (unaudited) | (unaudited) |
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Acquired customers | 19 | $ | 91,765 | | $ | (13,124 | ) | $ | 78,641 | |
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Trademarks | 10 | 3,325 | | (110 | ) | 3,215 | |
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Intangible assets subject to amortization | 19 | $ | 95,090 | | $ | (13,234 | ) | $ | 81,856 | |
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The changes in the carrying amounts of goodwill for the periods ended December 29, 2012, December 28, 2013 and September 27, 2014 are as follows: |
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Balance as of December 29, 2012 | $ | 81,214 | | | | | | | |
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| Impairment of goodwill | (18,250 | ) | | | | | | |
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| Effects of foreign currency | 31 | | | | | | | |
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Balance as of December 28, 2013 | $ | 62,995 | | | | | | | |
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| Impairment of goodwill (unaudited) | (10,500 | ) | | | | | | |
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| Effects of foreign currency (unaudited) | (43 | ) | | | | | | |
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Balance as of September 27, 2014 (unaudited) | $ | 52,452 | | | | | | | |
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