8.	FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES

The following financial assets and liabilities are recorded at fair value on a recurring basis (in millions):


	As of December 31, 2013
			Fair Value Measurements at Reporting Date Using:
Description	Recorded Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available-for-sale securities
Corporate debt securities	$	457.9	$	–	$	457.9	$	–
U.S. government and agency debt securities		211.2		–		211.2		–
Foreign government debt securities		3.1		–		3.1		–
Commercial paper		68.3		–		68.3		–
Certificates of deposit		67.2		–		67.2		–

Total available-for-sale securities		807.7		–		807.7		–
Derivatives, current and long-term
Foreign currency forward contracts and options		68.7		–		68.7		–
Interest rate swaps		16.3		–		16.3		–

	$	892.7	$	–	$	892.7	$	–

Liabilities
Derivatives, current and long-term
Foreign currency forward contracts and options		20.6		–		20.6		–
Interest rate swaps		7.0		–		7.0		–

	$	27.6	$	–	$	27.6	$	–


	As of December 31, 2012
			Fair Value Measurements at Reporting Date Using:
Description	Recorded Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Available-for-sale securities
Corporate debt securities	$	383.8	$	–	$	383.8	$	–
U.S. government and agency debt securities		295.9		–		295.9		–
Foreign government debt securities		5.0		–		5.0		–
Commercial paper		138.7		–		138.7		–
Certificates of deposit		92.3		–		92.3		–

Total available-for-sale securities		915.7		–		915.7		–
Derivatives, current and long-term
Foreign currency forward contracts and options		28.4		–		28.4		–
Interest rate swaps		33.9		–		33.9		–

	$	978.0	$	–	$	978.0	$	–

Liabilities
Derivatives, current and long-term
Foreign currency forward contracts	$	10.8	$	–	$	10.8	$	–

We value our available-for-sale securities using a market approach based on broker prices for identical assets in over-the-counter markets and we perform ongoing assessments of counterparty credit risk.

We value our foreign currency forward contracts and foreign currency options using a market approach based on foreign currency exchange rates obtained from active markets and we perform ongoing assessments of counterparty credit risk.

We value our interest rate swaps using a market approach based on publicly available market yield curves and the terms of our swaps and we perform ongoing assessments of counterparty credit risk.

The following nonfinancial assets were measured at fair value on a nonrecurring basis (in millions):


			Fair Value Measurements Using:
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses
Year Ended December 31, 2013
Indefinite-lived intangible assets	$	21.0	$	–	$	–	$	21.0	$	2.8
Year Ended December 31, 2012
Goodwill	$	41.0					$	41.0	$	96.0
Indefinite-lived intangible assets		24.2		–		–		24.2		11.6

We conduct our annual goodwill impairment testing in the fourth quarter of every year or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In 2012, it was determined that our U.S. Spine reporting unit’s carrying value was in excess of its fair value. The goodwill for this reporting unit was written down to its implied fair value of $41.0 million from its previous carrying value of $137.0 million, resulting in a $96.0 million non-cash impairment charge. The implied fair value of goodwill equals the estimated fair value of a reporting unit minus the fair value of the reporting unit’s net assets. In determining the implied fair value of the U.S. Spine reporting unit’s goodwill, we used unobservable inputs to estimate the fair value of the reporting unit and its assets and liabilities. Fair value was determined using an equal weighting of income and market approaches.

Fair value under the income approach was determined by discounting to present value the estimated future cash flows of the reporting unit. Fair value under the market approach utilized the guideline public company methodology, which uses valuation indicators from publicly traded companies that are similar to our U.S. Spine reporting unit and considers control premiums that would result from a sale of the reporting unit and the level of assets in the reporting unit versus the comparable companies.

In estimating the future cash flows of the reporting unit, we utilized a combination of market and company specific inputs that a market participant would use in assessing the fair value of the reporting unit. The primary market input was revenue growth rates. These rates were based upon historical trends and estimated future growth drivers such as an aging global population, obesity and more active lifestyles. Significant company specific inputs included assumptions regarding how the reporting unit could leverage operating expenses as revenue grows and the impact any new products will have on revenues.

Under the guideline public company methodology, we took into consideration specific risk differences between our reporting unit and the comparable companies, such as recent financial performance, size risks and product portfolios, among other considerations. Based upon our reporting unit’s recent financial performance, market share and product portfolio, we valued the reporting unit near the bottom of the valuation indicators of the comparable companies.

The fair value of the reporting unit’s assets and liabilities were determined by using the same methods that are used in business combination purchase accounting.

Factors that contributed to impairment of the U.S. Spine reporting unit included broader market issues as well as company specific issues. The U.S. spine market was and continues to be under pressure due to a constrained economic environment leading to continuing high unemployment and payer pushback on the necessity of certain procedures. Additionally, pricing was and continues to decline across the industry. Company specific issues included turnover with our independent sales agents and lack of execution in developing new, competitive products which resulted in a less than optimal product portfolio in our U.S. Spine reporting unit.

Before the economic downturn in 2008, we estimated the U.S. spine market was growing in the low double digits, but declined to flat or in the low single digits in 2012. Previous goodwill impairment tests forecasted some recovery in the market which did not occur. As we completed our annual operating plan in the fourth quarter of 2012, it became clearer that the U.S. spine market recovery may take longer than we planned, including the persistence of significant negative pricing pressures. Additionally, we concluded that new product introductions made in 2012 would not have as significant of a positive effect as we had previously forecasted. As a result, we tempered our expectations of recovery in the U.S. market and for our U.S. Spine reporting unit and recognized an impairment charge.

In our 2013 annual goodwill impairment test of our U.S. Spine reporting unit, we concluded no impairment charge was necessary. While our estimated fair value of the reporting unit declined slightly, the net assets of the reporting unit declined by more. The decrease in the net assets was primarily due to continued amortization of intangible assets acquired in business combinations and lower working capital needs. However, the estimated fair value of the reporting unit did not substantially exceed its carrying value.

We have five other reporting units with goodwill assigned to them. We estimate the fair value of those reporting units using the income approach by discounting to present value the estimated future cash flows of the reporting unit. Due to challenging market conditions associated with our U.S. Dental reporting unit, that reporting unit’s estimated fair value did not substantially exceed its carrying value in our 2013 goodwill impairment test. For each of the other four reporting units, the estimated fair value substantially exceeded its carrying value.

We will continue to monitor the fair value of our U.S. Spine and U.S. Dental reporting units as well as our other four reporting units in our interim and annual reporting periods. If estimated cash flows for these reporting units decrease, we may be required to record further impairment charges in the future. Factors that could result in our cash flows being lower than our current estimates include: 1) decreased revenues caused by unforeseen changes in the healthcare market, or our inability to generate new product revenue from our research and development activities, and 2) our inability to achieve the estimated operating margins in our forecasts due to unforeseen factors. Additionally, changes in the broader economic environment could cause changes to our estimated discount rates or comparable company valuation indicators, which may impact our estimated fair values.

In 2013 and 2012, we also recorded $2.8 million and $11.6 million, respectively, of impairment charges in “Special items” related to certain indefinite lived intangible assets. The impairment was a result of lower future estimated revenues from products using certain trademarks. The lower future estimated revenue resulted from negative publicity in the marketplace related to certain hip devices and our challenges in the global spine market that have adversely affected sales of these products. Further information regarding how the fair value of these indefinite lived trademarks was determined has not been provided as we do not believe this non-cash charge was significant to our results for 2013 and 2012.