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Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2014
Accounting Policies [Abstract]  
Background and Basis of Presentation
Background and Basis of Presentation
Halyard Health, Inc. is a global business which seeks to advance health and healthcare by preventing infection, eliminating pain and speeding recovery. Our products and solutions are designed to address some of today’s most important healthcare needs, namely, preventing infections and reducing the use of narcotics while helping patients move from surgery to recovery. We market and support the efficacy, safety and economic benefit of our products with a significant body of clinical evidence.
References to “Halyard,” “we,” “our” and “us” refer to the health care operations that relate to Kimberly-Clark's health care business. References to “Kimberly-Clark” mean Kimberly-Clark Corporation, a Delaware corporation, and its subsidiaries, other than Halyard, unless the context otherwise requires. Dollar amounts are reported in millions, except per share amounts, unless otherwise noted.
In November 2013, Kimberly-Clark announced that its Board of Directors authorized management to evaluate a potential tax-free spin-off of its health care business (the “Spin-off”). Halyard Health, Inc. was incorporated in Delaware on February 25, 2014 for the purpose of holding the health care business following the separation. A Form 10 initial registration statement was filed in May 2014 with the Securities and Exchange Commission (“SEC”) to register our business as a stand-alone public company. The Form 10 registration statement, as amended, was declared effective by the SEC on October 17, 2014. The Spin-off was completed on October 31, 2014 and Kimberly-Clark’s health care business became Halyard Health, Inc. During the three and nine months ended September 30, 2014, $35 and $61, respectively, was recorded in selling and general expenses for transaction costs associated with the spin-off. See Note 2, “Separation from Kimberly-Clark and Long-Term Debt” for further discussion.
These unaudited condensed combined interim financial statements represent the global operations of Kimberly-Clark's health care business, and have been prepared on a carve-out basis from the operations of Kimberly-Clark’s health care business. The combined financial statements are derived from Kimberly-Clark's consolidated financial statements and accounting records, and reflect our financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected.
Annual Goodwill Impairment Test
Annual Goodwill Impairment Test
Goodwill is tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. For 2014 we have completed the required annual testing of goodwill for impairment for all reporting units using the beginning of the third quarter 2014 as the measurement date. The fair value for all reporting units was in excess of the book value. The fair value of our Medical Devices unit exceeded the carrying value of its net assets by 76%; the fair value of our Surgical and Infection Prevention (“S&IP”) unit exceeded the carrying value of its net assets by 6%, primarily because of the incremental stand-alone public company corporate and ongoing costs described in Note 2 “Separation from Kimberly-Clark and Long-Term Debt” under the heading “Stand-Alone Public Company Costs.”
The fair value determination utilized key assumptions regarding growth of the business and stand-alone public company corporate and ongoing costs, each of which required significant management judgment, including estimated future sales volumes, selling prices and costs, changes in working capital, and investments in property and equipment. These assumptions and estimates were based upon our historical experience and projections of future activity. In addition, the selection of the discount rate used to determine fair value was based upon current market rates and our current cost of financing. There can be no assurance that the assumptions and estimates made for purposes of the annual goodwill impairment test will prove to be accurate. Volatility in the equity and debt markets, or increases in interest rates, could result in a higher discount rate. Changes in sales volumes, selling prices and costs of goods sold, additional stand-alone public company costs, and increases in interest rates could cause changes in our forecasted cash flows. Unfavorable changes in any of the factors described above could result in a goodwill impairment charge in the future.
New Accounting Standards
New Accounting Standards
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance.  The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The effects of this standard on our financial position, results of operations and cash flows are not yet known.