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BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
 3 Months Ended
May 01, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
NOTE 8 — BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS

Business Combinations

VMware, Inc. Acquisition

Nyansa, Inc. — During the three months ended May 1, 2020, VMware, Inc. completed the acquisition of Nyansa, Inc., a developer of artificial intelligence-based network analytics, to accelerate the delivery of end-to-end monitoring and troubleshooting capabilities within VMware SD-WAN by VeloCloud. The total purchase price, net of cash acquired, was $38 million. The purchase price primarily included $14 million of identifiable intangible assets and $24 million of goodwill that is not expected to be deductible for tax purposes. The identifiable intangible assets, which primarily consisted of completed technology, have estimated useful lives of one year to four years.

Goodwill

The Infrastructure Solutions Group, Client Solutions Group, and VMware reporting units are consistent with the reportable segments identified in Note 17 of the Notes to the Condensed Consolidated Financial Statements. Offerings within Other businesses as defined below represent separate reporting units.

The following table presents goodwill allocated to the Company’s reportable segments and changes in the carrying amount of goodwill as of the dates indicated:
 
Infrastructure Solutions Group
 
Client Solutions Group
 
VMware
 
Other Businesses (a)
 
Total
 
(in millions)
Balance as of January 31, 2020
$
15,089

 
$
4,237

 
$
20,532

 
$
1,833

 
$
41,691

Goodwill acquired (b)
—

 
—

 
24

 
—

 
24

Impact of foreign currency translation
(91
)
 
—

 
—

 
(17
)
 
(108
)
Reclassification to assets held for sale (c)
—

 
—

 
—

 
(1,359
)
 
(1,359
)
Balance as of May 1, 2020
$
14,998

 
$
4,237

 
$
20,556

 
$
457

 
$
40,248

____________________
(a)
As of May 1, 2020, goodwill allocated to Other businesses consists of Secureworks, Virtustream, and Boomi.
(b)
VMware, Inc. business combination completed during the three months ended May 1, 2020, as discussed above.
(c)
During the three months ended May 1, 2020, RSA Security’s goodwill was reclassified to current assets held for sale on the Condensed Consolidated Statements of Financial Position due to the Company’s entry into a definitive agreement to sell RSA Security. See Note 1 of the Notes to the Condensed Consolidated Financial Statements for additional information about the pending sale of RSA Security.

Goodwill Impairment Tests — Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances may indicate that an impairment has occurred. As a result of the changes in the current economic environment related to the COVID-19 pandemic, the Company considered whether there was a potential triggering event requiring the evaluation of whether goodwill of any of the reporting units should be tested for impairment. The Company determined there was no triggering event and no impairment test was performed as of May 1, 2020.

For our annual impairment review in the third quarter of Fiscal 2020, the Company elected to bypass the assessment of qualitative factors to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount, including goodwill. In electing to bypass the qualitative assessment, the Company proceeded directly to performing a quantitative goodwill impairment test to measure the fair value of each goodwill reporting unit relative to its carrying amount, and to determine the amount of goodwill impairment loss to be recognized, if any.

Management exercised significant judgment related to the above assessment, including the identification of goodwill reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The fair value of each goodwill reporting unit is generally estimated using a combination of public company multiples and discounted cash flow methodologies, unless the reporting unit relates to a publicly-traded entity (VMware, Inc. or Secureworks), in which case the fair value is determined based primarily on the public company market valuation. The discounted cash flow and public company multiples methodologies require significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, current and anticipated economic conditions and trends, selection of market multiples through assessment of the reporting unit’s performance relative to peer competitors, the estimation of the long-term revenue growth rate and discount rate of the Company’s business, and the determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the fair value of the goodwill reporting unit, potentially resulting in a non-cash impairment charge.

The fair value of the indefinite-lived trade names is generally estimated using discounted cash flow methodologies. The discounted cash flow methodology requires significant judgment, including estimation of future revenue, which is dependent on internal forecasts, the estimation of the long-term revenue growth rate of the Company’s business and the determination of the Company’s weighted average cost of capital and royalty rates. Changes in these estimates and assumptions could materially affect the fair value of the indefinite-lived intangible assets, potentially resulting in a non-cash impairment charge.

Based on the results of the annual impairment test performed during the fiscal year ended January 31, 2020, the fair values of each of the reporting units exceeded their carrying values. Based on this annual impairment test, it was determined that the fair value of the RSA Security reporting unit exceeded its carrying value by 13% as of November 1, 2019. The Company’s entry into a definitive agreement to sell RSA Security for $2.075 billion, as discussed in Note 1 of the Notes to the Condensed Consolidated Financial Statements, provided a new fair value indication that the RSA Security reporting unit exceeds its carrying value. Accordingly, subsequent to the annual impairment test, based on fair value indicators as of January 31, 2020 and May 1, 2020, it was determined that the fair value of the RSA Security reporting unit exceeded its carrying amount by 20%.

During the fiscal year ended January 31, 2020, an interim impairment assessment of Virtustream was required. There are no remaining balances of Virtustream goodwill, intangible assets, or property, plant, and equipment as of January 31, 2020 following the gross impairment charges of $619 million and $190 million recognized during the fiscal years ended January 31, 2020 and February 1, 2019, respectively.

Intangible Assets

The following table presents the Company’s intangible assets as of the dates indicated:
 
May 1, 2020
 
January 31, 2020
 
Gross
 
Accumulated
Amortization
 
Net
 
Gross
 
Accumulated
Amortization
 
Net
 
(in millions)
Customer relationships
$
22,383

 
$
(14,109
)
 
$
8,274

 
$
22,950

 
$
(13,821
)
 
$
9,129

Developed technology
15,376

 
(11,011
)
 
4,365

 
15,707

 
(10,974
)
 
4,733

Trade names
1,266

 
(833
)
 
433

 
1,306

 
(816
)
 
490

Definite-lived intangible assets
39,025

 
(25,953
)
 
13,072

 
39,963

 
(25,611
)
 
14,352

Indefinite-lived trade names
3,755

 
—

 
3,755

 
3,755

 
—

 
3,755

Total intangible assets
$
42,780

 
$
(25,953
)
 
$
16,827

 
$
43,718

 
$
(25,611
)
 
$
18,107


 
Amortization expense related to definite-lived intangible assets was approximately $855 million and $1.2 billion for the three months ended May 1, 2020 and May 3, 2019, respectively. There were no material impairment charges related to intangible assets during the three months ended May 1, 2020 and May 3, 2019.

During the three months ended May 1, 2020, the Company recognized proceeds and a gain of $120 million from the sale of certain internally developed intellectual property assets.

The following table presents the estimated future annual pre-tax amortization expense of definite-lived intangible assets as of the date indicated:
 
May 1, 2020
Fiscal Years
(in millions)
2021 (remaining nine months)
$
2,521

2022
2,665

2023
1,788

2024
1,426

2025
1,091

Thereafter
3,581

Total
$
13,072