Acquisitions

12 Months Ended

Apr. 26, 2019

The Company had acquisitions during fiscal years 2019 and 2018 that were accounted for as business combinations. The assets and liabilities of businesses acquired were recorded and consolidated on the acquisition date at their respective fair values. Goodwill resulting from business combinations is largely attributable to future yet to be defined technologies, new customer relationships, existing workforce of the acquired businesses, and synergies expected to arise after the Company's acquisition of these businesses. The pro forma impact of acquisitions during fiscal years 2019 and 2018 was not significant, either individually or in the aggregate, to the results of the Company. The results of operations of acquired businesses have been included in the Company’s consolidated statements of income since the date each business was acquired.

Fiscal Year 2019

The acquisition date fair values of the assets acquired and liabilities assumed in fiscal year 2019 were as follows:



(in millions)	Mazor Robotics		EPiX Therapeutics, Inc.		All Other		Total
Cash and cash equivalents	$	109	$	3	$	3	$	115
Investments	52		—		—		52
Accounts receivable	10		—		2		12
Inventory	7		—		27		34
Other current assets	2		1		3		6
Property, plant, and equipment	3		1		29		33
Goodwill	1,197		165		148		1,510
Other intangible assets	399		162		210		771
Tax assets	6		—		7		13
Other assets	1		2		—		3
Total assets acquired	1,786		334		429		2,549

Current liabilities	54		4		45		103
Accrued income taxes	—		—		5		5
Deferred tax liabilities	58		11		—		69
Total liabilities assumed	112		15		50		177
Net assets acquired	$	1,674	$	319	$	379	$	2,372

Mazor Robotics

On December 18, 2018, the Company's Restorative Therapies Group acquired Mazor Robotics (Mazor), a pioneer in the field of robotic guidance systems. The acquisition of Mazor strengthens the Company's position as a global leader in enabling technologies for spine surgery. The Company offers a fully-integrated procedural solution for surgical planning, execution and confirmation by combining the Company's spine implants, navigation, and intra-operative imaging technology with Mazor's robotic-assisted surgery systems. Total consideration for the transaction, net of cash acquired, was $1.6 billion, consisting of $1.3 billion of cash and $246 million of a previously-held equity investment in Mazor. Based upon a preliminary acquisition valuation, the Company acquired $383 million of technology-based intangible assets and $16 million of tradenames with estimated useful lives of 10 years and $1.2 billion of goodwill. The goodwill is primarily attributable to pull-through revenue, future yet to be defined technologies, and an assembled workforce. The goodwill is not deductible for tax purposes.

During fiscal year 2019, the Company recognized $51 million of costs incurred in connection with the acquisition of Mazor, including payouts for unvested stock options and investment banker and other transaction fees, which were recognized in selling, general, and administrative expense in the consolidated statements of income. Revenue and net income (loss) attributable to Mazor since the date of acquisition included in the consolidated statements of income were not significant for fiscal year 2019.

EPiX Therapeutics, Inc.

On March 8, 2019, the Company's Cardiac and Vascular Group acquired EPiX Therapeutics, Inc. (EPiX), a medical device company that designs and manufactures a novel, catheter-based, temperature-controlled cardiac ablation system for the treatment of patients with cardiac arrhythmias, including atrial fibrillation. This acquisition expands the Company's cardiac ablation portfolio to offer physicians a comprehensive suite of tools to treat patients with cardiac arrhythmias. Total consideration for the transaction, net of cash acquired, was $316 million, consisting of $216 million of cash and $100 million of contingent consideration. Contingent consideration is primarily comprised of a product development-based payment triggered upon a U.S. Federal Drug Administration regulatory approval. Based upon a preliminary acquisition valuation, the Company acquired $162 million of IPR&D related to the DiamondTemp ablation system and $165 million of goodwill. The goodwill is primarily attributable to future yet to be defined technologies and is not deductible for tax purposes. Expenses incurred in connection with the acquisition of EPiX were not significant. Revenue and net income (loss) attributable to EPiX since the date of acquisition included in the consolidated statements of income were not significant for fiscal year 2019.

Fiscal Year 2018

The acquisition date fair value of net assets acquired in fiscal year 2018 was $152 million, consisting of $156 million of assets acquired and $4 million of liabilities assumed. Assets acquired were primarily comprised of $52 million of goodwill, $48 million of customer-related intangible assets with estimated useful lives of 7 years, and $47 million of technology-based intangible assets with estimated useful lives ranging from 10 to 12 years.

Additionally, in the first quarter of fiscal year 2018, adjustments were made to finalize the allocation of purchase price for the Company's acquisition of HeartWare International, Inc., which was acquired on August 23, 2016, related to contingent liabilities and other assets, which resulted in an increase to goodwill of $54 million.

Acquired In-Process Research & Development

IPR&D acquired outside of a business combination is expensed immediately. During fiscal year 2019, the Company acquired $38 million of IPR&D in connection with asset acquisitions, which was recognized in other operating expense, net in the consolidated statements of income. The Company did not acquire any IPR&D in connection with asset acquisitions during fiscal years 2018 and 2017.

Contingent Consideration

The fair value of contingent consideration at April 26, 2019 and April 27, 2018 was $222 million and $173 million, respectively. At April 26, 2019, $73 million was recorded in other accrued expenses and $149 million was recorded in other liabilities on the consolidated balance sheets. At April 27, 2018, $108 million was reflected in other accrued expenses and $65 million was reflected in other liabilities on the consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:



	Fiscal Year
(in millions)	2019			2018
Beginning Balance	$	173		$	246
Purchase price contingent consideration	151			28
Contingent consideration payments	(36		)	(72		)
Change in fair value of contingent consideration	(66		)	(29		)
Ending Balance	$	222		$	173

The recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs:



(in millions)	Fair Value at April 26, 2019		Valuation Technique	Unobservable Input	Range
				Discount rate	11.5% - 32.5%
Revenue-based payments	$	90	Discounted cash flow	Probability of payment	65% - 100%
				Projected fiscal year of payment	2020 - 2025
				Discount rate	5.5%
Product development-based payments	$	132	Discounted cash flow	Probability of payment	75% - 100%
				Projected fiscal year of payment	2020 - 2027