Acquisitions

12 Months Ended

Apr. 24, 2020

The Company had acquisitions during fiscal years 2020 and 2019 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 2020 and 2019 was not significant, either individually or in the aggregate, to the consolidated 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 2020

The acquisition date fair value of net assets acquired during fiscal year 2020 was $612 million, consisting of $679 million of assets acquired and $67 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $236 million of technology-based intangible assets and $26 million of customer-related intangible assets with estimated useful lives ranging from 8 to 16 years, $333 million of goodwill, and $40 million of inventory. The goodwill is not deductible for tax purposes. The Company recognized $80 million of contingent consideration liabilities in connection with business combinations during fiscal year 2020, which are comprised of revenue and regulatory milestone-based payments. Purchase price allocation adjustments for fiscal year 2020 business combinations were not significant.

Fiscal Year 2019

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 strengthened 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. Net assets acquired includes $383 million of technology-based intangible assets and $16 million of tradenames with estimated useful lives of 10 years. Goodwill was primarily attributable to pull-through revenue, future yet to be defined technologies, and an assembled workforce and was 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.

The Company made certain adjustments to the allocation of purchase price for the Mazor acquisition during the measurement period which closed in the third quarter of fiscal year 2020, primarily related to estimates for certain contingent liabilities and deferred taxes, which resulted in a net increase to goodwill of $105 million.

The fair values of the assets acquired and liabilities assumed were as follows:


(in millions)	Mazor Robotics
Cash and cash equivalents	$	109
Investments	52
Accounts receivable	9
Inventory	5
Other current assets	1
Property, plant, and equipment	3
Goodwill	1,318
Other intangible assets	399
Tax assets	9
Total assets acquired	1,905

Current liabilities	210

Deferred tax liabilities	21
Total liabilities assumed	231
Net assets acquired	$	1,674

Other Fiscal Year 2019 Acquisitions

The remaining acquisition date fair value of net assets acquired during fiscal year 2019 was $698 million, consisting of $763 million of assets acquired and $65 million of liabilities assumed. Assets acquired were primarily comprised of $313 million of goodwill, $171 million of in-process research and development, $161 million of technology-based intangible assets with estimated useful lives ranging from 4 to 15 years, and $40 million of customer-related intangible assets with estimated useful lives ranging from 10 to 13 years. The Company recognized $151 million of contingent consideration liabilities in connection with business combinations during fiscal year 2019. For fiscal year 2019, purchase price allocation adjustments were not significant.

Acquired In-Process Research & Development

IPR&D acquired outside of a business combination is expensed immediately. The Company did not acquire any IPR&D in connection with asset acquisitions during fiscal years 2020 and 2018. 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.

Contingent Consideration

The fair value of contingent consideration at April 24, 2020 and April 26, 2019 was $280 million and $222 million, respectively. At April 24, 2020, $112 million was recorded in other accrued expenses and $168 million was recorded in other liabilities on the consolidated balance sheets. At April 26, 2019, $73 million was reflected in other accrued expenses and $149 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)	2020		2019
Beginning Balance	$	222	$	173

Purchase price contingent consideration	125		151
Contingent consideration payments	(34)		(36)
Change in fair value of contingent consideration	(33)		(66)

Ending Balance	$	280	$	222

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


(in millions)	Fair Value at April 24, 2020		Valuation Technique	Unobservable Input	Range
				Discount rate	11.5% - 32.4%
Revenue-based payments	$	101	Discounted cash flow	Probability of payment	40% - 100%
				Projected fiscal year of payment	2021 - 2027
				Discount rate	5.5%
Product development-based payments	$	179	Discounted cash flow	Probability of payment	50% - 100%
				Projected fiscal year of payment	2021 - 2027