Acquisitions

9 Months Ended

Jan. 28, 2022

Business Combination and Asset Acquisition [Abstract]

During the nine months ended January 28, 2022 and the three and nine months ended January 29, 2021, the Company had acquisitions that were accounted for as business combinations. The assets and liabilities of the 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 these acquisitions was not significant, either individually or in the aggregate, to the consolidated results of the Company for the nine months ended January 28, 2022 and the three and nine months ended January 29, 2021. 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. For the three and nine months ended January 28, 2022 and January 29, 2021, purchase price allocation adjustments were not significant.

Fiscal Year 2022

The acquisition date fair value of net assets acquired during the nine months ended January 28, 2022 was $125 million, consisting of $154 million of assets acquired and $29 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $50 million of technology-based intangible assets with estimated useful lives ranging from 15 to 16 years and $80 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $31 million of contingent consideration liabilities in connection with business combinations during the nine months ended January 28, 2022, which are comprised of revenue and product development milestone-based payments.

Fiscal Year 2021

The acquisition date fair value of net assets acquired during the nine months ended January 29, 2021 was $1.2 billion, consisting of $1.3 billion of assets acquired and $159 million of liabilities assumed. Based upon preliminary valuations, assets acquired were primarily comprised of $407 million of technology-based intangible assets with estimated useful lives ranging from 8 to 15 years and $805 million of goodwill. The goodwill is not deductible for tax purposes. The Company recognized $253 million of contingent consideration liabilities in connection with business combinations during the nine months ended January 29, 2021, which are comprised of revenue and product development milestone-based payments. Additionally, during the nine months ended January 29, 2021, the Company recognized a gain of $132 million related to a change in amounts accrued for certain contingent liabilities from a past acquisition. The benefit was recognized in other operating (income) expense, net in the consolidated statements of income as the purchase accounting was finalized in fiscal year 2020.

Acquired In-Process Research & Development (IPR&D)

IPR&D with no alternative future use acquired outside of a business combination is expensed immediately. During the three months ended January 28, 2022, IPR&D acquired in connection with asset acquisitions was not significant. During the nine months ended January 28, 2022, the Company acquired $101 million of IPR&D in connection with asset acquisitions, which was recognized in research and development expense in the consolidated statements of income. During the three and nine months ended January 29, 2021, IPR&D acquired in connection with asset acquisitions was not significant.

Contingent Consideration

Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain product development milestones and/or contingent on the acquired business reaching certain performance milestones. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within other operating (income) expense, net in the consolidated statements of income. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows.

The fair value of contingent consideration at January 28, 2022 and April 30, 2021 was $147 million and $270 million, respectively. At January 28, 2022, $42 million was recorded in other accrued expenses, and $105 million was recorded in other liabilities in the consolidated balance sheet. At April 30, 2021, $78 million was recorded in other accrued expenses, and $192 million was recorded in other liabilities in the consolidated balance sheet.

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


	Three months ended				Nine months ended
(in millions)	January 28, 2022		January 29, 2021		January 28, 2022		January 29, 2021
Beginning balance	$	269	$	461	$	270	$	280
Purchase price contingent consideration	—		95		31		253
Purchase price allocation adjustments	—		—		25		—
Payments	(41)		(127)		(83)		(129)
Change in fair value	(81)		11		(97)		36
Ending balance	$	147	$	440	$	147	$	440

The fair value of contingent consideration is measured using projected payment dates, discount rates, probabilities of payment, and projected revenues (for revenue-based consideration). Projected revenues are based on the Company's most recent internal operational budgets and long-range strategic plans. Changes in projected payment dates, discount rates, probabilities of payment, and projected revenues may result in adjustments to the fair value measurement. The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:


	Fair Value at
(in millions)	January 28, 2022	Unobservable Input	Range	Weighted Average (1)
		Discount rate	11.2% - 27.2%	14.6%
Revenue and other performance-based payments	$114	Probability of payment	30% - 100%	98.8%
		Projected fiscal year of payment	2022 - 2027	2024
		Discount rate	5.5%	5.5%
Product development and other milestone-based payments	$33	Probability of payment	70% - 100%	83.4%
		Projected fiscal year of payment	2022 - 2025	2024

(1) Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected fiscal year of payment, the amount represents the median of the inputs and is not a weighted average.