Acquisitions and Divestitures

Acquisitions

During the three months ended May 2, 2015, the Company completed its acquisition of two businesses to strengthen its software networking portfolio. The total aggregate purchase price of the acquisitions was $96.1 million, consisting of $95.4 million in cash consideration, which is gross of $0.1 million of cash acquired as part of the acquisitions, and $0.7 million in non-cash consideration. In addition, the Company recorded direct acquisition costs of $1.5 million and integration costs of $0.8 million. These costs were expensed as incurred and are presented in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended May 2, 2015, as “Acquisition and integration costs.”

The results of operations for both acquisitions are included in the Company’s Condensed Consolidated Statements of Operations from the respective dates of acquisition. The Company does not consider these acquisitions to be significant, individually or in the aggregate, to its results of operations or financial position. Therefore, the Company is not presenting pro-forma financial information of combined operations.

In connection with these acquisitions, the Company allocated the total purchase consideration to the net assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the acquisition dates. The following table summarizes the allocation of the total aggregate purchase price to the fair value of the assets and liabilities acquired (in thousands):



Assets acquired:
Cash	$	161
Accounts receivable	154
Property and equipment, net	1,479
Identifiable intangible assets:
Core/developed technology	28,450
Customer relationships	22,030
Patents with broader applications	1,040
Trade name	500
Non-compete agreements	240
Total identifiable intangible assets	52,260
Goodwill ⁽¹⁾	49,458
Other assets	98
Total assets acquired	103,610
Liabilities assumed:
Deferred revenue	(3,603		)
Deferred tax liabilities	(3,087		)
Other accrued liabilities	(820		)
Total liabilities assumed	(7,510		)
Net assets acquired	$	96,100


⁽¹⁾	The goodwill recognized primarily represents potential synergies from combining operations of the acquired businesses and the Company, as well as intangible assets that do not qualify for separate recognition. The total amount of goodwill that is expected to be deductible for tax purposes is $38.1 million.

In conjunction with the acquisitions, the Company granted restricted stock unit (“RSU”) and cash consideration awards to transferring or continuing employees of the acquired businesses. These awards require the employees to continue providing services to the Company for the duration of the vesting or payout periods.

For certain employees, the Company granted RSUs with an aggregate fair value of $6.4 million at the grant date, with RSUs vesting every six months for a total vesting period of two years. The RSUs will be accounted for as stock-based compensation expense and reported, as applicable, within “Cost of revenues,” “Research and development,” “Sales and marketing,” and “General and administrative” on the Company’s Condensed Consolidated Statements of Operations. For the three and six months ended May 2, 2015, the Company recognized $0.3 million of stock-based compensation expense related to these RSU awards.

For certain other employees, the Company will pay a total aggregate amount of $10.3 million as cash awards for their services. The awards are paid out in annual installments over a total period of four years. The cash consideration will be accounted for as employees’ compensation expense and reported within “Research and development” on the Company’s Condensed Consolidated Statements of Operations. For the three and six months ended May 2, 2015, the Company recognized $0.4 million of compensation expense related to these cash awards.

For one of the acquisitions, the Company held an existing equity interest in the business at an acquisition-date fair value of $0.4 million. The Company used a market approach based on comparable recent investments into this acquired business to estimate the acquisition-date fair value of the existing equity interest. No gain or loss was recognized as a result of remeasuring the existing equity interest, as the cost of the existing equity interest approximated its fair value.

The allocation of the total aggregate purchase price reflects the Company’s preliminary estimates and is subject to revision as additional information in relation to the fair value of the Company’s identifiable intangible assets and deferred tax liability becomes available. Additional information that existed as of the acquisition date may become known to the Company during the remainder of the acquisitions’ measurement periods. This period is not to exceed 12 months from the acquisition date. Adjustments in the allocation of the purchase price may be retroactively applied to the period in which the respective acquisitions occurred.

Divestitures

On January 17, 2014, the Company completed the sale of its network adapter business to QLogic Corporation as part of the Company’s business strategy to focus development on a portfolio of high-performance networking hardware and software-based products and services.

The net carrying amount of the network adapter business’ assets and liabilities at the time of the divestiture was $5.1 million, comprised primarily of associated goodwill of $4.1 million. The sale resulted in a gain of $4.9 million in the six months ended May 3, 2014, which is presented in the Company’s Condensed Consolidated Statements of Operations as “Gain on sale of network adapter business.”