Acquisitions and Divestitures

Acquisitions

In March 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 $95.5 million in cash consideration, which is gross of $0.1 million of cash acquired as part of the acquisitions, and $0.5 million in non-cash consideration. For the fiscal year ended October 31, 2015, the Company recorded direct acquisition costs and integration costs of $1.4 million and $2.5 million, respectively. These costs were expensed as incurred and are presented in the Company’s Consolidated Statements of Income for the fiscal year ended October 31, 2015, as “Acquisition and integration costs.”

The results of operations for both acquisitions are included in the Company’s Consolidated Statements of Income 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 acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the acquisition dates. The Company determined the fair value of the intangible assets acquired primarily using the income approach and the market approach with the assistance of a valuation firm. Estimates and assumptions with respect to the determination of the fair value of the intangible assets acquired include, but are not limited to, forecasted revenues, discount rates, and comparable market transactions.

The following table summarizes the final allocation of the total aggregate purchase price based on the estimated fair values of the assets acquired and liabilities assumed at the acquisition dates (in thousands):



Assets acquired:
Cash	$	161
Accounts receivable	154
Property and equipment, net	1,432
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⁾	49,444
Other assets	86
Total assets acquired	103,537
Liabilities assumed:
Deferred revenue	(3,603		)
Deferred tax liabilities	(3,049		)
Other accrued liabilities	(795		)
Total liabilities assumed	(7,447		)
Net assets acquired	$	96,090


⁽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 RSU awards and cash 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 approximately every six months for a total vesting period of approximately two years. The RSUs are 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 Consolidated Statements of Income. For the fiscal year ended October 31, 2015, the Company recognized $1.6 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 cash awards are paid out in annual installments over a total period of four years. The cash awards are accounted for as employee compensation expense and reported within “Research and development” on the Company’s Consolidated Statements of Income. For the fiscal year ended October 31, 2015, the Company recognized $4.8 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 in 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.

On September 11, 2014, the Company completed its acquisition of the assets of Vistapointe, Inc. (“Vistapointe”), a privately held developer of network visibility and analytics solutions with facilities located in San Ramon, California and Bangalore, India, and certain assets of its related entities. This acquisition has enhanced Brocade’s leadership role in developing software-based, carrier-grade network visibility and analytics (“NVA”) solutions for mobile network operators. This acquisition has also enhanced Brocade’s leadership in network functions virtualization (“NFV”) technology and gives Brocade a new market to address with visibility and analytics solutions for mobile operators.

The results of operations of Vistapointe are included in the Company’s Consolidated Statement of Income from the date of the acquisition. The Company does not consider the acquisition of the assets of Vistapointe to be material to its results of operations or financial position, and therefore, the Company is not presenting pro-forma financial information of combined operations.

The total purchase price was $16.9 million, consisting entirely of cash consideration. In addition, the Company paid direct acquisition costs of $0.4 million.

In connection with this acquisition, 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 date. The following table summarizes the final allocation of the purchase price to the fair value of the assets and liabilities acquired (in thousands):



Assets acquired:
Identifiable intangible assets:
In-process technology	$	2,850
Developed technology	1,710
Trade name	130
Total identifiable intangible assets	4,690
Goodwill	11,475
Property and equipment, net	735
Net assets acquired	$	16,900

On November 9, 2012, the Company completed its acquisition of Vyatta, Inc. (“Vyatta”), a privately held developer of a software-based network operating system suite headquartered in Belmont, California. Vyatta became a wholly owned subsidiary of the Company as a result of the acquisition. The Vyatta operating system suite is deployed on conventional computer hardware platforms for multiple applications in network virtualization, software-defined networking (“SDN”), NFV, and other private/public cloud computing platforms. The software acquired as part of this acquisition complements Brocade’s investments in IP switches and router products and enables the Company to pursue new market opportunities in data center virtualization, including public cloud, virtual private cloud, and managed services.

The results of operations of Vyatta are included in the Company’s Consolidated Statement of Income from the date of the acquisition. The Company does not consider the acquisition of Vyatta to be material to its results of operations or financial position, and therefore, the Company is not presenting pro-forma financial information of combined operations.

The total purchase price was $44.8 million, consisting of $43.6 million cash consideration and $1.2 million related to prepaid license fees paid by the Company to Vyatta that was effectively settled at the recorded amount as a result of the acquisition. In addition, the Company paid direct acquisition costs of $0.4 million.

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, which is presented in the Company’s Consolidated Statements of Income as “Gain on sale of network adapter business.”