Acquisitions, Divestitures, and Assets Held for Sale

Prior Fiscal Year Acquisition

Acquisition of Ruckus Wireless, Inc. (“Ruckus”)

On May 27, 2016 (“Acquisition Date”), the Company completed its acquisition of Ruckus, a public company incorporated in the state of Delaware, to strengthen its Internet Protocol (“IP”) Networking product portfolio by adding Ruckus’ wireless products and services to the Company’s networking solutions.

Immediately prior to the completion of the acquisition, there were 92.2 million outstanding shares of Ruckus common stock, which included 3.2 million shares of Ruckus common stock owned by a dissenting former Ruckus stockholder who subsequently filed a petition in Delaware Court of Chancery seeking appraisal of the fair value of those shares under Delaware law. During the three months ended July 29, 2017, the Company entered into a settlement agreement with the dissenting former Ruckus stockholder pursuant to which the dissenting former Ruckus stockholder was paid $51.9 million, representing $16.22 per share for each of the 3.2 million shares. The settlement amount exceeded the amounts of $41.3 million and $2.1 million previously recorded as purchase consideration and interest expense, respectively, by $8.5 million, which was recorded as a litigation settlement expense. See Note 9, “Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements for further discussion.

Based on the $8.60 per share closing price of the Company’s common stock on the Acquisition Date, the total purchase consideration paid or payable was approximately $1.3 billion.

In connection with the acquisition of Ruckus, 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 Date. The following table summarizes the final allocation of the total purchase consideration to the fair value of the assets acquired and liabilities assumed (in thousands):



Assets acquired:
Cash and cash equivalents	$	95,515
Short-term investments	150,257
Accounts receivable, net of allowances for doubtful accounts of $2,100	41,339
Inventories	64,000
Prepaid expenses and other current assets	5,252
Property and equipment, net	27,060
Identifiable intangible assets	418,000
Other assets	1,697
Total assets acquired	803,120
Liabilities assumed:
Accounts payable	16,375
Accrued employee compensation	17,514
Deferred revenue	14,520
Other accrued liabilities	33,808
Non-current deferred revenue	9,767
Non-current deferred tax liabilities	64,853
Other non-current liabilities	41,033
Total liabilities assumed	197,870
Net assets acquired, excluding goodwill (a)	605,250
Total purchase consideration (b)	1,275,060
Goodwill (b) - (a)	$	669,810

Goodwill represents the excess of the total purchase consideration over the fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to planned growth in new markets and synergies expected to be achieved from the combined operations of the Company and Ruckus. Goodwill of $350.2 million was assigned to the IP Networking Products reporting unit, and goodwill of $319.6 million was assigned to the Global Services reporting unit. Goodwill recognized in the acquisition is not deductible for tax purposes.

The fair value of identified intangible assets and their respective useful lives are as follows (in thousands, except for estimated useful life):



	Approximate Fair Value		Estimated Useful Life (In years)
Trade name/trademark	$	42,000	11
Customer relationships	118,000		1 - 7
Developed technology	230,000		6 - 7
In-process research and development (“IPR&D”) ⁽¹⁾	28,000		N/A ⁽¹⁾
Total intangible assets	$	418,000


⁽¹⁾	IPR&D will be accounted for as an indefinite-lived intangible asset until the underlying projects are completed or abandoned.

During the second quarter of fiscal year 2017, the Company finalized the purchase price allocation upon obtaining additional information related to the fair value of inventories, property and equipment, identifiable intangible assets, deferred revenue, and deferred tax liabilities. As a result, the Company recorded measurement period adjustments resulting in a net decrease in goodwill of $3.9 million. During the three months ended July 29, 2017, there were no measurement period adjustments, and during the nine months ended July 29, 2017, the impact of the measurement period adjustments was not material to the Company’s Condensed Consolidated Statements of Operations.

Current Fiscal Year Divestiture and Assets Held for Sale

During the third quarter of fiscal year 2017, as a result of the Company’s evaluation of capital allocation for its products and initiatives, the Company committed to divest certain product lines of its IP Networking business to three unaffiliated buyers. The Company completed the divestiture of its virtual router (“vRouter”) product line for $31.7 million in cash, which resulted in a $6.7 million loss. The Company signed purchase agreements to divest its virtual application delivery controller (“vADC”) product line for $16.0 million and its virtual evolved packet core (“vEPC”) product line for $1.9 million. Those divestitures were not completed in the third quarter of fiscal year 2017. Consequently, the assets and liabilities associated with the vADC and vEPC divestitures were classified as held for sale on the Condensed Consolidated Balance Sheet as of July 29, 2017 (valued at fair value less costs to sell through the date of sale), which resulted in a $17.6 million estimated loss related to those two pending divestitures. The pending divestitures were completed during the fourth quarter of fiscal year 2017.

The total $24.3 million loss on those three divestitures is presented in the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended July 29, 2017, as “Loss on sold and held for sale software product lines.” The three divestitures are reported in the IP Networking Products reportable segment.

The following table summarizes the net book value adjusted for estimated loss of components of held for sale assets and liabilities (in thousands):



Assets held for sale:
Prepaid expenses	$	180
Property and equipment, net	1,019
Goodwill	12,921
Finite-lived intangible assets, net	12,159
Total current assets held for sale	$	26,279

Liabilities held for sale:
Accrued employee compensation	$	179
Deferred revenue	8,242
Total current liabilities held for sale	$	8,421

Acquisition, Divestiture, and Integration Costs

The following table summarizes the “Acquisition, divestiture, and integration costs” included on the Company’s Condensed Consolidated Statements of Operations (in thousands):



	Three Months Ended					Nine Months Ended
	July 29, 2017			July 30, 2016		July 29, 2017		July 30, 2016
Direct acquisition costs associated with the Ruckus acquisition	$	1,184		$	10,232	$	3,454	$	15,218
Divestiture costs⁽¹⁾	829			—		1,570		—
Integration costs associated with the Ruckus acquisition	(372		)	4,636		3,338		5,407
Broadcom pending acquisition-related costs ⁽²⁾	11,605			—		41,157		—
Total acquisition, divestiture, and integration costs	$	13,246		$	14,868	$	49,519	$	20,625


⁽¹⁾	These costs relate to the completed divestiture of the Company’s vRouter product line and the pending divestitures of the vADC and vEPC product lines.


⁽²⁾	These costs are related to retention compensation for certain of the Company’s employees and legal and consulting fees.