Note 4. Business Acquisitions

Acquisition of Ruckus Wireless and ICX Switch business

On December 1, 2017, ARRIS completed the acquisition of Ruckus Wireless and ICX Switch business (“Ruckus Networks”). The total cash paid was approximately $761.0 million (net of estimated adjustments for working capital and noncash settlement of pre-existing payables and receivables) The purchase agreement provides for customary final adjustments and potential cash payments or receipts that are expected to occur in 2018.

With this acquisition, ARRIS expands its leadership in converged wired and wireless networking technologies beyond the home into the education, public venue, enterprise, hospitality, and multi-dwelling unit markets.

The preliminary estimated goodwill of $318.0 million arising from the acquisition is attributable to the strategic opportunities and synergies that are expected to arise from the acquisition of Ruckus Networks and the workforce of the acquired business. Goodwill has been preliminarily assigned to our new Enterprise Networks reporting unit as of December 31, 2017. The Company will finalize the assignment during the measurement period. Goodwill is not expected to be deductible for income tax purposes.

The following table summarizes the fair value of consideration transferred for Ruckus Networks (in thousands):


Cash consideration	$	779,743
Estimated working capital adjustments		(16,371	)
Non-cash consideration ⁽¹⁾		(2,359	)

Total consideration transferred	$	761,013

(1)	Non-cash consideration represents $2.4 million settlement of preexisting payables and receivables between Ruckus Networks and ARRIS.

Total consideration excludes $61.5 million paid to Broadcom for the cash settlement of stock-based awards for which vesting was accelerated as contemplated in the purchase agreement. This was expensed in the fourth quarter of 2017.

The following is a summary of the estimated fair values of the net assets acquired (in thousands):


	Amounts Recognized as of Acquisition Date
Total estimated consideration transferred	$	761,013

Cash and cash equivalents		18,958
Accounts receivables		32,940
Inventories		48,897
Prepaids and other		4,836
Property, plant & equipment		33,500
Intangible assets		472,500
Other assets		39,528
Accounts payable and accrued liabilities		(17,216	)
Other current liabilities		(9,666	)
Deferred revenue		(47,718	)
Noncurrent deferred income tax liabilities, net		(92,233	)
Other noncurrent liabilities		(41,347	)

Net assets acquired		442,979

Goodwill	$	318,034

The acquisition was accounted for using the acquisition method of accounting, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for the business combination is based on currently available information and is considered preliminary. The Company has not received a final valuation report from the independent valuation expert for acquired property, plant and equipment and intangible assets. In addition, the Company is still gathering information about income taxes and deferred income tax assets and liabilities, accounts receivables, inventories, deferred revenues, warranty obligations, other assets and accrued liabilities based on facts that existed as of the date of the acquisition. The final accounting for the business combination may differ materially from that presented in these unaudited consolidated financial statements.

The $472.5 million of acquired intangible assets are as follows (in thousands):


	Preliminary Estimated Fair value		Estimated Weighted Average Life (years)
Technology and patents	$	265,000		6.8
Customer contracts and relationships		100,000		7.0
In-process research and development		50,000		indefinite
Trademarks and tradenames		22,500		10.0
Backlog		35,000		0.5

Total estimated fair value of intangible assets	$	472,500

The fair value of trade accounts receivable is $32.9 million with the gross contractual amount being $33.8 million. The Company expects $0.9 million to be uncollectible.

The Company incurred acquisition related costs of $74.5 million during 2017, of which $61.5 million relates to the cash settlement of equity awards held by transferring employees. This amount was expensed by the Company as incurred and is included in the Consolidated Statement of Operations in the line item titled “Integration, acquisition, restructuring and other costs”.

The Ruckus Networks business contributed revenues of approximately $45.7 million to our consolidated results from the date of acquisition through December 31, 2017.

Acquisition of Pace

On January 4, 2016, ARRIS completed its acquisition of Pace for approximately $2,074 million, including $638.8 million in cash and issuance of 47.7 million ordinary shares of ARRIS International plc (formerly ARRIS International Limited) and $0.3 million of non-cash consideration.

The Company completed the accounting for the business combination during the fourth quarter of 2016.