Note 4. Business Acquisition

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 $308.2 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 reporting unit as of June 30, 2018. The Company will finalize the assignment during the measurement period. A portion of the goodwill is 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 a $2.4 million settlement of preexisting payables and receivables between Ruckus Networks and ARRIS.

Total consideration excludes $61.5 million paid 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 (a)			Adjustments			Amounts Recognized as of Acquisition Date (as adjusted)
Total estimated consideration transferred	$	761,013		$	—		$	761,013
Cash and cash equivalents		18,958			—			18,958
Accounts receivable, net		32,940			(7,910	)		25,030
Inventories		48,897			(461	)		48,436
Prepaids & other		4,836			(1,005	)		3,831
Property, plant & equipment		33,500			2,014			35,514
Intangible assets		472,500			22,200			494,700
Other assets		39,528			(37,872	)		1,656
Accounts payable and accrued liabilities		(17,216	)		2,350			(14,866	)
Other current liabilities		(9,666	)		(1,988	)		(11,654	)
Deferred revenue		(47,718	)		970			(46,748	)
Noncurrent deferred income tax liabilities		(92,233	)		(7,643	)		(99,876	)
Other noncurrent liabilities		(41,347	)		39,137			(2,210	)

Net assets acquired		442,979			9,792			452,771

Goodwill	$	318,034			(9,792	)	$	308,242

(a)	As previously reported as of December 31, 2017

As a result of measurement period changes for intangible assets, the Company recorded a decrease to previously recorded amortization for quarters ended December 31, 2017 and March 31, 2018 of $1.8 million and $1.0 million, respectively. These adjustments have been recorded prospectively in the first six months of 2018.

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, 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 $494.7 million of acquired intangible assets are comprised of the following (in thousands):


	Preliminary Estimated Fair value		Estimated Weighted Average Life (years)
Technology and patents	$	217,900		5.4
Customer contracts and relationships		195,400		10.0
Tradenames		55,400		indefinite
Trademarks and tradenames		10,700		10.0
Backlog		15,300		0.3

Total estimated fair value of intangible assets	$	494,700

The fair value of trade accounts receivable is $25.0 million with the gross contractual amount being $26.2 million. The Company expects $1.2 million to be uncollectible.

The Company incurred acquisition related costs of $0.6 million and $0.7 million during the three and six months ended June 30, 2018, respectively. 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 $343.8 million to our consolidated results for the six months ended June 30, 2018.