Note 6. Mergers and Acquisitions

Fiscal 2014 Acquisitions

Network Instruments, LLC (“Network Instruments”)

On January 6, 2014 (“Network Instruments Closing Date”), the Company completed the acquisition of Network Instruments, a privately-held U.S. company. Network Instruments is a leading developer of enterprise network and application-performance management solutions for global 2000 companies. The Company acquired all outstanding shares of Network Instruments for $208.5 million in cash, subject to final cash and working capital adjustments including holdback payments of approximately $20.0 million which are reserved for potential breaches of representations and warranties. During 2015 the Company made holdback payments totaling $19.7 million, net of working capital adjustments, which were classified as a financing activity within the Consolidated Statements of Cash Flows.

The acquisition of Network Instruments further strengthens the Company’s portfolio of solutions for the enterprise, data center and cloud networking markets. In order to improve application performance, reduce costs and address increasing network complexity, enterprise network administrators are rapidly transforming their IT networks while embracing today’s most critical technology initiatives such as unified communications, cloud, and data center consolidation. Network Instruments helps enterprises simplify the management and optimization of their networks with high-performance solutions that provide actionable intelligence and deep network visibility. Network Instruments was integrated into the Company’s SE operating segment.

The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date.

The Company finalized the purchase price allocation related to this acquisition during fiscal 2014. The purchase price was allocated as follows (in millions):



Net tangible assets acquired	$	20.8
Intangible assets acquired:
Developed technology	21.7
Customer relationships	38.3
In-process research and development	1.7
Other	0.3
Goodwill	125.6
Total purchase price	$	208.4

The following table summarizes the components of the tangible assets acquired at fair value (in millions):



Cash	$	9.0
Accounts receivable	13.8
Inventory	6.0
Property and equipment	1.0
Accounts payable	(1.5		)
Deferred tax liabilities, net	(0.6		)
Other liabilities, net of other assets	(4.4		)
Deferred revenue	(2.5		)
Net tangible assets acquired	$	20.8

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of acquired developed technology, customer relationships, acquired in-process research and development (“IPR&D”) and other intangible assets was determined based on an income approach using the discounted cash flow method. The intangible assets, except IPR&D, are being amortized over their estimated useful lives of five years for the majority of acquired developed technology and customer relationships and one year for trade name. Order backlog was fully amortized in fiscal 2014.

In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the Network Instruments Closing Date. The IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. IPR&D is tested for impairment during the period it is considered an indefinite lived asset.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Network Instruments. Goodwill has been assigned to the NE and SE segment and is not deductible for tax purposes. Goodwill is not being amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

The estimated amount of Network Instruments’ net revenue and net loss, included in the Company’s Consolidated Statement of Operations for the year ended June 28, 2014 was $12.6 million and $9.6 million, respectively. Network Instruments’ net revenue and net loss disclosed above reflect Management’s best estimate, based on information available at the reporting date.

The following table presents certain unaudited pro forma information, for illustrative purposes only, for fiscal 2014 and fiscal 2013 as if Network Instruments had been acquired on July 1, 2012. The unaudited estimated pro forma information combines the historical results of Network Instruments with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition taken place on July 1, 2012. Additionally, the pro forma financial information does not include the impact of possible business model changes and does not reflect pro forma adjustments to conform accounting policies between Network Instruments and the Company. Actual results will differ from the unaudited pro forma information presented below (unaudited, in millions):



	Year Ended
	June 28, 2014
Pro forma net revenue	$	1,770.0
Pro forma net (loss) income	(14.5		)

Trendium Inc. (“Trendium”)

On December 10, 2013 (“Trendium Closing Date”), the Company acquired certain technology and other assets from Trendium, a privately-held U.S. company, for a purchase price of $26.1 million in cash including a holdback payment of approximately $2.5 million which is reserved for potential breaches of representations and warranties. During fiscal 2015, the Company made the $2.5 million holdback payment following the one-year anniversary of the Trendium Closing Date. The payment is classified as a financing activity within the Consolidated Statements of Cash Flows.

Trendium provides real-time intelligence software solutions for customer experience assurance (“CEA”), asset optimization and monetization of big data for 4G/Long Term Evolution (“LTE”) mobile network operators. The addition of Trendium employees and technology enables the Company to introduce a new paradigm of CEA, enabling operators of 4G/LTE networks to achieve a real and relevant improvement in customer satisfaction while maximizing productivity and profitability for dynamic converged 4G/LTE networks and beyond. The purchased assets are included in the Company’s SE segment.

The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired were recorded at fair value on the acquisition date. The Company finalized the purchase price allocation related to this acquisition, including measurement period adjustments with the corresponding offset to goodwill, during fiscal 2014. The purchase price was allocated as follows (in millions):



Tangible assets acquired:
Property, plant and equipment	$	0.2
Intangible assets acquired:
Developed technology	6.1
In-process research and development	5.4
Goodwill	14.4
Total purchase price	$	26.1

In accordance with authoritative guidance, the Company recognized IPR&D at fair value as of the Trendium Closing Date. The IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. IPR&D is tested for impairment during the period it is considered an indefinite lived asset.

The goodwill arising from this acquisition is primarily attributed to product synergies and the assembled workforce of Trendium. Goodwill was assigned to the NE and SE segment and is deductible for tax purposes. Goodwill is not amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

Trendium’s results of operations have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.