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Business Acquisition | 6 Months Ended
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Jul. 01, 2016
Business Acquisition, Pro Forma Information [Abstract] |
Business Combination Disclosure [Text Block] | BUSINESS ACQUISITION On February 29, 2016, the Company, through its wholly-owned subsidiary Harmonic International AG, completed its acquisition of 100% of the share capital and voting rights of TVN, a global leader in advanced video compression solutions headquartered in Rennes, France. In the first quarter of 2016, the Company recorded a provisional purchase price of $84.6 million, including an estimated contingent consideration of approximately $8.0 million. In the second quarter of 2016, the Company recorded a $2.1 million reduction to the contingent consideration upon finalizing the pending post-closing adjustments and as a result, the purchase price was reduced to $82.5 million. Pursuant to the Securities Purchase Agreement entered into between the Company and the other parties thereto, dated February 11, 2016 (“TVN Purchase Agreement”), $13.5 million of the purchase consideration may remain in escrow for a period of up to 18 months and relates to certain indemnification obligations of TVN’s former equity holders. The TVN acquisition was primarily funded with cash proceeds from the issuance of convertible senior notes by the Company in December 2015. (See Note 11, “Convertible Notes, Other Debts and Capital Leases” for additional information on the notes). The Company believes that its acquisition of TVN has strengthened, and will continue to strengthen the Company’s competitive position in the video infrastructure market as well as to enhance the depth and scale of the Company’s research and development (“R&D”) and service and support capabilities in the video arena. The Company believes that the combined product portfolios, R&D teams and global sales and service personnel will allow the Company to accelerate innovation for its customers while leveraging greater scale to drive operational efficiencies. The TVN acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, 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 this business combination is based on currently available information and is considered preliminary. The provisional purchase price has been allocated on a preliminary basis to tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. The Company will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date). The Company’s preliminary allocation of the estimated purchase consideration as of July 1, 2016 was as follows (in thousands):
Assets: |
Cash and cash equivalents | $ | 7,063 |
Accounts receivable, net | 14,923 |
Inventories | 3,462 |
Prepaid expenses and other current assets | 4,442 |
Property and equipment, net | 9,988 |
French R&D tax credit receivables (1) | 26,421 |
Other long-term assets | 1,824 |
Total assets | $ | 68,123 |
Liabilities: |
Other debts and capital leases, current | 8,362 |
Accounts payable | 13,963 |
Deferred revenue | 2,504 |
Accrued liabilities | 18,524 |
Other debts and capital leases, long-term | 16,087 |
Other long-term liabilities | 6,415 |
Deferred tax liabilities | 952 |
Total liabilities | $ | 66,807 |
Goodwill | 37,630 |
Intangibles | 43,600 |
Total purchase consideration | $ | 82,546 |
(1) See Note 8, “Balance Sheet Components-Prepaid expenses and other current assets” for more information on French R&D tax credit receivables”. The following table presents details of the intangible assets acquired through this business combination (in thousands, except years):
| Estimated Useful Life (in years) |  | Fair Value
Backlog | 6 months |  | $ | 3,600 |
Developed technology | 4 years |  | 21,400 |
Customer relationships | 5 years |  | 18,000 |
In-process research and development (1) | N/A |  | — |
Trade name | 4 years |  | 600 |
|  |  | $ | 43,600 |
(1) By the end of the second quarter of 2016, the Company completed the TVN in-process research and development activities and as a result, the in-process research and development of $1.0 million was reclassified to developed technology. Acquired identifiable intangible assets were valued using the income method and are amortized on a straight line basis over their respective estimated useful lives. Goodwill of $37.6 million arising from the acquisition was derived from expected benefits from the business synergies to be derived from the combined entities and the experienced workforce who joined the Company in connection with the acquisition. The goodwill will be assigned to the Company’s video reporting unit and it is not expected to be deductible for income tax purposes. The amortization for the developed technology is recorded in “Cost of revenues” for product and the amortization for the remaining intangibles is recorded in “Amortization of intangibles”, which are part of operating expenses, on the Condensed Consolidated Statement of Operations. The intangibles assets acquired will be assigned to the Company’s video reporting unit and are not expected to be deductible for income tax purposes. The Company also acquired an indefinite lived asset of $1.0 million which represents the fair value of in-process research and development activities that were estimated to be completed within six months of the acquisition date. The related research and development efforts were completed by the end of the second quarter of 2016 and the Company determined that it has become a finite lived intangible asset (developed technology) with an estimated useful life of four years. The results of operations of TVN are included in the Company’s Condensed Consolidated Statements of Operations beginning February 29, 2016. For the three months ended July 1, 2016, $18.3 million of revenue and $6.9 million of gross margin from TVN were included in the Company’s Condensed Consolidated Statement of Operations. For the six months ended July 1, 2016, $21.2 million of revenue and $7.1 million of gross margin from TVN were included in the Company’s Condensed Consolidated Statement of Operations. Since the Company is in the process of integrating TVN’s operations, the Company believes it is impracticable to determine TVN’s stand-alone income(loss) from operations and net income(loss) and these measures are not meaningful representations of TVN’s stand-alone performance. Acquisition-and integration-related expenses As a result of the TVN acquisition, the Company incurred acquisition-and integration-related expenses in aggregate of $3.4 million and $6.5 million for the three and six months ended July 1, 2016, respectively. These costs consisted of acquisition-related costs which include outside legal, accounting and other professional services as well as integrated-related costs which include incremental costs resulting from the TVN acquisition that are not expected to generate future benefits once the integration is fully consummated. These costs are expensed as incurred. Acquisition-and integration-related expenses for the TVN acquisition is summarized in the table below (in thousands):
| Acquisition-related |  | Integration-related
| Three months ended |  | Six months ended |  | Three months ended |  | Six months ended
| July 1, 2016 |  | July 1, 2016
Product cost of revenue | $ | — |  |  | $ | — |  |  | $ | 433 |  |  | $ | 491 |
Research and development | — |  |  | — |  |  | 500 |  |  | 550 |
Selling, general and administrative | 885 |  |  | 3,321 |  |  | 1,585 |  |  | 2,137 |
Total acquisition- and integration-related expenses in operating expenses | 885 |  |  | 3,321 |  |  | 2,085 |  |  | 2,687 |
Total acquisition- and integration-related expenses | $ | 885 |  |  | $ | 3,321 |  |  | $ | 2,518 |  |  | $ | 3,178 |
Pro Forma Financial Information The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of TVN had occurred on January 1, 2015, the beginning of the comparable prior annual period. The unaudited pro forma combined results are provided for illustrative purpose only and are not indicative of the Company’s actual consolidation results. The pro forma adjustments primarily relate to the amortization of acquired intangibles and interest expense related to financing arrangements. In addition, the unaudited pro forma net loss for the three and six months ended July 3, 2015 was adjusted to include $3.4 million and $6.5 million of acquisition- and integration- related expenses, respectively; and $5.7 million and $8.1 million reduction in revenue related to the fair value adjustment of deferred revenue. The unaudited pro forma net loss for the six months ended July 1, 2016 was adjusted to exclude $6.5 million of acquisition- and integration- related expenses. These adjustments exclude the income tax impact.
| Three months ended |  | Six months ended
| July 3, 2015 |  | July 1, 2016 |  | July 3, 2015
| (in millions, except per share amounts)
Net revenue | $ | 127.3 |  |  | $ | 200.1 |  |  | $ | 243.9 |
Net loss | (8.9 | ) |  | (40.3 | ) |  | (27.9 | )
Net loss per share-basic and diluted | $ | (0.10 | ) |  | $ | (0.52 | ) |  | $ | (0.31 | )

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1500-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1524-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4922-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4934-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4926-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
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