Business Combinations

6 Months Ended

Oct. 28, 2011

Business Combinations [Abstract]

Business Combinations

5. Business Combinations

Fiscal 2012 Acquisition

On May 6, 2011, we completed the acquisition of certain assets related to the Engenio external storage systems business (Engenio) of LSI Corporation (LSI). We paid LSI $480 million in cash and also assumed certain liabilities related to Engenio. During the three years following the acquisition, LSI will pay us a total of $13.0 million to service certain LSI customer warranties. This acquisition enables us to address growing customer requirements in the areas of high bandwidth and intensive analytics workloads such as video, including full-motion video capture and digital video surveillance, as well as high-performance computing applications, such as genomics sequencing and scientific research.

The purchase price was allocated to Engenio's net tangible and intangible assets as of the date of acquisition based on various fair value estimates and analyses, including work performed by third-party valuation specialists.

The following are the preliminary estimated fair value of assets acquired and liabilities assumed as of the closing date (in millions):

Current assets	$	49.8
Property and equipment		33.3
Identified intangible assets		272.1
Goodwill		143.7
Other assets		9.3
Total assets acquired		508.2
Current liabilities		(20.9	)
Other liabilities		(7.3	)
Total purchase price	$	480.0

As this was an asset acquisition, U.S. goodwill is deductible for income tax purposes. The goodwill is comprised of expected synergies in utilizing Engenio's technology in the Company's products and channels (and vice versa), reduction in future combined research and development expenses, and intangible assets, such as acquired workforce, that do not qualify for separate recognition.

Adjustments may be made to the allocation of the purchase price during the measurement period to reflect adjustments related to facts existing at the time of the acquisition.

The identified intangible assets as of the date of acquisition, which are amortized on a straight-line basis over their estimated useful lives, consisted of the following (in millions, except useful life):

	Fair Value		Useful Life (Years)
Developed technology	$	216.0		5
Customer contracts/relationships		45.0		2
Trademarks and trade names		7.0		2
Order backlog		2.5		0
Covenant not to compete		1.6		3
Total identified intangible assets	$	272.1

Our consolidated net revenues for the three and six months ended October 28, 2011 included $182.4 million and $339.5 million, respectively, attributable to Engenio since the acquisition. Due to continued integration of the combined businesses since the date of acquisition, it is impracticable to determine the earnings contributed by Engenio.

The following unaudited pro forma condensed combined financial information gives effect to the acquisition of Engenio as if it were consummated on May 1, 2010 (the beginning of the comparable prior annual reporting period). Due to historically differing fiscal year ends of the Company and Engenio, the unaudited pro forma condensed combined financial information for the three and six months ended October 29, 2010 is based on the historical results of the Company for the three and six months ended October 29, 2010 and the historical results of Engenio for the three and six months ended October 3, 2010.

The unaudited pro forma condensed combined financial information is presented for informational purposes only, is not intended to represent or be indicative of the results of operations of the Company that would have been reported had the acquisition occurred on May 1, 2010 and should not be taken as representative of future condensed consolidated results of operations of the combined company (in millions):

	Three Months Ended				Six Months Ended
	October 28, 2011		October 29, 2010		October 28, 2011		October 29, 2010
Net revenues	$	1,507.0	$	1,431.2	$	2,973.8	$	2,753.9
Net income	$	165.8	$	177.8	$	311.7	$	316.2

A nonrecurring adjustment of $5.6 million has been reflected in the unaudited pro forma condensed combined information with the effect of increasing net income for the six months ended October 28, 2011 and decreasing net income for the six months ended October 29, 2010 to present the impact on cost of sales from the step-up in inventory as if the acquisition occurred on May 1, 2010.

Acquisition-related expense in our condensed consolidated statements of operations was:

	Three Months Ended		Six Months Ended
	October 28, 2011		October 28, 2011
Acquisition-related expense	$	1.7	$	3.9

For the six months ended October 28, 2011 acquisition-related expense consisted of due diligence and legal charges of $0.7 million directly related to the acquisition of Engenio and $3.2 million of one-time integration charges related to the combined business.

Fiscal 2011 Acquisitions

During fiscal 2011, we acquired two privately held companies, Akorri Networks, Inc. (Akorri), and Bycast Inc. (Bycast). Akorri, headquartered in Massachusetts, is a provider of data center management software focused on performance and capacity analytics for virtualized, shared information technology infrastructures. The Akorri acquisition extends our offering by adding performance capacity analytics to provide customers greater visibility across the entire IT stack, resulting in further improvement in IT efficiency and flexibility through functions that help control, automate, and analyze their shared IT infrastructure. Bycast, headquartered in Vancouver, Canada, develops and sells software designed to manage petabyte-scale, globally distributed repositories of images, video and records for enterprises and service providers. The Bycast acquisition extends our position in unified storage by adding an object-based storage software offering, which simplifies the task of large-scale storage and improves the ability to search and locate data objects.

The following table summarizes the purchase price components and equity interests acquired (in millions):

	Akorri			Bycast
Acquisition dates	January 31, 2011			May 13, 2010
Percentage of equity interest acquired		100	%		100	%
Total purchase price	$	62.3		$	83.8
Cash component of purchase price	$	62.3		$	80.5
Fair value of vested options assumed	$	0.0		$	3.3
Purchase price held in escrow to secure obligations of acquired entity	$	7.9		$	13.1
Release of escrow (number of years subsequent to acquisition date)		1.5			1.5

We paid the remaining purchase price of Bycast of $13.1 million held in escrow in November 2011. 

A summary of the purchase price allocation as of the respective acquisition dates is as follows (in millions):

	Akorri		Bycast
Cash	$	0.7	$	5.7
Identified intangible assets		22.0		23.6
Goodwill		23.3		56.0
Deferred income taxes		9.9		(3.9	)
Other assets, net		6.4		2.4
Total purchase price	$	62.3	$	83.8

Due to continued integration of the combined businesses since the date of acquisition, it is impracticable to determine the revenue and earnings contributed by Akorri and Bycast. As Akorri and Bycast were acquisitions of businesses, goodwill is not deductible for income tax purposes.

The results of operations of the acquired entities are included in our condensed consolidated statements of operations from their respective acquisition dates. Pro forma results of operations have not been presented because the acquisitions were not material to our results of operations.