Business Combinations

12 Months Ended

Dec. 30, 2011

Business Combinations [Abstract]

Business Combinations

4. Business Combinations

On December 1, 2009, we acquired WiChorus, a privately held developer of mobile packet core products. We paid $180.0 million in cash for 100% of WiChorus' capital stock and 628,517 of Tellabs options, with a weighted average remaining vesting period of 1.5 years in exchange for unvested WiChorus employee stock options. The options had a total fair value, estimated using the Black-Scholes option pricing model, of $3.3 million, $2.0 million of which was allocated to the acquisition and $1.3 million allocated to post-acquisition employee service. Taking into account WiChorus' $15.3 million cash balance, the net cash price was $164.7 million. The intent of the acquisition was to enable Tellabs to expand into mobile packet core networks. To focus our business, we will stop developing products for the mobile packet core market, which has not measured up to our expectations during the past two years, while supporting our existing customers. We accounted for this acquisition under the purchase method of accounting. We have included the operating results of the business in the accompanying results of operations from the date of acquisition.

Goodwill from this acquisition was $82.7 million, which reflected current market pricing and synergies created by combining Tellabs resources with the SmartCore technology. All goodwill was allocated to the Broadband segment and was not deductible for income tax purposes. Given that we continued to experience a significant decline in business volumes from a major customer that has had an adverse impact on the results of the Broadband segment, which was not expected to reverse in the near-term, and since Tellabs' overall market capitalization continued to fall below book value, we completed an interim goodwill impairment review for the Broadband segment in the third quarter of 2011. As a result of the review, we recorded an impairment charge for the full amount of Broadband segment goodwill, amounting to $82.7 million. See Note 5, Goodwill and Intangible Assets, for a further discussion of the goodwill impairment.

Intangible assets from the WiChorus acquisition included a $20.0 million IPR&D indefinite life asset. In conjunction with the interim goodwill impairment review, we assessed the valuation of the IPR&D in the third quarter of 2011. Updated management projections related to the IPR&D resulted in an impairment charge in the third quarter of 2011 of $20.0 million. See Note 5, Goodwill and Intangible Assets, for a further discussion of the IPR&D impairment. No amortization was recorded for indefinite life IPR&D costs in 2010 and 2009. The remaining acquired WiChorus intangible assets of $83.6 million, as of the acquisition date, are being amortized on a straight-line basis over a weighted average amortization period of approximately 5 years.

We incurred $1.3 million in acquisition costs in 2009, included in Research and development expenses in the Statement of Operations.