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, for a final purchase price of $82.5 million in cash. 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 and service and support capabilities in the video arena.

During the fourth quarter of 2016, the Company completed the accounting for this business combination. The final TVN purchase price has been allocated to tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. The Company’s allocation of TVN purchase consideration is as follows (in thousands):



Assets:
Cash and cash equivalents	$	6,843
Accounts receivable, net	14,933
Inventories	3,462
Prepaid expenses and other current assets	2,412
Property and equipment, net	9,942
French R&D tax credit receivables ⁽¹⁾	26,421
Other long-term assets	2,134
Total assets	$	66,147
Liabilities:
Other debts and capital lease obligations, current	8,362
Accounts payable	12,494
Deferred revenue	2,504
Accrued and other current liabilities	18,365
Other debts and capital lease obligations, long-term	16,087
Other non-current liabilities	6,467
Deferred tax liabilities	2,126
Total liabilities	$	66,405

Goodwill	41,670
Intangibles	41,100
Total purchase consideration	$	82,512

(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	21,700
Customer relationships	5 years	15,200
Trade name	4 years	600
		$	41,100

The goodwill is not expected to be deductible for income tax purposes but the intangibles assets acquired are expected to be deductible for income tax purposes in certain jurisdictions. Both goodwill and intangibles assets acquired are assigned to the Company’s video reporting unit.

Acquisition- and integration- related expenses

As a result of the TVN acquisition, the Company incurred the acquisition- and integration- related expenses summarized in the table below (in thousands):



	Acquisition-related				Integration-related
	Three months ended		Nine months ended		Three months ended				Nine months ended
	September 30, 2016				September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
Product cost of revenue	$	—	$	—	$	—	$	119	$	342	$	610
Research and development	—		—		—		152		7		702
Selling, general and administrative	534		3,855		117		4,365		2,385		6,502
Total acquisition- and integration-related expenses in operating expenses	534		3,855		117		4,636		2,734		7,814
Interest expense, net	—		—		—		98		—		98
Total acquisition- and integration-related expenses	$	534	$	3,855	$	117	$	4,734	$	2,734	$	7,912

These costs consisted of acquisition-related costs which include outside legal, accounting and other professional services as well as integration-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. The Company expects to continue to have some TVN integration-related costs throughout the remainder of 2017, primarily outside legal and advisory fees relating to re-organization of TVN’s legal entities.