Business Combinations

9 Months Ended

Oct. 03, 2015

Business Combinations [Abstract]

Business Combinations

Note 3 – Business Combinations

On October 27, 2014, the Company completed its acquisition of the Enterprise Business (“Enterprise”) from Motorola Solutions Inc. (“MSI”) for a purchase price of $3.45 billion (the “Acquisition”). This transaction positions the Company as a leading technology innovator, with the accelerating convergence of mobility, data analytics and cloud computing. It will enable the Company to further sharpen its strategic focus on providing mission-critical solutions for its customers. Certain assets and liabilities historically associated with the Enterprise business were retained by MSI, including MSI’s iDEN infrastructure business. The Acquisition was pursuant to the Master Acquisition Agreement dated April 14, 2014, as amended (the “Master Acquisition Agreement”) and was structured as a combination of stock and asset acquisitions and a merger of certain US entities, resulting in 100% ownership of Enterprise.

The Company financed the Acquisition through a combination of cash on hand and borrowings of $3.25 billion (the “Indebtedness”), including the sale of 7.25% senior notes due 2022 with an aggregate principal amount of $1.05 billion (the “Senior Notes”) and a credit agreement with various lenders that provided a term loan of $2.2 billion (the “Term Loan”) due 2021. See Note 13 Long-Term Debt. Consideration was paid in the form of cash to MSI in the amount of $3.45 billion.

During the nine months ended October 3, 2015, the Company paid additional consideration of $50.9 million to MSI in relation to the opening cash balance and settlement of working capital.

Acquired goodwill represents the consideration paid in excess of the fair value of the net tangible and intangible assets acquired. The Company paid this premium for a number of reasons, including acquiring an experienced workforce and enhanced technology capabilities as further described above. Currently, goodwill is assigned to the Enterprise segment. The final valuation of deferred income taxes as well as the assignment of goodwill to reporting units has not been completed as of the date these financial statements are issued.

The purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values resulting in goodwill of $2.335 billion. See Note 7 Goodwill and Other Intangibles. During 2015, the Company adjusted certain preliminary values. The fair value adjustments resulted in a decrease of $14.0 million in assets, a decrease of $6.4 million in liabilities and a corresponding increase to goodwill of $7.6 million. Certain intangible assets including goodwill are denominated in foreign currency and, as such, include the effects of foreign currency translation.

The following table summarizes the preliminary estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition (in thousands):

Cash and cash equivalents	$	100,338
Accounts receivable, net (1)		439,821
Inventories, net		263,526
Deferred income taxes		117,147
Other current assets		21,905
Property and equipment		123,365
Other intangibles, net		994,421
Other long-term assets		49,593
Deferred revenue		(172,135	)
Tax liabilities		(9,410	)
Other current liabilities (2)		(369,777	)
Long-term deferred revenue		(102,633	)
Unrecognized tax benefits		(9,526	)
Other long-term liabilities		(24,884	)
Long-term deferred income taxes		(211,851	)
Total identifiable net assets	$	1,209,900

(1) Based on the purchase price allocations, accounts receivable estimated fair value is $439.8 million and gross contractual value is $460.6 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.

(2) Other current liabilities include accounts payable, customer reserves, and employee compensation and related benefits.

ASU 2015-16 “Business Combinations (Topic 805):Simplifying the Accounting for Measurement-Period Adjustments”

During September 2015, the Company received a revised valuation report from a third party valuation firm. After reviewing the results of the valuation reports, the Company reduced the value of intangible assets $20.0 million, property and equipment $2.8 million and deferred revenue $0.4 million and increased inventory $1.5 million with a corresponding $21.7 million increase to goodwill. As discussed in Note 2 Recently Issued Accounting Pronouncements, the Company has adopted ASU 2015-16 “Business Combinations (Topic 805):Simplifying the Accounting for Measurement-Period Adjustments,” which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.

The following table summarizes the fair value balance sheet adjustments recorded during the third quarter of 2015 as well as the amount of adjustments to the current period income statement line items relating to the income effects that would have been recognized in previous periods if the adjustments to provisional amounts were recognized as of the acquisition date (in thousands):

	Increase/ (decrease) in fair value				Effect on Income Before Income Taxes for the Three Months Ended
Balance Sheets				Statements of Operations	December 31, 2014			April 4, 2015			July 4, 2015		Total
Other intangibles	$	(20,000	)	Amortization of intangibles	$	764		$	1,146		$	1,146	$	3,056
Inventories		1,515		Cost of sales		(1,386	)		(129	)		—		(1,515	)
Property and equipment		(2,801	)	General and administrative		39			59			59		157
Deferred revenue		(372	)	Net sales		39			36			28		103
Total	$	(21,658	)	Total	$	(544	)	$	1,112		$	1,233	$	1,801