Note 5. Mergers and Acquisitions

Network Instruments, LLC (“Network Instruments”)

On January 6, 2014 (“Network Instruments Closing Date”), the Company completed the acquisition of Network Instruments, a privately-held leading developer of enterprise network and application-performance management solutions for global 2000 companies. The Company acquired all outstanding shares of Network Instruments for $208.5 million in cash, subject to final cash and working capital adjustments including holdback payments of approximately $20.0 million which are reserved for potential breaches of representations and warranties. The holdback payments, minus any deductions for actual or pending claims, will be released in two tranches: $10.0 million to be paid following the six-month anniversary of the Network Instruments Closing Date and the remaining $10.0 million to be paid following the one-year anniversary of the Network Instruments Closing Date.

The acquisition of Network Instruments further strengthens the Company as a key solutions provider to the enterprise, data center and cloud networking markets. In order to improve application performance, reduce costs and address increasing network complexity, enterprise network administrators are rapidly transforming their IT networks while embracing today’s most critical technology initiatives such as unified communications, cloud, and data center consolidation. Network Instruments helps enterprises simplify the management and optimization of their networks with high-performance solutions that provide actionable intelligence and deep network visibility. The Network Instruments acquisition is being integrated into the Company’s Network and Service Enablement (“NSE”) segment.

The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date.

The purchase price was allocated as follows (in millions):

Net tangible assets acquired	$	22.1
Intangible assets acquired:
Developed technology	21.7
Customer relationships	38.3
In-process research and development	1.7
Other	0.3
Goodwill	124.4
Total purchase price	$	208.5

The amounts above are considered preliminary and are subject to change once the Company receives additional information it believes is necessary to finalize its determination of the fair value of certain assets acquired under the acquisition.

The following table summarizes the components of the tangible assets acquired at fair value (in millions):

Cash	$	9.0
Accounts receivable	13.8
Inventory	7.3
Property and equipment	1.0
Accounts payable	(1.5		)
Deferred tax liabilities, net	(0.6		)
Other liabilities, net of other assets	(4.4		)
Deferred revenue	(2.5		)
Net tangible assets acquired	$	22.1

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of acquired developed technology, customer relationships, In-process Research and Development (“IPR&D”) and other intangible assets was determined based on an income approach using the discounted cash flow method. The intangible assets, except IPR&D, are being amortized over their estimated useful lives of five years for the majority of acquired developed technology and customer relationships and one year for trade name. Order backlog will be fully amortized in fiscal 2014.

In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the Network Instruments Closing Date. The IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. IPR&D is tested for impairment during the period it is considered an indefinite lived asset.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Network Instruments. Goodwill has been assigned to the NSE segment and is not deductible for tax purposes. Goodwill is not being amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

Time-Bandwidth Products AG (“Time-Bandwidth”)

On January 27, 2014 (“Time-Bandwidth Closing Date”), the Company completed the acquisition of Time-Bandwidth, a privately-held provider of high powered and ultrafast lasers for industrial and scientific markets. The Company acquired all outstanding shares of Time-Bandwidth for $15.0 million in cash, subject to a holdback payment of approximately $2.3 million which is reserved for potential breaches of representations and warranties. The holdback payment, minus any deductions for actual or pending claims, will be released following the eighteen-month anniversary of the Time-Bandwidth Closing Date.

Time-Bandwidth provides innovative high powered and ultrafast laser technology that can rapidly and precisely process parts at high volumes during the manufacturing process. Use of ultrafast lasers for micromachining applications is being driven primarily by increasing use of consumer electronics and connected devices globally. Manufacturers are taking advantage of high- power and ultrafast lasers to create quality micro parts for consumer electronics and to process semiconductor chips for consumer devices. Time-Bandwidth’s technology complements the Company’s current laser portfolio, while enabling Time-Bandwidth to leverage the Company’s high volume and low-cost manufacturing model, global sales team and channel relationships. Time-Bandwidth is being integrated into the Company’s Communications and Commercial Optical Products (“CCOP”) segment.

The purchase price was allocated as follows (in millions):

Net tangible assets acquired	$	1.7
Intangible assets acquired:
Developed technology	6.7
Customer relationships	0.3
Goodwill	6.3
Total purchase price	$	15.0

The following table summarizes the components of the net tangible assets acquired at fair value (in millions):

Accounts receivable	$	1.4
Inventories	4.9
Property and equipment	1.3
Accounts payable	(0.6		)
Accrued expenses and other liabilities, net of other assets	(3.6		)
Deferred tax liabilities, net	(1.7		)
Net tangible assets acquired	$	1.7

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of acquired developed technology and customer relationships was determined based on an income approach using the discounted cash flow method. The acquired developed technology and customer relationships are being amortized over their estimated useful lives of eight and three years, respectively.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Time-Bandwidth. Goodwill has been assigned to the CCOP segment and is not deductible for tax purposes. Goodwill is not being amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

Time-bandwidth’s results of operations have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.

Trendium Inc.(“Trendium”)

On December 10, 2013 (“Trendium Closing Date”), the Company acquired certain technology and other assets from Trendium, a privately-held U.S. company, for a purchase price of $26.1 million in cash including a holdback payment of approximately $2.5 million which is reserved for potential breaches of representations and warranties. The holdback payment, minus any deductions for actual or pending claims, will be released following the one-year anniversary of the Trendium Closing Date.

Trendium provides real-time intelligence software solutions for customer experience assurance (“CEA”), asset optimization and monetization of big data for 4G/Long term evolution (“LTE”) mobile network operators. The addition of Trendium employees and technology enables the Company to introduce a new paradigm of CEA, enabling operators of 4G/LTE networks to achieve a real and relevant improvement in customer satisfaction while maximizing productivity and profitability for dynamic converged 4G/LTE networks and beyond. The purchased assets are included in the Company’s NSE segment.

The Company finalized the purchase price allocation related to this acquisition during the three months ended March 29, 2014. The purchase price was allocated as follows (in millions):

Tangible assets acquired:
Property, plant and equipment	$	0.2
Intangible assets acquired:
Developed technology	6.1
In-process research and development	5.4
Goodwill	14.4
Total purchase price	$	26.1

In accordance with authoritative guidance, the Company recognized IPR&D at fair value as of the Trendium Closing Date. The IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. IPR&D is tested for impairment during the period it is considered an indefinite lived asset.

The goodwill arising from this acquisition is primarily attributed to product synergies and the assembled workforce of Trendium. Goodwill was assigned to the NSE segment and is deductible for tax purposes. Goodwill is not amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

Trendium’s results of operations have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.

Arieso Ltd.(“Arieso”)

On March 7, 2013 (“Arieso Closing Date”), the Company completed the acquisition of Arieso, a privately-held company headquartered in the United Kingdom. Arieso is a provider of location-aware software solutions that enable mobile network operators to boost 2G, 3G and 4G/ LTE network performance and enrich the mobile subscriber experience.

Arieso brings high-caliber mobile software engineering expertise to the Company to address the rapidly growing deployment of small cells and challenges associated with limited spectrum capacity. Utilized by leading wireless network operators and equipment manufacturers, Arieso’s solutions locate, store and analyze data from billions of mobile connection events that translate into rich intelligence, which help enable mobile operators to optimize network performance, improve customer experience and create new revenue-generating services. Arieso was integrated in the Company’s NSE segment.

The Company acquired all outstanding shares of Arieso for approximately $89.7 million in cash, subject to holdback payments of approximately $12.8 million which are reserved for potential breaches of representations and warranties. The holdback payments, minus any deductions for actual or pending claims, will be released more than one year after the Arieso Closing Date.

The Company finalized the purchase price allocation related to this acquisition during the three months ended March 29, 2014. The purchase price was allocated as follows (in millions):

Net tangible assets acquired	$	0.2
Intangible assets acquired:
Developed technology	32.8
Customer relationships	14.5
Order backlog	1.4
Goodwill	40.8
Total purchase price	$	89.7

The following table summarizes the components of the tangible assets acquired at fair value (in millions):

Cash	$	4.1
Accounts receivable	8.4
Property and equipment	0.6
Accounts payable	(0.3		)
Accrued expenses, net of other assets	(1.4		)
Employee related liabilities	(1.4		)
Deferred revenue	(1.7		)
Deferred tax liabilities, net	(8.1		)
Net tangible assets acquired	$	0.2

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of acquired developed technology, customer relationships and order backlog was determined based on an income approach using the discounted cash flow method. The acquired developed technology and customer relationship intangible assets are being amortized over their estimated useful lives of five years. Order backlog was fully amortized in fiscal 2013.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Arieso. Goodwill has been assigned to the NSE segment and is not deductible for tax purposes. Goodwill is not being amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

In accordance with the authoritative guidance, the Company expensed $1.8 million of acquisition-related costs incurred in fiscal 2013 as SG&A expense in the Company’s Consolidated Statement of Operations.

GenComm Co., Ltd. (“GenComm”)

On August 17, 2012 (“GenComm Closing Date”), the Company completed the acquisition of Seoul, South Korea-based GenComm, a provider of test and measurement solutions for troubleshooting, installation and maintenance of wireless base stations and repeaters. The Company acquired tangible and intangible assets and assumed liabilities of GenComm for a total purchase price of approximately $15.2 million in cash, including holdback payments of approximately $3.8 million which are reserved for potential breaches of representations and warranties. During the three months ended March 29, 2014, the Company made a holdback payment of $3.3 million dollars. GenComm was integrated in the Company’s NSE segment.

The purchase price was allocated as follows (in millions):

Net tangible assets acquired	$	5.9
Intangible assets acquired:
Developed technology	3.2
Customer relationships	0.2
Order backlog	0.2
Goodwill	5.7
Total purchase price	$	15.2

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of acquired developed technology, customer relationships and order backlog was determined based on an income approach using the discounted cash flow method. The acquired developed technology and customer relationship intangible assets are being amortized over their estimated useful lives of four years. Order backlog was fully amortized in fiscal 2013.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of GenComm. Goodwill has been assigned to the NSE segment and is not deductible for tax purposes. Goodwill is not being amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.