ACQUISITION

Polycom Acquisition

On July 2, 2018 ("Acquisition Date"), the Company completed the acquisition of Polycom based upon the terms and conditions contained in the Purchase Agreement dated March 28, 2018 ("the Acquisition"). The Company believes the Acquisition will better position Plantronics with its channel partners, customers, and strategic alliance partners by allowing the Company to pursue additional opportunities across the Unified Communications & Collaboration ("UC&C") market in both hardware end points and services.

At the closing of the Acquisition, the Company acquired Polycom for approximately $2.2 billion with the total consideration consisting of (1) 6.4 million shares of the Company's common stock (the "Stock Consideration") valued at approximately $0.5 billion and (2) approximately $1.7 billion in cash net of cash acquired (the "Cash Consideration"), resulting in Triangle, which was Polycom’s sole shareholder, owning approximately 16.0% of the Company immediately following the acquisition. The consideration paid at closing was subject to a working capital, tax and other adjustments. This transaction was accounted for as a business combination and the Company has included the financial results of Polycom in the Consolidated Financial Statements since the date of acquisition.

The preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows:



(in thousands)	July 2, 2018
ASSETS
Cash and cash equivalents	$	80,139
Trade receivables, net	165,449
Inventories	109,074
Prepaid expenses and other current assets	68,451
Property and equipment, net	79,497
Intangible assets	985,400
Other assets	27,237
Total assets acquired	$	1,515,247

LIABILITIES
Accounts payable	$	80,653
Accrued payroll and related liabilities	44,538
Accrued expenses	144,051
Income tax payable	27,044
Deferred revenue	115,061
Deferred income taxes	98,342
Other liabilities	51,796
Total liabilities assumed	$	561,485

Total identifiable net assets acquired	953,762
Goodwill	1,262,883
Total Purchase Price	$	2,216,645

The Company’s purchase price allocation is preliminary and subject to revision as additional information related to the fair value of assets and liabilities are finalized. The estimate of fair value and purchase price allocation were based on information available at the time of closing the Acquisition and the Company continues to evaluate the underlying inputs and assumptions that are being used in fair value estimates. Accordingly, these preliminary estimates are subject to retrospective adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the date of closing the Acquisition. The acquisition has preliminarily resulted in $1,263 million of goodwill, which represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. Additionally, the purchase price is subject to change due to potential tax obligations related to unsettled intercompany transactions and potential resolution of certain contingent liabilities.

Since the acquisition date, we have recorded measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date. These adjustments included deferred tax and tax liabilities of $44.0 million, a working capital adjustment of $8.0 million and various other immaterial adjustments of $4.2 million, resulting in a decrease to goodwill of approximately $56.2 million.

The Company incurred approximately $19.2 million in acquisition related expenses which are recorded in selling, general, and administrative expenses in its the consolidated statement of operations for the year ended March 31, 2019.

The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:



(in thousands, except for remaining life)	Fair Value		Weighted-Average Amortization Period
Existing technology	$	538,600	4.95
Customer relationships	245,100		5.46
Trade name/Trademarks	115,600		9.00
Backlog	28,100		0.25
Total amortizable intangible assets acquired	927,400		5.45
In-process research and development	58,000
Total acquired intangible assets	$	985,400

Existing technology relates to products for voice, video and platform products. The Company valued the developed technology using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of Polycom. Customer relationships were valued using the discounted cash flow method as described above and the distributor method under the income approach. Under the distributor method, the economic profits generated by a distributor are deemed to be attributable to the customer relationships. The economic useful life was determined based on historical customer turnover rates.

Order backlog was valued separately from customer relationships using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by order backlog less costs to fulfill. The economic useful life was determined based on the period over which the order backlog is expected to be fulfilled.

Trade name/trademarks relate to the “Polycom” trade name and related trademarks. The fair value was determined by applying the profit allocation method under the income approach. This valuation method estimates the value of an asset by the profit saved because the company owns the asset. The economic useful life was determined based on the expected life of the trade name and trademarks and the cash flows anticipated over the forecasted periods at the time of the acquisition.

The fair value of in-process technology was determined using the discounted cash flow method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by thin-process technology, less charges representing the contribution of other assets to those cash flows. In Fiscal Year 2019, the Company reclassified approximately $28.1 million of completed in-process research and development into existing technology and began amortizing over the estimated useful life. The Company expects the remaining in-process research and development to be completed, transferred to existing technology, and begin amortizing in Fiscal Year 2020.

The Company believes the amounts of purchased intangible assets recorded above represent the fair values of and approximate the amounts a market participant would pay for these intangible assets as of the Acquisition Date.

Goodwill is primarily attributable to the assembled workforce, market expansion, and anticipated synergies and economies of scale expected from the integration of the Polycom business. The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved. Goodwill is not expected to be deductible for tax purposes.

The actual total net revenues and net loss of Polycom included in the Company's consolidated statement of operations for the period July 2, 2018 to March 31, 2019 are as follows:



(in thousands)	July 2, 2018 to March 31, 2019
Total net revenues	$	763,837
Net loss	$	(130,340	)

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Polycom had been acquired as of the beginning of fiscal year 2018. The unaudited pro forma information includes adjustments to amortization for intangible assets acquired, the purchase accounting effect on deferred revenue assumed and inventory acquired, restructuring charges related to the acquisition, and transaction and integration costs. For the year ended March 31, 2018 and 2019, non-recurring pro forma adjustments directly attributable to the Polycom acquisition included (i) the purchase accounting effect of deferred revenue assumed of $84.8 million, (ii) the purchase accounting effect of inventory acquired of $30.4 million, and (iii) acquisition costs of $19.2 million.

The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of the Company's consolidated results of operations of the combined business had the Acquisition actually occurred at the beginning of fiscal year 2018 or of the results of its future operations of the combined business.



	Pro Forma (unaudited)
	Fiscal Year Ended March 31,
(in thousands)	2018			2019
Total net revenues	$	1,892,971		$	2,008,245
Operating income (loss)	(208,234		)	18,929
Net loss	$	(379,032	)	$	(38,516	)