Business Acquisition

9 Months Ended

Sep. 29, 2013

Business Combinations [Abstract]

Business Acquisition

Business Acquisition

SMART Storage Systems. On August 22, 2013, the Company completed its acquisition of SMART Storage, a developer of enterprise solid state drives. The Company expects this acquisition to enhance its enterprise storage product portfolio. The Company acquired 100% of the outstanding shares of SMART Storage through an all-cash transaction. The total purchase price was comprised of the following (in thousands):

	Purchase Price
Cash consideration	$	304,982
Estimated fair value of replacement stock options related to precombination service	136
Total purchase price	$	305,118

The Company assumed all unvested outstanding SMART Storage stock options, which were converted into options to purchase an aggregate of 0.2 million shares of the Company’s common stock. The fair value of these unvested stock options was determined using the Black-Scholes-Merton valuation model. The Company records the fair value of unvested replacement stock options that relate to post-combination services as operating expense over the remaining service periods.

Net Tangible Assets. The allocation of the SMART Storage purchase price to the tangible assets acquired and liabilities acquired as of August 22, 2013 is summarized below (in thousands):

	Acquired Tangible Assets and Liabilities
Cash	$	804
Accounts receivable, net	7,827
Inventory	29,331
Deferred taxes - current	921
Other current assets	28,002
Property and equipment	5,734
Deferred taxes - non-current	3,338
Other non-current assets	149
Total assets	76,106
Accounts payable	(11,746		)
Other current liabilities	(34,538		)
Non-current liabilities	(8,979		)
Total liabilities	(55,263		)
Net tangible assets	$	20,843

An existing $25.5 million liability that SMART Storage owed SMART Holdings, (the “Seller”), was not settled prior to the closing of the acquisition of SMART Storage in accordance with the purchase agreement and remained outstanding as of September 29, 2013. The Seller is contractually obligated to refund $25.5 million of the purchase price for this unsettled liability. The purchase price refund receivable and unsettled liability are recorded gross in Other current assets and Other current liabilities of the acquired tangible assets and liabilities of SMART Storage, respectively, as the Company does not have the legal right to offset. The Company expects these amounts to be settled in the fourth quarter of fiscal year 2013.

Purchase Price Allocation. The total purchase price was allocated to SMART Storage’s net tangible and intangible assets based upon their estimated fair values as of August 22, 2013. The excess purchase price over the value of the net tangible liabilities and identifiable intangible assets was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions of management. These estimates include those related to the forecast used to value the intangible assets assumed, including the allocation of developed technology and in-process research and development, and the fair value of inventory and obligations related to excess committed purchases. The purchase price allocation is preliminary and the measurement period is open pending final adjustments to the opening net assets acquired.

The following table presents the allocation of the SMART Storage purchase price (in thousands):

	Purchase Price Allocation
Net tangible assets	$	20,843
Intangible assets:
Developed technology	146,100
Trademarks	8,500
Customer relationships	7,600
In-process research and development	6,300
Total intangible assets	168,500
Goodwill	115,775
Total purchase price	$	305,118

The total weighted-average amortization period for finite-lived intangible assets is 3.9 years. The intangible assets are amortized based on the period when the economic benefits of the intangible assets are expected to be utilized, which is straight-line. The goodwill resulted from expected synergies from the transaction, including the Company’s supply of NAND flash and complementary products, which will enhance the Company’s overall product portfolio. Goodwill is not deductible for tax purposes. The Company did not record a deferred tax liability due to certain tax incentives awarded by the Malaysian government.

Acquisition-related costs of $2.9 million during the nine months endedSeptember 29, 2013 were related to legal, regulatory and accounting fees, and were expensed to General and administrative expense in the Condensed Consolidated Statement of Operations. SMART Storage’s prior period financial results are not considered material to the Company.