Acquisitions

6 Months Ended

Jul. 02, 2011

Acquisitions

Acquisitions

7.  Acquisitions

Spectra Linear

     On January 25, 2011, the Company acquired Spectra Linear, Inc., a late-stage private company offering integrated timing solutions. The Company acquired Spectra Linear for approximately $28.6 million, including contingent consideration with an estimated fair value of $1.0 million at the date of acquisition. The contingent consideration could be as much as $10.0 million and is payable on a dollar for dollar basis to the extent that revenue of the acquired products exceed $16.0 million during 2011. In addition, the Company assumed approximately $8.0 million of Spectra Linear net liabilities in connection with the acquisition.

     The Company paid an additional approximately $4.5 million of consideration to certain Spectra Linear employees in connection with an agreement between the employees and Spectra Linear. This agreement provided that upon the sale of Spectra Linear, a portion of the proceeds would be paid to such employees as bonuses. The agreement was accounted for as a transaction separate from the business combination based on its economic substance and was recorded as post-combination expenses in the Company’s financial statements during the three months ended April 2, 2011.

     Approximately $6.0 million of the consideration was deposited in escrow as security for breaches of representations and warranties and certain other expressly enumerated matters.

     The Company recorded the purchase of Spectra Linear using the acquisition method of accounting and accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The results of Spectra Linear’s operations are included in the Company’s consolidated results of operations beginning with the date of the acquisition. Pro forma results of operations related to this acquisition have not been presented since Spectra Linear operating results up to the date of acquisition were not material to the Company’s consolidated financial statements.

     The Company believes that the acquisition adds a broad family of ICs that will enable it to accelerate penetration in high-volume applications, while further scaling the Company’s engineering team. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill was allocated to the Company’s operating segment and is not expected to be deductible for tax purposes. The purchase price was allocated as follows (in thousands):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
Core and developed technology	$	16,560		9.6
Customer relationships	1,400			10.0
	17,960
Accounts receivable	1,759
Inventories	1,199
Other current assets	1,658
Goodwill	4,919
Deferred tax assets — non-current	11,494
Other non-current assets	597
Notes payable — current portion	(4,641		)
Current liabilities	(3,112		)
Non-current liabilities	(3,254		)
Total purchase price	$	28,579

     The purchase price allocation is preliminary and subject to revision as more detailed analysis is completed and additional information about the fair value of assets and liabilities becomes available. Adjustments in the fair value of the net assets acquired may affect the calculation of goodwill.

One of the Company’s directors, Harvey B. Cash, is a General Partner with InterWest Partners and InterWest Partners was one of the principal stockholders of Spectra Linear.  Mr. Cash abstained from the decision-making process with respect to the acquisition.

Silicon Clocks

     In April 2010, the Company acquired Silicon Clocks, Inc., a privately held company that designed and developed microelectromechanical system (MEMS) technology to enable the manufacture of silicon resonators and sensors directly on standard complementary metal oxide semiconductor (CMOS) wafers. The Company acquired Silicon Clocks for approximately $21.0 million in cash. Of such consideration, $2.0 million was deposited in escrow as security for breaches of representations and warranties and certain other expressly enumerated matters.

     The Company recorded the purchase of Silicon Clocks using the acquisition method of accounting and accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The results of Silicon Clocks’ operations are included in the Company’s consolidated results of operations beginning with the date of the acquisition. Revenues and earnings of Silicon Clocks and pro forma financial information have not been presented because the results of Silicon Clocks’ operations were not material. Acquisition-related costs were not significant.

     The Company believes that the acquisition will enable the Company to accelerate its entry into the low end timing market while further scaling the Company’s engineering team. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill was allocated to the Company’s one operating segment and is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	9,470		Not amortized
Developed technology	230			3.0
Customer relationships	30			2.0
	9,730
Cash and cash equivalents	514
Other current assets	473
Deferred tax assets — non-current	10,617
Other non-current assets	322
Goodwill	4,113
Current liabilities	(1,338		)
Deferred tax liabilities — non-current	(3,406		)
Total purchase price	$	21,025

     In-process research and development (IPR&D) represents acquired technology that had not achieved technological feasibility as of the acquisition closing date and had no alternative future use. These costs were recorded as indefinite-lived intangible assets. The assets are tested for impairment through their completion and then amortized to research and development expense over their useful lives. The fair value of each project was determined using the income approach. The discount rate applicable to the cash flows was 19.0%. This rate reflects the weighted-average cost of capital and the risks inherent in the development process. The IPR&D recorded in connection with the acquisition consisted of the following (in thousands):

Project	Fair Value
Resonator	$	5,200
Clocks	4,270
	$	9,470