Note 3 - Business Combinations

12 Months Ended

Mar. 29, 2015

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

NOTE 3.    BUSINESS COMBINATIONS

We periodically evaluate potential strategic acquisitions to, broaden our product offering and build upon our existing library of intellectual property, human capital and engineering talent, in order to expand our capabilities in the areas in which we operate or to acquire complementary businesses.

We account for each business combination by applying the acquisition method, which requires (1) identifying the acquiree; (2) determining the acquisition date; (3) recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any non-controlling interest we have in the acquiree at their acquisition date fair value; and (4) recognizing and measuring goodwill or a gain from a bargain purchase.

Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, we typically account for the acquired contingencies using existing guidance for a reasonable estimate.

To establish fair value, we measure the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants. The measurement assumes the highest and best use of the asset by the market participants that would maximize the value of the asset or the group of assets within which the asset would be used at the measurement date, even if the intended use of the asset is different.

When partial ownership in an acquiree is obtained and it is determined that the company controls the acquiree, the assets acquired, liabilities assumed and any non-controlling interests are recognized and consolidated at 100% of their fair values at that date, regardless of the percentage ownership in the acquiree. As goodwill is calculated as a residual, all goodwill of the acquired business, not just the company's share, is recognized under this “full-goodwill” approach. Non-controlling interests are stated at the non-controlling shareholder's proportion of the acquired net assets. The results of entities acquired during the year are included until the date control changes.

Acquisition related costs, including finder’s fees, advisory, legal, accounting, valuation and other professional or consulting fees are accounted for as expenses in the periods in which the costs are incurred and the services are received, with the exception that the costs to issue debt or equity securities are recognized in accordance with other applicable GAAP.

Acquisition of Integrated Memory Logic Limited

On June 3, 2014, we acquired approximately 92% of outstanding shares of Integrated Memory Logic Limited (“iML”), a leading provider of analog mixed-signal solutions for the flat panel display market. On September 15, 2014, we completed the acquisition through a second-step merger to acquire all of the remaining outstanding shares of iML. The iML acquisition supports Exar's strategy of building a large scale diversified analog mixed-signal business. iML’s results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning June 4, 2014.

Consideration

In June 2014, we acquired approximately 92% of iML’s outstanding shares for $206.4 million in cash. In September 2014, we acquired the remaining 8% of iML outstanding shares and vested options exercised subsequent to June 3, 2014 for $18.9 million. Additionally, as required under the terms of the merger agreement, we assumed and converted iML’s employees’ then outstanding options into options to purchase 1.5 million shares of Exar’s common stock. The fair value of pre-merger vested options of $3.8 million was recorded as purchase consideration.

In accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations, the acquisition of iML’s outstanding shares was recorded as a purchase business acquisition since iML was considered a business. Under the purchase method of accounting, the fair value of the consideration was allocated to net assets acquired. The fair value of purchased identifiable intangible assets was determined using discounted cash flow models from operating projections prepared by management using an internal rate of return of 16.9%. The excess of the fair value of consideration paid over the fair values of net assets acquired and identifiable intangible assets resulted in recognition of goodwill of $14.5 million. Goodwill is primarily from expected synergies resulting from combining the operations of iML with that of Exar and is not deductible for tax purposes. The fair value of non-controlling interests was calculated using cash value per acquired share multiplied by the remaining 8% outstanding shares.

The summary of the purchase consideration is as follows (in thousands):

	Amount
Cash	$	206,411
Consideration for the acquisition of non-controlling interests		17,872
Fair value of assumed iML employee options		3,835
Total purchase price	$	228,118

Purchase Price Allocation

The allocation of total purchase price to iML’s tangible and identifiable intangible assets and liabilities assumed was based on their estimated fair values at the date of acquisition.

The fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired and liabilities assumed in the iML acquisition was as follows (in thousands):

	Amount
Identifiable tangible assets (liabilities)
Cash	$	133,752
Accounts receivable		10,096
Inventories		3,950
Other current assets		962
Property, plant and equipment		480
Other assets		308
Current liabilities		(12,356	)
Long-term liabilities		(3,595	)
Total identifiable tangible assets (liabilities), net		133,597
Identifiable intangible assets		80,060
Total identifiable assets, net		213,657
Goodwill		14,461
Fair value of total consideration transferred	$	228,118

The following table sets forth the components of identifiable intangible assets acquired in connection with the iML acquisition (in thousands):

	Fair Value
Developed technologies	$	55,780
In-process research and development		8,100
Customer relationships		15,060
Trade names		1,120
Total identifiable intangible assets	$	80,060

Acquisition Related Costs

Acquisition related costs, or deal costs, relating to iML are included in the merger and acquisition costs and interest expense line on the consolidated statement of operations for fiscal year 2015 and were approximately $7.2 million.

Unaudited Pro Forma Financial Information

The following unaudited pro forma condensed financial information presents the combined results of operations of Exar and iML as if the acquisition was completed as of April 1, 2013 (in thousands):

	Fiscal Years Ended
	March 29, 2015			March 30, 2014
Net sales	$	172,780		$	186,290
Net income (loss)	$	(36,207	)	$	5,884
Earnings (loss) per share to common stockholders
Basic	$	(0.77	)	$	0.12
Diluted	$	(0.77	)	$	0.12

Fiscal Year 2015 Compared with Fiscal Year 2014

The pro forma financial information includes (1) amortization charges from acquired intangible assets of $2.4 and $9.7 million, respectively; (2) the estimated stock-based compensation expense related to the stock options assumed of $0.9 million and $1.0 million, respectively; (3) the elimination of historical intangible assets of $0.1 and $0.4 million, respectively; (4) the elimination of historical stock-based compensation charges recorded by iML of $0.8 million and $0.5 million, respectively, as a result of the cancellation of all outstanding options on the acquisition date; (5) the elimination of acquisition related costs of $11.2 million and $0, respectively; and (6) the related tax provision of $0.6 million for both periods.

The unaudited pro forma condensed financial information is not intended to represent or be indicative of the results of operations of Exar that would have been reported had the acquisition been completed as of April 1, 2013, and should not be taken as representative of the future consolidated results of operations of Exar.

Acquisition of Stretch, Inc.

On January 14, 2014, we completed the acquisition of Stretch, Inc. (“Stretch”), a provider of software configurable processors supporting the video surveillance market previously located in Sunnyvale, California. The transaction provides Exar with the technology to deliver an end-to-end high-definition solution for both digital and analog transmission of data from the camera to the DVR or NVR in surveillance applications. Stretch’s results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning January 14, 2014. The pro forma effects of the portion of the Stretch operations assumed through the transaction on our results of operations during fiscal year 2014 and 2013 were considered immaterial.

Consideration

Stretch was acquired for which the purchase consideration was $10,000 in cash. By acquiring Stretch, Exar acquired all of Stretch’s assets, consisting principally of intellectual property, accounts receivable and inventory, as well as assumed all of Stretch’s liabilities and contractual obligations.

In accordance with ASC 805, Business Combinations, the acquisition of Stretch was recorded as a purchase business acquisition since Stretch was considered a business. Under the purchase method of accounting, the fair value of the consideration was allocated to net assets acquired at their fair values. The fair value of purchased identifiable intangible assets was determined using discounted cash flow models from operating projections prepared by management using an internal rate of return ranging from 17% to 21%. The excess of the fair value of consideration paid over the fair values of net assets acquired and identifiable intangible assets resulted in recognition of goodwill of approximately $0.7 million. The goodwill results largely of expected synergies from combining the operations of Stretch with that of Exar and is deductible over 15 years for tax purposes.

The table below shows the allocation of the purchase price to tangible and intangible assets acquired and liabilities assumed (in thousands):

	Amount
Tangible assets	$	2,937
Intangible assets		7,010
Goodwill		667
Liabilities assumed		(10,604	)
Fair value of total consideration transferred	$	10

Acquisition of Cadeka Technologies (Cayman) Holding Ltd.

On July 5, 2013, we completed the acquisition of substantially all of the assets of Cadeka Technologies (Cayman) Holding Ltd., a privately held company organized under the laws of the Cayman Islands and all the outstanding stock of the subsidiaries of Cadeka, including the equity of its wholly owned subsidiary Cadeka Microcircuits, LLC, a Colorado limited liability company (“Cadeka”). With locations in Loveland, Colorado, Shenzhen and Wuxi, China, Cadeka designs, develops and markets high precision analog integrated circuits for use in industrial and high reliability applications. Cadeka’s results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning July 5, 2013. The pro forma effects of the portion of the Cadeka operations assumed through the transaction on our results of operations during fiscal years 2014 and 2013 were considered immaterial.

Consideration

In accordance with ASC 805, Business Combinations, the total consideration paid for Cadeka was first allocated to the net tangible liabilities assumed based on the estimated fair values of the assets and liabilities at the acquisition date. The excess of the fair value of the consideration paid over the fair value of Cadeka’s net tangible liabilities assumed and identifiable intangible assets acquired resulted in the recognition of goodwill of $19.4 million primarily related to expected synergies from combining the operations of Cadeka with that of Exar and the release of deferred tax liabilities. The goodwill is not expected to be tax deductible.

The table below shows the allocation of the purchase price to tangible and intangible assets acquired and liabilities assumed (in thousands):

	Amount
Tangible assets	$	3,286
Intangible assets		20,380
Goodwill		19,387
Liabilities assumed		(8,216	)
Fair value of total consideration transferred	$	34,837

Acquisition of Altior Inc.

On March 22, 2013, we completed the acquisition of substantially all of the assets of Altior Inc. (“Altior”), a developer of data management solutions in Eatontown, New Jersey. Altior’s results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning March 23, 2013. The pro forma effects of the portion of the Altior operations assumed through the transaction on our results of operations during fiscal years 2013 were considered immaterial.

Consideration

In accordance with ASC 805, Business Combinations, the total consideration paid for Altior was first allocated to the net tangible liabilities assumed based on the estimated fair values of the assets and liabilities at the acquisition date. The excess of the fair value of the consideration paid over the fair value of Altior’s net tangible liabilities assumed and identifiable intangible assets acquired resulted in the recognition of goodwill of $7.2 million primarily related to expected synergies from combining the operations of Altior with that of Exar and the release of deferred tax liabilities. The goodwill is not expected to be tax deductible.

The summary of the purchase consideration is as follows (in thousands):

	Amount
Tangible assets	$	302
Intangible assets		7,540
Goodwill		7,172
Liabilities assumed		(136	)
Fair value of total consideration transferred	$	14,878