Business Acquisitions

12 Months Ended

Mar. 31, 2011

Notes to Financial Statements [Abstract]

2. BUSINESS ACQUISITIONS

Acquisition of Silicon Storage Technology, Inc. (SST)

On April 8, 2010, the Company acquired SST, a publicly traded company based in Sunnyvale, California, in a merger transaction for $3.05 per share, or a total of $353.8 million, which included $295.4 million of cash consideration for the outstanding shares of SST common stock, and $58.4 million of SST shares acquired by the Company on March 8, 2010. The fair value of the SST shares held by the Company on April 8, 2010 was equal to the fair value at March 8, 2010, the date the shares were acquired, and the Company did not recognize any gain or loss on such shares. The SST business acquired included a variety of different business units including a licensing business focused on opportunities in the embedded control market, a microcontroller business, a variety of memory businesses and a Wi-Fi power-amplifier business. The Company's primary reason for this acquisition was to gain access to SST's SuperFlash® technology and extensive patent portfolio, which it believes are critical building blocks for advanced microcontrollers.

The acquisition was accounted for under the acquisition method of accounting, with the Company identified as the acquirer, and the operating results of SST have been included in the Company's consolidated financial statements as of the effective date of the acquisition. Under the acquisition method of accounting, the total purchase price was allocated to SST's net tangible assets and intangible assets based on their estimated fair values as of April 8, 2010. The excess purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill and allocated $19.2 million to the technology licensing reporting unit and $5.8 million to the semiconductor product reporting unit. None of the goodwill related to the SST acquisition is deductible for tax purposes. The Company retained an independent third-party appraiser to assist management in its valuation and the purchase price allocation was finalized during the fourth quarter of fiscal 2011. Prior to finalizing the purchase price allocation, the Company made certain adjustments in the fourth quarter of fiscal 2011 which resulted in changes to the residual amount allocated to goodwill, non-marketable equity investments, deferred tax assets, other current assets and long-term income tax payable.

The table below represents the final allocation of the purchase price to the acquired net assets based on their estimated fair values as of April 8, 2010, as well as the associated estimated useful lives of the acquired intangible assets at that date:

	April 8, 2010
	(in thousands)
Assets acquired
Cash and cash equivalents	$	182,735
Short-term investments		12,069
Accounts receivable, net		44,820
Inventories		39,962
Deferred tax assets		21,785
Other current assets		3,768
Long-term investments		54,342
Property, plant and equipment, net		6,623
Non-marketable equity investments		15,772
Other assets		3,634
Goodwill		24,961
Purchased intangible assets		50,930
Assets held for sale		23,761
Total assets acquired	$	485,162

Liabilities assumed
Accounts payable		(28,906	)
Accrued liabilities		(40,914	)
Deferred income on shipments to distributors		(2,322	)
Long-term income tax payable		(36,587	)
Deferred tax liability		(17,599	)
Other liabilities		(4,990	)
Total liabilities assumed		(131,318	)
Purchase price allocated	$	353,844

Purchased Intangible Assets	Useful Life		April 8, 2010
	(in years)		(in thousands)
Core/developed technology		5-10	$	32,900
In-process research and development		N/A		900
Trademarks and trade names		5		1,730
Customer-related		10		13,100
Backlog		1		2,300
			$	50,930

Purchased intangible assets include core and developed technology, in-process research and development, trademarks and trade names, customer-related intangibles and acquisition-date backlog. The estimated fair values of the core and developed technology and in-process research and development were determined based on the present value of the expected cash flows to be generated by the respective existing technology or future technology. The core and developed technology intangible assets are being amortized on a technology-by-technology basis with the amortization recorded for each technology commensurate with the expected cash flows used in the initial determination of fair value. In-process research and development is capitalized until such time the related projects are completed or abandoned at which time the capitalized amounts will begin to be amortized or written off.

Trademarks and trade names include SST's corporate trade name as well as the SuperFlash trademark. The estimated fair value of the trademarks and trade names was determined based on the income approach, using the relief from royalty methodology. Trademarks and trade names are being amortized using the straight-line method, which management believes is materially consistent with the pattern of benefit to be realized by these assets.

Customer-related intangible assets consist of SST's contractual relationships and customer loyalty related to the distributor and end-customer relationships, and the fair values of the customer-related intangibles were determined based on the projected revenues for the licensing entity and the microcontroller entity. An analysis of expected attrition and revenue growth for existing customers was prepared from SST's historical customer information. A similar analysis was performed for the acquired intangible assets related to the business units held for sale. Customer relationships are being amortized in a manner consistent with the estimated cash flows associated with the existing customers and anticipated retention rates. Backlog relates to the value of orders not yet shipped by SST at the acquisition date, and the preliminary fair values were based on the estimated profit associated with those orders. Backlog related assets are being recognized commensurate with recognition of the revenue for the orders on which the backlog intangible assets were determined. Amortization expense associated with acquired intangible assets is not deductible for tax purposes. Thus, approximately $2.0 million was established as a net deferred tax liability for the future amortization of the intangible assets.

Contingent liabilities were recorded in the amount of $13.0 million, as an adverse outcome was determined to be probable and estimable at the acquisition date. The Company was not able to determine the fair value of these contingencies, and as such, the amount recorded reflects the Company's estimate of the outcome of these matters. At March 31, 2011, there were no changes to the amount recognized at the acquisition date related to these contingencies. The amount recorded is presented within accrued liabilities.

The amount of continuing SST revenue and earnings included in the Company's condensed consolidated statements of income for the period April 9, 2010 to September 30, 2010 was $114.9 million and $17.4 million, respectively. The amount of continuing SST revenue included in the Company's condensed consolidated statements of income for the period April 9, 2010 to March 31, 2011 was $228.3 million. The operations of SST have been fully integrated into the Company’s operations as of October 1, 2010 and as such, cost of sales and operating expenses were no longer segregated as of that date.

The following unaudited pro-forma consolidated results of operations for fiscal years 2011, 2010 and 2009, assume the SST acquisition occurred as of April 1 of each year and have been restated for the operations of SST that have been discontinued. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2010, April 1, 2009 and April 1, 2008 or of results that may occur in the future (amounts in thousands):

	Unaudited
	Year Ended March 31,
	2011		2010		2009
Total revenue	$	1,494,727	$	1,190,178	$	1,145,099
Net income		429,794		207,421		233,925
Basic earnings per share	$	2.30	$	1.13	$	1.28
Diluted earnings per share	$	2.21	$	1.11	$	1.25

Other Acquisitions

During the year ended March 31, 2011, the Company completed two business acquisitions, in addition to SST, which were accounted for under the purchase method of accounting. Total consideration paid for these businesses, net of cash acquired of $2.5 million, was $6.5 million. As part of one of the acquisitions, the Company assumed a bankruptcy reorganization liability in the amount of approximately $19.4 million which was partially funded by the acquired company prior to the acquisition. This bankruptcy liability is included in other current liabilities on the Company’s consolidated balance sheet, and approximately $19.4 million of escrowed cash to settle the bankruptcy liability is included in other current assets. The purchase price of the acquisitions resulted in purchased intangible assets of approximately $5.6 million and goodwill of approximately $1.0 million. The purchased intangible assets are being amortized over a weighted average period of approximately seven years. In addition, one of the acquisitions resulted in contingent consideration with an estimated fair value at the date of purchase of $2.0 million.

During the year ended March 31, 2010, the Company completed one business acquisition which was accounted for under the purchase method of accounting. Total consideration paid for this business was approximately $9.3 million. The combined purchase price of the acquisition resulted in purchased intangible assets of approximately $7.0 million, of which $2.9 million relates to in-process technology, and goodwill of approximately $4.2 million. The purchased intangible assets (other than goodwill and the in-process technology intangible asset) are being amortized over an average period of seven years. In addition, the acquisition resulted in contingent consideration with an estimated fair value at the date of purchase of $1.3 million.

During the year ended March 31, 2009, the Company completed three business acquisitions which were accounted for under the purchase method of accounting. Total consideration paid for these business acquisitions was approximately $19.9 million. The combined purchase price of the acquisitions resulted in purchased intangible assets of approximately $15.1 million and goodwill of approximately $4.3 million. The purchased intangible assets (other than goodwill) are being amortized over an average period of seven years. One of the acquisitions had an earn-out payment associated with it based on the operating performance of the acquired business for the twelve-month period ending September 30, 2010. The initial purchase price of this acquisition was less than the fair value of the acquired net assets, and as a result, the Company recorded negative goodwill totaling $2.4 million, which was recorded in other long-term liabilities in the consolidated balance sheet. In the year ended March 31, 2011, the Company made contingent consideration payments to the previous owners in the amount of $12.1 million. The contingent consideration payment resulted in the de-recognition of the negative goodwill recorded on the acquisition date and the recognition of approximately $9.7 million of goodwill.