Business Combinations and Goodwill

9 Months Ended

Oct. 03, 2015

Business Combinations [Abstract]

Business Combinations and Goodwill

Business Combinations and Goodwill:

On March 10, 2015, we acquired 100% of the outstanding equity of Silicon Image, Inc. ("Silicon Image"), a provider of video, audio, and data connectivity solutions for the mobile, consumer electronics, and personal computer markets.

The preliminary fair value of the purchase price consideration consisted of the following:

(In thousands)	Estimated Fair Value
Cash paid to Silicon Image shareholders	$	575,955
Cash paid for options and RSUs	7,383
Fair value of partially vested stock options and RSUs assumed	5,139
Total purchase consideration	$	588,477

There is no contingent consideration included in the determination of the purchase consideration.

The Company is currently completing its evaluation of information and assumptions it used in the recognition and determination of the purchase price allocation. This includes reviewing information, inputs, assumptions, and valuation methodologies used to estimate consideration, liabilities, taxes, intangible assets, deferred revenue, inventory, and fixed assets. The purchase price allocation is based on the preliminary valuation and is our best estimate as of the filing date of this Form 10-Q. The purchase price allocation will be subject to revision as we perform and complete more detailed analysis.

In the second quarter of 2015, we revised our preliminary valuation and allocation of purchase price consideration resulting in $1.4 million of additional Accounts payable and other accrued liabilities with an equivalent revision to Goodwill. In the third quarter of 2015, we revised our preliminary valuation and allocation of purchase price consideration resulting in $10.1 million of additional long-term liabilities related to an uncertain tax position with an equivalent revision to Goodwill. The revised preliminary allocation of the total purchase price is as follows:

(In thousands)	Estimated Fair Value
Assets acquired:
Cash, cash equivalents and short-term investments	$	157,923
Accounts receivable	30,677
Inventory	20,839
Other current assets	7,183
Property, plant and equipment	23,429
Other non-current assets	1,573
Intangible assets	192,079
Goodwill	235,401
Total assets acquired	669,104
Liabilities assumed
Accounts payable and other accrued liabilities	47,735
Other current liabilities	1,252
Long-term liabilities	24,468
Redeemable noncontrolling interest	7,172
Total liabilities assumed	80,627
Fair value of net assets acquired	$	588,477

The following table presents details of the identified intangible assets acquired through the acquisition of Silicon Image:

(In thousands)	Asset Life in Years	Fair Value
Developed technology	3-5	$	125,000
Customer relationships	4-7	29,458
Licensed technology	3-5	1,852
Patents	5	769
Total identified finite-lived intangible assets		157,079
In-process research and development	indefinite	35,000
Total identified intangible assets		$	192,079

We do not believe there is any significant residual value associated with these intangible assets. We are amortizing the intangible assets using the straight-line method over their estimated useful lives. The estimation of the fair values of the intangible assets required the use of valuation techniques and entailed consideration of all the relevant factors that might affect the fair value such as present value factors, and estimates of future revenues and costs. 

Silicon Image’s results of operations and the estimated fair value of the assets acquired and liabilities assumed are included in Lattice's unaudited consolidated financial statements effective March 11, 2015. Silicon Image's revenue and net loss attributable to stockholders for the period from March 11, 2015 through October 3, 2015 were approximately $96.8 million and $43.9 million, respectively. Acquisition related charges, which were expensed as incurred, were approximately $8.2 million.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The goodwill recognized in the acquisition of Silicon Image was derived from expected benefits from cost synergies and knowledgeable and experienced workforce who joined the Company after the acquisition. Goodwill will not be amortized, but will instead be tested for impairment annually or more frequently if certain indicators of impairment are present. We do not expect Goodwill impairment to be tax deductible for income tax purposes. No impairment charges relating to goodwill or intangible assets were recorded for the first nine months of 2015 or 2014 as no indicators of impairment were present. The goodwill balance of $280.2 million at October 3, 2015 is comprised of $44.8 million from prior acquisitions combined with the $235.4 million from the acquisition of Silicon Image.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Silicon Image as if the merger occurred on December 29, 2013, the first day of our 2014 fiscal year. The pro forma financial information for the periods presented includes adjustments to amortization and depreciation for intangible assets and property, plant, and equipment acquired; adjustments to share-based compensation expense; and interest expense for the additional indebtedness incurred as part of the acquisition. The total of nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings for the three and nine months ended September 27, 2014 and excluded in the reported pro forma revenue and earnings for the three and nine months ended October 3, 2015 was $0.6 million and $30.2 million, respectively, related to acquisition-related charges. The pro forma financial information as presented below is for informational purposes only, is based on certain assumptions and estimates, and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the first period presented.

The unaudited pro forma financial information for the three and nine months ended October 3, 2015 combined the historical results of the Company for the three and nine months ended October 3, 2015, the historical results of Silicon Image for the three and nine months ended October 3, 2015, and the effects of the pro forma adjustments described above.

The unaudited pro forma financial information for the three and nine months ended September 27, 2014 combined the historical results of the Company for the three and nine months ended September 27, 2014, the historical results of Silicon Image for the three and nine months ended September 27, 2014, and the effects of the pro forma adjustments described above.

	Three Months Ended					Nine Months Ended
(Dollars in thousands, except per share amounts)	October 3, 2015			September 27, 2014		October 3, 2015			September 27, 2014
Total revenues	$	109,715		$	156,898	$	349,673		$	473,952
Net loss attributable to common stockholders	$	(29,613	)	$	7,209	$	(115,426	)	$	(23,686	)
Basic net loss per share	$	(0.25	)	$	0.06	$	(0.98	)	$	(0.20	)
Diluted net loss per share	$	(0.25	)	$	0.06	$	(0.98	)	$	(0.20	)

The pro forma adjustments did not have any impact on the pro forma combined provision for income taxes for the three and nine months ended October 3, 2015 and September 27, 2014 due to net loss positions and valuation allowances on deferred income tax assets in those periods.