BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

Integrated Device Technology's Smart Metering Business

On March 7, 2013, the Company completed the acquisition from Integrated Device Technology (“IDT”) of its smart metering business for a cash purchase price of $10.3 million. This business is included in the Company's Microcontroller segment. The acquisition was intended to enable the Company to offer complementary products and to enhance the Company's existing smart energy product portfolio. Prior to the acquisition, the assets of IDT's smart metering business consisted primarily of approximately 20 employees, inventory, intellectual property assets, customers and distributors and related revenue streams. The acquisition, therefore, qualified as a business for accounting purposes and was accounted for under the acquisition method of accounting.

The purchase price allocation as of the closing date of the acquisition and estimated useful lives of identifiable intangible assets subject to amortization are as follows:

	Purchase Price Allocation			Estimated Useful Lives
	(in thousands)
Total purchase price	$	10,263
Less:
Net tangible assets acquired	(1,374		)
Intangible assets acquired:
Customer relationships	(1,200		)	3 years
Developed technologies	(2,100		)	6 years
Backlog	(200		)	1 year or less
Total intangible assets	(3,500		)
Goodwill	$	5,389

The total purchase price paid by the Company exceeded the estimated fair value of the intangible assets of the acquired business, which were $3.5 million, and net tangible assets which were $1.4 million. Based on the foregoing, as part of the purchase price allocation, the Company allocated $5.4 million of the purchase price to goodwill.

Ozmo, Inc.

On December 20, 2012, the Company completed the acquisition of Ozmo, Inc ("Ozmo"), a provider of ultra-low Wi-Fi Direct solutions for approximately $64.4 million in cash, of which $15.6 million was paid in the first quarter of 2013. Ozmo's business is included in the Company's Microcontroller segment. The acquisition of Ozmo was intended to enable the Company to offer complementary products, to enhance the Company's existing wireless product portfolio, and potentially to accelerate time-to-market for future wireless microcontroller products that may integrate Ozmo technologies. Prior to the acquisition, Ozmo's assets consisted primarily of approximately 50 employees, patents and other intellectual property assets related to the development of Wi-Fi technologies. The acquisition, therefore, qualified as a business for accounting purposes and was accounted for under the acquisition method of accounting.

A total of $7.7 million of the purchase consideration was distributed into an escrow account to meet any indemnification claims. The escrow account is legally owned by the shareholder rights representative. As the Company does not have legal title of the account, no asset and corresponding liability will be recorded relating to the amounts held in escrow.

Former Ozmo shareholders are eligible to receive a potential earnout in 2013 and 2014 of up to $22.0 million, subject to the achievement of specified revenue targets and, with respect to a portion of the earnout allocable to certain former Ozmo shareholders now employed by the Company, to their continuing employment. The Company recorded a liability in December 2012 of $1.9 million in respect of this potential earnout contingency, representing the fair value of the earnout potential, as adjusted to reflect a probability-weighted forecast for 2013 and 2014 Ozmo revenue and as further discounted by a 17% expected rate of return. As of December 31, 2013, the Company reversed the liability through a credit to acquisition-related charges line in the consolidated statements of operations as management revised the estimate of 2014 revenue.

The total purchase price of the acquisition was as follows:

	December 20, 2012
	(in thousands)
Cash in exchange for shareholders' equity interest	$	58,165
Unvested shares in Ozmo	237
Transaction expenses incurred by Ozmo	1,816
Long-term debt paid on behalf of Ozmo	1,415
Fair value of contingent consideration (earn-out provision)	1,927
Liabilities assumed	861
Total purchase price	$	64,421

The purchase price allocation as of the closing date of the acquisition and estimated useful lives of identifiable intangible assets subject to amortization are as follows:

	Purchase Price Allocation			Estimated Useful Lives
	(in thousands)
Total purchase price	$	64,421
Less:
Net tangible assets acquired	(2,805		)
Intangible assets acquired:
Customer relationships	(2,650		)			3 years
Developed technologies	(12,020		)	4	to	6 years
Non-compete agreements, tradename and backlog	(780		)	1	to	3 years
Total intangible assets	(15,450		)
Goodwill	$	46,166

The goodwill recorded, including workforce, in connection with the acquisition, was assigned to the Company’s Microcontroller segment. The goodwill balance of $46.2 million above was reduced by $12.2 million related to net deferred tax assets created as a result of the net operating losses generated by Ozmo in previous periods. Such goodwill is not expected to be deductible for tax purposes. The Company's determination of fair value of tangible and intangible assets acquired was corroborated by a third-party valuation.

The acquisitions referred to in this Note 3 were not material to the Company at the time of acquisition. As a result, pro forma profit and loss statements for the acquired businesses are not presented.