BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

Newport Media, Inc.

On July 31, 2014, the Company completed the acquisition of privately-held Newport Media, Inc. (“NMI”), a provider of low power Wi-Fi and Bluetooth solutions that are expected to enhance the Company’s portfolio of wireless products.

The purchase consideration, net of cash acquired, consisted of $139.6 million payable in cash at closing of the acquisition, subject to working capital adjustments and deductions for specified closing expenses. In addition, the acquisition agreement provides for an aggregate cash earn-out payment of up to $30.0 million payable if specified revenue targets are achieved over the next two years. The Company recorded a liability of $0.4 million as of September 30, 2014, representing the estimated fair value of the earn-out based on the probability of achievement as of the acquisition date.

The total purchase price, before working capital adjustments and deduction for specified closing expenses, of the acquisition equaled:

	July 31, 2014
	(in thousands)
Cash, including cash acquired of $3.0 million	$	142,639
Fair value of earn-out	420
Total purchase price	$	143,059

The purchase price was allocated to the identifiable assets and liabilities based on their estimated fair value at the acquisition date. The Company engaged in an independent third party to assist with the determination of the fair value of certain identifiable intangible assets and the earn-out. In determining the fair value of the purchased intangible assets and earn-out, management made various estimates and assumptions from significant unobservable inputs (Level 3). The fair value of purchased identifiable intangible assets was determined using discounted cash flow models from projections prepared by management. The fair value of the earn-out was derived using an option pricing model that includes significant unobservable inputs.

The preliminary purchase price was allocated as of the date of the acquisition as follows:

	July 31, 2014
	(in thousands)
Current assets	$	12,287
Fixed assets	983
Intangible assets acquired:
Distributor and end-customer relationships	3,910
Backlog	1,670
Non-compete agreements	1,000
Trade name	300
Developed technology	10,910
In-process technology	13,690
Goodwill	87,988
Deferred tax assets	16,272
Other long-term assets	945
Current liabilities	(5,490		)
Other liabilities assumed	(1,406		)
	$	143,059

Based on the initial determination of the fair value of the assets acquired and liabilities assumed as of the date of acquisition, the Company recorded $88.0 million in goodwill, including workforce, of which $56.7 million is expected to be deductible for tax purposes. The recognition of goodwill primarily related to the expected synergies between the product offerings of NMI and the Company. All of the goodwill recorded was assigned to the Company's Microcontroller segment.

The fair values assigned to tangible and intangible assets acquired and liabilities assumed were estimated based on management’s estimates and assumptions. These estimated fair values     are considered preliminary, although they are based on the most recent information available. The Company expects to finalize the valuation of these assets and liabilities primarily related to working capital accounts, fixed assets, and the valuation of deferred tax assets, as soon as practicable, but no later than one year from the acquisition date.

The following table sets forth the components of the identifiable intangible assets subject to amortization which are being amortized on a straight-line basis over their estimated useful lives:

Intangible assets acquired:	Method of Valuation	Discount Rate Used	Estimated Useful Lives
Distributor and end-customer relationships	Income approach	19% - 24%	0.5 - 3 years
Backlog	Income approach	19%	0.5 year
Non-compete agreements	Income approach	24%	1 - 2 years
Trade name	Income approach	24%	1 year
Developed technology	Income approach	22% - 23%	1 - 5 years
In-process technology	Income approach	25%	5 years (1)
(1) In-process technology is not amortized until the associated project has been completed. Alternatively, if the associated project is determined not to be viable, it will be expensed.

The Company expensed $2.2 million and $2.5 million of advisory, legal, and consulting fees and other costs directly related to the acquisition, which were recorded as acquisition-related charges in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014, respectively. The Company also incurred $5.3 million of one-time bonuses, subject to claw-back and other employment-related terms, for certain employees, which will be recorded ratably through the date on which the bonus is no longer recoverable by the Company. For the three months ended September 30, 2014, the Company recorded $0.9 million of one-time bonus expense as acquisition-related charges in the Condensed Consolidated Statements of Operations.

The Company has included the results of operations of NMI in the Condensed Consolidated Statements of Operations from the closing date of the acquisition. Pro forma results of operations have not been presented because their effects on the Consolidated Statement of Operations were not material.

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 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.

In the three months ended March 31, 2013, the Company paid $15.6 million of the total $64.4 million purchase for its Ozmo, Inc. acquisition, which was completed in December 2012.

Included in acquisition-related charges for the three and nine months ended September 30, 2014 and 2013, was the amortization of acquired intangible assets amounting to $3.3 million and $5.9 million and $1.3 million and $4.7 million, respectively.