BUSINESS COMBINATIONS

3 Months Ended

Mar. 31, 2015

Business Combinations [Abstract]

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

Newport Media, Inc.

On July 31, 2014, the Company acquired 100% of the equity interest in 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 the 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 two years following the acquisition date. The Company recorded a liability of $0.4 million as of July 31, 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 of NMI based on their estimated fair value at the acquisition date. The Company engaged 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 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	86,123
Deferred tax assets	17,863
Other long-term assets	945
Current liabilities	(5,216		)
Other liabilities assumed	(1,406		)
	$	143,059

The Company prepared an initial determination of the fair value of the assets acquired and liabilities assumed as of the acquisition date using preliminary information.  The Company recognized measurement period adjustments made during the fourth quarter of 2014 to the fair value of certain assets acquired and liabilities assumed as a result of further refinements in the Company’s estimates.  These adjustments were retrospectively applied to the July 31, 2014 acquisition date balance sheet.  The effect of these adjustments on the preliminary purchase price allocation was a decrease in goodwill and income tax payable of $1.9 millionand $0.3 million, respectively, and an increase in deferred tax assets of $1.6 million. 

The excess of the fair value of consideration paid over the fair value of the net assets acquired,liabilities assumed and the identifiable intangible assets acquired resulted in recognition of goodwill of approximately $86.1 million, including workforce, of which $55.2 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 goodwill recorded was assigned to the Company's Microcontroller segment.

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 years
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 $2.5 million of advisory, legal, and consulting fees and other costs directly related to the acquisition, which were recorded as acquisition-related charges in the Consolidated Statements of Operations for the year ended December 31, 2014. The Company incurred $5.3 million of one-time bonus expense, 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 March 31, 2015, the Company recorded $1.6 million of one-time bonus expense as acquisition-related charges and $1.7 million of amortization expense related to identifiable intangible assets in the Condensed Consolidated Statements of Operations.