BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2011

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

Note 3    BUSINESS COMBINATIONS

• Advanced Digital Design

        On October 6, 2011, the Company completed the acquisition of Advanced Digital Design S.A ("ADD"), a Spanish company that develops power line communication solutions. The Company acquired all the outstanding shares of ADD in an all cash transaction of $19.9 million and assumed $4.9 million in net tangible liabilities.

        In addition to the total purchase price paid, $4.5 million was placed in an escrow account, relating to deferred consideration for key employees. A portion of this amount will be released on the 18-month anniversary of the closing date and the remainder will be released on the 36-month anniversary of the closing date, and each release is contingent on the continuing employment of the key employees. This amount will be amortized over the service periods, resulting in expense classified within acquisition-related charges in the consolidated statement of operations.

        Further, the employees are eligible for an aggregate potential earnout in 2012 and 2013 of $12.1 million, based on ADD achieving certain revenue targets in 2012 and in 2013 and on continuing employment. The Company has recorded a liability of $1.1 million for the fair value of the earnout. There has been no change in the value of the earnout from the acquisition date to December 31, 2011.

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

				October 6, 2011
				(In thousands)
Cash paid for acquisition				$	19,915
Less:
	Net tangible liabilities assumed				4,879
	Intangible assets acquired:
		Customer relationships			(6,580	)
		Developed technologies			(3,330	)
		Tradename			(150	)
		Non-compete agreements			(720	)
		Backlog			(290	)
			Total intangible assets		(6,191	)
Goodwill				$	13,724

        The Company recorded $13.7 million in goodwill, including workforce, in connection with the acquisition, which was assigned to the Company's microcontroller segment. The goodwill balance of $13.7 million above was further reduced by $1.3 million related to deferred tax assets created as a result of the deferred consideration placed into escrow. Such goodwill is not expected to be deductible for tax purposes. Goodwill is not subject to amortization but will be tested annually for impairment or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with the relevant standards.

        The intangible assets for the ADD acquisition were measured at fair value using the income approach. The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2011, which are being amortized on a straight-line basis:

		Gross Value		Accumulated Amortization			Net		Estimated Useful Lives
		(In thousands, except for years)
Other intangible assets:
	Customer relationships	$	6,580	$	(110	)	$	6,470	15 years
	Developed technology		3,330		(119	)		3,211	7 years
	Tradename		150		(13	)		137	3 years
	Non-compete agreement		720		(60	)		660	3 years
	Backlog		290		(73	)		217	1 year
		$	11,070	$	(375	)	$	10,695

        Developed technology represents a combination of processes, patents assets and trade secrets developed through years of experience in design and development of the products. Customer relationships represent future projected net revenues that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Tradename represents the ADD brand that the Company will continue to use to market the current ADD products. Non-compete agreement represents the fair value to the Company from agreements with certain former ADD executives to refrain from competition for a number of years. Backlog represents committed orders from customers as of the closing date of the acquisition.

        The Company recorded the following acquisition-related charges in the consolidated statements of operations in the year ended December 31, 2011 related to the ADD acquisition:

	Year Ended December 31, 2011
	(In thousands)
Amortization of intangible assets	$	375
Compensation-related expense — cash		944
	$	1,319

        The Company recorded amortization of intangible assets of $0.4 million associated with customer relationships, developed technologies, tradename, non-compete agreements and backlog. The Company also recorded $0.9 million for amortization of certain key employee consideration related to $4.5 million deferred compensation discussed above. As of December 31, 2011, the Company accelerated $0.4 million of the key employee consideration as a result of the termination of an employee.

        The Company incurred $0.7 million of transaction costs as of December 31, 2011, which are included in selling, general and administrative expenses in the consolidated statement of operations.

        The Company agreed to pay additional amounts to key employees of ADD contingent upon future ADD revenues in the calendar years 2012 and 2013. The fair value of the contingent consideration recorded on the acquisition date of $1.1 million, which is dependent on continuous employment, was estimated by applying the probability adjusted approach. That measure is based on significant inputs not observable in the market, which the relevant accounting literature refers to as Level 3 inputs. This amount will be amortized over the revenue target periods. There has been no change to the fair value of this earnout between October 6, 2011 and December 31, 2011.

Quantum Research Group Ltd.

        On March 6, 2008, the Company completed its acquisition of all the outstanding equity of Quantum Research Group Ltd. (now known as Atmel Technologies Ireland Limited) ("Quantum"), a supplier of capacitive sensing IP solutions. Quantum is a wholly-owned subsidiary of Atmel.

        Goodwill was $54.3 million and $54.7 million at December 31, 2011 and 2010, respectively, relating to the Quantum acquisition. The goodwill amount is not subject to amortization and is included within the Company's Microcontroller segment. It is tested for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on its 2011 impairment assessment, the Company concluded that the fair value of the reporting unit containing the goodwill balance substantially exceeded its carrying value; therefore, there was no impairment of the goodwill balance. The change in goodwill balance arises from foreign currency translation.

        The Company has estimated the fair value of the Quantum-related other intangible assets using the income approach and these identifiable intangible assets are subject to amortization. The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2011 which are being amortized on a straight-line basis:

		Gross Value		Accumulated Amortization			Net		Estimated Useful Life
		(In thousands, except for years)
Other intangible assets:
	Customer relationships	$	15,427	$	(11,827	)	$	3,600	5 years
	Developed technology		4,948		(3,793	)		1,155	5 years
	Tradename		849		(849	)		—	3 years
	Non-compete agreement		806		(806	)		—	5 years
	Backlog		383		(383	)		—	< 1 year
		$	22,413	$	(17,658	)	$	4,755

        The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2010 which are being amortized on a straight-line basis:

		Gross Value		Accumulated Amortization			Net		Estimated Useful Life
		(In thousands, except for years)
Other intangible assets:
	Customer relationships	$	15,427	$	(8,742	)	$	6,685	5 years
	Developed technology		4,948		(2,804	)		2,144	5 years
	Tradename		849		(849	)		—	3 years
	Non-compete agreement		806		(688	)		118	5 years
	Backlog		383		(383	)		—	< 1 year
		$	22,413	$	(13,466	)	$	8,947

        Customer relationships represent future projected net revenues that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Developed technology represents a combination of processes, patents and trade secrets developed through years of experience in design and development of the products. Trade name represents the Quantum brand which the Company does not intend to use in future capacitive sensing products. Non-compete agreement represents the fair value to the Company from agreements with certain former Quantum executives to refrain from competition for a number of years. Backlog represents committed orders from customers as of the closing date of the acquisition.

        The Company recorded the following acquisition-related charges in the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009, respectively relating to the Quantum acquisition:

	Years Ended
	December 31, 2011			December 31, 2010			December 31, 2009
	(In thousands)
Amortization of intangible assets	$	4,192		$	4,466		$	4,917
Compensation-related expense — cash		—			199			3,871
Compensation-related expense — stock		(103	)		(3,065	)		7,561
	$	4,089		$	1,600		$	16,349

        The Company recorded amortization of intangible assets of $4.2 million, $4.5 million and $4.9 million for the years ended December 31, 2011, 2010 and 2009, respectively, associated with customer relationships, developed technology, trade name, non-compete agreements and backlog.

        The Company also agreed to compensate former key executives of Quantum, contingent upon continuing employment determined at various dates over a three year period. The Company agreed to pay up to $15.1 million in cash and issue 5.3 million shares of the Company's common stock valued at $17.3 million, based on the Company's closing stock price on March 4, 2008. These amounts were accrued over the employment period on a graded vested basis.

        In March 2010, 3.2 million shares of the Company's common stock were issued to a former executive of Quantum in connection with this arrangement. The remaining 2.2 million shares were forfeited in March 2010 due to a change in employment status. As a result, the Company recorded a credit of $4.5 million for the year ended December 31, 2010 for the reversal of the expenses previously recorded due to the graded vesting recognition methodology. The Company made cash payments of $3.8 million and $10.7 million to the former Quantum employees for the years ended December 31, 2010 and 2009, respectively. No further payments are expected to be made.