Acquisitions
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Jul. 29, 2012
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | Acquisitions Gennum Corporation (“Gennum”) On March 20, 2012, the Company, through its wholly-owned subsidiary Semtech Canada Inc., completed the acquisition of all outstanding equity interests of Gennum (TSX: GND), a leading supplier of high speed analog and mixed-signal semiconductors for the optical communications and video broadcast markets. Upon consummation of the acquisition, which constituted a change in control of Gennum, Gennum’s stock option awards and restricted shares became fully vested. Semtech acquired 100% of the outstanding shares and vested stock options, restricted shares, and deferred share units of Gennum for CDN $13.55 per share for a total purchase price of $506.5 million. The acquisition was financed with a combination of cash from Semtech’s international cash reserves and $347 million of five-year secured term loans, net of original issuance debt discount of $3 million (see Note 10). The acquisition is accounted for under the acquisition method of accounting in accordance with the FASB’s ASC Topic 805, Business Combinations. As such, the Gennum assets acquired and liabilities assumed are recorded at their acquisition-date fair values. Acquisition-related transaction costs are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The goodwill resulted from expected synergies from the transaction, including complementary products that will enhance the Company’s overall product portfolio, and opportunities within new markets, and is not deductible for tax purposes. The acquired in-process research and development is recorded at fair value as an indefinite-lived intangible asset at the acquisition date until the completion or abandonment of the associated research and development efforts. In connection with the acquisition, certain Gennum employees became entitled to payments upon a change in control and their subsequent termination. These payments, which totaled approximately $9.6 million, have been recognized as a post-acquisition compensation expense and included in the Unaudited Consolidated Condensed Statements of Income for the six months ended July 29, 2012 under “Selling, general and administrative.” The Company’s preliminary allocation of the total purchase price as of March 20, 2012 is summarized below:
The purchase price allocation for the Gennum acquisition is preliminary and will be finalized upon collection of information regarding the fair values of assets and liabilities acquired. The primary areas of the preliminary purchase price allocation that are not yet finalized include fair values of certain liabilities, income and non-income based taxes at foreign entities, and residual goodwill. Primarily due to the change in the preliminary estimate of fair value related to deferred tax liabilities, the preliminary goodwill allocation related to Gennum decreased by $5.4 million from $263.8 million as of April 29, 2012 to $258.4 million as of July 29, 2012. There was no impact to the Company’s Unaudited Consolidated Condensed Statements of Income for the three and six months ended July 29, 2012. The Company recognized approximately $1.8 million and $20.4 million of acquisition related costs that were expensed in the three and six months ended July 29, 2012, respectively. These costs are included in the Unaudited Consolidated Condensed Statements of Income for the three and six months ended July 29, 2012 under “Selling, general and administrative.” Net revenues attributable to Gennum since the acquisition date were $35.3 million and $47.3 million, with a corresponding net loss of $22.7 million and $51.3 million in the three and six months ended July 29, 2012, respectively. In May 2012, the Company settled two pre-acquisition contingencies related to legal matters for a total cash payment of $4.2 million. Pro Forma Financial Information The results of operations of Gennum have been included in the Company’s Unaudited Consolidated Condensed Statements of Income since the acquisition date of March 20, 2012. The following table reflects the unaudited pro forma consolidated statements of income as if the acquisition had taken place at the beginning of each period presented, after giving effect to certain adjustments including the following for the three and six months ended July 29, 2012 and July 31, 2011:
Pro-forma Unaudited Consolidated Statements of Income:
The unaudited pro forma information presented does not purport to be indicative of the results that would have been achieved had the acquisition been consummated at the beginning of each period presented nor of the results which may occur in the future. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma information does not include any adjustments for any restructuring activities, operating efficiencies or cost savings. Cycleo SAS On March 7, 2012, the Company completed the acquisition of Cycleo, a privately held company based in France that develops intellectual property (“IP”) for wireless long-range semiconductor products used in smart metering and other industrial and consumer markets. Under the terms of the agreement, Semtech paid the stockholders of Cycleo $5 million in cash at closing. Additionally, pursuant to the earn-out arrangement with Cycleo stockholders, the Company potentially may make payments totaling up to approximately $16 million based on the achievement of a combination of certain revenue and operating income milestones by Cycleo over the period of four years beginning on April 30, 2012. For certain of the Cycleo stockholders, payment of the earn-out liability is contingent upon employment at the end of the four-year period and is accounted for as post-acquisition compensation expense over the service period. The portion of the earn-out liability that is not dependent on continued employment is included in the purchase price allocation at March 7, 2012. During the six months ended July 29, 2012, the Company recognized $977,000 of compensation expense related to the deferred compensation liability. These costs are included in the Unaudited Consolidated Condensed Statements of Income for the six months ended July 29, 2012 under “Product development and engineering” ($635,000) and “Selling, general and administrative” ($342,000). The acquisition is accounted for under the acquisition method of accounting in accordance with the FASB’s ASC Topic 805, Business Combinations. Total acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Cycleo based on their respective estimated fair values as of the acquisition date. Any excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed is allocated to goodwill. The Company expects that all such goodwill will not be deductible for tax purposes. During the three months ended July 29, 2012, the Company completed the purchase price allocation for its acquisition of Cycleo. In July 2012, the Company obtained new information not available in the prior interim period which caused the Company to reassess the portion of the earn-out arrangement with Cycleo relating to compensation arrangements. As a result, the preliminary goodwill allocation related to Cycleo decreased by $3.3 million from $5.3 million as of April 29, 2012 to $2.0 million as of July 29, 2012. Net revenues and earnings attributable to Cycleo since the acquisition date were not material. Pro forma results of operations have not been presented as the acquisition was not material to the Company’s consolidated financial statements. |