7. Acquisition

On August 21, 2014, Cirrus Logic completed the acquisition of Wolfson Microelectronics plc (the “Acquisition”), a public limited company incorporated in Scotland (“Wolfson”). Upon completion of the acquisition, Wolfson was re-registered as a private limited company. Wolfson is a supplier of high performance, mixed-signal audio solutions for the consumer electronics market. The Acquisition accelerates Cirrus Logic’s strategic roadmap, further strengthens our technology portfolio with the addition of MEMS microphones and extensive software capabilities, while significantly expanding our development capacity.

The enterprise value for Wolfson in connection with the Acquisition was approximately £283 million (approximately $469 million, and was based on the agreed upon offer of £2.35 per share (the “Offer”) for the entire issued and to be issued share capital of Wolfson. Cirrus Logic financed the Acquisition through a combination of existing cash on Cirrus Logic’s balance sheet and $225 million in debt funding from Wells Fargo Bank, National Association, as discussed below in Note 9. Upon the completion of the Acquisition, in the second quarter of fiscal year 2015, the Company recorded approximately $12.0 million of realized losses on foreign currency contracts used to hedge the purchase of Wolfson’s share capital which was denominated in pounds sterling. The contracts were not accounted for under ASC 815. The loss is included in the consolidated statements of income under the caption “Other expense” for the year ended March 28, 2015.

The Acquisition was accounted for as a business purchase pursuant to ASC Topic 805, Business Combinations, and the operations of Wolfson have been included in the Company’s consolidated financial statements since August 21, 2014, the date of acquisition. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition as of March 28, 2015 (in thousands):


		Amount
Cash and cash equivalents	$	25,342
Inventory		30,530
Other current assets		16,226
Property, plant and equipment		27,398
Intangible assets		175,987
Pension assets		1,625
Total identifiable assets acquired	$	277,108

Deferred tax liability - current		(11,958)
Deferred revenue		(551)
Other accrued liabilities		(39,417)
Other long-term liabilities		(2,449)
Total identifiable liabilities assumed	$	(54,375)
Net identifiable assets acquired	$	222,733
Goodwill		246,748
Net assets acquired	$	469,481

The goodwill of $246.7 million arising from the Acquisition is attributable primarily to expected synergies and the product and customer base of Wolfson. None of the goodwill is expected to be deductible for income tax purposes. As of March 28, 2015, the changes in the recognized amounts of goodwill resulting from the Acquisition are as follows (in thousands):



		September 27,		Fair Value		March 28,
		2014		Adjustments		2015
Inventory	$	28,658	$	1,872	$	30,530
Other current assets		15,633		593		16,226
Property, plant and equipment		29,093		(1,695)		27,398
Deferred tax liability - current		(11,483)		(475)		(11,958)
Other accrued liabilities		(41,417)		2,000		(39,417)
Total Goodwill	$	249,043	$	(2,295)	$	246,748

The acquired intangible assets and related weighted average amortization periods are detailed below (in thousands):



Intangible assets		Amount	Weighted-average Amortization Period (years)
Developed technology	$	74,247	6.2
Technology intellectual property		14,572	5.3
Trademark		1,437	1.3
IPR&D		72,750	7.3
Customer relationships		12,981	10.0
Total	$	175,987

The IPR&D intangible assets included the following research and development projects acquired through the Acquisition (in thousands): (1) intellectual property (“IP”) migration and product development at 152 nm process technology (“152 nm”); (2) IP migration and product development at 55 and 65 nm process technology (“55/65 nm”); (3) MEMs transducer development (“MEM”); and (4) single die monolithic integration of MEMS structures and ASICS (“integrated MEMs”).



IPR&D intangible assets		Amount		Approximate Costs to Complete	Estimated Cost Completion Date (calendar year)
152 nm	$	8,905	$	862	2015
55/65 nm		36,807		17,350	2019
MEMs		15,596		604	2015
Integrated MEMs		11,442		2,784	2016
Total	$	72,750	$	21,600

The fair value of the IPR&D acquired intangible assets was determined using the multi-period excess earnings (“MPEEM”) method, which is a variation of the income approach. The method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows, or excess earnings, attributable to the intangible asset. The present value is calculated using a discount rate commensurate with the risk inherent in the IPR&D intangible asset as well as any tax benefits related to ownership.

The initial allocation of the purchase price is preliminary and subject to completion, including the areas of taxation, where valuation assessments are in progress. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting and would be retroactively reflected in the financial statements as of March 28, 2015, and for the interim periods affected.

The Company recognized a total of $18.1 million of acquisition related costs that were expensed in the second and third quarters of fiscal year 2015. The majority of the costs included in this amount were associated with bank and legal fees, as well as certain expenses for stock compensation related to the Acquisition. These costs are included in the consolidated statements of income in the line item entitled “Acquisition related costs.” Restructuring costs related to the Acquisition were $1.5 million for the year ended March 28, 2015, primarily related to severance payments and the consolidation of our sales functions. These costs are included in the line item “Restructuring and other, net” on the consolidated statements of income. Prior year credits related to changes in estimates for the Tucson, Arizona design center facility, due to a new sublease on the vacated property in connection with the closing of this facility.

The Company’s consolidated statements of income for the year ending March 28, 2015 included $98.3 million of revenue attributable to Wolfson, from the acquisition date to the end of the period. Earnings disclosure related to Wolfson for the year ending March 28, 2015, is excluded as it would be impracticable, due to the integration of Wolfson’s operations with the Company’s operations, resulting in the inability to allocate costs and services shared across both companies’ product lines.

Giving pro forma effect to the Acquisition as if it had occurred as of March 31, 2013, the beginning of the Company’s fiscal year 2014, and after applying the Company’s accounting policies and adjusting the results to reflect these changes since March 31, 2013, $142.5 million and $179.4 million of pro forma revenue would have been attributable to Wolfson for the fiscal year ended March 28, 2015 and March 29, 2014, respectively. Disclosure of pro forma earnings attributable to Wolfson is excluded as it would be impracticable, due to the integration of Wolfson’s operations with the Company’s operations, resulting in the inability to allocate costs and services shared across both companies’ product lines.