Note 8. Acquisitions

9 Months Ended

Oct. 29, 2011

Business Combination Disclosure [Text Block]

8. Acquisitions

On March 21, 2011, we executed a definitive agreement to acquire certain assets, including intangible assets and products, from a business division of a large computer manufacturer for $5.0 million in cash, which was paid on May 3, 2011.

The assets we acquired include a low-power High Definition, or HD, video encoder processor aimed at capturing HD video for visual telephony between set-top boxes, connected media players, Voice over Internet Protocol, or VoIP, devices, video phones, video conferencing TV’s and video surveillance devices.

In connection with this acquisition, we obtained a valuation of the assets acquired in order to allocate the purchase price.  The total purchase price was allocated to the net tangible and identified intangible assets based upon fair values as of March 21, 2011.  The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill.  The purchase price in the transaction was allocated as follows (in thousands, except years):

	Amount
Purchase consideration:
Cash	$	5,000
Total consideration	$	5,000
Net tangible assets	$	752
			Estimated Useful Life
Identifiable intangible assets:
Developed technology:
Technology		1,250	5 years
Technology Leveraged		1,680	8 years
Customer relationships		750	5 years
In-process research and development		370	—
Goodwill		198	—
Total consideration	$	5,000

On November 10, 2009, we acquired all of the issued and outstanding share capital, including vested stock options, of CopperGate Communications Ltd., or CopperGate, pursuant to an Acquisition Agreement dated October 12, 2009, as amended by the First Amendment to Acquisition Agreement dated November 10, 2009 (the “Agreement”).  CopperGate is headquartered in Tel Aviv, Israel and is a provider of silicon-based modem solutions enabling distribution of media-rich digital content over all three types of wires in the home: coaxial cable, phone and power.  CopperGate solutions are deployed by service providers enabling the delivery of HDTV, VoIP and fast internet services.  Significant reasons for our acquisition of CopperGate were to obtain synergy by expanding the breadth of our technology and to extend our position as a leading provider of complete home entertainment chipset solutions for all forms of media processing and communications that would enable a more comprehensive set of solutions to capitalize on a broader range of market opportunities.  These significant factors were the basis for the recognition of goodwill.  The goodwill is not expected to be deductible for tax purposes.  Under the terms of the Agreement, we paid approximately $116.0 million in cash of which approximately $11.6 million was held in escrow for a period of 18 months and issued an aggregate of 3,931,352 shares of our common stock, of which 393,138 shares were held in escrow for a period of 18 months from the closing date.  The escrow amounts were paid during the second fiscal quarter of 2012.  At the closing, we also assumed all unvested CopperGate options and, as a result, issued unvested options to purchase an aggregate of 574,881 shares of our common stock, which options will vest over time.  Under the terms of the Agreement, we also agreed to pay up to an aggregate of $5.0 million in cash to specified CopperGate employees provided that certain milestones are achieved over a specified period of time.  All milestones were achieved and all amounts were paid.

 In connection with the CopperGate acquisition, we obtained a valuation of the net assets acquired in order to allocate the purchase price to the acquired assets.  The total purchase price was allocated to CopperGate net tangible and intangible assets based upon fair values as of November 10, 2009.  The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill.  The valuation of identifiable intangible assets was based on both the income and cost approach methods and included the following significant estimates and assumptions: income forecasts, weighted average cost of capital and discounted cash flows.  The purchase price in the transaction was allocated as follows (in thousands, except years):

	Amount
Cash consideration	$	115,956
Common stock issued		48,513
Contingent consideration		4,900
Total consideration	$	169,369
Net tangible assets	$	19,804
			Estimated Useful Life
Identifiable intangible assets:
Developed technology		53,600	7 years
Customer relationships		49,300	7 years
Trademarks		1,200	2 years
In-process research and development		10,700	—
Goodwill		34,765	—
Total consideration	$	169,369

               A $4.9 million liability was recorded for the net present value as of the acquisition date of the estimated fair value of the acquisition-related contingent consideration based on the probability of the achievement of revenue and product related milestones.  The estimated fair value of the contingent consideration was based on the probability that these milestones would be met and the payments would be made on the targeted dates outlined in the acquisition agreement.  In developing these estimates, we considered the revenue projections and historical results of CopperGate.  Any change in the fair value of the acquisition-related contingent consideration subsequent to the closing date, including changes from events after the closing date, will be recognized in earnings in the period the estimated fair value changes.  As of October 29, 2011, the contingent liability has been paid in full.

The fair value of the common stock issued was determined based on the closing market price of our common shares on the acquisition date.

As a result of the acquisition, we recorded $43.2 million of tangible assets consisting of $26.8 million of cash and cash equivalents and marketable securities, $1.0 million of restricted cash, $2.6 million of account receivables, $9.3 million of inventories, $1.1 million of property and equipment and $2.4 million of other assets.  We recorded $23.4 million of liabilities, consisting of $2.3 million of accounts payables, $6.9 million of accrued liabilities and $14.2 million of tax liabilities.

The amounts of revenue and net loss of CopperGate included in our consolidated statement of operations from the acquisition date to the period ended January 30, 2010 were as follows (in thousands):

	January 30, 2010
Revenue	$	15,067
Net loss		(5,567)

The following table presents the unaudited pro forma results as though the CopperGate acquisition described above occurred at the beginning of the periods indicated. Such historical results include acquisition-related costs totaling $3.7 million recorded in fiscal 2010. The pro forma information presented does not purport to be indicative of the results that would have been achieved had the acquisition been made as of those dates nor of the results which may occur in the future (in thousands except per share data).

	January 30, 2010 (Unaudited)		January 31,  2009 (Unaudited)
Revenue	$	252,491	$	272,676
Net income		2,442		34,770
Net income per share – basic	$	0.09	$	1.29
Net income per share – diluted	$	0.09	$	1.26