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Acquisitions | 12 Months Ended
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Dec. 28, 2013
Acquisitions |
Acquisitions | 9. Acquisitions Energy Micro On July 1, 2013, the Company acquired Energy Micro AS, a late-stage private company. Energy Micro designed and developed energy-efficient 32-bit microcontrollers based on ARM Cortex-M architecture. Energy Micro's energy-friendly solutions are designed to enable a broad range of power-sensitive applications for the Internet of Things (IoT), including smart energy, home automation, security and portable electronics markets. The Company acquired Energy Micro for approximately $140.6 million, including: 1) Initial consideration of $107.4 million; 2) Deferred consideration in the form of a promissory note with an estimated fair value of $19.2 million at the date of acquisition (the promissory note was subsequently exchanged for approximately 0.5 million shares of the Company's restricted stock after a mandatory two-month creditor notice.); and 3) Contingent consideration (the "Earn-Out") with an estimated fair value of $14.0 million at the date of acquisition. The Earn-Out is payable up to approximately $33.3 million based on the extent to which the annual revenue growth rate from certain Energy Micro and Silicon Laboratories products (the "Earn-Out Products") exceeds 25% per year, over a five-year period from fiscal 2014 through 2018 (the "Earn-Out Period"). The Earn-Out is payable on an annual basis and in no event shall exceed $6,666,666 per year, unless revenue from the Earn-Out Products exceeds $400 million in a single fiscal year during the Earn-Out Period (in which case, the entire Earn-Out amount less any amounts previously paid will become payable). Approximately $20.3 million of the initial consideration was held in escrow by the Company as security for breaches of representations and warranties and certain other expressly enumerated matters. The escrow obligation was recorded in other non-current liabilities in the Consolidated Balance Sheet. A portion of the Earn-Out (28.76%) is contingent on the continued employment of certain key employees for the three years following the acquisition date (the "Departure Percentage"). The Departure Percentage was accounted for as a transaction separate from the business combination based on its economic substance and will be recorded as post-combination compensation expense in the Company's financial statements during the Earn-Out period. The Company believes that this strategic acquisition will accelerate its deployment of energy-friendly solutions across the IoT industries, while further scaling the Company's engineering team. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):
|  | Amount |  | Weighted-Average Amortization Period (Years)
--- | --- | --- | --- | ---
Intangible assets: |  |  |  |  |
In-process research and development |  | $ | 18,600 |  | Not amortized
Core and developed technology |  |  | 29,100 |  | 7
Customer relationships |  |  | 6,400 |  | 8
Trademarks |  |  | 1,300 |  | 8
|  |  | 55,400 |  |
Cash and cash equivalents |  |  | 919 |  |
Other current assets |  |  | 6,486 |  |
Goodwill |  |  | 98,515 |  |
Other non-current assets |  |  | 3,117 |  |
Current liabilities |  |  | (8,000 | ) |
Non-current deferred tax liabilities, net |  |  | (6,288 | ) |
Long-term debt |  |  | (8,434 | ) |
Other non-current liabilities |  |  | (1,133 | ) |
Total purchase price |  | $ | 140,582 |  |
The allocation of the purchase price is preliminary and subject to change, based on finalization of certain income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date. In-process research and development (IPR&D) represents acquired technology that had not achieved technological feasibility as of the acquisition date and had no alternative future use. The IPR&D recorded in connection with the acquisition of Energy Micro consisted of a multi-protocol wireless RF solution. The fair value of this technology was determined using the income approach. The discount rate applicable to the cash flows was 13.0%. The remaining research and development efforts include additional design, integration and testing. The significant risks associated with the successful completion of this project include the Company's potential inability to finish the product designs, produce working models and gain customer acceptance. Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported. The Company recorded approximately $2.4 million of acquisition-related costs in selling, general and administrative expenses during fiscal 2013. Ember On July 3, 2012, the Company acquired Ember Corporation, a privately held company. Ember's products integrate high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable software into a flexible and robust networking platform. The Company acquired Ember for approximately $79.0 million, including contingent consideration with an estimated fair value of $4.0 million at the date of acquisition. The Company believes that this strategic acquisition provides it with the technology and software expertise required to enable the low-power mesh sensor networks being deployed today in a wide range of residential, commercial and industrial applications. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):
|  | Amount |  | Weighted-Average Amortization Period (Years)
--- | --- | --- | --- | ---
Intangible assets: |  |  |  |  |
In-process research and development |  | $ | 14,810 |  | Not amortized
Developed technology |  |  | 17,800 |  | 11
Customer relationships |  |  | 5,620 |  | 9
Trademarks |  |  | 910 |  | 12
|  |  | 39,140 |  |
Cash and cash equivalents |  |  | 3,115 |  |
Accounts receivable |  |  | 1,928 |  |
Inventories |  |  | 4,749 |  |
Other current assets |  |  | 324 |  |
Goodwill |  |  | 14,777 |  |
Non-current deferred tax assets, net |  |  | 16,449 |  |
Other non-current assets |  |  | 1,776 |  |
Current liabilities |  |  | (3,287 | ) |
Total purchase price |  | $ | 78,971 |  |
The IPR&D recorded in connection with the acquisition of Ember consisted of a low-power RF transceiver. The fair value of this technology was determined using the income approach. The discount rate applicable to the cash flows was 12.5%. Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported. Acquisition-related costs were not significant. Corporate Headquarters Buildings The Company leased facilities at 400 W. Cesar Chavez ("400 WCC") and 200 W. Cesar Chavez ("200 WCC") in Austin, Texas for its corporate headquarters. During the terms of the leases, the Company had options to purchase the buildings for approximately $44.3 million for 400 WCC and $50.1 million for 200 WCC. In September 2012, the Company exercised such options and purchased the facilities. The buildings are located on land which is leased through 2099 from a third party. The rents for these ground leases were prepaid for the term of the leases by the previous lessee. The first floor of each building was leased to the same third party for the term of the ground leases. The base rents for the first floor leases were prepaid to the previous owner of the buildings. Portions of the remaining floors were also leased to other tenants. The Company determined that the purchase of the facilities represented a business combination. Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded at their fair values as of the date of the acquisition. The purchase price was allocated as follows (in thousands):
|  | Amount |
--- | --- | --- | ---
Buildings |  | $ | 90,900 |
Leasehold interest in ground leases |  |  | 23,840 |
Acquired unfavorable leases |  |  | (11,925 | )
Lease-related charges |  |  | (8 | )
Net gain on purchase |  |  | (8,457 | )
Total purchase price |  | $ | 94,350 |
The buildings and leasehold interest in ground leases will be depreciated on a straight-line basis over their estimated useful lives of 40 years and 86 years, respectively. Acquired unfavorable leases represent the difference between contractual minimum rental payments due under previously-existing leases in each building and the market rates of those same leases. This amount was recorded in other non-current liabilities in the Consolidated Balance Sheet and will be amortized to rental income over the estimated terms of the leases. The purchase of the facilities resulted in a net gain of approximately $8.5 million, which was recorded in selling, general and administrative expenses in the Consolidated Statement of Income. The gain resulted primarily because the assets acquired and liabilities assumed were recorded at their fair values as of the date of the acquisition, which was substantially higher than the purchase prices of the facilities. The purchase prices were fixed at the beginning of the two leases in March 2006 and March 2008. While market prices for such facilities increased over the terms of the leases, the purchase prices remained the same. Spectra Linear On January 25, 2011, the Company acquired Spectra Linear, Inc., a late-stage private company offering integrated timing solutions. The Company acquired Spectra Linear for approximately $28.6 million, including contingent consideration with an estimated fair value of $1.0 million at the date of acquisition. In addition, the Company assumed approximately $8.0 million of Spectra Linear net liabilities in connection with the acquisition. The Company paid an additional approximately $4.5 million of consideration to certain Spectra Linear employees in connection with an agreement between the employees and Spectra Linear. This agreement provided that upon the sale of Spectra Linear, a portion of the proceeds would be paid to such employees as bonuses. The agreement was accounted for as a transaction separate from the business combination based on its economic substance and was recorded as post-combination compensation expense in the Company's financial statements during fiscal 2011. The Company believes that the acquisition adds a broad family of timing ICs that will enable it to accelerate penetration in high-volume applications, while further scaling the Company's engineering team. These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. The goodwill is not deductible for tax purposes. The purchase price was allocated as follows (in thousands):
|  | Amount |  | Weighted-Average Amortization Period (Years) |
--- | --- | --- | --- | --- | ---
Intangible assets: |  |  |  |  |  |  |
Core and developed technology |  | $ | 16,560 |  |  | 10 |
Customer relationships |  |  | 1,400 |  |  | 10 |
|  |  | 17,960 |  |  |  |
Accounts receivable |  |  | 1,759 |  |  |  |
Inventories |  |  | 1,199 |  |  |  |
Other current assets |  |  | 1,658 |  |  |  |
Goodwill |  |  | 4,097 |  |  |  |
Deferred tax assets—non-current |  |  | 12,316 |  |  |  |
Other non-current assets |  |  | 597 |  |  |  |
Notes payable—current portion |  |  | (4,641 | ) |  |  |
Current liabilities |  |  | (3,112 | ) |  |  |
Non-current liabilities |  |  | (3,254 | ) |  |  |
Total purchase price |  | $ | 28,579 |  |  |  |
Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported. Acquisition-related costs were not significant.

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