14. Subsequent events

On June 11, 2014, we entered into a stock purchase agreement to acquire all of the outstanding stock of Renesas SP Drivers, Inc., or RSP, a leading provider of small and medium-sized display driver integrated circuits for smartphones and tablets (the “Acquisition”). The Acquisition is intended to accelerate our product roadmap for high-performance, low-cost display integration products, strengthen our relationships with key customers, and create opportunities to drive increased revenue. Effective as of October 1, 2014, or the Closing Date, we completed the Acquisition of 100% of the outstanding capital stock of RSP for a purchase price of approximately ¥50.6 billion (or approximately $463 million), with Japanese yen converted into US dollars at a reference conversion rate of 109.4 JPY to USD. The purchase price at the closing of the Acquisition was paid entirely in cash, with ¥7.25 billion (or approximately $66 million) held back until the date that is 18 months after the Closing Date to address any post-closing adjustments or claims, or the Indemnification Holdback, and ¥5.25 billion (or approximately $48 million) held back in respect of a potential post-closing working capital, cash balance, indebtedness and transaction expenses adjustments, or the Working Capital Holdback. Under the stock purchase agreement, RSP entered into an inventory purchase obligation with Renesas Electronics Corporation, or REL, to acquire closing date inventory held by REL at the target amount of ¥12.53 billion (or approximately $115 million). The Working Capital Holdback and the inventory purchase obligation are expected to be settled in fiscal 2015. This acquisition will be accounted for as a business combination in the quarter ending in December 2014.

In connection with the Acquisition, on September 30, 2014, we entered into a credit agreement, or the Credit Agreement, with the lenders party thereto, or the Lenders, and Wells Fargo Bank, National Association, as administrative agent for the Lenders.

The Credit Agreement provides for, among other things, (i) a revolving credit facility of up to $150 million, which includes a $20 million sublimit for letters of credit and a $20 million sublimit for swingline loans, and (ii) a term loan facility in an amount of $150 million. Under the terms of the Credit Agreement, we may, subject to the satisfaction of certain conditions, request increases in the revolving credit facility commitments and additional term loan commitments in an aggregate principal amount of up to $100 million to the extent existing or new lenders agree to provide such increased or additional commitments, as applicable. We borrowed $150 million under the term loan facility and $100 million under the revolving credit facility to finance a portion of the Acquisition purchase price. Debt issuance costs were approximately $5.0 million, including a financing commitment provided to the seller at the acquisition signing date and legal fees.

Our obligations under the Credit Agreement are guaranteed by the material domestic subsidiaries of our company, subject to certain exceptions (such material subsidiaries, together with our company, collectively, the Credit Parties). The obligations of the Credit Parties under the Credit Agreement and the other loan documents delivered in connection therewith are secured by a first priority security interest in substantially all of the existing and future personal property of the Credit Parties, including, without limitation, 65% of the voting capital stock of certain of the Credit Parties’ direct foreign subsidiaries, subject to certain exceptions.

Under the Credit Agreement, there are restrictive operating covenants, including three financial covenants which limit; the consolidated total leverage ratio, or leverage ratio; the consolidated interest coverage ratio, or interest coverage ratio; and places a restriction on the amount of capital expenditures that may be made in any fiscal year. The leverage ratio is the ratio of debt as of the measurement date to earnings before interest, taxes, depreciation and amortization, or EBITDA, for the four consecutive quarters ending with the quarter of measurement. The leverage ratio must not exceed 2.50 to 1.0 during the first two years of the agreement, and 2.0 to 1.0 during the last three years of the agreement. The interest coverage ratio is EBITDA to interest expense for the four consecutive quarters ending with the quarter of measurement. The interest coverage ratio must not be less than 3.50 to 1.0 during the term of the agreement.

As of the date of the filing of this Form 10-Q, the purchase price allocation is preliminary and has not been finalized. Additional information, which existed as of the acquisition date but is yet unknown to us, may become known to us during the remainder of the measurement period, which will not exceed 12 months from the acquisition date. Changes to amounts recorded as assets or liabilities will be recorded as retrospective adjustments to the provisional amounts recognized as of the acquisition date and may result in a corresponding adjustment to goodwill.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):


Cash	$	54,702
Restricted cash		36,617
Accounts receivable		136,647
Inventory		4,542
Property and equipment		5,401
Acquired intangible assets		289,000
Other assets		4,770

Total identifiable assets acquired		531,679
Accounts payable		71,492
Income taxes payable		36,599
Deferred tax liability		101,150
Other accrued liabilities		4,615

Net identifiable assets acquired		317,823
Goodwill		144,893

Net assets acquired	$	462,716

Of the $289.0 million of acquired intangible assets, $147.0 million was assigned to developed technology and will amortize over estimated useful lives of 4 to 6 years; $68.0 million was assigned to customer relationships and will be amortized over an estimated useful life of 1 to 3 years, $29.0 million was assigned to inventory to be acquired and will be amortized during the quarter ending in December 2014, $26.0 million was assigned to in-process research and development and will be amortized over an estimated useful life to be determined at the date the underlying projects are deemed to be substantively complete, and $19.0 million was assigned to backlog and will be amortized during the quarter ending in December 2014. We estimated the fair value of the identified intangible assets using a discounted cash flow model for each of the underlying identified intangible assets. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions in applying the discounted cash flow model to the identified intangible assets included discount rates ranging from 9% to 13%.

Developed technology consists of established small- and medium-sized display driver technology designed for and sold into the smartphone and tablet markets. The value of goodwill reflects the anticipated synergies of the combined operations and workforce of RSP as of the acquisition date.

None of the goodwill is expected to be deductible for income tax purposes.

Prior to the acquisition, we did not have an existing relationship or transactions with RSP.