Adaptec 2011 Annual Report Download - page 56

Table of Contents
more likely than not that the fair value of a reporting unit is less than its carrying value. If this qualitative criteria is not met, then performing the two-step
impairment test is unnecessary. However, if a company concludes otherwise, then it is required to perform the first step of the two-step quantitative goodwill
impairment test. If the carrying value of a reporting unit exceeds its fair value, then a company is required to perform the second step of this test. This
guidance is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The
adoption of this amended accounting guidance is not expected to have a material impact on our consolidated financial position and results of operations.
NOTE 2. BUSINESS COMBINATIONS
Acquisition of Wintegra, Inc.
On November 18, 2010, PMC completed its previously announced acquisition of Wintegra, Inc. ("Wintegra") a privately held Delaware corporation,
pursuant to an amendment (the "Amendment") to the Agreement and Plan of Merger dated as of October 21, 2010 ("the Merger Agreement"). The Company's
acquisition, pursuant to the Merger Agreement, was effected by merging a wholly owned subsidiary of the Company ("Merger Sub") into Wintegra, with
Wintegra continuing on as the surviving corporation and as a direct wholly-owned subsidiary of PMC (the "Merger").
PMC purchased Wintegra to accelerate the Company's product offering in IP/Ethernet packet-based mobile backhaul equipment and because the
acquisition fit strategically with the Company's overall efforts to accelerate the transition of existing communications equipment to converged, packet-centric
solutions. Prior to November 18, 2010, the Company owned 2.6% of the outstanding shares of Wintegra, as a cost investment, with a carrying value of $2.0
million. The fair value immediately prior to the acquisition date was $6.5 million. Upon acquiring the remaining equity interests of Wintegra, the Company
recorded a gain on the step-acquisition on this pre-existing investment of $4.5 million which was included in Other Income, net in the Consolidated Statement
of Operations.
The fair value of the purchase price consideration as of the acquisition date was estimated, as follows:
(in thousands)
Cash $ 218,064
Contingent consideration (subsequently adjusted, see Note 11. Commitments and Contingencies) 28,194
Fair value of replacement equity awards attributable to pre-combination service 1,083
Total purchase price $ 247,341
Certain key employees entered into Holdback Escrow Agreements, whereby a portion of cash consideration otherwise payable per the Merger
Agreement was retained and would be distributed under certain conditions, including continued employment over a two-year period. This post-combination
expense has been included in the Consolidated Balance Sheet as current prepaid expenses and is being amortized straight-line over the two-year period.
Amortization for the year ended December 31, 2011 was $1.6 million. As at December 31, 2011, the unamortized balance of $1.2 million is included in the
Consolidated Balance Sheet as Prepaid expenses and other current assets.
Former Wintegra equity holders could have been entitled to receive an additional earn-out payment, which ranged from $nil to $60 million, calculated
on the basis of Wintegra's calendar year 2011 revenue above an agreed threshold as described in the Merger Agreement. The fair value of the earn-out was
reflected in the purchase price as contingent consideration was determined using a probability weighted discounted net present value approach with a discount
rate of 4.75%. See Note 11. Commitments and Contingencies.
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