ACQUISITION

On November 26, 2013, we, through a wholly owned subsidiary, acquired all the outstanding shares of Symmetricom, Inc. (“Symmetricom” or "Microsemi – FTD") for an estimated consideration of $312.7 million, of which $7.3 million was accrued at December 29, 2013. During the quarter ended December 29, 2013, we incurred $1.7 million in costs related to this acquisition that were recorded in selling, general and administrative expense. We acquired Symmetricom for its world-leading source of highly precise timekeeping technologies and solutions that enable next generation data, voice, mobile and video networks and services.

We preliminarily allocated the total estimated consideration to Symmetricom's tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date and allocated the remaining amount to goodwill. The preliminary allocation is as follows (amounts in thousands):



Cash and cash equivalents	$	26,337
Accounts receivable	31,267
Inventories	52,123
Other current assets	66,617
Property and equipment	19,366
Other assets	26,927
Identifiable intangible assets	110,800
Goodwill	58,162
Current liabilities	(36,524		)
Deferred tax liabilities, net	(38,383		)
Other non-current liabilities	(3,953		)
Total estimated consideration	$	312,739

As of the acquisition date, the gross contractual amount of acquired accounts receivable was $33.3 million and a preliminary estimate of contractual cash flows not expected to be collected was $2.1 million.

The preliminary valuation of identifiable intangible assets and their estimated useful lives are as follows (amounts in thousands):



	Asset Amount		Weighted Average Useful Life (Years)
Completed technology	$	74,100	9
Customer relationships	32,400		9
Trade name	4,300		1
	$	110,800

Valuation methodology

The fair value of the identified intangible assets for the acquisition noted above was estimated by performing a discounted cash flow analysis using the “income” approach. This method includes a forecast of direct revenues and costs associated with the respective intangible assets and charges for economic returns on tangible and intangible assets utilized in cash flow generation. Net cash flows attributable to the identified intangible assets were discounted to their present value at a rate commensurate with the perceived risk. The projected cash flow assumptions considered contractual relationships, customer attrition, eventual development of new technologies and market competition.

The valuation of completed technology and trade names for the acquisition noted above was based on the relief-from-royalty income approach, a variation of the income approach. The premise of the relief-from-royalty income approach is that if we had not been assigned the rights to the technology and trade names, we would have to pay royalties to continue to exploit the technology and trade names covered by their claims. To arrive at an estimate of royalty charges, the acquired entity's revenue and profit margins were analyzed to determine the ability to pay a royalty. In addition, the license databases were searched for actual royalty terms based on transactions involving technology and trade name licensing.

The useful lives of completed technology rights are based on the number of years in which net cash flows have been projected. The useful lives of customer relationships are estimated based upon the length of the relationships currently in place, historical attrition patterns and natural growth and diversification of other potential customers. The useful life of a trade name was estimated based on the period in which a benefit could be ascribed to the identified trade names.

Assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:


•	Historical performance including sales and profitability.


•	Business prospects and industry expectations.


•	Estimated economic life of asset.


•	Development of new technologies.


•	Acquisition of new customers.


•	Attrition of existing customers.


•	Obsolescence of technology over time.

Depending on the structure of a particular acquisition, goodwill and identifiable intangible assets may not be deductible for tax purposes. We determined that goodwill related to the Symmetricom acquisition is not deductible.

The factors that contributed to a purchase price resulting in the recognition of goodwill include:


•	The premium paid over market capitalization immediately prior to the merger announcement.


•	Our belief that the merger will create a more diverse semiconductor company with expansive offerings which will enable us to expand our product offerings.


•	Our belief that both companies are committed to improving cost structures and that our combined efforts after the merger should result in a realization of cost savings and an improvement of overall efficiencies.

The purchase price allocation described above is preliminary. A final determination of fair values of assets acquired and liabilities assumed relating to the transaction could differ from the preliminary purchase price allocation and if material differences exist they could result in retrospective revision to the purchase price allocation. We utilized the straight line method of amortization for completed technology, customer relationships and trade name.

Supplemental pro forma data

The following supplemental pro forma data summarizes the results of operations for the quarters ended December 29, 2013 and December 30, 2012, as if we completed our acquisition of Microsemi – FTD as of the first day of 2013. The supplemental pro forma data reports actual operating results, adjusted to include the pro forma effect and timing of the impact in cost of goods sold from manufacturing profit in acquired inventory, acquisition-related expenses, restructuring and severance charges, amortization expense of identified intangible assets, incremental interest expense and the related tax effects of the acquisition. We recorded net sales of $21.2 million related to our acquisition of Microsemi – FTD. Earnings for this acquisition recorded on a standalone basis since the acquisition date are impracticable to determine, as on the acquisition date, we began to immediately integrate Microsemi – FTD into existing operations, engineering groups, sales distribution networks and management structure.

The supplemental pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the transaction had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances. Supplemental pro forma data is as follows (amounts in thousands, except per share data):



	Quarter Ended
	December 29, 2013		December 30, 2012
Net sales	$	281,743	$	305,892
Net income	$	2,244	$	6,211
Net income per share
Basic	$	0.02	$	0.07
Diluted	$	0.02	$	0.07