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Business Acquisitions
12 Months Ended
Jun. 30, 2013
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions


CHiL Semiconductor Corporation

On February 24, 2011, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) by and among International Rectifier Corporation, a Delaware corporation, Cancun Merger Corp., a Delaware corporation (“Cancun”) wholly-owned by the Company, and CHiL Semiconductor Corporation, a Delaware corporation (“CHiL”) (collectively, the “Merger”). Pursuant to the Merger and related documents, the Company agreed to acquire CHiL for $75 million in cash, subject to a working capital adjustment, by means of a merger of Cancun with and into CHiL, with CHiL becoming a wholly-owned subsidiary of the Company. The Merger was closed on March 7, 2011.

CHiL designs, develops and markets intelligent mixed-signal products using digital power techniques. The results of CHiL are included in the Company’s EP business segment.

The acquisition of CHiL was accounted for as a business combination and was included in the Company’s fiscal year 2011 results of operations from March 7, 2011, the date the Merger was closed. CHiL contributed revenues of $2.8 million and a net loss of $3.2 million to the Company’s results for the period from acquisition through June 26, 2011.

The total consideration as shown in the table below was allocated to CHiL’s tangible and intangible assets and liabilities based on their estimated fair value as of the date of the completion of the transaction, March 7, 2011. The Company made adjustments to the preliminary allocation in the fourth quarter of fiscal year 2011 which resulted in changes to consideration transferred, residual amount allocated to goodwill, inventory, intangibles, net working capital and deferred taxes.

The consideration is allocated as follows (in thousands):
 
Estimated Fair Value
Fair value of consideration transferred:
 
Cash consideration to CHiL shareholders, net of cash acquired
$
73,168

Allocation of consideration:
 
Inventory valuation adjustment
100

Property, plant, and equipment
207

Deferred tax asset
10,016

In-process research and development
100

Intangible assets
25,900

Goodwill
46,615

Net working capital
445

Deferred tax liability
(10,055
)
Taxes payable
(160
)
Total purchase price
$
73,168



Pursuant to the Merger Agreement, $11.3 million of the cash consideration was placed in an indemnification escrow account. The Merger Agreement provided that, subject to deductions for certain claims, net working capital adjustments and the settlement of pre-closing tax liabilities, the escrow cash would be released and distributed to the former CHiL shareholders one year after the acquisition closing date. As of June 30, 2013, approximately $10.4 million was released to the former CHiL shareholders, $0.1 million was released back to the Company to satisfy the Company's claims and conditions set forth in the Merger Agreement, and $0.8 million was used to pay bonuses to certain CHiL employees remaining employed by the Company in good standing 1 year after the acquisition closing date. These retention bonuses were recorded as compensation expense over the service period. The escrow has now been closed.

Identifiable acquisition-related intangible assets and their estimated useful lives are as follows (in thousands):
 
Asset Amount
 
Weighted Average Useful Life
Completed technology
$
19,500

 
5 years
Customer lists
5,100

 
6 years
Other intangible assets
1,300

 
3 years
Total acquisition‑related intangible assets
$
25,900

 
 


The fair value of the identified intangible assets was estimated by performing a discounted cash flow analysis utilizing the “income” approach and are Level 3 measurements as described in Note 1. This approach is based on a probability weighted forecast of revenues and cash expenses associated with the respective intangible assets. The net cash flows attributable to the identified intangible assets were discounted to their present value using a rate determined by the Company based on its evaluation of the risks related to the cash flows.

The useful lives of the completed technology rights are based on the number of years for which these technologies are expected to provide cash inflows. The useful life of the customer lists is based on historical patterns, the customer’s industry and the potential for growth in the customer base. The useful life of the trade name was based on the period for which the trade name will provide a benefit to the Company and the useful life of the non-compete agreement was based on the estimated period of utility of the agreement.

The allocation of the purchase price resulted in the Company recognizing $46.6 million of goodwill in the EP business segment related to the acquisition in fiscal year 2011. The goodwill was not deductible for tax purposes. The factors that contributed to the recognition of goodwill for this acquisition include the expansion of the Company’s product offerings in the EP segment to include digital solutions, the Company’s expectation that the acquisition would improve the cost structure and efficiencies of the CHiL operations, and the premium paid for the acquisition of CHiL.

Transaction costs related to the acquisition of CHiL were immaterial.

Technology Acquisition

On February 3, 2011, the Company entered into a Purchase and Sale Agreement with a privately held domestic corporation, and its shareholders, to acquire tangible personal property and intellectual property (the “Technology Acquisition”) for $2.5 million in cash plus semiannual payments of $0.4 million for a period of three years and additional amounts contingent upon the achievement of certain financial and other operating results.  The semiannual payments are contingent upon the continued employment of the shareholders by the Company and are expensed as compensation expense as incurred.  Any portion of the semi-annual payments not paid to the shareholders will be retained by the Company. The seller was a development stage enterprise engaged in the development of power management technology solutions.

The Technology Acquisition was accounted for as a business combination, and included in the Company’s fiscal year 2011 results of operations from February 3, 2011, the date the Technology Acquisition closed. The revenues and expenses for the Technology Acquisition during that period were immaterial. The operating results of the Technology Acquisition were included in the Company’s Energy Saving Products (“ESP”) segment from the date of acquisition.    The total consideration for the Technology Acquisition as shown in the table below is allocated to the tangible and intangible assets and liabilities based on their estimated fair value as of the date of the completion of the transaction, February 3, 2011. Acquisition costs were not material.
The consideration is allocated as follows (in thousands):
 
Estimated
Fair Value
Fair value of consideration transferred:
 
 
 
Cash consideration to the Technology Acquisition shareholders
$
2,500

Contingent consideration
400

Total consideration
$
2,900

Allocation of consideration:
 
 
 
Intangible assets
$
2,867

Long-term deferred tax asset
150

Other assets
33

Long-term deferred tax liability
(150
)
Net assets acquired
$
2,900


    
The contingent consideration arrangement requires the Company to pay additional consideration to the shareholders of the seller in the Technology Acquisition based on a percentage of cumulative pro forma earnings net of cumulative losses. The fair value of the contingent consideration was estimated using a probability weighted discounted cash flow model and is a Level 3 measurement as described in Note 1. The key assumptions in applying the income approach were a discount rate of 46 percent and estimated net cash flows from operations.

The Company identified one type of intangible asset acquired in the Technology Acquisition, completed technology rights. The fair value of the completed technology was estimated utilizing a discounted cash flow analysis using the “income” approach, a Level 3 measurement, which estimates the fair value of the asset based on a discounted cash flow approach. The completed technology has an estimated fair value of $2.9 million and will be amortized on a straight-line basis over the estimated useful life of the technology of 5 years. The useful lives of the completed technology rights were based on the number of years for which cash flows had been projected.

Pro Forma Information (unaudited)
    
The results of operations for CHiL and the Technology Acquisition have been included in the Company’s consolidated statement of operations since the consummation of the acquisitions on March 7, 2011 and February 3, 2011, respectively. The following unaudited pro forma financial information presents the combined results as if the acquisitions had occurred at the beginning of the prior fiscal year reporting periods (in thousands, except per share data):
 
Fiscal Year Ended
 
June 26, 2011
 
 
Combined revenues
$
1,180,250

Combined net income
$
155,085

Net income per share-basic
$
2.19

Net income per share-diluted
$
2.17



These amounts have been calculated after adjusting the results of CHiL and the Technology Acquisition to include the additional amortization expense that would have been charged assuming the fair value adjustments to intangible assets had been applied as of the beginning of fiscal year 2011.