Acquisition Of TPack A/S

9 Months Ended

Dec. 31, 2011

Acquisition Of TPack A/S [Abstract]

Acquisition Of TPack A/S

10. ACQUISITION OF TPACK A/S

In September 2010, the Company acquired all of the shares of TPack A/S ("TPack"), a corporation organized under the laws of Denmark. The Company believes the acquisition of TPack (subsequently renamed AppliedMicro TPack A/S), a provider of silicon intellectual property for mapping and switching functions to leading telecom and networking equipment suppliers, will enable AppliedMicro to expand its presence and customer relationships in the rapidly growing OTN and Carrier Ethernet markets.

The total consideration paid at the closing of the transaction (the "Closing") was approximately $32 million, exclusive of $0.5 million cash acquired. Approximately $5 million was withheld in escrow for indemnity agreements and is included in the purchase price allocation. The former TPack shareholders may also earn up to approximately $5 million in additional consideration, subject to the achievement of certain revenue and performance milestones by TPack during the 18-month period following the Closing. The Company calculated and recorded the initial fair value of the contingent consideration liability based on a weighted probability assessment. The liability will continue to be measured at fair value at the end of each reporting period. During the second quarter of fiscal year 2012, the Company reduced the estimated fair value of the contingent consideration liability to approximately $0.9 million, primarily due to revised TPack revenue forecasts and weighted probability assessments. As a result, the Company recorded zero and an approximate $2.3 million reduction to selling, general and administrative expense during the three and nine months ended December 31, 2011, respectively.

The Company has calculated the fair value of the tangible and intangible assets acquired to allocate the purchase price as of the acquisition date. The excess of purchase price over the aggregate fair values was recognized as goodwill. Based upon these calculations, the preliminary purchase price of the transaction was allocated as follows, and also includes the estimated amortization period of the acquired intangibles:

	Estimated Useful Life (In years)		Purchase price (In thousands)
Purchased intangible assets
Developed Technology		6	$	15,350
Existing customer contracts		5		4,000
Partner relationship		2		2,500
Trademarks and tradenames		3		650
Covenants not-to-compete		3		250
In-process R&D		6		950
Goodwill (non tax deductible)				13,183
Contingent consideration (payable)				(3,150	)
Net liabilities			$	(1,699	)
Cash consideration				32,034
Contingent consideration				3,150
The total consideration issued in the acquisition			$	35,184

The fair values of the TPack intangible assets were determined using the income approach with significant inputs that are not observable in the market. Key assumptions included expected future cash flows and discount rates consistent with the assessment of risk. Purchased intangible assets, including IPR&D, are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, or if that pattern cannot be reliably determined, using a straight-line amortization method. The Company began amortizing the IPR&D during the three months ended September 30, 2011 because the associated products have been completed and there were no material changes to the initial cost to complete estimates for the completed products.

The financial information in the table below summarizes the combined results of operations of the Company and TPack, on a proforma basis, as though the companies have been combined as of the beginning of the fiscal years of the periods presented. The proforma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2010 or of results that may occur in the future.

	Nine Months Ended December 31,
	2011			2010
Net revenues	$	182,120		$	192,024
Net (loss) income		(15,106	)		2,106