Business Acquisitions

Acquisition of Micrel

On August 3, 2015, the Company acquired Micrel, Incorporated (Micrel), a publicly traded company based in San Jose, California. Micrel shareholders were able to elect to receive the $14.00 per share purchase price in either cash or shares of Microchip common stock. Based on the results of the shareholder elections, the Company paid an aggregate of approximately $430.0 million in cash and issued an aggregate of 8,626,795 shares of its common stock to Micrel shareholders. The total consideration transferred in the acquisition, including approximately $4.1 million of non cash consideration for the exchange of certain share-based payment awards of Micrel for stock awards of the Company, and approximately $13.1 million of cash consideration for the payout of vested employee stock awards, was approximately $816.2 million. The Company financed the cash portion of the purchase price using borrowings under its existing credit agreement. As a result of the acquisition, Micrel became a wholly owned subsidiary of the Company. Micrel's business is to design, develop, manufacture and market a range of high-performance analog, power and mixed-signal integrated circuits. Micrel's products address a wide range of end markets including industrial and automotive, wireline communications, enterprise and cloud infrastructure and mobility. Micrel also manufactures custom analog and mixed-signal circuits and provides wafer foundry services for customers which produce electronic systems utilizing semiconductor manufacturing processes as well as micro-electrical mechanical system technologies. The Company's primary reason for this acquisition was to expand the Company's range of solutions, products and capabilities in these areas by extending its served available market.

The acquisition was accounted for under the acquisition method of accounting, with the Company identified as the acquirer, and the operating results of Micrel have been included in the Company's condensed consolidated financial statements as of the closing date of the acquisition. Under the acquisition method of accounting, the aggregate amount of consideration paid by the Company was allocated to Micrel's net tangible assets and intangible assets based on their estimated fair values as of August 3, 2015. The excess of the purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill. The factors contributing to the recognition of goodwill were based upon the Company's conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. The goodwill has been allocated to the Company's semiconductor products reporting segment. None of the goodwill related to the Micrel acquisition is deductible for tax purposes. The Company retained an independent third-party appraiser to assist management in its valuation; however, the purchase price allocation has not been finalized. This could result in adjustments to the fair values of the assets acquired and liabilities assumed, the useful lives of intangible assets, the residual amount allocated to goodwill and deferred income taxes recognized. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on the final valuations and estimates of useful lives.

The table below represents the preliminary allocation of the purchase price to the net assets acquired based on their estimated fair values as of August 3, 2015, as well as the associated estimated useful lives of the acquired intangible assets at that date (amounts in thousands):



Assets acquired	August 3, 2015
Cash and cash equivalents	$	99,196
Accounts receivable, net	12,296
Inventories	78,967
Prepaid expenses and other current assets	10,548
Property, plant and equipment, net	38,566
Goodwill	437,060
Purchased intangible assets	274,800
Other assets	4,268
Total assets acquired	955,701

Liabilities assumed
Accounts payable	(11,068		)
Other current liabilities	(30,241		)
Deferred tax liabilities	(88,796		)
Long-term income tax payable	(9,239		)
Other long-term liabilities	(127		)
Total liabilities assumed	(139,471		)
Purchase price allocated	$	816,230



Purchased Intangible Assets	Useful Life	August 3, 2015
	(in years)	(in thousands)
Core/developed technology	10	$	176,800
In-process technology	10	22,100
Customer-related	5	70,400
Backlog	1	5,500
		$	274,800

Purchased intangible assets include core and developed technology, in-process research and development, customer-related intangibles and acquisition-date backlog. The estimated fair values of the core and developed technology and in-process research and development were determined based on the present value of the expected cash flows to be generated by the respective existing technology or future technology. The core and developed technology intangible assets are being amortized commensurate with the expected cash flows used in the initial determination of fair value. In-process technology is capitalized until such time the related projects are completed or abandoned at which time the capitalized amounts will begin to be amortized or written off.

Customer-related intangible assets consist of Micrel's contractual relationships and customer loyalty related to its distributor and end-customer relationships, and the fair values of the customer-related intangibles were determined based on Micrel's projected revenues. An analysis of expected attrition and revenue growth for existing customers was prepared from Micrel's historical customer information. Customer relationships are being amortized in a manner consistent with the estimated cash flows associated with the existing customers and anticipated retention rates. Backlog relates to the value of orders not yet shipped by Micrel at the acquisition date, and the preliminary fair values were based on the estimated profit associated with those orders. Backlog related assets are being recognized commensurate with recognition of the revenue for the orders on which the backlog intangible assets were determined. Amortization expense associated with acquired intangible assets is not deductible for tax purposes. Thus, approximately $99.8 million was established as a net deferred tax liability for the future amortization of the intangible assets offset by $11.0 million of net deferred tax assets.

The amount of Micrel net sales and net loss included in the Company's condensed consolidated statements of income for the period August 3, 2015 to September 30, 2015 was $21.5 million and $28.5 million, respectively.

The following unaudited pro-forma consolidated results of operations for the three and six months ended September 30, 2015 and 2014 assume the Micrel acquisition occurred as of April 1, 2014. The pro-forma adjustments are mainly comprised of acquired inventory fair value costs and amortization of purchased intangible assets. The pro-forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2014 or of results that may occur in the future (amounts in thousands except per share data):



	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Net sales	$	574,432	$	613,722	$	1,163,066	$	1,184,937
Net income	83,868		70,440		202,037		125,387
Basic earnings per share	$	0.41	$	0.35	$	0.99	$	0.63
Diluted earnings per share	$	0.39	$	0.31	$	0.93	$	0.56

Acquisition of ISSC

On July 17, 2014, the Company acquired an 83.5% interest in Taiwan based ISSC, a leading provider of low power Bluetooth and advanced wireless solutions for the Internet of Things (IoT) market. The Company acquired the 83.5% ownership interest through a tender offer process. Since the completion of the tender offer, the Company continued to acquire additional shares of ISSC, and as of June 30, 2015, the Company had completed the acquisition of 100% of the outstanding shares of ISSC.

The acquisition was accounted for under the acquisition method of accounting. The table below represents the allocation of the purchase price, including adjustments to the purchase price allocation from the previously reported figures at March 31, 2015, to the net assets acquired based on their estimated fair values as of July 17, 2014 as well as the associated estimated useful lives of the acquired intangible assets at that date. The purchase price allocation was finalized as of June 30, 2015 (amounts in thousands):



Assets acquired	Previously Reported March 31, 2015			Adjustments			June 30, 2015
Cash and cash equivalents	$	15,120		$	—		$	15,120
Short-term investments	27,063			—			27,063
Accounts receivable, net	8,792			—			8,792
Inventories	16,542			—			16,542
Prepaid expenses and other current assets	2,501			—			2,501
Property, plant and equipment, net	2,637			—			2,637
Goodwill	154,399			389			154,788
Purchased intangible assets	147,800			—			147,800
Other assets	1,370			—			1,370
Total assets acquired	376,224			389			376,613

Liabilities assumed
Accounts payable	(9,860		)	—			(9,860		)
Other current liabilities	(16,535		)	—			(16,535		)
Long-term income tax payable	(4,402		)	(389		)	(4,791		)
Deferred tax liability	(25,126		)	—			(25,126		)
Other long-term liabilities	(245		)	—			(245		)
Total liabilities assumed	(56,168		)	(389		)	(56,557		)
Net assets acquired including noncontrolling interest	320,056			—			320,056
Less: noncontrolling interest	(52,467		)	—			(52,467		)
Net assets acquired	$	267,589		$	—		$	267,589



Purchased Intangible Assets	Useful Life	July 17, 2014
	(in years)	(in thousands)
Core/developed technology	10	$	68,900
In-process technology	10	27,200
Customer-related	3	51,100
Backlog	1	600
		$	147,800

Acquisition of Supertex

On April 1, 2014, the Company acquired Supertex Inc., a publicly traded company based in Sunnyvale, California. Supertex is a leader in high voltage analog and mixed signal technologies, with a strong position in the medical, lighting and industrial control markets.

The acquisition was accounted for under the acquisition method of accounting. The table below represents the allocation of the purchase price to the net assets acquired based on their estimated fair values as of April 1, 2014 as well as the associated estimated useful lives of the acquired intangible assets at that date. The purchase price allocation was finalized on March 31, 2015 (amounts in thousands):



Assets acquired	March 31, 2015
Cash and cash equivalents	$	14,790
Short-term investments	140,984
Accounts receivable, net	7,047
Inventories	27,630
Prepaid expenses	1,493
Deferred tax assets	2,456
Other current assets	12,625
Property, plant and equipment, net	15,679
Goodwill	143,160
Purchased intangible assets	89,600
Other assets	325
Total assets acquired	455,789

Liabilities assumed
Accounts payable	(8,481		)
Accrued liabilities	(19,224		)
Long-term income tax payable	(3,796		)
Deferred tax liability	(32,511		)
Total liabilities assumed	(64,012		)
Net assets acquired	$	391,777



Purchased Intangible Assets	Useful Life	April 1, 2014
	(in years)	(in thousands)
Core/developed technology	10	$	68,900
In-process technology	10	1,900
Customer-related	2	17,700
Backlog	1	1,100
		$	89,600