
	Acquisitions

Acquisition of SANYO Semiconductor Co., Ltd.

On January 1, 2011, the Company paid SANYO Electric $142.1 million in cash (using restricted cash as of December 31, 2010) and issued a $377.5 million note payable to SANYO Electric, through its subsidiary, Semiconductor Components, LLC ("SCI LLC"), whereby SANYO Semiconductor became a wholly-owned subsidiary of the Company. In the second quarter of 2011, the Company received $39.7 million in cash from SANYO Electric of which $19.0 million had been recognized as of April 1, 2011. These amounts represent adjustments for working capital and pension levels, as defined in the purchase agreement as well as certain adjustments to conform to the Company's accounting policies. As a result of these adjustments, the purchase price has been reduced to $479.9 million as of September 30, 2011. The purchase price may be subject to future adjustments, primarily related to pension and related benefit liabilities.

SANYO Semiconductor designs, manufactures and sells discrete components, hybrid integrated circuits, radio frequency and power related products as well as custom integrated circuits. Many of these devices fall into the Company’s existing product categories, however, SANYO Semiconductor expands the Company’s capacity in microcontrollers and custom application specific integrated circuits ("ASICs") for the consumer, automotive and industrial end-markets. SANYO Semiconductor also expands the Company’s presence in the Japan market.

The following table presents the initial allocation of the purchase price and subsequent adjustments applied on a retrospective basis based on the estimated fair values of the net assets acquired of SANYO Semiconductor (in millions):



	Initial Estimate			Adjustments			Revised Estimate
Cash and cash equivalents	$	117.1		$	—		$	117.1
Receivables, net	242.1			—			242.1
Inventory	423.9			(5.0		)	418.9
Deferred income taxes current	0.5			—			0.5
Other current assets	119.2			—			119.2
Property, plant and equipment	148.0			(1.3		)	146.7
Deferred income taxes, non-current	60.5			—			60.5
Intangible assets	55.7			—			55.7
Other non-current assets	14.9			—			14.9
Total assets acquired	1,181.9			(6.3		)	1,175.6
Accounts payable	(300.0		)	—			(300.0		)
Deferred income taxes, current	(70.3		)	1.5			(68.8		)
Other current liabilities	(61.3		)	(20.2		)	(81.5		)
Deferred income taxes, non-current	(0.5		)	—			(0.5		)
Long-term accrued liabilities	(187.9		)	1.0			(186.9		)
Total liabilities assumed	(620.0		)	(17.7		)	(637.7		)
Net assets acquired	561.9			(24.0		)	537.9
Gain on acquisition	(61.3		)	3.3			(58.0		)
Purchase price	$	500.6		$	(20.7	)	$	479.9

The acquisition was accounted for as a business purchase pursuant to ASC Topic 805, Business Combinations. Under this ASC, acquisition and integration costs are not included as components of consideration transferred, but are accounted for as expenses in the period in which the costs are incurred.

Accounting standards require that when the fair value of the net assets acquired exceeds the purchase price, resulting in a bargain purchase gain, the acquirer must reassess the reasonableness of the values assigned to all of the net assets acquired, liabilities assumed and consideration transferred. The Company has performed such a reassessment and has concluded that the values assigned for the SANYO Semiconductor acquisition are reasonable. In the first quarter ended April 1, 2011, the Company originally reported a gain of $61.3 million which has been retrospectively adjusted to $58.0 million as reflected in the table above. The decrease in the gain is the result of the recognition of certain employee related benefit liabilities and certain adjustments to conform to the Company's accounting policies, partially offset by $20.7 million received from SANYO Electric in the second quarter of 2011. Consequently, the Company has recorded a $58.0 million bargain purchase gain on the SANYO Semiconductor acquisition. The Company believes the gain realized in purchase accounting was the result of a number of factors, including the following: SANYO Electric wanted to exit its semiconductor operations, historical losses recognized by SANYO Electric, SANYO Electric viewed this as the best outcome for SANYO Semiconductor and the fact that the Company will incur expenses associated with the transfer and consolidation of certain operations.

The purchase price allocation for the SANYO Semiconductor acquisition is preliminary and is subject to revision pending the receipt of additional information relating to the fair value of assets acquired and liabilities assumed. As of the end of the third quarter, management had not yet completed its evaluation of the fair value of certain assets and liabilities acquired, primarily (i) certain retirement plan liabilities assumed in connection with the SANYO Semiconductor business in Japan, (ii) the final valuation of certain asset retirement obligations identified as a result of the acquisition, and (iii) the final valuation of certain income tax accounts. Additional information related to the fair value of the assets acquired and liabilities assumed that is received during the measurement period may have a material impact on the allocation of the purchase price, including values assigned to assets, liabilities and the amount of the gain recognized in connection with the acquisition, which will be adjusted on a retrospective basis.

The $55.7 million of acquired intangible assets were assigned a weighted-average useful life of approximately 8.8 years. The intangible assets that make up that amount include: patents of $27.0 million (5.5-year weighted average useful life), $3.0 million of trademarks (3.0-year weighted average useful life) and customer relationships of $25.7 million (13-year weighted average useful life). Other current assets acquired includes $80.0 million representing the estimated fair value of a favorable supply arrangement provided by SANYO Electric to the Company in the form of operational cost reduction to the acquired business during the period of time it is effectively required to utilize certain SANYO Electric seconded employees and manufacturing facilities in Japan. This asset has been charged to cost of goods sold over the period of benefit, which was estimated to be 5 months. The amortization totaled $80.4 million as a result of foreign currency exchange rate changes over the recognition period.

The estimated allocation of the purchase price is based on management estimates and assumptions, and other information compiled by management, which utilized established valuation techniques appropriate for the high-technology industry. These techniques were the income approach, cost approach or market approach, depending upon which was the most appropriate based on the nature and reliability of the data available. The income approach is predicated upon the value of the future cash flows that an asset is expected to generate over its economic life. The cost approach takes into account the cost to replace (or reproduce) the asset and the effects on the asset's value of physical, functional and/or economic obsolescence that has occurred with respect to the asset. The market approach is a technique used to estimate value from an analysis of actual transactions or offerings for economically comparable assets available as of the valuation date.

Included in the initial estimate of net assets acquired are long-term liabilities assumed representing approximately $46.9 million of underfunded pension obligations relating to existing defined benefit pension plans as well as $136.4 million representing estimated liabilities associated with the Company’s estimated portion of underfunded pension obligations relating to certain employees participating in the SANYO Electric or affiliate multiemployer defined benefit pension plan from which the Company intends to withdraw. The Company is in the process of establishing defined benefit pension plans which are intended to provide similar retirement benefits as the SANYO Electric sponsored multiemployer plans and expects to withdraw from the SANYO Electric sponsored multiemployer plans by December 31, 2012.

The following unaudited pro forma consolidated results of operations for the quarter and nine months ended October 1, 2010 has been prepared as if the acquisition of SANYO Semiconductor had occurred on January 1, 2010 and includes adjustments for depreciation expense, amortization of intangibles and the tax effect of such items (in millions, except per share data):



	For Quarter Ended		For Nine Months Ended
	October 1, 2010		October 1, 2010
Net Revenues	$	921.0	$	2,663.4
Net Income	$	66.9	$	213.0
Net income per common share—Basic	$	0.16	$	0.50
Net income per common share—Diluted	$	0.15	$	0.48

Acquisition of the CMOS Image Sensor Business Unit from Cypress Semiconductor

On February 27, 2011, the Company completed the purchase of the ISBU from Cypress Semiconductor, which was accounted for as an acquisition of a business. The Company paid approximately $34.1 million in cash. The ISBU purchased from Cypress Semiconductor includes a broad portfolio of high-performance custom and standard image sensors used in multi-megapixel machine vision, linear and two dimensional (2D) bar code imaging, medical x-ray imaging, biometrics, digital photography and cinematography, and aerospace applications. The acquired products include the VITA, LUPA, STAR and IBIS families, which are all well known throughout the industry.

The following table presents the initial allocation of the purchase price of the ISBU to the assets acquired on February 27, 2011 based on their estimated fair values (in millions):



Cash and cash equivalents	$	1.5
Receivables, net	2.6
Inventory	9.2
Other current assets	0.4
Property, plant and equipment	1.2
Goodwill	8.0
Intangible assets	11.2
In-process research and development	11.2
Total assets acquired	45.3
Accounts payable	(5.6		)
Other current liabilities	(4.2		)
Other non-current liabilities	(1.4		)
Total liabilities assumed	(11.2		)
Net assets acquired	$	34.1

Of the $22.4 million of acquired intangible assets, $11.2 million was assigned to in-process research and development (“IPRD”) assets that will be amortized over the useful life upon successful completion of the projects or expensed if impaired. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The fair value of IPRD was determined using the income approach. The income approach recognizes that the current value of an asset or liability is premised on the expected receipt or payment of future economic benefits generated over its remaining life. A discount rate of 17.5% was used in the present value calculations, and was derived from a weighted-average cost of capital analysis, adjusted to reflect the risks inherent in the acquired research and development operations.

The remaining $11.2 million of acquired intangible assets have a weighted-average useful life of approximately 6.1 years. The intangible assets that make up the amount include: customer relationships of $4.2 million (6.0-year weighted average useful life), developed technology of $6.2 million (7.0-year weighted average useful life) and backlog of $0.8 million (0.3-year weighted average useful life).

Of the total purchase price of approximately $34.1 million, approximately $8.0 million has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets were the potential synergies expected to be derived from combining the ISBU business with the Company’s existing sensor business. The Company expects these relationships to provide the capability of selling advanced technology of next generation products to the market place. Goodwill will not be amortized but instead tested for impairment at least annually (more frequently if certain indicators are present). The $8.0 million of goodwill as of September 30, 2011 was assigned to the digital and mixed signal product group, none of which is expected to be deductible for tax purposes.

The allocation of purchase price is based on management estimates and assumptions, and other information compiled by management, which utilized established valuation techniques appropriate for the high-technology industry. These valuation techniques were the income approach, cost approach or market approach, depending upon which was the most appropriate based on the nature and reliability of the data available. The income approach is predicated upon the value of future cash flows that an asset is expected to generate over its economic life. The cost approach takes into account the cost to replace (or reproduce) the asset and the effects on the asset’s value of physical, functional and/or economic obsolescence that has occurred with respect to the asset. The market approach is a technique used to estimate value from an analysis of actual transactions or offerings for economically comparable assets available as of the valuation date.

The Company has determined that pro forma results of operations for the ISBU are not significant for inclusion.