ACQUISITIONS

Zarlink Semiconductor, Inc.

During October 2011, we completed our acquisition of Zarlink through a wholly-owned subsidiary. Following the expiration of the previously announced offers for all of the issued and outstanding common shares (“Zarlink Shares”) and 6% unsecured, subordinated convertible debentures maturing September 30, 2012 (“Zarlink Debentures” and together with the Zarlink Shares, the “Zarlink Securities”) of Zarlink, we acquired all remaining Zarlink Shares and Zarlink Debentures for $623.7 million in cash through compulsory acquisitions under, respectively, the Canada Business Corporations Act and the trust indenture governing the Zarlink Debentures. We acquired Zarlink for its world-leading, mixed-signal chip technologies for a broad range of communication and medical applications. Zarlink's core capabilities include timing solutions that manage time-sensitive communication applications over wireless and wired networks, line circuits supporting high-quality voice services over cable and broadband connections, and ultra low-power radios enabling new wireless medical devices and therapies. Serving the world's largest original equipment manufacturers, Zarlink's highly integrated chip solutions help customers simplify design, lower costs and reach market quickly. We sometimes refer to this division herein as “Microsemi - CMPG.”

We allocated the total consideration to Zarlink's tangible and intangible assets and liabilities based on their estimated fair values as of the date of the completion of the transaction. During the fourth quarter of 2012, we adjusted our allocation of deferred tax assets, net. The consideration is allocated as follows (in thousands):



Cash and cash equivalents	$	83,497
Accounts receivable	17,980
Inventories	28,403
Other current assets	35,655
Property and equipment	7,648
Deferred tax assets, net	27,741
Other assets	4,353
Identifiable intangible assets	210,100
Goodwill	271,757
Current liabilities	(58,379		)
Other non-current liabilities	(5,085		)
Total consideration	$	623,670

Identifiable intangible assets and their estimated useful lives are as follows (amounts in thousands):



	Asset Amount		Weighted Average Useful Life (Years)
Completed technology	$	47,800	6
Customer relationships	144,600		6
Backlog	15,700		1
Trade name	2,000		2
	$	210,100

Timing, Synchronization and Synthesis Business of Maxim Integrated Products, Inc.

During January 2012, we acquired the timing, synchronization and synthesis business of Maxim Integrated Products, Inc. for $44.0 million in cash. The acquired product lines and technology are vital to the effective and efficient delivery of time-sensitive voice, data and multimedia traffic over wireless and wired networks, and will further provide our customers with the critical synchronization components required to harmonize system and network clocks, as well as the synthesis products required to distribute timing clocks throughout each system.

We allocated the total consideration to the acquired business' tangible and intangible assets and liabilities based on their estimated fair values as of the date of the completion of the transaction. The consideration is allocated as follows (in thousands):



Inventories	$	2,741
Property and equipment	4
Identifiable intangible assets	12,960
Goodwill	28,509
Current liabilities	(169		)
Total consideration	$	44,045

Identifiable intangible assets and their estimated useful lives are as follows (amounts in thousands):



	Asset Amount		Weighted Average Useful Life (Years)
Completed technology	$	6,000	5
Customer relationships	6,700		5
Backlog	260		1
	$	12,960

Valuation methodology

The fair value of the identified intangible assets for the acquisitions 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 acquisitions 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 life of backlog is estimated based upon the fulfillment period. 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.

Generally, the allocation of purchase prices results in an allocation to goodwill. 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 Zarlink acquisition is not deductible while goodwill related to the acquisition of the Timing, Synchronization and Synthesis Business of Maxim Integrated Products, Inc. is 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 allocations described above are preliminary, primarily with respect to tax contingency matters. A final determination of fair values of assets acquired and liabilities assumed relating to the transactions could differ from the preliminary purchase price allocations and if material differences exist they could result in retrospective revision to the purchase price allocations. We utilized the straight line method of amortization for completed technology, customer relationships and trade name and the estimated fulfillment period for backlog.

Supplemental pro forma data (unaudited)

The following supplemental pro forma data summarizes the results of operations for 2012, 2011 and 2010, as if all acquisitions during these years were completed as of the first day of the fiscal year immediately preceding the acquisition. 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 transactions had been completed on the dates indicated, nor is it indicative of future operating results or financial position. Net sales and earnings for the acquisitions on a standalone basis since their acquisition dates are impracticable to determine, as on the acquisition date, we implemented a plan developed prior to the completion of the acquisition and began to immediately integrate these acquisitions into existing operations, engineering groups, sales distribution networks and management structure. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances.

The supplemental pro forma data reports actual operating results, adjusted to include the pro forma effect of, among others, the impact in cost of goods sold from manufacturing profit in acquired inventory, amortization expense of identified intangible assets, timing of the impact of restructuring expenses, timing of credit facility issuance costs, foregone interest income, incremental interest expense and the related tax effect of these items. Supplemental pro forma earnings for 2012 were adjusted to exclude $9.2 million in cost of goods sold from manufacturing profit in acquired inventory, $7.3 million in acquisition costs and $34.0 million in credit facility refinancing costs associated with the Zarlink financing. Supplemental pro forma earnings for 2011 were adjusted to include the above noted items from 2012 and exclude $5.5 million in cost of goods sold from manufacturing profit in acquired inventory, $6.3 million in acquisition costs, $14.2 million in credit facility issuance costs and $5.0 million in non-cash benefits from valuation allowance releases. Supplemental pro forma earnings for 2010 were adjusted to include the above noted items excluded from 2011. Supplemental pro forma data does not adjust the timing of the refinancing completed in the quarter ended April 1, 2012. Supplemental pro forma data is as follows (amounts in thousands, except per share data) (unaudited):



	For each of the three fiscal years in the period ended September 30, 2012 (unaudited)
	2012		2011		2010
Net sales	$	1,019,329	$	1,095,481	806,331
Net income	$	10,002	$	65,804	(89,868		)
Net income per share:
Basic	$	0.12	$	0.78	$	(1.11	)
Diluted	$	0.11	$	0.77	$	(1.11	)