ACQUISITIONS

For the acquisitions we completed during the current fiscal year, the fair value of the identified intangible assets 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 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:

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Historical performance including sales and profitability.

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Business prospects and industry expectations.

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Estimated economic life of asset.

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Development of new technologies.

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Acquisition of new customers.

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Attrition of existing customers.

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Obsolescence of technology over time.

Generally, the allocation of purchase prices resulted in an allocation to goodwill. Depending on the tax treatment of a particular acquisition, goodwill and identifiable intangible assets may not be deductible for tax purposes. The factors that contributed to a purchase price resulting in the recognition of goodwill include:

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The premium paid over market capitalization immediately prior to the merger announcement.

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Our belief that the merger will create a more diverse semiconductor company with expansive offerings which will enable us to expand our product offerings.

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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 allocation for acquisitions completed in 2011 are preliminary, primarily with respect to certain tax matters and may be subject to adjustment. If such adjustment were to occur, it would result in corresponding adjustment to goodwill and income tax liabilities.

Actel Corporation

During the quarter ended January 2, 2011, we completed our acquisition of Actel Corporation (“Actel”) for $20.88 per share in cash. Actel is the leading supplier of low-power field-programmable gate arrays (“FPGAs”), mixed-signal FPGAs, and system-critical FPGAs. Delivering the lowest power consumption of any comparably sized FPGAs at both the chip and the system level, Actel’s flash- and antifuse-based FPGA solutions enable power-efficient design. We sometimes refer to this division herein as “Microsemi – SoC.”

The total consideration as shown in the table below is allocated to Actel’s tangible and intangible assets and liabilities based on their preliminary estimated fair values as of the date of the completion of the transaction. The consideration is allocated as follows (in thousands):


Calculation of consideration:
Cash consideration to Actel shareholders	$	548,759
Change in control obligations		17,298
Fair value of vested stock awards assumed by Microsemi		15,294

Total consideration	$	581,351
Allocation of consideration:
Book value of Actel’s net assets		182,765
Adjustments to historical net book value:
Inventories		5,494
Identifiable intangible assets		232,600
Deferred tax liability		(24,379	)

Adjustment to goodwill	$	184,871

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


	Asset Amount		Weighted Average Useful Life (Years)
Completed technology	$	147,000		8
Customer relationships		68,000		7
Backlog		13,600		1
Trade name		4,000		3

	$	232,600

We utilized the straight line method of amortization for completed technology, customer relationships and trade name and the estimated fulfillment period for backlog. This allocation is preliminary with respect to certain tax matters and is based on our estimates. The amount ultimately allocated to identifiable intangible assets is not expected to change materially from this allocation.

AML Communications, Inc.

During the quarter ended July 3, 2011, we completed our acquisition of AML Communications, Inc. (“AML”), for $2.50 per share in cash. AML is a designer, manufacturer, and marketer of microelectronic assemblies for the defense industry. AML was integrated into Microsemi Corp. – RF Integrated Solutions.

The total consideration as shown in the table below is allocated to AML’s tangible and intangible assets and liabilities based on their preliminary estimated fair values as of the date of the completion of the transaction. The consideration is allocated as follows (in thousands):


Calculation of consideration:
Cash consideration to AML share- and option-holders	$	31,264
Change in control obligations		1,956

Total consideration	$	33,220
Allocation of consideration:
Book value of AML’s net assets	$	11,397
Adjustments to historical net book value:
Inventories		304
Identifiable intangible assets		10,000
Deferred tax liability		(4,675	)

Adjustment to goodwill	$	16,194

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


	Asset Amount		Weighted Average Useful Life (Years)
Completed technology	$	4,200		6
Customer relationships		4,600		5
Backlog		1,100		2
Trade name		100		2

	$	10,000

We utilized the straight line method of amortization for completed technology, customer relationships and trade name and the estimated fulfillment period for backlog. This allocation is preliminary and is based on our estimates. The amount ultimately allocated to goodwill and identifiable intangible assets is not expected to change materially from this allocation.

Brijot Imaging Systems, Inc.

During the quarter ended July 3, 2011, we acquired substantially all the assets of Brijot Imaging Systems, Inc. (“Brijot”) and its passive millimeter wave imaging solutions technology. Total consideration, including cash and assumed liabilities, was approximately $3.1 million. Brijot was integrated into Microsemi Corp. – RF Integrated Solutions.

Asic Advantage, Inc.

During the quarter ended October 2, 2011, we completed our acquisition of Asic Advantage, Inc. (“Asic Advantage”). Asic Advantage is a fabless semiconductor company that designs and manufactures a broad portfolio of high-performance, high-voltage and radiation-hardened mixed-signal integrated circuit solutions for the aerospace, automotive, communications, industrial and medical markets. Asic Advantage was integrated into Microsemi Corp. – Analog Mixed Signal Group.

The total consideration as shown in the table below is allocated to Asic Advantage’s tangible and intangible assets and liabilities based on their preliminary estimated fair values as of the date of the completion of the transaction. The consideration is allocated as follows (in thousands):


Calculation of consideration:
Cash consideration to Asic Advantage share- and option-holders	$	30,064
Allocation of consideration:
Book value of Asic Advantage’s net assets	$	6,253
Adjustments to historical net book value:
Inventories		195
Identifiable intangible assets		9,170
Deferred tax liability		(3,339	)

Adjustment to goodwill	$	17,785

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


	Asset Amount		Weighted Average Useful Life (Years)
Completed technology	$	2,890		6
Customer relationships		3,940		5
Backlog		2,230		1
Trade name		110		2

	$	9,170

We utilized the straight line method of amortization for completed technology, customer relationships and trade name and the estimated fulfillment period for backlog. This allocation is preliminary and is based on our estimates. The amount ultimately allocated to goodwill and identifiable intangible assets is not expected to change materially from this allocation.

Supplemental pro forma data

The following supplemental pro forma data summarizes the results of operations for the 2011 and 2010, as if the three acquisitions noted above and three acquisitions we completed in 2010 (White Electronic Designs Corporation, VT Silicon and Arxan Defense Systems, Inc.) had occurred on September 27, 2009. 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 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 2011 were adjusted to exclude $5.9 million in cost of goods sold from manufacturing profit in acquired inventory, $8.6 million in acquisition costs, $14.2 million in credit facility issuance costs, and $5.0 million in non-cash benefits of valuation allowance releases and supplemental pro forma earnings and earnings for 2010 were adjusted to include these items.

Supplemental pro forma data is as follows (amounts in thousands, except per share data):


	Fiscal Year Ended
	October 2, 2011		October 3, 2010
Net sales	$	875,759	$	806,331
Net income (loss)	$	106,317	$	(89,868	)
Net income (loss) per share
Basic	$	1.27	$	(1.11	)
Diluted	$	1.24	$	(1.11	)