NOTE 2-ACQUISITION

On June 25, 2012 (the "Acquisition Date"), pursuant to the terms of an Amended and Restated Agreement and Plan of Merger (the "Acquisition Agreement"), a wholly-owned subsidiary of the Company merged with and into eBioscience Holding Company, Inc. ("eBioscience"), with eBioscience surviving as a wholly-owned subsidiary of the Company (the "Acquisition"). eBioscience specializes in the development, manufacturing, marketing and distribution of research tools in the areas of flow cytometry, immunoassays, microscopic imaging and other protein-based analyses. The Acquisition allows the Company to expand addressable markets and continue to diversify the business beyond genomics discovery into cell and protein analysis.

At the Acquisition Date, each share of eBioscience issued and outstanding common stock immediately prior to the Acquisition Date was cancelled and converted into the right to receive cash of $38.18 per such previously issued and outstanding common share. Further, all options to purchase shares of eBioscience common stock that were outstanding immediately prior to the Acquisition Date became exercisable to the extent not fully vested and were cancelled and retired immediately prior to the Acquisition Date in exchange for cash of $38.18 per such previously outstanding option, less the exercise price of such option.

The Acquisition was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the tangible and identifiable intangible assets and liabilities of eBioscience were recorded at their respective fair values as of the Acquisition Date, including an amount for goodwill representing the difference between the Acquisition consideration and the fair value of the identifiable net assets. The Company is in the process of determining the fair value, with the help of third-party specialists, of certain assets; thus, the June 30, 2012 reported fair values of acquired inventory, property and equipment, intangible assets and goodwill are provisional and subject to change.

The results of operations of the acquired eBioscience business and the estimated fair values of the assets acquired and liabilities assumed have been included in the Company's condensed consolidated financial statements since the date of the Acquisition. The results of operations for eBioscience since the Acquisition Date are not material to the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2012.

Purchase price

The Acquisition Date purchase price totaled $315.1 million of which $8.3 million was accounted for as share-based compensation expense while the remaining $306.8 million was allocated to the net assets acquired from eBioscience. The $8.3 million share-based compensation expense resulted from the accelerated vesting of certain eBioscience employee options immediately prior to the Acquisition and has been recognized in the accompanying Condensed Consolidated Statement of Operations under Selling, general and administrative expenses for the three months ended June 30, 2012. The Acquisition was financed through a combination of cash on hand, the liquidation of available-for-sale securities, proceeds from third-party financing (the "Term Loan") and the issuance of 4.00% Convertible Senior Notes (the "4.00% Notes"). Refer to Note 9. "Long-Term Debt Obligations" for further information.

The following table summarizes the accounting treatment of the purchase price paid (in thousands):

Acquisition consideration	$	306,841
Share-based compensation expense		8,265
Total purchase price	$	315,106

Fair values of assets acquired and liabilities assumed

The determination of the fair values of the assets acquired and liabilities assumed has been prepared on a provisional basis and changes to that determination may occur as additional information becomes available. The following table summarizes the provisional fair values of assets acquired, liabilities assumed and goodwill (in thousands):

Cash and cash equivalents	$	7,095
Accounts receivable, net		9,488
Inventories		52,060
Prepaid expenses and other assets		7,844
Property and equipment		5,969
Intangible assets		159,755
Other non-current assets		1,769
Identifiable assets acquired		243,980
Accounts payable and accrued liabilities		(18,681	)
Deferred tax liability		(55,542	)
Other non-current liabilities		(3,241	)
Identifiable liabilities acquired		(77,464	)
Goodwill		140,325
Acquisition consideration	$	306,841

Inventories

The inventories acquired include a step-up in basis of approximately $30.4 million, which represents the fair value of the inventory less a reasonable profit margin on costs to complete and sell. The $30.4 million step-up in basis will be recognized as the inventory is sold, which is expected to be over approximately twelve months. As noted earlier, the fair value of the acquired inventories is provisional pending completion of the final valuation of these assets.

Intangibles

The following table summarizes the provisional fair value of definite-lived intangible assets acquired at the Acquisition Date and their estimated useful lives (in thousands, except for estimated useful lives):

	Provisional		Estimated
	Fair Value		Useful Life
Purchased intangible assets
Customer relationships	$	85,700	12 years
Developed technologies		50,900	12 years
Trademarks and tradenames		14,600	5 years
Other contractual agreements		2,800	2 years
License fees		5,755	13 years
Total	$	159,755

Purchased intangible assets were recorded at provisional fair value determined using an income approach, which recognizes that the fair value of an asset is premised upon the expected receipt of future economic benefits such as earnings and cash inflows based on current sales projections and estimated direct costs. Indications of value are developed by discounting these benefits to their present worth at a discount rate that reflects the current return requirements of market participants. As noted earlier, the fair value of the acquired identifiable intangible assets is provisional pending completion of the final valuations of these assets.

Purchased intangible assets are finite-lived intangible assets and are being amortized over their estimated useful lives. License fees represent licenses to technology covered by patents owned by third parties and are being amortized over their contractual terms.

Deferred tax liabilities

Deferred tax liabilities assumed are primarily comprised of the tax impact of the temporary difference between the provisional fair values of assets acquired and the historical tax basis of those assets. These temporary differences will reverse as the assets are amortized.

Goodwill

The excess of Acquisition consideration over the provisional fair value of assets acquired and liabilities assumed represents goodwill. The Company believes the factors that contributed to goodwill include synergies that are specific to the Company's consolidated business, and not available to market participants, and the acquisition of a talented workforce that expands the Company's expertise in business development and the commercialization of cell and protein analysis products. As noted previously, estimates of certain assets acquired are provisional pending completion of the final valuations of the acquired net assets. The Company does not expect any portion of this goodwill to be deductible for tax purposes.

Liabilities

The above determination of fair value excludes potential amounts related to certain litigation in which eBioscience is currently involved. The Acquisition Agreement provides that eBioscience security holders shall, subject to certain limitations, indemnify Affymetrix against damages arising out of or resulting from intellectual property litigation brought against eBioscience by Life Technologies Corporation. The net assets acquired and results of operations do not reflect the potential outcome of this litigation, which is unable to be estimated at June 30, 2012. Under the terms of the Acquisition Agreement, $25.2 million of the purchase price was placed into escrow to secure eBioscience security holders' indemnification obligations to the Company.

Transaction costs

The Company cumulatively incurred approximately $8.7 million of Acquisition-related costs that are reported in Selling, general and administrative expense in its Condensed Consolidated Statement of Operations, of which $4.7 million and $5.8 million was recognized in the three and accumulatively in the six months ended June 30, 2012, respectively, and $2.9 million was recognized in the year ended December 31, 2011.

Total underwriting and financing fees of approximately $8.5 million associated with the Term Loan and 4.00% Notes were also incurred and are discussed in Note 9. "Long-Term Debt Obligations."

Share-based compensation costs

The share-based compensation expense of $8.3 million recognized for the accelerated vesting of certain eBioscience options immediately vested prior to the Acquisition was recognized in the accompanying Condensed Consolidated Statement of Operations as Selling, general and administrative expense in the three and six month periods ended June 30, 2012.

Pro Forma Financial Information (Unaudited)

The following unaudited pro forma financial information presents the combined results of operations for the three and six months ended June 30, 2012 and 2011 as if the Acquisition had been completed on January 1, 2011, with adjustments to give effect to pro forma events that are directly attributable to the Acquisition. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of the Company and eBioscience. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues	$	83,385		$	82,380		$	167,396		$	173,913
Net income (loss)		(9,578	)		(18,584	)		(19,038	)		25,700
Basic earnings per share		(0.14	)		(0.27	)		(0.27	)		0.36
Diluted earnings per share		(0.14	)		(0.27	)		(0.27	)		0.32

The unaudited pro forma financial information includes non-recurring pro forma adjustments for share-based compensation expense of $8.3 million recognized for the accelerated vesting of certain eBioscience stock options immediately prior to the Acquisition, and an income tax benefit of $44.7 million that were excluded from the pro forma results for the three and six months ended June 30, 2012 and included in the pro forma results for the six months ended June 30, 2011.

The unaudited pro forma financial information for the three and six months ended June 30, 2012 exclude non-recurring Acquisition-related transaction costs incurred by the Company of $4.7 million and $5.8 million, respectively, and by eBioscience of $5.3 million and $5.5 million, respectively.