ACQUISITION

On March 15, 2012, the Company signed a definitive agreement to acquire a controlling interest in PhaseLink^™ Company Limited (“PhaseLink”), a private company based in Taiwan and in San Jose, California. The acquisition was completed on April 2, 2012. The Company acquired approximately 95% of the outstanding shares of PhaseLink for $19.7 million in cash ($16.4 million net of cash acquired). The objective of the acquisition is to complement Micrel’s high performance clock generation, distribution products for the communication market and to expand its product offerings into the consumer and industrial markets. In addition, the Company expects the acquisition to enhance its technology portfolio and further expand its research and development capabilities. The Company has included the financial results of PhaseLink in its condensed consolidated financial statements beginning on the acquisition date. Pro forma financial disclosures are not presented herein as the financial results of this acquisition are considered immaterial.

Recognized amounts of identifiable assets acquired and liabilities assumed

The Company accounted for the transaction using the acquisition method and, accordingly, the consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. For the three and nine months ended September 30, 2012, acquisition costs of $79,000 and $161,000, respectively, were expensed as incurred.

While the Company uses best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. The Company records adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in the operating results in the period in which the adjustments were determined. In the three and nine months ended September 30, 2012, the Company recorded an increase of $101,000 to goodwill with a corresponding decrease of $79,000 to accounts receivable and $22,000 increase to other liabilities.

The Company’s allocation of the total purchase price is summarized below (in thousands):



Cash and cash equivalents	$	3,255
Accounts receivable	1,040
Inventories	1,320
Other assets	273
Property, plant and equipment	1,734
Developed technology	4,400
Customer relationships	3,000
Trademarks	510
Non-competition agreements	410
In-process research and development	410
Goodwill	6,189
Short-term debt	(282		)
Other liabilities	(1,588		)
Noncontrolling interest	(977		)
Total purchase consideration	$	19,694

Identifiable intangible assets

Fair values for the acquired developed technology, customer relationships, trademarks and non-competition agreements and in-process research and development (“IPR&D”) were determined based on various methods including excess earnings method, relief from royalty method and with-or-without method. The values of the developed technology and customer relationships will be amortized over an estimated useful life of 10 years. The non-competition agreements will be amortized over a two-year period. The values of trademarks will be amortized over two to five years.

The fair value of the acquired IPR&D was determined through estimates and valuation techniques based on the terms and details of the acquisition. As it was determined that the underlying projects had not reached technological feasibility at the date of acquisition, the amounts allocated to IPR&D will not be expensed until completion of the related projects. Upon the completion of development for each project, the acquired IPR&D will be amortized over its useful life.

The following table summarizes the identifiable intangible assets acquired as part of the acquisition (in thousands):



	Fair Value as of Acquisition Date		Accumulated Amortization as of			Net Carrying Amount as of
	April 2, 2012		September 30, 2012			September 30, 2012
Developed technology	$	4,400	$	(220	)	$	4,180
Customer relationships	3,000		(150		)	2,850
Trademarks	510		(76		)	434
Non-competition agreements	410		(103		)	307
In-process research and development	410		—			410
Total	$	8,730	$	(549	)	$	8,181

Goodwill

Goodwill represents the excess of the estimated acquisition consideration over the fair value of the underlying net tangible and intangible assets. The Company’s primary reasons for the PhaseLink acquisition were to complement Micrel’s high performance clock generation, distribution products for the communication market and to expand its product offerings into the consumer and industrial markets. The Company also expects the acquisition to reduce the time to develop new technologies and to provide more complete solutions for communications, consumer and industrial markets. The acquisition also enhanced the Company’s engineering resources through the addition of PhaseLink’s research and development team. These significant factors were the basis for the recognition of goodwill. The goodwill is not expected to be deductible for tax purposes.