Acquisitions | 2. ACQUISITIONS Acquisition of BinOptics Corporation — The BinOptics Acquisition was accounted for as a purchase and the operations of BinOptics have been included in MACOM’s consolidated financial statements since the date of acquisition. MACOM is recognizing BinOptics’ assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for BinOptics is being allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company expects to finalize its allocation of purchase price within 12 months of December 15, 2014. The preliminary allocation of purchase price as of July 3, 2015, is as follows (in thousands): Original Allocation July 3, 2015 Current assets $ 41,836 $ (15,373 ) $ 26,463 Intangible assets 135,254 (554 ) 134,700 Other assets 14,090 (4,900 ) 9,190 Total assets acquired 191,180 (20,827 ) 170,353 Liabilities assumed: Debt 1,491 1,044 2,535 Deferred income taxes 37,745 (3,227 ) 34,518 Other liabilities 12,810 153 12,963 Total liabilities assumed 52,046 (2,030 ) 50,016 Net assets acquired 139,134 (18,797 ) 120,337 Consideration: Cash paid upon closing, net of cash acquired 224,114 (15,762 ) 208,352 Goodwill $ 84,980 $ 3,035 $ 88,015 The $15,762 of allocation adjustments shown above in the “Cash paid upon closing, net of cash acquired” caption consists of the following (in thousands): Cash paid upon Original Allocation $ 224,114 Reclassification of prepaid compensation (14,586 ) Reclassification of assumed capital lease debt (1,044 ) Reclassification of escrow fees (17 ) Cash received from acquiree related to working capital true-up (115 ) Allocation Adjustments (15,762 ) Adjusted Allocations at July 3, 2015 $ 208,352 The prepaid compensation item above is to correct the reclassification of employee retention escrow payment previously reported as a cash outflow from investing activities, to cash outflows from operating activities. The assumed capital lease debt item above is to show the gross capital lease debt assumed in the acquisition, not previously shown as part of purchase consideration. The components of the acquired intangible assets on a preliminary basis were as follows (in thousands): Amount Useful Lives Developed technology $ 17,500 7 Customer relationships 117,200 10 $ 134,700 The overall weighted-average life of the identified intangible assets acquired in the BinOptics Acquisition is estimated to be 9.6 years and the assets are being amortized over their estimated useful lives based upon the pattern over which the Company expects to receive the economic benefit from these assets. The purchase accounting is preliminary and subject to completion including the areas of taxation where a study of the potential utilization of acquired net operating losses is not yet complete, and certain fair value measurements, particularly the finalization of the valuation assessment of the acquired tangible and intangible assets. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting and would be retroactively reflected in the financial statements as of July 3, 2015, and for the interim periods then ended. The following is a summary of BinOptics revenue and earnings included in MACOM’s accompanying condensed consolidated statements of operations for the three and nine months ended July 3, 2015 (in thousands): Three Months July 3, 2015 Nine Months Revenue $ 20,186 $ 39,393 Income (loss) before income taxes 1,980 (3,455 ) Unaudited Supplemental Pro Forma Data— Three Months Ended Nine Months Ended July 3, 2015 July 4, 2014 July 3, 2015 July 4, 2014 Revenue $ 130,663 $ 126,662 $ 382,279 $ 335,821 Net income (loss) 13,178 4,134 2,317 (34,817 ) The table above represents proforma net income (loss) which differs from the actual results due to adjustments related to inventory step-up and intangible amortization expense which were reflected in fiscal 2014. Acquisition under Common Control— Acquisition of Mindspeed Technologies, Inc.— MACOM completed the Mindspeed Acquisition through a cash tender offer (Offer) by Micro Merger Sub, Inc. (Merger Sub), a wholly-owned subsidiary of MACOM, for all of the outstanding shares of common stock, par value $0.01 per share, of Mindspeed (Shares) at a purchase price of $5.05 per share, net to the seller in cash, without interest, less any applicable withholding taxes (Offer Price). Immediately following the Offer, Merger Sub merged with and into Mindspeed, with Mindspeed surviving as a wholly-owned subsidiary of MACOM. At the effective time of the merger, each Share not acquired in the Offer (other than shares held by MACOM, Merger Sub and Mindspeed, and shares of restricted stock assumed by MACOM in the merger) was converted into the right to receive the Offer Price. MACOM funded the Mindspeed Acquisition through the use of available cash and borrowings under its revolving credit facility. The aggregate purchase price for the Shares, net of cash acquired, was $232.0 million and MACOM assumed $81.3 million of liabilities and incurred costs of $4.5 million that was expensed during fiscal year 2014. The Mindspeed Acquisition was accounted for as a purchase and the operations of Mindspeed have been included in MACOM’s consolidated financial statements since the date of acquisition. MACOM recognized assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Mindspeed was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. The Company finalized the purchase price allocation of the Mindspeed Acquisition during the three months ended January 2, 2015. The final allocation of purchase price is as follows (in thousands): Amount Current assets $ 50,612 Intangible assets 138,663 Deferred income taxes 92,881 Other assets 31,788 Total assets acquired 313,944 Liabilities assumed: Current liabilities 35,270 Debt 40,177 Other liabilities 5,865 Total liabilities assumed 81,312 Net assets acquired 232,632 Consideration: Cash paid upon closing, net of cash acquired 232,028 Fair value of vested awards assumed in acquisition 785 Total consideration 232,813 Goodwill $ 181 In connection with the Mindspeed Acquisition, MACOM assumed all of the outstanding options and unvested restricted stock awards under Mindspeed’s equity plans and converted such options and stock awards into equivalent MACOM awards under the same general terms and conditions as were in existence with adjustments made to shares and exercise prices, if any, pursuant to a formula stipulated in the terms of the acquisition. The fair value of the assumed options and stock awards was $4.1 million, of which $0.8 million relates to vested stock options and has been included in the purchase consideration and the remainder relates to unvested stock options and stock awards, which will be expensed as the remaining services are provided. The components of the acquired intangible assets were as follows (in thousands): Amount Useful Lives Developed technology $ 109,263 7 Customer relationships 11,430 10 In-process research and development 17,970 N/A $ 138,663 The overall weighted-average life of the identified intangible assets acquired in the acquisition is estimated to be 7.3 years. The following is a summary of Mindspeed’s revenue and earnings included in MACOM’s accompanying condensed consolidated statements of operations for the nine months ended July 4, 2014 (in thousands): Nine Months Ended Revenue $ 64,765 Loss from continuing operations before income taxes and restructuring charges (18,534 ) Subsequent to closing the Mindspeed Acquisition, MACOM divested the wireless business of Mindspeed. The operations of the wireless business are included in discontinued operations through the date of sale. The Company completed the sale of the wireless business in February 2014. The accompanying consolidated statement of operations for the three and nine months ended July 4, 2014, includes the following operating results related to the divested wireless business (in thousands): Three Months Ended Nine Months Ended Revenue $ — $ 2,440 Loss before income taxes — (7,381 ) Benefit for income taxes — 2,776 Loss from discontinued operations — (4,605 ) Unaudited Supplemental Pro Forma Data — Nine Months Ended Revenue $ 323,801 Net loss (27,051 ) Other Acquisitions — The assets acquired and liabilities assumed were recorded at their fair values and operating results were included in the financial statements from the date of acquisition. The preliminary purchase price allocation resulted in goodwill of $3.9 million and intangible assets, including manufacturing know-how and customer relationships, of $1.6 million recorded on the date of acquisition, which will be amortized over 7-10 years. Additionally, the Company recorded a contingent consideration liability of $0.8 million related to the acquisition of Photonic Controls which is included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet as of October 3, 2014. The maximum possible payment of contingent purchase price is $1.5 million. Approximately $1.7 million of the goodwill resulting from these acquisitions is deductible for tax purposes. The purchase price allocation will be finalized in fiscal 2015 upon receipt of final information related to valuation of intangibles, and no allocation adjustments were recorded in the nine months ended July 3, 2015. The acquisitions were not material to the Company’s consolidated financial statements. Investments — During fiscal years 2014 and 2015, the Company made a minority investment of $0.3 million and $0.2 million in the convertible debt of a privately-held U.S. based company. The Company classified this investment as trading securities. (See Note 3). During fiscal year 2014, the Company purchased a $5.0 million equity interest in a privately-held U.S. based company. The investment was accounted for utilizing the cost method and was included in Other Long-Term Assets in the Condensed Consolidated Balance Sheet. The Company determined that the equity investment contained embedded derivatives. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the equity investment and to adjust the fair value as of each subsequent balance sheet date. On May 11, 2015, the investee company was sold to a third party which provided the Company with information that the underlying value of the investment had been impaired at April 3, 2015. Accordingly, the Company recorded an impairment charge of $3.5 million which is included in Other Expense in the Condensed Consolidated Statement of Operations for the three months ended April 3, 2015 and the nine months ended July 3, 2015. The Company received $1.5 million in exchange for the equity investment during the three months ended July 3, 2015. |