Acquisitions | ACQUISITIONS Acquisition of Applied Micro Circuits Corporation— On January 26, 2017, we completed the acquisition of Applied Micro Circuits Corporation (“AppliedMicro”), a global provider of silicon solutions for next-generation cloud infrastructure and Cloud Data Centers, as well as connectivity products for edge, metro and long-haul communications equipment (the “AppliedMicro Acquisition”). We acquired AppliedMicro in order to expand our business in enterprise and Cloud Data Center applications. In connection with the AppliedMicro Acquisition, we acquired all of the outstanding common stock of AppliedMicro for total consideration of $695.4 million , which included cash paid of $287.1 million , less $56.8 million of cash acquired, and equity issued at a fair value of $465.1 million . In conjunction with the equity issued, we granted vested out-of-money stock options and unvested restricted stock units to replace outstanding vested out-of-money stock options and unvested restricted stock units of AppliedMicro. The total fair value of granted vested out-of-money stock options and unvested restricted stock units was $14.5 million , of which $9.3 million was attributable to pre-combination service and was included in the total consideration transferred. We funded the AppliedMicro Acquisition with cash on-hand and short-term investments. We recorded transaction costs related to the acquisition in selling, general and administrative expense. For the three and nine months ended June 29, 2018 , we recorded no transaction costs. For the three and nine months ended June 30, 2017 , we recorded transaction costs of $0.1 million and $11.9 million , respectively. The AppliedMicro Acquisition was accounted for as a stock purchase and the operations of AppliedMicro have been included in our consolidated financial statements since the date of acquisition. We recognized the AppliedMicro 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 AppliedMicro has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair value 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 will be tax deductible. In connection with the acquisition of AppliedMicro, we entered into a plan to divest a portion of AppliedMicro's business specifically related to its compute business (the "Compute business"). The divestiture of the Compute business was completed on October 27, 2017. See Note 3 - Divested Business and Discontinued Operations for further details of the divestiture. The following table summarizes the total estimated acquisition consideration (in thousands): Cash consideration paid to AppliedMicro common stockholders $ 287,060 Common stock issued (9,544,125 shares of our common stock at $47.53 per share) 453,632 Equity consideration for vested "in the money" stock options and unvested restricted stock units 2,143 Fair value of the replacement equity awards attributable to pre-acquisition service 9,307 Total consideration paid, excluding cash acquired $ 752,142 We finalized the purchase accounting during the fiscal quarter ended December 29, 2017. The final purchase price allocation is as follows (in thousands): Preliminary Allocation as of Allocation Adjustments Adjusted Allocation September 29, 2017 December 29, 2017 Current assets $ 70,434 $ (553 ) $ 69,881 Intangible assets 412,848 — 412,848 Assets held for sale 40,944 — 40,944 Other assets 9,800 — 9,800 Total assets acquired 534,026 (553 ) 533,473 Liabilities assumed: Liabilities held for sale 4,444 — 4,444 Other liabilities 17,627 651 18,278 Total liabilities assumed 22,071 651 22,722 Net assets acquired 511,955 (1,204 ) 510,751 Consideration: Cash paid upon closing 230,298 — 230,298 Common stock issued 455,775 — 455,775 Equity instruments issued 9,307 — 9,307 Total consideration $ 695,380 $ — $ 695,380 Goodwill $ 183,425 $ 1,204 $ 184,629 The components of the acquired intangible assets were as follows (in thousands): Included In Assets Held For Sale Included in Retained Business Useful Lives (Years) Developed technology $ 9,600 $ 78,448 7 years Customer relationships — 334,400 14 years Total acquired intangible assets $ 9,600 $ 412,848 The overall weighted-average life of the identified intangible assets acquired in the AppliedMicro Acquisition is estimated to be 12.7 years and the assets are being amortized over their estimated useful lives based upon the pattern over which we expect to receive the economic benefit from these assets. The following is a summary of AppliedMicro revenue and earnings included in our accompanying condensed consolidated statements of operations for the three and nine months ended June 30, 2017 (in thousands): Three Months Ended Nine Months Ended June 30, 2017 June 30, 2017 Revenue $ 42,019 $ 78,464 Loss from continuing operations (3,744 ) (34,049 ) Loss from discontinued operations (15,574 ) (32,004 ) The pro forma statement of operations data for the nine months ended June 30, 2017 , below, gives effect to the AppliedMicro Acquisition, described above, as if it had occurred at October 2, 2015. These amounts have been calculated after applying our accounting policies and adjusting the results of AppliedMicro to reflect transaction costs, retention compensation expense, the impact of the step-up to the value of acquired inventory, as well as the additional intangible amortization that would have been charged assuming the fair value adjustments had been applied and incurred since October 2, 2015. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations. Nine Months Ended June 30, 2017 Revenue $ 589,347 Income from continuing operations (90,809 ) Loss from discontinued operations (33,015 ) Acquisition of Picometrix LLC— On August 9, 2017, we completed the acquisition of Picometrix LLC ("Picometrix"), a supplier of optical-to-electrical converters for Cloud Data Center infrastructure (the "Picometrix Acquisition"). We acquired Picometrix in order to expand our business in enterprise and Cloud Data Center applications. The purchase consideration was $33.5 million , comprised of an upfront cash payment of $29.5 million , and $4.0 million placed in escrow for potential satisfaction of certain indemnification obligations that may arise from the closing date through December 15, 2018. For the three and nine months ended June 29, 2018 , we recorded no transaction costs. The Picometrix Acquisition was accounted for as a business acquisition, and the operations of Picometrix have been included in our consolidated financial statements since the date of acquisition. We recognized the Picometrix assets acquired and liabilities assumed based upon the fair value of such assets measured as of the date of acquisition. The aggregate purchase price for the Picometrix assets and liabilities has been allocated to the tangible and identifiable intangible assets acquired based on their estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the acquired 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, all of which will be tax deductible. We finalized the purchase accounting during the fiscal quarter ended June 29, 2018. The final purchase price allocation is as follows (in thousands): Preliminary Allocation as of Allocation Adjustments Adjusted Allocation September 29, 2017 June 29, 2018 Current assets $ 7,375 $ (1,088 ) $ 6,287 Intangible assets 19,000 — 19,000 Other assets 3,301 (81 ) 3,220 Total assets acquired 29,676 (1,169 ) 28,507 Current liabilities 2,169 142 2,311 Other liabilities 190 275 465 Total liabilities assumed 2,359 417 2,776 Net assets acquired 27,317 (1,586 ) 25,731 Consideration: Cash paid upon closing, net of cash acquired 33,500 — 33,500 Goodwill $ 6,183 $ 1,586 $ 7,769 The pro forma financial information for fiscal year 2017, including revenue and net income, is immaterial, and has not been separately presented. |