This excerpt taken from the MRVL 10-Q filed Jun 8, 2006.
Semiconductor Division of UTStarcom, Inc.
On February 16, 2006, the Company completed the acquisition of the semiconductor division of UTStarcom, Inc. Under the terms of the agreement, the Company paid $24.0 million in cash and may pay up to an additional $16.0 million in cash if certain defined milestones are achieved. The semiconductor division of UTStarcom focuses on the design and development of personal handyphone systems (PHS) and next generation cellular communications technology. The primary reasons for the acquisition of the semiconductor division of UTStarcom were to strengthen and augment its software engineering workforce and enhance its technological capabilities for emerging cellular strategies, obtain an established product being utilized in wireless communications technology, reduce the time required to develop new products and bring them to market for next generation cellular technology and to complement the Companys existing wireless offerings.
The purchase price of the acquisition was $24.8 million, determined as follows (in thousands):
Under the purchase method of accounting, the total purchase price as shown in the table is allocated to net tangible and intangible assets based on their fair values as of the date of the completion of the acquisition. Based on the fair values acquired, the preliminary purchase price allocation is as follows (in thousands):
The Company acquired tangible assets of approximately $2.7 million consisting of inventory and fixed assets. The amortizable intangible assets of $30.8 million were determined based on valuation techniques such as discounted cash flows and weighted average cost of capital methods used in the high technology industry using assumptions and estimates from management. The amortizable intangible assets will be amortized over useful lives ranging from three to four years. The existing technology represents personal handyphone systems technology and other technology that UTStarcom has developed. Core technology represents the combination of
processes, patents, and trade secrets that are the building blocks for current and planned new products. Customer relationships represent future projected revenue that will be derived from sales of future versions of existing products that will be sold to existing customers. The value determined for the supply contract with UTStarcom represents the fair value of estimated revenues and net operating cash flows to be derived from the supply contract for the duration of the five-year contract.
Approximately $8.7 million has been preliminarily allocated as negative goodwill, calculated as the excess of the fair value of net tangible and intangible assets acquired over the purchase price. Contingent consideration is still outstanding which may result in the recognition of additional costs of up to $16.0 million from the acquisition if the contingency is issuable in cash or becomes issuable. The defined milestones for the contingent consideration are based on the achievement of certain levels of PHS subscribers and are expected to be resolved by September 30, 2006. The negative goodwill will be adjusted once the contingency is resolved. Any contingent payments made will result in additional consideration and reduce the negative goodwill. Accordingly, goodwill may be recorded if the total purchase price exceeds the fair value of the net tangible and intangible assets acquired. If the contingency does not occur, the negative goodwill will be reduced to zero and the amount will be allocated to intangible assets based on their relative fair values.
The unaudited consolidated financial statements include the results of operations of the semiconductor division of UTStarcom commencing as of the acquisition date. No supplemental pro forma information is presented for the acquisition due to the immaterial effect of the acquisition on the Companys results of operations.