5. Acquisitions

Pacinian

On June 13, 2012, or the acquisition date, we acquired 100% of the outstanding common shares and voting interest of Pacinian. This acquisition has been accounted for as a business combination. The results of Pacinian’s operations have been included in the consolidated financial statements since the acquisition date. Pacinian was a development stage company, which developed an innovative thin keyboard design using its ThinTouch technology. ThinTouch is a design technology employing an innovative ramp capability that delivers a full keyboard solution that is 40% thinner than traditional keyboard solutions. By combining our TouchPad technology with the ThinTouch technology, we expect to deliver a complete keyboard solution targeted for the next generation of thin and light notebook PC form factors, such as ultrabooks.

The acquisition date fair value of the consideration transferred totaled $26.9 million, which consisted of the following (in thousands):


Cash	$	15,016
Contingent consideration liability		11,900

	$	26,916

The contingent consideration arrangement required us to pay $5.0 million of additional consideration to Pacinian’s former stockholders, due upon customer acceptance of a ThinTouch product, and up to $10.0 million of additional consideration to Pacinian’s former stockholders, at a rate of $0.60 for each unit shipped utilizing ThinTouch technology through June 2016. The estimated fair value of the contingent consideration arrangement as of the acquisition date was $11.9 million. We estimated the fair value of the contingent consideration for both customer acceptance and for unit shipments using a probability-weighted discounted cash flow model. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. The key assumptions in applying the probability-weighted discounted cash flow model for the $5.0 million additional consideration due upon customer acceptance was a 5.1% discount rate under five equally weighted cash flow scenarios. The key assumptions in applying the probability-weighted discounted cash flow model for the $10.0 million additional consideration based on unit shipments was a 12.4% discount rate under five equally weighted cash flow scenarios. The contingent consideration liability is remeasured at fair value each reporting period with adjustments related to accretion and changes in amount and timing of expected cash flows recorded in operating expenses. The $5.0 million of additional consideration due upon customer acceptance was paid in fiscal 2013. In our consolidated statements of cash flows for the fiscal year ended June 30, 2013, $4.6 million of the payment of contingent consideration was classified as cash flows from financing activities and $400,000 was classified as cash flows from operating activities.

We operate in one segment; therefore, the goodwill was allocated to a company-wide reporting unit. None of the goodwill is deductible for income tax purposes.

Video Display Operation of Integrated Device Technology

On August 1, 2012, we acquired inventory, fixed assets, and intangible assets of the Video Display Operation, or VDO, of Integrated Device Technology, Inc., or IDT, including a worldwide non-exclusive, irrevocable, non-transferable, royalty-free paid up license, for $5.0 million. This acquisition was effected to enhance our technology portfolio with a primary focus on the emerging large touchscreen market for notebooks, ultrabooks, and tablets. This acquisition has been accounted for as a business combination. The results of VDO’s operations have been included in our consolidated financial statements since the acquisition date.

The following table summarizes the estimated fair values of the assets acquired as of the acquisition date (in thousands):


Inventory	$	1,409
Test equipment		556
Intangible assets		1,335
Goodwill		1,700

Net assets acquired	$	5,000

We operate in one segment; therefore, the goodwill applies to a company-wide reporting unit. All of the goodwill and intangible assets are expected to be deductible for income tax purposes.

We recognized approximately $100,000 of acquisition-related costs that were expensed in fiscal 2013. These costs were included in our consolidated statements of income as selling, general, and administrative expenses.

The amounts of revenue and earnings of VDO included in our consolidated statements of income from the acquisition date to the period ended September 30, 2012, were immaterial. Pro forma consolidated statements of income as if VDO had been included for the three months ended September 30, 2012 and the entire year ended June 30, 2012, are not materially different than those reported.

Prior to the acquisition, we did not have a preexisting relationship with IDT.