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Acquisitions, Divestiture and Investment | 12 Months Ended
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Jun. 25, 2022
Business Combinations [Abstract] |
Acquisitions, Divestiture and Investment | 4. Acquisitions, Divestiture and Investment Acquisitions DSP Group, Inc. On August 30, 2021, we entered into an agreement and plan of merger with DSP Group, Inc., or DSPG, to acquire all of the equity of DSPG, a leading global provider of voice and wireless chipset solutions for converged communications, for $22.00 per share in an all-cash transaction, referred to as the DSPG acquisition. The DSPG acquisition closed on December 2, 2021, or the DSPG Closing Date, whereupon we obtained voice and wireless technology and product solutions for converged communications. In addition, under the terms of the agreement and plan of merger, we provided replacement equity awards to the transferred employees and allocated $1.7 million of the replacement equity awards value to consideration transferred. The DSPG acquisition has been accounted for using the purchase method of accounting in accordance with the business acquisition guidance. Under the purchase accounting method, the total estimated purchase consideration of the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets acquired and liabilities has been recorded as goodwill. Our estimate of the fair values of the acquired intangible assets at June 25, 2022, was based on established and accepted valuation techniques performed with the assistance of our third-party valuation specialists. The adjusted purchase price paid for DSPG was $543.3 million. The final purchase price allocation is as follows (in millions):
|  | Final As Adjusted June 25, 2022 |
Cash and cash equivalents |  | $ | 40.5 |
Short-term investments |  |  | 71.9 |
Accounts receivable, net |  |  | 12.9 |
Inventory |  |  | 22.6 |
Prepaid expenses and other current assets |  |  | 4.0 |
Property and equipment |  |  | 5.9 |
Intangible assets |  |  | 212.0 |
Right-of-use lease asset |  |  | 9.8 |
Severance pay fund |  |  | 16.2 |
Deferred tax asset |  |  | 6.7 |
Non-current other assets |  |  | 2.3 |
Total identifiable assets acquired |  |  | 404.8 |
Accounts payable |  |  | (6.7 | )
Other accrued expenses |  |  | (19.8 | )
Short-term lease liabilities |  |  | (1.5 | )
Long-term lease liabilities |  |  | (8.2 | )
Accrued severance |  |  | (16.4 | )
Deferred tax liability |  |  | (39.4 | )
Other long-term liabilities |  |  | (6.1 | )
Total liabilities |  |  | (98.1 | )
Net identifiable assets acquired |  |  | 306.7 |
Goodwill |  |  | 236.6 |
Net assets acquired |  | $ | 543.3 |
The following table summarizes the final amounts of the fair values recognized for the assets acquired and liabilities assumed for these two acquisitions as of the acquisition date as well as adjustments made during the measurement period:
|  | Previously Reported December 25, 2021 |  |  | Measurement Period Adjustments (1) |  |  | As Adjusted |
Other current assets |  | $ | 151.9 |  |  | $ | - |  |  | $ | 151.9 |
Goodwill |  |  | 256.6 |  |  |  | (20.0 | ) |  |  | 236.6 |
Developed technology and other intangible assets |  |  | 200.5 |  |  |  | 11.5 |  |  |  | 212.0 |
Deferred tax asset |  |  | 0.3 |  |  |  | 6.4 |  |  |  | 6.7 |
Other long-term assets |  |  | 35.6 |  |  |  | (1.4 | ) |  |  | 34.2 |
Current liabilities |  |  | (26.8 | ) |  |  | (1.2 | ) |  |  | (28.0 | )
Deferred tax liability |  |  | (38.1 | ) |  |  | (1.3 | ) |  |  | (39.4 | )
Other long-term liabilities |  |  | (29.1 | ) |  |  | (1.6 | ) |  |  | (30.7 | )
Consideration adjustment |  |  | - |  |  |  | 7.6 |  |  |  | - |
Net assets acquired |  | $ | 550.9 |  |  | $ | - |  |  | $ | 543.3 |
(1) The measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date. The following table summarizes the estimated fair value of the intangible assets as of the DSPG Closing Date (in millions):
|  | Estimated Weighted Average Useful Lives in Years |  |  | Estimated Fair Value |
Developed technology |  |  | 5.2 |  |  | $ | 150.0 |
Customer contracts and related relationships |  |  | 4.0 |  |  |  | 45.0 |
In process research and development |  | N/A |  |  |  | 16.0 |
Trade names |  |  | 1.0 |  |  |  | 1.0 |
Estimated fair value of acquired intangibles |  |  |  |  | $ | 212.0 |
We estimated the fair value of the identified intangible assets using a discounted cash flow model for each of the underlying identified intangible assets. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions include the level and timing of expected future cash flows, conditions and demands specific to each intangible asset over its remaining useful life, and discount rates we believe to be consistent with the inherent risks associated with each type of asset, which range from 4% to 18%. The fair value of these intangible assets is primarily affected by the projected revenue, gross margins, operating expenses, the technology migration curve, customer ramp up period and the anticipated timing of the projected income associated with each intangible asset coupled with the discount rates used to derive their estimated present values. We believe the level and timing of expected future cash flows appropriately reflects market participant assumptions. In-process research and development consists of advanced semiconductor telecommunications products for the Internet of Things, or IoT, market. We expect to complete the in-process research and development project in calendar year 2023. The value of goodwill reflects the anticipated synergies of the combined operations and workforce of DSPG as of the DSPG Closing Date. None of the goodwill is expected to be deductible for income tax purposes. Prior to the DSPG acquisition, we did not have an existing relationship or transactions with DSPG. The consolidated financial statements include approximately $83.8 million of revenue from the DSPG Closing Date through June 25, 2022. It is impracticable to determine the effect on net income attributable to DSPG as we initiated the integration of a substantial portion of DSPG into our ongoing operations during the second quarter of fiscal 2022, which was completed in the subsequent quarter. Supplemental Pro Forma Information (Unaudited) The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions we believe are reasonable under the circumstances. The following supplemental pro forma information presents the combined results of operations for the year ended June 25, 2022 and June 26, 2021, as if DSPG had been acquired as of the beginning of fiscal 2021. Pro forma adjustments used to arrive at pro forma net income included adjustments for the addition of intangible amortization expense for the value of intangibles under the purchase price allocation, adjustments to record acquired inventories at fair value, transaction and restructuring costs. The total pro forma adjustments for fiscal 2022 was an increase to net income of $5.9 million and a decrease in net income of $86.3 million in fiscal 2021. The unaudited supplemental pro forma financial information for the periods presented is as follows (in millions):
|  | 2022 |  |  | 2021 |
Revenue |  | $ | 1,802.6 |  |  | $ | 1,466.0 |
Net income (loss) |  | $ | 263.4 |  |  | $ | (6.7 | )
DisplayLink On July 17, 2020, we entered into a definitive agreement to acquire 100% of equity interest in DisplayLink Corporation, or DisplayLink, a leader in high-performance video compression technology, for $305 million in cash adjusted for (i) estimated cash and cash equivalents and short-term investments at the closing (ii) estimated indebtedness outstanding immediately prior to the closing, (iii) unpaid portion as of the closing of certain transaction expenses incurred by DisplayLink, and (iv) the amount that the estimated working capital of DisplayLink exceeds or falls short, respectively, of a certain specified target working capital set forth in an Agreement and Plan of Merger, or the Merger Agreement, with $3.1 million of the purchase price held in escrow accounts for adjustments after closing and to secure the Seller Parties’ indemnification obligations under the Merger Agreement. The acquisition closed on July 31, 2020, or the DisplayLink Closing Date, whereupon we obtained high-performance video compression technology which will further enhance our current IoT business. This acquisition has been accounted for using the purchase method of accounting in accordance with the business acquisition guidance. Under the purchase accounting method, the total estimated purchase consideration of the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets acquired and liabilities has been recorded as goodwill. Our estimate of the fair values of the acquired intangible assets at June 26, 2021, was based on established and accepted valuation techniques performed with the assistance of our third-party valuation specialists. The adjusted purchase price paid for DisplayLink was $444.0 million. The following table summarizes the amounts recorded for the estimated fair values of the assets acquired and liabilities assumed as of the DisplayLink Closing Date (in millions):
Cash and cash equivalents |  | $ | 40.9 |
Short-term investments |  |  | 94.0 |
Accounts receivable, net |  |  | 7.1 |
Inventory |  |  | 33.1 |
Prepaid expenses and other current assets |  |  | 9.1 |
Property and equipment |  |  | 6.8 |
Intangible assets |  |  | 193.0 |
Right-of-use lease asset |  |  | 20.0 |
Non-current other assets |  |  | 0.6 |
Total identifiable assets acquired |  |  | 404.6 |
Accounts payable |  |  | (5.2 | )
Other accrued liabilities |  |  | (9.1 | )
Short-term lease liabilities |  |  | (1.7 | )
Long-term lease liabilities |  |  | (18.2 | )
Other long-term liabilities |  |  | (32.8 | )
Total liabilities |  |  | (67.0 | )
Net identifiable assets acquired |  |  | 337.6 |
Goodwill |  |  | 106.4 |
Net assets acquired |  | $ | 444.0 |
There were no measurement period adjustments during fiscal year ended June 25, 2022. During the fiscal year ended June 26, 2021 we recorded measurement period adjustments of $0.9 million to goodwill comprising of increases of $2.3 million in prepaid expenses and decreases of $0.8 million to other accrued liabilities and increases of $1.4 million in other long-term liabilities for a net increase of $1.7 million to the fair value of other acquired net tangible assets. The following table summarizes the estimated fair value of the intangible assets as of the DisplayLink Closing Date (in millions):
|  | Estimated Weighted Average Useful Lives in Years |  |  | Estimated Fair Value |
Developed technology |  |  | 3.0 |  |  | $ | 82.0 |
Customer contracts and related relationships |  |  | 3.0 |  |  |  | 54.0 |
In process research and development |  | N/A |  |  |  | 51.0 |
Trade names |  |  | 4.0 |  |  |  | 3.0 |
Licensed technology |  |  | 2.5 |  |  |  | 3.0 |
Estimated fair value of acquired intangibles |  |  |  |  | $ | 193.0 |
We estimated the fair value of the identified intangible assets using a discounted cash flow model for each of the underlying identified intangible assets. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions include the level and timing of expected future cash flows, conditions and demands specific to each intangible asset over its remaining useful life, and discount rates we believe to be consistent with the inherent risks associated with each type of asset, which range from 11.0% to 11.5%. The fair value of these intangible assets is primarily affected by the projected revenue, gross margins, operating expenses, the technology migration curve, customer ramp up period and the anticipated timing of the projected income associated with each intangible asset coupled with the discount rates used to derive their estimated present values. We believe the level and timing of expected future cash flows appropriately reflects market participant assumptions. In-process research and development consists of a next generation docking and video interface products for the IoT market. We expect to complete the in-process research and development project in fiscal 2023. The value of goodwill reflects the anticipated synergies of the combined operations and workforce of DisplayLink as of the DisplayLink Closing Date. No ne of the goodwill is expected to be deductible for income tax purposes. Prior to the DisplayLink acquisition, we did not have an existing relationship or transactions with DisplayLink. The consolidated financial statements include approximately $115.3 million and $110.0 million of revenue during fiscal 2022 and 2021, respectively. It is impracticable to determine the effect on net income attributable to DisplayLink as we integrated a substantial portion of DisplayLink into our ongoing operations during the first quarter of fiscal 2021. The following unaudited pro forma financial information (in millions, except per share data) presents the combined results of operations for us and DisplayLink as if the DisplayLink acquisition had occurred at the beginning of fiscal 2020. The unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to be indicative of the actual operating results that would have been recorded had the DisplayLink acquisition actually taken place at the beginning of fiscal 2020 and should not be taken as indicative of future consolidated operating results. Additionally, the unaudited pro forma financial results do not include any anticipated synergies or other expected benefits from the DisplayLink acquisition.
|  |  |  | 2021 (1) |
Revenue |  |  |  | $ | 1,346.9 |
Net income |  |  |  | $ | 72.1 |
(1) Includes results of Broadcom Wireless Connectivity Business Pro forma adjustments used to arrive at pro forma net income included adjustments for historical amortization expense, the addition of intangible amortization expense for the value of intangibles under the purchase price allocation, transaction costs and restructuring costs. The total pro forma adjustments for fiscal 2021 was a decrease to net income of $1.1 million. Broadcom Wireless Connectivity Business On July 2, 2020, we entered into definitive agreements with Broadcom to acquire certain assets and assume certain liabilities of, and obtain non-exclusive licenses relating to, Broadcom’s existing Wi-Fi, Bluetooth and GPS/GNSS products and business in the IoT market, or Broadcom Business Acquisition, for an aggregate consideration of $250 million in cash which closed on July 23, 2020, or the Broadcom Business Acquisition Closing Date. We also entered into certain transition agreements with Broadcom for a period of three years. We acquired these assets and assumed certain liabilities from Broadcom in order to obtain wireless connectivity technology which will enhance our current IoT business. The acquisition has been accounted for using the purchase method of accounting in accordance with the business acquisition guidance. Under the purchase accounting method, the total estimated purchase consideration of the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets acquired and liabilities has been recorded as goodwill. Our estimate of the fair values of the acquired intangible assets at the Broadcom Business Acquisition Closing Date was based on established and accepted valuation techniques performed with the assistance of our third-party valuation specialists. The following table summarizes the adjusted purchase price paid for the Broadcom Business Acquisition (in millions):
Cash |  | $ | 250.1 |
Adjustments to consideration transferred, net |  |  | 1.5 |
Roadmap products - estimated cost of development |  |  | (25.0 | )
|  | $ | 226.6 |
We entered into a derivative and roadmap product agreement and an asset purchase agreement with Broadcom. The derivative and roadmap product agreement includes the purchase of derivative and roadmap product development services to be performed by Broadcom. We estimated the value of the development services to be approximately $25.0 million, and accounted for it separate from the business combination. At June 25, 2022 and June 26, 2021, the net book value of the development services is $5.8 million and $15.8 million, respectively. The estimated value of the development services is amortizing over the period of time estimated to complete the development or approximately thirty months. The amortization of the estimated cost of development is included in research and development in our consolidated statements of operations. In addition, under the terms of the asset purchase agreement we provided replacement equity compensation awards to the transferred employees and Broadcom agreed to make cash payments to transferred employees as incentive to accept employment offers from our company. We determined $3.5 million of value related to these arrangements should be included as consideration transferred, which was partially offset by $2.0 million of cash payments to transferred employees as a reduction of consideration transferred. The following table summarizes the amounts recorded for the estimated fair values of the assets acquired and liabilities assumed as of the Broadcom Business Acquisition Closing Date (in millions):
Property and equipment |  | $ | 1.0 |
Acquired intangible assets |  |  | 123.0 |
Total identifiable assets acquired |  |  | 124.0 |
Liabilities assumed |  |  | (0.2 | )
Goodwill |  |  | 102.8 |
Net assets acquired |  | $ | 226.6 |
We estimated the fair value of the identified intangible assets using a discounted cash flow model for each of the underlying identified intangible assets. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement. Key assumptions include the level and timing of expected future cash flows, conditions and demands specific to each intangible asset over its remaining useful life, and discount rates we believe to be consistent with the inherent risks associated with each type of asset, which is 2.2% for order backlog and 13.0% for the rest of the intangible assets. The fair value of these intangible assets is primarily affected by the projected revenue, gross margins, operating expenses, the technology migration curve, customer ramp up period and the anticipated timing of the projected income associated with each intangible asset coupled with the discount rates used to derive their estimated present values. We believe the level and timing of expected future cash flows appropriately reflects market participant assumptions. The following table summarizes the estimate of the intangible assets as of the Broadcom Business Acquisition Closing Date (in millions):
|  | Estimated Weighted Average Useful Lives in Years |  |  | Estimated Fair Value |
Developed technology |  |  | 6.0 |  |  | $ | 93.0 |
Customer contracts and related relationships |  |  | 6.0 |  |  |  | 18.0 |
Order backlog |  |  | 0.5 |  |  |  | 12.0 |
Estimated fair value of acquired intangibles |  |  |  |  | $ | 123.0 |
The value of goodwill reflects the anticipated synergies of the combined operations and workforce of the transferred Broadcom Business assets as of the Broadcom Business Acquisition Closing Date. A ll of the goodwill is expected to be deductible for income tax purposes. Prior to the Broadcom Business Acquisition, we did not have an existing relationship or transactions with Broadcom. The consolidated financial statements include approximately $228.8 million and $100.4 million of revenue during fiscal 2022 and 2021, respectively. It is impracticable to determine the effect on net income attributable to the Broadcom Business Acquisition as we had integrated a substantial portion of the Broadcom Business Acquisition into our ongoing operations at the close. Divestiture In December 2020, we completed the sale of limited audio technology intangible assets, received a fully-paid up perpetual license back from the buyer and, as an element of the transaction licensed other audio technology intangible assets to the buyer under a fully-paid up perpetual license arrangement. Under the asset purchase agreement and the intellectual property license agreement, we received $35.0 million in cash. The gain on the sale of the audio technology assets was $34.2 million. In April 2020, we completed the sale of the assets of our LCD Touch Controller and Display Driver Integration product line, or TDDI, for LCD mobile displays. We retained our automotive TDDI product line and our discrete touch and discrete display driver product lines supporting LCD and OLED for the mobile market. The assets sold under the asset purchase agreement had a carrying value of approximately $33.6 million as of the closing date of the transaction for cash consideration of $138.7 million. The gain on sale of the assets was $105.1 million.

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