2. Acquisition

On October 3, 2014, the Company completed the acquisition of Cortina Systems, Inc. including its high-speed interconnect and optical transport product lines for approximately $52,509 in cash and approximately 5.3 million shares. The Company did not acquire as part of the merger, Cortina Systems, Inc.’s access and digital Home business, which Cortina Systems, Inc. divested prior to the closing of the acquisition. The Company acquired Cortina to expand the Company’s market share of the high-speed optical and networking interconnects. Cash of $16,500 was placed in an escrow fund for up to 12 months following the closing for the satisfaction of certain potential indemnification claims. The consolidated financial statements include the results of operations of Cortina as of the acquisition date.

 The fair value of consideration transferred is shown in the table below:

The acquisition has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. As additional information becomes available, the Company may revise its preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material.

The following table summarizes the preliminary purchase price allocation as of the acquisition date:

As of the acquisition date, the fair value of receivables, other assets, accounts payable and accrued expenses approximated the book value acquired.

The following table summarizes the estimated fair value of intangible assets and their estimated useful lives as of the date of acquisition:

Developed technology was valued using the multi-period excess earnings method under the income approach. This method involves discounting the direct cash flow expected to be generated by the technologies over their remaining lives, net of returns on contributory assets. The estimated useful life was determined based on the technology cycle related to each product family and its expected contribution to forecast revenue. Customer relationships were valued using the incremental cash flow approach which involved discounting management’s estimate of the incremental revenues afforded by having the existing customer relationships in place as of the acquisition date, net of operating expense, taxes and returns on contributory assets. The estimated useful life was determined based on the estimated customer product or program ramp-up period required to develop the similar existing customer revenue base. Trade name was valued based on application of relief-from-royalty approach under the income approach. This method is based on the application of a royalty rate to forecasted revenue. The estimated useful life was determined based on the expected life of the trade names, the history of the trade names and the cash flows anticipated over the forecasted periods. In-process research and development was valued using the multi-period excess earnings method under the income approach, with the additional inclusion of estimated costs required to complete the projects.

The Company capitalized $1,750 of IPR&D costs related to the Cortina acquisition. Upon completion of the project, the related IPR&D assets will be amortized over their estimated useful lives. If the project are abandoned, the Company will be required to impair the related IPR&D asset. The significant assumptions underlying the valuation of IPR&D are:

As of December 31, 2014, the projects are expected to be completed in March 2016 and will commence commercial production in 2016.

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and is attributable to the workforce of Cortina. Goodwill is not amortized and is not deductible for tax purposes.

The Company incurred acquisition costs of $1,091 which are included in general and administrative expense in the consolidated statement of income for the year ended December 31, 2014.

Cortina contributed revenue of $21,018 and pre-tax loss of $10,018 to the Company for the period from October 3, 2014 to December 31, 2014.

Pro Forma Information

The following unaudited pro forma financial information presents a summary of the Company’s consolidated results of operations for the year ended December 31, 2014 and the year ended December 31, 2013, assuming the Cortina acquisition had been completed as of January 1, 2013. The pro forma information includes adjustments to amortization and depreciation for intangible assets and property and equipment acquired, amortization of the purchase accounting effect on inventory acquired from Cortina, and interest income for reduction in short-term investments to fund the acquisition.

The unaudited pro forma consolidated results were prepared using the acquisition method of accounting and are based on the historical financial information of the Company and Cortina, reflecting the results of operations for the year ended December 31, 2014 and 2013. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition as of the beginning of the period presented. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings associated with the acquisition.