IDTI-9.30.2012-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012 OR
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                            to                             .
Commission File No. 0-12695
INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
94-2669985
(I.R.S. Employer Identification No.)
6024 SILVER CREEK VALLEY ROAD, SAN JOSE, CALIFORNIA
(Address of Principal Executive Offices)
95138
(Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 284-8200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, $.001 par value
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:  None 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ý No ¨ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
¨  Large accelerated filer                            ý   Accelerated filer                            ¨  Non-accelerated filer               ¨ Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý 
The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of October 31, 2012 was approximately 144,180,405.



Table of Contents

INTEGRATED DEVICE TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I-FINANCIAL INFORMATION
 
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
PART II-OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited in thousands, except per share amounts)
September 30, 2012
 
April 1, 2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
97,871

 
$
134,924

Short-term investments
170,922

 
190,535

Accounts receivable, net of allowances of $3,990 and $3,009
71,129

 
60,609

Inventories
61,483

 
71,780

Prepayments and other current assets
29,530

 
23,684

Total current assets
430,935

 
481,532

Property, plant and equipment, net
76,141

 
69,984

Goodwill
145,129

 
96,092

Other intangible assets, net
58,681

 
40,548

Deferred non-current tax assets
4,525

 
179

Other assets
24,213

 
29,299

Total assets
$
739,624

 
$
717,634

Liabilities and stockholders' equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
26,254

 
$
25,211

Accrued compensation and related expenses
22,955

 
26,156

Deferred income on shipments to distributors
14,953

 
14,263

Deferred tax liabilities
470

 
421

Other accrued liabilities
20,034

 
13,443

Total current liabilities
84,666

 
79,494

Deferred tax liabilities
5,897

 
1,552

Long-term income tax payable
599

 
706

Other long-term liabilities
20,127

 
16,494

Total liabilities
111,289

 
98,246

Commitments and contingencies (Note 15)


 


Stockholders' equity:
 

 
 

Preferred stock: $.001 par value: 10,000 shares authorized; no shares issued

 

Common stock: $.001 par value: 350,000 shares authorized; 144,154 and 142,194 shares outstanding at September 30, 2012 and April 1, 2012, respectively
144

 
142

Additional paid-in capital
2,389,923

 
2,377,315

Treasury stock at cost: 90,426 shares at September 30, 2012 and April 1, 2012, respectively
(977,296
)
 
(977,296
)
Accumulated deficit
(786,524
)
 
(782,136
)
Accumulated other comprehensive income
2,088

 
1,363

Total stockholders' equity
628,335

 
619,388

Total liabilities and stockholders' equity
$
739,624

 
$
717,634


The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Six Months Ended
 
(Unaudited in thousands, except per share data)
September 30, 2012
 
October 2, 2011
 
September 30,
2012
 
October 2,
2011
Revenues
$
133,401

 
$
138,318

 
$
263,562

 
$
287,603

Cost of revenues
58,774

 
64,685

 
116,422

 
134,534

Gross profit
74,627

 
73,633

 
147,140

 
153,069

Operating expenses:
 

 
 

 
 

 
 
Research and development
42,387

 
39,184

 
83,931

 
78,999

Selling, general and administrative
32,750

 
24,888

 
69,162

 
50,817

Total operating expenses
75,137

 
64,072

 
153,093

 
129,816

Operating income (loss)
(510
)
 
9,561

 
(5,953
)
 
23,253

Interest income (expense) and other, net
(206
)
 
(1,828
)
 
1,794

 
(1,784
)
Income (loss) before income taxes from continuing operations
(716
)
 
7,733

 
(4,159
)
 
21,469

Income tax expense (benefit)
(33
)
 
(367
)
 
(4,019
)
 
600

Net income (loss) from continuing operations
$
(683
)
 
$
8,100

 
$
(140
)
 
$
20,869

 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Gain from divestiture
886

 
45,939

 
886

 
45,939

Loss from discontinued operations before income taxes
(273
)
 
(7,352
)
 
(5,131
)
 
(14,996
)
Expense (benefit) from income taxes
3

 
(60
)
 
3

 
(89
)
Net income (loss) from discontinued operations
610

 
38,647

 
(4,248
)
 
31,032

 
 
 
 
 
 
 
 
Net income (loss)
$
(73
)
 
$
46,747

 
$
(4,388
)
 
$
51,901

 
 
 
 
 
 
 
 
Basic net income per share- continuing operations
$

 
$
0.06

 
$

 
$
0.14

Basic net income (loss) per share -discontinued operations
$

 
$
0.26

 
$
(0.03
)
 
$
0.21

Basic net income (loss) per share
$

 
$
0.32

 
$
(0.03
)
 
$
0.35

 
 
 
 
 
 
 
 
Diluted net income per share - continuing operations
$

 
$
0.06

 
$

 
$
0.14

Diluted net income (loss) per share -discontinued operations
$

 
$
0.26

 
$
(0.03
)
 
$
0.21

Diluted net income (loss) per share
$

 
$
0.32

 
$
(0.03
)
 
$
0.35

 
 
 
 
 
 
 
 
Weighted average shares:
 

 
 

 
 

 
 
Basic
143,519

 
144,682

 
143,055

 
146,249

Diluted
143,519

 
146,169

 
143,055

 
148,686


The accompanying notes are an integral part of these condensed consolidated financial statements.


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Table of Contents


INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
Three Months Ended
 
Six Months Ended
 
(Unaudited in thousands)
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
 
 
 
 
 
 
 
 
Net income (loss)
$
(73
)
 
$
46,747

 
$
(4,388
)
 
$
51,901

Currency translation adjustments
905

 
(763
)
 
725

 
(511
)
Change in net unrealized gain (loss) on investments
50

 
(80
)
 

 
(77
)
Comprehensive income (loss)
882

 
45,904

 
(3,663
)
 
51,313


The accompanying notes are an integral part of these condensed consolidated financial statements.


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INTEGRATED DEVICE TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
 
Six Months Ended
 
(Unaudited in thousands)
September 30,
2012
 
October 2,
2011
Cash flows provided by operating activities:
 
 
 
Net income (loss)
$
(4,388
)
 
$
51,901

Adjustments:
 

 
 

Depreciation
9,601

 
9,570

Amortization of intangible assets
10,467

 
8,123

Gain from divestitures
(886
)
 
(45,939
)
Stock-based compensation expense, net of amounts capitalized in inventory
6,532

 
8,149

Deferred tax provision
(4,297
)
 
(2
)
Tax benefit from share based payment arrangements
(45
)
 

Changes in assets and liabilities (net of amounts acquired):
 

 
 

Accounts receivable, net
(6,563
)
 
5,358

Inventories
11,846

 
(12,628
)
Prepayments and other assets
6,976

 
2,958

Accounts payable
(782
)
 
(5,879
)
Accrued compensation and related expenses
(4,962
)
 
(196
)
Deferred income on shipments to distributors
169

 
3,180

Income taxes payable and receivable
26

 
1,136

Other accrued liabilities and long-term liabilities
1,063

 
(2,795
)
Net cash provided by operating activities
24,757

 
22,936

Cash flows provided by (used for) investing activities:
 

 
 

Acquisitions, net of cash acquired
(68,341
)
 

Cash in escrow related to acquisitions
(7,816
)
 

Proceeds from divestitures
5,000

 
51,670

Purchases of property, plant and equipment, net
(17,263
)
 
(13,322
)
Purchases of short-term investments
(92,150
)
 
(310,494
)
Proceeds from sales of short-term investments
27,162

 
220,163

Proceeds from maturities of short-term investments
84,690

 
98,068

Net cash provided by (used for) investing activities
(68,718
)
 
46,085

Cash flows provided by (used for) financing activities:
 

 
 

Proceeds from issuance of common stock
6,138

 
7,679

Repurchase of common stock

 
(47,465
)
Excess tax benefit from share based payment arrangements
45

 

Net cash provided by (used for) financing activities
6,183

 
(39,786
)
Effect of exchange rates on cash and cash equivalents 
725

 
(524
)
Net increase (decrease) in cash and cash equivalents
(37,053
)
 
28,711

Cash and cash equivalents at beginning of period
134,924

 
104,680

Cash and cash equivalents at end of period
$
97,871

 
$
133,391


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

INTEGRATED DEVICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Nature of Business. Integrated Device Technology, Inc. (IDT or the Company) designs, develops, manufactures and markets a broad range of integrated circuits for the advanced communications, computing and consumer industries.

Basis of Presentation. The Company's fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31st. In a 52-week year, each fiscal quarter consists of thirteen weeks. In a 53-week year, the additional week is usually added to the third quarter, making such quarter consist of fourteen weeks. The first and second quarters of fiscal 2013 and fiscal 2012 were thirteen week periods.

Reclassifications. Certain prior period balances in the accompanying consolidated financial statements have been reclassified to conform to the current period presentation.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Significant Accounting Policies. For a description of significant accounting policies, see Note 1, Summary of Significant Accounting Policies to the consolidated financial statements included in the Company's annual report on Form 10-K for the fiscal year ended April 1, 2012. There have been no material changes to the Company's significant accounting policies since the filing of the annual report on Form 10-K.

Recent Accounting Pronouncements. In December 2011, the FASB issued guidance related to the enhanced disclosures that will enable the users of financial statements to evaluate the effect or potential effect of netting arrangements of an entity's financial position. The amendments require improved information about financial instruments and derivative instruments that are either offset or subject to enforceable master netting arrangements or similar agreement. The guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.


In July 2012, the FASB simplified the guidance for testing for impairment of indefinite-lived intangible assets other than goodwill. The changes are intended to reduce compliance costs. The Company's indefinite-lived intangible assets are the in process research and development intangible assets. The revised guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the recently issued impairment testing guidance for goodwill and allows the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset to determine whether it is more likely than not (meaning a likelihood of more than 50 percent) that the indefinite-lived intangible asset is impaired. An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value.  The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.  The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.



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Note 2. Revision of Prior Period Financial Statements
During the third quarter of fiscal 2012, the Company identified errors primarily related to retention bonuses associated with its plan to close its Oregon manufacturing facility. In addition, the Company had corrected prior period errors in the first and second quarters of 2012 related to retention bonuses for certain key employees and accounts payable system related issues. The Company assessed the materiality of these errors individually and in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletin No. 99 (SAB 99), and concluded that the errors were not material to any of its prior annual or interim financial statements. Further although the Company also concluded that correcting the errors, on a cumulative basis, would not be material to the expected results of operations for the year ended April 1, 2012, the Company elected to revise its previously issued financial statements as permitted in SEC’s Staff Accounting Bulletin No. 108 (SAB 108) regarding immaterial revisions. The Company also elected to revise its previously issued consolidated financial statements the next time they are filed. As each subsequent filing is made in the future, the previous period consolidated financial statements affected by the errors will be revised. The Company has revised the consolidated statements of operations for the three and six months ended October 2, 2011 included herein to reflect the correct balances. The revision had no impact on the Company’s total cash flows from operating, investing or financing activities.
 
For the Three Months Ended,
 
For the Six Months Ended,
 
October 2, 2011
 
October 2, 2011
(in thousands, except per share amounts)
As
Reported (1)
Adjustments
As
 Revised
 
As
Reported (1)
Adjustments
As
 Revised
Consolidated Statement of Operations
 
 
 
 
 
 
 
Cost of revenues
$
64,015

$
670

$
64,685

 
$
131,584

$
2,950

$
134,534

Gross profit
74,303

(670
)
73,633

 
156,019

(2,950
)
153,069

Research and development
39,567

(383
)
39,184

 
79,234

(235
)
78,999

Selling, general and administrative
24,868

20

24,888

 
50,716

101

50,817

Total operating expenses
64,435

(363
)
64,072

 
129,950

(134
)
129,816

Operating income
9,868

(307
)
9,561

 
26,069

(2,816
)
23,253

Income from continuing operations
   before income taxes
8,040

(307
)
7,733

 
24,285

(2,816
)
21,469

Provision (benefit) for income taxes
(367
)

(367
)
 
580

20

600

Net income from continuing operations
8,407

(307
)
8,100

 
23,705

(2,836
)
20,869

Net income
$
47,054

$
(307
)
$
46,747

 
$
54,737

$
(2,836
)
$
51,901

 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
    Continuing operations
$
0.06

$

$
0.06

 
$
0.16

$
(0.02
)
$
0.14

    Net income (loss)
$
0.33

$
(0.01
)
$
0.32

 
$
0.37

$
(0.02
)
$
0.35

 
 
 
 
 
 
 
 
Diluted net income (loss) per share:
 
 
 
 
 
 
 
    Continuing operations
$
0.06

$

$
0.06

 
$
0.16

$
(0.02
)
$
0.14

    Net income (loss)
$
0.32

$

$
0.32

 
$
0.37

$
(0.02
)
$
0.35

 
 
 
 
 
 
 
 
1) Reflects previously reported amounts as adjusted for discontinued operations (see Note 5)



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Note 3. Net Income (loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. Potential common shares include employee stock options and restricted stock units. For purposes of computing diluted net income per share, weighted average potential common shares do not include potential common shares that are anti-dilutive under the treasury stock method.
 
The following table sets forth the computation of basic and diluted net income per share from continuing operations: 
 
Three Months Ended
 
Six Months Ended
 
(in thousands, except per share amounts)
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
Numerator (basic and diluted):
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
(683
)
 
$
8,100

 
$
(140
)
 
$
20,869

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted average common shares outstanding, basic
143,519

 
144,682

 
143,055

 
146,249

Dilutive effect of employee stock options and restricted stock units

 
1,487

 

 
2,437

Weighted average common shares outstanding, diluted
143,519

 
146,169

 
143,055

 
148,686

 
 
 
 
 
 
 
 
Basic net income (loss) per share from continuing operations
$

 
$
0.06

 
$

 
$
0.14

Diluted net income (loss) per share from continuing operations

 
0.06

 

 
0.14


Potential dilutive common shares of 17.6 million and 14.6 million pertaining to employee stock options and restricted stock units were excluded from the calculation of diluted earnings per share for the three months ended September 30, 2012 and October 2, 2011, respectively, because the effect would have been anti-dilutive. Potential dilutive common shares of 17.7 million and 11.4 million pertaining to employee stock options and restricted stock units were excluded from the calculation of diluted earnings per share for the six months ended September 30, 2012 and October 2, 2011, respectively, because the effect would have been anti-dilutive.
  
Note 4. Business Combinations

Acquisition of NXP B.V.'s Data Converter Business
On July 19, 2012, the Company completed an acquisition of certain assets related to technology and products developed for communications analog mixed-signal market applications from NXP B.V. The Company believes the acquisition will enhance its efforts to increase silicon content in wireless infrastructure markets. The Company believes that with this acquisition it can offer its customers a one-stop shop for wireless base stations, including radio frequency (RF) components, analog-to-digital converters (ADCs), digital-to-analog converters (DACs), Serial RapidIO® switches and bridges, high-performance timing devices, data compression IP, and power management ICs and it will help the Company increase its dollar content in the base station by offering all the key components in the signal chain.
The Company acquired the communications analog mixed-signal assets for an aggregate cash purchase price of approximately $31.2 million, less a $4.0 million credit from NXP B.V for certain accrued liabilities assumed by the Company from NXP B.V resulting in a net aggregate purchase price of $27.2 million. The Company incurred approximately $1.8 million and $3.9 million acquisition related costs, which were included in selling, general and administrative expenses in the Consolidated Statements of Operations for three months and six months ended September 30, 2012, respectively.

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The assets acquired and liabilities assumed were recognized in the following manner based on their fair values as at July 19, 2012:
(in thousands)
Fair Value
Inventories
$
252

Property, plant and equipment, net
1,125

Funded pension assets *
666

Accrued pension liabilities*
(666
)
Other long term liabilities
(435
)
Intangible assets (other than goodwill)
12,500

Goodwill
13,720

Total purchase price
$
27,162


* See Note 16 for information regarding pension plans adopted.
A summary of the allocation of intangible assets (other than goodwill) is as follows:
(in thousands)
Fair Value
Existing technologies
$
7,500

Customer relationships
2,700

In-process research and development
1,900

Non-compete agreements
300

Backlog
100

Total
$
12,500


The purchase price in excess of the fair value of the assets and liabilities assumed was recognized as goodwill.

Identifiable Tangible Assets and Liabilities:
Assets and liabilities were reviewed and adjusted, if required, to their estimated fair value.
Inventories – The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin, discounted for inventory holding period costs.
Funded pension assets and liabilities - The costs of pension benefits and related liabilities for the employees that were transferred to the Company as a result of the acquisition, were determined based on actuarial calculations.
Intangible Assets:
Existing technologies consist of NXP's data converter products that have reached technological feasibility and in-process research and development ("IPR&D") consists of projects that have not reached technological feasibility . The Company valued the existing technologies and in-process research and development ("IPR&D") utilizing a multi period excess earnings method ("Excess Earnings Method"), which uses the discounted future earnings specifically attributed to this intangible asset, that is, in excess of returns for other assets that contributed to those earnings. The Company utilized discount factors of 26% for the existing technologies and is amortizing the intangible assets over 5 years on a straight-line basis. A discount factor of 31% was utilized for IPR&D. The Company estimates that this IPR&D will be completed within the next 27 months. The Company valued one year of contractual backlog also using the Excess Earnings Method and a discount rate of 18.7% .
Customer relationship and non-competition agreement values have been estimated utilizing a with and without method ("With and Without Method"), which uses projected cash flows with and without the intangible asset in place. Cash flow differentials are then discounted to present value to arrive at an estimate of fair value for the asset. The Company utilized discount factors of 28.7% for estimating the value of these intangible assets and is amortizing them over 3 years on a straight-line basis.
The financial results of the NXP. B.V data converter business have been included in the Company’s Condensed Consolidated Statements of Operations from July 19, 2012, the closing date of the acquisition.

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Pro Forma Financial Information (unaudited)
The following unaudited pro forma financial information presents the combined results of operations of the Company and NXP B.V data converter business as if the acquisition had occurred as of the beginning of fiscal 2012. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2012. The unaudited pro forma financial information presented below for the three months period combines the historical NXP B.V data converter business financial information for the period July 2, 2012 to July 19, 2012 to the IDT financial information for the three months ended September 30, 2012 and combines historical IDT and NXP B.V data converter business results for the three months ended October 2, 2011. The unaudited pro forma financial information presented below for the six months period combines the historical NXP B.V data converter business financial information for the period April 2, 2012 to July 19, 2012 to the IDT financial information for the six months ended September 30, 2012 and combines historical IDT and NXP B.V data converter business results for the six months ended October 2, 2011. The proforma financial information includes the business combination effect of the amortization charges from acquired intangible assets, the amortization of fair market value inventory write-up and acquisition costs.
 
Three Months Ended
 
Six Months Ended
 
(Unaudited in thousands, except per share data)
September 30, 2012
 
October 2, 2011
 
September 30,
2012
 
October 2,
2011
Revenues
133,449

 
138,734

 
263,963

 
288,605

Net income (loss)
346

 
1,163

 
(4,361
)
 
6,465

Basic net income per share- continuing operations

 
0.01

 
(0.03
)
 
0.04

Diluted net income per share - continuing operations

 
0.01

 
(0.03
)
 
0.04


Acquisition of Fox Enterprises, Inc.
On April 30, 2012, the Company completed the acquisition of Fox Enterprises, Inc. (Fox), a leading supplier of frequency control products including crystals and crystal oscillators, in an all-cash transaction for approximately $28.9 million, which included $25.7 million in cash paid at closing and $3.2 million was recorded as a liability representing the fair value of contingent cash consideration of up to $4.0 million based upon the achievement of future financial milestones, which would be payable after 12 months from the acquisition date . The Company believes that the combination of Fox's product portfolio with the Company's CrystalFree™ oscillators make the Company the industry's one-stop shop for frequency control products. In addition, the Company expects this acquisition will help accelerate the adoption of CrystalFree™ by enabling customers to purchase pMEMS and CMOS solid-state oscillators alongside traditional quartz-based components through our established sales channels.
The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired are based on management estimates and assumptions.
The Company incurred approximately $0.2 million of acquisition-related costs in the first quarter of fiscal 2013 and these costs are included in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

The aggregate purchase price was allocated as follows:
(in thousands)
Fair Value
Cash
$
1,080

Accounts receivable
4,053

Inventories
2,600

Prepaid expenses and other current assets
363

Property, plant and equipment, net
656

Accounts payable and accrued expenses
(3,765
)
Other long term assets
1,190

Other long term liabilities
(1,516
)
Long term deferred tax liability
(4,345
)
Intangible assets (other than goodwill)
12,300

Goodwill
16,305

Total purchase price
$
28,921


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Table of Contents

A summary of the allocation of intangible assets (other than goodwill) is as follows:
(in thousands)
Fair Value
Existing technologies
$
7,900

Customer relationships
2,000

Trade names and trademarks
1,500

In process research and development
900

Total
$
12,300

Identifiable Tangible Assets and Liabilities
Assets and liabilities were reviewed and adjusted, if required, to their estimated fair value.
Inventories – The value allocated to inventories reflects the estimated fair value of the acquired inventory based on the expected sales price of the inventory, less reasonable selling margin.
Intangible Assets:
The Company valued the existing technologies utilizing a discounted cash flow (“DCF”) model, which uses forecasts of future revenues and expenses related to the intangible assets. The Company utilized discount factors of 15% for the existing technologies and is amortizing the intangible assets over 5 years on a straight-line basis.
Customer relationship values have been estimated utilizing a DCF model, which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized discount factors of 15% - 20% for this intangible asset and is amortizing this intangible asset over 4 years on a straight-line basis.
Trade names and trademarks values have been estimated utilizing a DCF model, which uses forecasts of future revenues and expenses related to the intangible asset. The Company utilized a discount factor of 20% for this intangible asset and is amortizing this intangible asset over 3 years on a straight-line basis.
In-process research and development (IPR&D):
 
The Company utilized the DCF method to value the IPR&D, using a discount factor of 21% and will amortize this intangible asset once the projects are complete. The Company estimates that this IPR&D will be completed within the next 12 months.

The financial results of Fox Enterprises have been included in the Company’s Condensed Consolidated Statements of Operations from April 30, 2012, the closing date of the acquisition. Pro forma earnings information has not been presented because the effect of the acquisition is not material to the Company’s historical financial statements.
Acquisition of Alvand Technologies, Inc.
On April 16, 2012, the Company completed the acquisition of Alvand Technologies Inc., a leading analog integrated circuits company specializing in data converters, for total compensation of approximately $23.3 million, of which $20.5 million was paid in cash at closing and $2.8 million was recorded as a liability representing the fair value of contingent cash consideration of up to $4.0 million based upon the achievement of future product development milestones, which would be payable after 12 months from the acquisition date. The Company believes that Alvand Technologies provides critical IP needed for its next-generation roadmap.
The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired are based on management estimates and assumptions.
The Company incurred approximately $0.1 million of acquisition-related costs in the first quarter of fiscal 2013, which were included in SG&A expenses on the Consolidated Statements of Operations.

12

Table of Contents


The aggregate purchase price was allocated as follows:
(in thousands)
Fair Value
Cash
$
147

Accounts receivable
211

Prepaid expenses
124

Property, plant and equipment, net
15

Accounts payable and other current liabilities
(707
)
Backlog
1,500

Non-competition agreements
2,300

Goodwill
19,712

Total purchase price
$
23,302

Amortizable Intangible Assets
Backlog consists of existing contracts. The Company valued the one-year of contractual backlog by calculating the present value of the projected cash flows that are expected to be generated by the backlog utilizing a discount factor of 15%. The Company will amortize this intangible asset over 1 year on a straight line basis.
The Company valued non-competition agreements estimating cash flows with and without non-competition agreements. The projected cash flows were discounted using a discount factor of 22%. The Company is amortizing this intangible asset over 3 years on a straight-line basis.
The financial results of Alvand Technologies have been included in the Company’s Condensed Consolidated Statements of Operations from April 16, 2012, the closing date of the acquisition. Pro forma earnings information has not been presented because the effect of the acquisition is not material to the Company’s historical financial statements.

Note 5. Discontinued Operations and Assets Held For Sale
On September 26, 2011, the Company completed the transfer of certain assets related to IDT’s Hollywood Quality Video (HQV) and Frame Rate Conversion (FRC) video processing product lines to Qualcomm pursuant to an Asset Purchase Agreement. The sale of these HQV and FRC video processing assets is intended to allow the Company to intensify focus on its analog-intensive mixed-signal, timing, and interface solutions. Upon the closing of the transaction, Qualcomm paid the Company $58.7 million in cash consideration, of which $6.0 million will be withheld in an escrow account for a period of two years and is included in the Company’s balance sheet as other current assets. In the second quarter of fiscal 2012, the Company recorded a gain of $45.9 million related to this divestiture. The Company’s HQV and FRC product lines represented a significant portion of the Company’s video business assets. As of the end of the first quarter of fiscal 2013, the remaining video business assets classified as held for sale consisted of $1.0 million in fixed assets and $0.7 million in intangible assets.
On August 1, 2012, the Company completed the transfer of the remaining assets of its video business to Synaptics for $5.0 million in cash pursuant to an Asset Purchase Agreement. In connection with the divestiture, 47 employees were transferred to Synaptics. In the second quarter of fiscal 2013, the Company recorded a gain of $0.9 million related to this divestiture. The following table summarizes the components of the gain (in thousands):
Cash proceeds from sale
$
5,000

Less book value of assets sold and direct costs related to the sale:


Fixed assets
(1,963
)
Goodwill
(700
)
Inventories
(1,288
)
Transaction and other costs
(163
)
Gain on divestiture
$
886

Prior to second quarter of fiscal 2012, the video business was part of the Company’s Computing and Consumer reportable segment. For financial statement purposes, the results of operations for the video business are presented in the Company's condensed consolidated financial statements as discontinued operations.

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Table of Contents

The results from discontinued operations for the three months ended September 30, 2012 and October 2, 2011 are as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
September 30, 2012

October 2, 2011
 
September 30, 2012
 
October 2, 2011
Revenues
$
1,451

 
$
2,902

 
$
2,429

 
$
5,103

Cost of revenue
1,112

 
4,038

 
3,006

 
6,564

Operating expenses
612

 
6,216

 
4,554

 
13,535

Gain on divestiture
886

 
45,939

 
886

 
45,939

Provision (benefit) for income taxes
3

 
(60
)
 
3

 
(89
)
Net income (loss) from discontinued operations
$
610

 
$
38,647

 
$
(4,248
)
 
$
31,032


Note 6. Fair Value Measurement

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012:
 
Fair Value at Reporting Date Using:
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total Balance
Cash Equivalents and Short-Term investments:
 
 
 
 
 
 
 
US government treasuries and agencies securities
$
145,836

 
$

 
$

 
$
145,836

Money market funds
61,841

 

 

 
61,841

Corporate bonds

 
13,696

 

 
13,696

International government bonds

 
4,605

 

 
4,605

Corporate commercial paper

 
1,000

 

 
1,000

Bank deposits

 
11,441

 

 
11,441

Total assets measured at fair value
$
207,677

 
$
30,742

 
$

 
$
238,419

Liabilities:
 
 
 
 
 
 
 
Fair value of contingent consideration

 

 
6,000

 
6,000

Total liabilities measured at fair value
$

 
$

 
$
6,000

 
$
6,000


14

Table of Contents


The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of April 1, 2012:
 
Fair Value at Reporting Date Using
 
 
 
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Cash Equivalents and Short-Term investments:
 
 
 
 
 
 
 
US government treasuries and agencies securities
$
156,315

 
$

 
$

 
$
156,315

Money market funds
104,596

 

 

 
104,596

Corporate bonds

 
21,538

 

 
21,538

International government bonds

 
4,648

 

 
4,648

Corporate commercial paper

 
3,148

 

 
3,148

Bank deposits

 
11,633

 

 
11,633

Municipal bonds

 
653

 

 
653

Total assets measured at fair value
$
260,911

 
$
41,620

 
$

 
$
302,531


U.S. government treasuries and U.S. government agency securities as of September 30, 2012 and April 1, 2012 do not include any U.S. government guaranteed bank issued paper. Corporate bonds include bank-issued securities that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).

The securities in Level 1 are highly liquid and actively traded in exchange markets or over-the-counter markets. Level 2 fixed income securities are priced using quoted market prices for similar instruments, non-binding market prices that are corroborated by observable market data.

In connection with the acquisition of Fox Enterprises and Alvand Technologies (See "Note 4- Business Combinations"), a liability was recognized for the Company’s estimate of the fair value of contingent consideration on the acquisition date based on probability-based forecasted revenue.  This liability was remeasured at fair value as of September 30, 2012. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. This fair value measurement is valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions concerning future revenue of the acquired business in measuring fair value.

The following table summarizes the change in the fair value of the contingent consideration measured using significant unobservable inputs (Level 3) for the six months ended September 30, 2012:
(in thousands)
Estimated Fair Value
Balance as of April 1, 2012
$

Additions
6,000

Deletions

Balance as of September 30, 2012
$
6,000


All of the Company’s available-for-sale investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Company did not record any impairment charges related to its available-for-sale investments in six months ended September 30, 2012 and October 2, 2011.



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Table of Contents

Note 7. Investments

Available-for-Sale Securities

Available-for-sale investments at September 30, 2012 were as follows:
 
(in thousands)
Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
 Losses
 
Estimated Fair
 Value
U.S. government treasuries and agencies securities
$
145,816

 
$
19

 
$

 
$
145,835

Money market funds
62,100

 


 


 
62,100

Corporate bonds
13,678

 
18

 

 
13,696

International government bonds
4,606

 


 
(1
)
 
4,605

Corporate commercial paper
1,000

 


 


 
1,000

Bank deposits
11,183

 


 


 
11,183

Total available-for-sale investments
238,383

 
37

 
(1
)
 
238,419

Less amounts classified as cash equivalents
(67,497
)
 

 

 
(67,497
)
Short-term investments
$
170,886

 
$
37

 
$
(1
)
 
$
170,922


Available-for-sale investments at April 1, 2012 were as follows:
 
(in thousands)
Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
 Losses
 
Estimated Fair
 Value
U.S. government treasuries and agencies securities
$
156,331

 
$
8

 
$
(24
)
 
$
156,315

Money market funds
104,596

 

 

 
104,596

Corporate bonds
21,485

 
59

 
(6
)
 
21,538

International government bonds
4,650

 
1

 
(3
)
 
4,648

Corporate commercial paper
3,148

 

 

 
3,148

Bank deposits
11,633

 

 

 
11,633

Municipal bonds
652

 
1

 


 
653

Total available-for-sale investments
302,495

 
69

 
(33
)
 
302,531

Less amounts classified as cash equivalents
(111,996
)
 

 

 
(111,996
)
Short-term investments
$
190,499

 
$
69

 
$
(33
)
 
$
190,535

 
The cost and estimated fair value of available-for-sale securities at September 30, 2012, by contractual maturity, were as follows:
(in thousands)
Amortized
Cost
 
Estimated Fair
Value
Due in 1 year or less
$
237,732

 
$
237,769

Due in 1-2 years
650

 
650

Total investments in available-for-sale securities
$
238,382

 
$
238,419




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Table of Contents

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses as of September 30, 2012, aggregated by length of time that individual securities have been in a continuous loss position.
 
Less Than 12 Months
 
12 Months or Greater
 
Total
(in thousands)
Fair
Value
 
Unrealized
 Loss
 
Fair
 Value
 
Unrealized
 Loss
 
Fair
Value
 
Unrealized
 Loss
Corporate bonds
$
552

 
$
(1
)
 
$

 
$

 
$
552

 
$
(1
)
U.S. government treasuries and agencies securities
1,350

 

 

 

 
1,350

 

International government bonds
4,606

 

 

 

 
4,606

 

Total
$
6,508

 
$
(1
)
 
$

 
$

 
$
6,508

 
$
(1
)

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses, as of April 1, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
 
Less Than 12 Months
 
12 Months or Greater
 
Total
 
(in thousands)
Fair
 Value
 
Unrealized
 Loss
 
Fair
 Value
 
Unrealized
 Loss
 
Fair
 Value
 
Unrealized
 Loss
Corporate bonds
$
4,213

 
$
(7
)
 
$

 
$

 
$
4,213

 
$
(7
)
U.S. government treasuries and agencies securities
114,056

 
(24
)
 

 

 
114,056

 
(24
)
International government bonds
2,550

 
(2
)
 

 

 
2,550

 
(2
)
Total
$
120,819

 
$
(33
)
 
$

 
$

 
$
120,819

 
$
(33
)

Currently, a significant portion of the Company’s available-for-sale investments that it holds are high grade instruments.  As of September 30, 2012, the unrealized losses on the Company’s available-for-sale investments represented an insignificant amount in relation to its total available-for-sale portfolio. Substantially all of the Company’s unrealized losses on its available-for-sale marketable debt instruments is primarily driven by declines in interest rates or as a result of a decrease in the market liquidity for debt instruments.  Because the Company has the ability to hold these investments until a recovery of fair value, which may be maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2012 and April 1, 2012.

Non-Marketable Equity Securities

During the three months ended September 30, 2012, in association with the acquisition of Fox Enterprises, the Company acquired a non-significant stake in a privately held company. The fair value of this non-marketable private equity investment was $0.6 million as of September 30, 2012.

The Company accounts for its equity investments in privately held companies under the cost method.  These investments are subject to periodic impairment review and measured and recorded at fair value when they are deemed to be other-than-temporarily impaired. In determining whether a decline in value of its investments have occurred and is other than temporary, an assessment was made by considering available evidence, including the general market conditions, the investee’s financial condition, near-term prospects, market comparables and subsequent rounds of financing.   The valuation also takes into account the investee’s capital structure, liquidation preferences for its capital and other economic variables. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that require management judgment. 

The aggregate carrying value of the Company’s non-marketable equity securities was approximately $2.3 million and $1.7 million as of September 30, 2012 and April 1, 2012, respectively and was classified within other assets on the Company’s Consolidated Balance Sheets.  The Company did not recognize any impairment loss in the three and six months ended September 30, 2012 and October 2, 2011.


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Table of Contents

Note 8. Stock-Based Employee Compensation

Compensation Expense

The following table summarizes stock-based compensation expense by category appearing in the Company’s Consolidated Statement of Operations:
 
Three Months Ended
 
Six Months Ended
(in thousands)
September 30,
2012

October 2,
2011
 
September 30,
2012
 
October 2,
2011
Cost of revenue
$
252

 
$
453

 
$
555

 
$
879

Research and development
1,295

 
2,320

 
2,838

 
4,319

Selling, general and administrative
1,336

 
1,509

 
2,613

 
2,856

Discontinued operations
367

 
(253
)
 
526

 
95

Total stock-based compensation expense
$
3,250

 
$
4,029

 
$
6,532

 
$
8,149


Amount of stock-based compensation expense that was capitalized during the periods presented above was immaterial.

During the three and six months ended September 30, 2012, 413,946 and 947,187 shares of common stock were issued under the Company's Employee Stock Purchase Plan and options to purchase 214,965 and 282,626 shares of common stock were exercised under the Company's Stock Incentive Plan, respectively. The number of restricted stock units issued during the three and six months ended September 30, 2012 was 88,406 and 730,214, respectively.
 As of September 30, 2012, the unrecognized compensation cost related to nonvested stock options, net of estimated forfeitures, was $6.7 million and will be recognized over a weighted-average period of 1.4 years.
 
As of September 30, 2012, the unrecognized compensation cost related to restricted stock units granted under the Company’s equity incentive plans was approximately $7.9 million, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of 1.8 years.

Note 9. Stockholders' Equity

In the six months ended September 30, 2012, the Company did not repurchase any shares. In fiscal 2012, the Company repurchased approximately 10.4 million shares at an average price of $6.49 per share for a total purchase price of $67.5 million under the authorized share repurchase program. As of September 30, 2012, approximately $79.8 million was available for future purchase under the share repurchase program.  Share repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.  

Note 10. Balance Sheet Detail


18

Table of Contents

(in thousands)
September 30,
2012
 
April 1,
2012
Inventories, net
 
 
 
Raw materials
$
7,041

 
$
6,457

Work-in-process
31,185

 
38,843

Finished goods
23,257

 
26,480

Total inventories, net
$
61,483

 
$
71,780

 
 
 
 
Property, plant and equipment, net
 

 
 

Land
$
11,882

 
$
11,665

Machinery and equipment
295,269

 
290,028

Building and leasehold improvements
47,614

 
44,724

  Total property, plant and equipment, gross
354,765

 
346,417

Less: accumulated depreciation
(278,624
)
 
(276,433
)
Total property, plant and equipment, net
$
76,141

 
$
69,984


Other accrued liabilities
 
 
 
Contingent consideration
4,500

 

Other
15,534

 
13,443

Total other accrued liabilities
$
20,034

 
$
13,443


Other long-term obligations
 
 
 
Deferred compensation related liabilities
$
17,651

 
$
14,869

Contingent consideration
1,500

 

Other
976

 
1,625

Total other long-term liabilities
$
20,127

 
$
16,494

 

Note 11. Deferred Income on Shipments to Distributors

Included in the caption “Deferred income on shipments to distributors” on the Consolidated Balance Sheets are amounts related to shipments to certain distributors for which revenue is not recognized until our product has been sold by the distributor to an end customer. The components of deferred income on shipments to distributors as of September 30, 2012 and April 1, 2012 are as follows:
 
Fiscal Year Ended
(in thousands)
September 30,
2012
 
April 1,
2012
Gross deferred revenue
$
18,009

 
$
17,883

Gross deferred costs
(3,056
)
 
(3,620
)
Deferred income on shipments to distributors
$
14,953

 
$
14,263


The gross deferred revenue represents the gross value of shipments to distributors at the list price billed to the distributor less any price protection credits provided to them in connection with reductions in list price while the products remain in their inventory.  The amount ultimately recognized as revenue will be lower than this amount as a result of ship from stock pricing credits which are issued in connection with the sell through of our products to end customers. Historically, this amount represents on an average approximately 27% of the list price billed to the customer.  The gross deferred costs represent the standard costs (which approximate actual costs) of products the Company sells to the distributors.  Although we monitor the levels and quality of inventory in the distribution channel, our experience is that products returned from these distributors may be sold to a different distributor or in a different region of the world.  As such, inventory write-downs for products in the distribution channel have not been significant.


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Table of Contents

Note 12. Comprehensive Income

The components of accumulated other comprehensive income, net of tax, were as follows:
 
(in thousands)
September 30,
2012
 
April 1,
2012
Cumulative translation adjustments
$
2,053

 
$
1,328

Unrealized gain on available-for-sale investments
35

 
35

Total accumulated other comprehensive income
$
2,088

 
$
1,363


Note 13. Goodwill and Intangible Assets, Net

Goodwill activity for six months ended September 30, 2012 is as follows:
 
Reportable Segment
 
(in thousands)
Communications
 
Computing and Consumer
 
Total
Balance as of April 1, 2012
$
74,673

 
$
21,419

 
$
96,092

Dispositions (1)
(700
)
 

 
(700
)
Additions (2)
49,737

 

 
49,737

Balance as of September 30, 2012
$
123,710

 
$
21,419

 
$
145,129


(1)
Represents goodwill of the divested Video processing business. See Note 5 for further details.
(2)
During the six months ended September 30, 2012, the Company acquired intangibles from Fox Enterprises, Alvand Technologies and NXP B.V.'s data converter business. See Note 4 for further details.

Intangible asset balances as of September 30, 2012 and April 1, 2012 are summarized as follows:
 
September 30, 2012
(in thousands)
Gross Assets
 
Accumulated
Amortization
 
Net Assets
Purchased intangible assets:
 
 
 
 
 
Existing technology
$
240,033

 
$
(197,245
)
 
$
42,788

Trademarks
4,411

 
(1,560
)
 
2,851

Customer relationships
131,930

 
(126,339
)
 
5,591

Other
4,200

 
(1,082
)
 
3,118

Total amortizable purchased intangible assets
380,574

 
(326,226
)
 
54,348

IPR&D
4,333

 

 
4,333

Total purchased intangible assets
$
384,907

 
$
(326,226
)
 
$
58,681


20

Table of Contents


 
April 1, 2012
(in thousands)
Gross Assets
 
Accumulated
Amortization
 
Net Assets
Purchased intangible assets:
 
 
 
 
 
Existing technology
$
223,733

 
$
(192,105
)
 
$
31,628

Trademarks
2,911

 
(1,144
)
 
1,767

Customer relationships
127,231

 
(122,511
)
 
4,720

Total amortizable purchased intangible assets
353,875

 
(315,760
)
 
38,115

IPR&D
2,433

 

 
2,433

Total purchased intangible assets
$
356,308

 
$
(315,760
)
 
$
40,548


IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. The Company estimates that current IPR&D will be completed within the next 12 months. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, the Company will record a charge for the carrying value of the related intangible asset to its Consolidated Statements of Operations in the period it is abandoned.

Amortization expense for the three months ended September 30, 2012 and October 2, 2011 was $5.6 million and $3.9 million, respectively. Amortization expense for the six months ended September 30, 2012 and October 2, 2011 was $10.5 million and $8.1 million, respectively.

The intangible assets are being amortized over estimated useful lives of twelve months to seven years.

Based on the intangible assets recorded at September 30, 2012, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated amortization expense is expected to be as follows (in thousands):
Fiscal Year
Amount
2013 (Remaining 6 months)
$
9,162

2014
16,816

2015
13,086

2016
8,071

2017 and thereafter
7,213

Total
$
54,348


Note 14. Restructuring

The following table shows the provision of the restructuring charges and the liability remaining as of September 30, 2012:
(in thousands)
Amount
Balance as of April 1, 2012
$
5,198

Provision
3,222

Cash payments
(6,696
)
Balance as of September 30, 2012
$
1,724


In connection with the Company’s plans to fully divest its remaining video processing product lines, during fiscal 2012, the Company recorded $3.6 million in restructuring expenses for employee retention costs. During the first and second quarter of fiscal 2013, the Company recorded an additional $0.8 million and $0.2 million for employee retention costs under this plan, respectively. These charges were recorded within discontinued operations. The Company paid $4.6 million in the second quarter of fiscal 2013 and completed this restructuring action.
During the second quarter of fiscal 2013, the Company recorded restructuring charges of $2.2 million for reduction in workforce. The Company reduced its headcount by approximately 51 employees with reductions affecting all functional areas and various

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locations. As of September 30, 2012, the total accrued balance for employee severance costs related to this restructuring action was $1.4 million. The Company expects to complete this restructuring action in the third quarter of fiscal 2013.
During the first quarter of fiscal 2012, the Company paid $1.0 million in employee retention costs and completed the restructuring plan to exit wafer production operations at its Oregon fabrication facility.
During the six months ended September 30, 2012, the Company made lease payments of $0.1 million in connection with the exited facilities in Singapore and Salinas, California. As of September 30, 2012, the remaining accrued lease liabilities were $0.4 million. The Company expects to pay off these lease obligations through the third quarter of fiscal 2014.

Note 15. Commitments and Contingencies

Warranty

The Company maintains an accrual for obligations it incurs under its standard product warranty program and customer, part, or process specific matters. The Company’s standard warranty period is one year, however in certain instances the warranty period may be extended to as long as two years. Management estimates the fair value of the Company’s warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the standard program. Customer, part, or process specific accruals are estimated using a specific identification method. Historical profit and loss impact related to warranty returns activity has been minimal. The total warranty accrual was $0.1 million as of September 30, 2012 and April 1, 2012, respectively.

Litigation
 
In January 2012, Maxim I Properties, a general partnership that had purchased a certain parcel of real property (the Property) in 2003, filed a complaint in the Northern District of California naming approximately 30 defendants, including the Company, alleging various environmental violations of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Hazardous Substance Account Act (HSAA), the Resource Conservation and Recovery Act (RCRA), and other public and private nuisance claims (the Complaint). The Complaint alleges with regard to the Company that IDT “…generated, transported, and/or arranged for the transport and/or disposal of hazardous waste to the Property.” The Complaint further alleges that the Defendants are liable for the costs of investigation and remediation of the Property due to the release of hazardous substances, and that Defendants violated their duty to prevent the release of such hazardous substances. In March 2012, the Company was served with and filed an answer to the Complaint, denying the various allegations in the Complaint, and in April 2012, the Company filed an amended answer to the Complaint, including a counterclaim against the Plaintiff. On August 15, 2012, the plaintiff voluntarily dismissed its Complaint against the Company without prejudice. Moyer Products, Inc., another defendant, has cross-claimed against Defendants, including the Company, and thus the Company remains a defendant in this action. In September 2012, the Department of Toxic Substances Control (DTSC) notified the Company that it identified the Company as “a generator of hazardous waste” that was sent to the Property. DTSC proposed that the Company, along with many other parties, enter into a corrective action consent agreement to conduct the Property investigation and cleanup. The Company plans to engage in discussions with the DTSC regarding its proposal, and will continue to vigorously defend itself against the allegations in the Complaint and evaluate settlement options with Moyer Products, when Moyer Products is available to discuss such options. Because the case is at an early stage and no specific monetary demands have been made, it is not possible for us to estimate the range of potential losses.
On May 14, 2012, a putative class action lawsuit captioned Cox v. Guzy, et al., C.A. No. 7529, was filed in the Delaware Court of Chancery (the Cox Complaint). The Cox Complaint names as defendants the members of the PLX Board of Directors, as well as PLX, IDT, Pinewood Acquisition Corp. (Pinewood) and Pinewood Merger Sub, LLC (Pinewood LLC), both of which are wholly-owned subsidiaries of IDT. The plaintiff alleges that PLX's directors breached their fiduciary duties to PLX stockholders in connection with the Offer and the Merger, and were aided and abetted by PLX, IDT, Pinewood and Pinewood LLC. The Cox Complaint alleges that the Offer and the Merger involve an unfair price and an inadequate sales process, unreasonable deal protection devices, and that defendants entered into the Offer and the Merger to benefit themselves personally. The Cox Complaint seeks injunctive relief, including to enjoin the Offer and the Merger, an award of damages, attorneys' and other fees and costs, and other relief.  On May 29, 2012, plaintiff filed a Motion for Expedited Proceedings.  On June 7, 2012, defendants filed oppositions to plaintiff's Motion for Expedited Proceedings.  At the hearing, on June 8, 2012, the Court denied plaintiff's Motion for Expedited Proceedings.  On June 19, 2012, the plaintiff voluntarily dismissed the putative class action lawsuit without prejudice.

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The Company is also party to various other legal proceedings and claims arising in the normal course of business. As of September 30, 2012, the Company has not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on the belief that liabilities, while possible, are not probable. Further, probable ranges of losses in these matters cannot be reasonably estimated at this time. Generally, litigation is subject to inherent uncertainties, and no assurance can be given that the Company will prevail in any particular lawsuit. Accordingly, pending lawsuits, as well as potential future litigation with other companies, could result in substantial costs and diversion of resources and could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Note 16. Employee Benefit Plans
Effective November 1, 2000, the Company established an unfunded deferred compensation plan to provide benefits to executive officers and other key employees. Under the plan, participants can defer any portion of their salary and bonus compensation into the plan and may choose from a portfolio of funds from which earnings are measured. Participant balances are always 100% vested. As of September 30, 2012 and April 1, 2012, obligations under the plan totaled approximately $15.4 million, respectively. Additionally, the Company has set aside assets in a separate trust that is invested in corporate owned life insurance intended to substantially fund the liability under the plan. As of September 30, 2012 and April 1, 2012, the deferred compensation plan assets were approximately $16.3 million and $14.0 million, respectively.
During the first quarter of fiscal 2013, the Company assumed an unfunded deferred compensation plan associated with the acquisition of Fox Enterprises. Under this plan, participants on retirement are entitled to receive a fixed amount from the Corporation on a monthly basis. The Company has purchased life insurance policies with the intention of funding the liability under this plan. As of September 30, 2012, the deferred compensation plan assets and liability under this plan were approximately $0.6 million and $1.5 million, respectively.

During the second quarter of fiscal 2013, as a result of completion of acquisition of NXP B.V, the Company acquired certain assets and liabilities from NXP B.V related to defined-benefit pension plans, defined-contribution plans, multi-employer plans and certain post-employment benefit plans as explained below, for its employees mainly in France and Netherlands. The costs of pension benefits and related liabilities for the employees that were transferred to the Company as a result of the acquisition, were determined based on actuarial calculations.

Multi-employer plan

The Company's employees in the Netherlands participate in a mandatory multi-employer plan, implemented for the employees of the Metal and Electrical Engineering Industry. As this affiliation is a legal requirement for the Metal and Electrical Engineering Industry it has no expiration date. The pension fund rules state that the only obligation for affiliated companies will be to pay the annual plan contributions. Affiliated companies will also have no entitlements to any possible surpluses in the pension fund. Contributions to multi-employer pension plans are recognized as an expense in the statements of operations as incurred. During the second quarter of fiscal 2013, the Company made $0.1 million of contribution under this plan. The total expected contribution under the plan for fiscal 2013 is approximately $0.4 million.

Defined-benefit plan
The benefits provided by defined-benefit plans are based on employees' years of service and compensation levels. Contributions are made by the Company, as necessary, to provide assets sufficient to meet the benefits payable to defined-benefit pension plan participants. These contributions are determined based upon various factors, including funded status, legal and tax considerations as well as local customs. Some of these defined-benefit pension plans are funded with plan assets that have been segregated and restricted in a trust, foundation or insurance company to provide for the pension benefits to which the Company has committed itself. The projected defined-benefit obligation will be calculated at year-end by qualified actuaries using the projected unit credit method. Actuarial gains and losses arise mainly from changes in actuarial assumptions and differences between actuarial assumptions and what has actually occurred will be recognized in the statement of operations, over the expected average remaining service periods of the employees only to the extent that their net cumulative amount exceeds 10% of the greater of the present value of the obligation or of the fair value of plan assets at the end of the previous year. Events which invoke a curtailment or a settlement of a benefit plan will be recognized in our statement of operations.

As of September 30, 2012, the total plan assets and liability under all pension plans were approximately $0.7 million each.

The Company also assumed obligations for post employment benefits liability of $0.2 million from NXP B.V under the Jubilee plan ("Jubilee"). These are in the nature of one time payouts in relation to the number of service years of the employee. The amount

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of the obligation per employee has been determined by actuarial calculation indicating the degree of likelihood that the individual employee will actually complete the required number of service years to be entitled to his jubilee payment.

Note 17. Income Taxes
During the three months ended September 30, 2012, the Company recorded an immaterial amount of income tax benefit and an income tax benefit of $4.0 million in the six months ended September 30, 2012. The Company recorded an income tax benefit of $0.4 million and an income tax provision of $0.6 million in the three and six months ended October 2, 2011, respectively. The income tax benefit recorded in the six months ended September 30, 2012 was primarily due to the recognition of a deferred tax asset offset by the recognition of a deferred tax liability due to the acquisition of Fox Enterprises.  The increase in the deferred tax liability was a part of the purchase accounting step-up adjustment that was recorded against goodwill while the increase in the deferred tax asset was recorded as a tax benefit.
The provision for income taxes for the six months ended October 2, 2011 reflects tax on foreign earnings and federal and state tax on U.S. earnings.
As of September 30, 2012, the Company could be subject to examination in the U.S. federal tax jurisdiction for the fiscal years 2009, and 2010.  The Company is not currently under examination by the Internal Revenue Service, but if the Company was audited, based on currently available information, the Company believes that an audit by the Internal Revenue Service would not have a material adverse effect on its financial position, cash flows or results of operations.

As of September 30, 2012, the Company was subject to examination in various state and foreign jurisdictions for tax years 2006 forward, none of which were individually material.

Note 18. Segment Information

The Chief Operating Decision Maker is the Company’s President and Chief Executive Officer.
 
Our reportable segments include the following:

Communications segment: includes clock and timing solutions, Serial RapidIO® switching solutions, flow-control management devices, FIFOs, integrated communications processors, high-speed SRAM, digital logic and telecommunications.
Computing and Consumer segment: includes clock generation and distribution products, PCI Express switching and bridging solutions, high-performance server memory interfaces, multi-port products and PC audio products.

The tables below provide information about these segments:
 Revenues by segment
Three Months Ended

Six Months Ended
(in thousands)
September 30,
2012

October 2,
2011

September 30,
2012

October 2,
2011
Communications
$
69,293

 
$
66,613

 
$
132,363

 
$
136,535

Computing and Consumer
64,108

 
71,705

 
131,199

 
151,068

Total revenues
$
133,401

 
$
138,318

 
$
263,562

 
$
287,603

 

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 Income (Loss) by segment from continuing operations
Three Months Ended
 
Six Months Ended
 
(in thousands)
September 30,
2012
 
October 2,
2011
 
September 30,
2012

October 2,
2011
Communications
$
19,559

 
$
25,096

 
$
37,045

 
$
52,462

Computing and Consumer
(3,220
)
 
(7,195
)
 
(8,033
)
 
(9,528
)
Unallocated expenses:
 
 
 
 
 
 
 
Amortization of intangible assets
(5,573
)
 
(3,861
)
 
(10,464
)
 
(7,805
)
Inventory fair market value adjustment
(100
)
 

 
(458
)
 

Fabrication production transfer costs

 
(816
)
 

 
(2,660
)
Assets impairment
59

 
92

 
118

 
182

Amortization of stock-based compensation
(3,617
)
 
(4,281
)
 
(6,739
)
 
(8,053
)
Severance, retention and facility closure costs
(2,271
)
 
(811
)
 
(2,999
)
 
(2,627
)
Acquisition-related costs and other
(4,830
)
 

 
(11,466
)
 

  Consulting expenses related to stockholder activities
(38
)
 

 
(2,614
)
 

Deferred compensation plan expense (benefit)
(3
)
 
1,337

 
(181
)
 
1,282

Proceeds from life insurance policies

 

 
2,313

 

Interest income and other, net
(682
)
 
(1,828
)
 
(681
)
 
(1,784
)
Income from continuing operations, before income taxes
$
(716
)
 
$
7,733

 
$
(4,159
)
 
$
21,469


The Company does not allocate goodwill and intangible assets impairment charge, severance and retention costs, acquisition-related costs, stock-based compensation, interest income and other, and interest expense to its segments.  In addition, the Company does not allocate assets to its segments. The Company excludes these items consistent with the manner in which it internally evaluates its results of operations.

Revenues from unaffiliated customers by geographic area, based on the customers' shipment locations, were as follows:
 
Three Months Ended
 
Six Months Ended
(in thousands)
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
Asia Pacific
$
85,979

 
$
91,203

 
$
171,849

 
$
193,766

Americas (1)
20,199

 
18,112

 
40,101

 
37,765

Japan
10,911

 
11,913

 
22,371

 
23,046

Europe
16,312

 
17,090

 
29,241

 
33,026

Total revenues
$
133,401

 
$
138,318

 
$
263,562

 
$
287,603


(1)
The revenues from the customers in the U.S. were $18.1 million and $17.1 million in the three months ended September 30, 2012 and October 2, 2011, respectively. The revenues from the customers in the U.S. were $36.5 million and $36.0 million in the six months ended September 30, 2012 and October 2, 2011, respectively.

The Company utilizes global and regional distributors around the world, who buy product directly from the Company on behalf of their customers. Two family of distributors, Uniquest and Maxtek and its affiliates represented approximately 11% and 16% of the Company’s revenues for the six months period ended September 30, 2012, respectively. One family of distributors, Maxtek, and its affiliates represented approximately 17% of the Company’s revenues for the six months period ended October 2, 2011.

At September 30, 2012, three distributors represented approximately 18%, 14% and 10.0% of the Company’s gross accounts receivable. At April 1, 2012, three distributors represented approximately 19%, 16% and 12% of the Company’s gross accounts receivable.

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The Company’s significant operations outside of the United States include a test facility in Malaysia, design centers in Canada and China, and sales subsidiaries in Japan, Asia Pacific and Europe. The Company's net property, plant and equipment are summarized below by geographic area: 
 
(in thousands)
September 30,
2012
 
April 1,
2012
United States
$
46,825

 
$
50,741

Malaysia
20,210

 
13,658

All other countries
9,106

 
5,585

Total property, plant and equipment, net
$
76,141

 
$
69,984


 Note 19. Derivative Financial Instruments

As a result of its international operations, sales and purchase transactions, the Company is subject to risks associated with fluctuating currency exchange rates. The Company may use derivative financial instruments to hedge these risks when instruments are available and cost effective, in an attempt to minimize the impact of currency exchange rate movements on its operating results and on the cost of capital equipment purchases. The Company also has foreign exchange facilities used for hedging arrangements with banks that allow the Company to enter into foreign exchange contracts totaling approximately $20.0 million, all of which was available at September 30, 2012. The Company does not enter into derivative financial instruments for speculative or trading purposes.

During the first quarter of fiscal 2013 the Company entered into a foreign exchange contract of $3.4 million to limit the foreign exchange rate risk associated with a receivable denominated in Japanese Yen. This forward exchange contract was settled in the second quarter of fiscal 2013 and an immaterial amount of gain was recognized in the second quarter of fiscal 2013. As of September 30, 2012 and April 1, 2012, the Company did not have any outstanding foreign currency contracts that qualified for hedge accounting. 
 
Note 20. Credit Facility
The Company has the right to sell to Bank of America up to 1,431 shares of Class A preferred shares of one of its wholly owned subsidiaries (the Subsidiary), in one or more transactions prior to December 13, 2012, for an aggregate purchase price of $135 million in cash under the repurchase agreement entered into with Bank of America in June 2011. As of September 30, 2012, the Company has not sold any preferred stock to Bank of America under this repurchase agreement.

Note 21. Subsequent Events
Proposed Acquisition
On April 30, 2012, the Company entered into an Agreement and Plan of Merger with PLX Technology, Inc (PLX). The Merger Agreement provides that, on and subject to the terms of the Merger Agreement, the Company will commence an exchange offer to purchase all of the outstanding shares of PLX common stock, $0.001 par value, in exchange for consideration, per share of PLX common stock, comprised of (i) $3.50 in cash plus (ii) 0.525 of a share of IDT common stock, without interest and less any applicable withholding taxes. The Company expects the proposed acquisition to expand the Company's core serial switching and interface business. The Company and PLX have complementary product sets, technologies and customer bases.
On May 22, 2012, the Company commenced the exchange offer to purchase the outstanding shares of PLX common stock. The exchange offer was scheduled to expire at the end of the day on July 12, 2012. On July 11, 2012, the Company extended the expiration date of its exchange offer for all outstanding shares of common stock of PLX to August 9, 2012 since the applicable waiting period for regulatory review has not yet been expired or been terminated. The expiration date was further extended (most recently on October 3, 2012) and the exchange offer is now set to expire at the end of the day November 9, 2012 unless further extended.
The Company has filed a registration statement with the Securities and Exchange Commission (the “SEC”) on Form S-4 relating to the shares to be issued to the stockholders of PLX in the Offer and the Merger.
The Company has incurred approximately $3.1 million and $7.2 million acquisition related costs, which were included in selling general and administrative expenses on the Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2012, respectively.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking. Forward-looking statements, which are generally identified by words such as “anticipates,” “expects,” “plans,” “intends,” “seeks,” “targets,” “believes,” “can,” “may,” “might,” “could,” “should,” “would,” “will” and similar terms, include statements related to, among others, revenues and gross profit, research and development activities, selling, general and administrative expenses, restructuring costs, intangible expenses, interest income and other, taxes, capital spending and financing transactions, as well as statements regarding successful development and market acceptance of new products, industry and overall economic conditions and demand, and capacity utilization. Forward-looking statements are based upon current expectations, estimates, forecasts and projections that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to: global business and economic conditions; operating results; new product introductions and sales; competitive conditions; capital expenditures and resources; manufacturing capacity utilization; customer demand and inventory levels; product performance; intellectual property matters; mergers and acquisitions and integration activities; and the risk factors set forth in Part II, Item 1A “Risk Factors” to this Report on Form 10-Q.  As a result of these risks and uncertainties, actual results could differ significantly from those expressed or implied in the forward-looking statements.  Unless otherwise required by law, we undertake no obligation to publicly revise these statements for future events or new information after the date of this Report on Form 10-Q.

This discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes included in this report and the Audited Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended April 1, 2012 filed with the SEC. Operating results for the three and six months ended September 30, 2012 are not necessarily indicative of operating results for an entire fiscal year.

 Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.  The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements.  Our estimates and assumptions are based on historical experience and other factors that we consider to be appropriate in the circumstances.  However, actual future results may vary from our estimates and assumptions.

For a discussion of our critical accounting policies, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012. We believe that these accounting policies are "critical," as defined by the SEC, in that they are both highly important to the portrayal of our financial condition and results, and they require difficult management judgments, estimates and assumptions about matters that are inherently uncertain. We believe that there have been no significant changes during the six months ended September 30, 2012 to the items that we disclosed as our critical accounting policies in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012.

Business overview

We design, develop, manufacture, and market a broad range of low-power, high-performance mixed signal semiconductor solutions for the advanced communications, computing and consumer industries. Currently, we offer communications solutions for customers within the enterprise, data center, and wireless markets. Our computing products are designed specifically for desktop, notebook, sub-notebook, storage and server applications, optimized gaming consoles, set-top boxes, digital TV and smart phones for consumer-based clients. Ultimately, we envision equipping every digital system with an interface based on our silicon.

We are focused on the following:

aggressively managing, maintaining and refining our product portfolio including focus on the development and growth of new applications;
maintaining existing customers, pursuing and winning new customers;
developing and marketing new products in a timely and efficient manner;
differentiating and enhancing our products;
deploying research and development investment in the areas of displays, silicon timing, power management, signal integrity and radio frequency; and

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rationalizing our operating expenses to improve profitability. 

For more information on our business, please see Part I, Item 1, “Business,” in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012.

Recent developments
Acquisition of NXP B.V's Data Converter Business
On July 19, 2012, we completed an acquisition of certain assets related to technology and products developed for communications analog mixed-signal market applications from NXP B.V. We believe that this acquisition will enhance our efforts to increase silicon content in wireless infrastructure markets. We believe that with this acquisition we can offer our customers a one-stop shop for wireless base stations, including radio frequency (RF) components, analog-to-digital converters (ADCs), digital-to-analog converters (DACs), Serial RapidIO® switches and bridges, high-performance timing devices, data compression IP, and power management ICs and it will help us increase our dollar content in the base station by offering all the key components in the signal chain. We acquired the communications analog mixed-signal assets for an aggregate cash purchase price of approximately $31.2 million, less a $4.0 million credit from NXP B.V for certain accrued liabilities assumed by us from NXP B.V, resulting in a net aggregate purchase price of $27.2 million. We assumed certain assets and specified liabilities and recorded amortizable intangible assets of $12.5 million and goodwill of $13.7 million. During the three and six months ended September 30, 2012, we incurred approximately $1.8 million and $3.9 million in acquisition related costs, respectively, which were included in SG&A expenses on the Consolidated Statements of Operations.
Acquisition of Fox Enterprises, Inc.
On April 30, 2012, the Company completed the acquisition of Fox Enterprises, Inc. (Fox), a leading supplier of frequency control products including crystals and crystal oscillators, for total compensation of approximately $28.9 million, which included $25.7 million in cash paid at closing and $3.2 million in fair value of contingent cash consideration of up to $4.0 million based upon the achievement of future financial milestones. We believe that the combination of Fox's product portfolio with our award-winning CrystalFree™ oscillators makes us the industry's most comprehensive one-stop shop for frequency control products. In addition, we expect that this acquisition will help accelerate the adoption of CrystalFree™ by enabling customers to purchase pMEMS and CMOS solid-state oscillators alongside traditional quartz-based components through an established and trusted sales channel. As a result of this acquisition we recorded amortizable intangible assets of $12.3 million and goodwill of $16.3 million during the first quarter of fiscal 2013. In addition, we recorded approximately $0.2 million in acquisition related costs during the first quarter of fiscal 2013, which were included in SG&A expenses on the Consolidated Statements of Operations.
Acquisition of Alvand Technologies, Inc.
On April 16, 2012, the Company completed the acquisition of Alvand Technologies Inc., a leading analog integrated circuits company specializing in data converters, for total compensation of approximately $23.3 million, which included $20.5 million in cash was paid at closing and $2.8 million in fair value of contingent cash consideration of up to $4.0 million based upon the achievement of future product development milestones. We believe that Alvand Technologies provides critical IP needed for our next-generation roadmap. As a result of this acquisition we recorded amortizable intangible assets of $3.8 million and goodwill of $19.7 million during the first quarter of fiscal 2013. In addition, we recorded approximately $0.1 million in acquisition related costs in the first quarter of fiscal 2013, which were included in SG&A expenses on the Consolidated Statements of Operations.
Proposed Acquisition of PLX Technology
On April 30, 2012, we entered into an Agreement and Plan of Merger with PLX Technology, Inc (PLX). The Merger Agreement provides that subject to the terms of the Merger Agreement, we will commence an exchange offer (the Offer) to purchase all of the outstanding shares of PLX common stock, $0.001 par value, in exchange for consideration, per Share, comprised of (i) $3.50 in cash plus (ii) 0.525 of a share of IDT common stock, without interest and less any applicable withholding taxes, and upon the consummation of the offer and subject to the satisfaction of certain conditions, PLX will merge with and into Pinewood Acquisition Corp, our wholly-owned subsidiary (the Merger). We expect the proposed acquisition to expand our core serial switching and interface business. We believe that we and PLX have complementary product sets, technologies and customer bases.
On May 22, 2012, we commenced the exchange offer to purchase the outstanding shares of PLX common stock. The exchange offer was scheduled to expire at the end of the day on July 12, 2012. On July 11, 2012, we extended the expiration date of our exchange offer for all outstanding shares of common stock of PLX since the applicable waiting period for regulatory review has not yet been expired or been terminated and the exchange offer was set to expire at the end of the day on August 9, 2012. The expiration date was further extended and the exchange offer is now set to expire at the end of the day November 9, 2012 unless further extended.
During the three and six months ended September 30, 2012, we incurred approximately $3.1 million and $7.2 million in acquisition related costs, respectively, which were included in SG&A expenses on the Consolidated Statements of Operations.

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Discontinued operations and assets held for sale
In the second quarter of fiscal 2012, we completed the transfer of certain assets related to IDT’s Hollywood Quality Video (HQV) and Frame Rate Conversion (FRC) video processing product lines to Qualcomm pursuant to an Asset Purchase Agreement and had classified the remaining video business as held for sale.
On August 1, 2012, the we completed the transfer of the remaining assets of our video business to Synaptics for $5 million in cash pursuant to an Asset Purchase Agreement.  In connection with the divestiture, 47 employees were transferred to Synaptics. In the second quarter of fiscal 2013, we recorded a gain of $0.9 million related to this divestiture. Prior to second quarter of fiscal 2012, the video business were previously included as part of our Computing and Consumer reportable segment. For financial statement purposes, the results of operations for these discontinued businesses have been presented in the consolidated financial statements as discontinued operations. Unless otherwise indicated, the following discussion pertains only to our continuing operations.

Overview

The following table and discussion provides an overview of our operating results from continuing operations for the three and six months ended September 30, 2012 and October 2, 2011
 
Three Months Ended
 
Six Months Ended
 
(in thousands, except for percentage)
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
Revenues
$
133,401

 
$
138,318

 
$
263,562

 
$
287,603

Gross profit
$
74,627

 
$
73,633

 
$
147,140

 
$
153,069

As a % of revenues
56
 %
 
53
%
 
56
 %
 
53
%
Operating income (loss)
$
(510
)
 
$
9,561

 
$
(5,953
)
 
$
23,253

As a % of revenues
 %
 
7
%
 
(2
)%
 
8
%
Net income (loss) from continuing operations
$
(683
)
 
$
8,100

 
$
(140
)
 
$
20,869

As a % of revenues
(1
)%
 
6
%
 
 %
 
7
%

Net loss from continuing operations was $0.7 million in the second quarter of fiscal 2013 as compared to net income of $8.1 million in the second quarter of fiscal 2012. Net loss from continuing operations was $0.1 million in the first six months of fiscal 2013 as compared to net income of $20.9 million in the first six months of fiscal 2012. This decrease in net income in both the periods was primarily due to lower revenues and higher operating expenses which were partially offset by improved gross margin. Income tax expense in the second quarter of fiscal 2013 was higher than income tax expense in the second quarter of fiscal 2012 primarily due to higher U.S. income related to the purchase of Alvand intellectual property. Overall operating expenses were higher in the three and six months period ended September 30, 2012 as compared to the three and six months period ended October 2, 2011 due to higher research and development and sales and administrative costs combined with additional expenses resulting from Fox Enterprise, Alvand and NXP B.V's data converter business acquisitions. During the second quarter of fiscal 2013, we recorded $2.2 million of severance cost for reduction in workforce.

Results of Operations

Revenues
Revenues by segment:
Three Months Ended

Six Months Ended
(in thousands)
September 30,
2012