Adaptec 2006 Annual Report Download - page 84

Table of Contents
PMC acquired the following IPR&D projects from Passave:
• EPON and AFE products – provide further enhancements and functionality to the EPON series
• GPON products – provide further enhancements and functionality to the GPON series
The value assigned to IPR&D was calculated using the income approach by determining cash flow projections related to identified projects. The assumptions
included information on revenues from existing products and future expected trends for each technology, with an estimated useful life of 6 years. The stage of
completion of each project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of
completion and the risk associated with in-process technology, we applied discount rates that ranged from 20% – 23% to value the projects acquired.
The fair value, expected costs to complete, and anticipated completion date for each project is as follows:
(in thousands)
Estimated
fair value
Expected costs
to complete
Expected
completion date
EPON products $ 18,500 $ 1,900 2007
GPON products — 4,500 2008
AFE projects 2,000 400 2007
Total in-process research and development $ 20,500
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In accordance with Statement of
Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill will not be amortized but will instead be tested for impairment
annually or more frequently if certain indicators are present.
The pro forma financial information presented below gives effect to the acquisitions of Passave and the Storage Semiconductor Business as if both acquisitions
had occurred as of the beginning of each fiscal year presented below. If the acquisitions had occurred at the beginning of 2005, the $35.3 million charge for
in-process research and development and acquisition-related costs would have been expensed in 2005. Amortization of intangible assets would have been higher
by $43.3 million, and $6.0 million, in 2005 and 2006, respectively. In addition, stock-based compensation would have been higher by $17.4 million and $3.9
million in 2005 and 2006, respectively, due to amortization of expense associated with unvested options assumed with exercise prices below fair market value on
the acquisition date.
The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred on the date
indicated or what the results of operations will be in future periods.
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Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠