Netgear 2012 Annual Report Download - page 71

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A total of $3.7 million of the $19.5 million
in acquired intangible assets was designated as technology. The value was calculated based on the
present value of the future estimated cash flows derived from estimated savings attributable to the core technology and discounted at 16.0%
. This
$3.7 million is being amortized over its estimated useful life of 4 years.
A total of $0.1 million of the $19.5 million
in acquired intangible assets was designated as order backlog. The value was calculated based on an
estimate of order backlog using the expected cash flow for the orders and discounted at 3.3% . This $0.1 million
was fully amortized in the third
quarter of 2011.
Leaf Networks, LLC
On January 15, 2010 , the Company completed the acquisition of certain intellectual property and other assets of Leaf Networks, LLC (“Leaf”
),
a developer of virtual networking software. The acquisition qualified as a business acquisition and was accounted for using the purchase method of
accounting. The Company believes the acquisition will accelerate the Company’
s continuing networking technology research and development
initiatives. The aggregate purchase price was $2.1 million , of which $2.0 million was paid in cash in the first quarter of 2010 and $0.1 million
was
paid in the first quarter of 2011.
Additionally, the acquisition agreement specified that Leaf shareholders may receive a total additional payout of up to $0.9 million
in cash over
the three
years following the closing of the acquisition if developed products pass certain acceptance criteria. During the first quarter of 2010, the
Company initially determined that the present value of the $0.9 million potential additional payout was approximately $0.8 million
. For each
subsequent reporting period, the Company remeasured fair value of the potential payout and recorded a liability. The Company paid $0.4 million
for
the first portion of this additional payout in the first quarter of 2011 and the remaining $0.5 million in the first quarter of 2012.
The results of Leaf’
s operations have been included in the consolidated financial statements since the date of acquisition. The historical results
of operations of Leaf prior to the acquisition were not material to the Company’s results of operations.
In accordance with the acquisition method of accounting for business combinations, the Company allocated the total purchase price to
identifiable intangible assets based on each element’
s estimated fair value. Acquisition costs were expensed as incurred, and were immaterial for this
transaction. Purchased intangibles, representing the existing technology acquired from Leaf, will be amortized on a straight-
line basis over their
respective estimated useful lives. Goodwill was recorded based on the residual purchase price after allocating the purchase price to the fair market
value of intangible assets acquired. Goodwill arose as a result of the $0.8 million present valuation of the $0.9 million
potential additional payout,
plus $0.1 million in additional payment consideration.
The allocation of the purchase price was as follows (in thousands):
Of the $0.9 million of goodwill recorded on the acquisition of Leaf, approximately $0.5 million and $0.9 million
was deductible for federal and
state income tax purposes, respectively. The goodwill recognized, is primarily attributable to expected synergies and the assembled workforce of
Leaf.
The $2.0 million
in acquired intangible assets was designated as technology. The value was calculated based on the present value of the future
estimated cash flows derived from projections of future revenue attributable to existing technology. This $2.0 million
is being amortized over its
estimated useful life of 7 years.
67
Intangible assets, net
$
2,000
Goodwill
900
Total purchase price allocation
$
2,900