Netgear 2013 Annual Report Download - page 73

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro forma financial information
The unaudited pro forma financial information in the table below summarizes the combined results of our operations and those of AirCard for the
periods shown as though the acquisition of AirCard occurred as of the beginning of the fiscal year 2012. The pro forma financial information for the
periods presented includes the accounting effects of the business combination, including adjustments to the amortization of intangible assets, fair value
of acquired inventory, acquisition-
related costs, integration expenses and related tax effects of these adjustments, where applicable. This information is
for informational purposes only, is subject to a number of estimates, assumptions and other uncertainties, and may not be indicative of the results of
operations that would have been achieved if the acquisition had taken place at January 1, 2012.
The unaudited pro forma financial information is as follows (in thousands):
AVAAK, Inc.
On July 2, 2012 , the Company acquired 100% of the voting equity interests of AVAAK, Inc. (“AVAAK”), a privately-
held company that
developed wire-free video networking products for total purchase consideration of $24.0 million
in cash. The Company believes the acquisition will
bolster its retail business unit product offerings and expand its presence into the smart home market. The Company paid $21.6 million
of the aggregate
purchase price in the third quarter of 2012, and the remaining $2.4 million was paid in the third quarter of 2013.
The acquisition qualified as a business combination and was accounted for using the acquisition method of accounting. The results of AVAAK
have been included in the consolidated financial statements since the date of acquisition. Pro forma results of operations for the acquisition are not
presented as the financial impact to the Company's consolidated results of operations is not material.
The allocation of the purchase price was as follows (in thousands):
None
of the goodwill recognized related to AVAAK is deductible for income tax purposes. The goodwill recognized, which was assigned to the
Company's retail business unit, is primarily attributable to expected synergies resulting from the acquisition.
In connection with the acquisition, the Company recorded $5.9 million
of deferred tax assets net of deferred tax liabilities. The deferred tax assets
arise from the tax benefit of the estimated net operating losses as of the date of the acquisition after consideration of limitations on the use under U.S.
Internal Revenue Code section 382. The deferred tax assets are reduced by deferred tax liabilities recorded for the book basis in intangible assets and in-
process research and development ("IPR&D") for which the Company has no tax basis.
The Company designated $2.3 million
of the acquired intangible assets as technology. The value was calculated based on the present value of the
future estimated cash flows derived from estimated savings attributable to the existing technology and discounted at 14.0%
. The acquired existing
technology is being amortized over its estimated useful life of five years .
The Company designated $0.3 million
of the acquired intangible assets as customer relationships. The value was calculated based on the present
value of the future estimated cash flows derived from projections of future operations attributable to existing customer relationships and discounted at
14.0% . The acquired customer relationships are being amortized over an estimated useful life of five years .
70
Years Ended
December 31,
2013
December 31,
2012
(in millions)
Revenue
$
1,415
$
1,519
Net income
$
57
$
89
Net tangible assets acquired
$
172
Deferred tax assets, net
5,937
Intangible assets, net
6,000
Goodwill
11,895
Total consideration
$
24,004