3Ware 2002 Annual Report Download - page 66

APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The purchased inventory fair value adjustment represents the difference between the carrying value of work
in process and finished goods inventory and the estimated selling price of the related inventory at the date of
acquisition. This adjustment was fully charged to cost of revenues in the year ended March 31, 2001 as the
related inventory was sold.
The related purchased IPR&D for each of the above acquisitions represents the present value of the
estimated after-tax cash flows expected to be generated by the purchased technology, which, at the acquisition
dates, had not yet reached technological feasibility. The cash flow projections for revenues were based on
estimates of relevant market sizes and growth factors, expected industry trends, the anticipated nature and timing
of new product introductions by the Company and its competitors, individual product sales cycles and the
estimated life of each product’s underlying technology. Estimated operating expenses and income taxes were
deducted from estimated revenue projections to arrive at estimated after-tax cash flows. Projected operating
expenses include cost of goods sold, marketing and selling expenses, general and administrative expenses, and
research and development expenses, including estimated costs to maintain the products once they have been
introduced into the market and are generating revenue.
Net goodwill and other acquisition-related intangibles at fiscal years ending March 31, were as follows
(in thousands):
Life in Years 2001 2002
Goodwill ............................................ 1–6 $3,708,191 $358,014
Developed core technology ............................. 5 268,836 209,956
Assembled workforce .................................. 3 10,498 6,304
Trademarks .......................................... 5 20,915 16,336
$4,008,440 $590,610
As a result of industry conditions and lower market valuations, the Company determined that there were
indicators of impairment to the carrying value of goodwill and purchased intangibles. Based on a review and
independent valuation, the Company recorded a charge of $3.1 billion in fiscal 2002 to write down the value of
the intangible assets associated with these purchase acquisitions. Additionally, the amount of goodwill has been
adjusted for certain tax benefits related to the exercise of stock options assumed through acquisitions. The total
adjustments to goodwill related to these tax benefits totaled $21.4 million and $18.1 million for the years ended
March 31, 2001 and 2002, respectively. The total balances presented above are net of accumulated amortization
and impairments of $334.1 million and $3.7 billion at March 31, 2001 and 2002, respectively.
During fiscal 2001, the Company recorded acquisition-related purchase consideration of $438.8 million as
deferred stock-based compensation. This amount represents the portion of the purchase consideration related to
shares issued contingent on continued employment of certain employee stockholders and the intrinsic value of
unvested stock options assumed. The compensation is being recognized over the related vesting period. The
related expenses are identified with research and development, cost of revenues and selling, general and
administration depending on the function of the individual employee providing services. However, for
presentation purposes, the amounts have been footnoted on the face of the income statement and excluded from
the functional line items.
F-13