8x8 2002 Annual Report Download - page 27

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Our consolidated financial statements include the results of the operations of U|Force from the date of the acquisition,
June 30, 2000, the beginning of our second quarter of fiscal 2001.
Odisei S.A.
In May 1999, we acquired Odisei, a privately held, development stage company based in Sophia Antipolis, France, that
was developing software for managing voice-
over IP networks. The consolidated financial statements reflect the
acquisition of Odisei on May 24, 1999 for approximately 2,868,000 shares of 8x8's common stock and approximately
121,000 of contingent shares, which were subsequently issued to Odisei employee shareholders in March 2000. The
purchase price was approximately $13.6 million, which includes approximately $295,000 of acquisition-
related costs.
The purchase price was allocated to tangible assets acquired and liabilities assumed based on the book value of Odisei's
current assets and liabilities, which we believed approximated their fair value. Intangible assets acquired included
amounts allocated to Odisei's in-process research and development. The in-
process research and development related to
Odisei's initial product for which technological feasibility had not been established and was estimated to be
approximately 60% complete. The fair value of the in-
process technology was based on a discounted cash flow model,
which discounted expected future cash flows to present value, net of tax. In developing cash flow projections, revenues
were forecasted based on relevant factors, including estimated aggregate revenue growth rates for the business as a
whole, characteristics of the potential market for the technology, and the anticipated life of the technology. Projected
annual revenues for the in-
process research and development projects were assumed to ramp up initially and decline
significantly at the end of the in-
process technology's economic life. Operating expenses and resulting profit margins
were forecasted based on the characteristics and estimated cash flow generating potential of the acquired in-
process
technology. Associated risks include the inherent difficulties and uncertainties in completing the project and thereby
achieving technological feasibility, and risks related to the impact of potential changes in market conditions and
technology. The resulting estimated net cash flows were discounted at a rate of 27%. This discount rate was based on
the estimated cost of capital plus an additional discount for the increased risk associated with in-
process technology.
The value of the acquired Odisei in-
process research and development, which was expensed in the fiscal year ended
March 31, 2000, was $10.1 million. The excess of the purchase price over the net tangible and intangible assets
acquired and liabilities assumed was allocated to goodwill. Until the adoption of SFAS 142 on April 1, 2002, amounts
allocated to goodwill and workforce were being amortized on a straight-
line basis over five and three years,
respectively. The allocation of the purchase price was as follows (in thousands):
In-process research and development............... $ 10,100
Workforce......................................... 200
Net tangible liabilities.......................... (219)
Goodwill.......................................... 3,481
---------
$ 13,562
=========
Our consolidated financial statements for the fiscal year ended March 31, 2000 included the results of Odisei from the
date of acquisition.
Amortization of goodwill and intangible assets charged to operations was $763,000, $11.0 million and $614,000 during
the fiscal years ended March 31, 2002, 2001 and 2000, respectively.
RESTRUCTURING CHARGES
During the fourth quarter of fiscal 2001, after a significant number of employees had resigned, we discontinued our
Canadian operations acquired in conjunction with the acquisition of U|Force in June 2000. We closed our offices in
Montreal and Hull, Quebec and laid-
off all remaining employees resulting in the cessation of the research and
development efforts and the sales and marketing and professional services activities associated with the U|Force
business. As a result of the restructuring, we recorded a one-
time charge of $33.3 million in the quarter ended March
31, 2001. The restructuring charges consisted of the following (in thousands):