Adaptec 2001 Annual Report Download - page 68

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each project. These future cash flows were further adjusted for the value contributed by any
core technology and development efforts expected to be completed post acquisition.
These forecasted cash flows were then discounted based on rates derived from the Company's
weighted average cost of capital, w eighted average return on assets and venture capital rates of
return adjusted upw ard to reflect additional risks inherent in the development life cycle. The
risk adjusted discount rate used involved consideration of the characteristics and applications
of each product, the inherent uncertainties in achieving technological feasibility, anticipated
levels of market acceptance and penetration, market growth rates and risks related to the
impact of potential changes in future target markets.
Based on this analysis, the acquired technology that had reached technological feasibility was
capitalized. Acquired technology that had not yet reached technological feasibility and for
which no alternative future uses existed was expensed upon acquisition.
Malleable and Datum:
Malleable developed programmable integrated circuits that perform high-density Voice Over
Packet applications. The in process technology acquired from Malleable was designed to detect
incoming voice channels and process them using voice compression algorithms. The
compressed voice was converted, using the appropriate protocols, to A TM cells or IP packets to
achieve higher channel density and to support multiple speech compression protocols and
different packetization requirements. At the date of acquisition the Company estimated that
Malleable’s technology was 58% complete and the costs to complete the project to be $4.4
million.
Datum designed power amplifiers for use in wireless communications netw ork equipment.
The technology acquired from Datum was a digitally controlled amplifier architecture, which
was designed to increase base station system capacities, w hile reducing cost, size and power
consumption of radio networks. At the date of acquisition, the Company estimated that
Datum’s technology was 59% complete and the costs to complete the project to be $1.8 million.
These estimates were determined by comparing the time and costs spent to date and the
complexity of the technologies achieved to date to the total costs, time and complexities that
were expected to be expended to bring the technologies to completion.
The amounts allocated to IPR& D for Malleable and Datum of $31.5 million and $6.7 million,
respectively, were expensed upon acquisition, as it was determined that the underlying projects
had not reached technological feasibility, had no alternative future uses and successful
development was uncertain. The risk-adjusted discount rates used to determine the value of
IPR& D for Malleable was 35% and for Datum was 30%.
The Company discontinued development of the technology acquired from Malleable in the
second quarter of 2001. See Note 3 “ Restructuring and other costs” .
Development of the chip incorporating the technology acquired from Datum was completed in
the fourth quarter of 2000 and the costs incurred to that date were in line with the Company’s
initial expectations. Since then, the Company has completed the required firmware related to