Adaptec 2010 Annual Report Download - page 63

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Intangible assets acquired, and their respective estimated average remaining useful lives, over which each asset will be
amortized on a straight-line basis, are:
Goodwill
The Company’s primary reasons for the Wintegra acquisition were to accelerate the Company’s product offering in IP/Ethernet
packet-based mobile backhaul equipment and the strategic fit of Wintegra with the Company’s overall efforts to accelerate the
transition of existing communications equipment to converged, packet-centric solutions. The acquisition also enhanced the
Company’s engineering team through the addition of Wintegra’s research and development resources. These factors were the basis
for the recognition of goodwill. The goodwill is not expected to be deductible for tax purposes.
Purchased Intangible Assets
Existing and core technology represent completed technology that has passed technological feasibility and/or is currently offered
for sale to customers. The Company used the income method to value existing and core technology by determining cash flow
projection related to the identified projects. The assumptions included information on revenues from existing products and future
expected trends for each technology, with an estimated useful life of four to five years. Management applied a discount rate of 16% to
value the existing and core technology assets, which took into consideration market rates of return on debt and equity capital and the
risk associated with achieving forecasted revenues related to these assets.
Customer relationships represent the fair value of future projected revenue that will be derived from the sale of products to
existing customers of the acquired company. The Company used the same method to determine the fair value of this intangible asset
as core technology assets and utilized a discount rate of 24%.
Trademarks represent the value of the revenues associated with the WinPath registered trademark, which the Company will
continue to use on products for which it has established revenue streams. The Company used the same method to determine the fair
value of trademarks and utilized a discount rate of 18%.
I
n-Process Research and Development
The fair value of acquired in-process research and development (“IPR&D”) was determined using the income approach. Under
the income approach, the expected future cash flows from each project under development are estimated and discounted to their net
present values at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are
the weighted average cost of capital, the return on assets, as well as risks inherent in the development process, including the
likelihood of achieving technological success and market acceptance. Each project was analyzed to determine the unique
technological innovations, the existence and reliance on core technology, the existence of alternative future use or current
technological feasibility and the complexity, cost and time to complete the remaining development. Future cash flows for each project
were estimated based on forecasted revenue and costs, taking into account the expected product life cycles, market penetration and
growth rates.
62
(in thousands)
Estimated
fair value
Estimated
average remaining
useful life
Existin
g
technolo
gy
$66,30
0
4
y
ears
Core technolo
gy
12,90
0
5
y
ears
Customer relationshi
p
s
16,50
0
5
y
ears
In-
p
rocess research and develo
p
ment
6,00
0
4-5
y
ears
Trademarks
2,30
0
8
y
ears
Total intan
g
ible assets
$104,00
0