Creative 2004 Annual Report Download - page 40

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38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and determinable. The assumed stock options were valued using the Black-Scholes valuation model, with a volatility rate of 60%, a risk-
free interest rate of 2.20% to 4.93%, expected dividend yield of 2.5%, and an estimated vest term of 0.01 years after vest date.
Of the total assumed stock options of 3Dlabs, approximately 1.3 million stock options with an intrinsic value of $7.0 million were unvested.
In accordance with FIN 44, “Accounting for Certain Transactions Involving Stock Compensation,” these unvested options were accounted
for as deferred stock-based compensation and are being recognized as compensation expense over their related vesting periods.
Creative accounted for the acquisition using the purchase method of accounting and has included the results of 3Dlabs from the
acquisition date of May 15, 2002. The allocation of the purchase price to in-process technology and identifiable intangible assets
acquired was based on independent appraisals. The income approach, which includes an analysis of the markets, cash flows and risks
associated with achieving such cash flows, was the primary technique utilized in valuing the existing technology, in-process technology
and non-competition agreements. In estimating the fair value of the patents/core technology and trade name/trademarks, royalty
savings approach was used.
The following table summarizes the estimated fair values of the tangible assets acquired and the liabilities assumed at the date of
acquisition (in US$’000):
Cash $11,285
Other current assets 13,899
Property and equipment 10,717
Total assets acquired 35,901
Total liabilities assumed (56,963)
Net liabilities assumed $ (21,062)
The following table summarizes the allocation of the purchase price to the tangible and identifiable intangible assets acquired and
liabilities assumed (in US$’000):
Net liabilities assumed $ (21,062)
Goodwill 91,976
Acquired in-process technologies 26,080
Other intangible assets consisting of:
Existing technology 7,580
Patent/core technology 6,910
Non-competition agreement 620
Trade name/trademarks 4,160
Total purchase price excluding deferred share compensation $ 116,264
Total deferred share compensation 7,053
Total purchase price including deferred share compensation $ 123,317
The intangible assets are being amortized over their respective benefit periods, which range from one to six years. In accordance with
SFAS 142, “Goodwill and Other Intangible Assets,” Creative will assess goodwill for impairment at least annually. In accordance with the
prevailing accounting standards, the amount of $26.1 million allocated to acquired in-process technology was written off as other
charges in fiscal 2002.
NOTE 17 – BUSINESS COMBINATION (Cont’d)