Logitech 2010 Annual Report Download - page 197

ANNUAl REPORT
185
Ultimate Ears
In August 2008, the Company acquired the Ultimate Ears companies, a privately held group of companies
offering a range of earphones for portable-music enthusiasts as well as a line of custom-fit in-ear monitors for music
professionals. The acquisition is part of the Company’s strategy to expand its portfolio of digital audio products,
providing more options for portable music listening.
Total consideration paid was $34.5 million, which includes $0.7 million in transaction costs. Under the terms
of the purchase agreement, the Company acquired all of the outstanding equity interests of Ultimate Ears for
$33.8 million, including a $6.9 million holdback provision relating to potential indemnification claims, of which
$6.0 million has been disbursed and $0.9 million is recorded as a liability in the accompanying consolidated
financial statements. The holdback provision has been included as part of the purchase price allocation below.
The acquisition has been accounted for using the purchase method of accounting. Accordingly, the total
consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values as of the acquisition date. Fair values were determined by Company management based
on information available at the date of acquisition. The results of operations of Ultimate Ears were included in
Logitech’s consolidated financial statements from the date of acquisition, and were not material to the Company’s
reported results.
The allocation of total consideration, including transaction costs, to the assets acquired and liabilities assumed
based on the estimated fair value of Ultimate Ears was as follows (in thousands):
August 19,
2008 Estimated Life
Tangible assets acquired ......................................... $4,132
Intangible assets acquired
Existing technology .......................................... 5,900 4 years
Patents and core technology ................................... 1,900 4 years
Trademark/trade name........................................ 2,900 5 years
Customer relationships and other ............................... 2,500 5 years
Goodwill................................................... 25,254 —
42,586
Liabilities assumed ............................................. (2,845)
Deferred tax liability, net......................................... (5,235)
Total consideration........................................... $34,506
The existing technology of Ultimate Ears relates to the technical components used in the in-ear monitors and
earplugs. The value of the technology was determined based on the present value of estimated expected cash flows
attributable to the technology. The patents and core technology represent awarded patents, filed patent applications
and core architectures used in Ultimate Ears’ current and planned future products. Trademark/trade name relates to
the Ultimate Ears brand names. The value of the patents, core technology and trademark/trade name was estimated
by capitalizing the estimated profits saved as a result of acquiring or licensing the asset. Customer relationships and
other relates to Ultimate Ears’ existing customer base, valued based on projected discounted cash flows generated
from customers in place. The intangible assets acquired are amortized on a straight-line basis over their estimated
useful lives. The goodwill associated with the acquisition is not subject to amortization and is not expected to be
deductible for income tax purposes. The deferred tax liability relates to the acquired intangible assets which are
also not expected to be deductible for income tax purposes.