Netgear 2008 Annual Report Download - page 65

Download and view the complete annual report

Please find page 65 of the 2008 Netgear annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Table of Contents
Note 2—Business Acquisitions:
CP Secure International Holding Limited
On December 18, 2008, the Company completed the acquisition of certain intellectual property and other assets of CP Secure International
Holding Limited (“CP Secure”), a privately-held provider of integrated network security solutions. The acquisition qualified as a business
acquisition and has been accounted for using the purchase method of accounting. The Company intends to incorporate CP Secure’s integrated
platform into the Company’s products to provide organizations with enhanced protection for their network, web access and email traffic. The
aggregate purchase price was $14 million, paid in cash. CP Secure shareholders may receive a total additional payout of up to $3.5 million in
cash over the five years following closure of the acquisition if developed products pass certain acceptance criteria. Any additional payout is
expected to be accounted for as additional purchase price and is expected to be recorded as an increase in goodwill.
The results of CP Secure’s operations have been included in the consolidated financial statements since the date of acquisition. The
historical results of operations of CP Secure prior to the acquisition were not material to the Company’s results of operations.
The accompanying consolidated financial statements reflect a purchase price of approximately $14.6 million, consisting of cash, and other
costs directly related to the acquisition as follows (in thousands):
In accordance with the purchase method of accounting, the Company allocated the total purchase price to tangible assets, liabilities and
identifiable intangible assets based on their estimated fair values. Purchased intangibles are amortized on a straight-line basis over their
respective estimated useful lives. Goodwill was recorded based on the residual purchase price after allocating the purchase price to the fair
market value of tangible and intangible assets acquired less liabilities assumed. Goodwill arises as a result of, among other factors, future
unidentified new products and new technologies as well as the implicit value of future cost savings as a result of the combining of entities. The
allocation of the purchase price is as follows (in thousands):
Of the $10.7 million of goodwill recorded on the acquisition of CP Secure, $4.5 million and $10.7 million is deductible for federal and
state income tax purposes, respectively.
A total of $1.8 million of the $3.9 million in acquired intangible assets was designated as in-process research and development (“in-
process
R&D”). In-
process R&D was expensed upon acquisition because technological feasibility has not been established and no future alternative uses
exist. The Company acquired two in-process R&D projects, which involve improvements to threat management characteristics of future
products. These two projects required further research and development to determine technical feasibility and commercial viability. The fair
value assigned to in-process R&D was determined using the income approach, under which the Company considered the importance of products
under development to the Company’s overall development
63
Purchase price
$
14,000
Direct acquisition costs
635
Total consideration
$
14,635
Fair Value on
December 18, 2008
Inventories
82
Property and equipment, net
49
Intangibles, net
3,900
Goodwill
10,686
Other accrued liabilities
(82
)
Total purchase price allocation
$
14,635