Netgear 2011 Annual Report Download - page 75

Table of Contents
Of the $11.7 million of goodwill recorded on the acquisition of Westell, approximately $10.6 million and $11.7 million is deductible for
U.S. federal and state income tax purposes, respectively.
A total of $15.7 million of the $19.5 million in acquired intangible assets was designated as customer contracts and related relationships.
The value was calculated based on the present value of the future estimated cash flows derived from projections of future operations attributable
to existing customer contracts and related relationships and discounted at 19.0%. This $15.7 million is being amortized over its estimated useful
life of eight years.
A total of $3.7 million of the $19.5 million in acquired intangible assets was designated as core technology. The value was calculated
based on the present value of the future estimated cash flows derived from estimated savings attributable to the core technology and discounted
at 16.0%. This $3.7 million is being amortized over its estimated useful life of four years.
A total of $100,000 of the $19.5 million in acquired intangible assets was designated as order backlog. The value was calculated based on
an estimate of order backlog using the expected cash flow for the orders and discounted at 3.3%. This $100,000 has been fully amortized as of
the three months ended October 2, 2011.
Leaf Networks, LLC
On January 15, 2010, the Company completed the acquisition of certain intellectual property and other assets of Leaf Networks, LLC
(“Leaf”), a developer of virtual networking software. The acquisition qualified as a business acquisition and was accounted for using the
purchase method of accounting. The Company believes the acquisition will accelerate the Company’s continuing networking technology
research and development initiatives. The aggregate purchase price was $2.1 million, of which $2.0 million was paid in cash in the first quarter
of 2010 and $100,000 was paid in the three months ended April 3, 2011.
Additionally, the acquisition agreement specified that Leaf shareholders may receive a total additional payout of up to $900,000 in cash
over the three years following the closing of the acquisition if developed products pass certain acceptance criteria. During the first quarter of
2010, the Company determined that the present value of the $900,000 potential additional payout was approximately $800,000. For each
subsequent quarter, the Company measured at fair value for each reporting period and recorded a liability. The Company paid $400,000 for the
first portion of this additional payout in the three months ended April 3, 2011. As of December 31, 2011, the Company had determined the
remaining acceptance criteria for the final $500,000 portion of the eligible additional payout were nearing completion, and is carrying a liability
for the entire $500,000.
The results of Leaf’s operations have been included in the consolidated financial statements since the date of acquisition. The historical
results of operations of Leaf prior to the acquisition were not material to the Company’s results of operations.
In accordance with the acquisition method of accounting for business combinations, the Company allocated the total purchase price to
identifiable intangible assets based on each element’s estimated fair value. Acquisition costs were expensed as incurred, and were immaterial for
this transaction. Purchased intangibles, representing the existing technology acquired from Leaf, will be 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 intangible assets acquired. Goodwill arose as a result of the $800,000 present valuation of the $900,000 potential additional
payout, plus $100,000 in additional payment consideration. The allocation of the purchase price was as follows (in thousands):
71
Intangibles, net
$
2,000
Goodwill
900
Total purchase price allocation
$
2,900