Netgear 2011 Annual Report Download - page 77

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Table of Contents
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
research and development was expensed upon acquisition because technological feasibility had not been established and no future alternative
uses existed. The Company acquired two in-process research and development 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 research and development was determined using the income approach, under which
the Company considered the importance of products under development to the Company’s overall development plans, estimated the costs to
develop the purchased in-process research and development into commercially viable products, estimated the resulting net cash flows from the
products when completed and discounted the net cash flows to their present values. The Company used a 32% discount rate in the present value
calculations, which was derived from a weighted-average cost of capital analysis, adjusted to reflect additional risks related to the products’
development and success as well as the products’ stage of completion. The estimates used in valuing in-process research and development were
based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. These assumptions may be incomplete
or inaccurate, and unanticipated events and circumstances may occur. Accordingly, actual results may vary from the projected results. The
Company incurred costs of approximately $1.2 million to complete the projects, of which approximately $120,000 was incurred during the year
ended December 31, 2008 and an additional $1.1 million was incurred during the year ended December 31, 2009. The Company completed one
project in the beginning of the year ended December 31, 2009 and the final project at the end of the year ended December 31, 2009.
A total of $1.2 million of the $3.9 million in acquired intangible assets was designated as existing technology. The value was calculated
based on the present value of the future estimated cash flows derived from projections of future revenue attributable to existing technology. This
$1.2 million is being amortized over its estimated useful life of three years.
A total of $900,000 of the $3.9 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 royalty savings attributable to the core technology. This $900,000 is
being amortized over its estimated useful life of five years.
Infrant Technologies, Inc.
On May 16, 2007, the Company completed the acquisition of 100% of the outstanding shares of Infrant Technologies, Inc. (“Infrant”), a
developer of network attached storage products. The aggregate purchase price was $60 million, paid in cash. Under the terms of the acquisition
agreement, Infrant shareholders received a total additional payout of $20 million in cash over the three years following closure of the acquisition
as specific revenue targets were reached. $10 million was paid in November 2008 and $10 million was paid in April 2010.
The November 2008 payment of $10 million resulted in an increase in goodwill of $8.7 million, the recognition of compensation expense
of $650,000, and a reduction in taxes payable of $620,000.
The April 2010 payment of $10 million resulted in an increase in goodwill of $8.5 million, the recognition of compensation expense of
$677,000, and a reduction in taxes payable of $869,000. The Company had accrued for $113,000 of this $677,000 in compensation expense in
the year ended December 31, 2009.
The results of Infrant’s operations have been included in the consolidated financial statements since the date of acquisition. The historical
results of Infrant prior to the acquisition were not material to the Company’s results of operations.
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