Netgear 2011 Annual Report Download - page 78

Table of Contents
The accompanying consolidated financial statements reflect an initial purchase price of approximately $60.3 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. 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. Purchased intangibles are amortized on
a straight-line basis over their respective estimated useful lives. 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 total allocation of
the purchase price in 2007 was as follows (in thousands):
None of the goodwill recognized related to Infrant is deductible for income tax purposes.
A total of $4.1 million of the $22.7 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 has not been established and no future alternative
uses exist. The Company acquired three in-
process research and development projects. Two projects involve development of new products in the
ReadyNAS desktop product category, and one project involves development of a higher end version of a product currently selling in the
ReadyNAS rack mount product category. These three 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 discount rates ranging from 36% to 38%
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 $1.6 million to complete the projects, of which approximately $1.4 million was
incurred during the year ended December 31, 2008 and an additional $200,000
74
Purchase price
$
60,000
Direct acquisition costs
254
Total consideration
$
60,254
Cash and cash equivalents
$
2,787
Accounts receivable
1,202
Inventories
3,504
Deferred income taxes
667
Prepaid expenses and other current assets
36
Property and equipment
128
Intangibles
22,700
Goodwill
38,185
Accounts payable
(697
)
Accrued employee compensation
(396
)
Other accrued liabilities
(1,048
)
Deferred income tax liability
(6,814
)
Total purchase price allocation
$
60,254