Netgear 2013 Annual Report Download - page 72

Download and view the complete annual report

Please find page 72 of the 2013 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 121

  • 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

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company paid $140.0 million
of the aggregate purchase price in the second quarter of 2013. The acquisition qualified as a business
combination and was accounted for using the acquisition method of accounting. The results of AirCard have been included in the consolidated financial
statements since the date of acquisition. Revenue and earnings for AirCard as of the acquisition date are not presented as the business was fully
integrated into the service provider business unit subsequent to the acquisition and therefore impracticable for the Company to quantify.
The allocation of the purchase price was as follows (in thousands):
In the third quarter of 2013, the Company made an adjustment of $0.5 million
to goodwill related to revised inventory estimates. The fair values
for tangible and intangible assets acquired and liabilities assumed are based on estimates of their fair values as of the acquisition date. These estimates
are subject to revision, which may result in adjustments to the values presented above. We expect to finalize these amounts within twelve months from
the acquisition date.
Of the $53.8 million of goodwill recorded on the acquisition of AirCard, approximately $36.6 million , $2.3 million and $53.8 million
is
deductible for U.S. federal, Canadian, and U.S. state income tax purposes, respectively. The goodwill recognized, which was assigned to the Company's
service provider business unit, is primarily attributable to expected synergies resulting from the acquisition.
The Company designated $16.3 million
of the acquired intangible assets as technology. The value was calculated based on the present value of the
future estimated cash flows derived from estimated savings attributable to the existing technology and discounted at 10.0%
. The acquired technology is
being amortized over its estimated useful life of four years .
The Company designated $40.5 million of the acquired
intangible assets as customer 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 relationships and discounted at
12.0% . The acquired customer relationships are being amortized over an estimated useful life of eight years
The Company designated $2.3 million of the acquired intangible assets as non-
compete agreements. The value was calculated based on the present
value of the future estimated cash flows derived from projections of future operations attributable to the non-
compete agreements and discounted at
12.0% . The acquired agreements are being amortized over an estimated useful life of five years .
The Company designated $1.1 million
of the acquired intangible assets as backlog. The value was calculated based on the present value of the
future contractual revenue and discounted at 10.0% . The acquired backlog was fully amortized in the second quarter of 2013.
The Company acquired $9.5 million in in-process research and development (“IPR&D”)
projects. The value was calculated based on the present
value of future estimated cash flows discounted at 13.0%
, derived from projections of future revenues attributable to the assets, expected economic life
of the assets, and royalty rates. The IPR&D acquired is considered indefinite lived intangible assets until research and development efforts associated
with the projects are completed or abandoned. The most significant of the acquired IPR&D projects relate to multimode LTE technologies, Mobile Hot
Spot, USB dongle, and Module form factors. As of December 31, 2013, $7.4 million
of the acquired IPR&D has reached technical feasibility and was
reclassified to definite-lived intangibles and with an estimated useful life of four years. In addition, the Company recorded an impairment charge of
$2.0
million
in the third quarter of 2013, related to the abandonment of certain IPR&D projects acquired. The Company expects to complete the remaining
$0.1 million in IPR&D projects, at an estimated cost of $0.2 million , by the second quarter of 2014.
69
Inventories
$
2,874
Prepaid expenses
9,030
Other assets
3,226
Property and equipment, net
7,455
Intangible assets, net
69,700
Goodwill
53,841
Liabilities assumed
(6,096
)
Total purchase price
$
140,030