Apple 2001 Annual Report Download - page 43

Other intangibles include items such as trademarks and workforce-in-place. The net balances presented above are net of total accumulated
amortization of $62 million and $37 million as of September 29, 2001, and September 30, 2000, respectively. Total amortization of goodwill
was $16 million, $21 million, and $27 million during fiscal 2001, 2000, and 1999, respectively. Total amortization of other purchased
intangibles was $4 million, $3 million, and $1 million during fiscal 2001, 2000, and 1999, respectively.
Acquisition of PowerSchool, Inc.
In May 2001, the Company acquired PowerSchool, Inc. (PowerSchool), a provider of web-based student information systems for K-12 schools
and districts that enables schools to record, access, report, and manage their student data and performance in real-time, and gives parents real-
time web access to track their children's progress. The consolidated financial statements include the operating results of PowerSchool from the
date of acquisition.
The purchase price of approximately $66.1 million consisted of the issuance of approximately 2.4 million shares of Apple common stock with
a fair value of $61.2 million, the issuance of stock options with a fair value of $4.5 million, and $300,000 of direct transaction costs. The fair
value of the common stock options issued was determined using a Black-Scholes option pricing model with the following assumptions:
volatility of 67%, expected life of 4 years, dividend rate of 0%, and risk-free rate of 4.73%. Total consideration was allocated as follows (in
millions):
The amount of the purchase price allocated to purchased in-process research and development (IPR&D) was expensed upon acquisition,
because the technological feasibility of products under development had not been established and no alternative future uses existed. The
IPR&D relates to technologies representing processes and expertise employed to design, develop, and deploy a functioning, scalable web-
based
student information system for use by K-12 schools. At the date of the acquisition, the product under development was approximately 50%
complete, and it was expected that the remaining 50% would
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be completed during the Company's fiscal 2002 at a cost of approximately $9.25 million. The remaining efforts include completion of coding,
finalizing user interface design and development, and testing. The fair value of the IPR&D was determined by an independent valuation using
the income approach, which reflects the projected free cash flows that will be generated by the IPR&D projects and that is attributable to the
acquired technology, and discounting the projected net cash flows back to their present value using a discount rate of 25%. The goodwill and
acquired intangibles are being amortized over their estimated useful lives of eight and three years, respectively. Deferred stock compensation
associated with restricted stock and options is being amortized over the required future vesting period of three years.
In the fourth quarter of 2001, an adjustment was made to increase goodwill associated with the acquisition of PowerSchool by $5.9 million due
to the identification of a previously unidentified loss contingency that was in existence prior to consummation of the acquisition.
Acquisition of Spruce Technologies, Inc.
In July 2001, the Company acquired Spruce Technologies, Inc. (Spruce), a privately-held company that develops and markets DVD authoring
products, for $14.9 million in cash. Goodwill associated with the acquisition of Spruce is not subject to amortization pursuant to the transition
provisions of SFAS No. 142. The consolidated financial statements include the operating results of Spruce from the date of acquisition. Total
consideration was allocated as follows (in millions):
Total acquisition
-
related intangibles, net
$
76
$
35
Net tangible assets acquired
$
0.2
Deferred stock compensation
12.8
Identifiable intangible assets
2.6
In
-
process research and development
10.8
Goodwill
39.7
Total consideration $
66.1
Net tangible liabilities assumed
$
(0.7
)
Identifiable intangible assets
5.9
Goodwill
9.7
Total consideration $
14.9