Apple 2002 Annual Report Download - page 55

The amount of the purchase price allocated to 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 primarily to Emagic's Logic series technology
and extensions. At the date of the acquisition, the products under development were between 43%-83% complete, and it was expected that the
remaining work would be completed during the Company's fiscal 2003 at a cost of approximately $415,000. The remaining efforts include
finalizing user interface design and development, and testing. The fair value of the IPR&D was determined by an independent third-party
valuation using the income approach, which reflects the projected free cash flows that will be generated by the IPR&D projects and that are
attributable to the acquired technology, and discounting the projected net cash flows back to their present value using a discount rate of 25%.
Acquisition of certain assets of Zayante, Inc., Prismo Graphics, and Silicon Grail
During fiscal 2002 the Company acquired certain technology and patent rights of Zayante, Inc., Prismo Graphics, and Silicon Grail Corporation
for a total of $20 million in cash. These transactions have been accounted for as asset acquisitions. The purchase price for these asset
acquisitions, except for $1 million identified as contingent consideration which will be allocated to compensation expense over the next
3 years, has been allocated to acquired technology and will be amortized on a straight-line basis over 3 years, except for certain assets acquired
from Zayante associated with patent royalty streams that will be amortized over 10 years.
Acquisition of Nothing Real, LLC
During the second quarter of 2002, the Company acquired certain assets of Nothing Real, LLC (Nothing Real), a privately-held company that
develops and markets high performance tools designed for the digital image creation market. Of the $15 million purchase price, the Company
has allocated $7 million to acquired technology, which will be amortized over its estimated life of 5 years. The remaining $8 million, which has
been identified as contingent consideration, rather than recorded as an additional component of the cost of the acquired assets, will be allocated
to future compensation expense in the appropriate periods over the next 3 years.
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.
69
The consolidated financial statements include the operating results of Spruce from the date of acquisition. Total consideration was allocated as
follows (in millions):
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 the Company's 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):
Net tangible liabilities assumed
$
(0.7
)
Identifiable intangible assets
5.9
Goodwill
9.7
Total consideration $
14.9
Net tangible assets acquired
$
0.2
Deferred stock compensation
12.8
Identifiable intangible assets
2.6
In
-
process research and development
10.8