Apple 2003 Annual Report Download - page 64

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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):
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 enable schools to record, access, report, and manage their student data and performance in real-time, and gives parents real-
time web access to track
80
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):
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 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 be completed during the Company's fiscal 2002 at a cost of approximately $9.25 million. The remaining efforts, which were completed
in 2002, included completion of coding, finalizing user interface design and development, and testing. The fair value of the IPR&D was
determined using an 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%.
The acquired intangibles are being amortized over their estimated useful lives of 3 years. Deferred stock compensation associated with
restricted stock and options is being amortized over the required future vesting period of 3 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 previously unidentified loss contingencies that were in existence prior to consummation of the acquisition.
The Company allocated $12.8 million of its purchase consideration for PowerSchool to deferred stock compensation within shareholders'
equity. This amount represented the intrinsic value of stock options assumed that vest as future services are provided by employees and related
to 445,000 common shares issued contingent on continued employment of certain PowerSchool employee stockholders. Certain PowerSchool
employee stockholders were terminated in the first quarter of 2003 resulting in the $5 million recognition of previously deferred stock
compensation as part of the Company's first quarter restructuring action. Unamortized PowerSchool related deferred stock compensation of
approximately $294,000 remains as of September 27, 2003.
Pro Forma Financial Information
The unaudited pro forma financial information below presents the condensed consolidated financial results of the Company assuming that
PowerSchool and Spruce, acquired in 2001, had been acquired at the
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
Goodwill
39.7
Total consideration $
66.1