Apple 2004 Annual Report Download - page 86

Acquisition of Emagic GmbH
During the fourth quarter of 2002, the Company acquired Emagic GmbH (Emagic), a provider of professional software solutions for computer
based music production, for approximately $30 million in cash; $26 million of which was paid immediately upon closing of the deal and
$4 million of which was held-back for future payment contingent on continued employment by certain employees that would be allocated to
future compensation expense in the appropriate periods over the following 3 years. During fiscal 2003, contingent consideration totaling
$1.3 million was paid. The acquisition has been accounted for as a purchase. The portion of the purchase price allocated to purchased in-process
research and development (IPR&D) was expensed immediately, and the portion of the purchase price allocated to acquired technology and to
tradename will be amortized over their estimated useful lives of 3 years. Goodwill associated with the acquisition of Emagic is not subject to
amortization pursuant to the provisions of SFAS No. 142. 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 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, which were
completed in 2003, included 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%.
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 would be allocated to compensation expense over the following
3 years, has been allocated to acquired technology and would be amortized on a straight-
line basis over 3 years, except for certain assets acquired
from Zayante associated with patent royalty streams that would 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
82
Net tangible assets acquired
$
2.3
Acquired technology
3.8
Tradename
0.8
In
-
process research and development
0.5
Goodwill
18.6
Total consideration
$
26.0