CY » Topics » Network Search Engines (NSE)

This excerpt taken from the CY 10-Q filed Nov 9, 2007.

Network Search Engines ("NSE")

        In the third quarter of fiscal 2007, the Company completed the sale of certain assets related to the TCAM2 product line in its NSE product family targeting the high-volume desktop switching market to NetLogic Microsystems, Inc. ("NetLogic"), pursuant to an asset purchase agreement. Upon closing of the transaction, NetLogic paid the Company $14.4 million in cash consideration. The Company's NSE product family is included in the Data Communications Division.

        The Company recorded a gain of $6.6 million in connection with the sale of the NSE assets during the third quarter of fiscal 2007. The following table summarizes the components:

(In thousands)

   
 
Cash proceeds from sale   $ 14,448  
Net book value of assets sold to NetLogic:        
  Inventories, net     (2,904 )
Allocated goodwill     (4,872 )
Transaction and other costs     (25 )
   
 
Gain on sale of NSE assets   $ 6,647  
   
 

        The NSE product family includes goodwill acquired by the Company in conjunction with previous business combinations. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the Company included a portion of the goodwill in the carrying amount of the disposed NSE product line in determining the gain on disposal. The amount was based on the relative fair values of the NSE product line that was disposed of and the remaining portion of the NSE product family that is retained by the Company.

        No employees were terminated by the Company or transferred to NetLogic as a result of the transaction.

This excerpt taken from the CY 10-K filed Mar 1, 2007.

Network Search Engines (“NSE”)

Transaction Summary:

During the first quarter of fiscal 2006, the Company completed the sale of a portion of its NSE product line to NetLogic Microsystems, Inc. (“NetLogic”), a semiconductor company that designs, develops and markets high performance knowledge-based processors, pursuant to an Agreement for the Purchase and Sale of Assets (“NSE Agreement”). The assets sold to NetLogic included the Ayama 10000, Ayama 20000, and NSE70000 Network Search Engine product families as well as the Sahasra 50000 Algorithmic Search Engine product family. The Company retained the right to sell and continues to support the custom TCAM1 and TCAM2 products in its NSE product line. In connection with the transaction, the Company agreed to provide certain transition and manufacturing services to NetLogic for a limited time following the closing date of the transaction. As of the end of fiscal 2006, these services have been substantially completed. The NSE product line is a part of the Data Communications Division.

Pursuant to the NSE Agreement, NetLogic issued to the Company approximately 1.7 million shares of its common stock. In addition, if certain revenue milestones associated with the NSE assets sold to NetLogic are achieved in the twelve-month period after the close of the transaction, NetLogic will pay the Company up to an additional $10.0 million in cash and issue to the Company up to an additional 0.3 million shares of common stock.

 

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Table of Contents

Gain on Sale of NSE:

The Company recorded a gain of $6.0 million in connection with the disposal of the NSE assets during fiscal 2006. The following table summarizes the components:

 

(In thousands)

     

Value of NetLogic common shares received

   $ 58,531  

Net book value of assets sold to NetLogic

    (4,021 )

Allocation of goodwill

    (44,070 )

Employee costs

    (2,799 )

Transaction costs

    (1,643 )
       

Gain on sale of NSE assets

   $     5,998  
       

The value of the NetLogic common shares was determined using the closing price of $35.40 on February 15, 2006, the effective date of the completion of the transaction.

Assets sold to NetLogic included the following:

 

(In thousands)

   

Inventories, net

   $ 2,716

Prepaid expense and property and equipment, net

    268

Intangible assets, net

    1,037
     

Total net book value of assets sold to NetLogic

   $       4,021
     

Intangible assets sold to NetLogic included certain purchased technology and trademarks which had been acquired by the Company in conjunction with previous business combinations. The Company also allocated a portion of the goodwill to the carrying amount of the NSE assets in determining the gain on sale. The amount was based on the relative fair values of the NSE assets that were disposed of and the remaining NSE product line that was retained by the Company.

In conjunction with the sale, the Company paid severance and other benefits to 54 employees (35 in research and development and 19 in selling, general and administrative functions) who were either terminated or transferred to NetLogic as a result of this transaction.

Investment in NetLogic:

During the second quarter of fiscal 2006, the Company sold approximately 1.5 million common shares of NetLogic received in the sale of the NSE assets and recognized a gain of $6.2 million.

During the fourth quarter of fiscal 2006, the carrying value of the Company’s remaining ownership interest in NetLogic continued to exceed the fair value. The Company determined that the decline in fair value was other-than-temporary and recorded an impairment charge of $2.3 million.

As of December 31, 2006, the Company held approximately 0.2 million NetLogic common shares with a fair value of $3.6 million.

EXCERPTS ON THIS PAGE:

10-Q
Nov 9, 2007
10-K
Mar 1, 2007
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