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INFOSPACE, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

Years Ended December 31, 2001, 2000 and 1999 

The purchase price was allocated to the assets and liabilities assumed based on their estimated fair values as follows:  

(in thousands) 

Tangible assets acquired 

$ 

4,681   

Liabilities assumed 

(7,010 ) 

Net book value of net liabilities assumed 

(2,329 ) 

Fair value adjustments: 

Purchased technology, including in process research and development 

5,900   

Distribution agreements 

2,400   

Assembled workforce 

2,800   

Fair value of net assets acquired 

$ 

8,771   

Purchase price: 

Fair value of shares issued, including restricted stock 

$ 

88,772   

Fair value of options assumed 

23,589   

Fair value of net assets acquired 

(8,771 ) 

Fair value of restricted stock recorded as unearned compensation 

(2,239 ) 

Acquisition costs 

556   

Excess of purchase price over net assets acquired, allocated to goodwill 

$ 

101,907   

The $5.9 million value of purchased technology includes purchased in process research and development. GAAP requires purchased in 

process research and development with no alternative future use to be recorded and charged to expense in the period acquired. Accordingly, the 

results of operations for the year ended December 31, 2001, include the write off of $600,000 of purchased in process research and 

development. The remaining $5.3 million represents the purchase of core technology and existing products, which are being amortized over an 

estimated useful life of five years. The Company is amortizing the goodwill, assembled workforce and distribution agreements over an 

estimated life of five years.  

The Company also recorded $3.9 million of unearned compensation in conjunction with the acquisition of Locus Dialogue. $1.7 million of 

the unearned compensation relates to the intrinsic value of Locus Dialogue stock options replaced by the Company at the converted share value 

and share price. $2.2 million relates to the value of 253,175 restricted shares held by four Locus Dialogue employees. The restricted stock vests 

after the employee completes one year of employment with the Company and is recorded as compensation expense over the vesting period.  

Among the factors the Company considered in determining the amount of the allocation of the purchase price to in process research and 

development were various factors such as estimating the stage of development of each component of the technology, including the complexity 

and technical obstacles to overcome, estimating the amount of core technology leveraged into the in  process projects, estimating the expected 

life of each component, estimating cash flows resulting from the expected revenues, margins and operating expenses generated from each 

component, and discounting to present value the cash flows associated with the in process technologies. The Company utilized a rate of return 

of 35% to discount to present value the cash flows associated with the in process technologies. The discount rate was selected based on 

evaluation of the Company's weighted average cost of capital, the weighted average return on assets, the internal rate of return implied from 

this transaction, and management's assessment of the risk inherent in the future performance estimates utilized in the valuation.  

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