Case 05-3
Cherry
Apple, Inc. (Apple) is a publicly traded company that manufactures fruity beverages. During the current year, Apple decided to add a series of mango-flavored beverages to its current product line. Management anticipated that the costs associated with developing the new product line and ramping up production would be significant. In an effort to defray some of the costs and manage the risk associated with the new product line, Apple identified a partner, Berry, Inc. (Berry), and together they created a separate legal entity, Cherry LLC (Cherry), and entered into a joint venture arrangement. Berry is a publicly-traded subsidiary of international conglomerate Berry Cherry, Inc., a privately held corporation with significant cash reserves.
Key terms of the joint venture arrangement are as follows:
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Apple contributed intellectual property with a fair value of $60 million, plus cash of $20 million, in return for 80% of the common stock of the joint venture. The contributed intellectual property consisted of certain license agreements acquired by Apple in a business combination during fiscal year 2003. The license agreements had been recorded at fair value at the time of the business combination.
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Berry contributed $20 million in cash in return for 20% of the common stock of the joint venture and an agreement to be the exclusive supplier of all software and hardware used in the manufacturing process.
Apple, Inc.
Berry, Inc.
Cherry LLC
(Joint Venture)
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Contributes intellectual property with a fair value of $60 million and $20 million in cash
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Receives 80% of common stock
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50% vote
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Contributes $20 million
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Receives 20% of common stock and right to supply all software and hardware used in the manufacturing process
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Case 05-3: Cherry Page 2
Copyright 2004 © Deloitte