Symantec 1999 Annual Report Download - page 33

Download and view the complete annual report

Please find page 33 of the 1999 Symantec annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

19
We determined the fair value of the in-process technology for each of the purchases by estimating the projected cash
flows related to these projects, including the cost to complete the in-process technologies and future revenues to be
earned upon commercialization of the products. We discounted the resulting cash flows back to their net present
values. We based the net cash flows from such projects on our analysis of the respective markets and estimates of
revenues and operating profits related to these projects.
IBM. The in-process technology acquired in the IBM purchase primarily consisted of the IBM immune system
technology and related anti-virus patents. This technology is designed to detect previously unknown viruses, analyze
them and distribute a cure, all automatically and faster than existing methods. We intend to integrate this technology
into our suite of anti-virus products and engage in considerable amount of infrastructure enhancement required for its
deployment throughout 1999.
We assumed that revenue attributable to this in-process technology would increase substantially during the first year
and then decrease at rates of 35% to 14% during the remaining three years of the four year projection. We projected
annual revenues to range from approximately $17 million to $8 million over the term of the projection. We based
these projections on:
• penetration into IBM’s and our existing installed base of customers;
• anticipated growth rates of the anti-virus markets;
• an accelerated growth of new customers during the first year of delivering immune system technology; and
• the estimated life of the underlying technologies.
Based on our historical experience with similar products, we estimated marketing and sales expenses for the in-process
technology to be 40% as a percentage of revenue throughout the valuation period. Based on our historical general and
administrative expenses, we estimated general and administrative expenses to be 7% throughout the period of analysis.
We assumed operating profit before acquisition related amortization charges would be approximately $4 million during
the first year. We assumed that it would decrease at annual rates ranging from 35% to 14% during the remaining
periods, resulting in annual operating profits ranging between approximately $4 million and $2 million. We estimated
costs to be incurred to reach technological feasibility of in-process technologies from IBM as of the date of the
agreement to total approximately $2 million. We estimated the in-process technology to be approximately 78%
complete at that time. We projected the introduction of acquired in-process technologies in early/mid 1999 and now
expect the introduction to take place in the second half of 1999.
We used a discount rate of 30% for valuing the in-process technology from IBM, which we believe to reflect the risk
associated with the completion of these research and development projects and the estimated future economic benefits
to be generated subsequent to their completion. This discount rate is higher than our weighted average cost of capital
of 17% due to the fact that the technology had not reached technological feasibility as of the date of the valuation.
The assumptions and projections discussed for the immune system and related anti-virus technology acquired from IBM
were made based on information available at the time and should not be taken as indications of actual results, which
could vary materially based on the risks and uncertainties identified in the risk factors set forth in this Form 10-K.
BINARY. The in-process technology acquired in the Binary acquisition primarily consisted of disk cloning
technologies associated with Ghost, the flagship product of Binary. Ghost software is designed to create a complete
image of a hard drive in the form of a single file that can be copied to another computer connected via a network.
We assumed that revenue attributable to Binary’s in-process technology will increase in the first three years of the five
year projection period at annual rates ranging from 1108% to 88% and then decrease at rates of 3% to 74% over the
remaining periods as other technologies enter the marketplace. We projected annual revenues to range from
approximately $1 million to $14 million over the projected period. We based these estimates on:
• aggregate growth rates for the business as a whole;
• individual product revenues;
• anticipated product development cycles; and
• the life of the underlying technology.