Symantec 1999 Annual Report Download - page 34

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We estimated marketing and sales expenses for the in-process technology to be 31% 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 projected operating profit before acquisition related amortization charges to increase from less than $1 million
during the first year to approximately $7 million during the third year. We projected that operating profits would then
decrease from 4% to 74% during the remaining two years, resulting in profits of approximately $7 million and $2
million. Because we assumed that most product development costs would be incurred in the first year, reducing
operating expenses as a percentage of revenue in later years, we anticipate operating profit to increase faster than
revenue in the early years.
We estimated costs to be incurred to reach technological feasibility of in-process technologies from Binary as of the
date of the acquisition to total approximately $2 million. We estimated the in-process technology to be approximately
50% complete at that time. We projected the introduction of acquired in-process technologies in early/mid 1999 and
this has been completed.
We used a discount rate of 30% for valuing the in-process technologies from Binary, 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 disk cloning technologies acquired from Binary 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.
INTEL. The in-process technology acquired in the Intel purchase consists of the LANDesk anti-virus technology
which resides in the LANDesk virus protect product line, LDVP. The LDVP product offers centrally managed virus
protection to computer networks. We intend to initially sell the next version of LDVP software on a stand-alone basis.
We anticipate that during 1999 this technology will be integrated into our suite of corporate anti-virus offerings, in
addition to future corporate products.
We assumed revenue attributable to Intel’s in-process technology to be approximately $12 million during the first year,
increasing to approximately $13 million during the second year and then declining at annual rates ranging from 35% to
77% during the remaining three years of the five year projection as other technologies enter the marketplace. We
projected annual revenues to range from approximately $13 million to $1 million over the projected period. We based
these estimates on:
• revenue estimates of the acquired LDVP business;
• aggregate growth rates for the anti-virus business as a whole;
• anticipated revenue to be earned from future corporate product offerings;
• anticipated product development cycles; and
• the life of the underlying technology.
Based on our historical experience with similar products, we estimated marketing and sales expenses for the in-process
technology to be 43% 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 8% throughout the period of analysis.
We assumed operating profit before acquisition related amortization charges to be approximately $5 million during the
first year, increasing by 7% during the second year and then declining at annual rates ranging from 34% to 77% during
the remaining periods, resulting in annual operating profits ranging between approximately $5 million and less than $1
million. We assumed a growth rate for operating profits, which are slightly higher than revenue projections, when
projecting the operating profit during the early years. The higher growth rate is attributable to the increase in revenues
discussed above as the technology is integrated more deeply into our product offerings, while research costs remain
constant.
We estimated costs to be incurred to reach technological feasibility of in-process technologies from Intel as of the date
of the product being delivered to us to total approximately $1 million. We estimated the in-process technology to be