Symantec 1999 Annual Report Download - page 36

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• anticipated product development cycles; and
• the life of the underlying technology.
Based on indications from similar companies, we estimated overall sales, marketing and general and administrative
expenses to be 30% throughout the valuation period.
We assumed operating profit before acquisition related amortization charges to be approximately $4 million during the
first year, increasing by 208% during the second year and then declining at annual rates ranging from 14% to 45%
during the remaining periods, resulting in annual operating profits ranging between 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, operating profit in early years increases as revenue
declines.
We estimated costs to be incurred to reach technological feasibility as of the date of acquisition for Quarterdeck in-
process technologies to total approximately $1 million. We estimated the in-process technology to be 20% complete as
of the date of the acquisition. We project introduction of acquired in-process technologies in mid/late 1999. The
percent completion is significantly lower than the percent completion of the previous purchase due to significant
changes in product features, R&D investment levels and introduction dates.
We used a discount rate of 20% for valuing the in-process technology from Quarterdeck, which we believe reflected
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 reflects a premium above that of the risk
associated with the acquired developed technology and is higher than our weighted average cost of capital.
The assumptions and projections discussed for the projects related to Quarterdeck’s CleanSweep product line 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.
There was no in-process research and development expenses in fiscal 1998. In fiscal 1997, Symantec entered into a
purchase agreement to acquire certain software technologies to enable Web Authoring for the Mac OS environment.
The terms of the purchase agreement provided that Symantec pay $3 million upon the signing of the agreement and the
delivery of the then in-process, pre-beta software technologies to Symantec. At the time of this purchase, no revenues
had been derived from any of the technologies acquired and revenues were not anticipated from these technologies
until calendar 1997. In accordance with SFAS 86, we utilized a working model of the desktop software product
(essentially a beta version of the product) as its point of technological feasibility for desktop products because a
detailed program does not exist. Symantec had consistently utilized this point in a desktop product’s development life
cycle for purposes of the capitalization of software. In accordance with the requirements of SFAS 86, we evaluated the
purchased software for technological feasibility and determined that a detailed program design did not exist.
Accordingly, we accounted for the cost of the purchased computer software the same as the costs incurred to develop
such software internally. Additionally, these software technologies had no alternate future use beyond the continuing
development efforts of the Web Authoring product. Accordingly, the Company expensed the cost of these software
technologies and recorded an approximately $3 million charge for the write-off of in-process research and development
in fiscal 1997.
General and Administrative Expenses .
General and administrative expenses were 6% of net revenues in fiscal 1999 and 7% of net revenues for both fiscal
1998 and 1997. General and administrative expenses decreased by 6% to $36 million in fiscal 1999 from $38 million
in fiscal 1998. In fiscal 1998, general and administrative expenses increased by 12% from $34 million in fiscal 1997.
General and administrative expenses decreased in fiscal 1999 as compared to fiscal 1998. This decrease was primarily
due to reductions in our information system costs. General and administrative expenses increased in fiscal 1998 as
compared to fiscal 1997 at a rate proportionate to net revenue growth. This increase was the result of increased
personnel expenses associated with the growth of the Company.
Litigation Judgment .
Litigation expenses that related to a judgment by a Canadian court on a decade-old copyright action assumed by us as a
result of our acquisition of Delrina Corporation totaled approximately $6 million for fiscal 1999. See Note 16 of the
Notes to Consolidated Financial Statements in this Form 10-K.