Symantec 1999 Annual Report Download - page 72

SYMANTEC CORPORATION
Notes to Consolidated Financial Statements, Continued
58
Advertising expenditures are charged to operations as incurred except for certain direct mail campaigns, which are
deferred and amortized over the expected period of benefit. Deferred advertising costs have not been material in all
periods presented.
NOTE 3. BUSINESS COMBINATIONS
Effective May 18, 1998, we entered into a Master Agreement with IBM to acquire rights to IBM’s digital immune
technology. In addition, we assumed the majority of IBM’s license arrangements with customers of IBM anti-virus
products. In return for the various rights we acquired from IBM, we agreed to pay $16 million in installments over a
specified period as well as pay royalties on revenues received by us from distribution of immune-enabled Symantec
products and immune services provided by us using the digital immune technology. The royalties are subject to
specified maximums and vary by time periods with ultimate termination of royalties as of a specified date. We also
entered into a patent cross-licensing agreement under which the parties licensed to each other their respective patent
portfolios. The transaction was accounted for as a purchase. As of March 31, 1999, we paid IBM $8 million in cash
with the remaining $8 million payable in two equal installments in August 1999 and November 1999. In addition, we
assumed liabilities of $3 million and incurred additional expenses of approximately $1 million as part of the
transaction. Under the transaction, we recorded approximately $7 million for in-process research and development,
$12 million for goodwill and $1 million for certain prepaid research and development and other assets. A valuation
specialist used our management’s estimates to establish the amount of in-process research and development.
Goodwill will be amortized over 5 years. As of March 31, 1999, we incurred approximately $2 million in goodwill
amortization expense related to this asset.
On June 24, 1998, we purchased the operations of Binary, an Auckland, New Zealand based company, for
approximately $28 million, which included approximately $1 million of acquisition related costs. The transaction was
accounted for as a purchase. Under the transaction, we recorded approximately $7 million for in-process research and
development and $17 million for capitalized software technology, with the remaining $4 million of the purchase price
allocated to goodwill, net tangible and intangible assets. A valuation specialist used our management’s estimates to
establish the amount of in-process research and development. The capitalized software, goodwill and intangibles are
being amortized over a 4 year period. As of March 31, 1999, we incurred approximately $4 million of amortization
expense related to these assets.
On September 28, 1998, we entered into an agreement whereby we purchased Intel Corporation’s anti-virus business
for approximately $17 million. We also licensed Intel’s systems management technology. Intel will promote Norton
AntiVirus through its worldwide reseller channels. As of March 31, 1999, we had paid approximately $12 million
under the agreement. The transaction was accounted for as a purchase. Under the transaction, we recorded
approximately $5 million for in-process research and development, $11 million for capitalized software technology
and $1 million for certain intangible assets. A valuation specialist used our management’s estimates to establish the
amount of in-process research and development. The capitalized software and intangibles are being amortized over a
5 year period. As of March 31, 1999, we incurred approximately $1 million of amortization expense related to these
assets.
On October 15, 1998, we signed a definitive merger agreement to acquire Quarterdeck. On November 17, 1998, we
completed our tender offer for the common stock of Quarterdeck acquiring an approximately 63% interest. On March
29, 1999, we acquired Quarterdeck’s remaining shares through a cash merger at the tender offer price of $0.52 per
share in accordance with the definitive merger agreement. The transaction was accounted for as a purchase. Under
the transaction, we recorded approximately $8 million of acquired in-process research and development, $8 million of
capitalized software technology, $66 million of goodwill and $3 million of other intangibles. A valuation specialist
used our management’s estimates to establish the amount of in-process research and development. As of March 31,
1999, we had incurred less than $1 million of capitalized software amortization expense and approximately $3 million
of goodwill amortization expense related to this acquisition. The amounts related to workforce in place is being
amortized over 2 years. The capitalized software, goodwill and other intangibles will be amortized over a 5 year
period. In addition, Quarterdeck had issued $25 million of 6% convertible senior subordinated notes, due in 2001, to
an institutional investor in a private placement pursuant to the terms of a Note Agreement dated March 1, 1996. The
Notes were paid in full without any premium on March 30, 1999.