Symantec 2001 Annual Report Download - page 41

Note 3. Acquisitions and Divestitures
Acquisition of AXENT On December 18, 2000, we acquired 100%
of the outstanding common stock of AXENT by issuing approximately
14,528,000 shares of our common stock to AXENT shareholders, based
on a predetermined exchange ratio of 0.50 shares of Symantec common
stock for each share of AXENT common stock. We also assumed all
of the outstanding AXENT employee stock options valued at approxi-
mately $87 million. We also accrued, as part of the purchase price,
approximately $18 million in acquisition related expenses, which
included financial advisory, legal and accounting, duplicative site and
fixed assets, and severance costs.As of March 31, 2001, the remaining
accrual of approximately $3 million relates primarily to legal and
accounting, duplicative site and severance costs. The transaction was
accounted for as a purchase. The combined total of the common stock
issued, options assumed and acquisition costs is approximately $925
million, based on the average of the closing prices of our common
stock on the agreement date of July 26, 2000 and for the three days
before and after July 26, 2000.
With respect to stock options assumed as part of the acquisition, all
AXENT employee stock options were exchanged for Symantec stock
options and are included in the purchase price based on their fair value
as of July 26, 2000. Any unvested AXENT options exchanged for
unvested Symantec options are also included in the purchase price
based on their fair value; however, the portion of the intrinsic value of
the unvested options that will be deemed to be earned over the
remaining vesting period of those options has been allocated to
deferred compensation and will be amortized over the remaining
vesting period. The fair value of the options to be assumed has been
based on the Black-Scholes option pricing model using the following
assumptions: fair market value of the underlying shares which is based
on the average closing price of Symantec’s common stock on July 26,
2000 and for the three days before and after July 26, 2000; the remain-
ing contractual life of each option was used for the expected life;
expected volatility of 0.65; no expected dividend rate; and risk-free
interest rate of 6.5%. The value of the deferred compensation of
approximately $1 million was derived using the guidance of FIN No. 44.
After certain adjustments made during the March 2001 quarter, the
aggregate adjusted purchase price has been allocated as follows, based
on an independent appraisal of the AXENT intangibles and in-process
research and development (in thousands):
Net tangible assets of AXENT $ 130,517
In-process research and development 22,300
Tradename 4,100
Workforce-in-place 10,670
Developed technology 75,500
Deferred income taxes (19,080)
Deferred compensation 992
Goodwill 699,660
Total purchase price $ 924,659
The consolidated financial statements reflect the preliminary alloca-
tions of the purchase price for the AXENT acquisition. The allocation
has not been finalized due to certain identified pre-acquisition contin-
gencies.Accordingly, in fiscal 2002 the allocation of purchase price and
its components may change as these contingencies are resolved.
In-process research and development had not reached technological
feasibility based on identifiable technological risk factors which
indicate that even though successful completion is expected, it was not
assured at the acquisition date and accordingly has been charged to
operations. The amount allocated to tradename, workforce-in-place
and developed technology is being amortized over the estimated useful
lives of four years. The purchase price in excess of tangible assets and
identifiable intangible assets has been allocated to goodwill and will be
amortized over its expected useful life of four years.
The tangible assets of AXENT acquired in the merger principally
include cash, marketable securities, accounts receivable and fixed
assets. Liabilities of AXENT assumed in the merger principally include
accounts payable and obligations associated with providing ongoing
maintenance and technical support contracts.
Acquisition of 20/20 Software On March 31, 2000, we purchased
100% of the outstanding common stock of 20/20 Software (“20/20”)
for up to $16.5 million. The terms of the agreement require two guar-
anteed payments totaling approximately $7.5 million plus contingent
payments based on targeted future sales of certain of our products.
The contingency period is from July 1, 2000 to June 30, 2001. The
maximum contingency payment per the agreement is $9.0 million.
The transaction was accounted for as a purchase. In connection with
the transaction, we originally recorded approximately $6.1 million for
goodwill and $2.3 million for acquired product rights, offset by $0.9
million in related income tax liabilities. During the September 2000
quarter, we resolved certain contingencies and as a result, we increased
the purchase price and the amount allocated to goodwill by approxi-
mately $0.5 million. During the March 2001 quarter, an additional
amount of approximately $4.2 million was recorded as goodwill. The
additional amount of $4.2 million represents contingent payments
recorded during fiscal 2001, of which $1.5 million remains as an
accrual at March 31, 2001. As we pay additional amounts over the con-
tingency period, we will record additional goodwill equal to these
payments. The goodwill and acquired product rights will be amortized
over a five-year period.
Acquisition of L-3 Network Security On March 9, 2000, we acquired
the operations of L-3 Network Security (“L-3”) for a one-time cash
payment of approximately $20.1 million. The transaction was
accounted for as a purchase. In connection with the transaction, we
recorded approximately $3.1 million for acquired in-process research
and development, $12.4 million for goodwill, $3.9 million for acquired
product rights and $0.7 million for other tangible and intangible
assets. A valuation specialist used our estimates to establish the
amount of acquired in-process research and development. The good-
will and other intangibles are being amortized over a five-year period.
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