Symantec 2007 Annual Report Download - page 92

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years of experience in design and development of their products. Backlog relates to firm customer orders that
generally are scheduled for delivery within the next quarter, as well as OEM revenues that are reported in the next
quarter. We amortized the fair value of the backlog to Cost of revenues in the September 2005 quarter. We are
amortizing the fair values of all other Acquired product rights to Cost of revenues on a straight-line basis over their
estimated lives of four to five years.
Customer contracts and relationships represent existing contracts that relate primarily to underlying customer
relationships. We are amortizing the fair values of these assets to Operating expenses in the Consolidated
Statements of Income on a straight-line basis over an average estimated life of eight years.
Trade names relate to the Veritas product names that will continue in use. We are amortizing the fair values of
these assets to Operating expenses in the Consolidated Statements of Income on a straight- line basis over an
estimated life of ten years.
Goodwill
Approximately $8.6 billion of the purchase price has been allocated to goodwill. Goodwill represents the
excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The goodwill
was attributed to the premium paid for the opportunity to expand and better serve the addressable market and
achieve greater long-term growth opportunities than either company had operating alone. Management believes that
the combined company will be better positioned to deliver security and availability solutions across all platforms,
from the desktop to the data center, to customers ranging from consumers and small businesses to large
organizations and service providers. Goodwill recorded as a result of this acquisition is not deductible for tax
purposes.
In accordance with SFAS No. 142, goodwill will not be amortized but instead will be tested for impairment at
least annually or more frequently if certain indicators are present. In the event that management determines that the
value of goodwill has become impaired, we would incur an accounting charge for the amount of impairment during
the fiscal quarter in which the determination is made.
In-process research and development (IPR&D)
During fiscal 2006, we wrote off acquired IPR&D totaling $284 million in connection with our acquisition of
Veritas. The IPR&D was written off because the acquired technologies had not reached technological feasibility and
had no alternative uses. Technological feasibility is defined as being equivalent to completion of a beta-phase
working prototype in which there is no remaining risk relating to the development. At the time of the acquisition,
Veritas was developing new products in multiple product areas that qualified as IPR&D. These efforts included
NetBackup 6.1, Backup Exec 11.0, Server Management 5.0, and various other projects. At the time of the
acquisition, it was estimated that these IPR&D efforts would be completed over the following 12 to 18 months at an
estimated total cost of $120 million. As of March 31, 2007, the majority of all IPR&D projects had been completed
on schedule and within expected costs, except for one small project which is expected to be completed within the
next six months.
The value assigned to IPR&D was determined by estimating costs to develop the purchased IPR&D into
commercially viable products, estimating the resulting net cash flows from the projects when completed, and
discounting the net cash flows to their present value. The revenue estimates used in the net cash flow forecasts were
based on estimates of relevant market sizes and growth factors, expected trends in technology, and the nature and
expected timing of new product introductions by Veritas and its competitors.
The rate utilized to discount the net cash flows to their present value was based on Veritas’ weighted-average
cost of capital. The weighted-average cost of capital was adjusted to reflect the difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, the percentage of completion of each
project, anticipated market acceptance and penetration, market growth rates, and risks related to the impact of
86
SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)