Symantec 1998 Annual Report Download - page 30

47
SYMANTEC CORPORATION
46 SYMANTEC CORPORATION
As of March 31, 1998 and 1997, the estimated fair value of the cash equivalents,
short-term investments and long-term investments consisted of the following:
Cash equivalents, short and long-term investments 1998 1997
(In thousands)
Money market funds $ 15,685 $ 2,598
Corporate securities 161,848 69,326
Bank securities and deposits 41,655 20,755
U.S. government and government sponsored securities 12,717 33,648
Total available-for-sale and trading investments $ 231,905 $ 126,327
The estimated fair value of marketable securities by contractual maturity as of
March 31, 1998 are as follows:
Cash equivalents, short and long-term investments 1998
(In thousands)
Due in one year or less $ 197,647
Due after one year through three years 18,685
Due after three years 15,573
$ 231,905
Fair values of cash equivalents, short-term investments and long-term investments
and trading assets approximate cost due to one or more of the following: the
short-term maturities of the investments, absence of changes in underlying interest
rates or the absence of changes in security credit ratings.
As of March 31, 1998 and 1997, the estimated fair value of the restricted investments
consisted of the following:
Restricted Investments 1998 1997
(In thousands)
Money market funds $ — $ 6
U.S. government and government sponsored securities 59,370 47,442
$ 59,370 $ 47,448
The estimated fair value of restricted marketable securities by contractual maturity as
of March 31, 1998 are as follows:
Restricted Investments 1998
(In thousands)
Due in one year or less $ 54,334
Due after one year through three years 5,036
$ 59,370
The Company’s available-for-sale
restricted investments relate to certain
collateral requirements for lease agreements
associated with Symantec’s corporate
facilities in Cupertino, California. Fair
values of the restricted investments
approximate cost due to one or more of
the following: the short-term maturities
of the investments, absence of changes in
underlying interest rates or the absence
of changes in security credit ratings.
Unrealized gains (losses) on all avail-
able-for-sale securities are reported as a
component of stockholders’ equity and
are not material.
During the period covered by the
financial statements, the Company has
not used any derivative instrument for
trading purposes. Symantec utilizes some
natural hedging to mitigate the Company’s
foreign currency exposures and the
Company hedges certain residual expo-
sures through the use of one-month foreign
exchange forward contracts. The Company
enters into foreign exchange forward
contracts with financial institutions pri-
marily to protect against currency exchange
risks associated with certain balance sheet
positions. The fair value of foreign
exchange forward contracts are based on
quoted market prices. At March 31, 1998,
outstanding forward exchange contracts
had a notional amount of approximately
$47.5 million, all of which mature in 35
days or less. The net liability of forward
contracts was a notional amount of
approximately $47.5 million at March 31,
1998. The fair value of foreign currency
exchange forward contracts approximates
cost due to the short maturity periods
and the minimal fluctuations in foreign
currency exchange rates. The Company
does not hedge its translation risk.
Note 6. Convertible Subordinated
Debentures
On April 2, 1993, the Company issued
convertible subordinated debentures
totaling $25.0 million. The debentures bear
interest at 7.75% payable semiannually and
are convertible into Symantec common
stock at $12 per share at the option of the
investor. The debentures are due in three
equal annual installments beginning in 1999
and are redeemable at the option of the
investors in the event of a change in control
of Symantec or the sale of all or substantially
all of the assets of the Company. Symantec,
at its option, may redeem the notes at any
time with 30 to 60 days notice; however,
the Company could incur a prepayment
penalty for early redemption. The holders
are entitled to certain registration rights
relating to the shares of common stock
resulting from the conversion of the deben-
tures. The Company reserved 2,083,333
shares of common stock to be issued upon
conversion of these debentures. The deben-
tures limit the payment of cash dividends
and the repurchase of capital stock to a total
of $10.0 million plus 25% of cumulative
net income subsequent to April 2, 1993.
On April 26, 1995, convertible subor-
dinated debentures totaling $10.0 million
were converted into 833,333 shares of
Symantec common stock, leaving
1,250,000 shares of common stock reserved
for future conversion as of March 31, 1997.
During October 1997, convertible
subordinated debentures totaling $0.7
million were converted into 59,666 shares
of Symantec common stock, leaving
1,190,334 shares of common stock reserved
for future conversions as of March 31, 1998.
The estimated fair value of the $14.3
million convertible subordinated debentures
was approximately $32.8 million at
March 31, 1998. The estimated fair value
was based on the total shares of common
stock reserved for issuance upon conversion
of the debentures at the closing price of
the Company’s common stock at March 31,
1998, which exceeded the conversion
price of $12 per share, plus accrued interest.
Note 7. Line of Credit
The Company recently renewed its $10.0
million bank line of credit to expire in
May 2000. The line of credit is available
for general corporate purposes and bears
interest at the banks’ reference (prime)
interest rate (8.50% at March 31, 1998), the
U.S. offshore rate plus 1.25%, a CD rate
plus 1.25% or LIBOR plus 1.25%, at the
Company’s discretion. The line of credit
requires bank approval for the payment
of cash dividends. Borrowings under this
line are unsecured and are subject to the
Company maintaining certain financial
ratios and profits. The Company was in
compliance with the line of credit covenants
as of March 31, 1998. At March 31, 1998,
there was less than $1 million of standby
letters of credit outstanding under this line
of credit. There were no borrowings out-
standing under this line at March 31, 1998.
Note 8. Commitments
Symantec leases all of its facilities and
certain equipment under operating leases
that expire at various dates through 2026.
The Company currently subleases some
space under various operating leases which
will expire at various dates through 2001.
The future fiscal year minimum operating
lease commitments were as follows at
March 31, 1998: (In thousands)
1999 $ 16,841
2000 15,305
2001 12,086
2002 8,672
2003 8,169
Thereafter 21,288
Operating lease commitments 82,361
Sublease income (3,890)
Net operating lease
commitments $ 78,471
Rent expense charged to operations totaled
approximately $14.1 million, $12.4 million
and $11.3 million for the years ended
March 31, 1998, 1997 and 1996, respectively.
In fiscal 1997, Symantec entered into
lease agreements for two existing office
buildings, land and one office building
currently under construction in Cupertino,
California. Lease payments are based on
the three-month LIBOR in effect at the
beginning of each fiscal quarter. Symantec
has the right to acquire the related properties
at any time during the seven-year lease
period. If at the end of the lease term
Symantec does not renew the lease, purchase
the property under lease or arrange a third
party purchase, then the Company will
be obligated to the lessor for a guaranteed
residual amount equal to a specified per-
centage of the lessor’s purchase price of the
property. Symantec would also be obligated
to the lessor for all or some portion of
this amount if the price paid by the third
party is below the guaranteed residual
amount. The guaranteed residual payment
on the lease agreements for the two existing
office buildings totals approximately $38.4
million. The guaranteed residual payment
on the lease agreements for the land and
office building under construction was
approximately $19.4 million at March 31, 1998
and will increase to approximately $31.7
million at the completion of the con-
struction during fiscal year 1999. As
security against these guaranteed residual pay-
ments, Symantec is required to maintain
a corresponding investment in U.S.
Treasury securities with maturities not to
exceed three years. Symantec is restricted
in its use of these investments per the
terms of the lease agreement. At March
31, 1998, the investments total approxi-
mately $59.4 million and are classified as
non-current restricted investments within
the financial statements.
The Company currently occupies a
portion of these office buildings and has
assumed the right to sub-lease income
provided by the other tenants. The sub-
lease agreements have terms expiring in
August 1999 through February 2001.
Note 9. Income Taxes
The components of the provision (benefit) for income taxes were as follows:
Year Ended March 31,
(In thousands) 1998 1997 1996
Current: Federal $ 13,615 $ 514 $ (5,882)
State 4,879 302 130
International 15,368 3,472 2,149
33,862 4,288 (3,603)
Deferred: Federal (5,788) 565 (1,006)
State (2,247) 126 —
International 1,181 (639) —
(6,854) 52 (1,006)
$ 27,008 $ 4,340 $ (4,609)