Symantec 1998 Annual Report Download - page 31

49
SYMANTEC CORPORATION
48 SYMANTEC CORPORATION
The difference between the Company’s effective income tax rate and the federal statutory
income tax rate as a percentage of income (loss) before income taxes was as follows:
Year Ended March 31,
1998 1997 1996
Federal statutory rate 35.0% 35.0 % (35.0)%
State taxes, net of federal benefit 1.5 2.9 0.3
Non-deductible acquisition expenses — — 6.8
Impact of international operations (4.0) (9.2) —
Losses for which no benefit is
currently recognizable — — 16.9
Benefit of pre-acquisition losses
of acquired entities (10.1) (16.5) —
Other, net 1.7 2.1 0.7
24.1% 14.3 % (10.3)%
The principal components of deferred tax assets were as follows:
March 31,
(In thousands) 1998 1997
Tax credit carryforwards $ 6,821 $ 9,158
Net operating loss carryforwards 3,161 7,969
Inventory valuation accounts 2,806 2,327
Other reserves and accruals not currently tax deductible 12,828 8,570
Accrued compensation and benefits 3,512 2,392
Deferred revenue 4,155 10,187
Sales incentive programs 5,555 5,005
Allowance for doubtful accounts 1,365 984
Acquired software 1,139 2,613
Accrued acquisition, restructuring and other expenses 931 1,077
Other 2,599 2,868
44,872 53,150
Valuation allowance (25,195) (40,327)
$ 19,677 $ 12,823
Company contributions under the plan
were $2.2 million, $2.0 million and $1.5
million for the years ended March 31, 1998,
1997 and 1996, respectively.
Employee Stock Purchase Plan. In
October 1989, the Company established
the 1989 Employee Stock Purchase Plan
and a total of 3.4 million shares of common
stock have been reserved for issuance
under this plan. Subject to certain limi-
tations, Company employees may
purchase, through payroll deductions of
2 to 10% of compensation, shares of
common stock at a price per share that is
the lesser of 85% of the fair market value
as of the beginning of the offering period
or the end of the purchase period. As of
March 31, 1998, approximately 2.4 million
shares had been issued and 1.0 million
shares remain to be issued under the
Employee Stock Purchase Plan.
Stock Award Plans. During fiscal 1996,
the Company registered 400,000 shares
to be issued under the terms of the 1994
Patent Incentive Plan. The purpose of
this plan is to increase awareness of the
importance of patents to the Company’s
business and to provide employees with
incentives to pursue patent protection
for new technologies that may be valuable
to the Company. The Company’s execu-
tive officers are not eligible for awards
under the 1994 Patent Incentive Plan. As
of March 31, 1998, approximately 16,000
shares had been issued under this plan.
In March 1998, the Board of
Directors approved the terms of the 1998
Star Award Bonus Plan, under which the
Company may grant up to 5,000 shares
of common stock to employees who
perform exceptionally in a given quarter.
Directors and executive officers are not
eligible to receive awards under this plan.
Stock awards under this plan are recorded
as compensation expense at the time of
issuance. The Board of Directors
reserved 20,000 shares of common stock
for issuance under this plan. As of March 31,
1998, no shares had been issued under
this plan.
Stock Option Plans. The Company
maintains stock option plans pursuant to
which an aggregate total of approximately
20.1 million shares of common stock
have been reserved for issuance as incentive
and nonqualified stock options to
employees, officers, directors, consultants,
independent contractors and advisors to
the Company (or of any parent, subsidiary
or affiliate of the Company as the Board
of Directors or committee may deter-
mine). The purpose of these plans is to
attract, retain and motivate eligible persons
whose present and potential contributions
are important to the success of the
Company by offering them an opportunity
to participate in the Company’s future
performance through awards of stock
options and stock bonuses. Under the terms
of these plans, the option exercise price
may not be less than 100% of the fair
market value on the date of grant, the
options have a maximum term of ten years
and generally vest over a four-year period.
On May 14, 1996, Symantec stock-
holders approved the 1996 Equity
Incentive Plan (the “96 Plan”) which
superseded the 1988 Option Plan (the “88
Plan”) and made available approximately
2.7 million shares. On September 25, 1996,
stockholders approved an amendment to
the 96 Plan to make available for issuance
up to approximately 1.3 million additional
shares representing the number of options
previously granted pursuant to the 88
Plan that had expired, were canceled or
were unexercisable for any reason without
having been exercised in full. On
September 18, 1997, stockholders approved
an amendment to increase the number of
shares reserved for issuance by approxi-
mately 2.6 million to 6.7 million shares.
During March 1996, the Board of
Directors authorized the Company to
offer to each employee with stock
options having an exercise price greater
than $13.10 (the “Old Options”) the
opportunity to cancel the affected grants
and receive a new grant for the same
number of shares dated March 4, 1996
(the “New Options”). On the date of
grant, the New Options had an exercise
price equal to $13.10 and a stock price of
$12.63. Under the terms of this stock
option cancellation and regrant, all
options began vesting as of the new grant
date and no portion of any regranted
options were exercisable until March 4,
1997. Options representing a total of
approximately 2.3 million shares of com-
mon stock were canceled and regranted.
The weighted average fair value of these
New Options was $14.79. The President
and Chief Executive Officer, the then
Executive Vice President, Worldwide
Operations and Chief Financial Officer,
the majority of the then members of the
Executive Staff, and all members of the
Board of Directors elected to exclude
themselves from this stock option cancel-
lation and regrant.
Realization of the $19.7 million of net
deferred tax asset that is reflected in the
financial statements is dependent upon
the Company’s ability to generate suffi-
cient future U.S. taxable income.
Management believes that it is more
likely than not that the asset will be real-
ized based on forecasted U.S. earnings.
Approximately $23.3 million of the
valuation allowance for deferred tax
assets is attributable to unbenefitted
stock option deductions, the benefit of
which will be credited to equity when
realized. The remaining $1.8 million of
the valuation allowance represents net
operating loss and tax credit carryforwards
of various acquired companies that are
limited by separate return limitations and
under the “change of ownership” rules
of Internal Revenue Code Section 382.
The change in the valuation allowance
for the years ended March 31, 1998,
1997 and 1996 was a net decrease of
$15.1 million and $5.4 million, and a net
increase of $14.8 million, respectively.
Pretax income (loss) from interna-
tional operations was approximately
$65.0 million, $24.9 million and
$(4.1) million for the years ended
March 31, 1998, 1997 and 1996, respectively.
At March 31, 1998, the Company had
tax credit carryforwards of approximately
$7.0 million that expire in fiscal 1999
through 2013.
Note 10. Employee Benefits
401(k) Plan. Symantec maintains a
salary deferral 401(k) plan for all of its
domestic employees. The plan allows
employees to contribute up to 15% of
their pretax salary up to the maximum
dollar limitation prescribed by the
Internal Revenue Code. Symantec
matches 100% of the first $500 of
employees’ contributions and then 50%
of the employee’s contribution up to 6%
of the employees’ eligible compensation.