Symantec 2007 Annual Report Download - page 101

The cost incurred in connection with the note hedge transactions, net of the related tax benefit and the proceeds
from the sale of the warrants, is included as a net reduction in Capital in excess of par value in the accompanying
Consolidated Balance Sheet as of March 31, 2007, in accordance with the guidance in EITF No. 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.
In accordance with SFAS No. 128, Earnings per Share, the Senior Notes will have no impact on diluted
earnings per share, or EPS, until the price of our common stock exceeds the conversion price of $19.12 per share
because the principal amount of the Senior Notes will be settled in cash upon conversion. Prior to conversion we will
include the effect of the additional shares that may be issued if our common stock price exceeds $19.12 per share
using the treasury stock method. As a result, for the first $1.00 by which the price of our common stock exceeds
$19.12 per share there would be dilution of approximately 5.4 million shares. As the share price continues to
increase, additional dilution would occur at a declining rate such that a price of $27.3175 per share would yield
cumulative dilution of approximately 32.9 million shares. If our common stock exceeds $27.3175 per share we will
also include the effect of the additional potential shares that may be issued related to the warrants using the treasury
stock method. The Senior Notes along with the warrants have a combined dilutive effect such that for the first $1.00
by which the price exceeds $27.3175 per share there would be cumulative dilution of approximately 39.5 million
shares prior to conversion. As the share price continues to increase, additional dilution would occur but at a
declining rate.
Prior to conversion, the note hedge transactions are not considered for purposes of the EPS calculation as their
effect would be anti-dilutive. Upon conversion, the note hedge will automatically serve to neutralize the dilutive
effect of the Senior Notes when the stock price is above $19.12 per share. For example, if upon conversion the price
of our common stock was $28.3175 per share, the cumulative effect of approximately 39.5 million shares in the
example above would be reduced to approximately 3.9 million shares.
The preceding calculations assume that the average price of our common stock exceeds the respective
conversion prices during the period for which EPS is calculated and exclude any potential adjustments to the
conversion ratio provided under the terms of the Senior Notes. See Note 9 for information regarding the impact on
EPS of the Senior Notes and warrants in the current period.
Convertible subordinated notes
In connection with the acquisition of Veritas Software Corporation on July 2, 2005, we assumed the Veritas
0.25% convertible subordinated notes, or the 0.25% Notes. On August 1, 2006, at the option of certain of the
holders, we repurchased $510 million of the 0.25% Notes at a price equal to the principal amount, plus accrued and
unpaid interest. On August 28, 2006, at our election, we repurchased the remaining $10 million of the 0.25% Notes
at a price equal to the principal amount plus accrued and unpaid interest and fully paid off our convertible
subordinated notes debt obligation.
Line of credit
In July 2006, we entered into a five-year $1 billion senior unsecured revolving credit facility that expires in
July 2011. Borrowings under the facility will bear interest, at our option, at either a rate equal to the bank’s base rate
or a rate equal to LIBOR plus a margin based on our leverage ratio, as defined in the credit facility agreement. In
connection with the credit facility, we must maintain certain covenants, including a specified ratio of debt to
EBITDA (earnings before interest, taxes, depreciation, and amortization), as well as various other non-financial
covenants. At March 31, 2007, we were in compliance with all covenants. We have made no borrowings under the
credit facility at March 31, 2007.
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SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)