Symantec 2007 Annual Report Download - page 57

answered our petition and the case has been docketed for trial in U.S. Tax Court. In the March 2007 quarter, the IRS
agreed to dismiss any penalty assessment, and we have otherwise agreed to settle several of the lesser issues
(representing $35 million of the total assessment) for $7 million of tax. As a result, the outstanding issue represents
$832 million of tax. No payments will be made on the assessment until the issue is definitively resolved. If, upon
resolution, we are required to pay an amount in excess of our provision for this matter, the incremental amounts due
would be accounted for principally as additions to the Veritas purchase price as an increase to goodwill. Any
incremental interest accrued subsequent to the date of the Veritas acquisition would be recorded as an expense in the
period the matter is resolved.
In the fourth quarter of fiscal 2006, we made $90 million of tax-related adjustments to the purchase accounting
for Veritas, consisting of $120 million of additional pre-acquisition tax reserve-related adjustments, partially offset
by a $30 million reduction in other pre-acquisition taxes payable. While we strongly disagree with the IRS over both
its transfer pricing methodologies and the amount of the assessment, we have established additional tax reserves for
all Veritas pre-acquisition years to account for both contingent tax and interest risk.
On March 30, 2006, we received notices of proposed adjustment from the IRS with regard to an unrelated audit
of Symantec for fiscal 2003 and 2004. The IRS claimed that we owed an incremental tax liability with regard to this
audit of $110 million, excluding penalties and interest. The incremental tax liability primarily relates to transfer
pricing matters between Symantec and a foreign subsidiary. On September 5, 2006, we executed a closing
agreement with the IRS with respect to the audit of Symantec’s fiscal 2003 and 2004 federal income tax returns. The
closing agreement represents the final assessment by the IRS of additional tax for these fiscal years of approx-
imately $35 million, including interest. Based on the final settlement, a tax benefit of $8 million was recognized.
In the fourth quarter of fiscal 2006, we increased our tax reserves by an additional $64 million in connection
with all open Symantec tax years (fiscal 2003 to 2006). Since these reserves relate to licensing arising from acquired
technology, the additional accruals are primarily offset by deferred taxes.
We are as yet unable to confirm our eligibility to claim a lower tax rate on a distribution made from a Veritas
foreign subsidiary prior to the acquisition. The distribution was intended to be made pursuant to the Jobs Act, and
therefore eligible for a 5.25% effective U.S. federal rate of tax, in lieu of the 35% statutory rate. We are seeking a
ruling from the IRS on the matter. Because we were unable to obtain this ruling prior to filing the Veritas tax return
in May 2006, we have paid $130 million of additional U.S. taxes. Since this payment relates to the taxability of
foreign earnings that are otherwise the subject of the IRS assessment, this additional payment reduced the amount of
taxes payable accrued as part of the purchase accounting for pre-acquisition contingent tax risks. For further
information, see Note 13 of the Notes to Consolidated Financial Statements and Critical Accounting Estimates —
Income Taxes above.
In connection with the note hedge transactions discussed in Note 6 of the Notes to the Consolidated Financial
Statements, we established a deferred tax asset of approximately $232 million to account for the book-tax basis
difference in the convertible notes resulting from note hedge transactions. The deferred tax asset has been accounted
for as an increase to Capital in excess of par value.
LIQUIDITY AND CAPITAL RESOURCES
2007 2006 2005
Year Ended March 31,
(In thousands)
Net cash provided by (used for):
Operating activities .......................... $1,666,235 $ 1,536,896 $1,207,459
Investing activities ........................... (222,455) 3,619,605 (663,159)
Financing activities .......................... (1,309,567) (3,910,064) (31,990)
Effect of exchange rate fluctuations on cash and cash
equivalents ................................ 109,199 (22,248) 18,261
Net change in cash and cash equivalents ............ $ 243,412 $ 1,224,189 $ 530,571
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