Symantec 2010 Annual Report Download - page 146

We adopted authoritative guidance on income taxes, effective March 31, 2007, that clarifies the accounting for
income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. It also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition.
This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount
that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to
estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate
these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to,
changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity.
Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge
to the tax provision in the period.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized
as expense over the requisite service period, which is generally the vesting period of the respective award. No
compensation cost is ultimately recognized for awards for which employees do not render the requisite service and
are forfeited.
Fair Value of Stock-Based Awards. We use the Black-Scholes option-pricing model to determine the fair
value of stock options. The determination of the grant date fair value of options using an option-pricing model is
affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These
variables include our expected stock price volatility over the term of the awards, actual and projected employee
stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends. We estimate the
expected life of options granted based on an analysis of our historical experience of employee exercise and post-
vesting termination behavior considered in relation to the contractual life of the option. Expected volatility is based
on the average of historical volatility for the period commensurate with the expected life of the option and the
implied volatility of traded options. The risk free interest rate is equal to the U.S. Treasury constant maturity rates
for the period equal to the expected life. We do not currently pay cash dividends on our common stock and do not
anticipate doing so in the foreseeable future. Accordingly, our expected dividend yield is zero. The fair value of each
RSU is equal to the market value of Symantec’s common stock on the date of grant. The fair value of each ESPP
purchase right is equal to the 15% discount on shares purchased.
Concentrations of Credit Risk
A significant portion of our revenue and net income (loss) is derived from international sales and independent
agents and distributors. Fluctuations of the U.S. dollar against foreign currencies, changes in local regulatory or
economic conditions, piracy, or nonperformance by independent agents or distributors could adversely affect
operating results.
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments, trade accounts receivable, and forward foreign exchange contracts. Our
investment portfolio is diversified and consists of investment grade securities. Our investment policy limits the
amount of credit risk exposure to any one issuer and in any one country. We are exposed to credit risks in the event of
default by the issuers to the extent of the amount recorded in the Consolidated Balance Sheets. The credit risk in our
trade accounts receivable is substantially mitigated by our credit evaluation process, reasonably short collection
terms, and the geographical dispersion of sales transactions. We maintain reserves for potential credit losses and
such losses have been within management’s expectations. See Note 11 for details of significant customers.
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SYMANTEC CORPORATION
Notes to Consolidated Financial Statements — (Continued)