Symantec 2014 Annual Report Download - page 117

Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-
Scholes-Merton option pricing model (“BSM 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 expected life of the options, 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. If options are granted or assumed
without dividend-equivalents rights, the fair values are discounted by the dividend yield. Prior to the initial
declaration of a quarterly cash dividend on May 2, 2013, the fair value of options was measured based on an
expected dividend yield of 0% as we did not historically pay cash dividends on our common stock. For awards
granted on or subsequent to June 27, 2013, we used an annualized dividend yield based on the per share
dividends declared by our board of directors. See Note 15 of the Notes to Consolidated Financial Statements in
this annual report.
In accordance with the authoritative guidance on stock compensation, we record stock-based compensation
expense for awards that are expected to vest. As a result, judgment is required in estimating the amount of stock-
based awards that are expected to be forfeited. Although we estimate forfeitures based on historical experience,
actual forfeitures may differ. If actual results differ significantly from these estimates, stock-based compensation
expense and our results of operations could be materially impacted when we record an adjustment for the
difference in the period that the awards vest or are forfeited.
Contingencies and litigation
We evaluate contingent liabilities including threatened or pending litigation in accordance with the
authoritative guidance on contingencies. We assess the likelihood of any adverse judgments or outcomes from
potential claims or legal proceedings, as well as potential ranges of probable losses, when the outcomes of the
claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued
liabilities required, if any, for these contingencies is made after the analysis of each separate matter. Because of
uncertainties related to these matters, we base our estimates on the information available at the time of our
assessment. As additional information becomes available, we reassess the potential liability related to our
pending claims and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities
could have a material impact on our operating results and financial position.
Income taxes
We are required to compute our income taxes in each federal, state, and international jurisdiction in which
we operate. This process requires that we estimate the current tax exposure as well as assess temporary
differences between the accounting and tax treatment of assets and liabilities, including items such as accruals
and allowances not currently deductible for tax purposes. The income tax effects of the differences we identify
are classified as current or long-term deferred tax assets and liabilities in our Consolidated Balance Sheets. Our
judgments, assumptions, and estimates relative to the current provision for income tax take into account current
tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by
foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of
current and future tax audits could significantly impact the amounts provided for income taxes in our
Consolidated Balance Sheets and Consolidated Statements of Income.
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