Symantec 2014 Annual Report Download - page 150

•Performance-based restricted stock units and performance-contingent stock units. We use the Monte
Carlo simulation option pricing model (“Monte Carlo model”) to determine the fair value of each
performance-based restricted stock unit (“PRU”) and the fair value and derived service period of each
performance-contingent stock unit (“PCSU”). The determination of the grant date fair value and
derived service periods using a simulation 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 awards, risk-free interest rates and expected dividends.
Expected volatility is based on the average of historical volatility for the period commensurate with the
expected life of the PRUs and PCSUs. The risk-free interest rate is equal to the U.S. Treasury constant
maturity rates for the period equal to the expected life. For all periods prior to Fiscal 2014 we did not
pay cash dividends on our common stock, and therefore our expected dividend rate was zero for all
such periods presented. 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. The compensation
expense for PRUs is initially based on the probability of achieving the target level of the company-
specific performance condition, and is adjusted for subsequent changes in the estimated or actual
outcome of this performance condition. The compensation expense for PCSUs is amortized ratably
using the graded vesting attribution method over the derived service periods. Because the Company’s
granted PRUs and PCSUs include dividend-equivalent rights, the fair values of PRUs are not
discounted by the dividend yield.
Changes in the valuation assumptions and our related estimates may change the fair value for stock-based
compensation and the related expense recognized. There have not been any material changes to our stock-based
compensation expense due to changes in our valuation assumptions.
Concentrations of credit risk
A significant portion of our revenue and net income 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, and trade accounts receivable. Our investment policy limits the
amount of credit risk exposure to any one issuer and to 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 our 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 10 for details of significant
customers.
Advertising and other promotional costs
Advertising and other promotional costs are charged to operations as incurred and included in operating
expenses. These costs totaled $451 million, $594 million, and $667 million for fiscal 2014, 2013, and 2012,
respectively.
Contingencies
We evaluate contingent liabilities including threatened or pending litigation and government investigations
in accordance with the authoritative guidance on contingencies. We assess the likelihood of any adverse
judgments or outcomes from potential claims or 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
71