Symantec 2006 Annual Report Download - page 85

stock method, the dilutive impact of restricted stock and restricted stock units using the treasury stock
method, and conversion of debt, if dilutive in the period. Potentially dilutive common shares are excluded in
net loss periods, as their effect would be antidilutive.
Stock-Based Compensation
We account for stock-based compensation awards to employees using the intrinsic value method in
accordance with Accounting Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to
Employees, and to non-employees using the fair value method in accordance with SFAS No. 123, Accounting
for Stock-Based Compensation. In addition, we apply applicable provisions of FIN 44, Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB No. 25. As discussed in Note 3, in
connection with the acquisition of Veritas, we assumed outstanding options to purchase shares of Veritas
common stock and converted them into options to purchase 66 million shares of Symantec common stock.
Pro forma information regarding net income and net income per share is required by SFAS No. 123. This
information is required to be determined as if we had accounted for our employee stock options, including
shares issued under the Employee Stock Purchase Plan, or ESPP, granted subsequent to March 31, 1995,
under the fair value method of that statement. The following table illustrates the effect on net income and net
income per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation using the Black-Scholes option-pricing model for the three years ended March 31,
2006, 2005, and 2004:
Year Ended March 31,
2006 2005 2004
(In thousands, except per share data)
Net income, as reportedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 156,852 $ 536,159 $370,619
Add: Employee stock-based compensation expense
included in reported net income, net of tax ÏÏÏÏÏÏÏÏ 26,996 3,087 Ì
Less: Stock-based employee compensation expense
determined using the fair value method for all
awards, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (239,071)1(116,957) (97,711)
Pro forma net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (55,223) $ 422,289 $272,908
Basic net income (loss) per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.16 $ 0.81 $ 0.61
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.06) $ 0.64 $ 0.45
Diluted net income (loss) per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.15 $ 0.74 $ 0.54
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (0.06) $ 0.59 $ 0.41
1Includes a charge of $18 million resulting from the inclusion of unamortized expense for ESPP offering
periods that were cancelled as a result of a plan amendment to eliminate the two-year offering period
effective July 1, 2005. Also includes a charge resulting from the acceleration of certain stock options with
exercise prices equal to or greater than $27 per share outstanding on March 30, 2006.
In light of new accounting guidance under SFAS No. 123R, Share-Based Payment, which addresses
option valuation for employee awards, we have reevaluated our assumptions used in estimating the fair value
of employee options granted beginning in the December 2005 quarter. Based on this assessment, management
has determined that historical volatility adjusted for the effect of implied volatility is a better indicator of
expected volatility than historical volatility alone. Also, beginning with the December 2005 quarter, we
decreased our estimate of the expected life of new options granted to our employees from five years to three
years. The reduction in the estimated expected life was a result of an analysis of our historical experience and a
decrease in the contractual term of the options from ten to seven years. As a result of the change from solely
historical volatility to historical volatility adjusted to reflect the effect of implied volatility and the reduction of
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