Symantec 2006 Annual Report Download - page 93

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SYMANTEC CORPORATION
Notes to Consolidated Financial Statements Ì (Continued)
Deferred stock-based compensation
We assumed Veritas' stock options and RSUs, and converted them into stock options to
purchase 66 million shares of Symantec common stock and 425,000 Symantec RSUs. The fair value of the
assumed stock options was $688 million using the Black-Scholes valuation model with the following weighted
average assumptions: volatility of 36%, risk-free interest rate of 3.4%, expected life of 3.5 years, and dividend
yield of zero. The fair value of the RSUs was $11 million based on the fair value of the underlying shares on
the announcement date. The intrinsic value of the unvested options and RSUs was valued at $63 million and
was recorded in Deferred stock-based compensation within Stockholders' equity in the Consolidated Balance
Sheets in the September 2005 quarter. The difference between the fair value and the intrinsic value of the
unvested portion of the options and RSUs was $636 million and was included in the purchase price
consideration.
The deferred stock-based compensation is being amortized to operating expense over the remaining
vesting periods of the underlying options or RSUs on a straight-line basis. During the period from the
acquisition date through March 31, 2006, certain unvested options and RSUs were cancelled as a result of
employee terminations, and deferred stock-based compensation was reduced by $6 million. We recorded
amortization of deferred stock-based compensation from the Veritas transaction of $27 million in fiscal 2006.
Deferred tax liability
We have recognized deferred tax assets and liabilities for the tax effects of differences between assigned
values in the purchase price and the tax bases of assets acquired and liabilities assumed. A significant portion
of the net deferred tax liability in the purchase price allocation is attributable to the tax effect of the difference
between the assigned value of identified intangible assets and their tax bases. In determining the tax effect of
these basis differences, we have taken into account the allocation of these identified intangibles among
different taxing jurisdictions, including those with nominal or zero percent tax rates.
Short-term loan
In connection with the acquisition of Veritas, we assumed a short-term loan with a principal amount of
EURO 411 million. We paid the entire balance of the short-term loan on July 7, 2005.
Pro forma results
The following table presents pro forma results of operations of Symantec and Veritas, as though the
companies had been combined as of the beginning of the earliest period presented. The unaudited pro forma
results of operations are not necessarily indicative of results that would have occurred had the acquisition
taken place on April 1, 2004 or of results that may occur in the future. Pro forma net income includes
amortization of intangible assets related to the acquisition of $119 million per quarter and amortization of
deferred stock-based compensation of $6 million per quarter. Pro forma net income also includes amortization
of backlog of $46 million for fiscal 2005. We excluded the effect of the purchase accounting adjustment to
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