Symantec Blames New Tax Trouble On Human Error

Symantec CFO James Beer Tuesday told Wall Street analysts that a "human error" resulted in the company failing to file a timely tax extension that could end up costing the security-storage giant $130 million.

Beer said Symantec is unable to confirm a lower tax rate on a distribution made from a Veritas foreign subsidiary due to the "failure to file a timely extension."

"The failure to file the extension represents a human error and a breakdown in our tax controls," said Beer, who took the top financial job at Symantec several months ago. "Right at the top of my priorities list is making sure that our controls are robust and fully utilized. And that the financing team is properly skilled and resourced as we move into the new fiscal year."

Beer said the Symantec tax department has suffered significant attrition in the wake of the blockbuster $10.25 billion Veritas acquisition, leaving those remaining tax department employees with "significantly increased workloads."

Beer has recently hired an experienced tax partner from a big four accounting firm to lead the tax group. That new boss is looking at implementing further changes, he said. In addition, Symantec has recently hired a senior vice president of finance operations.

"We are seeking a ruling from the IRS on this matter," said Beer. "If we are unable to obtain verification from the IRS that we are eligible for the lower rate of tax on the distribution we will be required to pay additional U.S. taxes totaling $130 million."

The $130 million tax issue could impact a separate Internal Revenue Dispute, said Beer. The IRS is asking Symantec to pay $900 million in back taxes from the Veritas acquisition. If Symantec is forced to pay the $130 million, it would reduce the taxes that the IRS is seeking under the merger tax dispute, said Beer.

The tax disclosure issue came after Beer warned that the company is considering making changes that could lower recognized enterprise revenue by $200 million in fiscal 2007. That effort is aimed at merging enterprise security and storage availability buying programs, he said, which would result in some enterprise revenue being recognized on a prorated basis over the term of the license. The maintenance accounting license change would drive $40 million of the $200 million changes, he said.

Symantec CEO John Thompson said if the changes are made to improve the licensing flexibility it will have a "flow through effect" on earnings per share. That said, he noted that a single buying program structure would provide customers with increased flexibility in terms of how they do business with the company.

As for the current quarter and fiscal year, Symantec effectively lowered guidance. Symantec said Non-GAAP revenue for fiscal 2007, which began April 1, is expected to be in the range of $5.3 billion to $5.5 billion, including about $55 million in deferred revenue from the Veritas merger. Non-GAAP fully diluted earnings per share are estimated between $1.05 and $1.15, excluding about $555 million in expenses.

For the fourth quarter ended March 31, Symantec posted better than expected results. Symantec posted Non-GAAP earnings per share of 26 cents on Non-GAAP sales of $1.30 billion. The Wall Street consensus was earnings per share of 25 cents on sales of $1.26 billion, according to Thomson First Call.

Symantec shares were up 55 cents in after hours trading to $17.69. Symantec shares closed down 29 cents on Tuesday to $17.09.