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FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(X) Annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934
Commission file number 000-26994
For the fiscal year ended December 31, 1999
OR
( ) Transition report pursuant to Section 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
C. NETWORKS ASSOCIATES, INC.
3965 Freedom Circle
Santa Clara, CA 95054
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Item 1
REQUIRED INFORMATION
a. The financial statements of the Network Associates, Inc. Tax Deferred
Savings Plan as of December 31, 1999 and 1998 and for the years then ended
including: the statements of net assets available for benefits and the related
statements of changes in net assets available for benefits are contained in
Exhibit 1 to this Annual Report.
b. Consent of Mohler, Nixon & Williams, independent accountants, is
contained in Exhibit 23.1 to this Annual Report.
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the trustees (or other persons who administer the employee benefit
plan) have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETWORK ASSOCIATES, INC. TAX
DEFERRED SAVINGS PLAN
Date: August 8, 2000 By /s/ Mary A. Champion
-------------------------------------
Mary A. Champion
Director, Compensation & Benefits
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Exhibit 1
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
Financial Statements
Years ended December 31, 1999 and 1998
Table of Contents
<TABLE>
<S> <C>
Independent Accountants' Report............................................4
Financial Statements:
Statements of Net Assets Available for Benefits............................5
Statements of Changes in Net Assets Available for Benefits.................6
Notes to Financial Statements..............................................7
</TABLE>
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To the Participants and
Plan Administrator of the
Network Associates, Inc.
Tax Deferred Savings Plan
INDEPENDENT ACCOUNTANTS' REPORT
We were engaged to audit the financial statements of the Network
Associates, Inc. Tax Deferred Savings Plan (the Plan) as of December 31, 1999
and 1998, and for the years then ended, as listed in the accompanying table of
contents. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Plan's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 1999 and 1998, and the changes in net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 26, 2000
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NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Investments, at fair value $61,533,244 $45,000,689
----------- -----------
Assets held for investment purposes $61,533,244 $45,000,689
Contributions receivable 549,701 361,729
----------- -----------
Net assets available for benefits $62,082,945 $45,362,418
=========== ===========
</TABLE>
See independent accountants' report and
accompanying notes to financial statements.
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NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
For the years ended
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Dividends and interest $ 3,081,128 $ 1,921,454
Net realized and unrealized appreciation
in fair value of investments 3,425,927 7,284,935
----------- -----------
6,507,055 9,206,389
Contributions:
Participants' 14,513,653 9,978,097
Employer's 2,879,358 3,339,083
----------- -----------
17,393,011 13,317,180
----------- -----------
Total additions 23,900,066 22,523,569
Deductions from net assets attributed to:
Withdrawals and distributions 7,143,674 9,373,461
Administrative expenses 35,865 5,471
----------- -----------
Total deductions 7,179,539 9,378,932
Net increase prior to transfers into the Plan 16,720,527 13,144,637
Transfer into the Plan 6,273,197
----------- -----------
Net increase 16,720,527 19,417,834
Net assets available for benefits:
Beginning of year 45,362,418 25,944,584
----------- -----------
End of year $62,082,945 $45,362,418
=========== ===========
</TABLE>
See independent accountants' report and
accompanying notes to financial statements.
6
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NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note 1 - The Plan and its significant accounting policies:
The following description of the Network Associates, Inc. (the Company) Tax
Deferred Savings Plan (the Plan) provides only general information. Participants
should refer to the Plan document for a more complete description of the Plan's
provisions. If a conflict exists between this document and the provisions of the
Plan document, the Plan document will govern.
The Plan is a defined contribution plan that was established effective as
of September 15, 1988 by the Company to provide benefits to eligible employees.
Effective as of January 1, 1998, the McAfee Associates, Inc. 401(k) and Profit
Sharing Plan was merged with and into the Network General Corporation Tax
Deferred Savings Plan, which was renamed the Network Associates, Inc. Tax
Deferred Savings Plan.
The Plan covers all employees except leased employees, independent
contractors or consultants, temporary employees who are not expected to complete
1,000 hours of service during a plan year, employees who are covered by a
collective bargaining agreement that does not specifically provide for coverage
under the Plan, and non-resident aliens who receive no earned income.
The Plan administrator believes that the Plan is currently designed and
operated in compliance with the applicable requirements of the Internal Revenue
Code and the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
Administration -
The Company has appointed an Administrative Committee (the Committee) to
manage the operation and administration of the Plan. The Company has contracted
with Fidelity Management Trust Company (Fidelity) to act as the trustee and to
provide certain administrative and recordkeeping services for the Plan.
Substantially all expenses incurred for administering the Plan are paid by the
Company.
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Investments -
Investments of the Plan are held by Fidelity and invested based solely upon
instructions received from participants. The Plan is intended to qualify as a
Section 404(c) Plan under ERISA. During 1998, the Network Associates Unitized
Stock Fund (NAI Stock Fund) became an investment option. The NAI Stock Fund
consists primarily of Company common stock, as well as a small percentage of
cash or other short-term liquid investments maintained to provide liquidity for
participant transactions such as loans or withdrawals.
The Plan's investment in mutual funds are valued at fair value as of the
last day of the Plan year, as measured by quoted market prices. The Plan's
investment in the NAI Stock Fund is valued at the closing stock price as of
December 31, 1999 plus the market value of the liquid investments. Participant
loans are valued at cost, which approximates fair value.
Income taxes -
The Plan has been amended since receiving its latest favorable
determination letter dated September 24, 1997. However, the Company believes
that the Plan is operated in accordance with, and continues to qualify under,
the applicable requirements of the Internal Revenue Code and related state
statutes, and that the trust, which forms a part of the Plan, is exempt from
federal income and state franchise taxes.
Reclassifications -
Certain reclassifications were made in the 1998 financial statements to
conform with the 1999 presentation.
Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
changes therein, and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Risks and uncertainties -
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds and other investment
securities. Investment securities are exposed to various risks, such as interest
rate, market fluctuations and credit risks. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that
changes in risks in the near term would materially affect participants' account
balances and the amounts reported in the statements of net assets available for
benefits and the statements of changes in net assets available for benefits.
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New accounting pronouncement -
In September 1999, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 99-3, "Accounting for and Reporting of Certain Defined Contribution
Benefit Plan Investments and Other Disclosure Matters." This SOP eliminates the
previous requirement for a defined contribution plan to disclose
participant-directed investment programs by fund. The Plan has adopted SOP 99-3
in its financial statements for the years ended December 31, 1999 and 1998.
Note 2 - Related party transactions:
Certain Plan investments in mutual funds are managed by Fidelity. Any
purchases and sales of these funds are open market transactions at fair market
value. Such transactions, while considered party-in-interest transactions under
ERISA regulations, are permitted under the provisions of the Plan and are
specifically exempted from the prohibition of party-in-interest transactions
under ERISA.
Note 3 - Participation and benefits:
Participant contributions -
Participants may elect to have the Company contribute a percentage, from 1%
to 15%, of their eligible pre-tax compensation up to the amount allowable under
current income tax regulations. Participants who elect to have the Company
contribute a portion of their compensation to the Plan agree to accept an
equivalent reduction in taxable compensation. Contributions withheld are
invested in accordance with the participant's direction and are allocated to
funds in 1% increments.
Participants are also allowed to make rollover contributions of amounts
received from other tax-qualified employer-sponsored retirement plans. Such
contributions are deposited in the appropriate investment funds in accordance
with the participant's direction and the Plan's provisions.
Employer contributions -
The Company is allowed to make matching contributions as defined in the
Plan and as approved by the Board of Directors. In 1999 and 1998, the Company
matched one dollar for each dollar contributed by an eligible employee to the
Plan for the first $1,000 contributed, and 25% of each eligible employee's
contribution in excess of $1,000. The Company's actual contribution may be
reduced by certain available forfeitures, if any, during the Plan year.
The Plan also allows for a discretionary profit sharing contribution. The
Company's profit sharing contributions, if any, is allocated among eligible
participants according to the
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terms of the Plan. No such profit sharing contribution was made during 1999;
approximately $24,000 was contributed in 1998.
Participant accounts -
Each participant's account is credited with the participant's pre-tax
contribution, matching contribution, profit sharing contribution, if any,
rollover contribution and allocable earnings or losses.
Payment of benefits -
Upon termination of employment, the participant (or the participant's
beneficiary in the event of the participant's death) may elect to receive a lump
sum payment equal to the value of the participant's vested interest in his or
her account. The Plan allows for automatic lump sum distribution of a
participant's vested account balance that does not exceed $5,000.
Loans to participants -
The Plan allows participants to borrow not less than $1,000 and up to the
lesser of $50,000 or 50% of their vested account balance. The loans are secured
by the participant's vested balance. Such loans bear interest at the available
market financing rates and must be repaid to the Plan within a five-year period,
unless the loan is used for the purchase of a principal residence in which case
the maximum repayment period cannot exceed fifteen years. The specific terms and
conditions of such loans are established by the Plan administrator. Outstanding
loans at December 31, 1999 carry interest rates, which range from 8% to 10%.
Vesting -
Participants' pre-tax and rollover contributions are 100% vested. The
Company's matching contributions and profit sharing contributions, if any, vest
ratably and are fully after the participant completes three years of credited
service.
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Note 4 - Investments:
The following table includes the fair values of net assets and investment
funds that represent 5% or more of the Plan's net assets at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Magellan Fund $13,045,673 $ 8,239,480
Intermediate Bond Fund 1,608,906 1,290,907
Blue Chip Fund 16,025,489 10,663,147
Low Price Stock Fund 1,214,351 703,084
Equity Income II Fund 4,925,974 4,348,719
Diversified International Fund 1,738,044 570,653
Retired Government Money Market Fund 7,680,526 9,196,559
U.S. Equity Index Fund 6,857,145 4,536,169
Invesco Total Return Fund 662,367 450,300
Warburg Emerging Growth Fund 1,489,564 657,424
Network Associates, Inc. Company Stock 5,477,240 3,811,493
Participant loans 807,965 532,754
----------- -----------
Assets held for
investment purposes $61,533,244 $45,000,689
=========== ===========
</TABLE>
The Plan's investments (including gains and losses on investments bought
and sold, as well as held during the year) appreciated (depreciated) in value as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998
---- ----
<S> <C> <C>
Common stock ($1,447,288) $2,020,784
Mutual funds 4,873,215 5,264,151
------------ ----------
$ 3,425,927 $7,284,935
============ ==========
</TABLE>
Note 5 - Party-in-interest transactions:
As allowed in the Plan, participants may elect to invest a portion of their
accounts in the NAI stock fund. Aggregate investment in Company common stock at
December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Date Number of shares Fair value
---- ---------------- ----------
<S> <C> <C>
1999 875,178 $5,477,240
1998 251,252 $3,811,493
</TABLE>
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Note 6 - Plan termination and/or modification:
The Company intends to continue the Plan indefinitely for the benefit of
its employees; however, it reserves the right to terminate and/or modify the
Plan at any time by resolution of its Board of Directors and subject to the
provisions of ERISA. In the event the Plan is terminated in the future,
participants' accounts would become fully vested.
Note 7 - Subsequent event:
As of July 26, 2000, Plan assets have decreased in value since December 31,
1999 by approximately $1,765,000 due to market fluctuations.
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
on Form S-8 of Network Associates, Inc. filed in August 2000 relating to the
Network Associates, Inc. Tax Deferred Savings Plan of our report dated July 26,
2000, with respect to the financial statements of the Network Associates, Inc.
Tax Deferred Savings Plan included in this Annual Report on Form 11-K.
By /s/Mohler, Nixon & Williams
----------------------------------
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
August 11, 2000
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