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
For the fiscal year ended December 31, 2001
Commission file number 000-26994
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:
NETWORK ASSOCIATES, INC.
3965 FREEDOM CIRCLE
SANTA CLARA, CA 95054
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the administrator has 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: June 28, 2002 By /s/ Stephen C. Richards
-------------------------------------
Stephen C. Richards
Executive Vice President
Chief Financial Officer
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
Financial Statements
December 31, 2001 and 2000
--------------------------
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
DECEMBER 31, 2001 AND 2000
TABLE OF CONTENTS
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PAGE
Independent Accountants' Report.............................................1
Financial Statements:
Statements of Net Assets Available for Benefits.............................2
Statements of Changes in Net Assets Available for Benefits..................3
Notes to Financial Statements...............................................4
Supplemental Schedule as of December 31, 2001...............................9
Schedule of Assets Held for Investment Purposes
INDEPENDENT ACCOUNTANTS' REPORT
TO THE PARTICIPANTS AND
PLAN ADMINISTRATOR OF THE
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
We have audited the financial statements of the Network Associates, Inc. Tax
Deferred Savings Plan (the Plan) as of December 31, 2001 and 2000, 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 auditing standards
generally accepted in the United States of America. 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, 2001 and 2000, and the changes in net assets available for benefits
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements but is supplementary information required by the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule is the
responsibility of the Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
By /s/ Mohler, Nixon & Williams
---------------------------------------
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
May 8, 2002
1
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
--------------------------------------------------------------------------------
DECEMBER 31,
2001 2000
------------ ------------
Investments, at fair value $ 73,311,225 $ 59,979,821
Participant loans 1,162,093 742,951
------------ ------------
Assets held for investment purposes 74,473,318 60,722,772
Participants' contributions receivable 280,931 584,953
Employer's contribution receivable 366,795 195,012
Other receivable 33,068
------------ ------------
Total assets
75,154,112 61,502,737
Other liabilities (111,225) (356,192)
------------ ------------
Net assets available for benefits $ 75,042,887 $ 61,146,545
============ ============
See notes to financial statements.
2
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
--------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
2001 2000
--------------------- ---------------------
Additions to net assets attributed to:
Investment income:
Dividends and interest $1,398,902 $3,895,356
Net realized and unrealized appreciation
(depreciation) in fair value of investments 2,490,083 (11,429,245)
--------------------- ---------------------
3,888,985 (7,533,889)
--------------------- ---------------------
Contributions:
Participants' 13,332,604 13,181,547
Employer's 4,454,366 3,926,802
--------------------- ---------------------
17,786,970 17,108,349
--------------------- ---------------------
Total additions 21,675,955 9,574,460
--------------------- ---------------------
Deductions from net assets attributed to:
Withdrawals and distributions 7,734,992 10,459,202
Administrative expenses 44,621 51,658
--------------------- ---------------------
Total deductions 7,779,613 10,510,860
--------------------- ---------------------
Net increase (decrease) 13,896,342 (936,400)
Net assets available for benefits:
Beginning of year 61,146,545 62,082,945
--------------------- ---------------------
End of year $75,042,887 $61,146,545
===================== =====================
See notes to financial statements.
3
NETWORK ASSOCIATES, INC.
TAX DEFERRED SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - THE PLAN AND ITS SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The following description of the Network Associates, Inc. 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 Network Associates, Inc. (the Company) to provide benefits
to eligible employees, as defined in the Plan document.
Effective January 1, 2001, the Plan was amended to change the eligibility
requirements for matching contributions, the rate of matching contributions and
the vesting provisions of the Plan. The matching contributions and profit
sharing contributions, if any, to eligible employees of the Company on or after
January 1, 2001 are 100% vested. The Plan was also amended to comply with recent
changes to the relevant provisions of the Internal Revenue Code.
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),
as amended.
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 an affiliate of Fidelity to provide certain administrative and
recordkeeping services for the Plan. Substantially all expenses incurred for
administering the Plan are paid by the Company.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
BASIS OF ACCOUNTING - The financial statements of the Plan are prepared on the
accrual method of accounting in accordance with accounting principles generally
accepted in the United States of America.
4
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. The Network Associates Unitized
Stock Fund (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 investments 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,
2001 of the Company stock plus the market value of the liquid investments
included in the NAI Stock Fund. Participant loans are valued at cost, which
approximates fair value.
CASH AND CASH EQUIVALENTS - All highly liquid investments purchased with an
original maturity of three months or less (generally money market funds) are
considered to be cash equivalents. These investments are usually held for a
short period of time, pending long-term investment.
INCOME TAXES - The Plan has received its latest favorable determination letter
dated September 10, 2001. The Company believes that the Plan is operated in
accordance with, and qualifies 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.
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 - The differences between
the information reported in the financial statements and the information
reported in the Form 5500 arise primarily from presenting the financial
statements on the accrual basis of accounting.
RISKS AND UNCERTAINTIES - The Plan provides for various investment options in
any combination of mutual funds, stocks, bonds, fixed income securities and
other investment securities offered by the Plan. 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.
NOTE 2 - RELATED PARTY TRANSACTIONS
Certain Plan investments in mutual funds are managed by Fidelity. Such
transactions, while considered party-in-interest transactions under ERISA
regulations, are permitted under the provisions of the Plan and are specifically
exempt from the prohibition of party-in-interest transactions under ERISA.
5
NOTE 3 - PARTICIPATION AND BENEFITS
PARTICIPANT CONTRIBUTIONS - Participants may elect to have the Company
contribute from 1% to 15% of their eligible pre-tax compensation not to exceed
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. Participants
also may contribute from 1% to 12.5% of compensation to the Plan on an after-tax
basis. Contributions withheld are invested in accordance with the participant's
direction.
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 2001, the
Company matched the first 2% of each participant's tax deferred contribution
$1.00 for $1.00 and remaining contributions were matched $.50 for each $1.00 up
to maximum of 4% of the participant's tax deferred contribution, not to exceed
$4,000. The Plan also allows for a discretionary profit sharing contribution. No
discretionary contribution has been made for the years ended December 31, 2001
and 2000.
VESTING - Effective January 1, 2001, participants are 100% vested in their
account at all times.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contribution, Plan earnings or losses and an allocation of the
Company's contribution. Allocation of the Company's matching contribution is
based on participant contributions, as defined in the Plan.
PAYMENT OF BENEFITS - Upon termination of employment, the participant or
beneficiary will receive the benefits in a lump sum amount equal to the value of
the participant's interest in his or her account. The Plan allows for automatic
lump sum distribution of participant account balances that do 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 prime rate plus 2% 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
Committee. Outstanding loans at December 31, 2001 carry interest rates which
range from 7.8% to 9.5%.
6
NOTE 4 - INVESTMENTS
The following table includes the fair values of investments and investment funds
that represent 5% or more of the Plan's net assets at December 31:
2001 2000
---- ----
Fidelity Management Trust Company:
Magellan Fund $11,999,167 $12,588,135
Intermediate Bond Fund 3,304,028 1,667,395
Blue Chip Fund 13,532,660 15,450,906
Low Price Stock Fund 3,610,905 1,769,318
Equity Income II Fund 5,410,396 5,523,243
Diversified International Fund 2,088,023 2,185,669
Retired Government Money Market Fund 11,343,226 8,711,051
Spartan U.S. Equity Index Fund 6,634,751 6,869,631
Invesco Total Return Fund 781,837
Warburg Emerging Growth Fund 2,502,563
Puritan Fund 882,314
Equity Income Fund 42,523
Growth Company Fund 164,355
Select Health Care Fund 218,551
Select Technology Fund 343,544
Select Utilities Growth Fund 25,173
Select Financial Services Fund 60,977
Select Natural Resources Fund 55,061
Select Cyclical Industries Fund 42,932
Select Consumer Industries Fund 12,637
Mid-Cap Stock Fund 244,606
Small-Cap Stock Fund 82,756
Freedom Income Fund 33,556
Freedom 2000 Fund 26,922
Freedom 2010 Fund 70,930
Freedom 2020 Fund 302,352
Freedom 2030 Fund 502,215
Freedom 2040 Fund 318,708
Alger Mid-Cap Growth Fund 2,086,920
NAI Stock Fund 9,871,037 1,930,073
Participant loans 1,162,093 742,951
---------- ---------
Assets held for investment
purposes $74,473,318 $60,722,772
=========== ===========
7
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 for the years ended December 31:
2001 2000
---- ----
Common stock $8,964,286 ($4,481,753)
Mutual funds (6,474,203) (6,947,492)
---------- ----------
$2,490,083 ($11,429,245)
========== =============
As allowed by the Plan, participants may elect to invest a portion of their
accounts in the NAI Stock Fund which includes common stock of the Company.
Aggregate investment in Company common stock included in the NAI Stock Fund at
December 31, 2001 and 2000 was as follows:
Date Number of shares Fair value
---- ---------------- ----------
2001 355,598 $ 9,192,208
2000 317,935 $ 1,331,353
The NAI Stock Fund invests primarily in the Company's common stock. The
remainder of the Fund is invested in Fidelity Money Market Fund Class I Shares
to allow for timely handling of exchanges, withdrawals and distributions.
Investments in the Money Market Fund were $678,829 and $598,720 at December 31,
2001 and 2000, respectively.
NOTE 5 - PLAN TERMINATION
The Company intends to continue the Plan indefinitely for the benefit of its
participants; however, it reserves the right to terminate or modify the Plan at
any time by resolution of its Board of Directors or Administrative Committee and
subject to the provisions of ERISA. In the event the Plan is terminated in the
future, participants would become fully vested in their accounts.
8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-43572) of Network Associates, Inc. of our report dated May 8,
2002, relating to the financial statements and schedule 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
June 28, 2002
SUPPLEMENTAL SCHEDULE
9
NETWORK ASSOCIATES, INC. EIN: 77-0316593
TAX DEFERRED SAVINGS PLAN PLAN #001
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2001
IDENTITY OF ISSUE, BORROWER, DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE, CURRENT
lessor or similar party rate of interest, collateral, par or maturity value. value
----------------------- ---------------------------------------------------- -----
Fidelity Management Trust Company:
* Fidelity Magellan Fund Mutual Fund $11,999,167
* Fidelity Intermediate Bond Fund Mutual Fund 3,304,028
* Fidelity Blue Chip Fund Mutual Fund 13,532,660
* Fidelity Low Priced Stock Fund Mutual Fund 3,610,905
* Fidelity Equity Income II Fund Mutual Fund 5,410,396
* Fidelity Diversified International Fund Mutual Fund 2,088,023
* Fidelity Retirement Government Money Market Mutual Fund 11,343,226
* Fidelity Spartan U.S. Equity Index Fund Mutual Fund 6,634,751
* Fidelity Puritan Fund Mutual Fund 882,314
* Fidelity Equity Income Fund Mutual Fund 42,523
* Fidelity Growth Company Fund Mutual Fund 164,355
* Fidelity Select Health Care Fund Mutual Fund 218,551
* Fidelity Select Technology Fund Mutual Fund 343,544
* Fidelity Select Utilities Growth Fund Mutual Fund 25,173
* Fidelity Select Financial Services Fund Mutual Fund 60,977
* Fidelity Select Natural Resources Fund Mutual Fund 55,061
* Fidelity Select Cyclical Industries Fund Mutual Fund 42,932
* Fidelity Select Consumer Industries Fund Mutual Fund 12,637
* Fidelity Mid-Cap Stock Fund Mutual Fund 244,606
* Fidelity Small-Cap Stock Fund Mutual Fund 82,756
* Fidelity Freedom Income Fund Mutual Fund 33,556
* Fidelity Freedom 2000 Fund Mutual Fund 26,922
* Fidelity Freedom 2010 Fund Mutual Fund 70,930
* Fidelity Freedom 2020 Fund Mutual Fund 302,352
* Fidelity Freedom 2030 Fund Mutual Fund 502,215
* Fidelity Freedom 2040 Fund Mutual Fund 318,708
* Alger Mid-Cap Growth Fund Mutual Fund 2,086,920
* NAI Stock Fund Common Stock 9,192,208
* Fidelity Money Market Fund Mutual Fund 678,829
* Participant loans Interest rates ranging from 7.8% to 9.5% 1,162,093
------------
Total $74,473,318
============
* Parties in interest