UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended April 1, 20162, 2021
or
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 000-17781
Symantec CorporationNortonLifeLock Inc.
(Exact name of the registrant as specified in its charter)
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| Delaware |
| 77-0181864 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. employer
Employer Identification no.No.) |
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| 60 E. Rio Salado Parkway, | Suite 1000, | Tempe, | Arizona | | |
350 Ellis Street, | | |
Mountain View, California | | 9404385281 |
| (Address of principal executive offices) | | (zipZip code) |
Registrant’s telephone number, including area code:
(650) 527-8000
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.01 per share
(Title of each class)
class | Trading symbol(s) | The NASDAQ Stock Market LLC
(Name of each exchange on which registered)
registered |
| Common Stock, | par value $0.01 per share | NLOK | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yesþ☐Noo☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.Yeso☐Noþ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesþ☑Noo☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yesþ☑Noo☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): |
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Large accelerated filerþ | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Accelerated filer o
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Emerging growth company | | Smaller reporting company o
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| | (Do not check if a smaller reporting company) ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso☐Noþ☑
Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of SymantecNortonLifeLock common stock on October 2, 20152020 as reported on the NASDAQNasdaq Global Select Market: $13,338,113,735.$6,903,176,338.Solely for purposes of this disclosure, shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded as of such date because such persons may be deemed to be affiliates. This determination of possible affiliate status is not a conclusive determination for any other purposes.
NumberThe number of shares outstanding of the registrant’sNortonLifeLock common stock, $0.01 par value per share, outstanding as of April 29, 2016: 612,292,085May 11, 2021 was 579,944,942 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III will be included in an amendment to this Form 10-K or incorporated by reference fromPortions of the registrant’s definitive proxy statement for the 2021 annual meeting of stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K where indicated. Such Proxy Statement towill be filed pursuant to Regulation 14A.
with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended April 2, 2021.
SYMANTEC CORPORATIONNORTONLIFELOCK INC.
FORM 10-K
For the Fiscal Year Ended April 1, 2016
2, 2021
TABLE OF CONTENTS
“Symantec,NortonLifeLock,” “we,” “us,” “our,” and “the Company” refer to Symantec CorporationNortonLifeLock Inc. and all of its subsidiaries. Symantec,NortonLifeLock, the SymantecNortonLifeLock Logo, the Checkmark Logo, Norton, LifeLock, and Nortonthe LockMan Logo are trademarks or registered trademarks of SymantecNortonLifeLock Inc. or its affiliates in the United States (“U.S.”(U.S.) and other countries. Other names may be trademarks of their respective owners.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The discussion below contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933, as amended (the “Securities Act”)Securities Act) and the Exchange Act of 1934, as amended (the “Exchange Act”)Exchange Act). Forward-looking statements include references to our ability to utilize our deferred tax assets, as well as statements including words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “goal,” “intent,” “momentum,” “projects,” and similar expressions. In addition, projections of our future financial performance,performance; anticipated growth and trends in our businesses and in our industries,industries; the anticipated impacts of acquisitions, restructurings, stock repurchases, and investment activities; the outcome or impact of pending litigation, claims or disputes; our intent to pay quarterly cash dividends in the future, the actions we intend to take as partfuture; plans for and anticipated benefits of our new strategy,solutions; matters arising out of the expectedongoing U.S. Securities and Exchange Commission (the SEC) investigation; the impact of the COVID-19 pandemic on our new strategybusiness operations and target markets; and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions, based on our current expectations about future events and may not prove to be accurate. We do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. These forward-looking statements involve risks and uncertainties, and our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors, including those that we discussfactors.
These and other risks are described under Item 1A, 1A. Risk Factors.Factors. We encourage you to read that section carefully.
PART I
ItemITEM 1. Business
OverviewVision & Mission
Symantec CorporationOur vision is to protect and empower people to live their digital lives safely.
Our mission is to build a global leadercomprehensive and easy-to-use integrated portfolio that prevents, detects, and responds to cyber threats and cyber crimes in security.today’s digital world.
Our Values
Protecting people is what inspires us, and our people are at the core of what we do. We operateseek to attract talent that embraces the following values:
•Advocate: think consumer first – ensure the customer’s voice is heard and consider how our actions benefit our customers’ digital lives.
•Be Empowered: own it – take initiative to lead and speak up when we see an opportunity to delight our customers or improve the business, on a global civilian cyber intelligence threat networkregardless of job title.
•Communicate: be open and track a vast number of threats across the Internet from hundreds of millions of mobile devices, endpoints,authentic – being true to ourselves and servers across the globe. We believe one of our competitive advantages is our database of threat indicators which allows usmission; we build cross-functional and inclusive connections to reduce the number of false positivesstay aligned and providemove faster, and better protection for customers through our products. Throughwe operate with integrity.
•Execute - smart and scrappy: be a leader, quick to adapt, willing to take risks and put yourself out there; be agile in adapting to meet new challenges and continue a constant learning journey.
•Win Together: innovate and grow – welcome diverse perspectives and seek and act on feedback; champion the deliveryunique value of new and enhanced solutions, we are integrating our security offerings across our portfolio. We are also developing novel solutionsevery individual; diversity fuels innovation.
Company Overview
NortonLifeLock has the largest Consumer Cyber Safety platform in growing markets like cloud, advanced threat protection, information protection and cyber security services. Founded in 1982, Symantec has operationsthe world, empowering nearly 80 million users in more than 35 countries and our principal executive offices are located at 350 Ellis Street, Mountain View, California, 94043. 150 countries.
Our Internet home pagebusiness is located at www.symantec.com.
Strategy
Our security strategy is to deliver a unified security analytics platform that provides big data analytics, utilizes our vast telemetry, provides visibility into real-time global threats, and powers Symantec and third-party security analytics applications; leverage this analytics platform to provide best-in-class consumer and enterprise security products; and offer cyber security services that provide a full-suite of services from monitoring to incident response to threat intelligence, all supported by over 500 cyber security experts and nine global security response centers.
During fiscal 2016, we executed on our five priorities: running our business with a portfolio approach by managing certain businesses for operating margin; prioritizing investments for growth; further reducing costs and improving efficiencies; attracting top talent to our executive team; and continuing to return significant cash to stockholders.
After closing the divestiture of our information management business ("Veritas"), as the world leader in cybersecurity,built around consumers, we are more focused than ever on the following priorities: delivering upontrusted and number one top of mind brand in consumer Cyber Safety, according to the 2020 NortonLifeLock brand tracking study.
Today’s world is increasingly digital, and this digital world has changed the way we live our Unified Security strategy, buildinglives every day. Between the massive shift to working and learning from home, and the ever-growing utility and opportunities to play and transact online, people’s digital lives have become the norm. With each new digital interaction comes increased risk for consumers, as cyber criminals look to take advantage of this accelerating trend. This is why we view ourselves as a trusted ally for our enterprise security pipelinecustomers in a complex digital world and go-to-market capabilities, improvingare committed to advancing our cost structure, and fulfilling our commitment to allocate capital to our stockholders.
Divestituremission of Veritas
In August 2015, we entered into a definitive agreement to sell the assetsprotecting each element of Veritas to The Carlyle Group and certain co-investors ("Carlyle"). The transaction closed on January 29, 2016, at which time, we received net consideration of $6.6 billion in cash, excluding transaction costs, and 40 million B common shares of Veritas and Veritas assumed certain liabilities. We now have two reporting segments, Consumer Security and Enterprise Security.
Business highlights
During fiscal 2016, we took the following actions in support of our business: their digital lives.
We completed the divestiture of Veritas and refocused Symantec as a pure cybersecurity company.
We launched our SecureOne channel partner program designed specifically to help security-focused partners grow their businesses.
In Enterprise Security, Symantec Endpoint Protection won AV-TEST’s “Best Protection 2015 Award” for corporate users.
In Consumer Security, Norton Security won AV-TEST’s coveted “Best Protection Award 2015” for “home user” security.
We released new products and services:
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◦ | We launched Advanced Threat Protection endpoint, email, and network solutions, which detect and remediate advanced threats across control points, from a single console with just a click, without deployment of new endpoint agents. |
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◦ | We launched Encryption Everywhere, a website security package available through web hosting providers that integrates encryption into websites from the moment they are created. |
We completed a $500 million strategic investment by Silver Lake Partners and in connection with this investment, Kenneth Hao joined our Board of Directors.
We increased our capital return program to $5.5 billion, including a $2.6 billion special dividend that was paid in March 2016 and a total of $1.5 billion in accelerated share repurchase ("ASR") transactions that were announced in November 2015 and March 2016.
Operating segments and products
Our operating segments are significant strategic business units that offer different products and services distinguished by customer needs. The two reporting segments, which are the same as our operating segments, are: Consumer Security and Enterprise Security.
Consumer Security
Our Consumer Security segment focuses on making it simple for customers to be productive and protected at home and at work. Our Norton-branded services provide multi-layer security and identity protection on major desktop and mobile operating systems, to defend against increasingly complex online threats to individuals, families, and small businesses.
Our Norton Security products help customers protect against increasingly complex threats and address the need for identity protection, while also managing the rapid increase in mobile and digital data, such as personal financial records, photos, music, and videos.
Enterprise Security
Our Enterprise Security segment protects organizations so they can securely conduct business while leveraging new platforms and data. Our Enterprise Security segment includes our threat protection products, information protection products, cyber security services, and website security offerings, previously named trust services.
These products and services help our customers secure their information in transit and wherever it resides in the network path, from the user’s device to the data’s resting place. These products protect customer data from sophisticated threats such as advanced protection threats, malicious spam and phishing attacks, malware, drive-by website infections, hackers, and cyber criminals. In addition, these products help to prevent the loss of confidential data by insiders, and help customers achieve and maintain compliance with laws and regulations. Our enterprise endpoint security and management offerings support the evolving endpoint, providing advanced threat protection while helping reduce cost and complexity. These solutions are delivered through various methods, such as software, appliance, Software-as-a-Service ("SaaS"), and managed services.
Financial information by segment and geographic region
For information regarding our revenue by segment, revenue by geographical area, and property and equipment by geographical area, see Note 8 of the Notes to Consolidated Financial Statements in this annual report. For information regarding the amount and percentage of our revenue contributed by each of our segments and our financial information, including information about geographic areas in which we operate, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. For information regarding risks associated with our international operations, see Item 1A, Risk Factors.
Sales and go-to-market strategy
Our go-to-market network includes direct sales forces and broad e-commerce capabilities, as well as indirect sales resources that support our global partner ecosystem. We also maintain important relationships with a number of original equipment manufacturers (“OEMs”), Internet service providers (“ISPs”), and retail and online stores through which we market and sell our products.
Our dedicated renewals team remains focused on extending customer relationships and renewing customer contracts with us. We also continued to streamline our indirect sales strategy to have fewer, more focused partners with specialized partner programs to enhance sales. We believe these changes provide customers with a high-quality sales and post-sales support experience, while also enabling us to expand our business.
Consumer
We sell and market our consumer products and services to individuals, households and small businesses globally. We bring these products to market through our e-commerce platform, distributors, direct marketers, Internet-based resellers, system builders, ISPs, wireless carriers, and retailers worldwide. We also maintain a limited number of partnerships with OEMs globally to distribute our Internet securityglobal, multi-channel direct acquisition and online backup offerings.
Commercial
We sell and market our products and related services to small, medium and large customers through field sales and inside sales forces that leverage indirect sales partners around the world that are specifically trained and certified to sell our solutions. These partners include national solution providers, regional solution providers, national account resellers, global/federal system integrators and managed service providers. Our products and services are also available on our e-commerce platform, as well as through authorized distributors and OEMs who incorporate our technologies into their products, bundle our products with their offerings, or serve as authorized resellers of our products.
Enterprise
We sell and market our products and related services to large enterprises, including government and public sector customers, through our field sales force.brand marketing program. This field sales teamprogram is responsible for leveraging our global partner ecosystem primarily targeting senior executives and IT department personnel responsible for managing a company’s highest-order IT initiatives.
Research and development
Symantec embraces a global research and development strategy to drive organic innovation. Our engineers and researchers are focused on delivering new versions of existing product lines as well as developing entirely new offerings to drive the company’s leadership in cybersecurity. We also have a technology research organization focused on short, medium, and longer-term applied research projects, with the goal of transferring completed innovations into our product groups for commercialization.
Symantec’s Security Technology and Response organization consists of a global team of security engineers, threat analysts, and researchers that provide the underlying functionality, content, and support for many of our consumer, commercial and enterprise security products. Our security experts analyze threat telemetry collected through Symantec’s massive global sensor network, one of the largest cyber intelligence networks in the world, to protect our customers against current and emerging threats. Our research and development teams also leverage this vast amount of data and related insights to develop new technologies and approaches, including our Unified Security analytics platform, in order to improve security outcomes for our customers.
Research and development expenses were $748 million, $812 million, and $722 million in fiscal 2016, 2015, and 2014, respectively, representing approximately 21%, 21% and 17% of revenue in fiscal 2016, 2015 and 2014, respectively. The percentage fluctuates between periods as a result of a variety of factors, including changes in sales level and foreign currency exchange rates. We believe that technical leadership is essential to our success, and we expect to continue to commit substantial resources to research and development.
Support
Symantec has support facilities throughout the world, staffed by technical product experts knowledgeable in the operating environments in which our products are deployed. Our technical support experts assist customers with issue resolution and threat detection.
We provide consumers with various levels of support offerings. Consumers receive automatic downloads of the latest virus definitions, application bug fixes, and patches for most of our consumer products. Our consumer support program provides self-help online services and phone, chat, and email support to consumers worldwide. In addition, our Norton Security products come with a “Virus Protection Promise,” which in some markets provides free virus removal services to customers whose protected computers become infected.
We provide customers various levels of enterprise support offerings. Our enterprise security support program offers annual maintenance support contracts, including content, upgrades, and technical support. Our standard technical support includes: self-service options delivered by telephone or electronically during the contracted-for hours, immediate patches for severe problems, periodic software updates, and access to our technical knowledge base and frequently asked questions.
Significant customers
In each of fiscal 2016, 2015 and 2014, no customer accounted for more than 10% of our total net revenues. One distributor accounted for 10% of our gross accounts receivable as of April 1, 2016.
Acquisitions
Our strategy will be complemented by business combinations that fit strategically and meet specific profitability hurdles. Our acquisitions are designed to enhance the featuresgrow our customer base by increasing brand awareness and functionality of our existing products and extend our product leadership in core markets. We consider time-to-market, synergies with existing products, and potential market share gains when evaluating the economics of acquisitions of technologies, product lines, or companies. We may acquire or dispose of other technologies, products, and companies in the future.
We did not make any material acquisitions during fiscal 2016.
Competition
Our markets are consolidating, highly competitive, and subject to rapid changes in technology. The competitive landscape has changed significantly over the past few years, with new competition arising. Much of the market growth has come from startups whose focus is on solving a specific customer issue or delivering a niche-oriented product and from larger integration providers that increasingly are looking to put various types of protection into their platforms. We are focused on delivering comprehensive customer solutions, integrating across our broad product portfolio and partnering with other technology providers to differentiate ourselves from the competition. We believe that the principal competitive factors necessary to be successful in our industry include product quality and effectiveness, time-to-market, price, reputation, financial stability, breadth of product offerings, customer support, brand recognition, and effective sales and marketing efforts.
In addition to the competition we face from direct competitors, we face indirect or potential competition from retailers, application providers, operating system providers, network equipment manufacturers, and other OEMs who may provide various solutions and functions in their current and future products. We also compete for access to retail distribution channels and for spending at the retail level and in corporate accounts. In addition, we compete with other software companies, operating system providers, network equipment manufacturers, and other OEMs to acquire technologies, products, or companies and to publish software developed by third parties. We also compete with other software companies in our effort to place our products on the computer equipment sold to consumers and enterprises by OEMs.
Most of the channels in which our products are offered are highly competitive. Some of our consumer competitors are intensely focused on customer acquisition, which has led competitors to offer their technology for free, engage in aggressive marketing, or enter into competitive partnerships. Our primary security competitors are Intel Corporation, Microsoft Corporation (“Microsoft”), and Trend Micro Inc. There are also several freeware providers and regional security companies that we compete against. For our consumer backup offerings, our primary competitors are Carbonite, Inc. and EMC Corporation. In the Secure Socket Layer Certificate market, our primary competitors are Comodo Group, Inc. and GoDaddy.com, Inc. In the SaaS security market, our primary competitors are Proofpoint and Microsoft. Our primary competitors in the managed security services business are SecureWorks Corporation and IBM Corporation.
Intellectual property
Protective measures
We regard some of the features of our internal operations, software, and documentation as proprietary and rely on copyright, patent, trademark and trade secret laws, confidentiality procedures, contractual arrangements, and other measures to protect our proprietary information. Our intellectual property is an important and valuable asset that enables us to gain recognition for our products, services, and technology and enhance our competitive position.
As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, distributors, and corporate partners and we enter into license agreements with respect to our software, documentation, and other proprietary information. These license agreements are generally non-transferable and have either a perpetual or subscription based time limited term. We also educate our employees on trade secret protection and employ measures to protect our facilities, equipment, and networks.
Trademarks, patents, copyrights, and licenses
Symantec and the Symantec logo are trademarks or registered trademarks in the U.S. and other countries. In addition to Symantec and the Symantec logo, we have used, registered, or applied to register other specific trademarks and service marks to help distinguish our products, technologies, and services from those of our competitors in the U.S. and foreign countries and jurisdictions. We enforce our trademark, service mark, and trade name rights in the U.S. and abroad. The duration of our trademark registrations varies from country to country, and in the U.S. we generally are able to maintain our trademark rights and renew any trademark registrations for as long as the trademarks are in use.
We have more than 1,700 patents, in addition to foreign patents and pending U.S. and foreign patent applications, which relate to various aspectsunderstanding of our products and technology. The duration ofservices, and maximizing our patents is determinedglobal reach to prospective customers.
We help prevent, detect and restore potential damages caused by the laws of the country of issuancemany cyber criminals. We also make it easy for consumers to find, buy and for the U.S. is typically 17 years from the date of issuance of the patent or 20 years from the date of filing of the patent application resulting in the patent, which we believe is adequate relative to the expected lives of our products.
Our products are protected under U.S. and international copyright laws and laws related to the protection of intellectual property and proprietary information. We take measures to label such products with the appropriate proprietary rights notices, and we actively enforce such rights in the U.S. and abroad. However, these measures may not provide sufficient protection, and our intellectual property rights may be challenged. In addition, we license some intellectual property from third parties for use in our products and generally must relyservices. To this end, we sell subscription-based Cyber Safety solutions primarily direct-to-consumer through our Norton and Avira websites, and indirectly through partner relationships with retailers, telecom service providers, hardware original equipment manufacturers (OEMs), and employee benefit providers. Most of our subscriptions are sold on either annual or monthly terms. As of April 2, 2021, we have nearly 80 million total users, which come from direct, indirect, and freemium channels. Of the total users, we have 23 million direct customers with whom we have a direct billing relationship, and we have 30 million free users.
•Direct-to-consumer channel: We use advertising and direct response marketing to elevate our brand, attract new customers, and generate significant demand for our services. We have a direct billing relationship with these customers.
•Indirect partner distribution channels: We use strategic and affiliate partner distribution channels to refer prospective customers to us and expand our reach to our partners’ and affiliates’ customer bases. We developed and implemented a global partner sales organization that targets new, as well as existing, partners to enhance our partner distribution channels. These channels include retailers, telecom service providers, hardware OEMs, and employee benefit providers. Physical retail and OEM partners represent a small portion of our distribution, which minimizes the impacts of supply chain disruptions.
•Freemium channel: With the acquisition of Avira, we have expanded our go-to-market with a freemium channel. We use free versions of our products to reach the broadest set of customers globally and bring Cyber Safety to a larger audience, especially in international markets. The free solution offers a baseline of protection and presents premium functionalities based on the third partyrisk profile and device-type of the user. The user can choose to protect the licensed intellectual property rights. While we believe that our ability to maintain and protect our intellectual property rights is importantadd specific premium features or upgrade to our success, we also believe thatNorton 360 integrated platform, at which point, becoming a member of our business as a whole is not materially dependent on any particular patent, trademark, license, or other intellectual property right.paid customer base.
Seasonality
As is typical for many largeconsumer technology companies, portions of our business are impacted by seasonality. However, we believe the net impact to our business is seasonal. Orderslimited. Seasonal behavior in orders primarily reflects consumer spending patterns where our fiscal third and fourth quarters are generally higher due to the holidays in our third quarter, as well as follow-on holiday purchases and fourth fiscal quarters and lowerthe U.S. tax filing season in our first and second fiscal quarters.fourth quarter. Revenue generally reflects similar seasonal patterns but to a lesser extent than orders because revenue is not recognized until an order is shipped or services are performed and other revenue recognition criteria are met,of our subscription business model and because a significantlarge portion of our in-period revenue comesrevenues are recognized ratably from our deferred revenue balance.
EmployeesOur Strategy
Our strategy is focused on profitable growth, allowing consumers to experience Cyber Safety. To fuel our growth, our consumer-centric strategy is to provide a comprehensive and easy-to-use integrated platform, which we have built in-house. By combining and leveraging our entire portfolio of Norton, LifeLock, and Avira offerings, we are able to deliver an industry-leading set of Cyber Safety solutions.
The key elements of our strategy include the following:
•Extend our leadership position through continued enhancement of our solutions and services: The Cyber Safety industry is large and expanding, which we believe provides a significant growth opportunity. Our strategy is to grow our business by investing in research and development and pursuing acquisitions, where appropriate, to expand the solutions and services we offer into new cohorts, territories and sectors. We believe there are many additional areas where we can both offer new solutions, as well as use our core capabilities and our integrated platform to reach new customers and markets globally.
•Grow our customer base through multiple channels: We have multiple go-to-market channels to reach new customers globally, including direct-to-customer, indirect partnerships, and freemium. We intend to leverage our expertise in digital marketing, as well as existing and new strategic partnerships, to grow our customer base. We believe that continued investments in these areas, as well as our product offerings and infrastructure, will allow us to further enhance our leading brands and superior products, increase awareness of our consumer services and enhance our ability to efficiently acquire new customers.
•Continue our focus on customer retention: We plan to invest in increasing customer retention by optimizing and expanding the value we provide to customers. We aim to continue to increase customer engagements through actionable alerts, education on timely topics, and introducing new product capabilities. We plan to also continue investing in enhancing both desktop and mobile customer experiences throughout a customer’s journey with NortonLifeLock, from purchase, to onboarding and beyond. We aim to build long-term relationships with our customers, and to provide our customers with the peace of mind and confidence they need to protect their digital lives.
•Increase sales to existing customers: We believe strong customer satisfaction will provide us with the opportunity to engage customers in new services offerings. We maintain the Norton 360 platform, with multiple tiers of membership, and we are actively engaging with customers of standalone products to move them into a Norton 360 membership. We also believe a substantial opportunity exists to increase the penetration of our premium-level consumer solutions. Over time, we plan to drive further growth as we add additional offerings and services for our customers.
•Draw strength from our world-class customer service support: We have the largest consumer Cyber Safety customer support organization in the world. Our global support team seeks to ensure the voice of the consumer is heard, and that we put our customers first. We leverage frequent communication and feedback from our customers to continually improve our solutions and services.
•Leverage our global brands to drive growth: We will work to keep building our trusted brands in markets globally as we strive to bring protection and empowerment to all consumers when it comes to their digital lives. According to our most recent research, Norton has 89% global brand awareness. We are also the best positioned brand in device security and #1 top of mind brand in consumer Cyber Safety, according to the 2020 NortonLifeLock Brand Impact study.
Our Cyber Safety Solutions and Services
Our vast portfolio of products and services are developed from consumer insights to help us bring to market real solutions to real problems, and to raise the overall awareness of consumer Cyber Safety across all audiences. We continuously target to release new products and features at an accelerated pace, and find synergies to integrate current and future technology acquisitions.
Our full portfolio provides protection across three Cyber Safety categories in multiple channels and geographies, including security, identity, and privacy. We have built a technology platform that brings together software and service capabilities into a comprehensive and easy-to-use integrated platform – it is called Norton 360. The Norton 360 integrated platform provides extensive Cyber Safety coverage to our members, by delivering Cyber Safety subscription solutions with industry leading features, coupled with an integrated user experience. Through our platform, we aim for simplicity and peace of mind for the consumers. We also complement this Cyber Safety platform by adding adjacent trust-based solutions, which enables people to live their digital lives without compromising their security, identity, or privacy.
We protect and empower consumers by providing solutions and services in two main ways:
•Comprehensive membership plans: Providing a complete Cyber Safety portfolio of solutions for a membership fee. Plans are offered through Norton 360 subscriptions, which include multiple levels of membership tiers that incorporate solutions from each of our key Cyber Safety categories: Security, Identity Protection, and Online Privacy. We also offer solutions that target specific needs of consumers such as Norton Family and Norton 360 for Gamers. Norton Family brings the protection and security of our products to every member of the family across multiple devices and platforms. Norton 360 for Gamers is designed by gamers to help protect gamers, we aim to provide the protection and features gamers need the most, while minimizing interruptions to gaming.
•Point solutions: Individual, stand-alone products and services in security, identity, and privacy – both free and paid solutions.
We are positioned across three key Cyber Safety categories:
•Security (Norton and Avira offerings): Our Norton 360 and Avira offerings provide real-time protection for PCs, Macs and mobile devices against malware, viruses, adware, ransomware and other online threats. They monitor and block unauthorized traffic from the internet to the device to help protect private and sensitive information when customers are online. For mobile devices, Norton 360 for Mobile alerts customers of risky apps, safeguards against fraudulent and malicious websites, identifies Wi-Fi networks that are under attack, enables stolen device recovery, and blocks unwanted spam and potential fraud calls. Norton 360 includes 24x7 support by trained support agents. We provide on-call support and offer a money-back guarantee if we cannot remove viruses from infected devices through our Virus Protection Promise.
•Identity Protection (LifeLock Identity Theft Protection): Our LifeLock identity theft protection solution includes monitoring, alerts and restoration services to protect the safety of our customers. We monitor events that may present a risk of identity theft, such as new account openings and applications. If we detect that a customer’s personally identifiable information is being used, we deliver notifications and alerts to our customers about potentially suspicious activity. In the event of identity theft, we assign an Identity Restoration Specialist to work directly with customers to help restore their identities. Customers are further protected by our Million Dollar Protection Package, which provides reimbursement for stolen funds and coverage for personal expenses. Our Dark Web Monitoring product looks for personal information of our Norton 360 members on the Dark Web. We currently offer this product in many countries internationally and continue to add new countries each year.
•Online Privacy (VPN, Privacy Monitor Assistant, Home Title Protect): As people are exchanging more sensitive information through digital channels, such as personal healthcare information to enable tele-health or financial information for personal accounting, having a VPN has become even more crucial. Our VPN solution enhances security and online privacy by providing an encrypted data tunnel. This allows customers to securely transmit and access private information such as passwords, bank details and credit card numbers when using public Wi-Fi on PCs, Macs and mobile iOS and Android devices. Our VPN service allows customers to browse the Web anonymously to protect their
online privacy and prevent tracking by online advertisers and other companies. Customers can also change their virtual location when they are traveling internationally to allow them to connect to their favorite apps, websites and online streaming services as if they are in their home country. Our Privacy Monitor Assistant is an on-demand, white glove service where our agents help our members delete personal information from Data brokers online. Our Home Title Protect product detects fraud and notifies members if we find changes made to their Home Title. If a member becomes a victim of identity theft, we provide a dedicated Identity Restoration Specialist to work with the customer until their case is closed.
Innovation and Research & Development
NortonLifeLock has a long history of innovation, and we plan to continue to invest in research and development to drive our long-term success.
As cyber threats evolve, we are focused on delivering a portfolio that protects each element of our customers’ digital lives. To do this, we engage and listen to our customers, and we embrace innovation by deploying a global research and development strategy across our Cyber Safety platform. Our engineering and product management teams are focused on delivering new versions of existing offerings, as well as developing entirely new offerings to drive the company’s global leadership in Cyber Safety.
We are committed to our innovation and research & development efforts. Norton Labs, a global team of experts, is leading the company’s future technology and helping guide the consumer cybersecurity industry. Within Norton Labs, our global technology research organization is focused on applied research projects, with the goal of rapidly creating new products to address consumer trends and grow the business, including defending consumer digital privacy and identity. We also have a global threat response and security technology organization that is made up of leading threat and security researchers, supported by advanced systems to innovate security technology and threat intelligence.
Industry Overview & Market Opportunity
Cyber Safety is a growing market, fueled by the increase in activities online over the years, as well as the years ahead. The core markets that we participate in are security, identity, and privacy. We believe the Cyber Safety market will continue to expand beyond these core markets and grow significantly – driven by the growing number of people connected to the Internet who have a digital life.
The cyber threat landscape is larger and more complicated than ever before, exposing consumers to an increased risk to their digital lives. The digitization of the world and the overlap between the physical and digital world is growing at a fast pace. New technologies, smart devices, digital identities, and an increasingly more connected world means consumers will encounter a range of new Cyber Safety challenges. Consumer demands and behaviors are rapidly changing and driving more activities online, from shopping, socializing, working, banking, to other activities in healthcare, entertainment, and so much more. Almost every aspect of a person’s life has a digital component. Unfortunately, many of those activities are left unprotected, and attackers are exploiting this larger opportunity and the inherent security and privacy vulnerabilities. Cyber criminals have not only expanded their reach, but the sophistication of digital threats and attacks are becoming increasingly more consumer-related.
Cyber crime, and the ways in which cyber criminals target consumers, continue to evolve along with behaviors and technology. Cyber crime encompasses any crime committed digitally over the internet and includes crimes where (i) malicious software or unauthorized access is detected on a device, network or online account (such as email, social media, online banking, online retail, gaming, online entertainment, etc.), and unauthorized access or connection to cloud service accounts; (ii) an individual is digitally victimized through a data breach, cyber theft, cyber extortion, or fraud (stolen personally identifiable information, identity theft, etc.); (iii) online stalking, bullying, or harassment is inflicted; or (iv) attacks related to privacy or disinformation (such as online tracking protection, identity impersonation, disinformation on social media, DeepFakes, non-trustworthy WiFis, EvilTwin attacks, etc.).
As cyber crime becomes an intensifying threat to our world, consumers are increasingly concerned. Our annual Norton Cyber Safety Insights Report examines the impact of cyber crime and consumers’ online behaviors and concerns related to their online security, privacy and identity. According to the 2021 report, which is based on research conducted online by The Harris Poll on behalf of us, nearly 330 million people across 10 countries were victims of cyber crime and more than 55 million people were victims of identity theft. Cyber crime victims collectively spent nearly 2.7 billion hours trying to resolve their issues. For more insights or information related to our Norton Cyber Safety Insights Report, please visit https://us.norton.com/nortonlifelock-cyber-safety-report.
Competitive Landscape
We operate in a highly competitive and rapidly evolving business environment. We believe that the competitive factors in our market include access to a breadth of identity and consumer transaction data, broad and effective service offerings, brand recognition, technology, effective and cost-efficient customer acquisition, having a large customer base and strong retention rate, customer satisfaction, price, convenience of purchase, ease of use, frequency of upgrades and updates, and quality and reliable customer service. Our competitors vary by offering, geography, and channel.
Our principal competitors are set forth below:
•Security: Our principal competitors in this market are Avast, Kaspersky, McAfee, Microsoft, Bitdefender, and Trend Micro.
•Identity Protection: Our principal competitors in this market are credit bureaus Equifax, Experian, and TransUnion, as well as certain credit monitoring and identity theft protection solutions from others such as Allstate, and Credit Karma.
•Online Privacy: Our principal competitors in this market are Avast, Kape, ExpressVPN, NordVPN, and Pango.
•Other Competitors: In addition to competition from large consumer security companies such as Avast and McAfee, we also face competition from smaller companies that may develop competing products, emerging competition from ISPs, operating systems, insurance companies, and financial service organization.
We believe we compete favorably with our competitors on the strength of our technology, people, product offerings, and integration across all of the key Cyber Safety categories. However, some of our competitors have substantially greater financial, technical, marketing, distribution, and other resources than we possess that afford them competitive advantages. As a result, they may be able to devote greater resources to develop, promote and sell their offerings; deliver competitive offerings at lower prices or for free; and introduce new solutions and respond to market developments and customer requirements more quickly than we can.
For more information on the risks associated with our competitors, please see “Risk Factors” in Item 1A included in this Annual Report on Form 10-K.
Environmental, Social and Governance (ESG)
We bring together our people, expertise, and technologies to support environmental, social, and governance (ESG) priorities that foster a safer and more sustainable future.
•Environment: we have a sharp focus on environmental performance.
•Social: we are proud to support the communities where our team members live and work.
•Governance: we operate with integrity with everything we do and celebrate diversity as a driver of innovation.
Our commitment to ESG is a critical anchor of our company’s mission and operating philosophy. Our ESG mission is to bring together our team, expertise, and powerful technology to build a safe, inclusive, and sustainable future for people, their information, and the digital world.
Setting strategic, achievable, and business-aligned corporate responsibility objectives helps to guide our work and improves our company performance. We aligned our objectives with the company’s business goals and focused on the unique impact we can make on the world.
Our objectives include:
•Data Privacy and Protection: Raise awareness of NortonLifeLock as a privacy leader.
•Education and Training for Cyber Safety: Leverage NortonLifeLock’s leading expertise and technology in Cyber Safety to protect communities.
•Diversity, Equity & Inclusion: Invest in high-impact nonprofits to bring more women and under-represented groups into cybersecurity and tech.
•Volunteering & Giving: Drive opportunities for employee volunteering and giving and increase employee participation rate.
•Environmental Stewardship: Establish NortonLifeLock as an environmentally responsible business.
Our annual ESG and Corporate Responsibility Report can be found via the NortonLifeLock website at https://www.nortonlifelock.com/about/corporate-responsibility.
Human Capital Management
At NortonLifeLock, our mission is to provide solutions for consumer Cyber Safety that defend against ever-evolving cyber threats, in a world that’s more connected than ever before. Our success in helping achieve this mission depends, in a large part, on the success of our employees. We strive to be a diverse, vibrant community with strong values and a shared commitment to each other, the work we do, and the world we all share.
•General Employee Demographics: As of April 1, 2016,2, 2021, we employed more than 11,000 people2,800 employees in 26 countries worldwide, approximately 46% of whom reside1,216 in the U.S. Approximately 3,000and 1,592 in the rest of world. None of our U.S. employees workare represented by a labor union or covered by a collective bargaining agreement. We are focused on attracting, developing, rewarding and retaining a diverse global team. Our board is invested in salesus; the Compensation and marketing, 4,000 in researchLeadership Development Committee of our Board of Directors oversees workforce and senior management compensation and development, 2,000and our Board of Directors is invested in our talent management strategies, culture, leadership quality development and overall engagement.
•Diversity, Equity and Inclusion (DEI): Our mission is to increase our global representation of underrepresented groups at all levels (diversity), where everyone has an opportunity for development and advancement (equity) and is able to bring their whole selves to work and feel valued every day (inclusion). This mission is built upon four foundational pillars: (1) measurement and accountability; (2) fostering an inclusive environment; (3) diversifying our workforce; and (4) employee development and retention, which are designed to support our ability to attract, retain and services,develop the best talent in cybersecurity.
Diversifying our workforce was a strategic talent goal for fiscal year 2021, and 2,000we have made progress in increasing representation. As of April 2, 2021, women represented 33% of our workforce and held positions in 30% of our leadership. In addition, as of April 2, 2021, women represented 44% of our Board of Directors.
In support of our Diversifying our Workforce pillar, we became approved as a Work180 partner company, a women-focused recruitment site that only lists career opportunities from employers that support diversity, inclusion, and flexibility. In addition to WORK180, we post positions on several diverse recruiting sites, including Black Tech Jobs, Jobs for Her, and Women Who Code.
As part of ongoing focus on employee and development, we have participated in McKinsey & Company’s Black Leadership Academy since November 2020 to help accelerate the progression of Black leaders in the company. Participants attended either a three-month Black Executive Leadership Program, designed for senior leaders looking to further develop their leadership capabilities, or a six-month Management Accelerator, designed to support ongoing career progression for high performing early to mid-career managers.
•NLOK Communities: In FY21, we launched seven employee resource groups, called NLOK Communities, as a platform for communities of employees to come together as allies, to learn, support, mentor, and celebrate with one another. We believe these groups play a vital role in helping create an inclusive work culture where everyone feels seen, heard, respected, and valued.
•Employee Development, Engagement and Training: Feedback from our employees is critical in designing and refining our human capital management strategy. We regularly seek both candid and administration.structured input from our employees by conducting a quarterly Ngage pulse survey on a targeted topic. We are invested in providing a productive, supportive, and inclusive environment for our teams with a focus on learning and development across all levels where flexibility and choice are guiding principles.
•Human Capital Governance: We partner closely with our Board of Directors and the Compensation and Leadership Development Committee on our strategies and objectives related to talent management, talent acquisition, leadership development, retention and succession, DEI, and employee engagement.
Intellectual Property
We are a leader amongst Cyber Safety solutions for consumers in pursuing patents and currently have a portfolio of over 1,000 U.S. and international patents issued with many pending. We protect our intellectual property rights and investments in a variety of ways to safeguard our technologies and our long-term success. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret, and other protections that apply to our software products and services. The term of the patents we hold is, on average, twelve years. From time to time, we enter into cross-license agreements with other technology companies covering broad groups of patents; we have an additional portfolio of over 2,100 U.S. and international patents cross-licensed to us as part of our arrangement with Broadcom as a result of the asset sale of our former enterprise security business.
Circumstances outside our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available, and the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operating results.
In addition, companies in the technology industry may own a large number of patents, copyrights, and trademarks and may frequently request license agreements, threaten litigation, or file suit against us based on allegations of infringement or other violations of intellectual property rights.
For more information on the risks associated with our intellectual property, please see “Risk Factors” in Item 1A included in this Annual Report on Form 10-K.
Information Security and Risk Oversight
We maintain a comprehensive technology and cybersecurity program to ensure our systems are effective and prepared for information security risks, including regular oversight of our programs for security monitoring for internal and external threats to ensure the confidentiality and integrity of our information assets. We regularly perform evaluations of our security program and continue to invest in our capabilities to keep customers, employees, and critical assets safe. Our Head of Cyber Security is ultimately responsible for our cybersecurity program, which includes the implementation of controls aligned with industry guidelines and applicable statutes and regulations to identify threats, detect attacks, and protect these information assets. We have implemented security monitoring capabilities designed to alert us to suspicious activity and developed an incident response program that includes periodic testing and is designed to restore business operations as quickly and as orderly as possible in the event of a breach. In addition, employees participate in ongoing mandatory annual trainings and receive communications regarding the cybersecurity environment to increase awareness throughout the firm. We also implement enhanced annual trainings for specific specialized employee populations, including secure coding training.
Recently, our Board of Directors established a Technology and Cybersecurity Committee of the Board with direct oversight to the Company’s (1) technology strategy, initiatives and investments and (2) key cybersecurity information technology risks against both internal and external threats. The Technology and Cybersecurity Committee is comprised entirely of independent directors, two of whom have significant work experience related to information security issues or oversight. Management will report security
instances to the committee as they occur, if material, and will provide a summary multiple times per year to the Committee. Additionally, our Head of Cyber Security meets at least twice annually with the Board of Directors or the Audit Committee of the Board of Directors to brief them on technology and information security matters. We carry insurance that provides protection against the potential losses arising from a cybersecurity incident. In the last three years, the expenses we have incurred from information security breach incidences were immaterial. This includes penalties and settlements, of which there were none.
Governmental Regulation
We collect, use, store or disclose an increasingly high volume, variety, and velocity of personal information, including from employees and customers, in connection with the operation of our business, particularly, in relation to our identity and information protection offerings, which rely on large data repositories of personal information and consumer transactions. The personal information we process is subject to an increasing number of federal, state, local, and foreign laws regarding privacy and data security.
For information on the risks associated with complying with privacy and data security laws, please see “Risk Factors” in Item 1A included in this Annual Report on Form 10-K.
Available information
Our Internet home page is located at www.symantec.com.https://www.nortonlifelock.com. We make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission (“SEC”)(SEC) on our investor relations website located at www.symantec.com/investhttps://investor.nortonlifelock.com. The information contained, or referred to, on our website, including in any reports that are posted on our website, is not part of this annual report unless expressly noted. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov. In addition, you may read and copy any filing that we make with the SEC at the public reference room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.www.sec.gov.
Item 1A. Risk Factors
A descriptionCOVID-19 RISKS
The COVID-19 pandemic has affected how we are operating our business, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. To protect the health and well-being of our employees, partners and third-party service providers, we have implemented a near company-wide work-from-home requirement for most employees until further notice, made substantial modifications to employee travel policies, and cancelled or shifted our conferences and other marketing events to virtual-only for the foreseeable future. We continue to monitor the situation and will adjust our current policies as recommendations and public health guidance changes. To date, we have not seen any meaningful negative impact on our customer success efforts, sales and marketing efforts, or employee productivity. Nevertheless, as employees, partners or third-party services providers return to work during the COVID-19 pandemic, the risk of inadvertent transmission of COVID-19 through human contact could still occur and result in litigation.
The U.S. and global economies have experienced a recession due to the economic impacts of the risk factors associated with our business is set forth below. The list isCOVID-19 pandemic. Although we did not exhaustive and you should carefully consider these risks and uncertainties before investingexperience a material increase in cancellations by customers or a material reduction in our common stock.
Ifretention rate in 2021, we are unsuccessful at addressingmay experience such an increase or reduction in the future, especially in the event of a prolonged recession as a result of the COVID-19 pandemic. A prolonged recession could adversely affect demand for our business challenges,offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be adversely affectedmore susceptible to macroeconomic pressures, as well impact the value of our common stock, ability to refinance our debt, and our abilityaccess to invest incapital.
The duration and grow our business could be limited.
For the last few years, we have experienced a number of transitions as we have attempted to revitalize our business model, improve execution and innovate new products and services. These transitions have involved significant turnover in management and other key personnel, changes in our strategic direction and, more recently, the divestiture of Veritas. Transitionsextent of the magnitude we have experienced and are experiencing canimpact from the COVID-19 pandemic depends on future developments that cannot be disruptive, result in loss of institutional focus and employee morale and make the execution of business strategies more difficult. We are also focused on addressing dynamic and accelerating market trends,accurately forecasted at this time, such as the continued decline inseverity and transmission rate of new variants of the PC market,disease, the market shifts towards mobility,extent, effectiveness and acceptance of containment actions, such as vaccination programs, and the transition towards cloud-based solutionsimpact of these and architectural shifts inother factors on our employees, customers, partners and third-party service providers. If we are not able to respond to and manage the provisionimpact of security, all of which has made it more difficult for us to competesuch events effectively and requires us to improve our product and service offerings. We may experience delays inif the anticipated timingmacroeconomic conditions of activities related to our efforts to address these challenges and higher than expectedthe general economy or unanticipated execution costs. In addition, we are vulnerable to increased risks associated with these efforts and the broad range of geographic regionsindustries in which we and our customers and partners operate. If weoperate do not succeed in these efforts,improve, or if these efforts are more costly or time-consuming than expected,deteriorate further, our business, operating results, financial condition and results of operations may be adversely affected, whichcash flows could limit our ability to invest in and grow our business.
We may not achieve the intended benefits of the divestiture of Veritas.
On January 29, 2016, we completed the divestiture of Veritas, however, we may not realize some or all of the anticipated benefits from the transaction. The resource constraints as a result of our prior focus on completing the transaction which included the loss of employees could have a continuing impact on the execution of our business strategy and our overall operating results. Additionally, in connection with the divestiture, our Board of Directors committed to returning the proceeds of the sale of Veritas to stockholders in the form of a capital return program, which included the payment of a special dividend in March 2016, entry into multiple share accelerated transactions, and continued repurchases under current and future share repurchase programs. The use of proceeds in this manner could impair the Company’s future financial growth.
Fluctuations in demand for our products and services are driven by many factors, and a decrease in demand for our products could adversely affect our financial results.
We are subject to fluctuations in demand for our products and services due to a variety of factors, including market transitions, general economic conditions, competition, product obsolescence, technological change, shifts in buying patterns, financial difficulties and budget constraints of our current and potential customers, awareness of security threats to IT systems and other factors. While such factors may, in some periods, increase product sales, fluctuations in demand can also negatively impact our product sales. If demand for our products and solutions declines, whether due to general economic conditions or a shift in buying patterns, our revenues and margins would likely be adversely affected.
Our business depends on customers renewing their arrangements for maintenance, subscriptions, managed security services and SaaS offerings.
A large portion of our revenue is derived from arrangements for maintenance, subscriptions, managed security services and SaaS offerings, yet existing customers have no contractual obligation to purchase additional solutions after the initial subscription or contract period. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our solutions or our customer support, customer budgets and the pricing of our solutions compared with the solutions offered by our competitors, any of which may cause our revenue to grow more slowly than expected, if at all. Accordingly, we must invest significant time and resources in providing ongoing value to our customers. If these efforts fail, or if our customers do not renew for other reasons, or if they renew on terms less favorable to us, our revenue may decline and our business will suffer.
Any cost reduction initiatives that we undertake may not deliver the results we expect, and these actions may adversely affect our business.
In May 2016 we announced a fiscal 2017 restructuring plan to be achieved by the end of fiscal 2018. This initiative could result in disruptions to our operations. Any cost-cutting measures could also negatively impact our business by delaying the introduction of new products or technologies, interrupting service of additional products, or impacting employee retention. In addition, we cannot be sure that the cost reduction and streamlining initiatives will be as successful in reducing our overall expenses as we expect or that additional costs will not offset any such reductions or streamlining. If our operating costs are higher than we expect or if we do not maintain adequate control of our costs and expenses, our results of operations will suffer.RISKS RELATED TO OUR BUSINESS STRATEGY AND INDUSTRY
If we are unable to develop new and enhanced products and services that achieve widespread market acceptance,solutions, or if we are unable to continually improve the performance, features, and reliability of our existing products and services or adapt our business model to keep pace with industry trends,solutions, our business and operating results could be adversely affected.
Our future success depends on our ability to effectively respond to the rapidly changing needs of our customersevolving threats to consumers, as well as competitive technological developments and industry changes, by developing or introducing new products, product upgrades and servicesenhanced solutions on a timely basis. We have in the past incurred, and will continue to incur, significant research and development expenses as we strivefocus on organic growth through internal innovation. We believe that we also must continue to remain competitive.dedicate a significant amount of resources to our research and development efforts to decrease our reliance on third parties. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected. Additionally, we must continually address the challenges of dynamic and accelerating market trends such as the emergence of advanced persistent threats in the security space, the continued decline in the PC market and the market shift towards mobility and the increasing transition towards cloud-based solutions, all of which have made it more difficult for us to compete effectively.competitive developments. Customers may require features and capabilities that our current solutions do not have. Our failure to develop
new solutions thatand improve our existing solutions to satisfy customer preferences and effectively compete with other market offerings in a timely and cost-effective manner may harm our ability to renewretain our subscriptions with existing customers and to create or increase demand for our solutions and mayattract new customers. A loss of customers would adversely impact our business and operating results. New product
The development and introduction involvesof new solutions involve a significant commitment of time and resources and isare subject to a number of risks and challenges including:including but not limited to:
Managing the length of the•Lengthy development cycle for new productscycles;
•Evolving industry and product enhancements, which has frequently been longer than we originally expected;
Adapting to emerging and evolving industryregulatory standards and to technological developments by our competitors and customers;
Extending the operation of our products and services to new and evolving•Rapidly changing customer preferences;
•Evolving platforms, operating systems, and hardware products, such as mobile devices;
•Product and service interoperability challenges with customer’s technology and third-party vendors;
•Entering into new or unproven markets with which we have limited experience;markets; and
Managing•Executing new product and service strategies forstrategies.
In addition, third parties, including operating systems and internet browser companies, may take steps to limit the marketsinteroperability of our solutions with their own products and services, in which we operate;
Addressing trade compliance issues affecting our abilitysome cases to ship our products;
Developing or expanding efficient sales channels; and
Obtaining sufficient licenses to technology and technical access from operating system software vendors on reasonable terms to enablepromote their own offerings. This could delay the development of our solutions or our solutions may be unable to operate effectively. This could also result in decreased demand for our solutions, decreased revenue, and deploymentharm to our reputation, and adversely affect our business, financial condition, results of interoperable products, including source code
licenses for certain products with deep technical integration into operating systems.operations, and cash flows.
If we are not successful in managing these risks and challenges, or if our new products, product upgrades and servicesor improved solutions are not technologically competitive or do not achieve market acceptance, our business and operating results could be adversely affected.
We operate in a highly competitive environment, and our competitors may gain market share in the markets for our products that could adversely affect our business and cause our revenues to decline.solutions.
We operate in intensely competitive markets that experience rapidfrequent technological developments, changes in industry and regulatory standards, changes in customer requirements and preferences, and frequent new product introductions and improvements. If we are unable to anticipate or react to these competitive challenges or if existing or new competitors gaincontinually evolving conditions, we could lose market share in any of our markets, our competitive position could weaken and we could experience a decline in our sales that could adversely affect our business and operating results.revenues. To compete successfully, we must maintain an innovative research and development effort to develop new products and servicessolutions and enhance our existing products and services,solutions, effectively adapt to changes in the technology or product rights held by our competitors appropriately respond to competitive strategies and effectively adapt to technological changes and changes inas well as the ways that our information is accessed, used and stored withinby our enterprisecustomers, and consumer markets. If we are unsuccessful in respondingappropriately respond to our competitors or to changing technological and customer demands, our competitive position and our financial results could be adversely affected.strategies.
Our competitors include software vendors and operating system providers that offer software productssolutions that directly compete with our product offerings. In addition to competing with these vendors directly for sales to end-users of our products, we compete with them for the opportunity to have our products bundled with the product offerings of our strategic partners such as computer hardware OEMs and ISPs. Our competitors could gain market share from us if any of these strategic partners replace our products with the products of our competitors or if these partners more actively promote our competitors’ products than our products. In addition, software vendors who have bundled our products with theirs may choose to bundle their software with their own or other vendors’ software or may limit our access to standard product interfaces and inhibit our ability to develop products for their platform. In the future, further product development by these vendors could cause our software applications and services to become redundant, which could significantly impact our sales and financial results.
We face growing competition from network equipment, computer hardware manufacturers, large operating system providers and other technology companies, thatas well as from companies in the identity threat protection space such as credit bureaus. Many of our competitors are increasingly developing and incorporating into their products data protection software and other competing products, often free of charge, that competescompete at some levelslevel with our product offerings. Our competitive position could be adversely affected to the extent that our customers perceive the functionality incorporated into these products as replacing the need for our products.
Security protection is also offered by somesolutions. We face additional risks that these products could limit the operability of our competitors at prices lower thansolutions for our prices or, in some cases is offered free of charge.customers. Some companies offer the lower-priced or free security products within their computer hardware or software products that we believe are inferior to our products and SaaS offerings. Our competitive position could be adversely affected to the extent that our customers perceive these security products as replacing the need for more effective, full featured products and services, such as those that we provide. The expansion of these competitive trends could have a significant negative impact on our sales and financial results by causing, among other things, price reductions of our products, reduced profitability and loss of market share.
Many of our competitors have greater financial, technical, sales, marketing, or other resources than we do and consequently, may have the ability to influence customers to purchase their products instead of ours.ours, including through investing more in internal innovation than we can. Further consolidation within our industry or other changes in the competitive environment, such as greater vertical integration from key computing and operating system suppliers could result in larger competitors that compete more directly with us on several levels.us. We also face competition from many smaller companies that specialize in particular segments of the marketsmarket in which we compete.
Fluctuations in our quarterly financial results have affected the priceIn addition to competing with these vendors directly for sales to end-users of our common stock insolutions, we compete with them for the past and could affectopportunity to have our stock price insolutions bundled with the future.
Our quarterly financial results have fluctuated in the past and are likely to vary significantly in the future due to a number of factors, many of which are outsideofferings of our control. Ifstrategic partners, such as computer hardware original equipment manufacturers (OEMs) and internet service providers (ISPs) and operating systems. Our competitors could gain market share from us if any of these strategic partners replace our quarterly financial results or our predictions of future financial results fail to meet our expectations or the expectations of securities analysts and investors, our stock price could be negatively affected. Any volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuancessolutions with those of our stock. Our operating results for prior periodscompetitors or if these partners more actively promote our competitors’ solutions than our own. In addition, software vendors who have bundled our solutions with theirs may not be effective predictors ofchoose to bundle their solutions with their own or other vendors’ solutions or may limit our future performance.
Factors associated with our industry, the operation of our business,access to standard interfaces and the markets for our products may cause our quarterly financial results to fluctuate, including:
Reduced demand for any of our products and services;
Entry of new competition into our markets;
Competitive pricing pressure for one or more of our classes of products;
Our ability to timely complete the release of new or enhanced versions of our products;
How well we execute our strategy and operating plans and the impact of changes in our business model that could result in significant restructuring charges;
Fluctuations in foreign currency exchange rates;
The number, severity, and timing of threat outbreaks (e.g. worms, viruses, malware, ransomeware and other malicious threats);
Our resellers making a substantial portion of their purchases near the end of each quarter;
Enterprise customers’ tendency to negotiate site licenses near the end of each quarter;
Cancellation, deferral, or limitation of orders by customers;
Changes in the mix or type of products sold;
Movements in interest rates;
The rate of adoption of new product technologies and new releases of operating systems;
Changes in accounting rules;
Weakness or uncertainty in general economic or industry conditions in any of the multiple markets in which we operate that could reduce customer demand and ability to pay for our products and services;
Political and military instability, which could slow spending within our target markets, delay sales cycles, and otherwise adversely affectinhibit our ability to generate revenues and operate effectively;
Budgetary constraints of customers, which are influenceddevelop solutions for their platform. In the future, further product development by corporate earnings and government budget cycles and spending objectives;
Disruptions in our business operations or target markets caused by, among other things, earthquakes, floods, or other natural disasters affecting our headquarters located in Silicon Valley, California, an area known for seismic activity, or our other locations worldwide;
Acts of war or terrorism;
Intentional disruptions by third parties; and
Health or similar issues, such as a pandemic.
Any of the foregoing factorsthese vendors could cause the trading price of our common stocksolutions to fluctuate significantly.
Our business models present executionbecome redundant, which could significantly impact our sales and competitive risks.
In recent years, our SaaS offerings have become increasingly critical in our business. Our competitors are rapidly developing and deploying SaaS offerings for consumers and business customers. Pricing and delivery models are evolving. Devices and form factors influence how users access services in the cloud. We are devoting significant resources to develop and deploy our own SaaS strategies. We cannot assure you that our investments in and development of SaaS offerings will achieve the expected returns for us or that we will be able to compete successfully in the marketplace. In addition to software development costs, we are incurring costs to build and maintain infrastructure to support SaaS offerings. These costs may reduce the operating margins we have previously achieved. Whether we are successful in this business model depends on our execution in a number of areas, including:
Continuing to innovate and bring to market compelling cloud-based experiences that generate increasing traffic and market share; and
Ensuring that our SaaS offerings meet the reliability expectations of our customers and maintain the security of their data.results.
We may need to change our pricing models to compete successfully.
The intense competition we face, in the sales of our productsaddition to general and services and general economic and business conditions, can put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions or provide offerings, or offer free introductory products or services or develop products(freemium products) that the marketplace considers more valuable,compete with ours, we may need to lower prices or offer other favorable termssimilar freemium products in order to compete successfully. Similarly, if external factors require us to raise our prices, our ability to acquire new customers and retain existing customers may be diminished. Any such changes may reduce revenue and margins and could adversely affect operatingour financial results.
Additionally, our business may be affected by changes in the increasing prevalencemacroeconomic environment. Our solutions are discretionary purchases, and customers may reduce or eliminate their discretionary spending on our solutions during a difficult
macroeconomic environment. Although we did not experience a material increase in cancellations by us andcustomers or a material reduction in our competitorsretention rate in fiscal 2021, we may unfavorably impact pricingexperience such an increase or reduction in both our on-premise enterprise software business and our cloud business,the future, especially in the event of a prolonged recession or a worsening of current conditions as well as overalla result of the COVID-19 pandemic. In addition, during a recession, consumers may experience a decline in their credit or disposable income, which may result in less demand for our on-premisesolutions. As a result, we may have to lower our prices or make other changes to our pricing model to address these dynamics, any of which could adversely affect our business and financial results.
In addition, in January 2021, we acquired Germany-based Avira. Many of Avira’s users are freemium subscribers, meaning they do not pay for its basic services. Much of our anticipated growth in connection with the Avira acquisition is attributable to converting Avira’s freemium users to a paid subscription option. Numerous factors, however, may impede our ability to retain and convert these users into paying customers.
If we fail to manage our sales and distribution channels effectively, or if our partners choose not to market and sell our solutions to their customers, our operating results could be adversely affected.
A portion of our revenues is derived from sales through indirect channels, including, but not limited to, distributors that sell our products to end-users and other resellers, and OEM partners that incorporate our products into, or bundle our products with, their products. These channels involve a number of risks, including:
•Our resellers, distributors and OEMs are generally not subject to minimum sales requirements or any obligation to market our solutions to their customers;
•Our reseller and distributor agreements are generally nonexclusive and may be terminated at any time without cause and our OEM partners may terminate or renegotiate their arrangements with us and new terms may be less favorable due to competitive conditions in our markets and other factors;
•Our resellers, distributors and OEMs may encounter issues or have violations of applicable law or regulatory requirements or otherwise cause damage to our reputation through their actions;
•Our resellers and distributors frequently market and distribute competing solutions and may, from time to time, place greater emphasis on the sale of these competing solutions due to pricing, promotions, and other terms offered by our competitors;
•Any consolidation of electronics retailers can increase their negotiating power with respect to software productproviders such as us and service offerings,any decline in the number of physical retailers could decrease the channels of distribution for us;
•The continued consolidation of online sales through a small number of larger channels has been increasing, which could reduce the channels available for online distribution of our solutions; and
•Sales through our partners are subject to changes in general economic conditions, strategic direction, competitive risks, and other issues that could result in a reduction of sales, or cause our partners to suffer financial difficulty which could delay payments to us, affecting our operating results.
If we fail to manage our sales and distribution channels successfully, these channels may conflict with one another or otherwise fail to perform as we anticipate, which could reduce our revenuessales and profitability. increase our expenses as well as weaken our competitive position.
Our competitors may offer lower pricingrevenue and operating results depend significantly on their support offerings, which could put pressure on usour ability to further discountretain our product or support pricing.existing customers, convert existing non-paying customers to paying customers, and add new customers.
Any broad-based changeWe generally sell our solutions to our customers on a monthly or annual subscription basis. Customers may choose not to renew their membership with us at any time. Renewing customers may require additional incentives to renew, may not renew for the same contract period, or may change their subscriptions. We therefore may be unable to retain our existing customers on the same or on more profitable terms, if at all. In addition, we may not be able to accurately predict or anticipate future trends in customer retention or effectively respond to such trends.
Our customer retention rates may decline or fluctuate due to a variety of factors, including the following:
•Our customers’ levels of satisfaction or dissatisfaction with our solutions and the value they place on our solutions;
•The quality, breadth, and prices of our solutions;
•Our general reputation and events impacting that reputation;
•The services and related pricing policiesoffered by our competitors;
•Disruption by new services or changes in law or regulations that impact the need for efficacy or of our products and services;
•Changes in autorenewal regulations;
•Our customer service and responsiveness to the needs of our customers; and
•Changes in our target customers’ spending levels as a result of general economic conditions or other factors.
Declining customer retention rates could cause our revenuesrevenue to declinemay grow more slowly than expected or be delayed as our sales force implementsdecline; and our customers adjust to the new pricing policies. Someoperating results, gross margins and business will be harmed.
Our acquisitions and divestitures create special risks and challenges that could adversely affect our financial results.
As part of our competitorsbusiness strategy, we may bundle products for promotional purposesacquire or as a long-term pricing strategydivest businesses or provide guaranteesassets. For example, in 2019, we completed the sale of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our products. Ifenterprise security assets to Broadcom Inc. (the “Broadcom sale”) and in January 2021, we do not adaptcompleted the acquisition of Avira. These activities can involve a number of risks and challenges, including:
•Complexity, time, and costs associated with managing these transactions, including the integration of acquired and the winding down of divested business operations, workforce, products, IT systems, and technologies;
•Challenges in retaining customers of acquired businesses, or providing the same level of service to existing customers with reduced resources;
•Diversion of management time and attention;
•Loss or termination of employees, including costs associated with the termination or replacement of those employees;
•Assumption of liabilities of the acquired and divested business or assets, including pending or future litigation, investigations or claims related to the acquired business or assets;
•The addition of acquisition-related debt;
•Difficulty in entering into or expanding in new markets or geographies;
•Increased or unexpected costs and working capital requirements;
•Dilution of stock ownership of existing stockholders;
•Unanticipated delays or failure to meet contractual obligations;
•Substantial accounting charges for acquisition-related costs, asset impairments, amortization of intangible assets, and higher levels of stock-based compensation expense; and
•Difficulty in realizing potential benefits, including cost savings and operational efficiencies, synergies and growth prospects from integrating acquired businesses.
Moreover, to be successful, large complex acquisitions depend on large-scale product, technology, and sales force integrations that are difficult to complete on a timely basis or at all and may be more susceptible to the special risks and challenges described above. Any of the foregoing, and other factors, could harm our pricing modelsability to reflect changesachieve anticipated levels of profitability or other financial benefits from our acquired or divested businesses, product lines or assets or to realize other anticipated benefits of divestitures or acquisitions.
Changes in customer useindustry structure and market conditions could lead to charges related to discontinuance of certain of our products or businesses and asset impairments.
In response to changes in customer demand,industry structure and market conditions, we may be required to strategically reallocate our revenuesresources and consider restructuring, disposing of, or otherwise exiting certain businesses. Any decision to limit investment in or dispose of or otherwise exit businesses may result in the recording of special charges, such as technology-related write-offs, workforce reduction costs, charges relating to consolidation of excess facilities, or claims from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of our carrying basis of assets, including purchased intangible assets, could decrease.change as a result of such assessments and decisions. Although in certain instances our vendor agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, our loss contingencies may include liabilities for contracts that we cannot cancel, reschedule or adjust with suppliers.
Further, our estimates relating to the liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, we are required to evaluate goodwill impairment on an annual basis and between annual evaluations in certain circumstances, and future goodwill impairment evaluations may result in a charge to earnings.
RISKS RELATED TO OUR OPERATIONS
We are dependent upon Broadcom for certain engineering and threat response services, which are critical to our products and business.
Our endpoint security solution has historically relied upon certain threat analytics software engines and other software (the Engine-Related Services) that have been developed and provided by engineering teams that have transferred to Broadcom as part of the Broadcom sale. The increasetechnology, including source code, at issue is shared, and pursuant to the terms of the Broadcom sale, we retain rights to use, modify, enhance and create derivative works from such technology. Broadcom has committed to provide these Engine-Related Services substantially to the same extent and in open source software distributionsubstantially the same manner, as has been historically provided under a license agreement with a limited term.
As a result, we are dependent on Broadcom for services and technology that are critical to our Norton business, and if Broadcom fails to deliver these Engine-Related Services it would result in significant business disruption, and our business and operating results and financial condition could be materially and adversely affected. Furthermore, if our current sources become unavailable, and if we are unable to develop or obtain alternatives to integrate or deploy them in time, our ability to compete effectively could be impacted and have a material adverse effect on our business. Additionally, in connection with the Broadcom sale, we lost other capabilities, including certain threat intelligence data which were historically provided by our former Enterprise Security business, the lack of which could have a negative impact on our business and products.
Our future success depends on our ability to attract and retain personnel in a competitive marketplace.
Our future success depends upon our ability to recruit and retain key management, technical (including cyber security experts), sales, marketing, e-commerce, finance, and other personnel. Our officers and other key personnel are “at will” employees and we generally do not have employment or non-compete agreements with our employees. Competition for people with the specific skills that we require is significant. While we continue to monitor the competitive environment, it is possible that the COVID-19 pandemic may also causeaffect the productivity of our employees and our ability to attract and retain key talent. As a result of the pandemic, in March 2020, we transitioned to a remote working environment for the substantial majority of our employees. While our employees have transitioned effectively to working from home, over time such remote operations may decrease the cohesiveness of our employees and our ability to maintain our culture, both of which are integral to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, to foster a creative environment, to hire new employees and to retain existing employees.
In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation. Additionally, changes in immigration laws could impair our ability to attract and retain highly qualified employees. If we fail to attract, retain and motivate new or existing personnel, our business, results of operations and future growth prospects could suffer. The volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. In addition, we may not have an adequate number of shares reserved under our equity compensation plans, forcing us to changereduce awards of equity-based compensation, which could impair our pricing models.efforts to attract, retain and motivate necessary personnel. If we are unable to hire and retain qualified employees, or conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our business and operating results could be adversely affected.
Defects,Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. From time to time, key personnel leave our company and the frequency and number of such departures have widely varied and have, in the past, resulted in significant changes to our executive leadership team. The loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, our internal control over financial reporting, and our results of operations. In addition, hiring, training, and successfully integrating replacement personnel can be time consuming and expensive, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future financial results.
Our inability to successfully recover from a disaster or risks related to the provision of our SaaS offeringsother business continuity event could impair our ability to deliver our products and services and harm our business.
We are heavily reliant on our technology and infrastructure to provide our products and services to our customers. For example, we host many of our products using third-party data center facilities, and while we require them to maintain formal service level agreements around availability, we do not control the operation of these facilities. These facilities are vulnerable to damage, interruption, or performance problems from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures, pandemics and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of a natural disaster, an act of terrorism, a pandemic, and similar events could result in a decision to close the facilities without adequate notice or other unanticipated problems, which in turn, could result in lengthy interruptions in the delivery of our products and services, which could negatively impact our sales and operating results.
Furthermore, our business administration, human resources, compliance efforts, and finance services depend on the proper functioning of our computer, telecommunication, and other related systems and operations. A disruption or failure of these systems or operations because of a disaster, cyber-attack or other business continuity event, such as the COVID-19 pandemic, could cause data to be lost or otherwise delay our ability to complete sales and provide the highest level of service to our customers. In addition, we could have difficulty producing accurate financial statements on a timely basis, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results, all of which could adversely affect the trading value of our stock. Although we endeavor to ensure there is redundancy in these systems and that they are regularly backed-up, there are no assurances that data recovery in the event of a disaster would be effective or occur in an efficient manner.If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
If we fail to offer high-quality customer support, our customer satisfaction may suffer and have a negative impact our business and reputation.
Many of our customers rely on our customer support services to resolve issues, including technical support, billing and subscription issues, that may arise. If demand increases, or our resources decrease, we may be unable to offer the level of support our customers expect. Any failure by us to maintain the expected level of support could reduce customer satisfaction and negatively impact our customer retention and our business.
Our international operations involve risks that could increase our expenses, adversely affect our operating results, and require increased time and attention of our management.
We derive a portion of our revenues from customers located outside of the U.S., and we have significant operations outside of the U.S., including engineering, finance, sales and customer support. Our international operations are subject to risks in addition to those faced by our domestic operations, including:
•Potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;
•Requirements of foreign laws and other governmental controls, including tariffs, trade barriers and labor restrictions, and related laws that reduce the flexibility of our business operations;
•Potential changes in trade relations arising from policy initiatives or other political factors;
•Regulations or restrictions on the use, import, or export of encryption technologies that could delay or prevent the acceptance and use of encryption products and public networks for secure communications;
•Local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;
•Central bank and other restrictions on our ability to repatriate cash from our international subsidiaries or to exchange cash in international subsidiaries into cash available for use in the U.S.;
•Fluctuations in currency exchange rates, economic instability, and inflationary conditions could make our solutions more expensive or could increase our costs of doing business in certain countries;
•Limitations on future growth or inability to maintain current levels of revenues from international sales if we do not invest sufficiently in our international operations;
•Difficulties in staffing, managing, and operating our international operations;
•Difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;
•Costs and delays associated with developing software and providing support in multiple languages; and
•Political unrest, war, or terrorism, or regional natural disasters, particularly in areas in which we have facilities.
RISKS RELATED TO OUR SOLUTIONS
Our solutions, systems, websites and the data on these sources may be subject to intentional disruption that could materially harm to our reputation and future sales.
Despite our precautions and significant ongoing investments to protect against security risks, data protection breaches, cyber-attacks, and other intentional disruptions of our solutions, we expect to be an ongoing target of attacks specifically designed to impede the performance and availability of our offerings and harm our reputation as a leading cyber security company. Similarly, experienced computer programmers or other sophisticated individuals or entities, including malicious hackers, state-sponsored organizations, and insider threats including actions by employees and third-party service providers, may attempt to penetrate our network security or the security of our systems and websites and misappropriate proprietary information or cause interruptions of our products and services. Such attempts are increasing in number and in technical sophistication, and if successful could expose us and the affected parties, to liability,risk of loss or misuse of proprietary or confidential information or disruptions of our business operations.
While we engage in a number of measures aimed to protect against security breaches and to minimize the impact if a data breach were to occur, our information technology systems and infrastructure may be vulnerable to damage, compromise, disruption, and shutdown due to attacks or breaches by hackers or other circumstances, such as error or malfeasance by employees or third party service providers or technology malfunction. The occurrence of any of these events, as well as a failure to promptly remedy these events should they occur, could compromise our systems, and the information stored in our systems could be accessed, publicly disclosed, lost, stolen, or damaged. Any such circumstance could adversely affect our ability to attract and maintain customers as well as strategic partners, cause us to suffer negative publicity or damage to our brand, and reputationsubject us to legal claims and liabilities or otherwise negatively impactregulatory penalties. In addition, unauthorized parties might alter information in our business.databases, which would adversely affect both the reliability of that information and our ability to market and perform our services as well as undermine our ability to remain compliant with relevant laws and regulations. Techniques used to obtain unauthorized access or to sabotage systems change frequently, are constantly evolving and generally are difficult to recognize and react to effectively. We may be unable to anticipate these techniques or to implement adequate preventive or reactive measures. Several recent, highly publicized data security breaches, including a large-scale attack on SolarWinds customers by a foreign nation state actor and a significant uptick in ransomware/extortion attacks at other companies have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems or those of our strategic partners or enterprise customers.
Our SaaS offerings may contain errors or defects that users identify after they begin using them thatsolutions are complex and operate in a wide variety of environments, systems and configurations, which could result in unanticipated service interruptions, which could harmfailures of our reputation and our business. Since our customers use our SaaS offerings for mission-critical protection from threatssolutions to electronic information, endpoint devices, and computer networks, anyfunction as designed.
Because we offer very complex solutions, errors, defects, disruptions, in service or other performance problems with our SaaS offerings could significantly harmsolutions may and have occurred. For example, we may experience disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our reputation andwebsites simultaneously, fraud, or security attacks. In some instances, we may damage our customers’ businesses. If that occurs, customers could elect not be able to renew,identify the cause or delay or withhold payment to us, we could lose future sales or customers may make warranty or other claims against us, which could result incauses of these performance problems within an increaseacceptable period of time. Interruptions in our provision for doubtful accounts, an increasesolutions could impact our revenues or cause customers to cease doing business with us. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose customer data or experience material adverse interruptions to our operations or delivery of solutions to our clients in collection cycles for accounts receivable or the expensea disaster recovery scenario.
Negative publicity regarding our brand, solutions and risk of litigation.
We currently serve our SaaS-based customers from hosting facilities located across the globe. Damage to, or failure of, any significant element of these hosting facilities could result in interruptions in our service, whichbusiness could harm our competitive position.
Our brand recognition and reputation as a trusted service provider are critical aspects of our business and key to retaining existing customers and expose us to liability. Interruptions or failures in our service delivery could cause customers to terminate their subscriptions with us, could adversely affect our renewal rates, and could harm our ability to attractattracting new customers. Our business would alsocould be harmed ifdue to errors, defects, disruptions or other performance problems with our solutions causing our customers and potential customers to believe that our SaaS offeringssolutions are unreliable. Furthermore, negative publicity, whether or not justified, including intentional brand misappropriation, relating to events or activities attributed to us, our employees, our strategic partners, our affiliates, or others associated with any of these parties, may tarnish our reputation and reduce the value of our brands. In addition, the rapid rise and use of social media has the potential to harm our brand and reputation. We may be unable to timely respond to and resolve negative and inaccurate social media posts regarding our company, solutions and business in an appropriate manner. Damage to our reputation and loss of brand equity may reduce demand for our solutions and have an adverse effect on our business, operating results, and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brands may be costly and time consuming, and such efforts may not ultimately be successful.
We collect, use, disclose, store, or otherwise process personal information, which subjects us to privacy and data security laws and contractual commitments,commitments.
We collect, use, process, store, transmit or disclose (collectively, process) an increasingly large amount of confidential information, including personally identifiable information, credit card information and other critical data from employees and customers, in connection with the operation of our actual or perceived failurebusiness, particularly in relation to comply with such lawsour identity and commitments could harm our business.information protection offerings.
The personal information we collect, use, store or disclose (collectively, “Process”), including from employees and customers,process is subject to an increasing number of federal, state, local, and foreign laws regarding privacy and data security, as well as contractual commitments. Any failure or perceived failure by us to comply with such obligations may result in governmental enforcement actions, fines, litigation, or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Our
Additionally, changes to applicable privacy or data security laws could impact how we process personal information and therefore limit the effectiveness of our solutions or our ability to develop new solutions. For example, the European Union General Data Protection Regulation imposes more stringent data protection requirements and provides for greater penalties for noncompliance of up to the greater of €20 million or four percent of our worldwide annual revenues.
Data protection legislation is also becoming increasingly common in the U.S. at both the federal and state level. For example, the California Consumer Privacy Act of 2018 (the CCPA) requires, among other things, covered companies to provide new disclosures to California consumers regarding the use of personal information, gives California residents expanded rights to access their personal information that has been collected and allows such consumers new abilities to opt-out of certain sales of personal information. Further, the new California Privacy Rights Act (the CPRA) significantly modifies the CCPA. These modifications may result in additional uncertainty and require us to incur additional costs and expenses in our effort to comply. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. The burdens imposed by the CCPA, CPRA and other similar laws that may be enacted at the federal and state level may require us to modify our data processing practices and policies, adapt our goods and services and incur substantial expenditures in order to comply.
Global privacy and data protection legislation, enforcement, and policy activity are rapidly expanding and evolving, and may be inconsistent from jurisdiction to jurisdiction. We may be or become subject to data localization laws mandating that data collected in a foreign country be processed and stored only within that country. If any country in which we have customers were to adopt a data localization law, we could be required to expand our data storage facilities there or build new ones in order to comply. The expenditure this would require, as well as costs of compliance generally, could harm our financial condition.
Additionally, third parties with whom we work, such as vendors or developers, may violate applicable laws or our policies and such violations can place personal information of our customers at risk. In addition, our customers may also accidentally disclose their passwords or store them on a device that is lost or stolen, creating the perception that our systems are not secure against third-party access. Additionally, if third parties that we work with, such as vendors or developers, violate applicable laws or our policies, such violations may also place personal information at risk andThis could have an adverse effect on our reputation and business. ChangesIn addition, such third parties could expose us to applicable privacycompromised data or technology, or be the target of cyberattack and other data security lawsbreaches which could impact howour systems or our customers’ records. Further, we Process personal information,could be the target of a cyberattack or other action that impacts our systems and therefore limit the effectivenessresults in a data breach of our products, servicescustomers’ records. This could have an adverse effect on our reputation and business.
LEGAL AND COMPLIANCE RISKS
Matters relating to or features, orarising from our ability to develop new products, services or features.
If we fail to manage our salescompleted Audit Committee Investigation, including regulatory investigations and distribution channels effectively, or if our partners choose not to marketproceedings, litigation matters, and sell our products to their customers, our operating results could be adversely affected.
We sell our products to customers around the world through multi-tiered sales and distribution networks. Sales through these different channels involve distinct risks, including the following:
Direct Sales. A significant portion of our revenues from enterprise products is derived from sales by our direct sales force to end-users. Special risks associated with direct sales include:
Longer sales cycles associated with direct sales efforts;
Difficulty in hiring, retaining, and motivating our direct sales force, particularly through periods of transition in our organization; and
Substantial amounts of training for sales representatives to become productive in selling our products and services, including regular updates to cover new and revised products, and associated delays and difficulties in recognizing the expected benefits of investments in new products and updates.
Indirect Sales Channels. A significant portion of our revenues is derived from sales through indirect channels, including distributors that sell our products to end-users and other resellers. This channel involves a number of risks, including:
Our lack of control over the timing of delivery of our products to end-users;
Our resellers and distributors are generally not subject to minimum sales requirements or any obligation to market our products to their customers;
Our reseller and distributor agreements are generally nonexclusive andpotential additional expenses, may be terminated at any time without cause;
Our resellers and distributors frequently market and distribute competing products and may, from time to time, place greater emphasis on the sale of these products due to pricing, promotions, and other terms offered by our competitors; and
The consolidation of electronics retailers has increased their negotiating power with respect to hardware and software providers such as us.
OEM Sales Channels. A portion of our revenues is derived from sales through our OEM partners that incorporate our products into, or bundle our products with, their products. Our reliance on this sales channel involves many risks, including:
Our lack of control over the volume of systems shipped and the timing of such shipments;
Our OEM partners are generally not subject to minimum sales requirements or any obligation to market our products to their customers;
Our OEM partners may terminate or renegotiate their arrangements with us and new terms may be less favorable due to competitive conditions in our markets and other factors;
Sales through our OEM partners are subject to changes in general economic conditions, strategic direction, competitive risks, and other issues that could result in a reduction of OEM sales;
The development work that we must generally undertake under our agreements with our OEM partners may require us to invest significant resources and incur significant costs with little or no assurance of ever receiving associated revenues;
The time and expense required for the sales and marketing organizations of our OEM partners to become familiar with our products may make it more difficult to introduce those products to the market; and
Our OEM partners may develop, market, and distribute their own products and market and distribute products of our competitors, which could reduce our sales.
If we fail to manage our sales and distribution channels successfully, these channels may conflict with one another or otherwise fail to perform as we anticipate, which could reduce our sales and increase our expenses as well as weaken our competitive position. Some of our distribution partners have experienced financial difficulties in the past, and if our partners suffer financial difficulties in the future because of general economic conditions or for other reasons, these partners may delay paying their obligations to us and we may have reduced sales or increased bad debt expense that could adversely affect our operating results.business and results of operations.
As previously disclosed in our public filings, the Audit Committee completed its internal investigation in September 2018. In addition, reliance on multiple channels subjects usconnection with the Audit Committee Investigation, we voluntarily self-reported to events that could cause unpredictability in demand, which could increase the risk that we may be unable to plan effectively for the future,SEC. The SEC commenced a formal investigation, and could result in adverse operating results in future periods.
Over the long term we intend to invest in research and development activities, and these investments may achieve delayed, or lower than expected, benefits which could harm our operating results.
While we continue to focus on managing our costscooperate with that investigation. The outcome of such an investigation is difficult to predict. If the SEC commences legal action, we could be required to pay significant penalties and expenses, overbecome subject to injunctions, a cease and desist order, and other equitable remedies. We can provide no assurances as to the long term, we also intend to invest significantly in researchoutcome of any governmental investigation.
We have incurred, and development activities as we focus on organic growth through internal innovation in each of our business segments. We believe that we mustmay continue to dedicate aincur, significant amount of resources to our research and development efforts to maintain our competitive position. We recognize the costs associated with these research and development investments earlier than the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.
Changes in industry structure and market conditions could lead to chargesexpenses related to discontinuances of certain of our products or businesseslegal and asset impairments.
In response to changes in industry and market conditions andother professional services in connection with the recent divestitureongoing SEC investigation, which may continue to adversely affect our business and financial condition. In
addition, securities class actions and other lawsuits have been filed against us, certain current and former directors, and former officers. The outcome of the securities class actions and other litigation and regulatory proceedings or government enforcement actions is difficult to predict, and the cost to defend, settle, or otherwise resolve these matters may be requiredsignificant. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of very large or indeterminate amounts or seek to strategically reallocate our resourcesimpose sanctions, including significant monetary penalties. The monetary and consider restructuring, disposingother impact of these litigations, proceedings, or otherwise exiting businesses. Any decision to limit investment inactions may remain unknown for substantial periods of time. Further, an unfavorable resolution of litigations, proceedings or dispose of or otherwise exit businesses may result in the recording of special charges, such as inventory and technology-related write-offs, workforce reduction costs, charges relating to consolidation of excess facilities or claims from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of our carrying basis of assets, including purchased intangible assets,actions could change ashave a result of such assessments and decisions. Although in certain instances our supply agreements allow us the option to cancel, reschedule and adjust our requirements basedmaterial adverse effect on our business, needs prior to firm orders being placed,financial condition, and results of operations and cash flows. Any future investigations or additional lawsuits may also adversely affect our loss contingencies may include liabilities for contracts that we cannot cancel, reschedule or adjust with contract manufacturersbusiness, financial condition, results of operations, and suppliers.
Further, our estimates relating to the liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, we are required to evaluate goodwill impairment on an annual basis and between annual evaluations in certain circumstances, and future goodwill impairment evaluations may result in a charge to earnings.cash flows.
Our inability to successfully recover from a disaster or other business continuity eventsolutions are highly regulated, which could impairimpede our ability to deliver our productsmarket and services and harm our business.
We are heavily reliant on our technology and infrastructure to provide our products and services to our customers. For example, we host many of our products using third-party data center facilities and we do not control the operation of these facilities. These facilities are vulnerable to damage, interruptionsolutions or performance problems from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in the delivery of our products and services.
Furthermore, our business administration, human resources and finance services depend on the proper functioning of our computer, telecommunication and other related systems and operations. A disruption or failure of these systems or operations because of a disaster or other business continuity event could cause data to be lost or otherwise delay our ability to complete sales and provide the highest level of service to our customers. In addition, we could have difficulty producing accurate financial statements on a timely basis, which could adversely affect the trading value of our stock. Although we endeavor to ensure there is redundancy in these systems and that they are regularly backed-up, there are no assurances that data recovery in the event of a disaster would be effective or occur in an efficient manner.
Any errors, defects, disruptions or other performance problems with our products and services could harm our reputation and may damage our customers’ businesses. For example, we may experience disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously, fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our products and services could impact our revenues or cause customers to cease doing business with us. In addition, our business would be harmed if any of events of this nature caused our customers and potential customers to believe our services are unreliable. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose customer data or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster recovery scenario.
We have grown, and may continue to grow, through acquisitions, which gives rise to risks and challenges that could adversely affect our futurebusiness, financial results.
We have in the past acquired,position, and we expect to acquire in the future, other businesses, business units, and technologies. Acquisitions can involve a numberresults of special risks and challenges, including:
Complexity, time, and costs associated with the integration of acquired business operations, workforce, products, and technologies;
Diversion of management time and attention;
Loss or termination of employees, including costs associated with the termination or replacement of those employees;
Assumption of liabilities of the acquired business, including litigation related to the acquired business;
The addition of acquisition-related debt as well as increased expenses and working capital requirements;
Dilution of stock ownership of existing stockholders; and
Substantial accounting charges for restructuring and related expenses, write-off of in-process research and development, impairment of goodwill, amortization of intangible assets, and stock-based compensation expense.
If integration of our acquired businesses is not successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects. To integrate acquired businesses, we must implement our technology systems in the acquired operations and integrate and manage the personnel of the acquired operations. We also must effectively integrate the different cultures of acquired business organizations into our own in a way that aligns various interests, and may need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions.
Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of profitability from our acquired businesses or to realize other anticipated benefits of acquisitions.
Our international operations involve risks that could increase our expenses, adversely affect our operating results, and require increased time and attention of our management.
We derive a substantial portion of our revenues from customers located outside of the U.S. and we have significant operations outside of the U.S., including engineering, sales, customer support, and production. We plan to expand our international operations, but such expansion is contingent upon our identification of growth opportunities. Our international operationssolutions are subject to risks in addition to those faced by our domestic operations, including:
Potential lossa high degree of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;
Requirements of foreign laws and other governmental controls,regulation, including trade and labor restrictions and related laws that reduce the flexibility of our business operations;
Regulations or restrictions on the use, import, or export of encryption technologies that could delay or prevent the acceptance and use of encryption products and public networks for secure communications;
Local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;
Central bank and other restrictions on our ability to repatriate cash from our international subsidiaries or to exchange cash in international subsidiaries into cash available for use in the U.S.;
Fluctuations in currency exchange rates, economic instability and inflationary conditions could reduce our customers’ ability to obtain financing for software products or could make our products more expensive or could increase our costs of doing business in certain countries;
Limitations on future growth or inability to maintain current levels of revenues from international sales if we do not invest sufficiently in our international operations;
Longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;
Difficulties in staffing, managing, and operating our international operations, including difficulties related to administering our stock plans in some foreign countries;
Difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;
Seasonal reductions in business activity in the summer months in Europe and in other periods in other countries;
Costs and delays associated with developing software and providing support in multiple languages; and
Political unrest, war, or terrorism, or regional natural disasters, particularly in areas in which we have facilities.
A significant portion of our transactions outside of the U.S. is denominated in foreign currencies. Accordingly, our revenues and expenses will continue to be subject to fluctuations in foreign currency rates. For example, in recent periods the U.S. dollar has strengthened significantly against the Euro and other major currencies, which has adversely impacted our reported international revenue. We expect to be affected by fluctuations in foreign currency rates in the future, especially if international sales continue to grow as a percentage of our total sales or our operations outside the U.S. continue to increase.
The level of corporate income tax from sales to our non-U.S. customers is generally less than the level of tax from sales to our U.S. customers. This benefit is contingent upon existing tax regulations in the U.S. and in the countries in which our international operations are located. Future changes in domestic or international tax regulations could adversely affect our ability to continue to realize these tax benefits.
Our products are complex and operate in a wide variety of environments, systems, applicationsfederal, state, and configurations,local laws and regulations, such as the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Federal Trade Commission Act (FTC Act), and comparable state laws that are patterned after the FTC Act. LifeLock has previously entered into consent decrees and similar arrangements with the FTC and the attorney generals of 35 states as well as a settlement with the FTC relating to allegations that certain of LifeLock’s advertising, marketing and security practices constituted deceptive acts or practices in violation of the FTC Act, which could result in errorsimpose additional restrictions on our business, including prohibitions against making any misrepresentation of “the means, methods, procedures, effects, effectiveness, coverage, or product failures.scope of” our solutions. Any of the laws and regulations that apply to our business are subject to revision or new or changed interpretations, and we cannot predict the impact of such changes on our business.
Because we offer very complexAdditionally, the nature of our identity and information protection products undetected errors, failures, or bugs may occur, especially when products are first introduced or when new versions are released. Our products are often installedsubjects us to the broad regulatory, supervisory, and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations,enforcement powers of the Consumer Financial Protection Bureau which may cause errorsexercise authority with respect to our services, or failures in our products or may expose undetected errors, failures, or bugs in our products. Our customers’ computing environments are often characterized by a wide varietythe marketing and servicing of standard and non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time-consuming. In addition, despite testing by us and others, errors, failures, or bugs may not be found in new products or releases until after commencement of commercial shipments. Inthose services, through the past, we have discovered software errors, failures, and bugs in certainoversight of our product offerings after their introduction and, in some cases, have experienced delayedfinancial institution or lost revenues as a result of these errors.
Errors, failures, or bugs in products released by us could result in negative publicity, damage to our brand, product returns, loss of or delay in market acceptance of our products, loss of competitive position, or claims by customers or others. Many of
our end-user customers use our products in applications that are critical to their businesses and may have a greater sensitivity to defects in our products than to defects in other, less critical, software products. In addition, if an actual or perceived breach of information integrity, security or availability occurs in one of our end-user customer’s systems, regardless of whether the breach is attributable to our products, the market perception of the effectiveness of our products could be harmed. Alleviating any of these problems could require significant expenditures of our capital and other resources and could cause interruptions, delays, or cessation of our product licensing, which could cause us to lose existing or potentialcredit reporting agency customers and could adversely affect our operating results.suppliers, or by otherwise exercising its supervisory, regulatory, or enforcement authority over consumer financial products and services.
If we do not protect our proprietary information and prevent third parties from making unauthorized use of our products and technology, our financial results could be harmed.
MostMuch of our software and underlying technology is proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and procedures and through copyright, patent, trademark, and trade secret laws. However, all of these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties. Third parties may copy all or portions of our products or otherwise obtain, use, distribute, and sell our proprietary information without authorization.
Third parties may also develop similar or superior technology independently by designing around our patents. Our shrink- wrap licenseconsumer agreements aredo not signed by licenseesrequire a signature and therefore may be unenforceable under the laws of some jurisdictions. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as the laws of the U.S., and we may be subject to the unauthorized use of our products in those countries. The unauthorized copying or use of our products or proprietary information could result in reduced sales of our products. Any legal action to protect proprietary information that we may bring or be engaged in with a strategic partner or vendor could adversely affect our ability to access software, operating system, and hardware platforms of such partner or vendor, or cause such partner or vendor to choose not to offer our products to their customers. In addition, any legal action to protect proprietary information that we may bring or be engaged in, could be costly, may distract management from day-to-day operations, and may lead to additional claims against us, which could adversely affect our operating results.
From time to time we are a party to lawsuits and investigations, which typically require significant management time and attention and result in significant legal expenses, and which could, if not determined favorably, negatively impact our business, financial condition, results of operations, and cash flows.expenses.
We have initiated and been named as a party to lawsuits, including patent litigation, class actions, and governmental claims, and we may be named in additional litigation. The expense of initiating and defending, and in some cases settling, such litigation may be costly and divert management’s attention from the day-to-day operations of our business, which could adversely affecthave a materially adverse effect on our business, results of operations, and cash flows. In addition, an unfavorable outcome in such litigation could result in significant fines, settlements, monetary damages, or injunctive relief that could negatively and materially impact our ability to conduct our business, results of operations, and cash flows.
For example, in December 2018 the United Kingdom’s Competition and Markets Authority (CMA) launched an investigation into auto-renewal practices in the antivirus sector and recently announced that NortonLifeLock was one of the companies it was investigating. We continue to cooperate with the CMA in the course of its investigation and believe our business practices are fair and compliant with U.K. consumer law; however, we have been expending management time and resources on this matter and an unfavorable outcome of this investigation and any resulting litigation could impact our marketing practices to consumers, and potentially damage our reputation and otherwise harm our business and financial results.
Third parties claiming that we infringe their proprietary rights could cause us to incur significant legal expenses and prevent us from selling our products.
From time to time, third parties may claim that we have infringed their intellectual property rights, including claims regarding patents, copyrights, and trademarks. Because of constant technological change in the segments in which we compete, the
extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. In addition, former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of, or redesign our products,solutions, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our customers.partners. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. We have made and expect to continue making significant expenditures to investigate, defend, and settle claims related to the use of technology and intellectual property rights as part of our strategy to manage this risk.
In addition, we license and use software from third parties in our business. These third partythird-party software licenses may not continue to be available to us on acceptable terms or at all and may expose us to additional liability. This liability, or our inability to use any of this third partythird-party software, could result in shipmentdelivery delays or other disruptions in our business that could materially and adversely affect our operating results.
Adverse global economic events may impact our customers’ ability to do business with us, thereby harming our business, operating results and financial condition.
Adverse macroeconomic conditions could negatively affect our customers, thereby impacting our business, operating results or financial condition. During challenging economic times and periods of high unemployment, current or potential customers
may delay or forgo decisions to license new products or additional instances of existing products, upgrade their existing hardware or operating environments (which upgrades are often a catalyst for new purchases of our software), or purchase services. Customers may also have difficulties in obtaining the requisite third-party financing to complete the purchase of our products and services. Any of these scenarios could adversely affect our business.
Our exposure to credit risk and payment delinquencies on our accounts receivable significantly increases in adverse economic conditions.
An adverse macroeconomic environment could subject us to increased credit risk should customers be unable to pay us, or delay paying us, for previously purchased products and services. Our outstanding accounts receivables are generally not secured. In addition, our standard terms and conditions permit payment within a specified number of days following the receipt of our product. Accordingly, reserves for doubtful accounts and write-offs of accounts receivable may increase. In addition, weakness in the market for end users of our products could harm the cash flow of our distributors and resellers who could then delay paying their obligations to us. This would further increase our credit risk exposure and, potentially, cause delays in our recognition of revenue on sales to these customers. Further, while no customer accounted for more than 10% of our total net revenues in each of fiscal 2016, 2015 and 2014, one distributor accounted for 10% of our gross accounts receivable as of April 1, 2016. The loss of this or other large customers could have a negative impact on our business. While we have procedures to monitor and limit exposure to credit risk on our receivables and have not suffered any material losses to date, there can be no assurance such procedures will continue to effectively limit our credit risk and avoid future losses.
We cannot predict our future capital needs and we may be unable to obtain financing, which could have a material adverse effect on our business, results of operations and financial condition.
The onset or continuation of adverse economic conditions may make it more difficult to obtain financing for our operations, investing activities (including potential acquisitions) or financing activities. Any required financing may not be available on terms acceptable to us, or at all. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our financial or operational flexibility, and would also require us to fund additional interest expense. If additional financing is not available when required or is not available on acceptable terms, we may be unable to successfully develop or enhance our software and services through acquisitions in order to take advantage of business opportunities or respond to competitive pressures, which could have a material adverse effect on our software and services offerings, revenues, results of operations and financial condition.
Failure to maintain our credit ratings could adversely affect our liquidity, capital position, ability to hedge certain financial risks, borrowing costs and access to capital markets.
Our credit risk is evaluated by the major independent rating agencies, and such agencies have in the past and could in the future downgrade our ratings. We cannot assure you that we will be able to maintain our current credit ratings, and any additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, may further impact us in a similar manner and may have a negative impact on our liquidity, capital position, ability to hedge certain financial risks and access to capital markets.
Our financial condition and results of operations could be adversely affected if we do not effectively manage our liabilities.
As a result of the sale of our 4.20% Senior Notes (“4.20% notes due 2020”) in September 2010, and our 2.75% Senior Notes (“2.75 notes due 2017”) and 3.95% Senior Notes (“3.95% notes due 2022”) in June 2012 and 2.50% Convertible Senior (“2.50% senior convertible notes due 2021”) in March 2016, we have notes outstanding in an aggregate principal amount of $2.3 billion that mature at specific dates in calendar years 2017, 2020, 2021 and 2022. In addition, we have entered into a credit facility with a borrowing capacity of $1.0 billion. From time to time in the future, we may also incur indebtedness in addition to the amount available under our credit facility. The maintenance of our debt levels could adversely affect our flexibility to take advantage of certain corporate opportunities and could adversely affect our financial condition and results of operations.
We may be required to use all or a substantial portion of our cash balance to repay these notes on maturity unless we can obtain new financing. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing may not be as favorable as the terms of our existing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities and increase the interest we pay on outstanding or future debt. These risks could adversely affect our financial condition and results of operations.
Our software products, SaaS Offerings and website may be subject to intentional disruption that could adversely impact our reputation and future sales.
Despite our precautions and significant ongoing investments to protect against security risks, data protection breaches, cyber-attacks and other intentional disruptions of our products and offerings, we expect to be an ongoing target of attacks specifically designed to impede the performance and availability of our products and offerings and harm our reputation as a company. Similarly, experienced computer programmers may attempt to penetrate our network security or the security of our website and misappropriate proprietary information or cause interruptions of our services. Because the techniques used by such computer programmers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. The theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an event could adversely affect our competitive position, reputation, brand and future sales of our products, and our customers may assert claims against us related to resulting losses of confidential or proprietary information. Furthermore, our employees or contractors may, either intentionally or unintentionally, subject us to information security risks and incidents. Our business could be subject to significant disruption, and we could suffer monetary and other losses and reputational harm, in the event of such incidents.
Some of our products contain “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Certain of our products are distributed with software licensed by its authors or other third parties under so-called “open source” licenses, which may include, by way of example, the GNU General Public License, GNU Lesser General Public License, the Mozilla Public License, the BSD License, and the Apache License.licenses. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software if we combine our proprietary software with open source software in a certain manner. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third partythird-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source, but we cannot be sure that all open source is submitted for approval prior to use in our products. In addition, many of the risks associated with usage of open source may not or cannot be eliminated and could, if not properly addressed, negatively affect our business.
IfRISKS RELATED TO OUR LIQUIDITY AND INDEBTEDNESS
There are risks associated with our outstanding and future indebtedness that could adversely affect our financial condition.
As of April 2, 2021, we are unablehad an aggregate of $3,620 million of outstanding indebtedness that will mature in calendar years 2022 through 2030, and $1,000 million available for borrowing under our revolving credit facility. See Note 10 of the Notes to adequately address increased customer demandsthe Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on our technical support services,outstanding debt. Our ability to meet expenses, remain in compliance with the covenants under our relationships withdebt instruments, pay interest, and repay principal for our customerssubstantial level of indebtedness depends on, among other things, our operating performance, competitive developments, and our financial results may be adversely affected.
market conditions, all of which are significantly affected by financial, business, economic, and other factors. We offer technical support services withare not able to control many of these factors. Accordingly, our products. cash flow may not be sufficient to allow us to pay principal and interest on our debt, including the notes, and meet our other obligations. Our level of indebtedness could have other important consequences, including the following:
•We must use a substantial portion of our cash flow from operations to pay interest and principal on the term loans and revolving credit facility, our existing senior notes, and other indebtedness, which reduces funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes, and potential acquisitions;
•We may be unable to respond quickly enoughrefinance our indebtedness or to accommodate short-term increasesobtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes;
•We are exposed to fluctuations in customer demand for support services. interest rates because borrowings under our senior secured credit facilities bear interest at variable rates;
•Our leverage may be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in responding to current and changing industry and financial market conditions;
•We alsomay be more vulnerable to an economic downturn or recession and adverse developments in our business;
•We may be unable to modify the formatcomply with financial and other covenants in our debt agreements, which could result in an event of default that, if not cured or waived, may result in acceleration of certain of our support servicesdebt and would have an adverse effect on our business and prospects and could force us into bankruptcy or liquidation;
•Changes by any rating agency to compete with changes in support services provided by competitorsour outlook or successfully integrate support forcredit rating could negatively affect the value of our customers. Further customer demand for these services, without corresponding revenues, could increase costs anddebt and/or our common stock, adversely affect our operating results.access to debt markets, and increase the interest we pay on outstanding or future debt; and
We have outsourced a substantial portion•Conversion of our worldwide consumer support functions to third party service providers. If these companies experience financial difficulties, do not maintain sufficiently skilled workers and resources to satisfyconvertible note could result in significant dilution of our contracts, or otherwise fail to perform at a sufficient level under these contracts, the level of support servicescommon stock, which could result in significant dilution to our customers mayexisting stockholders and cause the market price of our common stock to decline.
There can be significantly disrupted, which could materially harm our relationships with these customers.
If we are unable to attract and retain qualified employees, lose key personnel, fail to integrate replacement personnel successfully, or fail to manage our employee base effectively, we may be unable to develop new and enhanced products and services, effectively manage or expand our business, or increase our revenues.
Our future success depends upon our ability to recruit and retain key management, technical, sales, marketing, finance and other personnel. Our officers and other key personnel are employees-at-will, and we cannot assure youno assurance that we will be able to retain them. Competition for people withmanage any of these risks successfully. In addition, we conduct a significant portion of our operations through our subsidiaries. Accordingly, repayment of our indebtedness will be dependent in part on the specific skillsgeneration of cash flow by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment, or otherwise, which may not always be possible. In the event that we requiredo not receive distributions from our subsidiaries, we may be unable to make the required principal and interest payments on our indebtedness.
The elimination of LIBOR after June 2023 may affect our financial results.
On March 5, 2021, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. This means that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate. In the U.S., the Alternative Reference Rates Committee, or ARRC, a committee of private sector entities with ex-officio official sector members convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (“SOFR”) plus a recommended spread adjustment as LIBOR's replacement. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is significant,a secured lending rate, and we face difficultiesSOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in attracting, retaininginterest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our operating results. Although SOFR is the ARRC's recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us. It is not yet possible to predict the magnitude of LIBOR's end on our borrowing costs given the remaining uncertainty about which rates will replace LIBOR.
Our term loan and motivating employees as a result. In connection withrevolving credit facility agreement impose operating and financial restrictions on us.
Our term loan and revolving credit facility agreement contain covenants that limit our ability and the divestitureability of Veritas, we experienced employee attritionour restricted subsidiaries to:
•Incur additional debt;
•Create liens on certain assets to secure debt;
•Enter into certain sale and related difficultiesleaseback transactions;
•Pay dividends on or make other distributions in respect of our capital stock or make other restricted payments; and
•Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.
All of these difficultiescovenants may continue or increase with the divestiture of Veritas now complete. In order to attract and retain personnel in a competitive marketplace, we believe that we must provide a competitive compensation package, including cash and equity-based compensation. The volatility in our stock price may from time to time adversely affect our ability to recruitfinance our operations, meet or retain employees. In addition, we may be unableotherwise address our capital needs, pursue business opportunities, react to obtain required stockholder approvals of future increases in the number of shares available for issuance under our equity compensation plans, and accounting rules require us to treat the issuance of equity-based compensation as compensation expense. As a result, we may decide to issue fewer equity-based incentives and may be impaired in our efforts to attract and retain necessary personnel. If we are unable to hire and retain qualified employees, or conversely, if we fail to manag
e employee performance or reduce staffing levels when required by market conditions, ouror otherwise restrict activities or business and operating results could be adversely affected.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. From time to time, key personnel leave our company and the incidence of this increased in recent periods due to the transitions we have experienced over the last few years including the divestiture of Veritas. For example, we recently announced that for the third time in four years, we are initiating a Chief Executive Officer transition process, and appointed an interim President and Chief Operating Officer. While we strive to reduce the negative impact of changes in our leadership, the lossplans. A breach of any key employeeof these covenants could result in significant disruptionsa default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to our operations, including adversely affectingdeclare the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, and our results of operations. In addition, hiring, training, and successfully integrating replacement salesindebtedness, together with accrued interest and other personnel couldfees, to be time consumingimmediately due and expensive, may cause additional disruptionspayable and, to our operations, and may be unsuccessful, which could negatively impactthe extent such indebtedness is secured in the future, financial results. These risks may be exacerbated by the uncertainty associated with the transitions we have experienced over the last few years.proceed against any collateral securing that indebtedness.
Our contracts with the U.S. government include compliance, audit and review obligations. Any failure to meet these obligations could result in civil damages and/or penalties being assessed against us by the government.GENERAL RISKS
We sell products and services through government contracting programs directly and via partners, though we no longer hold a GSA contract. In the ordinary course of business, sales under these government contracting programs may be subject to audit or investigation by the U.S. government. Noncompliance identified as a result of such reviews (as well as noncompliance identified on our own) could subject us to damages and other penalties, which could adversely affect our operating results and financial condition.
Accounting charges may cause fluctuationsFluctuations in our quarterly financial results.
Our financial results have beenaffected the trading price of our outstanding securities in the past and may continuecould affect the trading price of our outstanding securities in the future.
Our quarterly financial results have fluctuated in the past and are likely to bevary in the future materially affected by non-cashdue to a number of factors, many of which are outside of our control. If our quarterly financial results or our predictions of future financial results fail to meet our expectations or the expectations of securities analysts and other accounting charges, including:investors, the trading price of our outstanding securities could be negatively affected. Volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions.
AmortizationFactors associated with our industry, the operation of intangible assets;
Depreciation of property, plant and equipment;
Impairment of goodwill and other long-lived assets;
Stock-based compensation expense;
Restructuring charges; and
Loss on sale of aour business, and similar write-downsthe markets for our solutions may cause our quarterly financial results to fluctuate, including but not limited to:
•Fluctuations in demand for our solutions;
•Disruptions in our business operations or target markets caused by, among other things, terrorism or other intentional acts, outbreaks of assets held for sale.disease, such as the COVID-19 pandemic, or earthquakes, floods, or other natural disasters;
•Entry of new competition into our markets;
•Our ability to achieve targeted operating income and margins and revenues;
•Competitive pricing pressure or free offerings that compete with one or more of our solutions;
•Our ability to timely complete the release of new or enhanced versions of our solutions;
•The amount and timing of commencement and termination of major marketing campaigns;
•The number, severity, and timing of threat outbreaks and cyber security incidents;
•Loss of customers or strategic partners;
•Changes in the mix or type of solutions and subscriptions sold and changes in consumer retention rates;
•The rate of adoption of new technologies and new releases of operating systems, and new business processes;
•Consumer confidence and spending changes;
•The impact of litigation, regulatory inquiries, or investigations;
•The impact of acquisitions and divestitures and our ability to achieve expected synergies or attendant cost savings;
•Fluctuations in foreign currency exchange rates and interest rates;
•The publication of unfavorable or inaccurate research reports about our business by cybersecurity industry analysts;
•The success of our corporate responsibility initiatives;
•Changes in tax laws, rules, and regulations; and
•Changes in consumer protection laws and regulations.
Any of the foregoing factors could cause the trading price of our outstanding securities to fluctuate significantly.
Changes to our effective tax rate may increase, which could increase our income tax expense and reduce (increase) our net income (loss)., cash flows and working capital.
Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:
•Changes to the U.S. federal income tax laws, including the potential for corporate tax increases under the new Biden Administration;
•Changes to other tax laws, regulations, and interpretations in multiple jurisdictions in which we operate, including actions resulting from the Organisation for Economic Co-operation and Development's base erosion and profit shifting project, proposed actions by international bodies such as digital services taxation, as well as the requirements of certain tax rulings;
•Changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
Changing tax laws, regulations, and interpretations in multiple jurisdictions in which we operate, including possible corporate tax reform in the U.S., actions resulting from the Organisation for Economic Cooperation and Development’s base erosion and profit shifting project, proposed actions by international bodies, as well as the requirements of certain tax rulings;
•The tax effects of purchase accounting for acquisitions and restructuring chargessignificant infrequently occurring events that may cause fluctuations between reporting periods;
•Tax assessments, or any related tax interest or penalties, that could significantly affect our income tax expense for the period in which the settlements take place; and
•Taxes arising in connection with the recent divestiture of Veritas.
The price of our common stock could decline if our financial results are materially affected by an adverse changeto changes in our effectiveworkforce, corporate entity structure or operations as they relate to tax rate.incentives and tax rates.
We report our results of operations based on our determination of the aggregate amount of taxes owed in the tax jurisdictions in which we operate. From time to time, we receive notices that a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have reported to such authority. We are regularly engaged in discussions and sometimes disputes with these tax authorities. We are engaged in disputes of this nature at this time. If the ultimate
determination of our taxes owed in any of these jurisdictions is for an amount in excess of the tax provision we have recorded or reserved for, our operating results, cash flows, and financial condition could be adversely affected.
Our stock price may be volatile in the future, and you could lose the value of your investment.
The market price of our common stock has experienced significant fluctuations in the past and may continue to fluctuate in the future, and as a result you could lose the value of your investment. The market price of our common stock may be affected by a number of factors, including:
Announcements of quarterly operating results and revenue and earnings forecasts by us that fail to meet or be consistent with our earlier projections or the expectations of our investors or securities analysts;
Announcements by either our competitors or customers that fail to meet or be consistent with their earlier projections or the expectations of our investors or securities analysts;
| |
▪ | Rumors, announcements or press articles regarding our or our competitors’ operations, management, organization, financial condition, or financial statements; |
| |
▪ | Changes in revenue and earnings estimates by us, our investors or securities analysts; |
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▪ | Accounting charges, including charges relating to the impairment of goodwill; |
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▪ | Announcements of planned acquisitions or dispositions by us or by our competitors; |
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▪ | Announcements of new or planned products by us, our competitors, or our customers; |
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▪ | Gain or loss of a significant customer, partner, reseller or distributor; |
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▪ | Inquiries by the SEC, NASDAQ, law enforcement, or other regulatory bodies; |
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▪ | Acts of terrorism, the threat of war, and other crises or emergency situations; and |
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▪ | Economic slowdowns or the perception of an oncoming economic slowdown in any of the major markets in which we operate. |
The stock market in general, and the market prices of stocks of technology companies in particular, have experienced extreme price volatility that has adversely affected, and may continue to adversely affect, the market price of our common stock for reasons unrelated to our business or operating results.
Unforeseen catastrophic or other global events could harm our operating results and financial condition.
We are a global company and conduct our business inside and outside the U.S. Our business operations and financial results could be adversely impacted by unforeseen catastrophic or other global events, including an epidemic or a pandemic, acts of war or terrorist attacks, cyber-attacks, natural disasters, or political unrest or turmoil. Unforeseen political turmoil, military escalations, and armed conflict pose a risk of economic disruption in the countries in which they occur and in other countries, which may increase our operating costs. Such incidences of uncertainty could disrupt customers’ spending on our products and services which may adversely affect our revenue. In addition, our corporate headquarters are located in the Silicon Valley area of Northern California, a region known for seismic activity. A significant natural disaster, such as an earthquake, could have a material adverse impact on our business operations, target markets, operating results, and financial condition.
Item 1B. Unresolved Staff Comments
None.There are no unresolved issues with respect to any Commission staff’s written comments that were received at least 180 days before the end of our fiscal year to which this report relates and that relate to our periodic or current reports under the Exchange Act.
Item 2. Properties
Our properties consist primarily of owned and leased office facilities for sales, research and development, administrative, customer service, and technical support personnel. Our corporate headquarters is located in Mountain View, California where we occupy facilities totaling approximately 793,000 square feet, of which 723,000 square feet is owned and 70,000 square feet is leased. We also lease an additional 67,000 square feet in the San Francisco Bay Area. Our leased facilities are occupied under agreements that expire on various dates through fiscal 2026. The following table presents the approximate square footage of our facilities as of April 1, 2016: |
| | | | | |
| | Approximate Total Square Footage (1) |
| | Owned | | Leased |
| | (In thousands) |
| Americas (U.S., Canada and Latin America) | 1,512 |
| | 539 |
|
| EMEA (Europe, Middle East and Africa) | 177 |
| | 318 |
|
| APJ (Asia Pacific and Japan) | — |
| | 1,044 |
|
| Total | 1,689 |
| | 1,901 |
|
| |
(1)
| Included in the total square footage above are vacant and available-for-lease properties totaling approximately 80,000 square feet. Total square footage excludes approximately 766,000 square feet relating to facilities subleased to third parties. |
We believe that our existing facilities are adequate for our current needs and that the productive capacity of our facilities is substantially utilized.
Item 3. Legal Proceedings
Information with respect to this Item may be found under the heading “Litigation Contingencies”contingencies” in Note 7 of18 to the Notes to Consolidated Financial Statements in this annual reportAnnual Report on Form 10-K which information is incorporated into this Item 3 by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Price RangeStock symbol and stockholders of Common Stockrecord
Our common stock is traded on the NASDAQNasdaq Global Select Market under the symbol “SYMC.” The high and low closing sales prices set forth below are as reported on the NASDAQ Global Select Market during each quarter“NLOK”. As of the two most recent fiscal years. During the fourth quarterApril 2, 2021, there were 1,538 stockholders of fiscal 2016, we paid a special dividendrecord. A substantially greater number of $4.00 per share, resulting in a substantial decline in the sales priceholders of our common stock are "street name" or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
Stock performance graph
The graph below compares the cumulative total stockholder return on
March 4, 2016. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Fourth
Quarter | | Third
Quarter | | Second
Quarter | | First
Quarter |
| High | $ | 20.88 |
| | $ | 21.37 |
| | $ | 23.47 |
| | $ | 25.90 |
| | $ | 26.69 |
| | $ | 26.58 |
| | $ | 24.77 |
| | $ | 23.04 |
|
| Low | $ | 16.62 |
| | $ | 19.50 |
| | $ | 19.33 |
| | $ | 23.03 |
| | $ | 23.28 |
| | $ | 21.94 |
| | $ | 22.42 |
| | $ | 19.97 |
|
Stockholders
Asour common stock with the cumulative total return on the S&P 500 Composite Index and the S&P Information Technology Index for the five fiscal years ended April 2, 2021 (assuming the initial investment of April 1, 2016, there were 1,849 stockholders$100 in our common stock and in each of record.
Dividends
Duringthe other indices on the last day of trading for fiscal 2016 2015 and 2014, we declared and paid aggregate cash dividendsthe reinvestment of $3.0 billion or $4.60 per common share, $413 million or $0.60 per common share, and $418 million or $0.60 per common share, respectively. Dividends declared and paid each quarter during fiscal 2016, 2015 and 2014 were $0.15 per share. Additionally, a special dividend of $4.00 per share was declared and paidall dividends). The comparisons in the fourth quartergraph below are based on historical data and are not indicative of, fiscal 2016. Our restricted stock and performance-based stock units have dividend equivalent rights entitling holdersnor intended to dividend equivalents to be paid inforecast the form of cash upon vesting, for each share of the underlying units.On May 12, 2016, we declared a cash dividend of $0.075 per share of common stock to be paid on June 22, 2016, to all stockholders of record as of the close of business on June 8, 2016. Allpossible future dividends and dividend equivalents are subject to the approval of our Board of Directors.
Repurchases of our equity securities
Through our stock repurchase programs we have repurchased shares on a quarterly basis since the fourth quarter of fiscal 2004. Under these programs, shares may be repurchased on the open market and through ASR transactions.
In November 2015, we entered into an ASR transaction with a financial institution to repurchase $500 millionperformance of our common stock. In January 2016,
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among NortonLifeLock Inc., the purchase period for this ASR ended and we received an additional 5.0 million shares of our common stock. The total shares received and retired under the terms of this ASR transaction were 24.9 million, with an average price paid per share of $20.08.S&P 500 Index
In March 2016, we entered into multiple ASR transactions with financial institutions to repurchase an aggregate of $1 billion of our common stock. In exchange for an up-front payment of $1 billion, the financial institutions committed to deliver shares during the purchase period for these ASRs, which will end in or before the third quarter of fiscal 2017. During the fourth quarter of fiscal 2016, 42.4 million shares were delivered and retired under these ASRs, and the final number of shares to be delivered and the average price paid per share will be determined at the conclusion of the purchase period.S&P Information Technology Index
The maximum dollar value of shares that may yet be purchased under the plans or programs is $790 million. See Note 9 of our Notes to Consolidated Financial Statements for additional information regarding our stock repurchase programs.
Stock performance graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of SymantecNortonLifeLock under the Securities Act or the Exchange Act.
The graph below compares the cumulative total stockholder return onRepurchases of our commonequity securities
Under our stock with the cumulative total returnrepurchase programs, shares may be repurchased on the S&P 500 Composite Indexopen market and through accelerated stock repurchase transactions. As of April 2, 2021, we had $274 million remaining authorized to be completed in future periods. On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million bringing the S&P Information Technology Index fortotal authorized under the five yearsstock repurchase program to $1,774 million. The authorization does not have an expiration date. Stock repurchases during the three months ended April 2, 2021, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions, except per share data) | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
| January 2, 2021 to January 29, 2021 | 5 | | | $ | 20.80 | | | 5 | | | $ | 323 | |
| January 30, 2021 to February 26, 2021 | 2 | | | $ | 20.28 | | | 2 | | | $ | 284 | |
February 27, 2021 to April 2, 2021 (2) | — | | | $ | 20.01 | | | — | | | $ | 274 | |
| Total number of shares repurchased | 7 | | | | | 7 | | | |
(1) The number of shares purchased is reported on trade date. Repurchases of 1 2016 (assumingmillion shares, which were executed prior to January 2, 2021, settled during the investmentperiod of $100 in our common stock and in eachJanuary 2, 2021 to January 29, 2021.
(2) The number of the other indices on the last day of trading for fiscal 2011, and the reinvestment of all dividends). The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among Symantec Corporation, the S&P 500 Index
and the S&P Information Technology Index
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 |
| Symantec Corporation | $ | 100.00 |
| | $ | 101.30 |
| | $ | 133.69 |
| | $ | 110.03 |
| | $ | 134.25 |
| | $ | 134.02 |
|
| S&P 500 | $ | 100.00 |
| | $ | 108.00 |
| | $ | 123.08 |
| | $ | 148.80 |
| | $ | 169.03 |
| | $ | 173.18 |
|
| S&P Information Technology | $ | 100.00 |
| | $ | 120.31 |
| | $ | 118.96 |
| | $ | 148.18 |
| | $ | 175.60 |
| | $ | 192.33 |
|
Item 6. Selected Financial Data
The following selected consolidated financial dataThis item is derived from our Consolidated Financial Statements. This data should be readno longer required, as we have elected to early adopt the amendment to Item 301 of Regulation S-K contained in conjunction with our Consolidated Financial Statements and related notes included in this annual report and with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 3of the Notes to Consolidated Financial Statements in this annual report. Historical results may not be indicative of future results.
Five-Year SummarySEC Release No. 33-10890, which became effective on February 10, 2021.
|
| | | | | | | | | | | | | | | | | | | | |
| Summary of operations: | | Year Ended (1) |
| | | April 1, 2016 | | April 3, 2015 | | March 28, 2014 | | March 29, 2013 | | March 30, 2012 |
| | | (In millions, except per share data) |
| Net revenues | | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
| | $ | 4,268 |
| | $ | 4,175 |
|
| Operating income (loss) | | 457 |
| | 154 |
| | 144 |
| | (60 | ) | | (50 | ) |
Income (loss) from continuing operations (2) | | (821 | ) | | 109 |
| | 91 |
| | (138 | ) | | 123 |
|
Income from discontinued operations, net of income taxes (3) | | 3,309 |
| | 769 |
| | 807 |
| | 893 |
| | 1,064 |
|
Net income (4) | | 2,488 |
| | 878 |
| | 898 |
| | 755 |
| | 1,187 |
|
| | | | | | | | | | | |
Income (loss) per share - basic: (5) | | | | | | | | | | |
| Continuing operations | | $ | (1.23 | ) | | $ | 0.16 |
| | $ | 0.13 |
| | $ | (0.20 | ) | | $ | 0.17 |
|
| Discontinued operations | | $ | 4.94 |
| | $ | 1.12 |
| | $ | 1.16 |
| | $ | 1.27 |
| | $ | 1.44 |
|
| Net income per share - basic | | $ | 3.71 |
| | $ | 1.27 |
| | $ | 1.29 |
| | $ | 1.08 |
| | $ | 1.60 |
|
| | | | | | | | | | | |
Income (loss) per share - diluted: (5) | | | | | | | | | | |
| Continuing operations | | $ | (1.23 | ) | | $ | 0.16 |
| | $ | 0.13 |
| | $ | (0.20 | ) | | $ | 0.16 |
|
| Discontinued operations | | $ | 4.94 |
| | $ | 1.10 |
| | $ | 1.15 |
| | $ | 1.27 |
| | $ | 1.42 |
|
| Net income per share - diluted | | $ | 3.71 |
| | $ | 1.26 |
| | $ | 1.28 |
| | $ | 1.08 |
| | $ | 1.59 |
|
| | | | | | | | | | | |
| Weighted-average shares outstanding: | | | | | | | | | | |
| Basic | | 670 |
| | 689 |
| | 696 |
| | 701 |
| | 741 |
|
| Diluted | | 670 |
| | 696 |
| | 704 |
| | 701 |
| | 748 |
|
| Cash dividends declared per common share | | $ | 4.60 |
| | $ | 0.60 |
| | $ | 0.60 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheets Data: | | |
| | | April 1, 2016 | | April 3, 2015 | | March 28, 2014 | | March 29, 2013 | | March 30, 2012 |
| | | (In millions) |
| Total assets | | $ | 11,767 |
| | $ | 13,233 |
| | $ | 13,539 |
| | $ | 14,508 |
| | $ | 13,158 |
|
Long-term obligations (6) (7) | | 2,207 |
| | 1,746 |
| | 2,095 |
| | 2,094 |
| | 2,039 |
|
Total stockholders’ equity (8) | | 3,676 |
| | 5,935 |
| | 5,797 |
| | 5,476 |
| | 5,237 |
|
| |
(1)
| We have a 52/53-week fiscal year. Our fiscal 2015 was a 53-week year whereas fiscal 2016, 2014, 2013, and 2012, each consisted of 52 weeks. |
| |
(2)
| In fiscal 2016, the Company recorded $1.1 billion in income tax expense related to unremitted earnings of foreign subsidiaries from the proceeds of the sale of Veritas. This charge is presented in loss from continuing operations in the Consolidated Statements of Operations for fiscal 2016. See Note 11 of the Notes to Consolidated Financial Statements in this annual report for more information. |
| |
(3)
| In fiscal 2016, the Company sold the assets of Veritas to Carlyle for a net gain of $3.0 billion, which is presented as part of income from discontinued operations, net of income taxes in the Consolidated Statements of Operations for fiscal 2016. |
| |
(4)
| In fiscal 2012, we sold our ownership interest in a joint venture for $530 million in cash. The net gain of $526 million, offset by costs to sell the joint venture of $4 million, was included in gain from sale of joint venture in our fiscal 2012 Consolidated Statements of Operations. |
| |
(5)
| Net income per share amounts may not add due to rounding. |
| |
(6)
| On June 15, 2013, the principal balance on the Company's 1.00% Convertible Senior Notes matured and was settled by a cash payment of $1 billion. At the time of issuance of the 1.00% notes, we granted warrants to affiliates of certain initial purchasers of the notes whereby they had the option to purchase up to 52.7 million shares of our common stock. All the warrants expired unexercised during the second quarter of fiscal 2014. In the fourth quarter of fiscal 2016, we issued $500 million in principal amount of 2.50% Convertible Senior Notes, due in April of 2021. See Note 5 of the Notes to Consolidated Financial Statements in this annual report for more information on the Company's long-term obligations. |
| |
(7)
| During the second quarter of fiscal 2016, the principal balance on the Company's 2.75% Senior Notes due September 15, 2015, matured and was settled by a cash payment of $350 million. See Note 5 of the Notes to Consolidated Financial Statements in this annual report for more information. |
| |
(8)
| Includes noncontrolling interest in subsidiary of $78 million in fiscal 2012. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Please read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related Notes thereto included under Item 15 of this Annual Report on Form 10-K. OVERVIEW
Our business
Symantec Corporation is a global leaderNortonLifeLock Inc. has the largest Consumer Cyber Safety platform in security. We operate our business on a global civilian cyber intelligence threat network and track a vast number of threats across the Internet from hundreds of millions of mobile devices, endpoints, and servers across the globe. We believe one of our competitive advantages is our database of threat indicators which allows us to reduce the number of false positives and provide faster and better protection for customers through our products. Through the delivery of new and enhanced solutions, we are integrating our security offerings across our portfolio. We are also developing novel solutions in growing markets like cloud, advanced threat protection, information protection and cyber security services. Founded in 1982, Symantec has operationsworld, empowering nearly 80 million users in more than 35 countries150 countries. We are the trusted and number one top of mind brand in consumer Cyber Safety, according to the 2020 NortonLifelock brand tracking study. We help prevent, detect, and restore potential damages caused by many cyber criminals.
We have utilized and expect to continue to utilize acquisitions to contribute to our long-term growth objectives. During fiscal year 2021, we completed the acquisition of Avira, which provides a consumer-focused portfolio of cybersecurity and privacy solutions primarily in Europe and key emerging markets. We believe this acquisition will help accelerate our international growth.
Fiscal Year Highlights
•In May 2020, we settled the $625 million principal executive offices are located at 350 Ellis Street,and conversion rights of our 2.0% Convertible Notes for $1,176 million in cash. The repayments resulted in an adjustment to stockholders’ equity of $578 million and a gain on extinguishment of $20 million.
•In July 2020, we completed the sale of our Culver City property for cash consideration of $118 million, net of selling costs, and recognized a gain on sale of $35 million.
•In September 2020, we borrowed $750 million under the Delayed Draw Term Loan, maturing in 2024, and used the entire amount of the proceeds to repay in full the principal and accrued interest under our 4.2% Senior Notes due September 2020. The first amendment to our credit agreement, executed in May 2021, extends the maturity date from November 2024 to May 2026 for this tranche. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
•In October 2020, we entered into multiple agreements with Broadcom for an aggregate amount of $200 million to license Broadcom’s enterprise software and security engines and to resolve all outstanding payments and claims related to the asset purchase and transition services agreement.
•In December 2020, we substantially completed our restructuring plan (the November 2019 Plan) in connection with the strategic decision to divest our Enterprise Security business. We incurred total costs of $509 million since the inception of the November 2019 Plan, excluding stock-compensation expense, primarily related to workforce reduction, contract termination, and asset write-offs and impairment charges.
•In January 2021, we completed the acquisition of Avira for total aggregate consideration of $344 million, net of $32 million cash acquired.
•On April 1, 2021, we completed the sale of certain land and buildings in Mountain View California, 94043.for cash consideration of $100 million, net of selling costs, and recognized a gain on sale of $63 million.
Fiscal calendar and basis of presentation
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to yearsFiscal 2021, 2020, and 2019 in this report relaterefers to fiscal year and periods ended April 1, 2016,2, 2021, April 3, 20152020, and March 28, 2014. Our fiscal 2016 and 2014 were 52-week years whereas our fiscal 201529, 2019, respectively. Fiscal 2020 was a 53-week year.year, whereas fiscal 2021 and 2019 each consisted of 52 weeks.
OurKey financial metrics
The following table provides our key financial metrics for fiscal 2021 compared with fiscal 2020:
| | | | | | | | | | | |
| Fiscal Year |
| (In millions, except for per share amounts) | 2021 | | 2020 |
| Net revenues | $ | 2,551 | | | $ | 2,490 | |
| Operating income | $ | 896 | | | $ | 355 | |
| Income from continuing operations | $ | 696 | | | $ | 578 | |
| Income (loss) from discontinued operations | $ | (142) | | | $ | 3,309 | |
| Net income | $ | 554 | | | $ | 3,887 | |
| Net income per share from continuing operations - diluted | $ | 1.16 | | | $ | 0.90 | |
| Net income per share from discontinued operations - diluted | $ | (0.24) | | | $ | 5.15 | |
| Net income per share - diluted | $ | 0.92 | | | $ | 6.05 | |
| Net cash provided by (used in) operating activities | $ | 706 | | | $ | (861) | |
| | | |
| As of |
| (in millions) | April 2, 2021 | | April 3, 2020 |
| Cash, cash equivalents and short-term investments | $ | 951 | | | $ | 2,263 | |
| Contract liabilities | $ | 1,265 | | | $ | 1,076 | |
•Net revenues increased $61 million, primarily due to increased sales of our consumer security strategy is to deliver a unified security analytics platform that provides big data analytics, utilizesproducts and our vast telemetry, provides visibility into real-time global threats,identity and powers Symantec and third-party security analytics applications; leverage this analytics platform to provide best-in-class consumer and enterprise security products; and offer cyber security services that provide a full-suite of services from monitoring to incident response to threat intelligence, all supportedprotection products, partially offset by over 500 cyber security experts and nine global security response centers.
After closing the divestiture of Veritas, asour ID Analytics solutions and the world leaderadditional week of revenue recognized during fiscal 2020.
•Operating income increased $541 million, primarily due to lower compensation expense, outside services expense, and facility and IT costs that were driven by our cost reduction programs, partially offset by a legal accrual relating to an ongoing civil lawsuit involving a government contract with the U.S. General Services Administration (GSA).
•Income from continuing operations increased $118 million, primarily due to higher operating income, gain on sale of our Culver City and certain Mountain View properties, gain on extinguishment of debt, and lower income tax expense, partially offset by the absence of the $379 million gain on sale of our equity method investment in cybersecurity, we are more focused than everDigiCert and the $250 million gain on the following priorities: delivering uponsale of our Unified Security strategy, building our enterprise security pipeline and go-to-market capabilities, improving our cost structure, and fulfilling our commitment to allocate capital to our stockholders.ID Analytics solutions, which were divested in fiscal 2020.
Divestiture of Veritas
In August 2015, we entered into•We incurred a definitive agreement to sell the assets of Veritas to Carlyle and amended the terms in January 2016. Based on the amended terms of the definitive agreement, we received net consideration of $6.6 billion in cash, excluding transaction costs, and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. The transaction closed on January 29, 2016. The disposition resulted in a net gain of $3.0 billion, which is presented as part of incomeloss from discontinued operations, net of income taxes in the Consolidated Statements of Operations for fiscal 2016. See Note 6 of the Notes to Consolidated Financial Statements for more information on severance, facilities and separation costs related to our fiscal 2015 plans to separate our security and information management businesses.
The results of Veritas are presented as discontinued operations in our Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, Veritas' assets and liabilities were removed from our Consolidated Balance Sheet upon consummation of its sale on January 29, 2016, and have been classified as discontinued operations on our Consolidated Balance Sheet as of April 3, 2015. Accordingly, the following discussion reflects our current segment reporting structure, which was reduced from three to two segments, and segment results for all reported periods have been adjusted to conform to the current segment structure. In addition, the following discussion relates to our continuing operations unless stated otherwise.
Our operating segments
Our operating segments are significant strategic business units that offer different products and services distinguished by customer needs. The two reporting segments, which are the same as our operating segments, are:
Consumer Security: Our Consumer Security segment focuses on making it simple for customers to be productive and protected at home and at work. Our Norton-branded services provide multi-layer security and identity protection on major desktop and mobile operating systems, to defend against increasingly complex online threats to individuals, families, and small businesses.
Enterprise Security: Our Enterprise Security segment protects organizations so they can securely conduct business while leveraging new platforms and data. Our Enterprise Security segment includes our threat protection products, information protection products, cyber security services, and website security offerings, previously named trust services.
For further description of our operating segments see Note 8 of the Notes to Consolidated Financial Statements in this annual report.
Financial results and trends
The following table provides an overview of key financial metrics for each of the last three fiscal years: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | (In millions, except percentages) |
| Consolidated Statements of Operations Data: | | | | | |
| Net revenues | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
|
| Gross profit | 2,985 |
| | 3,229 |
| | 3,392 |
|
| Operating income | 457 |
| | 154 |
| | 144 |
|
| Operating margin percentage | 13 | % | | 4 | % | | 3 | % |
| Consolidated Cash Flow Data: | | | | | |
| Net cash provided by continuing operating activities | $ | 1,456 |
| | $ | 17 |
| | $ | 108 |
|
Net revenues decreased $356 million for fiscal 2016 astax, compared to a gain during the corresponding period in fiscal 2015,2020, primarily due to unfavorable foreign currency fluctuations, declines inthe absence of gain on the sale of certain of our consumer security revenue,Enterprise Security assets and certain liabilities to Broadcom Inc. (the “Broadcom sale”), the impactabsence of the additional week from the 53-week fiscal 2015 year.
Gross margin increased to 83% for fiscal 2016 compared to 82% for fiscal 2015, primarily driven by decreases in OEM royalty fees and service related and content delivery expenses.
Operating income increased $303 million year over year as the reduction in our operating expenses was greater than the decline in our net revenues. The lower operating expenses were primarily due to a decrease in corporate charges previously allocated to our information management business but not classified within discontinued operations. These corporate charges were included in cost of revenues and expenses from continuing operations and include legal, accounting, real estate, information technology services, treasury, human resources and other corporate infrastructure expenses ("unallocated corporate charges"). See Note 8 of the Notes to Consolidated Financial Statements in this annual report for more information on unallocated corporate charges. We anticipate that we will not have unallocated corporate charges in fiscal 2017 and therefore our fiscal 2017 operating income will benefit from a reduction of unallocated corporate charges as compared to fiscal 2016. We expect our operating margins to fluctuate in future periods as a result of the Broadcom sale, and a numbersettlement with Broadcom in the second quarter of factors, including our operating resultsfiscal 2021 of all outstanding payments and certain claims related to the timingBroadcom sale.
•Net income and amountnet income per share decreased, primarily due to the loss from discontinued operations for the reasons discussed above, partially offset by higher income from continuing operations.
•Cash, cash equivalents and short-term investments decreased by $1,312 million compared to April 3, 2020, primarily due to repayment of expenses incurred.
Netdebt, net of borrowings, and to a lesser extent, payments for dividends and dividend equivalents, and payment for acquisitions. The payments were partially offset by net cash provided by operating activities was $1.5 billionand proceeds from the sale of our Culver City and certain Mountain View properties. In May 2020, we settled the principal and conversion rights of $625 million of our 2.0% Convertible Notes for fiscal 2016$1,176 million in cash.
•Contract liabilities increased $189 million compared to April 3, 2020, primarily due to increases in deferred income taxeshigher billings than recognized revenue and the acquisition of $1.1 billionAvira.
COVID-19 UPDATE
The COVID-19 pandemic is having widespread, rapidly evolving, and income taxes payableunpredictable impacts on global society, economies, financial markets, and business practices. To protect the health and well-being of $693 million. These amounts were partially offset byour employees, partners and third-party service providers, we implemented a loss from continuing operations, net of income taxes of $821 million, including non-cash items depreciationnear company-wide work-from-home requirement for most employees, made substantial modifications to employee travel policies, and amortization charges of $304 millioncancelled or shifted our conferences and stock-based compensation expense of $161 million.
Total deferred revenue decreased from $2.9 billion in fiscal 2015other marketing events to $2.6 billion in fiscal 2016 primarily driven by a decline invirtual-only. We continue to monitor the situation and plan to adjust our current policies as recommendations and public health guidance is changing. To date, we have not seen any meaningful negative impact on our customer success efforts, sales and marketing efforts, or employee productivity. Nevertheless, as employees, partners or third-party services providers return to work during the amortizationCOVID-19 pandemic, the risk of retained contractsinadvertent transmission of COVID-19 through human contact could still occur and result in litigation.
The U.S. and global economies have experienced a recession due to the economic impacts of the COVID-19 pandemic. Although we did not experience a material increase in cancellations by customers or a material reduction in our retention rate in
2021, we may experience such an increase or reduction in the future, especially in the event of a prolonged recession as a result of the COVID-19 pandemic. A prolonged recession could adversely affect demand for our offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures, as well impact the value of our common stock, ability to refinance our debt, and our access to capital.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of new variants of the disease, the extent, effectiveness and acceptance of containment actions, such as vaccination programs, and the impact of these and other factors on our employees, customers, partners and third-party service providers. For more information on the risks associated with Veritas.the COVID-19 pandemic, please see “Risk Factors” in Item 1A.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Consolidated Financial Statements and related notes included in this annual report in accordance with generally accepted accounting principles in the U.S. (GAAP) requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Historically, our criticalManagement believes that the accounting policiesestimates employed, and estimates have not differed materially from actual results;the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates under different conditions. If actual results differ fromand judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and other considerations used in estimating amounts reflected in our Consolidated Financial Statements included in this annual report, the resulting changesassumptions change or prove to have been incorrect, it could have a material adverse effect on our Consolidated Statements of Operations, and in certain situations, could have a material adverse effect on our liquidity and financial condition.
We believe that the estimates described below represent our critical accounting policies and estimates, as they have the greatest potential impact on our Consolidated Financial Statements. See alsoresults of operations, financial position, and cash flows.
A summary of our significant accounting policies is included in Note 1 of the Notes to Consolidated Financial Statements included in this annual report.
Revenue recognition
We recognize revenue primarily pursuantAnnual Report on Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the requirements undertime the authoritative guidance on software revenue recognition, and any applicable amendmentsestimate is made, if different estimates reasonably could have been used, or modifications. Revenue recognition requirementsif changes in the software industryestimate that are very complex and require us to make estimates.
For software arrangements that include multiple elements, including perpetual software licenses and maintenance or services, packaged products with content updates, and subscriptions, we allocate and defer revenue for the undelivered items based on the fair value using vendor specific objective evidence (“VSOE”), and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. VSOE of each element is based on the price for which the undelivered element is sold separately. We determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, the entire arrangement fee is recognized ratably over the performance period. Our deferred revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product content updates, managed security services, subscriptions, and arrangements where VSOE does not exist. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and increasing flexibility in contractual arrangementsreasonably possible could materially impact the amount recognizedfinancial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the current period and deferred over time.
For arrangements that include both software and non-software elements, we allocate revenue to the software deliverables as a group and non-software deliverables based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“ESP”). When we are unable to establish a selling price using VSOE or TPE, we use ESP to allocate the arrangement fees to the deliverables.
For our consumer products that include content updates, we recognize revenue ratably over the term of the subscription upon sell-through to end-users, as the subscription period generally commences on the date of sale to the end-user. We defer revenue and cost of revenue amounts for unsold product held by our distributors and resellers.
We expect our distributors and resellers to maintain adequate inventory of consumer packaged products to meet future customer demand, which is generally four or six weeks of customer demand based on recent buying trends. We ship product to our distributors and resellers at their request and based on valid purchase orders. Our distributors and resellers base the quantity of orders on their estimates to meet future customer demand, which may exceed the expected level of a four or six week supply. We offer limited rights of return if the inventory held by our distributors and resellers is below the expected level of a four or six week supply. We estimate reserves for product returns as described below. We typically offer liberal rights of return if inventory held by our distributors and resellers exceeds the expected level. Because we cannot reasonably estimate the amount of excess inventory that will be returned, we primarily offset deferred revenue against trade accounts receivable for the amount of revenue in excess of the expected inventory levels.
Arrangements for maintenance, subscriptions, managed security services and SaaS offerings are generally offered to our customers over a specified period of time, and we recognize the related revenue ratably over the maintenance, subscription, or service period.
Reserves for product returns. We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical trends. We fully reserve for obsolete products in the distribution channels as an offset to deferred revenue. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the economic and industry environment could make actual results differ from our return estimates.
Reserves for rebates. We estimate and record reserves for channel and end-user rebates as an offset to revenue or deferred revenue. For consumer products that include content updates, rebates are recorded as a ratable offset to revenue or deferred revenue over the term of the subscription. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ actual performance against the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for end-user rebates are estimated based on the terms and conditions of the promotional programs, actual sales during the promotion, the amount of actual redemptions received, historical redemption trends by product and by type of promotional program, and the value of the rebate. We also consider current market conditions and economic trends when estimating our reserves for rebates. If actual redemptions differ from our estimates, material differences may result in the amount and timingpreparation of our net revenues for any period presented.Consolidated Financial Statements.
Valuation of goodwill, intangible assets and long-lived assets
Business combinations.
We allocate the purchase price of acquired businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Any residual purchase price is recorded as goodwill. Goodwill is allocated to reporting units expected to benefit from the business combination. The allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed especially with respect to intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, future expected cash flows from customer relationships, developed technology, trade names, and acquired patents;patents, and discount rates. Management estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Third-party valuation specialists are also utilized for certain estimates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates, or actual results.
Goodwill impairment. Goodwill is allocated to our reporting units expected to benefit from the business combination based on the relative fair values at the acquisition date. We evaluate our reporting units which are the same as our operating segments when changes in our operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. We test goodwill for impairment at the reporting unit level at least annually on the first day of the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The accounting guidance gives us the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. These include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as the sale of a reporting unit or a sustained decrease in the company’s stock price. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed. In the first step of the quantitative testing, we compare the fair value of each reporting unit to its carrying amount. If the first step indicates that the fair value of each reporting unit is greater than its carrying amount, no further testing is required. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. To determine a reporting unit’s fair value, we generally use the income approach which is based on the estimated discounted future cash flows of that unit. The estimation of future cash flows requires us to make projections of future revenues and expenses of each reporting unit and establish a weighted-average cost of capital to discount these cash flows. Changes in these key assumptions and estimates or other assumptions used in this process could materially affect our impairment analysis in a given year. For the fiscal year ended April 1, 2016, we concluded that goodwill was not impaired as the results of our annual impairment test indicate that the fair values of our reporting units are significantly in excess of their carrying values.Income taxes
Long-lived assets impairment. Long-lived assets, including property and equipment, intangible assets and equity investments, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Our estimates of future cash flows require significant judgment based on historical and anticipated future operating results andWe are subject to many factors which are subject to variabilitytax in multiple U.S. and change.
Contingencies and litigation
We evaluate contingent liabilities including threatened or pending litigation in accordance with the authoritative guidance on contingencies. We assess the likelihood of any adverse judgments or outcomes from potential claims or proceedings, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after the analysis of each separate matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time of our assessment. As additional information becomes available, we reassess the potential liability related to our pending claims
and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position.
Income taxes
foreign tax jurisdictions. We are required to compute our income taxes in each federal, state, and international jurisdiction in which we operate. This process requires that we estimate the current tax exposure as well as assess the temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. The income tax effects ofWe apply judgment in the differences we identify are classified as current or long-term deferred tax assetsrecognition and liabilities in our Consolidated Balance Sheets as of April 3, 2015, and as long-term deferred tax assets and liabilities as of April 1, 2016, following the adoption of Accounting Standards Update No. 2015-17, Income Taxes. See Note 1 of the Notes to Consolidated Financial Statements in this annual report for additional information. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, and possible outcomesmeasurement of current and future audits conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided fordeferred income taxes in our Consolidated Balance Sheets and Consolidated Statements of Operations.
Our effective tax ratewhich includes the impact of providing U.S. taxes on certain undistributed foreign earnings attributablefollowing critical accounting estimates.
We use a two-step process to the sale of Veritas as well as the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside the U.S. While we do not anticipate changing our intention regarding indefinitely reinvested earnings outside the U.S., material changes in our estimates of such earnings or tax legislation that limits or restricts the amount of such earnings could materially impact our income tax provision and effective tax rate. If certain foreign earnings previously treated as indefinitely reinvested outside the U.S. are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.
We accountrecognize liabilities for uncertain tax positions pursuant to authoritative guidance based on a two-step approach to recognize and measure those positions taken or expected to be taken in a tax return.positions. The first step is to determineevaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. Theprocesses, if any. If we determine that the tax position will more likely than not be sustained on audit, the second step isrequires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various outcomes. We adjust reserves for ourre-evaluate these uncertain tax positions dueon a quarterly basis. This evaluation is based on factors including, but not limited to, changingchanges in facts or circumstances, changes in tax law, effectively settled issues under audit, and circumstances, such asnew audit activity. Such a change in recognition or measurement would result in the closingrecognition of a tax audit,benefit or an additional charge to the refinement of estimates, or the realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statements of Operationsthe period.
Loss contingencies
We are subject to contingencies that expose us to losses, including various legal and regulatory proceedings, asserted and potential claims that arise in the periodordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Judgment is required in which such determination is made.
We must also assessboth the likelihood that deferred tax assets will be realized from future taxable income and, based on this assessment establish a valuation allowance, if required. The determination of our valuation allowance involves assumptions, judgments and estimates, including forecasted earnings, future taxable income,probability and the relative proportionsdetermination as to whether a loss is reasonably estimable. We review the status of revenueeach significant matter quarterly, and income before taxeswe may revise our estimates. Until the final resolution of such matters, there may be an exposure to loss in the various domestic and international jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our Consolidated Statements of Operations.
Recently issued authoritative guidance
See Note 1excess of the Notesamount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our Consolidated Financial Statements in this annual report for recently issued authoritative guidance, including the respective expected datesthat reporting period.
RESULTS OF OPERATIONS
The following table sets forth certainour Consolidated Statements of Operations data as a percentage of net revenues for the fiscal years indicated below:periods indicated:
| | | | | | | | | Fiscal Year |
| | 2016 | | 2015 | | 2014 | | 2021 | | 2020 | | 2019 |
| Net revenues | 100 | % | | 100 | % | | 100 | % | Net revenues | 100 | % | | 100 | % | | 100 | % |
| Cost of revenues | 17 | % | | 18 | % | | 19 | % | Cost of revenues | 14 | | | 16 | | | 19 | |
| Gross profit | 83 | % | | 82 | % | | 81 | % | Gross profit | 86 | | | 84 | | | 81 | |
| Operating expenses: | | | | | | Operating expenses: | |
| Sales and marketing | 36 | % | | 42 | % | | 42 | % | Sales and marketing | 23 | | | 28 | | | 29 | |
| Research and development | 21 | % | | 21 | % | | 17 | % | Research and development | 10 | | | 13 | | | 17 | |
| General and administrative | 8 | % | | 9 | % | | 10 | % | General and administrative | 8 | | | 15 | | | 17 | |
| Amortization of intangible assets | 2 | % | | 2 | % | | 2 | % | Amortization of intangible assets | 3 | | | 3 | | | 3 | |
| Restructuring, separation, and transition | 4 | % | | 4 | % | | 6 | % | |
| Restructuring, transition and other costs | | Restructuring, transition and other costs | 6 | | | 11 | | | 9 | |
| Total operating expenses | 70 | % | | 78 | % | | 78 | % | Total operating expenses | 51 | | | 70 | | | 75 | |
| Operating income | 13 | % | | 4 | % | | 3 | % | Operating income | 35 | | | 14 | | | 6 | |
| Non-operating expense, net | 2 | % | | 1 | % | | 1 | % | |
| Interest expense | | Interest expense | (6) | | | (8) | | | (8) | |
| Other income (expense), net | | Other income (expense), net | 5 | | | 27 | | | (2) | |
| Income (loss) from continuing operations before income taxes | | Income (loss) from continuing operations before income taxes | 34 | | | 33 | | | (4) | |
| Income tax expense | | Income tax expense | 7 | | | 10 | | | — | |
| Income (loss) from continuing operations | | Income (loss) from continuing operations | 27 | | | 23 | | | (4) | |
| Income (loss) from discontinued operations | | Income (loss) from discontinued operations | (6) | | | 133 | | | 6 | |
| Net income | | Net income | 22 | % | | 156 | % | | 1 | % |
Note: The total percentages may not add due to rounding.
Net revenues by fiscal year |
| | | | | | | | | | | | | | | | | |
| | | | | | | | Change in % |
| | 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Net revenues | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
| | (9) | % | | (5) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Variance in % |
| (In millions, except for percentages) | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net revenues | $ | 2,551 | | | $ | 2,490 | | | $ | 2,456 | | | 2 | % | | 1 | % |
2016Fiscal 2021 compared to 2015fiscal 2020
Net revenues decreased $356increased $61 million year over year primarily due to unfavorable foreign currency fluctuationsa $91 million increase in sales of $171 million and declines in our consumer security revenueproducts and a $60 million increase in sales of our identity and protection products. This was driven by the ongoing impactincrease in our direct customer count year-over-year, and stable annual retention rate and average revenue per user (ARPU) in fiscal 2021. The increase was partially offset by a $46 million decrease as a result of changesthe divestiture of our ID Analytics solutions in January 2020 and $44 million of revenue recognized during an additional week in fiscal 2020.
Fiscal 2020 compared to fiscal 2019
Net revenues increased $34 million primarily due to approximately $44 million of revenues from the additional week in fiscal 2020.
Performance Metrics
We regularly monitor a number of metrics in order to measure our renewal practicescurrent performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.
The following table summarizes supplemental key performance metrics for our solutions:
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In millions, except for per user amounts and percentages) | 2021 | | 2020 | | 2019 |
Direct customer revenue (1) | $ | 2,286 | | | $ | 2,204 | | | $ | 2,168 | |
| Partner revenues | $ | 270 | | | $ | 240 | | | $ | 240 | |
Average direct customer count (2) | 21.2 | | | 20.2 | | | 20.7 | |
| Direct customer count (at quarter-end) | 23.0 | | | 20.2 | | | 20.3 | |
Direct average revenue per user (ARPU) (3) | $ | 9.01 | | | $ | 8.90 | | | $ | 8.74 | |
| Annual retention rate | 85 | % | | 85 | % | | 85 | % |
(1) Direct customer revenues in fiscal 2021 excludes a $5 million reduction inof revenue from OEM arrangements. In addition, neta contract liability purchase accounting adjustment recognized during the last quarter due to the acquisition of Avira. Direct customer revenues decreased partially duein fiscal 2020 and 2019 excludes $46 million and $48 million, respectively, of revenue from ID Analytics solutions, which were divested in the fourth quarter of fiscal 2020.
(2) Average direct customer count for fiscal 2021 is calculated as an average of the fiscal quarters. The average direct customer count for the fourth fiscal quarter was pro-rated to include 1.6 million customers from the Avira acquisition.
(3) ARPU in fiscal 2020 was normalized to exclude the impact of the additionalextra week on direct revenue, which we estimate to be approximately $41 million of direct customer revenue. Excluding this adjustment, ARPU would have been $9.07 in fiscal 2020.
We define direct customer revenues as revenues from sales of our consumer solutions to direct customers, which we define as active paid users who have a direct billing relationship with us at the 53-week fiscal 2015 year.end of the reported period. Users with multiple products or entitlements are counted for based on which solutions they are subscribed. We exclude users on free trials and promotions and users who have indirectly purchased our product or services through partners unless such users convert or renew their subscriptions directly with us.
2015 comparedFrom time to 2014
Net revenues decreased $227 million primarilytime, we update our methodology due to declineschanges in the business. In fiscal 2021, the average direct customer count calculation has been refined primarily to pro-rate for acquisitions that happen during a quarter, such as Avira, which was acquired in January 2021. The full year average direct customer count is calculated as an average across the quarters. This change in methodology had an immaterial impact to historical amounts presented.
ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure. We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer security products driven by our channel strategy to exit unprofitable retail arrangements and certain high-cost OEM arrangements, coupled withcustomer base.
Annual retention rate is defined as the impact to change our renewal practices. In addition, net revenues decreased due to the general strengtheningnumber of direct customers who have more than a one-year tenure as of the U.S. dollar against foreign currencies and weakness in endpoint management, partially offsetend of the most recently completed fiscal period divided by the impacttotal number of direct customers as of the additional weekend of the period from one year ago. We monitor annual retention rate to evaluate the 53-week fiscal 2015 year.
Net revenues and operating income by segment by fiscal year
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | Change in % |
| | 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Net revenues: | | | | | | | | | |
| Consumer Security | $ | 1,670 |
| | $ | 1,887 |
| | $ | 2,063 |
| | (11) | % | | (9) | % |
| Enterprise Security | 1,930 |
| | 2,069 |
| | 2,135 |
| | (7) | % | | (3) | % |
| Percentage of total net revenues: | | | | | | | | | |
| Consumer Security | 46 | % | | 48 | % | | 49 | % | | | | |
| Enterprise Security | 54 | % | | 52 | % | | 51 | % | | | | |
| Operating income: | | | | | | | | | |
| Consumer Security | $ | 924 |
| | $ | 982 |
| | $ | 928 |
| | (6) | % | | 6 | % |
| Enterprise Security | 102 |
| | 293 |
| | 349 |
| | (65) | % | | (16) | % |
| Operating margin: | | | | | | | | | |
| Consumer Security | 55 | % | | 52 | % | | 45 | % | | | | |
| Enterprise Security | 5 | % | | 14 | % | | 16 | % | | | | |
2016 compared to 2015
Consumer Security revenue decreased $217 million primarily due to the ongoing impact of changes to our renewal practices and a reduction in revenue from OEM arrangements. Unfavorable currency fluctuations of $81 million also contributed to the decline in revenue. Consumer Security operating income decreased $58 million primarily due to the decreases in revenue in this segment, which were partially offset by reductions in cost of revenues, sales and marketing and research and development expenses.
Enterprise Security revenue decreased $139 million primarily due to unfavorable foreign currency fluctuations of $90 million, as well as decrease in sales of endpoint management and our mail cloud security products. The decrease of $191 million in operating income was primarily due to decreased revenue and increased allocation of stranded costs. These stranded costs consist of overhead expenses resulting from the sale of Veritas and primarily include information technology infrastructure and services, and real estate costs.
2015 compared to 2014
Consumer Security revenue decreased $176 million primarily due to our channel strategy to exit unprofitable retail arrangements and certain high-cost OEM arrangements, coupled with the impacteffectiveness of our decisionstrategies to change our renewal practices. Consumer Security operating income increased $54 million primarily due to reductions in advertising and promotional expensesimprove renewals of $141 million and decreases in cost of revenues of $52 million and salaries and wages of $26 million, partially offset by the revenue decline in the segment.subscriptions.
Enterprise Security revenue decreased $66 million primarily due to unfavorable foreign currency fluctuations, as well as a decrease in the sales of endpoint management. The decrease of $56 million in operating income was mainly due to the reduction in revenue.
Net revenues by geographic region by fiscal year |
| | | | | | | | | | | | | | | | | |
| | | | | | | | Change in % |
| | 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Revenues by geographic region: | | | | | | | | | |
| Americas (U.S., Canada and Latin America) | $ | 2,113 |
| | $ | 2,214 |
| | $ | 2,315 |
| | (5) | % | | (4) | % |
| EMEA (Europe, Middle East and Africa) | 894 |
| | 1,065 |
| | 1,129 |
| | (16) | % | | (6) | % |
| APJ (Asia Pacific and Japan) | 593 |
| | 677 |
| | 739 |
| | (12) | % | | (8) | % |
| Total net revenues | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
| | | | |
| | | | | | | | | | |
| U.S. | $ | 1,897 |
| | $ | 1,960 |
| | $ | 2,049 |
| | (3) | % | | (4) | % |
| International | 1,703 |
| | 1,996 |
| | 2,134 |
| | (15) | % | | (6) | % |
| Total net revenues | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
| | | | |
| | | | | | | | | | |
| Percentage of total net revenues: | | | | | | | | | |
| Americas (U.S., Canada and Latin America) | 59 | % | | 56 | % | | 55 | % | | | | |
| EMEA (Europe, Middle East and Africa) | 25 | % | | 27 | % | | 27 | % | | | | |
| APJ (Asia Pacific and Japan) | 16 | % | | 17 | % | | 18 | % | | | | |
| U.S. | 53 | % | | 50 | % | | 49 | % | | | | |
| International | 47 | % | | 50 | % | | 51 | % | | | | |
Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our internationalPercentage of revenue by approximately $171 million forgeographic region as presented below is based on the billing location of the customer.
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| 2021 | | 2020 | | 2019 |
| Americas | 72 | % | | 74 | % | | 73 | % |
| EMEA | 16 | % | | 15 | % | | 16 | % |
| APJ | 12 | % | | 11 | % | | 11 | % |
Percentages may not add to 100% due to rounding.
The Americas include U.S., Canada, and Latin America; EMEA includes Europe, Middle East, and Africa; APJ includes Asia Pacific and Japan.
Percentage of revenue by geographic region remained consistent in fiscal 2016 as2021, 2020, and 2019.
Cost of revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Variance in % |
| (In millions, except for percentages) | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Cost of revenues | $ | 362 | | | $ | 393 | | | $ | 455 | | | (8) | % | | (14) | % |
Fiscal 2021 compared to fiscal 2015. Fiscal 2016 revenue for the EMEA and APJ regions decreased primarily due to unfavorable foreign currency fluctuations of $119 million and $49 million, respectively, compared to fiscal 2015.
Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our international revenue by approximately $92 million for fiscal 2015 as compared to fiscal 2014. This was due to unfavorable foreign currency fluctuations of $53 million in the EMEA region and $39 million in the APJ region.
Our international sales are expected to continue to be a significant portion of our revenue. As a result, revenue is expected to continue to be affected by foreign currency exchange rates as compared to the U.S. dollar. We are unable to predict the extent to which revenue in future periods will be impacted by changes in foreign currency exchange rates. If international sales become a greater portion of our total sales in the future, changes in foreign currency exchange rates may have a potentially greater impact on our revenue and operating results.
Cost of revenues by fiscal year |
| | | | | | | | | | | | | | | | | |
| |
| |
| |
| | Change in % |
| | 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Cost of revenues | $ | 615 |
| | $ | 727 |
| | $ | 791 |
| | (15) | % | | (8) | % |
2016 compared to 2015
Cost of revenues consists primarily of technical support costs, costs of billable services, and fees to OEMs under revenue-sharing agreements. Our cost of revenues decreased $112 million for fiscal 2016 compared to fiscal 2015 primarily due to favorable currency effects, a decrease in OEM royalty fees, and a decrease in service related and content delivery expenses.
2015 compared to 20142020
Our cost of revenues decreased $64$31 million for fiscal 2015primarily due to decreases in royalty charges and technical support costs, partially offset by an increase in commissions, reflecting higher investments in affiliate marketing programs.
Fiscal 2020 compared to fiscal 20142019
Our cost of revenues decreased $62 million primarily due to favorable currency effects, a decrease in OEM royalty fees, and a decrease in service related and content delivery expenses in our Consumer Security segment.
Operating expenses by fiscal year |
| | | | | | | | | | | | | | | | | |
| | | | | | | | Change in % |
| | 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Sales and marketing expense | $ | 1,292 |
| | $ | 1,650 |
| | $ | 1,766 |
| | (22) | % | | (7) | % |
| Research and development expense | 748 |
| | 812 |
| | 722 |
| | (8) | % | | 12 | % |
| General and administrative expense | 295 |
| | 362 |
| | 420 |
| | (19) | % | | (14) | % |
| Amortization of intangible assets | 57 |
| | 87 |
| | 93 |
| | (34) | % | | (6) | % |
| Restructuring, separation, and transition | 136 |
| | 164 |
| | 247 |
| | (17) | % | | (34) | % |
| Total | $ | 2,528 |
| | $ | 3,075 |
| | $ | 3,248 |
| | (18) | % | | (5) | % |
2016 compared to 2015
The overall decreases in operatingtechnical support costs and service costs, partially offset by an increase in royalty charges. In addition, during fiscal 2019, we recorded higher inventory write-offs of $10 million due to our discontinuation of our consumer hardware product line.
Operating expenses for fiscal 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Variance in % |
| (In millions, except for percentages) | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Sales and marketing | $ | 576 | | | $ | 701 | | | $ | 712 | | | (18) | % | | (2) | % |
| Research and development | 267 | | | 328 | | | 420 | | | (19) | % | | (22) | % |
| General and administrative | 215 | | | 368 | | | 410 | | | (42) | % | | (10) | % |
| Amortization of intangible assets | 74 | | | 79 | | | 80 | | | (6) | % | | (1) | % |
| Restructuring, transition and other costs | 161 | | | 266 | | | 221 | | | (39) | % | | 20 | % |
| Total | $ | 1,293 | | | $ | 1,742 | | | $ | 1,843 | | | (26) | % | | (5) | % |
Fiscal 2021 compared to fiscal 2015 were primarily due to a decrease in unallocated corporate charges previously allocated to Veritas. These unallocated corporate charges are included in expenses from continuing operations. Refer to Note 8 of the Notes to Consolidated Financial Statements in this annual report for more information about our unallocated corporate charges. The impacts of the unallocated corporate charges are discussed below. In addition to the impacts of unallocated corporate charges, we experienced favorable foreign currency effects on our operating expenses for fiscal 2016 compared to fiscal 2015.2020
Sales and marketing expense decreased $358$125 million primarily due to a reduction of unallocated corporate charges of $328 million.$147 million decrease in shared facility and IT costs, partially offset by a $12 million increase in advertising and promotional expense.
Research and development expense decreased $64$61 million due to a $44 million decrease in shared facility and IT costs and a $17 million decrease in compensation, driven by lower headcount.
General and administrative expense decreased $153 million primarily due to a reduction$70 million decrease in compensation expense, a $55 million decrease in shared facility and IT costs, and a $43 million decrease in outside services expense, partially offset by an additional legal accrual of unallocated corporate charges of $76 million.$25 million in fiscal 2021 relating to an ongoing civil lawsuit involving a government contract with the GSA.
GeneralThe overall decreases in our sales and marketing, research and development and general and administrative expenses were driven by our cost reduction initiatives.
Amortization of intangible assets was relatively flat compared to fiscal 2020.
Restructuring, transition and other costs decreased $67$105 million primarily due to a reduction$50 million decrease of unallocated corporatecontract cancellation charges of $91and a $59 million decrease in severance costs in connection with our November 2019 restructuring plan (the November 2019 Plan). The decrease was partially offset by ana $11 million increase in asset write-offs and impairments. See Note 12 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on our restructuring plans.
Fiscal 2020 compared to fiscal 2019
Sales and marketing expense decreased $11 million primarily due to a $75 million decrease in compensation expense and allocated corporate costs, reflecting our cost reduction initiatives. These decreases were partially offset by a $64 million increase in advertising and promotional expense reflecting our higher investments in direct marketing programs.
Research and development expense decreased $92 million primarily due to a $77 million decrease in compensation expense and allocated corporate costs, and a $23 million decrease in outside services, reflecting our cost reduction initiatives.
General and administrative expense decreased $42 million primarily due to a $34 million decrease in compensation expense other than stock-based compensation and allocated corporate costs, and a $18 million decrease in stock-based compensation expense.
Amortization of intangible assets decreased $30was relatively flat compared to fiscal 2019.
Restructuring, transition and other costs increased $45 million primarily due to certain intangible assets becoming fully amortized during fiscal 2015.
Restructuring, separation, and transition costs include severance, facilities, separation, transition and other related costs. For fiscal 2016, we incurred $44$101 million of restructuring costs, $14 million in separation costs, and $78 million in transition costs. For further information on restructuring, separation, and transition costs, see Note 6 of the Notes to Consolidated Financial Statements in this annual report.
2015 compared to 2014
We experienced favorable foreign currency effects on our operating expensescontract cancellation charges incurred in fiscal 2015 as2020, a $71 million increase in severance costs, a $45 million increase in asset impairments, and a $20 million increase in stock-based compensation. These increases were partially offset by $185 million costs related to transition projects incurred in fiscal 2019 that were completed by the end of that period.
Non-operating income (expense), net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Variance in $ |
| (In millions) | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Interest expense | $ | (144) | | | $ | (196) | | | $ | (208) | | | $ | 52 | | | $ | 12 | |
| Interest income | 4 | | | 80 | | | 42 | | | (76) | | | 38 | |
| Loss from equity interest | — | | | (31) | | | (101) | | | 31 | | | 70 | |
| Foreign exchange gain (loss) | 1 | | | (6) | | | (11) | | | 7 | | | 5 | |
| Gain on divestitures | — | | | 250 | | | — | | | (250) | | | 250 | |
| Gain on sale of equity method investment | — | | | 379 | | | — | | | (379) | | | 379 | |
| Gain on early extinguishment of debt | 20 | | | — | | | — | | | 20 | | | — | |
| Gain on sale of properties | 98 | | | — | | | — | | | 98 | | | — | |
| Transition service expense, net | (9) | | | (19) | | | — | | | 10 | | | (19) | |
| Other | 6 | | | 7 | | | 13 | | | (1) | | | (6) | |
| Non-operating income (expense), net | $ | (24) | | | $ | 464 | | | $ | (265) | | | $ | (488) | | | $ | 729 | |
Fiscal 2021 compared to fiscal 2014.2020
Sales and marketingNon-operating income, net of expense, decreased $116$488 million primarily due the absence of the $379 million gain on sale of our equity method investment in DigiCert and the $250 million gain on the sale of our ID Analytics solutions, which were divested in fiscal 2015, primarily2020. The decrease was partially offset by the absence of loss from our equity interest in DigiCert, gain on sale of our Culver City property and certain Mountain View properties, and the gain on extinguishment of debt due to lower advertisement and promotions expenses partly offset by higher unallocated corporate chargesthe repayment of $67 million.our 2.0% Convertible Notes in fiscal 2021.
The $90 million increase in research and developmentFiscal 2020 compared to fiscal 2019
Non-operating income, net of expense, for fiscal 2015 was primarily due to higher unallocated corporate charges and stock-based compensation expense.
General and administrative expenses decreased $58increased $729 million primarily due to a reduction$379 million gain on the sale of unallocated corporate chargesthe DigiCert equity method investment and a $250 million gain on the sale of $17 million.
Amortization of intangible assetsour ID Analytics solutions in fiscal 2020. In addition, our loss from equity interest that was divested in fiscal 2020 decreased by $6$70 million primarilyand our interest income increased $38 million as a result of certain intangible assets becoming fully amortized during fiscal 2015.
Restructuring, separation, and transition costs include severance, facilities, separation, transition and other related costs. For fiscal 2015, we incurred $101 million of restructuring costs, $23 millionhigher investments in separation costs, and $40 million in transition costs. For further information on restructuring and transition costs, see Note 6 ofmoney market funds purchased with proceeds from the Notes to Consolidated Financial Statements in this annual report.
Non-operating expense, net by fiscal year
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | Change in % |
| 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Interest income | $ | 10 |
| | $ | 11 |
| | $ | 11 |
| | (9) | % | | — | % |
| Interest expense | (75 | ) | | (78 | ) | | (84 | ) | | (4) | % | | (7) | % |
| Other income, net | — |
| | 14 |
| | 36 |
| | * |
| | * |
|
| Non-operating expense, net | $ | (65 | ) | | $ | (53 | ) | | $ | (37 | ) | | 23 | % | | 43 | % |
* Percentage is not meaningful.
2016 compared to 2015
Non-operating expense, net, increased $12 million primarily due to net foreign currency remeasurement losses.
2015 compared to 2014
Non-operating expense, net, increased $16 million primarily due to a $32 million realized gain from sale of short-term investments during fiscal 2014, offset by favorable foreign currency effects and a reduction in interest expense.Broadcom sale.
Provision for income taxes by fiscal year
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | Change in % |
| 2016 | | 2015 | | 2014 | | 2016 v 2015 | | 2015 v 2014 |
| | (Dollars in millions) | | | | |
| Income from continuing operations before income taxes | $ | 392 |
| | $ | 101 |
| | $ | 107 |
| | 288 | % | | (6) | % |
| Provision for (benefit from) income taxes | $ | 1,213 |
| | $ | (8 | ) | | $ | 16 |
| | * |
| | * |
|
| Effective tax rate on continuing operations income | 309 | % | | (8 | )% | | 15 | % | |
|
| |
|
|
* Percentage is not meaningful.
We recorded an income tax expense on discontinued operations of $1.1 billion, $223 million and $242 million for fiscal 2016, 2015 and 2014, respectively. See Note 3 of the Notes to Consolidated Financial Statements in this annual report for additional information.
Tax expense in fiscal 2016 was primarily driven by (1) $1.1 billion of tax expense for providing U.S. taxes on certain undistributed foreign earnings, primarily those attributable to the sale of Veritas, and (2) $10 million of tax expense attributable to recording valuation allowances for certain deferred tax assets.
The tax expense in fiscal 2015 was reduced by the following benefits: (1) $59 million for tax benefits related to the settlement of the Symantec 2009 through 2013 Internal Revenue Service (“IRS”) audit, (2) $21 million in tax benefits resulting from tax settlements and lapses of statutes of limitations, (3) $14 million in tax benefits related to certain foreign operations, and (4) $14 million in tax benefits resulting from deductible separation costs.
The tax expense in fiscal 2014 was reduced by the following benefits: (1) $33 million for the resolution of a tax matter related to the sale of our 49% ownership interest in the joint venture with Huawei during the fourth quarter of fiscal 2012, (2) $24 million for tax benefits related to the settlement of the Symantec 2005 through 2008 IRS audit, (3) $15 million tax benefit related to certain foreign operations, and (4) $13 million from lapses of statutes of limitation. These tax benefits were partially offset by $12 million in tax expense, resulting from the sale of short-term investments.
The effective tax rates for all periods presented otherwise reflect the benefits of lower-taxed international earnings, domestic manufacturing incentives, and research and development credits, partially offset by state income taxes.
We are a U.S.-based multinational company subject to tax in multiple U.S. and international tax jurisdictions. A substantial portion of our international earnings were generated from subsidiaries organized in Ireland and Singapore. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In millions, except for percentages) | 2021 | | 2020 | | 2019 |
| Income (loss) from continuing operations before income taxes | $ | 872 | | | $ | 819 | | | $ | (107) | |
| Provision for income taxes | $ | 176 | | | $ | 241 | | | $ | 3 | |
| Effective tax rate on income (loss) from continuing operations | 20 | % | | 29 | % | | (3) | % |
For further information on the impact of foreign earnings on ourFiscal 2021 compared to fiscal 2020
Our effective tax rate see Note 11 of the Notesdecreased primarily due to Consolidated Financial Statementsreleases in this annual report.uncertain tax positions and favorable withholding tax rulings.
See Critical Accounting PoliciesFiscal 2020 compared to fiscal 2019
Our effective tax rate increased primarily due to an increase in income taxes from non-deductible goodwill, and Estimates above for additional information about our provision foran increase in income taxes.
In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income,taxes as measured by the current and prior two years; we have strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. Levels of future taxable income are subject to the various risks and uncertainties discussed in Part I, Item 1A, Risk Factors, set forth in this annual report. We have concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of April 1, 2016 of $308 million, which are net of a valuation allowance of $50 million, are realizable on a “more likely than not” basis.
On September 3, 2013, we settled and effectively settled matters with the IRS for the Symantec 2005 through 2008 fiscal years. The result of the settlements, effective settlements, and re-measurements resulted in a reduction in the balance of our gross unrecognized tax benefits in fiscal year 2014 of $122 million.
On March 18, 2015, we settled and effectively settled matters with the IRS for the Symantec 2009 through 2013 fiscal years. The settlement and effective settlement resulted in a benefit to tax expense in fiscal year 2015 of $59 million. Additionally, the Company settled transfer price related matters of $158 million, a portion of which was accounted for against deferred tax liabilities on unremitted foreign earnings. The Company has paid in $155 million to cover the final tax and interest liability on the settlement.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by $7 million.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
Divestiture of Veritas
In August 2015, we entered into a definitive agreement to sell the assets of Veritas to Carlyle and amended the terms in January 2016. Based on the amended terms of the definitive agreement, we received net consideration of $6.6 billion in cash excluding transaction costs and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. Our U.S. and foreign income taxes and indirect taxes payable resulting from the transaction are estimated to be $1.0 billion.
Sources of cash
We have historically relied on cash flow from operations, borrowings under a credit facility, issuances of debt and equity securities, and sale of business, more recently, for our liquidity needs. As of April 1, 2016, we had cash, cash equivalents and short-term investments of $6.0 billion and an unused credit facility of $1.0 billion resulting in a liquidity position of approximately $7.0 billion. As of April 1, 2016, $4.9 billion in cash, cash equivalents, and short-term investments were held by our foreign subsidiaries. We have provided U.S. deferred taxes on a portion of our undistributed foreign earnings sufficient to address the incremental U.S. tax that would be due if we needed such portion of these funds to support our operations in the U.S.
Senior Notes. In fiscal 2013, we issued $1.0 billion of Senior Notes consisting of the 3.95% Senior Notes due in 2022 and the 2.75% Senior Notes due in 2017. We received proceeds of $996 million, net of an issuance discount. In fiscal 2011, we issued $750 million of Senior Notes consisting of the 4.20% Senior Notes due in 2020.
Convertible Senior Notes. In fiscal 2016, we issued $500 million in 2.50% Convertible Senior Notes, due April 2021.
Revolving Credit Facility. In fiscal 2011, we entered into a $1.0 billion senior unsecured revolving credit facility (“credit facility”), which was amended in fiscal 2013. The amendment extended the term of the credit facility to June 7, 2017. This revolving credit facility was further amended in March 2016 to amend the definition of EBITDA (earnings before interest, taxes, depreciation and amortization) to account for the sale of Veritas and related expenses and to amend our consolidated leverage ratio under the agreement. Under the terms of this credit facility, we must comply with certain financial and non-financial covenants, including a covenant to maintain a specified ratio of debt to EBITDA. As of April 1, 2016, we were in compliance with the required covenants, and no amounts were outstanding.
In May 2016, we replaced our existing $1.0 billion senior unsecured revolving credit facility with a new $2.0 billion credit facility.Altera Ninth Circuit Opinion. See Note 13 of the Notes to the Consolidated Financial Statements included in this annual reportAnnual Report on Form 10-K for more information.information about the Altera Ninth Circuit Opinion.
Discontinued operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Variance in % |
| (In millions, except for percentages) | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net revenues | $ | 1 | | | $ | 1,368 | | | $ | 2,288 | | | (100) | % | | (40) | % |
| Gross profit | $ | 1 | | | $ | 1,035 | | | $ | 1,693 | | | (100) | % | | (39) | % |
| Operating income (loss) | $ | (177) | | | $ | 4 | | | $ | 234 | | | (4,525) | % | | (98) | % |
| Gain on sale | $ | — | | | $ | 5,434 | | | $ | — | | | N/A | | N/A |
| Income (loss) before income taxes | $ | (176) | | | $ | 5,431 | | | $ | 228 | | | (103) | % | | 2,282 | % |
| Income tax expense (benefit) | $ | (34) | | | $ | 2,122 | | | $ | 87 | | | (102) | % | | 2,339 | % |
| Income (loss) from discontinued operations, net of taxes | $ | (142) | | | $ | 3,309 | | | $ | 141 | | | (104) | % | | 2,247 | % |
Fiscal 2021 compared to fiscal 2020
We believe that our existing cashincurred a loss from discontinued operations in fiscal 2021, compared to a gain during the corresponding period in fiscal 2020, primarily due to the absence of gain on the Broadcom sale, the absence of operating income as a result of the Broadcom sale, and investment balances, our available revolving credit facility, our abilitya $200 million settlement with Broadcom in the second quarter of fiscal 2021 of all outstanding payments and certain claims related to issue new debt instruments,the Broadcom sale.
Fiscal 2020 compared to fiscal 2019
Income from discontinued operations in fiscal 2020 reflects a $5,434 million gain on the Broadcom sale and $2,122 million income tax expense primarily related to the gain. In addition, we recognized $261 million restructuring, transition and other costs in fiscal 2020, compared to $20 million in fiscal 2019.
LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS
Liquidity
We have historically relied on cash generated from operations, willborrowings under credit facilities, issuances of debt, and proceeds from divestitures for our liquidity needs.
As of April 2, 2021, we had cash, cash equivalents and short-term investments of approximately $1.0 billion, of which $0.4 billion was held by our foreign subsidiaries. Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity, and generate investment returns. The participation exemption system under current U.S. federal tax regulations generally allows us to make distributions of non-U.S. earnings to the U.S. without incurring additional U.S. federal tax; however, these distributions may be sufficientsubject to applicable state or non-U.S. taxes. We have recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in our subsidiaries.
We also have an undrawn revolving credit facility of $1 billion. The first amendment to our credit agreement, executed in May 2021, extends the maturity date from November 2024 to May 2026. For additional discussion on the amendment, see Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Our principal cash requirements are primarily to meet our working capital needs and capital expenditure requirements, as well as to fund anysupport on-going business activities, including payment of taxes and cash dividends, principalfunding capital expenditures, servicing existing debt, repurchasing our common stock, and interest payments oninvesting in business acquisitions.
Our capital allocation strategy is to balance driving stockholder returns, managing financial risk, and preserving our flexibility to pursue strategic options, including acquisitions. Historically, this has included a quarterly cash dividend, the repayment of debt, and repurchasesthe repurchase of our stock, for at least the next 12 months and foreseeable future. common stock.
Divestiture of Enterprise Security business
In connection with the divestiture of Veritas, our Board of Directors committed to returning the net proceeds of the sale to stockholders through a combination of a special dividend and share repurchases. The Board of Directors also resolved to adjust its annual dividend starting fiscal year 2017 to $0.30 per share to reflect reduced projected domestic cash flow following2020, we completed the sale of Veritas, while still enabling our company to invest in its future. Our strategy emphasizes organic growth through internal innovationcertain assets and will be complemented by acquisitions that fit strategically and meet specific internal profitability hurdles.
Usesthe assumption of cash
Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on debt, and payments of taxes. Also, we may, from time to time, engage in the open market purchasecertain liabilities of our notes priorEnterprise Security business to their maturity. Furthermore, our capital allocation strategy contemplatesBroadcom. During fiscal 2021, we paid approximately $70 million of U.S. and foreign income taxes as a quarterly cash dividend.result of the transaction.
On October 1, 2020, we entered into multiple agreements with Broadcom and paid an aggregate amount of $200 million. We licensed Broadcom’s enterprise software, multiple security engines and related telemetry for 5.6 years. In addition, we regularly evaluate our abilityresolved all outstanding payments and certain claims related to repurchase stock, pay debts,the asset purchase and acquire other businesses.transition services agreements.
Stock Repurchases on Open Market Transactions.
Debt
In fiscal 2016,May 2020, we repurchased 17settled the $625 million shares, or $368 millionprincipal and conversion rights of our common stock.2.0% Convertible Notes for $1,176 million in cash. In fiscal 2015,September 2020, we repurchased 21borrowed $750 million shares, or $500under the Delayed Draw Term Loan, maturing in November 2024, and used the entire amount of the proceeds to repay in full the principal and accrued interest under our 4.2% Senior Notes due September 2020. In March 2021, we made a $6 million ofquarterly principal payment on our common stock. In fiscal 2014, we repurchased 21initial term loan (the Initial Term Loan) and a $9 million shares, or $500 million, of our common stock. Our active stock repurchase programs have $790 million remaining authorized for future repurchase as of April 1, 2016, with no expiration date.
Accelerated Stock Repurchase. In November and March of fiscal 2016,quarterly principal payment on the Delayed Draw Term Loan. On May 7, 2021, we entered into ASR agreements with financial institutionsthe first amendment to our credit agreement, which provides an additional five year term loan (the First Amendment Additional Term Loan), and extends the maturity date of the Initial Term Loan, the Delayed Draw Term Loan, and revolving credit facility from November 2024 to May 2026. For additional discussion on the amendment, see Note 10 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
In May 2021, we entered into a Convertible Notes Purchase Agreement (the “Agreement”) under which we agreed to repurchase $250 million in aggregate principal amount of our new 2.50% convertible senior notes due 2022. Under the terms of the Agreement, we paid an aggregate of $1.5 billion$365 million on May 20, 2021, representing $24.40 per underlying share into which the notes are convertible, accrued and unpaid interest through the date of settlement, and a portion of the cash dividend that we declared on May 10, 2021 . For additional discussion on the Agreement, see Note 19 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K
Sale of certain assets
On July 27, 2020, we completed the sale of our common stock. We made upfront paymentsCulver City property for cash consideration of $500$118 million, net of selling costs.
On April 1, 2021, we completed the sale of certain land and $1 billionbuildings in Mountain View for acash consideration of $100 million, net of selling costs.
Acquisition of Avira
On January 8, 2021, we completed our acquisition of Avira for total aggregate cash consideration of $1.5 billion, to the financial institutions pursuant to the ASR agreements and received and retired the initial deliveries$344 million, net of 19.9$32 million and 42.4cash acquired.
Share repurchase program
During fiscal 2021, we executed repurchases of 15 million shares of our common stock. stock under our existing share repurchase program for an aggregate amount of $304 million.
Cash flows
The following table summarizes our cash flow activities in fiscal 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Fiscal Year |
| (In millions) | 2021 | | 2020 | | 2019 |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 706 | | | $ | (861) | | | $ | 1,495 | |
| Investing activities | $ | (69) | | | $ | 11,379 | | | $ | (241) | |
| Financing activities | $ | (1,903) | | | $ | (10,123) | | | $ | (1,209) | |
| Increase (decrease) in cash and cash equivalents | $ | (1,244) | | | $ | 386 | | | $ | 17 | |
Cash from operating activities
Fiscal 2021
Our cash from operating activities in fiscal 2021 reflected net income of $554 million, adjusted by non-cash items, primarily consisting of amortization and depreciation of $150 million, impairments of current and long-lived assets of $90 million, stock-based compensation expense of $81 million, deferred income taxes of $42 million, and gain on sale of properties of $98 million.
Changes in operating assets and liabilities during fiscal 2021 consisted primarily of the following:
Contract liabilities increased $118 million, primarily due to higher billings than recognized revenue.
Accounts payable decreased $44 million, primarily due to a reduction in operating costs in connection with our November 2015 ASR agreement's purchase period concluded2019 Plan, which was completed during fiscal 2021.
Income taxes payable decreased $299 million primarily due to tax payments made during fiscal 2021, including payments related to the Broadcom sale, payments of federal and foreign income taxes, and a decrease as a result of favorable tax rulings. During fiscal 2021, we made aggregate tax payments of $341 million related to these transactions.
Fiscal 2020
Our cash flows for fiscal 2020 reflected net income of $3,887 million, adjusted by non-cash items, primarily consisting of gains on divestitures of $5,684 million and a gain on the sale of our equity method investment of $379 million, amortization and depreciation of $361 million, and stock-based compensation of $312 million.
Changes in operating assets and liabilities during fiscal 2020 consisted primarily of the following:
Accounts receivable decreased $583 million, primarily due to the collections of receivables related to our Enterprise Security solutions. Such receivables were not included in the fourth quarterassets that were sold in connection with the Broadcom sale.
Contract liabilities decreased $121 million, primarily due to seasonally higher recognized revenue from our Enterprise Security solutions than billings during the period prior to the Broadcom sale.
Accrued compensation and benefits decreased $117 million, primarily due to a decrease in headcount as a result of fiscal 2016, whereby upon settlement, we received an additional 5.0the Broadcom sale and our restructuring activities.
Income taxes payable increased $383 million sharesprimarily due to taxes owed on the Broadcom sale and the sale of our common stock. The total shares received and retired under the termsDigiCert equity method investment. During fiscal 2020, we made aggregate tax payments of the November 2015 ASR were 24.9 million, with an average price paid per share$2 billion related to these transactions.
Cash from investing activities
Our cash flows used in investing activities in fiscal 2021 primarily consisted of $20.08. The March 2016 purchase period is expected to close by or no later than the third quarter of fiscal 2017. The upfront paymentspayment for the November 2015Avira acquisition of $344 million, net of $32 million cash acquired, partially offset by proceeds from the sale of our Culver City and March 2016 ASR agreements are presented undercertain Mountain View properties of $218 million and proceeds from maturities and sales of short-term investments of $68 million.
Our investing activities in fiscal 2020 primarily consisted of $10,918 million in net proceeds from the captionBroadcom sale and the divestiture of our ID Analytics solutions and $380 million from the sale of our equity method investment in DigiCert.
Cash from financing activities
Our financing activities in fiscal 2021 primarily consisted of repayments of debt of $1,941 million in connection with the settlement of our 2.0% Convertible Notes, repayments of our 4.2% Senior Notes, and quarterly principal payments of our Initial Term Loan and Delayed Draw Term Loan, payment of dividends and dividend equivalents of $373 million, and repurchases of common stock of $304 million, partially offset by proceeds from issuance of debt of $750 million under our Delayed Draw Term Loan.
Our financing activities in our Consolidated Statementsfiscal 2020 primarily consisted of Cash Flows.
Dividend Program. During fiscal 2016, we declared and paid aggregate cash dividendspayments of $3.0 billion, or $4.60 per common share. These dividends were comprised of our quarterly dividends and a special dividend of $4.00 per share. During fiscal 2015, we declared and paid cash dividends of $413 million or $0.60 per common share. During fiscal 2014, we declared and paid cash dividends of $418 million or $0.60 per common share. Our restricted stock and performance-based stock units have dividend equivalent rights entitling holders to dividend equivalents to beof $7,481 million, repurchases of common stock of $1,581 million, debt repayments of $868 million, consisting of $552 million in principal and a $316 million cash settlement of the equity rights associated with our Senior Convertible notes, and cash consideration of $546 million paid in connection with the formexchange of cash upon vesting, for each shareconvertible debt.
Cash requirements
Debt - As of April 2, 2021, our total outstanding principal amount of indebtedness is summarized as follows. See Note 10 of the underlying units.Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about our debt.
| | | | | |
| (In millions) | April 2, 2021 |
| Term Loans | $ | 1,235 | |
| Senior Notes | 1,500 | |
| Convertible Senior Notes | 875 | |
| Mortgage Loans | 10 | |
| Total debt | $ | 3,620 | |
Debt covenant compliance -The credit agreement we entered into in November 2019, which was amended and extended through May 2026 on May 7, 2021, contains customary representations and warranties, non-financial covenants for financial reporting, affirmative and negative covenants, including a covenant that we maintain a consolidated leverage ratio of not more than 5.25 to 1.0, or 5.75 to 1.0 if we acquire assets or business in an aggregate amount greater than $250 million, and restrictions on indebtedness, liens, investments, stock repurchases, and dividends (with exceptions permitting our regular quarterly dividend and other specific capital returns). As of April 2, 2021, we were in compliance with all debt covenants.
Dividends - On May 12, 2016,10, 2021, we declaredannounced a cash dividend of $0.075$0.125 per share of common stock to be paid onin June 22, 2016 to all stockholders of record as of the close of business on June 8, 2016. All shares of common stock issued and outstanding, and unvested restricted stock and performance-based stock, as of the record date will be entitled to the dividend and dividend equivalents, respectively.2021. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.
Restructuring Plans. In fiscal 2015,Stock repurchases - Under our stock repurchase program, we announcedmay purchase shares of our outstanding common stock through accelerated stock repurchase transactions, open market transactions (including through trading plans intended to separatequalify under Rule 10b5-1 under the Exchange Act,) and privately-negotiated transactions. As of April 2, 2021, the remaining balance of our securitystock repurchase authorization is $274 million and information management businesses. In order to separate the businesses, we put a restructuring plan in place to properly align personnel, anddoes not have therefore incurred associated severance and facilities costs. We also incurred separation costs in the form of advisory, consulting and disentanglement expenses. These actions were substantially completed in the fourth quarter of fiscal 2016 with the sale of Veritas on January 29, 2016. However, we expect to incur immaterial adjustments to existing reserves in subsequent periods.
Inan expiration date. On May 2016, the4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million, bringing the total authorized amount under the stock repurchase program to $1,774 million. The authorization does not have an expiration date. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and other investment opportunities.
Restructuring - Under our restructuring plans approved by our Board of Directors in November 2019 and December 2020, we have incurred cash expenditures primarily for severance and termination benefits, contract terminations, and other exit and disposal costs. The November 2019 Plan was completed in fiscal 2017 restructuring plan.2021 with total cash payments of $139 million during the fiscal year. As of April 2, 2021, we estimate that we will incur total costs up to $20 million in connection with the December 2020 Plan. During fiscal 2021, we made $9 million in cash payments related to the December 2020 Plan. These actions are expected to be
completed in fiscal 2022. See Note 1312 of the Notes to the Consolidated Financial Statements included in this annual reportAnnual Report on Form 10-K for more information.further cash flow information associated with our restructuring activities.
Note Repayment. In the second quarter of fiscal 2016, the principal balance of our 2.75% Senior Notes due September 15, 2015 matured and was settled by a cash payment of $350 million, along with the $5 million semiannual interest payment.
Cash flows
The following table summarizes, for the fiscal periods indicated, selected items in our Consolidated Statements of Cash Flows: |
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| | (Dollars in millions) |
| Net cash provided by (used in) from continuing operations: | | | | | |
| Operating activities | $ | 1,456 |
| | $ | 17 |
| | $ | 108 |
|
| Investing activities | 7,236 |
| | (1,076 | ) | | (517 | ) |
| Financing activities | (4,734 | ) | | (800 | ) | | (1,700 | ) |
Continuing operating activities
We expect cash from our operating activities to fluctuate in future periods as a result of a number of factors, including the timing of our billings and collections, our operating results, the timing and amount of tax and other liability payments.
Net cash provided by operating activities was $1.5 billion for fiscal 2016 due to increases in deferred income taxes of $1.1 billion and income taxes payable of $693 million. These amounts were partially offset by a loss from continuing operations, net of income taxes of $821 million, including non-cash items depreciation and amortization charges of $304 million and stock-based compensation expense of $161 million.
Net cash provided by operating activities was $17 million for fiscal 2015, which resulted from income from continuing operations, net of income taxes of $109 million adjusted for non-cash items, including depreciation and amortization charges of $355 million and stock-based compensation expense of $131 million. These amounts were partially offset by decreases in income taxes payable of $405 million, deferred revenue of $83 million, and accounts payable of $73 million.
Net cash provided by operating activities was $108 million for fiscal 2014, which resulted from net income from continuing operations of $91 million adjusted for non-cash items, including depreciation and amortization charges of $374 million and stock-based compensation expense of $105 million. These amounts were partially offset by decreases in income taxes payable of $240 million, deferred revenue of $161 million, and accrued compensation and benefits of $83 million.
Continuing investing activities
Net cash provided by investing activities was $7.2 billion for fiscal 2016 and was primarily due to net proceeds of $6.5 billion from the divestiture of Veritas and proceeds of $1.4 billion from maturities and sales of short-term investments, partially offset by purchases of $378 million of short-term investments and payments of $272 million for capital expenditures.
Net cash used in investing activities was $1.1 billion for fiscal 2015 and was primarily due to $1.8 billion in purchases of short-term investments, and payments of $303 million for capital expenditures, partially offset by $1.0 billion in proceeds from the sales and maturities of our short-term investments.
Net cash used in investing activities was $517 million for fiscal 2014 and was primarily due to the purchase of $492 million, of short-term investments and payments of $194 million for capital expenditures, partially offset by $186 million in proceeds from the sales and maturities of our short-term investments.
Continuing financing activities
Net cash used in financing activities was $4.7 billion for fiscal 2016, which was primarily due to cash dividend payments of $3.0 billion, repurchases of our common stock of $1.9 billion and repayment of Senior Notes and other obligations of $368 million, partially offset by proceeds from the issuance of Convertible Senior Notes of $500 million.
Net cash used in financing activities was $800 million for fiscal 2015, which was primarily due to the repurchases of our common stock of $500 million and cash dividends paid of $413 million, partially offset by net proceeds from sales of common stock through employee stock benefit plans of $116 million.
Net cash used in financing activities of $1.7 billion for fiscal 2014 was primarily due to the repayment of our Convertible Senior Notes of $1.0 billion, repurchases of our common stock of $500 million, and cash dividends of paid of $418 million, partially offset by net proceeds from sales of common stock through employee stock benefit plans of $234 million.
Contractual obligations
The following is a schedule by years of our significant contractual obligations as of April 1, 2016:2, 2021, including those associated with our discontinued operations. The expected timing of payments of the obligations in the following table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Fiscal Period |
| | Total | | 2017 | | 2018 - 2019 | | 2020 - 2021 | | Thereafter |
| | (Dollars in millions) |
Senior Notes and Convertible Senior Notes (1) | $ | 2,250 |
| | $ | — |
| | $ | 600 |
| | $ | 1,250 |
| | $ | 400 |
|
Interest payments on Senior Notes and Convertible Senior Notes (1) | 321 |
| | 76 |
| | 123 |
| | 103 |
| | 19 |
|
Purchase obligations (2) | 329 |
| | 256 |
| | 71 |
| | 2 |
| | — |
|
Operating leases (3) | 278 |
| | 81 |
| | 115 |
| | 62 |
| | 20 |
|
| Total | $ | 3,178 |
| | $ | 413 |
| | $ | 909 |
| | $ | 1,417 |
| | $ | 439 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| (In millions) | Total | | Less than 1 Year | | 1 - 3 Years | | 3 - 5 Years | | Over 5 Years |
| Debt | $ | 3,620 | | | $ | 313 | | | $ | 1,153 | | | $ | 2,149 | | | $ | 5 | |
Interest payments on debt (1) | 367 | | | 110 | | | 162 | | | 94 | | | 1 | |
Purchase obligations (2) | 380 | | | 296 | | | 70 | | | 9 | | | 5 | |
Deemed repatriation taxes (3) | 594 | | | 69 | | | 196 | | | 329 | | | — | |
Operating leases (4) | 100 | | | 29 | | | 41 | | | 21 | | | 9 | |
| Total | $ | 5,061 | | | $ | 817 | | | $ | 1,622 | | | $ | 2,602 | | | $ | 20 | |
(1)Interest payments were calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes, and credit facility. Interest on variable rate debt was calculated using the interest rate in effect as of April 2, 2021. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on the Senior Notes, Convertible Senior Notes, and Term loans.
| |
(2)These amounts are associated with agreements for purchases of goods or services generally including agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The table above also includes agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included in the table above because management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials. (3)These amounts represent the transition tax on previously untaxed foreign earnings of foreign subsidiaries under the Tax Cuts and Jobs Act which may be paid through July 2025. (4)We have entered into various non-cancelable operating lease agreements that expire on various dates through fiscal 2028. The amounts in the table above exclude expected sublease income. See Note 9 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on leases. (1)
| Interest payments were calculated based on terms of the related Senior Notes and Convertible Senior Notes. For further information on the Senior Notes and Convertible Senior Notes, see Note 5 of the Notes to Consolidated Financial Statements in this annual report.
|
| |
(2)
| These amounts are associated with agreements for purchases of goods or services generally including agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The table above also includes agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included in the table above because management believes that cancellation of these contracts is unlikely and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials. |
| |
(3)
| We have entered into various non-cancelable operating lease agreements that expire on various dates through fiscal 2026. The amounts in the table above exclude expected sublease income and include $8 million in exited or excess facility costs related to restructuring activities. |
Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of April 1, 20162, 2021, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $160$525 million in long-term income taxes payable has been excluded from the contractual obligations table. For further information, see See Note 1113 of the Notes to the Consolidated Financial Statements included in this annual report.Annual Report on Form 10-K for further information.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In connection with the sale of Veritas and the sale of our Enterprise Security business to Broadcom, we assigned several leases to Veritas Technologies LLC or Broadcom and/or their related subsidiaries. In addition, our bylaws contain indemnification obligations to our directors, officers, employees, and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possibleRefer to determineNote 18 of the aggregate maximum potential loss under these indemnification agreements dueNotes to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our Consolidated Financial Statements.Statements included in this Annual Report on Form 10-K for further information on our indemnifications.
In connection with the sale of Veritas, we assigned several leases to Veritas Technologies LLC or its related subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC or its related subsidiaries' breach of payment obligations under the terms of the lease. As with our other indemnification obligations discussed above and in general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations under our Consolidated Financial Statements.
We provide limited product warranties and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks related to fluctuations in interest rates and foreign currency exchange rates. We may use derivative financial instruments to mitigate certain risks in accordance with our investment and foreign exchange policies. We do not use derivatives or other financial instruments for trading or speculative purposes.
Interest rate risk
Our short-term investments and cash equivalents primarily consist of corporate bonds and certificate of deposits, respectively. A change in interest could have an adverse impact on their market value. As of April 1, 2016,2, 2021, the carrying value and fair value of our short-term investments and cash equivalents was $18 million. A hypothetical change in the yield curve of 100 basis points would not result in a significant reduction in fair value.
As of April 2, 2021, we had $2.3$2.4 billion in aggregate principal amount of fixed-rate Senior Notes and Convertible Senior Notesconvertible debt outstanding, with a carrying amount of $2.2 billion and a fair value of $2.3$2.4 billion, which fair value was based on levelLevel 2 inputs. AsSince these notes bear interest at
fixed rates, they do not result in principal amount of fixed-rate Senior Notes outstanding,any financial statement risk associated with a carrying amount of $2.1 billion and a fair value of $2.2 billion, which was based on level 2 inputs. We have performed sensitivity analysis as of April 1, 2016 and April 3, 2015 by using a modeling technique that measures the changechanges in the fair values arising from a hypothetical 50 bps movement in the levels of market interest rates, with all other variables held constant. On April 1, 2016 and April 3, 2015, a hypothetical 50 bps increase or decrease in market interest rates would changerates. However, the fair value of the fixed-rate Senior Notes and Convertible Senior Notes by a decrease of approximately $41 million and $39 million, respectively and an increase of approximately $42 million and $40 million, respectively. However, this hypothetical change in marketthese notes fluctuates when interest rates change.
As of April 2, 2021, we also had $1.2 billion outstanding debt with variable interest rates based on the London InterBank Offered Rate (LIBOR). A reasonably possible hypothetical adverse change of 100 basis points in LIBOR would not impact theresult in a significant increase in interest expense on an annualized basis.
In addition, we have a $1 billion revolving credit facility that if drawn bears interest at a variable rate based on LIBOR and would be subject to the fixed-rate debt.same risks associated with adverse changes in LIBOR.
Foreign currency exchange rate risk
We conduct business in approximately 38numerous currencies through our worldwide operations, and as such, we are exposed to foreign currency risk. Our entities conduct their businesses in the primary local currency in which they operate, however, they may conduct business in other currencies. To the extend our entities hold monetary assets or liabilities, earn revenues, or expendincur costs in currencies other than that entity'sthe entity’s functional currency, they will beprimarily in Euro, Japanese Yen, British Pound, Israeli New Shekel, Swiss Franc, Singapore Dollar and Indian Rupee. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services we provide. Our cash flow, results of operations and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations, and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities. As a result, we are exposed to foreign exchange gains or losses andwhich impacts our operating results.
We have a foreign exchange exposure management program designed to
margins as a result. As part of ouridentify material foreign currency
risk mitigation strategy,exposures, manage these exposures, and reduce the potential effects of currency fluctuations on our results of operations through which we
have enteredenter into foreign exchange forward contracts
on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries with up to
sixtwelve months in
duration to help mitigate foreign exchange risk, however we are not able to mitigate all of our foreign exchange risk. We have considered historical trends in exchange rates and determined that it is possible that adverse changes in exchange rates for any currency could be experienced. The estimated impacts of a ten percent appreciation or depreciation of foreign currency are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | April 1, 2016 | | April 3, 2015 |
| | | | | Change in Fair Value Due to 10% | | | | Change in Fair Value Due to 10% |
| Foreign Exchange Forward Contract | | Notional Amount | | Appreciation | | Depreciation | | Notional Amount | | Appreciation | | Depreciation |
| | | (Dollars in millions) |
| Purchased | | $ | 693 |
| | $ | 69 |
| | $ | (69 | ) | | $ | 102 |
| | $ | 10 |
| | $ | (10 | ) |
| Sold | | (198 | ) | | (19 | ) | | 19 |
| | (195 | ) | | (19 | ) | | 19 |
|
| Total net outstanding contracts | | $ | 495 |
| | $ | 50 |
| | $ | (50 | ) | | $ | (93 | ) | | $ | (9 | ) | | $ | 9 |
|
duration. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates. The gains and losses on these foreign exchange contracts are recorded in Other income (expense), net in the Consolidated Statements of Operations.
As of April 2, 2021 and April 3, 2020, we had open foreign currency forward contracts with notional amounts of $338 million and $419 million, respectively, to hedge foreign currency balance sheet exposure, with an insignificant fair value. A hypothetical ten percent depreciation of foreign currency would result in a reduction in fair value of our forward contracts of $20 million and $30 million for fiscal 2021 and fiscal 2020, respectively. This analysis disregards the possibilities that the rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.
Additional information with respect to our derivative instruments is included in Note 11 of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
Annual financial statements
The Consolidated Financial Statements and related disclosures included in Part IV, Item 15 of this annual report are incorporated by reference into this Item 8.
SelectedThe selected quarterly financial data |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| | (In millions, except per share data) |
| Net revenues | $ | 873 |
| | $ | 909 |
| | $ | 906 |
| | $ | 912 |
| | $ | 899 |
| | $ | 970 |
| | $ | 1,001 |
| | $ | 1,086 |
|
| Gross profit | 726 |
| | 759 |
| | 746 |
| | 754 |
| | 723 |
| | 793 |
| | 825 |
| | 888 |
|
| Operating income | 128 |
| | 146 |
| | 100 |
| | 83 |
| | (49 | ) | | 34 |
| | 96 |
| | 73 |
|
| Income (loss) from continuing operations | (1,013 | ) | | 114 |
| | 53 |
| | 25 |
| | 55 |
| | (25 | ) | | 32 |
| | 47 |
|
Income from discontinued operations, net of income taxes
| 3,058 |
| | 56 |
| | 103 |
| | 92 |
| | 121 |
| | 247 |
| | 212 |
| | 189 |
|
| Net income | 2,045 |
| | 170 |
| | 156 |
| | 117 |
| | 176 |
| | 222 |
| | 244 |
| | 236 |
|
| | | | | | | | | | | | | | | | |
| Income (loss) per share - basic: | | | | | | | | | | | | | | | |
| Continuing operations | $ | (1.56 | ) | | $ | 0.17 |
| | $ | 0.08 |
| | $ | 0.04 |
| | $ | 0.08 |
| | $ | (0.04 | ) | | $ | 0.05 |
| | $ | 0.07 |
|
| Discontinued operations | $ | 4.70 |
| | $ | 0.08 |
| | $ | 0.15 |
| | $ | 0.13 |
| | $ | 0.18 |
| | $ | 0.36 |
| | $ | 0.31 |
| | $ | 0.27 |
|
| Net income per share - basic | $ | 3.15 |
| | $ | 0.26 |
| | $ | 0.23 |
| | $ | 0.17 |
| | $ | 0.26 |
| | $ | 0.32 |
| | $ | 0.35 |
| | $ | 0.34 |
|
| | | | | | | | | | | | | | | | |
| Income (loss) per share - diluted: | | | | | | | | | | | | | | | |
| Continuing operations | $ | (1.56 | ) | | $ | 0.17 |
| | $ | 0.08 |
| | $ | 0.04 |
| | $ | 0.08 |
| | $ | (0.04 | ) | | $ | 0.05 |
| | $ | 0.07 |
|
| Discontinued operations | $ | 4.70 |
| | $ | 0.08 |
| | $ | 0.15 |
| | $ | 0.13 |
| | $ | 0.17 |
| | $ | 0.36 |
| | $ | 0.30 |
| | $ | 0.27 |
|
| Net income per share - diluted | $ | 3.15 |
| | $ | 0.25 |
| | $ | 0.23 |
| | $ | 0.17 |
| | $ | 0.25 |
| | $ | 0.32 |
| | $ | 0.35 |
| | $ | 0.34 |
|
Note: Net income per share amounts may not add due to rounding.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our management (with the participation of our Chief Executive Officer and Chief Financial Officer) has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act).
Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for Symantec.NortonLifeLock. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal
control over financial reporting as of April 1, 2016,2, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
We acquired Avira during January 2021. Management excluded Avira from its assessment of the effectiveness of NortonLifeLock Inc.’s internal control over financial reporting as of April 2, 2021. Total assets and total revenues of Avira represent approximately 1%, or $67 million and 1%, or $21 million, respectively, of the related consolidated financial statement amounts as of, and for the year ended, April 2, 2021. Management did not assess the effectiveness of internal control over financial reporting at Avira due to the complexity associated with assessing internal control during integration efforts as well as the limited amount of time between the transaction date and the assessment date of April 2, 2021.
Our management has concluded that, as of April 1, 2016,2, 2021, our internal control over financial reporting was effective at the reasonable assurance level based on these criteria.
The Company’s independent registered public accounting firm has issued an attestation report regarding its assessmenteffectiveness of the Company’sour internal control over financial reporting as of April 1, 2016,2, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in Part IV, Item 15 of this annual report.Annual Report on Form 10-K.
c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended April 1, 2016,2, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any significant impact to our internal controls over financial reporting despite the fact that a significant number of employees continue to work remotely due to the COVID-19 pandemic. The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the COVID-19 situation to minimize the impact, if any, on the design and operating effectiveness on our internal controls.
d) Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Accordingly, our disclosure controls and procedures provide reasonable assurance of achieving their objectives.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included under the caption “Directors, Executive Officers, and Corporate Governance” in an amendment to this annual report on Form 10-K or incorporated by reference from Symantec’s definitiveour proxy statement for the 2021 Annual Meeting to be filed pursuantwith the SEC within 120 days of the fiscal year ended April 2, 2021 (the 2021 Proxy Statement) and is incorporated herein by reference. With regard to Regulation 14A.the information required by this item regarding compliance with Section 16(a) of the Exchange Act, we will provide disclosure of delinquent Section 16(a) reports, if any, in the 2021 Proxy Statement, and such disclosure, if any, is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item will be included under the caption “Executive Compensation” in an amendment to this annual report on Form 10-K orour 2021 Proxy Statement and is incorporated herein by reference from Symantec’s definitive proxy statement to be filed pursuant to Regulation 14A.reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in an amendment to this annual report on Form 10-K orour 2021 Proxy Statement and is incorporated herein by reference from Symantec’s definitive proxy statement to be filed pursuant to Regulation 14A.reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included under the caption “Certain Relationships and Related Transactions, and Director Independence” in an amendment to this annual report on Form 10-K orour 2021 Proxy Statement and is incorporated herein by reference from Symantec’s definitive proxy statement to be filed pursuant to Regulation 14A.reference.
Item 14. Principal AccountingAccountant Fees and Services
The information required by this item will be included under the caption “Principal Accountant Fees and Services” in an amendment to this annual report on Form 10-K orour 2021 Proxy Statement and is incorporated herein by reference from Symantec’s definitive proxy statement to be filed pursuant to Regulation 14A.reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
(1). Financial Statements
Upon written request, we will provide, without charge, a copy of this annual report, including the Consolidated Financial Statements and financial statement schedule. All requests should be sent to:
Symantec CorporationNortonLifeLock Inc.
Attn: Investor Relations
350 Ellis Street60 E. Rio Salado, Suite 1000
Mountain View, California 94043Tempe, Arizona 85281
650-527-8000(650) 527-8000
The following documents are filed as part of this report:
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| Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. | |
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| 1. | Consolidated Financial Statements: | |
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| | Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. | |
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Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Stockholders and Board of Directors
NortonLifeLock Inc.:
Opinions on the Consolidated Financial Statements and StockholdersInternal Control Over Financial Reporting
Symantec Corporation:
We have audited the accompanying consolidated balance sheets of Symantec CorporationNortonLifeLock Inc. and subsidiaries (the Company) as of April 1, 20162, 2021 and April 3, 2015, and2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended April 1, 2016.2, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited Symantec Corporation’sthe Company’s internal control over financial reporting as of April 1, 2016,2, 2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Symantec Corporation’sCommission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 2, 2021 and April 3, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended April 2, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 2, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Avira during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of April 2, 2021, Avira’s internal control over financial reporting associated with total assets and total revenues of approximately 1%, or $67 million and 1%, or $21 million, respectively, included in the consolidated financial statements of the Company as of and for the year ended April 2, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Avira.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’sthe accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A.b).Reporting. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and an opinion on Symantec Corporation’sthe Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects, the financial position of Symantec Corporation and subsidiaries as of April 1, 2016 and April 3, 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended April 1, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Symantec Corporation maintained, in all material respects, effective internal control over financial reporting as of April 1, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As discussed in Note 1 to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of uncertain tax positions
As discussed in Notes 1 and 13 to the consolidated financial statements, as of April 2, 2021 the Company recognized uncertain tax positions. The Company recognizes tax benefits from uncertain tax positions when there is more than a 50% likelihood that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. As of April 2, 2021, the Company has changedrecorded a liability for gross unrecognized tax benefits, of $558 million.
We identified the assessment of uncertain tax positions as a critical audit matter. Complex auditor judgment, including the involvement of tax professionals with specialized skills and knowledge, was required to evaluate the Company’s interpretation and application of tax law globally across its methodmultiple subsidiaries.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s uncertain tax positions process, including controls related to the interpretation of tax law, its application in the liability estimation process, and determination of the presentationfinal uncertain tax position. We involved tax professionals with specialized skills and knowledge, who assisted in:
● Obtaining an understanding of deferred income taxesthe Company’s overall tax structure across multiple subsidiaries and assessing the Company’s compliance with tax laws globally,
● Evaluating changes in tax law, and assessing the interpretation under the relevant jurisdictions’ tax law,
● Inspecting settlements with taxing authorities to assess the Company’s determination of its tax positions and having more than a 50% likelihood to be sustained upon examination, and
● Performing an assessment of the Company’s tax positions and comparing the results of the Company’s assessment.
In addition, we evaluated the Company’s ability to accurately estimate its gross unrecognized tax benefits by comparing historical gross unrecognized tax benefits to actual outcome upon conclusion of tax examinations.
/s/ KPMG LLP
We have served as of April 1, 2016 due to the adoption of Accounting Standards Update 2015-17, Accounting for Income Taxes: Balance Sheet Classification of Deferred Taxes. Prior period amounts have not been reclassified.
/s/ KPMG LLP
Company’s auditor since 2002.
Santa Clara, California
May 20, 201621, 2021
SYMANTEC CORPORATION
NORTONLIFELOCK INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value per share amounts) | | | | April 1, 2016 | | April 3, 2015 | | | | | | | | | | |
| | (In millions, except par value) | | April 2, 2021 | | April 3, 2020 |
| ASSETS | ASSETS | ASSETS |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 5,983 |
| | $ | 2,843 |
| Cash and cash equivalents | $ | 933 | | | $ | 2,177 | |
| Short-term investments | 42 |
| | 1,017 |
| Short-term investments | 18 | | | 86 | |
| Accounts receivable, net of allowance for doubtful accounts of $16 and $5, respectively | 556 |
| | 700 |
| |
| Deferred income taxes | — |
| | 152 |
| |
| Accounts receivable, net | | Accounts receivable, net | 117 | | | 111 | |
| Other current assets | 378 |
| | 295 |
| Other current assets | 237 | | | 435 | |
| Current assets of discontinued operations | — |
| | 415 |
| |
| Assets held for sale | | Assets held for sale | 233 | | | 270 | |
| Total current assets | 6,959 |
| | 5,422 |
| Total current assets | 1,538 | | | 3,079 | |
| Property and equipment, net | 957 |
| | 950 |
| Property and equipment, net | 78 | | | 238 | |
| Operating lease assets | | Operating lease assets | 76 | | | 88 | |
| Intangible assets, net | 443 |
| | 525 |
| Intangible assets, net | 1,116 | | | 1,067 | |
| Goodwill | 3,148 |
| | 3,146 |
| Goodwill | 2,867 | | | 2,585 | |
| Equity investments | 157 |
| | 10 |
| |
| Other long-term assets | 103 |
| | 70 |
| Other long-term assets | 686 | | | 678 | |
| Long-term assets of discontinued operations | — |
| | 3,110 |
| |
| Total assets | $ | 11,767 |
| | $ | 13,233 |
| Total assets | $ | 6,361 | | | $ | 7,735 | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| Current liabilities: | | | | Current liabilities: | |
| Accounts payable | $ | 175 |
| | $ | 169 |
| Accounts payable | $ | 52 | | | $ | 87 | |
| Accrued compensation and benefits | 219 |
| | 232 |
| Accrued compensation and benefits | 107 | | | 115 | |
| Deferred revenue | 2,279 |
| | 2,427 |
| |
| Current portion of long-term debt | — |
| | 350 |
| Current portion of long-term debt | 313 | | | 756 | |
| Income taxes payable | 941 |
| | 47 |
| |
| Contract liabilities | | Contract liabilities | 1,210 | | | 1,049 | |
| Current operating lease liabilities | | Current operating lease liabilities | 26 | | | 28 | |
| Other current liabilities | 419 |
| | 292 |
| Other current liabilities | 428 | | | 587 | |
| Current liabilities of discontinued operations | — |
| | 936 |
| |
| Total current liabilities | 4,033 |
| | 4,453 |
| Total current liabilities | 2,136 | | | 2,622 | |
| Long-term debt | 2,207 |
| | 1,746 |
| Long-term debt | 3,288 | | | 3,465 | |
| Long-term deferred revenue | 359 |
| | 444 |
| |
| Long-term deferred tax liabilities | 1,235 |
| | 308 |
| |
| Long-term contract liabilities | | Long-term contract liabilities | 55 | | | 27 | |
| Deferred income tax liabilities | | Deferred income tax liabilities | 137 | | | 149 | |
| Long-term income taxes payable | 160 |
| | 134 |
| Long-term income taxes payable | 1,119 | | | 1,310 | |
| Other long-term obligations | 97 |
| | 79 |
| |
| Long-term liabilities of discontinued operations | — |
| | 134 |
| |
| Long-term operating lease liabilities | | Long-term operating lease liabilities | 66 | | | 73 | |
| Other long-term liabilities | | Other long-term liabilities | 60 | | | 79 | |
| Total liabilities | 8,091 |
| | 7,298 |
| Total liabilities | 6,861 | | | 7,725 | |
| Commitments and contingencies |
|
| |
|
| |
| Stockholders’ equity: | | | | |
| Common stock and additional paid-in capital, $0.01 par value, 3,000 shares authorized; 612 and 898 shares issued; 612 and 684 shares outstanding, respectively | 4,309 |
| | 6,101 |
| |
| Accumulated other comprehensive income | 22 |
| | 104 |
| |
| Accumulated deficit | (655 | ) | | (270 | ) | |
| Total stockholders’ equity | 3,676 |
| | 5,935 |
| |
| Total liabilities and stockholders’ equity | $ | 11,767 |
| | $ | 13,233 |
| |
| | | | | |
| Commitments and contingencies (Note 18) | | Commitments and contingencies (Note 18) | 0 | | 0 |
| Stockholders’ equity (deficit): | | Stockholders’ equity (deficit): | |
| Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 580 and 589 shares issued and outstanding as of April 2, 2021 and April 3, 2020, respectively | | Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 580 and 589 shares issued and outstanding as of April 2, 2021 and April 3, 2020, respectively | 2,229 | | | 3,356 | |
| Accumulated other comprehensive income (loss) | | Accumulated other comprehensive income (loss) | 47 | | | (16) | |
| Retained earnings (accumulated deficit) | | Retained earnings (accumulated deficit) | (2,776) | | | (3,330) | |
| Total stockholders’ equity (deficit) | | Total stockholders’ equity (deficit) | (500) | | | 10 | |
| Total liabilities and stockholders’ equity (deficit) | | Total liabilities and stockholders’ equity (deficit) | $ | 6,361 | | | $ | 7,735 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
SYMANTEC CORPORATION
NORTONLIFELOCK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| | | | Year Ended | | | | | | | | | | | | | | | |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 | | Year Ended |
| | (In millions, except per share data) | | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Net revenues | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
| Net revenues | $ | 2,551 | | | $ | 2,490 | | | $ | 2,456 | |
| Cost of revenues | 615 |
| | 727 |
| | 791 |
| Cost of revenues | 362 | | | 393 | | | 455 | |
| Gross profit | 2,985 |
| | 3,229 |
| | 3,392 |
| Gross profit | 2,189 | | | 2,097 | | | 2,001 | |
| Operating expenses: | | | | | | Operating expenses: | |
| Sales and marketing | 1,292 |
| | 1,650 |
| | 1,766 |
| Sales and marketing | 576 | | | 701 | | | 712 | |
| Research and development | 748 |
| | 812 |
| | 722 |
| Research and development | 267 | | | 328 | | | 420 | |
| General and administrative | 295 |
| | 362 |
| | 420 |
| General and administrative | 215 | | | 368 | | | 410 | |
| Amortization of intangible assets | 57 |
| | 87 |
| | 93 |
| Amortization of intangible assets | 74 | | | 79 | | | 80 | |
| Restructuring, separation, and transition | 136 |
| | 164 |
| | 247 |
| |
| Restructuring, transition and other costs | | Restructuring, transition and other costs | 161 | | | 266 | | | 221 | |
| Total operating expenses | 2,528 |
| | 3,075 |
| | 3,248 |
| Total operating expenses | 1,293 | | | 1,742 | | | 1,843 | |
| Operating income | 457 |
| | 154 |
| | 144 |
| Operating income | 896 | | | 355 | | | 158 | |
| Interest income | 10 |
| | 11 |
| | 11 |
| |
| Interest expense | (75 | ) | | (78 | ) | | (84 | ) | Interest expense | (144) | | | (196) | | | (208) | |
| Other income, net | — |
| | 14 |
| | 36 |
| |
| Income from continuing operations before income taxes | 392 |
| | 101 |
| | 107 |
| |
| Income tax expense (benefit) | 1,213 |
| | (8 | ) | | 16 |
| |
| Other income (expense), net | | Other income (expense), net | 120 | | | 660 | | | (57) | |
| Income (loss) from continuing operations before income taxes | | Income (loss) from continuing operations before income taxes | 872 | | | 819 | | | (107) | |
| Income tax expense | | Income tax expense | 176 | | | 241 | | | 3 | |
| Income (loss) from continuing operations | (821 | ) | | 109 |
| | 91 |
| Income (loss) from continuing operations | 696 | | | 578 | | | (110) | |
| Income from discontinued operations, net of income taxes | 3,309 |
| | 769 |
| | 807 |
| |
| Income (loss) from discontinued operations | | Income (loss) from discontinued operations | (142) | | | 3,309 | | | 141 | |
| Net income | $ | 2,488 |
| | $ | 878 |
| | $ | 898 |
| Net income | $ | 554 | | | $ | 3,887 | | | $ | 31 | |
| | | | | | | | | | | | |
| Income (loss) per share - basic: | | | | | | Income (loss) per share - basic: | |
| Continuing operations | $ | (1.23 | ) | | $ | 0.16 |
| | $ | 0.13 |
| Continuing operations | $ | 1.18 | | | $ | 0.94 | | | $ | (0.17) | |
| Discontinued operations | $ | 4.94 |
| | $ | 1.12 |
| | $ | 1.16 |
| Discontinued operations | $ | (0.24) | | | $ | 5.38 | | | $ | 0.22 | |
| Net income per share - basic | $ | 3.71 |
| | $ | 1.27 |
| | $ | 1.29 |
| |
Net income per share - basic (1) | | Net income per share - basic (1) | $ | 0.94 | | | $ | 6.32 | | | $ | 0.05 | |
| | | | | | | |
| Income (loss) per share - diluted: | | | | | | Income (loss) per share - diluted: | |
| Continuing operations | $ | (1.23 | ) | | $ | 0.16 |
| | $ | 0.13 |
| Continuing operations | $ | 1.16 | | | $ | 0.90 | | | $ | (0.17) | |
| Discontinued operations | $ | 4.94 |
| | $ | 1.10 |
| | $ | 1.15 |
| Discontinued operations | $ | (0.24) | | | $ | 5.15 | | | $ | 0.22 | |
| Net income per share - diluted | $ | 3.71 |
| | $ | 1.26 |
| | $ | 1.28 |
| |
Net income per share - diluted (1) | | Net income per share - diluted (1) | $ | 0.92 | | | $ | 6.05 | | | $ | 0.05 | |
| | | | | | | |
| Weighted-average shares outstanding: | | | | | | Weighted-average shares outstanding: | |
| Basic | 670 |
| | 689 |
| | 696 |
| Basic | 589 | | | 615 | | | 632 | |
| Diluted | 670 |
| | 696 |
| | 704 |
| Diluted | 600 | | | 643 | | | 632 | |
| Cash dividends declared per common share | $ | 4.60 |
| | $ | 0.60 |
| | $ | 0.60 |
| |
Note:(1) Net income per share amounts may not add due to rounding.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
SYMANTEC CORPORATION
NORTONLIFELOCK INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | |
| | Year Ended |
| | April 1,
2016 | | April 3,
2015 | | March 28,
2014 |
| | (Dollars in millions) |
| Net income | $ | 2,488 |
| | $ | 878 |
| | $ | 898 |
|
| Other comprehensive (loss) income, net of taxes: | | | | | |
| Foreign currency translation adjustments: | | | | | |
| Translation adjustments | (6 | ) | | (89 | ) | | 1 |
|
| Reclassification adjustments for loss (gain) included in net income | 1 |
| | (1 | ) | | 4 |
|
| Net foreign currency translation adjustments | (5 | ) | | (90 | ) | | 5 |
|
| Available-for-sale securities: | | | | | |
| Unrealized gain, net of taxes of $2, $0, and $1, respectively | 4 |
| | — |
| | 1 |
|
| Reclassification adjustments for realized gain included in net income, net of taxes of $0, $0, and $(10), respectively | — |
| | — |
| | (14 | ) |
| Net increase (decrease) from available-for-sale securities | 4 |
| | — |
| | (13 | ) |
| Other comprehensive loss, net of taxes | (1 | ) | | (90 | ) | | (8 | ) |
| Comprehensive income | $ | 2,487 |
| | $ | 788 |
| | $ | 890 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Net income | $ | 554 | | | $ | 3,887 | | | $ | 31 | |
| Other comprehensive income (loss), net of taxes: | | | | | |
| Foreign currency translation adjustments | 63 | | | (11) | | | (13) | |
| Unrealized gain on available-for-sale securities | 0 | | | 1 | | | 3 | |
| Other comprehensive income (loss) from equity method investee | 0 | | | 1 | | | (1) | |
| Other comprehensive income (loss), net of taxes | 63 | | | (9) | | | (11) | |
| Comprehensive income | $ | 617 | | | $ | 3,878 | | | $ | 20 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
SYMANTEC CORPORATION
NORTONLIFELOCK INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In millions, except per share amounts) |
| | | | | | | | | | | | | | | | | | |
| | Common Stock and Additional Paid-In Capital | | Accumulated Other Comprehensive Income | | Retained Earnings (Accumulated Deficit) | | Total
Stockholders’
Equity |
| | Shares | | Amount | |
| | (In millions) |
| Balance as of March 29, 2013 | 698 |
| | $ | 7,320 |
| | $ | 202 |
| | $ | (2,046 | ) | | $ | 5,476 |
|
| Net income | — |
| | — |
| | — |
| | 898 |
| | 898 |
|
| Other comprehensive loss | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) |
| Common stock issued under employee stock plans | 18 |
| | 234 |
| | — |
| | — |
| | 234 |
|
| Repurchases of common stock | (21 | ) | | (500 | ) | | — |
| | — |
| | (500 | ) |
| Tax payments related to restricted stock units | — |
| | (45 | ) | | — |
| | — |
| | (45 | ) |
| Dividends paid and accrued | — |
| | (429 | ) | | — |
| | — |
| | (429 | ) |
| Stock-based compensation | — |
| | 157 |
| | — |
| | — |
| | 157 |
|
| Income tax benefit from employee stock transactions | — |
| | 14 |
| | — |
| | — |
| | 14 |
|
| Balance as of March 28, 2014 | 695 |
| | 6,751 |
| | 194 |
| | (1,148 | ) | | 5,797 |
|
| Net income | — |
| | — |
| | — |
| | 878 |
| | 878 |
|
| Other comprehensive loss | — |
| | — |
| | (90 | ) | | — |
| | (90 | ) |
| Common stock issued under employee stock plans | 10 |
| | 116 |
| | — |
| | — |
| | 116 |
|
| Repurchases of common stock | (21 | ) | | (500 | ) | | — |
| | — |
| | (500 | ) |
| Tax payments related to restricted stock units | — |
| | (47 | ) | | — |
| | — |
| | (47 | ) |
| Dividends paid and accrued | — |
| | (428 | ) | | — |
| | — |
| | (428 | ) |
| Stock-based compensation | — |
| | 198 |
| | — |
| | — |
| | 198 |
|
| Income tax benefit from employee stock transactions | — |
| | 11 |
| | — |
| | — |
| | 11 |
|
| Balance as of April 3, 2015 | 684 |
| | 6,101 |
| | 104 |
| | (270 | ) | | 5,935 |
|
| Net income | — |
| | — |
| | — |
| | 2,488 |
| | 2,488 |
|
| Other comprehensive loss | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
| Common stock issued under employee stock plans | 12 |
| | 65 |
| | — |
| | — |
| | 65 |
|
| Repurchases of common stock | (84 | ) | | (1,868 | ) | | — |
| | — |
| | (1,868 | ) |
| Tax payments related to restricted stock units | — |
| | (68 | ) | | — |
| | — |
| | (68 | ) |
| Sale of Veritas | — |
| | — |
| | (81 | ) | | — |
| | (81 | ) |
| Dividends paid and accrued | — |
| | (212 | ) | | — |
| | (2,873 | ) | | (3,085 | ) |
| Equity component of convertible notes | — |
| | 29 |
| | — |
| | — |
| | 29 |
|
| Stock-based compensation | — |
| | 245 |
| | — |
| | — |
| | 245 |
|
| Income tax benefit from employee stock transactions | — |
| | 17 |
| | — |
| | — |
| | 17 |
|
| Balance as of April 1, 2016 | 612 |
| | $ | 4,309 |
| | $ | 22 |
| | $ | (655 | ) | | $ | 3,676 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock and Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount |
| Balance as of March 30, 2018 | 624 | | | $ | 4,691 | | | $ | 4 | | | $ | 328 | | | $ | 5,023 | |
| Cumulative effect from adoption of accounting standards | — | | | — | | | — | | | 939 | | | 939 | |
| Net income | | | | | | | 31 | | | 31 | |
| Other comprehensive income (loss) | — | | | — | | | (11) | | | — | | | (11) | |
| Common stock issued under employee stock incentive plans | 24 | | | 19 | | | — | | | — | | | 19 | |
| Shares withheld for taxes related to vesting of restricted stock units | (8) | | | (173) | | | — | | | — | | | (173) | |
| Repurchases of common stock | (10) | | | (84) | | | — | | | (168) | | | (252) | |
| Cash dividends declared ($0.30 per share of common stock) and dividend equivalents accrued | — | | | — | | | — | | | (197) | | | (197) | |
| Stock-based compensation | — | | | 359 | | | — | | | — | | | 359 | |
| Balance as of March 29, 2019 | 630 | | | 4,812 | | | (7) | | | 933 | | | 5,738 | |
| Net income | — | | | — | | | — | | | 3,887 | | | 3,887 | |
| Other comprehensive income (loss) | — | | | — | | | (9) | | | — | | | (9) | |
| Common stock issued under employee stock incentive plans | 32 | | | 123 | | | — | | | — | | | 123 | |
| Shares withheld for taxes related to vesting of restricted stock units | (4) | | | (86) | | | — | | | — | | | (86) | |
| Repurchases of common stock | (69) | | | (902) | | | — | | | (661) | | | (1,563) | |
| Cash dividends declared ($12.40 per share of common stock) and dividend equivalents accrued | — | | | (76) | | | — | | | (7,489) | | | (7,565) | |
| Stock-based compensation | — | | | 338 | | | — | | | — | | | 338 | |
| Short-swing profit disgorgement | — | | | 9 | | | — | | | — | | | 9 | |
| Exchange and extinguishment of convertible debt | — | | | (862) | | | — | | | — | | | (862) | |
| Balance as of April 3, 2020 | 589 | | | 3,356 | | | (16) | | | (3,330) | | | 10 | |
| Net income | — | | | — | | | — | | | 554 | | | 554 | |
| Other comprehensive income (loss) | — | | | — | | | 63 | | | — | | | 63 | |
| Common stock issued under employee stock incentive plans | 8 | | | 24 | | | — | | | — | | | 24 | |
| Shares withheld for taxes related to vesting of restricted stock units | (2) | | | (49) | | | — | | | — | | | (49) | |
| Repurchases of common stock | (15) | | | (304) | | | — | | | — | | | (304) | |
| Cash dividends declared ($0.50 per share of common stock) and dividend equivalents accrued | — | | | (301) | | | — | | | — | | | (301) | |
| Stock-based compensation | — | | | 81 | | | — | | | — | | | 81 | |
| Extinguishment of convertible debt | — | | | (578) | | | — | | | — | | | (578) | |
| Balance as of April 2, 2021 | 580 | | | $ | 2,229 | | | $ | 47 | | | $ | (2,776) | | | $ | (500) | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
SYMANTEC CORPORATION
NORTONLIFELOCK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | | | | | |
| | Year Ended |
| | April 1,
2016 | | April 3,
2015 | | March 28,
2014 |
| | (Dollars in millions) |
| OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 2,488 |
| | $ | 878 |
| | $ | 898 |
|
| Income from discontinued operations, net of income taxes | (3,309 | ) | | (769 | ) | | (807 | ) |
| Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | | | | | |
| Depreciation | 213 |
| | 229 |
| | 236 |
|
| Amortization of intangible assets | 86 |
| | 122 |
| | 131 |
|
| Amortization of debt issuance costs and discounts | 5 |
| | 4 |
| | 7 |
|
| Stock-based compensation expense | 161 |
| | 131 |
| | 105 |
|
| Deferred income taxes | 1,082 |
| | (29 | ) | | 46 |
|
| Excess income tax benefit from the exercise of stock options | (6 | ) | | (10 | ) | | (17 | ) |
| Net gain from sale of short-term investments | — |
| | — |
| | (32 | ) |
| Other | 13 |
| | 8 |
| | 7 |
|
| Net change in assets and liabilities, excluding effects of acquisitions: | | | | | |
| Accounts receivable, net | 38 |
| | (35 | ) | | 36 |
|
| Accounts payable | (69 | ) | | (73 | ) | | (55 | ) |
| Accrued compensation and benefits | (7 | ) | | 7 |
| | (83 | ) |
| Deferred revenue | 20 |
| | (83 | ) | | (161 | ) |
| Income taxes payable | 693 |
| | (405 | ) | | (240 | ) |
| Other assets | (3 | ) | | 16 |
| | 16 |
|
| Other liabilities | 51 |
| | 26 |
| | 21 |
|
| Net cash provided by continuing operating activities | 1,456 |
| | 17 |
| | 108 |
|
| Net cash provided by (used in) discontinued operating activities | (660 | ) | | 1,295 |
| | 1,173 |
|
| Net cash provided by operating activities | 796 |
| | 1,312 |
| | 1,281 |
|
| INVESTING ACTIVITIES: | | | | | |
| Purchases of property and equipment | (272 | ) | | (303 | ) | | (194 | ) |
| Payments for acquisitions, net of cash acquired, and purchases of intangibles | (4 | ) | | (39 | ) | | (17 | ) |
| Purchases of short-term investments | (378 | ) | | (1,758 | ) | | (492 | ) |
| Proceeds from maturities of short-term investments | 1,056 |
| | 681 |
| | 117 |
|
| Proceeds from sales of short-term investments | 299 |
| | 343 |
| | 69 |
|
| Proceeds from divestiture of information management business, net of cash contributed and transaction costs | 6,535 |
| | — |
| | — |
|
| Net cash provided by (used in) continuing investing activities | 7,236 |
| | (1,076 | ) | | (517 | ) |
| Net cash used in discontinued investing activities | (63 | ) | | (78 | ) | | (66 | ) |
| Net cash provided by (used in) investing activities | 7,173 |
| | (1,154 | ) | | (583 | ) |
| FINANCING ACTIVITIES: | | | | | |
| Repayments of debt and other obligations | (368 | ) | | (21 | ) | | (1,189 | ) |
| Proceeds from issuance of Convertible Senior Notes | 500 |
| | — |
| | — |
|
| Proceeds from convertible note hedge | — |
| | — |
| | 189 |
|
| Net proceeds from sales of common stock under employee stock benefit plans | 65 |
| | 116 |
| | 234 |
|
| Excess income tax benefit from the exercise of stock options | 6 |
| | 10 |
| | 17 |
|
| Tax payments related to restricted stock units | (39 | ) | | (36 | ) | | (33 | ) |
| Dividends and dividend equivalents paid | (3,030 | ) | | (413 | ) | | (418 | ) |
| Repurchases of common stock | (1,868 | ) | | (500 | ) | | (500 | ) |
| Proceeds from other financing, net | — |
| | 44 |
| | — |
|
| Net cash used in continuing financing activities | (4,734 | ) | | (800 | ) | | (1,700 | ) |
| Net cash used in discontinued financing activities | (30 | ) | | (11 | ) | | (12 | ) |
| Net cash used in financing activities | (4,764 | ) | | (811 | ) | | (1,712 | ) |
| Effect of exchange rate fluctuations on cash and cash equivalents | (96 | ) | | (180 | ) | | 36 |
|
| Change in cash and cash equivalents | 3,109 |
| | (833 | ) | | (978 | ) |
| Beginning cash and cash equivalents | 2,874 |
| | 3,707 |
| | 4,685 |
|
| Ending cash and cash equivalents | 5,983 |
| | 2,874 |
| | 3,707 |
|
| Less: Cash and cash equivalents of discontinued operations | — |
| | 31 |
| | 12 |
|
| Cash and cash equivalents of continuing operations | $ | 5,983 |
| | $ | 2,843 |
| | $ | 3,695 |
|
| Equity investment in Veritas received as consideration | $ | 149 |
| | $ | — |
| | $ | — |
|
| Income taxes paid, net of refunds | $ | 302 |
| | $ | 353 |
| | $ | 224 |
|
| Interest expense paid | $ | 70 |
| | $ | 75 |
| | $ | 79 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 554 | | | $ | 3,887 | | | $ | 31 | |
| Adjustments: | | | | | |
| Amortization and depreciation | 150 | | | 361 | | | 615 | |
| Impairments and write-offs of current and long-lived assets | 90 | | | 74 | | | 10 | |
| Stock-based compensation expense | 81 | | | 312 | | | 352 | |
| Deferred income taxes | 42 | | | 16 | | | (70) | |
| Gain on extinguishment of debt | (20) | | | 0 | | | 0 | |
| Loss from equity interest | 0 | | | 31 | | | 101 | |
| Gain on divestitures | 0 | | | (5,684) | | | 0 | |
| Gain on sale of equity method investment | 0 | | | (379) | | | 0 | |
| Gain on sale of properties | (98) | | | 0 | | | 0 | |
| Non-cash operating lease expense | 22 | | | 40 | | | 0 | |
| Other | 52 | | | (4) | | | (14) | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable, net | 3 | | | 583 | | | 113 | |
| Accounts payable | (44) | | | (61) | | | 6 | |
| Accrued compensation and benefits | (10) | | | (117) | | | 2 | |
| Contract liabilities | 118 | | | (121) | | | 196 | |
| Income taxes payable | (299) | | | 383 | | | 67 | |
| Other assets | 144 | | | (81) | | | (26) | |
| Other liabilities | (79) | | | (101) | | | 112 | |
| Net cash provided by (used in) operating activities | 706 | | | (861) | | | 1,495 | |
| INVESTING ACTIVITIES: | | | | | |
| Purchases of property and equipment | (6) | | | (89) | | | (207) | |
| Payments for acquisitions, net of cash acquired | (344) | | | 0 | | | (180) | |
| Proceeds from divestitures, net of cash contributed and transaction costs | 0 | | | 10,918 | | | 0 | |
| Proceeds from the maturities and sales of short-term investments | 68 | | | 167 | | | 139 | |
| Proceeds from sales of properties | 218 | | | 0 | | | 26 | |
| Proceeds from sale of equity method investment | 0 | | | 380 | | | 0 | |
| Other | (5) | | | 3 | | | (19) | |
| Net cash provided by (used in) investing activities | (69) | | | 11,379 | | | (241) | |
| FINANCING ACTIVITIES: | | | | | |
| Repayments of debt and related equity component | (1,941) | | | (868) | | | (600) | |
| Proceeds from issuance of debt, net of issuance costs | 750 | | | 300 | | | 0 | |
| Net proceeds from sales of common stock under employee stock incentive plans | 24 | | | 123 | | | 19 | |
| Tax payments related to restricted stock units | (58) | | | (78) | | | (173) | |
| Dividends and dividend equivalents paid | (373) | | | (7,481) | | | (217) | |
| Repurchase of common stock | (304) | | | (1,581) | | | (234) | |
| Cash consideration paid in exchange of convertible debt | 0 | | | (546) | | | 0 | |
| Short-swing profit disgorgement | 0 | | | 9 | | | 0 | |
| Other | (1) | | | (1) | | | (4) | |
| Net cash used in financing activities | (1,903) | | | (10,123) | | | (1,209) | |
| Effect of exchange rate fluctuations on cash and cash equivalents | 22 | | | (9) | | | (28) | |
| Change in cash and cash equivalents | (1,244) | | | 386 | | | 17 | |
| Beginning cash and cash equivalents | 2,177 | | | 1,791 | | | 1,774 | |
| Ending cash and cash equivalents | $ | 933 | | | $ | 2,177 | | | $ | 1,791 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
SYMANTEC CORPORATION
NORTONLIFELOCK INC.
Notes to the Consolidated Financial Statements
Note 1. SummaryDescription of Business and Significant Accounting Policies
Business
Symantec Corporation (“we,” “us,” “our,” and “the Company” refer to Symantec Corporation and all of its subsidiaries)NortonLifeLock, Inc. is a global leader in security.leading provider of consumer Cyber Safety solutions globally. We help customers protect their devices, online privacy, identity and home networks.
In August 2015, we entered into a definitive agreement to sell the assetsBasis of our information management business ("Veritas") to The Carlyle Group ("Carlyle"). On January 19, 2016, the Company and Carlyle amended the terms of the definitive agreement for Carlyle's acquisition of Veritas. The results of Veritas are presented as discontinued operations in our Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, Veritas' assets and liabilities were removed from our Consolidated Balance Sheet upon consummation of its sale on January 29, 2016, and have been classified as discontinued operations on our Consolidated Balance Sheet as of April 3, 2015. For additional information on the sale of Veritas and on our discontinued operations, see Note 3.
Principles of consolidationpresentation
The accompanying consolidated financial statementsConsolidated Financial Statements of Symantec CorporationNortonLifeLock and itsour wholly-owned subsidiaries are prepared in conformity with generally accepted accounting principles ("GAAP") in the United States ("U.S.")(GAAP). All significant intercompany accounts and transactions have been eliminated in consolidation.
Fiscal calendar
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Our fiscal 2016year 2020 consisted of 53 weeks, whereas fiscal years 2021 and 20142019 were each 52-week years ended April 1, 2016 and March 28, 2014, whereas our fiscal 2015 was a 53-week year ended April 3, 2015.years.
Use of estimates
The preparation of consolidated financial statementsConsolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statementsConsolidated Financial Statements and accompanying notes. EstimatesNotes. Such estimates include, but are based upon historical factors, current circumstances and the experience and judgment of management. Management evaluates its assumptions and estimates on an ongoing basis and may engage outside subject matter expertsnot limited to, assist in its valuations. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include those related to the allocation of revenue recognized and deferred amounts, valuation of goodwill,business combinations including acquired intangible assets and long-lived assets,goodwill, loss contingencies, and litigation, and the recognition and measurement of current and deferred income taxes, (includingincluding the measurement of uncertain tax positions).
Foreign currency translation
Assetspositions, and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet dates. Revenues and expenses are translated using monthly average exchange rates prevailing during the year. The translation adjustments resulting from this process are included as a componentvaluation of accumulated other comprehensive income. Deferred tax assets and liabilities are establishedand results of operations of our discontinued operations. On an ongoing basis, management determines these estimates and assumptions based on the cumulative translation adjustment attributable to unremitted foreign earningshistorical experience and on various other assumptions that are not intendedbelieved to be indefinitely reinvested. Inreasonable. Third-party valuation specialists are also utilized for certain estimates. Actual results could differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the eventcurrent economic environment due to the COVID-19 pandemic, and such differences may be material to the Consolidated Financial Statements.
Significant Accounting Policies
With the exception of liquidation of a foreign subsidiary,those discussed in Note 2, there were no material changes in accounting pronouncements issued by the cumulative translation adjustment attributable toFinancial Accounting Standards Board (FASB) that foreign subsidiary is reclassified from accumulated other comprehensive income and included in other income, net.were applicable or adopted by us during the fiscal 2021.
Revenue recognition
We market and distribute our software products both as stand-alonesell products and as integrated product suites. We recognize revenue when 1) persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) fees are fixed or determinabledirectly to end-users and 4) collectability is probable. If we determine that any one of the four criteria is not met, we will defer recognition of revenue until all the criteria are met.
We derive revenue primarily from sales of content, subscriptions, and maintenance and licenses. We present revenue net of sales taxes and any similar assessments.
Content, subscription, and maintenance revenue includes arrangements for software maintenance and technical support for our products, content and subscription services primarily related to our security products, revenue from arrangements where vendor-specific objective evidence ("VSOE") of the fair value of undelivered elements does not exist, arrangements for managed security services, and software as a service ("SaaS") offerings. These arrangements are generally offered to our customers over a specified period of time, and we recognize the related revenue ratably over the maintenance, subscription, or service period. We enter into perpetual software license agreements through direct sales to customers and indirect sales with distributors and resellers. The license agreements generally include product maintenance agreements, for which the related
revenue is included with content, subscriptions, and maintenance and is deferred and recognized ratably over the period of the agreements.
Content, subscription, and maintenance revenue also includes professional services revenue, consisting primarily of the fees we earn related to consulting and educational services. We generally recognize revenue from professional services as the services are performed or upon written acceptance from customers, if applicable, assuming all other conditions for revenue recognition noted above have been met.
License revenue is derived primarily from the licensing of our various products and technology. We generally recognize license revenue upon delivery of the product, assuming all other conditions for revenue recognition noted above have been met. License revenue also includes appliance product revenue. We generally recognize appliance product revenue as each product is delivered, assuming all other conditions for revenue recognition noted above have been met.
For software arrangements that include multiple elements, including perpetual software licenses, maintenance, services, and packaged products with content updates and subscriptions, we allocate and defer revenue for the undelivered items based on VSOE of the fair value of the undelivered elements, and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as license revenue. VSOE of each element is based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, the entire arrangement fee is recognized ratably over the performance period. Our deferred revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product content updates, managed security services, subscriptions, and arrangements where VSOE does not exist for an undelivered element.
For arrangements that include both software and non-software elements, we allocate revenue to the software deliverables as a group and non-software deliverables based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the selling price used for allocating revenue to the deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and (iii) the best estimate of the selling price (“ESP”). Our appliance products, SaaS and certain other services are considered to be non-software elements in our arrangements.
When we are unable to establish a selling price using VSOE or TPE, we use ESP in the allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. The determination of ESP is made through consultation with and formal approval by our management, taking into consideration the go-to-market strategy, pricing factors, and historical transactions.
Indirect channel sales
We sell consumer packaged software products through a multi-tiered distribution channel. For consumer products that include content updates, we recognize revenue ratably over the term of the subscription upon sell-through to end-users, as the subscription period commences on the date of sale to the end-user. For most other consumer products, we recognize packaged product revenue on distributor and reseller channel inventory that is not in excess of specified inventory levels in these channels. We offer the right of return of our products under various policies and programs with our distributors, resellers, and end-user customers. We estimate and record reserves for product returns as an offset to revenue or deferred revenue. We fully reserve for obsolete products in the distribution channel as an offset to deferred revenue for products with content updates and to revenue for all other products.
For security products, we generally recognize revenue from the licensing of software products through our indirect sales channel upon sell-through or with evidence of an end-user. For licensing of our software to original equipment manufacturers (“OEMs”), royalty revenue is recognized when the OEM reports the sale of the software products to an end-user, generally on a quarterly basis. In addition to license royalties, some OEMs pay an annual flat fee and/or support royalties for the right to sell maintenance and technical support to the end-user. We recognize revenue from OEM support royalties and fees ratably over the termwhen control of the support agreement.promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for such products or services. Performance periods are generally one year or less, and payments are generally collected up front. Revenue is recognized net of allowances for partner incentives and rebates, and any taxes collected from customers and subsequently remitted to governmental authorities.
We offer various channel and end-user rebates for our products. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ actual performance againstcompared to the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for end-user rebates are estimated based on the terms and conditions of the promotional program, actual sales during the promotion, the amount of actual redemptions received, historical redemption trends by product and by type of promotional program, and the value of the rebate. We estimate and record estimated reserves for channel and end-user rebates as an offset to revenue or deferred revenue. Ascontract liabilities. Reserves for rebates, recorded in Other current liabilities, were $6 million and $10 million as of April 1, 20162, 2021 and April 3, 2015, we had reserves for rebates of $32 million and $30 million,2020, respectively. For consumer products that include content updates, rebates are recordedrecognized as a ratable offset to revenue or deferred revenuecontract liabilities over the term of the subscription.
Performance obligations
Financial instrumentsAt contract inception, we assess the products and services promised in the contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both capable of being distinct and are distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Our software solutions typically consist of a term-based subscription as well as when-and-if available software updates and upgrades. We have determined that our promises to transfer the software license subscription and the related support and maintenance are not separately identifiable because:
•the licensed software and the software updates and upgrades are highly interdependent and highly interrelated, working together to deliver continuously updated protection to customers;
•by identifying and addressing new threats, the software updates and upgrades significantly modify the licensed software and are integral to maintaining its utility; and
•given the rapid pace with which new threats are identified, the value of the licensed software diminishes rapidly without the software updates and upgrades.
We therefore consider the software license and related support obligations a single, combined performance obligation with revenue recognized over time as our solutions are delivered.
Fair value measurements
For assets and liabilities measured at fair value, such amounts are based on an expected exitfair value is the price representing the amount that would be received on the sale offrom selling an asset or paid to transfer a liability as the case may be, in an orderly transaction between market participants. As such,participants at the measurement date. When determining fair value, may be based onwe consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use inwhen pricing anthe asset or liability.
The authoritative guidance onthree levels of inputs that may be used to measure fair value measurements establishes a consistent frameworkare:
•Level 1: Quoted prices in active markets for measuring fair value on either a recurringidentical assets or nonrecurring basis wherebyliabilities.
•Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs to the valuation techniquesmethodology that are assigned a hierarchical level.
The following methods were usedsignificant to estimatethe measurement of the fair value of each classassets or liabilities. We monitor and review the inputs and results of financial instruments for which it is practicablethese valuation models to estimate thathelp ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Assets measured and recorded at fair value:
Cash equivalents. We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are carried at amounts that approximate fair value due to the short period of time to maturity.
Short-term investments. Short-term investments consist primarily of investment and marketable equity securities thatcorporate bonds. They are classified as available-for-sale and recognized at fair value using Level 1 and Level 2 inputs, which are quoted using market prices, independent pricing vendors, or other sources, to determine the fair value. Unrealized gains and losses, net of tax, are included in accumulatedAccumulated other comprehensive income.income (loss) (AOCI). We regularly review our investment portfolio to identify and evaluate investments that have indications of impairment. Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses. Factors considered in determining whetherif a credit loss is other-than-temporaryexists include: the length of time and extent to which the fair value has been lower than the cost basis, any changes to the financial condition and near-term prospectsrating of the investee,security by a rating agency, and any adverse financial conditions specifically related to the security. Expected credit quality, likelihood of recovery, and our ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Debt. Ourlosses on available-for-sale debt includes senior unsecured notes, convertible senior notes, and a revolving credit facility. Our senior unsecured notes and convertible senior notes are recorded at cost based upon par value at issuance less discounts. The discount associated with our senior notes represents the amount by which the face value exceeds the fair value of the debt at the date of issuance. The discount and issuance costs are amortized using the effective interest rate method over the term of the debt as a non-cash charge to interest expense. Borrowings under our senior unsecured revolving credit facility (“credit facility”), if any,securities are recognized at cost plus accrued interest based upon stated interest rates.in Other income (expense), net in our Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in AOCI in our Consolidated Statements of Stockholders’ Equity (Deficit).
Equity investments. We makeNon-marketable investments
Our non-marketable investments consist of equity investments in privately-held companies which includes the B common shares we received aswithout a portionreadily determinable fair value. We measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Gains and losses on these investments, whether realized or unrealized, are recognized in Other income (expense), net consideration in the saleour Consolidated Statements of Veritas. These investments are accounted for under the cost method of accounting, as we hold less than 20% of the voting stock outstanding and do not exert significant influence over these companies. Operations.
We assess the recoverability of theseour non-marketable investments by reviewing various indicators of impairment. If indicators are present, a fair value measurement is made by performing a discounted cash flow analysis of the investment. IfWe immediately recognize the impairment to our non-marketable equity investments if the carrying value exceeds the fair value. For our equity method investment, if a decline in value is determined to be other-than-temporary,other than temporary, impairment would beis recognized and included in otherOther income net.(expense), net in our Consolidated Statements of Operations.
Accounts receivable
Accounts receivable are recorded at the invoiced amount and are not interest bearing. We maintain an allowance for doubtful accounts or expected credit losses to reserve for potentially uncollectible receivables. We review our accounts receivables by aging category to identify specific customers with known disputes or collectability issues. In addition, we maintain an allowance for all other receivables not included in the specific reserve by applying specific percentages of projected uncollectible receivables to the various aging categories. In determining these percentages, we use judgment based on our historical collection experience and current economic trends. We also offset deferred revenue against accounts receivable when channel inventoriestrends as well as reasonable and supportable forecasts of future economic conditions.
Assets held for sale
Long-lived assets held for sale are in excessrecorded as the lower of specified levelsits carrying value or fair value less costs to sell. Fair value is determined based on discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets and for transactions where collectionexternal data available.
Property and equipment
Property, equipment, and leasehold improvements are stated at cost, net of accumulated depreciation. We capitalize costs incurred during the application development stage related to the development of internal use software and enterprise cloud computing services. We expense costs incurred related to the planning and post-implementation phases of development as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives. Estimated useful lives for financial reporting purposes are as follows: buildings, 20 to 30 years; building improvements, 7 to 20 years; leasehold improvements, the lesser of the life of the improvement or the initial lease term;term, and computer hardware and software, and office furniture and equipment, 3 to 5 years.
Software development costs
The following table summarizes propertycosts for the development of new software products and equipment,substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized in accordance with the accounting guidance for software. Because our current process for developing software is essentially completed concurrently with the establishment of technological feasibility, which occurs upon the completion of a working model, 0 costs have been capitalized for any of the periods presented.
Internal-use software development costs
We capitalize qualifying costs incurred during the application development stage related to software developed for internal-use and amortize them over the estimated useful life of 3 years. We expense costs incurred related to the planning and post-implementation phases of development as incurred. As of April 2, 2021 and April 3, 2020, capitalized costs, net of
accumulated depreciation by categories for the periods presented: |
| | | | | | | |
| | April 1, 2016 | | April 3, 2015 |
| | (Dollars in millions) |
| Land | $ | 73 |
| | $ | 73 |
|
| Computer hardware and software | 987 |
| | 922 |
|
| Office furniture and equipment | 92 |
| | 88 |
|
| Buildings | 426 |
| | 426 |
|
| Leasehold improvements | 310 |
| | 249 |
|
| Construction in progress | 74 |
| | 79 |
|
| Gross property and equipment | 1,962 |
| | 1,837 |
|
| Accumulated depreciation | (1,005 | ) | | (887 | ) |
| Property and equipment, net | $ | 957 |
| | $ | 950 |
|
Depreciation expense was $213 million, $229amortization, were $9 million and $236$24 million, respectively.
Leases
We determine if an arrangement is a lease at inception. We have elected to not recognize a lease liability or right-of-use (ROU) asset for short-term leases (leases with a term of twelve months or less that do not include an option to purchase the underlying asset). Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The interest rate we use to determine the present value of future payments is our incremental borrowing rate because the rate implicit in fiscal 2016, 2015,our leases is not readily determinable. Our incremental borrowing rate is a hypothetical rate for collateralized borrowings in economic environments where the leased asset is located based on credit rating factors. Our operating lease assets also include adjustments for prepaid lease payments, lease incentives and 2014, respectively.initial direct costs.
Certain lease contracts include obligations to pay for other services, such as operations and maintenance. We elected the practical expedient whereby we record all lease components and the related minimum non-lease components as a single lease component. Cash payments made for variable lease costs are not included in the measurement of our operating lease assets and liabilities. Many of our lease terms include 1 or more options to renew. We do not assume renewals in our determination of the lease term unless it is reasonably certain that we will exercise that option. Lease costs for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term. Our lease agreements do not contain any residual value guarantees.
Business combinations
We use the acquisition method of accounting under the authoritative guidance on business combinations. We allocate the purchase price of our acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. Each acquired company’s operating results are included in our Consolidated Financial Statements starting on the date of acquisition. The purchase price
Goodwill
Goodwill is equivalent torecorded when consideration paid for an acquisition exceeds the fair value of consideration transferred. Tangiblenet tangible and identifiable intangible assets acquired and liabilities assumed asacquired.
We perform an impairment assessment of the date of acquisition are recorded at their estimated fair values at acquisition date. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed.
Goodwill and intangible assets
Goodwill. Goodwill represents the excess of the purchase price of an acquisition over the net fair value of assets acquired and liabilities assumed. Goodwill is allocated to our reporting units expected to benefit from the business combination based on the relative fair valuegoodwill at the acquisition date. We review goodwill for impairment for each reporting unit on an annual basis duringlevel at least annually in the fourth quarter of oureach fiscal year, or more frequently if facts andevents or changes in circumstances warrant. Underindicate that the authoritativeasset may be impaired. The accounting guidance we havegives us the option to perform a qualitative assessment to determine whether further impairment testing is necessary. During the annual impairment reviews in fiscal 2015The qualitative assessment considers events and 2014, we performedcircumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. If it is determined, as a result of the qualitative assessment, and determined there were no indicatorsthat it is more likely than not that the fair value of significant risk of goodwill impairment. During the fourth quarter of fiscal 2016, we completed the divestiture of Veritas. See Note 3. As a result, we determined that we should performreporting unit is less than its carrying amount, a quantitative assessment related to the goodwill oftest is performed.
In fiscal 2021, based on our two remaining reporting units: Customer Security and Enterprise Security. Based on the guidance,qualitative assessments, we performed the first step of the quantitative assessment and concluded that it is more likely than not that the fair values are more than their carrying values. Accordingly, there was no indication of these two reporting units exceeded their respective carrying amounts. Based on this assessment, we concluded that for fiscal 2016,impairment of goodwill, and further quantitative testing was not impaired. required.
IntangibleLong-lived assets.
In connection with our acquisitions, we generally recognize assets for customer relationships, developed technology, finite-lived trade names, patents, and indefinite-lived trade names. Finite-lived intangible assets are carried at cost less accumulated amortization. Such amortization is provided on a straight-line basis over the estimated useful lives of the respective assets, generally from 1 to 119 years. Amortization for developed technology is recognized in cost of revenue. Amortization for customer relationships and certain trade names is recognized in operating expenses. Indefinite-lived intangible assets are not subject to amortization but instead tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
Long-lived assets, including finite-lived intangible assets and property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group may not be recoverable. The evaluation is measured byperformed at the comparisonlowest level of identifiable cash flows independent of other assets. An impairment loss is recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount. Measurement of an impairment loss is based on the excess of the carrying amount of the asset group over its fair value.
In fiscal 2021, based on our qualitative assessments, we concluded that it is more likely than not that the fair values are more than their carrying values. Accordingly, there was no indication of impairment of long-lived assets, and further quantitative testing was not required.
Contract liabilities
Contract liabilities consist of deferred revenue and customer deposit liabilities and represent cash payments received or due in advance of fulfilling our performance obligations. Deferred revenue represents billings under non-cancelable contracts before the related product or service is transferred to the discounted future cash flowscustomer. Certain arrangements include terms that allow the customer to terminate the contract and receive a pro-rata refund for a period of time. In these arrangements, we have concluded there are no enforceable rights and obligations during the period in which the option to cancel is exercisable by the customer, and therefore the consideration received or due from the customer is recorded as a customer deposit liability.
Debt
Our debt includes senior unsecured notes, senior term loans, convertible senior notes, and a senior unsecured revolving credit facility. Our senior unsecured notes are recorded at par value at issuance less a discount representing the amount by which the face value exceeds the fair value at the date of issuance and an amount which represents issuance costs. Our senior term loans are recorded at par value less debt issuance costs, which are recorded as a reduction in the carrying value of the asset is expected to generate. Ifdebt. Our convertible senior notes are recorded at par value less the carrying amountfair value of the asset exceeds its discounted future cash flows, an impairment loss isequity component of the notes, at their issuance date, determined using Level 2 inputs and less any issuance costs. The discount and issuance costs associated with the various notes are amortized using the effective interest rate method over the term of the debt as a non-cash charge to interest expense. Borrowings under our revolving credit facility, if any, are recognized at principal balance plus accrued interest based upon stated interest rates. Debt maturities are classified as current liabilities on our Consolidated Balance Sheets if we are contractually obligated to repay them in the next twelve months or, prior to the balance sheet date, we have the authorization and intent to repay them prior to their contractual maturities and within the next twelve months.
Treasury stock
We account for treasury stock under the differencecost method. Shares repurchased under our share repurchase program are retired. Upon retirement, we allocate the value of treasury stock between the asset’s carrying amountAdditional paid-in capital and fair value. Retained earnings.
Restructuring separation and transition
Restructuring actions generally include significant actions involving employee-related severance charges, and contract termination costs.costs, and assets write-offs. Employee-related severance charges are largely based upon substantive severance plans, while some charges result from mandated requirements in certain foreign jurisdictions. These charges are reflected in the period when both the actions are probable, and the amounts are estimable. Separation and other related costs include advisory, consulting and other costs incurred in connection with the separation of Veritas. Contract termination costs for leased facilities primarily reflect costs that will continue to be incurred under thea contract for its remaining term without future economic benefit to the Company.benefit. These charges are reflected in the period when a contract is terminated. Asset impairments, including those related to ROU lease assets, are recognized in the period that an asset is decommissioned or a facility ceases to be used. Costs of providing transition services to Veritas after January 29, 2016, the date of the sale, are recorded in continuing operations.
Income taxes
TheWe compute the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basesbasis of assets and liabilities and for operating losslosses and tax credit carryforwards in each jurisdiction in which we operate. DeferredWe measure deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
We are required to compute our income taxes in each federal, state, and international jurisdiction in which we operate. This process requires that we estimate the current tax exposure as well as assess temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. The income tax effects of the differences we identify are classified as current or long-term deferred tax assets and liabilities in our Consolidated Balance Sheets as of April 3, 2015, and as long-term deferred tax assets and liabilities as of April 1, 2016, following the adoption of Accounting Standards Update ("ASU") No. 2015-17, Income Taxes. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our Consolidated Balance Sheets and Consolidated Statements of Operations. We must also assess the likelihood that deferred tax assets will be realized from future taxable income and based on this assessment, establishweighting positive and negative evidence, we will assess and determine the need for a valuation allowance, if required. OurThe determination of our valuation allowance is based upon a number ofinvolves assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our Consolidated Statements of Operations.expense.
We apply the authoritative guidance on income taxes that prescribes a minimum recognition threshold that arecord accruals for uncertain tax position is required to meet before being recognized in the consolidated financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.
This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicatespositions when we believe that it is not more likely than not that the tax position will be sustained on audit, including resolutionexamination by the taxing authorities based on the technical merits of related appeals or litigation processes, if any. The second step requires us to estimatethe position. We adjust these accruals when facts and measure the tax benefitcircumstances change, such as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determineclosing of a tax audit or the probabilityrefinement of various possible outcomes. We reevaluate thesean estimate. The provision for income taxes includes the effects of adjustments for uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit,as well as any related interest and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.penalties.
Stock-based compensation
Stock-basedWe measure and recognize stock-based compensation expense is measured atfor all stock-based awards, including restricted stock units (RSU), performance-based restricted stock units (PRU), stock options, and rights to purchase shares under our employee stock purchase plan (ESPP), based on their estimated fair value on the grant date based ondate. We recognize the fair valuecosts in our Consolidated
Financial Statements on a straight-line basis over the award’s requisite service period except for PRUs with graded vesting, for which is generallywe recognize the vesting periodcosts on a graded basis. For awards with performance conditions, the amount of the respective award. No compensation cost is ultimately recognized for awards for which employees do not renderwe recognize over the requisite service and are forfeited.period is based on the actual or estimated achievement of the performance condition. We estimate forfeitures based on historical experience. Ourthe number of stock-based awards principally consist of restricted stock units (“RSUs”). that will be forfeited due to employee turnover.
The fair value of each RSU and PRU that does not contain a market condition is equal to the market value of Symantec’sour common stock on the date of grant. The fair value of each PRU that contains a market condition is estimated using the Monte Carlo simulation model. The fair values of RSUs and PRUs are not discounted by the dividend yield because the Company’sour RSUs and PRUs include dividend-equivalent rights. We use the Black-Scholes model to determine the fair value of stock options and the fair value of rights ("DERs")to acquire shares of common stock under our ESPP. AsThe Black-Scholes valuation model incorporates a number of April 1, 2016variables, including our expected stock price volatility over the expected life of the awards, actual and April 3, 2015, our total accrued DERs were $75 millionprojected employee exercise and $20 million, respectively, whichforfeiture behaviors, risk-free interest rates, and expected dividends.
Foreign currency
For foreign subsidiaries whose functional currency is the local currency, assets and liabilities are includedtranslated to U.S. dollars at exchange rates in other current liabilitieseffect at the balance sheet date. Gains and other long-term obligations onlosses resulting from translation of these foreign currency financial statements into U.S. dollars are recorded in AOCI. Remeasurement adjustments are recorded in Other income (expense), net in our Consolidated Balance Sheets.Statements of Operations.
Concentrations of credit risk
A significant portion of our revenue and net income is derived from international sales and independent agents and distributors.sales. Fluctuations of the U.S. dollar against foreign currencies, changes in local regulatory or economic conditions, piracy, or nonperformance by independent agents or distributorspiracy could adversely affect our operating results.
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and trade accounts receivable. Our investment policy limits the amount of credit risk exposure to any one issuer and to any one country. WeA majority of our trade receivables are exposedderived from sales to credit risks in the event of default by the issuers to the extent of the amount recorded in our Consolidated Balance Sheets.distributors and retailers. The credit risk in our trade accounts receivable is substantially mitigated by our credit evaluation process, reasonably short collection terms, and the geographical dispersion of sales transactions. As of April 1, 2016, we had one distributorCustomers which are distributors that accounted for over 10% of our totalnet accounts receivable. We maintain reserves for potential credit losses and such losses have been within management’s expectations.receivable, are as follows:
| | | | | | | | | | | |
| April 2, 2021 | | April 3, 2020 |
| Customer A | 46 | % | | 39 | % |
Advertising and other promotional costs
Advertising and other promotional costs are charged to operations as incurred and included in operatingsales and marketing expenses. These costs totaled $211$353 million, $326$343 million, and $436$279 million for fiscal 2016, 2015,2021, 2020, and 2014,2019, respectively.
Contingencies
We evaluate contingent liabilities including threatened or pending litigation in accordance with the authoritative guidance on contingencies. We assess the likelihood of any adverse judgments or outcomes from potential claims or proceedings, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of an accrual required, if any, for these contingencies is made after the analysis of each separate matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time of our assessment. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position.
Sales Commissions
Sales commissions that are incremental and directly related to customer sales contracts in which revenue is deferred are accrued and capitalized upon execution of a non-cancelable customer contract, and subsequently expensed over the term of such contract in proportion to the related future revenue streams. For commission costs where revenue is recognized, the related commission costs are recorded in the period of revenue recognition. As of April 1, 2016 and April 3, 2015, we had total deferred commissions of $74 million and $73 million, respectively, which are included in other current assets and long-term other assets on our Consolidated Balance Sheets.Note 2. Recent Accounting Standards
Recently adopted accountingauthoritative guidance
Credit Losses. In April 2014,June 2016, the Financial Accounting Standards Board (“FASB”)(FASB) issued ASU No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment, that provides new authoritative guidance related to reporting discontinued operations. This new standard raiseson credit losses which changes the thresholdimpairment model for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operationsmost financial assets and certain other disposals that do not meet the definition of a discontinued operation. The standard became effective for the Company ininstruments. On April 4, 2020, the first quarterday of our fiscal 2016, and applied to the presentation and disclosure of the sale of Veritas, which closed in January 2016. For additional information about our reporting of discontinued operations, see Note 3.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest, which requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related liability. We2021, we adopted the standard innew guidance using the first quartermodified retrospective transition method. Upon adoption, we utilized a new forward-looking “expected loss” model to replace the incurred loss impairment model for our accounts receivable and other financial assets. Additionally, for available-for-sale debt securities with unrealized losses, we discontinued using the concept of fiscal 2016,“other than temporary” impairment and itrecognized the estimated credit loss as allowances. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
Internal-Use Software.In November 2015,August 2018, the FASB issued ASU No. 2015-17, Income Taxes, which simplifiesnew guidance that clarifies the presentationaccounting for implementation costs in a cloud computing arrangement. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. On April 4, 2020, we adopted the new guidance prospectively. The adoption of deferred income taxes by requiring that all deferred income tax liabilities and assets be classified as long-term. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The standard was adopted by the Company in the fourth quarter of fiscal 2016guidance did not have a material impact on a prospective basis, and it resulted in balance sheet reclassifications of current deferred income tax liabilities and assets to long-term on April 1, 2016.our Consolidated Financial Statements.
Recent accountingRecently issued authoritative guidance not yet adopted
Income taxes. In May 2014,December 2019, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers,new guidance that requires an entitysimplifies the accounting for income taxes by removing certain exceptions to recognize the amountgeneral principles in Topic 740. The guidance also clarifies and amends existing guidance to
improve consistent application. The standard will be effective for us in our first quarter of fiscal 2022. We do not believe the Company for the fiscal year beginning on March 31, 2018. Weadoption of this guidance will have not yet selected a transition method nor have we determined the effect of the standardmaterial impact on our Consolidated Financial Statements.
Debt with Conversion and Other options.In January 2016,August 2020, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognitionnew guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and Measurement of Financial Assets and Financial Liabilities.equity, including convertible instruments. The new guidance enhancesremoves from GAAP the reporting modelseparation models for financial instruments, which includes amendments to address aspectsconvertible debt with embedded conversion features. As a result, after adopting the guidance, entities will no longer separately present embedded conversion features in equity. Instead, they will account for the convertible debt wholly as debt. The new guidance also requires use of recognition, measurement, presentation and disclosure.the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. The update to the standard iswill be effective for the Company for theus in our first quarter of fiscal year beginning March 31, 2018,2023, with early adoption permitted under limited circumstances. The Company isbeginning in the first quarter of fiscal 2022. It may be applied retrospectively to each prior period presented or retrospectively with cumulative effect recognized in retained earnings as of the date of adoption. We are currently evaluating the effectadoption date and the standard will haveimpact of the adoption of this guidance on itsour Consolidated Financial Statements.Statements and disclosures.
Reference Rate Reform. In February 2016,March 2020, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires lesseesguidance providing temporary optional expedients and exceptions to recognize a right-of-use assetease the financial reporting burden of the expected market transition from the London Interbank Offered Rate (LIBOR) and a lease liability for all leases except those with a term of 12 months or less. The liability will be equalother interbank offered rates to alternative reference rates, such as the present value of lease payments. The asset will be based on the liability.Secured Overnight Financing Rate. The standard iswas effective forupon issuance and may generally be applied through December 31, 2022, to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. We continue to evaluate our contractual arrangements and hedging relationships that reference LIBOR.
Although there are several other new accounting pronouncements issued or proposed by the Company for the fiscal year beginning March 30, 2019. Early adoption is permitted. AdoptionFASB that we have adopted or will adopt, as applicable, we do not believe any of the standard will result in a gross up of our
balance sheet for the right-of-use asset and the lease liability for operating leases. It is not expected that adoption of the standardthese accounting pronouncements has had, or will have, a material impact to our operating results.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments finalize the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. The conclusion impacts whether an entity reports revenue on a gross or net basis. The amendments have the same effective date as the new revenue standard, which for the Company is the fiscal year beginning March 31, 2018. The Company is currently evaluating the effect the standard will have on its Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting. The amendments will require companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance requires companies to present excess tax benefits as an operating activity and cash paid to a taxing authority to satisfy statutory withholding as a financing activity on the statement of cash flows. The guidance will also allow entities to make an alternative policy election to account for forfeitures as they occur. The guidance is effective for the Company for the fiscal year beginning April 1, 2017. The Company is currently evaluating the effect the standard will have on its Consolidated Financial Statements.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The update provides guidance on accounting for licenses of intellectual property (“IP”) and identifying performance obligations. The amendments clarify how an entity should evaluate its promise when granting a license of IP. They also clarify when a promised good or service is separately identifiable and allow entities to disregard items that are immaterial in the context of the contract. The amendments have the same effective date as the new revenue standard, which for the Company is the fiscal year beginning March 31, 2018. The Company is currently evaluating the effect the standard will have on its Consolidated Financial Statements.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The update clarifies certain issues related to transition to the new revenue guidance, as well as, assessing collectability, recognition of noncash consideration and presentation of sales and other similar taxes in revenue transactions. The amendments have the same effective date as the new revenue standard, which for the Company is the fiscal year beginning March 31, 2018. The Company is currently evaluating the effect the standard will have on its Consolidated Financial Statements.
There was no other recently issued authoritative guidance that is expected to have a material impact to our Consolidated Financial Statements through the reporting date.or disclosures.
Note 2. Fair Value Measurements3. Divestitures, Discontinued Operations and Assets Held for Sale
ForDivestitures
Enterprise Security assets and liabilities measured at fair value, such amounts are based on an expected exit price representing the amount that would be received on
On November 4, 2019, we completed the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
Assets measured and recorded at fair value on a recurring basis
Cash equivalents. Cash equivalents consist primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value.
Short-term investments. Short-term investments consist of investment and marketable equity securities with original maturities greater than three months. Investment securities are priced using inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or
other sources, to determine the fair value of these assets. Marketable equity securities are recorded at fair value using quoted prices in active markets for identical assets.
The following table summarizes our assets measured at fair value on a recurring basis, by level, within the fair value hierarchy: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | April 1, 2016 | | April 3, 2015 |
| | Fair Value | | Cash and Cash Equivalents | | Short-term Investments | | Fair Value | | Cash and Cash Equivalents | | Short-term Investments |
| | (Dollars in millions) |
| Cash | $ | 1,072 |
| | $ | 1,072 |
| | $ | — |
| | $ | 776 |
| | $ | 776 |
| | $ | — |
|
| Non-negotiable certificates of deposit | 1 |
| | — |
| | 1 |
| | 296 |
| | 260 |
| | 36 |
|
| Level 1 | | | | | | | | | | | |
| Money market | 2,905 |
| | 2,905 |
| | — |
| | 1,725 |
| | 1,725 |
| | — |
|
| U.S. government securities | 335 |
| | 310 |
| | 25 |
| | 284 |
| | — |
| | 284 |
|
| Marketable equity securities | 11 |
| | — |
| | 11 |
| | 5 |
| | — |
| | 5 |
|
| | 3,251 |
| | 3,215 |
| | 36 |
| | 2,014 |
| | 1,725 |
| | 289 |
|
| Level 2 | | | | | | | | | | | |
| Corporate bonds | 45 |
| | 43 |
| | 2 |
| | 166 |
| | — |
| | 166 |
|
| U.S. agency securities | 526 |
| | 523 |
| | 3 |
| | 68 |
| | — |
| | 68 |
|
| Commercial paper | 1,121 |
| | 1,121 |
| | — |
| | 333 |
| | 82 |
| | 251 |
|
Negotiable certificates of deposit
| 9 |
| | 9 |
| | — |
| | 184 |
| | — |
| | 184 |
|
| International government securities | — |
| | — |
| | — |
| | 23 |
| | — |
| | 23 |
|
| | 1,701 |
| | 1,696 |
| | 5 |
| | 774 |
| | 82 |
| | 692 |
|
| Total | $ | 6,025 |
| | $ | 5,983 |
| | $ | 42 |
| | $ | 3,860 |
| | $ | 2,843 |
| | $ | 1,017 |
|
There were no transfers between fair value measurement levels during fiscal 2016.
Fair value of debt
As of April 1, 2016 and April 3, 2015, the total fair valuecertain of our currentEnterprise Security assets and long-term debt was $2.3 billion and $2.2 billion, respectively, based on Level 2 inputs.certain liabilities to Broadcom Inc. (the Broadcom sale) for a purchase price of $10.7 billion. As of April 1, 2016, the fair valuea result of the equity componentsale, the majority of the results of our 2.5% Convertible Notes was $29 million, based on Level 3 inputs.
Note 3. Discontinued Operations
In August 2015, we entered into a definitive agreement to sell the assets of Veritas to Carlyle and amended the terms on January 19, 2016. Based on the amended terms of the definitive agreement, we received net consideration of $6.6 billion in cash excluding transaction costs and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. The transaction closed on January 29, 2016. The disposition resulted in a net gain of $3.0 billion, which is presented as part of income from discontinued operations, net of income taxes in the Consolidated Statements of Operations for fiscal 2016. See Note 6 for more information on severance, facilities and separation costs related to our fiscal 2015 plans to separate our security and information management businesses.
The results of Veritas are presentedEnterprise Security business were classified as discontinued operations in our Consolidated Statements of Operations and thus have been excluded from both continuing operations and segment results for all reported periods. Furthermore, Veritas'periods presented. We recognized a gain on sale of $5,434 million, which was included in Income (loss) from discontinued operations in our Consolidated Statements of Operations. Total net assets sold was $5,211 million, consisting of goodwill, net intangible assets and other assets of $7,121 million, net of contract and other liabilities were removed from our Consolidated Balance Sheet upon consummation of the sale on January 29, 2016, and have been classified as discontinued operations on our Consolidated Balance Sheet as of April 3, 2015. The Company has two remaining reporting segments, Consumer Security and Enterprise Security. See Note 8 for more information on our operating segments.$1,910 million.
In connection with the divestiture of Veritas, the Company and VeritasBroadcom sale, we entered into Transition Service Agreements ("TSA") pursuanta transition services agreement under which we provided assistance to which the Company provides Veritas certainBroadcom including, but not limited services including financialto, business support services and information technology services, and access to facilities, and Veritas provides the Company certain limited financial support services. The TSAs commenced with the close of the transaction and expire at various dates through fiscal 2019. During fiscal 2016,2021, the Company recorded incometransition services were completed. Dedicated direct costs, net of approximately $8charges to Broadcom, for these transition services were $9 million for all services provided to Veritas, which isand $19 million during fiscal 2021 and 2020, respectively. These direct costs were presented as part of otherOther income (expense), net in the Consolidated Statements of Operations.
The Company also has retained various customer relationshipsOn October 1, 2020, we entered into multiple agreements with Broadcom for an aggregate amount of $200 million. We licensed Broadcom’s enterprise software, multiple security engines and contracts that were reported historically as a part of the Veritas business. Approximately $330 million related to these relationships and contracts have been reported as part of the Company's deferred revenues in the Consolidated Balance Sheets as of April 1, 2016, along with a $131 million asset representing the fair value of the service and maintenance rights the Company has under an agreement with Veritas. These balancestelemetry for 5.6 years, which will be amortized to discontinuedcontinuing operations throughover the remaining term of the underlying contracts.license. In addition, we resolved all outstanding payments and certain claims related to the asset purchase and transition services agreements, which is included in discontinued operations.
The following table presentsID Analytics solutions
On January 31, 2020, we completed the
aggregate carrying amountssale of
the classesour ID Analytics solutions for $375 million in net cash proceeds. We recognized a gain on sale of
$250 million, which was included in Other income (expense), net in our Consolidated Statements of Operations. Total net assets
sold was $125 million, consisting of goodwill and
net intangible assets of $114 million and net other assets, net of other liabilities, of
discontinued operations:$11 million. We incurred tax expense of $86 million related to the gain. |
| | | |
| | April 3, 2015 |
| | (Dollars in millions) |
| Assets: | |
| Cash and cash equivalents | $ | 31 |
|
| Accounts receivable, net | 293 |
|
| Other current assets | 91 |
|
| Property and equipment, net | 255 |
|
| Intangible assets, net | 103 |
|
| Goodwill | 2,701 |
|
| Equity investments | 5 |
|
| Other long-term assets | 46 |
|
| Total assets classified as discontinued operations | $ | 3,525 |
|
| | |
| Liabilities: | |
| Accounts payable | $ | 44 |
|
| Accrued compensation and benefits | 166 |
|
| Deferred revenue | 682 |
|
| Other current liabilities | 44 |
|
| Long-term deferred revenue | 111 |
|
| Other long-term obligations | 23 |
|
| Total liabilities classified as discontinued operations | $ | 1,070 |
|
The following table presents information regarding certain components of income (loss) from discontinued operations, net of income taxes:
|
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Net revenues | $ | 1,968 |
| | $ | 2,552 |
| | $ | 2,493 |
|
| Cost of revenues | (334 | ) | | (426 | ) | | (358 | ) |
| Operating expenses | (1,270 | ) | | (1,131 | ) | | (1,096 | ) |
| Gain on sale of Veritas | 4,060 |
| | — |
| | — |
|
| Other income (expense), net | 3 |
| | (3 | ) | | 10 |
|
| Income from discontinued operations before income taxes | 4,427 |
| | 992 |
| | 1,049 |
|
| Provision for income taxes | 1,118 |
| | 223 |
| | 242 |
|
| Income from discontinued operations, net of income taxes | $ | 3,309 |
| | $ | 769 |
| | $ | 807 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Net revenues | $ | 1 | | | $ | 1,368 | | | $ | 2,288 | |
| Gross profit | $ | 1 | | | $ | 1,035 | | | $ | 1,693 | |
| Operating income (loss) | $ | (177) | | | $ | 4 | | | $ | 234 | |
| Gain on sale | $ | 0 | | | $ | 5,434 | | | $ | 0 | |
| Income (loss) before income taxes | $ | (176) | | | $ | 5,431 | | | $ | 228 | |
| Income tax expense (benefit) | $ | (34) | | | $ | 2,122 | | | $ | 87 | |
| Income (loss) from discontinued operations, net of taxes | $ | (142) | | | $ | 3,309 | | | $ | 141 | |
Our discontinued operations consist of our divested Enterprise Security assets and results of our previously divested Veritas information management business (Veritas). There was 0 income from Veritas during fiscal 2021 and 2020. During fiscal 2019, revenue from Veritas was $13 million and income from Veritas, net of taxes was $15 million.
The following table presents significant non-cash items and capital expenditures of discontinued operations:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Amortization and depreciation | $ | 0 | | | $ | 130 | | | $ | 368 | |
| Stock-based compensation expense | $ | 1 | | | $ | 172 | | | $ | 193 | |
| Purchases of property and equipment | $ | 0 | | | $ | 43 | | | $ | 65 | |
Assets held for sale
During fiscal 2020, we reclassified certain land and buildings previously reported as property and equipment to assets held for sale when the properties were approved for immediate sale in their present condition and the sale was expected to be completed within one year. As a result, we recognized an impairment of $24 million in fiscal 2020, which was included in restructuring costs, representing the difference between the estimated net sales price and the carrying value of one of our properties.
On July 27, 2020, we completed the sale of our Culver City property, which was previously classified as held for sale during the first quarter of fiscal 2021, for cash consideration of $118 million, net of selling costs, and recognized a gain on sale of $35 million.
On April 1, 2021, we completed the sale of certain land and buildings in Mountain View, which was previously classified as held for sale as of April 3, 2020, for cash consideration of $100 million, net of selling costs, and recognized a gain on sale of $63 million.
We continue to actively market the remaining properties for sale; however, in fiscal 2021, the real estate market was adversely affected by the COVID-19 pandemic, which delayed the expected timing of sale. We have taken into consideration the current real estate values and demand, and continue to execute plans to sell these properties. As of April 2, 2021, these assets are classified as assets held for sale. During fiscal 2021, there were no impairments because the fair value of the properties less costs to sell either equals or exceeds their carrying value.
Note 4.Acquisitions
Fiscal 2021 acquisition
On January 8, 2021, we completed our acquisition of Avira. Avira provides a consumer-focused portfolio of cybersecurity and privacy solutions primarily in Europe and key emerging markets. The total aggregate consideration for the acquisition was $344 million, net of $32 million cash acquired.
Our preliminary allocation of the aggregate purchase price for the acquisition as of January 8, 2021, was as follows:
| | | | | |
| (In millions, except useful lives) | January 8, 2021 |
| Assets: | |
| Current assets | $ | 12 | |
| Intangible assets | 151 | |
| Goodwill | 269 | |
| Other long-term asset | 21 | |
| Total assets acquired | 453 | |
| Liabilities: | |
| Current liabilities | 29 | |
| Contract liabilities | 54 | |
| Other long-term obligations | 26 | |
| Total liabilities assumed | 109 | |
| Total purchase price | $ | 344 | |
The allocation of the purchase price was based upon a preliminary valuation, and our estimates and assumptions are subject to refinement within the measurement period, which may be up to one year from the acquisition date. Adjustments to the purchase price allocation may require adjustments to goodwill prospectively. The primary areas of preliminary purchase price allocation that are not yet finalized are certain tax matters and intangible assets.
The preliminary goodwill of $269 million arising from the acquisition is attributed to the expected synergies, including future cost efficiencies, and other benefits that are expected to be generated by combining Avira and NortonLifeLock. Substantially all of the goodwill recognized is expected to be deductible for tax purposes. See Note 6 for further information on goodwill.
Note 5. Revenues
Contract liabilities
During fiscal 2021 and 2020, we recognized $1,050 million and $1,017 million of revenue, respectively, from the contract liabilities balance at the beginning of the respective fiscal years.
Remaining performance obligations
Remaining performance obligations represent contracted revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of April 2, 2021, we had $850 million of remaining performance obligations, which does not include customer deposit liabilities of $415 million, of which we expect to recognize approximately 94% as revenue over the next 12 months.
See Note 1 for a description of our revenue recognition policy and Note 17 for tabular disclosures of disaggregated revenue by solution and geographic region.
Note 4.6. Goodwill and Intangible Assets
During fiscal 2016, 2015, and 2014 we completed business acquisitions primarily to enhance our technology portfolio for aggregate cash consideration, net of cash acquired, of $4 million, $19 million, and $17 million, respectively. The results of operations related to these acquisitions have been included in our Consolidated Statements of Operations from the acquisition date. Pro forma results of operations have not been presented because the acquisitions were not material to our results of operations. Goodwill related to the business acquisitions is summarized in the following table.
Goodwill
The changes in the carrying amount of goodwill are as follows:
| | | | | |
| (In millions) | |
| Balance as of March 29, 2019 | $ | 2,677 | |
| Divestitures | (88) | |
| Other adjustments | (4) | |
| Balance as of April 3, 2020 | 2,585 | |
| Acquisitions | 269 | |
| Translation adjustments | 13 | |
| Balance as of April 2, 2021 | $ | 2,867 | |
|
| | | | | | | | | | | |
| | Consumer Security | | Enterprise Security | | Total |
| | (Dollars in millions) |
| Balance as of March 28, 2014 | $ | 1,233 |
| | $ | 1,918 |
| | $ | 3,151 |
|
| Acquisitions | — |
| | 11 |
| | 11 |
|
| Translation adjustments | (3 | ) | | (13 | ) | | (16 | ) |
| Balance as of April 3, 2015 | 1,230 |
| | 1,916 |
| | 3,146 |
|
| Translation adjustments | 1 |
| | 1 |
| | 2 |
|
| Balance as of April 1, 2016 | $ | 1,231 |
| | $ | 1,917 |
| | $ | 3,148 |
|
Intangible assets, net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 2, 2021 | | April 3, 2020 |
| (In millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Customer relationships | $ | 556 | | | $ | (299) | | | $ | 257 | | | $ | 505 | | | $ | (230) | | | $ | 275 | |
| Developed technology | 210 | | | (104) | | | 106 | | | 133 | | | (85) | | | 48 | |
| Other | 7 | | | (1) | | | 6 | | | 0 | | | 0 | | | 0 | |
| Total finite-lived intangible assets | 773 | | | (404) | | | 369 | | | 638 | | | (315) | | | 323 | |
| Indefinite-lived trade names | 747 | | | — | | | 747 | | | 744 | | | — | | | 744 | |
| Total intangible assets | $ | 1,520 | | | $ | (404) | | | $ | 1,116 | | | $ | 1,382 | | | $ | (315) | | | $ | 1,067 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | April 1, 2016 | | April 3, 2015 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| | (Dollars in millions) |
| Customer relationships | $ | 406 |
| | $ | (320 | ) | | $ | 86 |
| | $ | 637 |
| | $ | (498 | ) | | $ | 139 |
|
| Developed technology | 144 |
| | (84 | ) | | 60 |
| | 200 |
| | (117 | ) | | 83 |
|
| Finite-lived trade names | 2 |
| | (2 | ) | | — |
| | 21 |
| | (19 | ) | | 2 |
|
| Patents | 21 |
| | (18 | ) | | 3 |
| | 21 |
| | (17 | ) | | 4 |
|
| Total finite-lived intangible assets | 573 |
| | (424 | ) | | 149 |
| | 879 |
| | (651 | ) | | 228 |
|
| Indefinite-lived trade names | 294 |
| | — |
| | 294 |
| | 297 |
| | — |
| | 297 |
|
| Total | $ | 867 |
| | $ | (424 | ) | | $ | 443 |
| | $ | 1,176 |
| | $ | (651 | ) | | $ | 525 |
|
Goodwill andAmortization expense for purchased intangible assets that were disposed of as a result of our sale of Veritas were included in assets classified as discontinued operations in our Consolidated Balance Sheets as of April 3, 2015, and accordingly, are excluded from the tables above.is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Consolidated Statements of Operations Classification |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 | |
| Customer relationships and other | $ | 74 | | | $ | 79 | | | $ | 80 | | | Operating expenses |
| Developed technology | 31 | | | 30 | | | 30 | | | Cost of revenues |
| Total | $ | 105 | | | $ | 109 | | | $ | 110 | | | |
As of April
1, 2016,2, 2021, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:
|
| | | | |
| | | April 1, 2016 |
| | | (Dollars in millions) |
| 2017 | | $ | 68 |
|
| 2018 | | 51 |
|
| 2019 | | 25 |
|
| 2020 | | 5 |
|
| Total | | $ | 149 |
|
| | | | | |
| (In millions) | April 2, 2021 |
| 2022 | $ | 119 | |
| 2023 | 99 | |
| 2024 | 86 | |
| 2025 | 27 | |
| 2026 | 22 | |
| Thereafter | 16 | |
| Total | $ | 369 | |
Note 5.7. Supplementary Information
Cash and cash equivalents:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Cash | $ | 650 | | | $ | 483 | |
| Cash equivalents | 283 | | | 1,694 | |
| Total cash and cash equivalents | $ | 933 | | | $ | 2,177 | |
Accounts receivable, net:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Accounts receivable | $ | 118 | | | $ | 123 | |
| Allowance for doubtful accounts | (1) | | | (12) | |
| Accounts receivable, net | $ | 117 | | | $ | 111 | |
Other current assets:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Prepaid expenses | $ | 95 | | | $ | 110 | |
| Income tax receivable and prepaid income taxes | 96 | | | 150 | |
| Other tax receivable | 31 | | | 88 | |
| Other | 15 | | | 87 | |
| Total other current assets | $ | 237 | | | $ | 435 | |
Property and equipment, net:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Land | $ | 3 | | | $ | 7 | |
| Computer hardware and software | 479 | | | 746 | |
| Office furniture and equipment | 63 | | | 88 | |
| Buildings | 29 | | | 108 | |
| Leasehold improvements | 58 | | | 128 | |
| Construction in progress | 1 | | | 1 | |
| Total property and equipment, gross | 633 | | | 1,078 | |
| Accumulated depreciation and amortization | (555) | | | (840) | |
| Total property and equipment, net | $ | 78 | | | $ | 238 | |
During 2021, we completed the sale of certain properties with total carrying value of $120 million, including land, buildings, furniture and fixtures, and leasehold improvements, of which $37 million was classified as held for sale and $83 million was included in property and equipment as of April 3, 2020. See Note 3 for further information on the sale.
Depreciation and amortization expense of property and equipment was $45 million, $122 million, and $139 million in fiscal 2021, 2020, and 2019, respectively.
Other long-term assets:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Non-marketable equity investments | $ | 185 | | | $ | 187 | |
| Long-term income tax receivable and prepaid income taxes | 30 | | | 38 | |
| Deferred income tax assets | 355 | | | 387 | |
| Long-term prepaid royalty | 70 | | | 15 | |
| Other | 46 | | | 51 | |
| Total other long-term assets | $ | 686 | | | $ | 678 | |
Short-term contract liabilities:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Deferred revenue | $ | 795 | | | $ | 709 | |
| Customer deposit liabilities | 415 | | | 340 | |
| Total short-term contract liabilities | $ | 1,210 | | | $ | 1,049 | |
Other current liabilities:
| | | | | | | | | | | | | | |
| (In millions) | | April 2, 2021 | | April 3, 2020 |
| Income taxes payable | | $ | 111 | | | $ | 195 | |
| Other taxes payable | | 82 | | | 141 | |
| Other accrued liabilities | | 235 | | | 251 | |
| Total other current liabilities | | $ | 428 | | | $ | 587 | |
Long-term income taxes payable:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Deemed repatriation tax payable | $ | 525 | | | $ | 615 | |
| Other long-term income taxes | 29 | | | 0 | |
| Uncertain tax positions (including interest and penalties) | 565 | | | 695 | |
| Total long-term income taxes payable | $ | 1,119 | | | $ | 1,310 | |
Other income (expense), net:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Interest income | $ | 4 | | | $ | 80 | | | $ | 42 | |
| Loss from equity interest | 0 | | | (31) | | | (101) | |
| Foreign exchange gain (loss) | 1 | | | (6) | | | (11) | |
| Gain on divestitures | 0 | | | 250 | | | 0 | |
| Gain on sale of equity method investment | 0 | | | 379 | | | 0 | |
| Gain on early extinguishment of debt | 20 | | | 0 | | | 0 | |
| Gain on sale of properties | 98 | | | 0 | | | 0 | |
| Transition service expense, net | (9) | | | (19) | | | 0 | |
| Other | 6 | | | 7 | | | 13 | |
| Total other income (expense), net | $ | 120 | | | $ | 660 | | | $ | (57) | |
Supplemental cash flow information:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Income taxes paid, net of refunds | $ | 341 | | | $ | 1,985 | | | $ | 112 | |
| Interest expense paid | $ | 139 | | | $ | 179 | | | $ | 183 | |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 34 | | | $ | 51 | | | $ | 0 | |
| Non-cash operating activities: | | | | | |
| Operating lease assets obtained in exchange for operating lease liabilities | $ | 34 | | | $ | 15 | | | $ | 0 | |
| Reduction of operating lease assets as a result of lease terminations and modifications | $ | 26 | | | $ | 34 | | | $ | 0 | |
| Non-cash investing and financing activities: | | | | | |
| Purchases of property and equipment in current liabilities | $ | 0 | | | $ | 0 | | | $ | 23 | |
| Extinguishment of debt with borrowings from same creditors | $ | 0 | | | $ | 1,073 | | | $ | 0 | |
Note 8. Financial Instruments and Fair Value Measurements
The following table summarizes our financial instruments measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 2, 2021 | | April 3, 2020 |
| (In millions) | Fair Value | | Level 1 | | Level 2 | | Fair Value | | Level 1 | | Level 2 |
| Assets: | | | | | | | | | | | |
| Money market funds | $ | 284 | | | $ | 284 | | | $ | 0 | | | $ | 1,346 | | | $ | 1,346 | | | $ | 0 | |
| Certificates of deposit | 1 | | | 0 | | | 1 | | | 348 | | | 0 | | | 348 | |
| Corporate bonds | 17 | | | 0 | | | 17 | | | 86 | | | 0 | | | 86 | |
| Total | $ | 302 | | | $ | 284 | | | $ | 18 | | | $ | 1,780 | | | $ | 1,346 | | | $ | 434 | |
The following table presents the contractual maturities of our investments in debt securities as of April 2, 2021:
| | | | | |
| (In millions) | Fair Value |
| Due in one year or less | $ | 14 | |
| Due after one year through five years | 4 | |
| Total | $ | 18 | |
Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.
Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments, equity method investment, and our long-term debt.
Non-marketable equity investments
As of April 2, 2021 and April 3, 2020, the carrying value of our non-marketable equity investments was $185 million and $187 million, respectively.
Equity method investment
Our investment in equity securities that was accounted for using the equity method was divested during fiscal 2020 and consisted of our equity investment in DigiCert. On October 16, 2019, Clearlake Capital Group, L.P, a private investment firm, and TA Associates, an investor of DigiCert and private equity firm, completed a joint investment in DigiCert. As a result, we sold our equity investment in DigiCert for $380 million in cash and recognized a gain on sale of $379 million in fiscal 2020.
We recorded a loss from our equity interest of $31 million and $101 million during 2020 and 2019, respectively, in Other income (expense), net in our Consolidated Statements of Operations. This loss was reflected as a reduction in the carrying amount of our investment in equity interests in our Consolidated Balance Sheets.
DigiCert’s results were reported on a three month lag prior to our divestiture of our investment. The following table summarizes DigiCert’s results of operations through October 16, 2019, the date of our investment sale.
| | | | | | | | | | | |
| (In millions) | Period from January 1, 2019 to October 16, 2019 (unaudited) | | Year Ended
December 31, 2018 |
| Revenue | $ | 350 | | | $ | 313 | |
| Gross profit | $ | 293 | | | $ | 250 | |
| Net loss | $ | (102) | | | $ | (342) | |
Current and long-term debt
As of April 2, 2021 and April 3, 2020, the total fair value of our current and long-term fixed rate debt was $2,400 million and $3,634 million, respectively. The fair value of our variable rate debt approximated their carrying value. The fair values of all our debt obligations were based on Level 2 inputs.
Note 9. Leases
We lease certain of our facilities, equipment, and data center co-locations under operating leases that expire on various dates through fiscal 2028. Our leases generally have terms that range from 1 year to 10 years for our facilities, 1 year to 6 years for equipment, and 1 year to 6 years for data center co-locations. Some of our leases contain renewal options, escalation clauses, rent concessions, and leasehold improvement incentives.
The following summarizes our lease costs for fiscal 2021 and 2020:
| | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Operating lease costs | $ | 17 | | | $ | 34 | |
| Short-term lease costs | 4 | | | 8 | |
| Variable lease costs | 6 | | | 21 | |
| Total lease costs | $ | 27 | | | $ | 63 | |
Rent expense under operating leases prior to our adoption of Topic 842 was $58 million for fiscal 2019.
Other information related to our operating leases as of April 2, 2021 was as follows:
| | | | | | | | | | | |
| Year Ended |
| April 2, 2021 | | April 3, 2020 |
| Weighted-average remaining lease term | 4.4 years | | 4.5 years |
| Weighted-average discount rate | 4.07 | % | | 4.05 | % |
See Note 7 for cash flow information related to our operating leases.
As of April 2, 2021, the maturities of our lease liabilities by fiscal year are as follows:
| | | | | |
| (In millions) | |
| 2022 | $ | 29 | |
| 2023 | 22 | |
| 2024 | 19 | |
| 2025 | 14 | |
| 2026 | 7 | |
| Thereafter | 9 | |
| Total lease payments | 100 | |
| Less: Imputed interest | (8) | |
| Present value of lease liabilities | $ | 92 | |
Note 10. Debt
The following table summarizes components of our debt: | | | | | | | | | | | | April 2, 2021 | | April 3, 2020 |
| | April 1, 2016 | | April 3, 2015 | |
| | Amount | | Effective
Interest Rate | | Amount | | Effective
Interest Rate | |
| | (Dollars in millions) | |
| 2.75% Senior Notes due September 15, 2015 | $ | — |
| | — | % | | $ | 350 |
| | 2.76 | % | |
| 2.75% Senior Notes due June 15, 2017 | 600 |
| | 2.79 | % | | 600 |
| | 2.79 | % | |
| (In millions, except percentages) | | (In millions, except percentages) | Amount | | Effective
Interest Rate | | Amount | | Effective
Interest Rate |
| 2.00% Convertible Unsecured Notes due August 15, 2022 | | 2.00% Convertible Unsecured Notes due August 15, 2022 | $ | 0 | | | N/A | | $ | 625 | | | 2.66 | % |
| 4.20% Senior Notes due September 15, 2020 | 750 |
| | 4.25 | % | | 750 |
| | 4.25 | % | 4.20% Senior Notes due September 15, 2020 | 0 | | | N/A | | 750 | | | 4.25 | % |
| New 2.50% Convertible Senior Notes due April 1, 2022 | | New 2.50% Convertible Senior Notes due April 1, 2022 | 250 | | | 2.63 | % | | 250 | | | 2.63 | % |
| 3.95% Senior Notes due June 15, 2022 | 400 |
| | 4.05 | % | | 400 |
| | 4.05 | % | 3.95% Senior Notes due June 15, 2022 | 400 | | | 4.05 | % | | 400 | | | 4.05 | % |
| 2.50% Convertible Senior Notes due April 1, 2021 | 500 |
| | 3.76 | % | | — |
| | — | % | |
| New 2.00% Convertible Unsecured Notes due August 15, 2022 | | New 2.00% Convertible Unsecured Notes due August 15, 2022 | 625 | | | 2.62 | % | | 625 | | | 2.62 | % |
| Term Loan due November 4, 2024 | | Term Loan due November 4, 2024 | 494 | | | LIBOR plus (1) | | 500 | | | LIBOR plus (1) |
| Delayed Term Loan due November 4, 2024 | | Delayed Term Loan due November 4, 2024 | 741 | | | LIBOR plus (1) | | — | | | N/A |
| 5.0% Senior Notes due April 15, 2025 | | 5.0% Senior Notes due April 15, 2025 | 1,100 | | | 5.00 | % | | 1,100 | | | 5.23 | % |
| 0.95% Avira Mortgage due December 30, 2030 | | 0.95% Avira Mortgage due December 30, 2030 | 5 | | | 0.95 | % | | — | | | N/A |
| 1.29% Avira Mortgage due December 30, 2029 | | 1.29% Avira Mortgage due December 30, 2029 | 5 | | | 1.29 | % | | — | | | N/A |
| Total principal amount | 2,250 |
| | | | 2,100 |
| | | Total principal amount | 3,620 | | | 4,250 | | |
| Less: unamortized discount and issuance costs | (43 | ) | | | | (4 | ) | | | Less: unamortized discount and issuance costs | (19) | | | (29) | | |
| Total debt | 2,207 |
| | | | 2,096 |
| | | Total debt | 3,601 | | | 4,221 | | |
| Less: current portion | — |
| | | | (350 | ) | | | Less: current portion | (313) | | | (756) | | |
| Total long-term portion | $ | 2,207 |
| | | | $ | 1,746 |
| | | Total long-term portion | $ | 3,288 | | | $ | 3,465 | | |
(1)The term loans bear interest at a rate equal to the LIBOR plus a margin based on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt, and our underlying loan agreements. The interest rates for the outstanding term loans are as follows:
| | | | | | | | | | | |
| April 2, 2021 | | April 3, 2020 |
| Term Loan due November 4, 2024 | 1.50 | % | | 2.88 | % |
| Delayed Term Loan due November 4, 2024 | 1.50 | % | | N/A |
As of April 2, 2021, the future contractual maturities of debt by fiscal year are as follows:
| | | | | | | | |
| (In millions) | |
| 2022 | | $ | 313 | |
| 2023 | | 1,089 | |
| 2024 | | 64 | |
| 2025 | | 1,048 | |
| 2026 | | 1,101 | |
| Thereafter | | 5 | |
| Total future maturities of debt | $ | 3,620 | |
|
| | | | |
| | | April 1, 2016 |
| | | (Dollars in millions) |
| 2017 | | $ | — |
|
| 2018 | | 600 |
|
| 2019 | | — |
|
| 2020 | | — |
|
| 2021 | | 1,250 |
|
| Thereafter | | 400 |
|
| Total | | $ | 2,250 |
|
On November 4, 2019, we entered into a credit agreement with financial institutions, which provides a revolving line of credit of $1 billion, a 5-year term loan of $500 million (the Initial Term Loan), and a delayed draw 5-year term loan commitment of $750 million (the Delayed Draw Term Loan). On September 14, 2020, we drew $750 million on the Delayed Draw Term Loan.
On May 7, 2021, we entered into the first amendment to the credit agreement with financial institutions (the First Amendment), which extends the maturity of all term loan and revolver credit facilities from November 2024 to May 2026. The First Amendment also provides an additional five-year term loan facility (the First Amendment Additional Term Loan) of $525 million. At the closing of the First Amendment, we did not borrow any funds under the revolving line of credit and fully borrowed the First Amendment Additional Term Loan such that loans in an aggregate principal amount of $1.75 billion were outstanding. The credit facilities remain senior secured.
The principal amount of the Initial Term Loan and the First Amendment Additional Term Loan must be repaid in quarterly installments on the last business day of each calendar quarter commencing with the quarter ended September 30, 2022 in an amount equal to 1.25% of the aggregate principal amount, as of the date of the first amendment. The principal amount of the Delayed Draw Term Loan must be repaid in quarterly installments on the last business day of each calendar quarter commencing with the later of (i) the quarter ended March 31, 2021 and (ii) the first full fiscal quarter ended following the Borrowing of the Delayed Draw Term Loans in an amount equal to 1.25% of aggregate principal amount that are outstanding immediately after the borrowing of the Delayed Draw Term Loan. We may voluntarily repay outstanding principal balances without penalty. As of April 2, 2021 and April 3, 2020, there were 0 borrowings outstanding under our revolving credit facilities.
Interest on borrowings under the credit agreement can be based on a base rate or a LIBOR at our election. Based on our debt ratings and our consolidated leverage ratios as determined in accordance with the credit agreement, loans borrowed bear interest, in the case of base rate loans, at a per annum rate equal to the applicable base rate plus a margin ranging from 0.125% to 0.75%, and in the case of LIBOR loans, LIBOR, as adjusted for statutory reserves, plus a margin ranging from 1.125% to 1.75%. The unused revolving line of credit is subject to a commitment fee ranging from 0.125% to 0.30% per annum.
The credit agreement contains customary representations and warranties, non-financial covenants for financial reporting, affirmative and negative covenants, including a covenant that we maintain a consolidated leverage ratio of not more than 5.25 to 1.0, or 5.75 to 1.0 if we acquire assets or business in an aggregate amount greater than $250 million, and restrictions on indebtedness, liens, investments, stock repurchases, and dividends (with exceptions permitting our regular quarterly dividend and other specific capital returns). As of April 2, 2021, we were in compliance with all debt covenants.
Senior Notes
In fiscal 2013,On February 9, 2017, we issued $1.0$1.1 billion aggregate principal amount of our 5.0% Senior Notes consistingdue April 15, 2025 (the 5.0% Senior Notes). The 5.0% Senior Notes bear interest at a rate of 5.00% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2017.
On or after April 15, 2020, we may redeem some or all of the 5.0% Senior Notes at the applicable redemption prices set forth in the supplemental indenture, plus accrued and unpaid interest.
In addition, we had 2 series of senior notes, the 4.2% Senior Notes and 3.95% Senior Notes due in 2022 and the 2.75% Senior Notes due in 2017. We received proceeds of $996 million, net of an issuance discount. We also incurred issuance costs of $6 million in fiscal 2013. In fiscal 2011, we issued $750 million of the 4.20% Senior Notes due in 2020.
Our Senior Notesthat are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and are redeemable by usmay be redeemed at any time, subject to a “make-whole” premium.the make-whole provisions contained in the applicable indenture relating to such series of notes. Interest on oureach series of these notes is payable semi-annually in arrears, on September 15 and March 15 for the 4.2% Senior Notes, is payable semiannually. Bothand June 15 and December 15 for the discount3.95% Senior Notes.
On September 15, 2020, we fully repaid the principal and issuance costs are being amortized as incrementalaccrued interest expense overunder the respective terms of the Senior Notes. The principal balance of our 2.75%4.2% Senior Notes due September 15, 2015 matured and was settled by a cash payment2020, which had an aggregate principal amount outstanding of $350 million in the second quarter of fiscal 2016. Contractual interest expense totaled $68 million, $73 million, and $73 million in fiscal years 2016, 2015, and 2014, respectively.$750 million.
Convertible Senior Notes
On March 4, 2016, (the “Issuance Date”), we issued $500 million of convertible notes which would mature on April 1, 2021 and bear interest at an annual rate of 2.5% (2.5% Convertible Notes). On August 1, 2016, we issued an additional $1.25 billion of convertible notes which would mature on August 15, 2021 and bear interest at an annual rate of 2.0% (2.0% Convertible Notes and collectively, Convertible Senior Notes). As of March 29, 2019, the principal amount and associated unamortized discount and issuance costs of the 2.5% Convertible Notes were classified as current because upon the four year anniversary of the issuance of the notes, holders of thereof had the option to require us to repurchase the notes, in cash, equal to the principal amount and accrued and unpaid interest of the 2.5% Convertible Notes (the Repurchase Right).
On November 11, 2019, we amended the Convertible Senior Notes dueagreements to provide that, if and when we pay a special dividend of $12 to our stockholders, we would exchange $250 million of the principal amount underlying the 2.5% Convertible Notes for new notes to be issued pursuant to a new indenture (the New 2.5% Convertible Notes) and would also pay cash consideration of $12 for each share underlying the New 2.5% Convertible Notes, and exchange $625 million of the principal amount underlying the 2.0% Convertible Notes for new notes to be issued pursuant to a new indenture (the New 2.0% Convertible Notes) and would also pay cash consideration of $12 for each share underlying the New 2.0% Convertible Notes, in 2021each case in lieu of conversion price adjustments (the “Notes”)Cash Note Payments). The Notes were issued at par and bear an annual interest rate of 2.50%, payable semiannually in arrears, beginning on October 1, 2016. Debt issuance costs of $6 million were recorded as a reduction to the Notes on the Company’s Consolidated Balance Sheets and are being amortized to interest expense over four years. The fair valueremaining principal of the equity componentConvertible Senior Notes would receive a conversion price adjustment with respect to such special dividend.
The special dividend was payable to stockholders on January 31, 2020. On February 4, 2020, we issued the New 2.5% Convertible Notes, maturing on April 1, 2022, and the New 2.0% Convertible Notes, which mature on August 15, 2022, pursuant
to two new indentures, and made the Notes recorded in additional paid-in capital was $29 million.
Cash Note Payments. The new Notes are convertible into cash, shares of the Company’s common stock or a combination of cash and common stock, at the Company’s option, at any time prior to the maturity date at an initial conversion rate for the New 2.50% Convertible Notes of 59.6341 per $1,000 principal amount of the New 2.50% Convertible Notes (which represents an initial conversion price of approximately $16.77 per share). The and an initial conversion rate isfor the New 2.00% Convertible Notes of 48.9860 per $1,000 principal amount of the New 2.00% Convertible Notes (which represents an initial conversion price of approximately $20.41 per share), in each case subject to customary anti-dilutioncertain limitations and certain adjustments. The Notes are senior unsecured obligationsCash Note Payments consisted of $179 million with respect to holders of the CompanyNew 2.5% Convertible Notes and rank equal in right of payment$367 million with respect to all senior unsecured indebtednessholders of the Company. New 2.0% Convertible Notes. The exchange of the convertible notes was accounted for as extinguishment of debt and the consideration comprising the Cash Note Payments were recorded as charges to paid in capital. We recognized a gain of $2 million related to the exchange.
After giving effect to the conversion rate adjustment that was made in connection with the payment of the special dividend on January 31, 2020, the conversion rate for the remaining $250 million of the 2.5% Convertible Notes was 118.9814 shares of common stock per $1,000 principal amount of the notes, which represents an adjusted conversion price of approximately $8.40 per share and the conversion rate for the remaining $625 million of the 2.0% Convertible Notes was 97.7364 shares of common stock per $1,000 principal amount of the notes, which represented an adjusted conversion price of approximately $10.23 per share.
In addition, in connection with the amendments, the maturity dates of the 2.5% Convertible Notes and the 2.0% Convertible Notes were extended to April 1, 2022 and August 15, 2022, respectively. Holders of the Convertible Senior Notes would only be able to convert the notes in a period of six months prior to the extended maturity dates; and the Redemption Right and Repurchase Right were removed.
On March 5, 2020, we entered into an agreement to repay the full $250 million of principal and conversion rights of the 2.5% Convertible Notes for an aggregate amount of $566 million in cash. The payment was based on $19 per underlying share into which the 2.5% Convertible Notes were convertible. In addition, we paid $2 million of accrued and unpaid interest through the date of settlement, and $1 million in lieu of a proration of the cash dividend declared on February 6, 2020. The extinguishment was settled on March 10, 2020 and resulted in an adjustment to stockholders’ equity of $316 million and a loss on extinguishment of $1 million.
On May 26, 2020, we settled the $625 million principal and conversion rights of the 2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $1,176 million was based on $19.25 per underlying share into which the 2.0% Convertible Notes were convertible. In addition, we paid $3 million of accrued and unpaid interest through the date of settlement. The extinguishment resulted in an adjustment to stockholders’ equity of $578 million and a gain on extinguishment of $20 million.
As of April 1, 2016,2, 2021 and April 3, 2020, the Convertible Senior Notes consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 2, 2021 | | April 3, 2020 |
| (In millions) | New 2.5% Convertible Notes | | New 2.0% Convertible Notes | | New 2.5% Convertible Notes | | New 2.0% Convertible Notes | | 2.0% Convertible Notes |
| Liability component: | | | | | | | | | |
| Principal | $ | 250 | | | $ | 625 | | | $ | 250 | | | $ | 625 | | | $ | 625 | |
| Unamortized discount and issuance costs | 0 | | | (5) | | | (1) | | | (9) | | | (6) | |
| Net carrying amount | $ | 250 | | | $ | 620 | | | $ | 249 | | | $ | 616 | | | $ | 619 | |
| | | | | | | | | |
| Equity component, net of tax | $ | 43 | | | $ | 56 | | | $ | 43 | | | $ | 56 | | | $ | 12 | |
Based on the closing price of our common stock of $21.42 on the last trading date closest to April 2, 2021, the if-converted values of the New 2.5% Convertible Notes and the 2.0% Convertible Notes exceeded the principal amount by approximately $69 million and $31 million, respectively. See Note 19 for discussion of convertible note purchase agreement entered into on May 13, 2021.
The following table sets forth total interest expense recognized related to our convertible notes:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Contractual interest expense | $ | 20 | | | $ | 37 | | | $ | 38 | |
| Amortization of debt discount and issuance costs | $ | 4 | | | $ | 13 | | | $ | 16 | |
Payments in lieu of conversion price adjustments (1) | $ | 12 | | | $ | 11 | | | $ | 0 | |
(1) Payments in lieu of conversion price adjustments consist of the Notes remained approximately $16.77.
Holders of the Notes have the rightamounts paid to redeem the Notes for 100% of the principal plus accrued interest on or after the fourth anniversary of the issuance date, or if a fundamental change or an event of default occurs. A fundamental change, as defined in
the indenture governing the Notes, includes a sale of substantially all the Company’s assets, a change of the control of the Company, or a plan for the Company’s liquidation or dissolution. If holders of the Convertible Senior Notes convert them in connection with a fundamental change,when our quarterly dividend to our common stockholders exceeds the Company may be required to provide a make whole premiumamounts defined in the formConvertible Senior Notes agreements.
Note 11. Derivatives
We conduct business in numerous currencies throughout our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues, or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses which impacts our operating results. As part of our foreign currency risk mitigation strategy, we have entered into foreign exchange forward contracts with up to twelve months in duration. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a maximum amount, based onmanner that entirely offsets the effective dateeffects of the fundamental changechanges in foreign exchange rates.
We enter into foreign currency forward contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as set forth in a table contained in the indenture governing the Notes. As long as the holders of the Notes own at least 4% of the Company’s common stock on an as-converted basis, they are entitled to nominate one director to the Company’s board of directors.hedging instruments. As of April 1, 2016, the holders’ percentage interest in the Company’s common stock exceeded this threshold.
The Company may redeem all or part of the principal of the Notes, at its option, at a purchase price equal to the principal amount plus accrued interest on or after the fourth anniversary of the Issuance Date, if the closing trading price of the Company’s common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading-day period preceding the Company’s exercise of the redemption right (including the last three such trading days) and provided that the Company has on file with the Securities and Exchange Commission an effective shelf registration statement on Form S-3 for the Company’s common stock. Upon conversion, the Company has the intent and the current ability to pay the holders the cash value of the applicable number of shares of the Company’s common stock, up to the principal amount and accrued and paid interest of the Notes.
Revolving credit facility
In fiscal 2011, we entered into a $1.0 billion senior unsecured revolving credit facility, which was amended in fiscal 2013. The amendment extended the term of the credit facility to June 7, 2017 and revolving loans under the credit facility will bear interest, at our option, either at a rate equal to a) London InterBank Offered Rate plus a margin based on debt ratings, as defined in the credit facility agreement or b) the bank’s base rate plus a margin based on debt ratings, as defined in the credit facility agreement. This revolving credit facility was further amended in March 2016 to amend the definition of EBITDA (earnings before interest, taxes, depreciation and amortization) to account for the sale of Veritas and related expenses and to amend our consolidated leverage ratio under the agreement. Under the terms of this credit facility, we must comply with certain financial and non-financial covenants, including a covenant to maintain a specified ratio of debt to EBITDA. As of April 1, 2016,2, 2021 and April 3, 2015,2020, the fair value of these contracts was immaterial. The related gain (loss) recognized in Other income (expense), net in our Consolidated Statements of Operations was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Foreign exchange forward contracts gain (loss) | $ | 15 | | | $ | (22) | | | $ | (37) | |
The fair value of our foreign exchange forward contracts is presented on a gross basis in our Consolidated Balance Sheets. To mitigate losses in the event of nonperformance by counterparties, we werehave entered into master netting arrangements with our counterparties that allow us to settle payments on a net basis. The effect of netting on our derivative assets and liabilities was not material as of April 2, 2021 and April 3, 2020.
The notional amount of our outstanding foreign exchange forward contracts in compliance with the required covenants, and no amounts were outstanding.U.S. dollar equivalent was as follows:
In May 2016, we replaced our existing $1.0 billion senior unsecured revolving credit facility with a new $2.0 billion credit facility. See Note 13 for more information. | | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Foreign exchange forward contracts purchased | $ | 270 | | | $ | 362 | |
| Foreign exchange forward contracts sold | $ | 68 | | | $ | 57 | |
Note 6.12. Restructuring, Separation,Transition and TransitionOther Costs
Our restructuring, separation,transition and transitionother costs and liabilities consist primarily of severance, facilities,contract cancellations, separation, transition, and other related costs. Severance costs generally include severance payments, outplacement services, health insurance coverage, and legal costs. FacilitiesIncluded in other exit and disposal costs generally include rent expense and lease terminationare advisory fees incurred in connection with restructuring events. Separation costs less estimated sublease income. Separation and other related costs include advisory,primarily consist of consulting and other costs incurred in connection with the separationour divestitures. Transition costs are incurred in connection with Board of ourDirectors approved discrete strategic information management business. Transitiontechnology transformation initiatives and other related costs primarily consist of consulting charges associated with the implementation of newour enterprise resource planning systems. Restructuring, separation, and supporting systems and costs to automate business processes. Such transition costs are managed atprojects were completed by the corporate level and are not allocated to our reportable segments. See Note 8 for information regarding the reconciliationend of total segment operating income to total consolidated operating income.fiscal 2019.
Fiscal 2014December 2020 Plan
We initiatedIn December 2020, our Board of Directors approved a restructuring plan in the fourth quarter of fiscal 2013(the December 2020 Plan) to consolidate facilities and reduce management and redundant personnel resulting in headcount reductions across the Company. As of April 1, 2016, the related costs for severance and benefits are substantially complete; however, we expect to incur immaterial adjustments to existing reserves in subsequent periods.
Fiscal 2015 Plan
In fiscal 2015, we announced plans to separate our security and information management businesses. In order to separate the businesses, we put a restructuring plan in place to properly align personnel, and have therefore incurred associated severance and facilities costs. We also incurred separationoperating costs in the formconnection with our acquisition of advisory, consulting and disentanglement expenses.Avira. We estimate that we will incur total costs of up to $20 million. These actions were substantially completed in the fourth quarter of fiscal 2016 with the sale of Veritas on January 29, 2016. However, we expect to incur immaterial adjustments to existing reserves in subsequent periods. See Note 3 for more information on the sale of Veritas. As of April 1, 2016, liabilities for excess facility obligations at several locations around the world are expected to be paid throughoutcompleted in fiscal 2022. As of April 2, 2021, we have incurred total costs of $12 million under the respective lease terms,December 2020 Plan. See Note 4 for further information on our Avira acquisition.
November 2019 Plan
In November 2019, our Board of Directors approved a restructuring plan (the November 2019 Plan) in connection with the longeststrategic decision to divest our Enterprise Security business. Actions under this plan included the reduction of our workforce as well as asset write-offs and impairments, contract terminations, facilities closures, and the sale of underutilized facilities. These actions were completed in fiscal 2021, and we incurred total costs of $509 million, excluding stock-based compensation expense, under the November 2019 Plan.
In connection with the Broadcom sale, our Board of Directors approved an equity-based severance program under which extends throughcertain equity awards to certain terminated employees were accelerated. As of April 2, 2021, we have incurred $127 million of stock-based compensation related to our equity-based severance program. See Note 15 for further information on the impact of this program.
August 2019 Plan
On August 6, 2019, our Board of Directors approved a restructuring plan (the August 2019 Plan) to improve productivity and reduce complexity in the way we manage the business. Under the August 2019 Plan, we reduced our global headcount and closed certain facilities. These actions were completed in fiscal 2022.2020, and we incurred total costs of $53 million, primarily consisting of severance and termination benefits.
Restructuring, separation, and transition summary
We incurred $78 million in continuing operations transition and other related costs during fiscal 2016. summary
Our restructuring, transition and other costs attributable to continuing operations are presented in the table below:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Severance and termination benefit costs | $ | 31 | | | $ | 90 | | | $ | 19 | |
| Contract cancellation charges | 51 | | | 101 | | | 0 | |
| Stock-based compensation charges | 10 | | | 20 | | | 0 | |
| Asset write-offs and impairments | 58 | | | 47 | | | 2 | |
| Other exit and disposal costs | 11 | | | 7 | | | 12 | |
| Separation costs | 0 | | | 1 | | | 3 | |
| Transition costs | 0 | | | 0 | | | 185 | |
| Total restructuring, transition and other | $ | 161 | | | $ | 266 | | | $ | 221 | |
In addition,connection with the followingagreement to sell certain assets of our Enterprise Security business, a portion of our restructuring, transition and other costs were classified to discontinued operations for all periods presented. Our restructuring, transition and other costs attributable to discontinued operations are presented in the table summarizes changesbelow:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Severance and termination benefit costs | $ | 64 | | | $ | 121 | | | $ | 9 | |
| Contract cancellation charges | 0 | | | 5 | | | 0 | |
| Stock-based compensation charges | 0 | | | 97 | | | 0 | |
| Asset write-offs and impairments | 0 | | | 13 | | | 0 | |
| Other exit and disposal costs | 0 | | | 0 | | | 3 | |
| Separation costs | 2 | | | 25 | | | 0 | |
| Transition costs | 0 | | | 0 | | | 8 | |
| Total restructuring, transition and other | $ | 66 | | | $ | 261 | | | $ | 20 | |
Restructuring summary
Our activities and liability balances related to our restructuring and separationplans are presented in the tables below:
December 2020 Plan
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Liability Balance as of April 3, 2020 | | Net Charges | | Cash Payments | | Non-Cash Items | | Liability Balance as of April 2, 2021 |
| Severance and termination benefit costs | $ | 0 | | | $ | 12 | | | $ | (9) | | | $ | 0 | | | $ | 3 | |
| Total | $ | 0 | | | $ | 12 | | | $ | (9) | | | $ | 0 | | | $ | 3 | |
November 2019 Plan
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Liability Balance as of April 3, 2020 | | Net Charges | | Cash Payments | | Non-Cash Items | | Liability Balance as of April 2, 2021 |
| Severance and termination benefit costs | $ | 35 | | | $ | 83 | | | $ | (118) | | | $ | 0 | | | $ | 0 | |
| Contract cancellation charges | 7 | | | 51 | | | (11) | | | (35) | | | 12 | |
| Stock-based compensation charges | 0 | | | 10 | | | 0 | | | (10) | | | 0 | |
| Asset write-offs and impairments | 0 | | | 58 | | | 0 | | | (58) | | | 0 | |
| Other exit and disposal costs | 0 | | | 11 | | | (10) | | | 0 | | | 1 | |
| Total | $ | 42 | | | $ | 213 | | | $ | (139) | | | $ | (103) | | | $ | 13 | |
The restructuring liabilities which remain with the Company in continuing operations and are included in accounts payable, otherOther current liabilities and other long-term obligations in our Consolidated Balance Sheets. A
Note 13. Income Taxes
The components of our income (loss) from continuing operations before income taxes are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Domestic | $ | 607 | | | $ | 667 | | | $ | (179) | |
| International | 265 | | | 152 | | | 72 | |
| Income (loss) before income taxes | $ | 872 | | | $ | 819 | | | $ | (107) | |
The components of income tax expense (benefit) from continuing operations are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Current: | | | | | |
| Federal | $ | 133 | | | $ | 208 | | | $ | 58 | |
| State | 36 | | | 33 | | | 4 | |
| International | (13) | | | 3 | | | (14) | |
| Total | 156 | | | 244 | | | 48 | |
| Deferred: | | | | | |
| Federal | (6) | | | (23) | | | (35) | |
| State | (5) | | | 3 | | | (3) | |
| International | 31 | | | 17 | | | (7) | |
| Total | 20 | | | (3) | | | (45) | |
| Income tax expense | $ | 176 | | | $ | 241 | | | $ | 3 | |
The U.S. federal statutory income tax rates we have applied for fiscal 2021, 2020, and 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| U.S. federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
The difference between our effective income tax and the federal statutory income tax is as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Federal statutory tax expense (benefit) | $ | 183 | | | $ | 172 | | | $ | (23) | |
| State taxes, net of federal benefit | 25 | | | 22 | | | (11) | |
| Foreign earnings taxed at other than the federal rate | 7 | | | (2) | | | (24) | |
| Transition tax | 0 | | | 0 | | | (2) | |
| Federal research and development credit | (1) | | | (2) | | | (4) | |
| Valuation allowance increase (decrease) | 1 | | | (57) | | | 26 | |
| Change in uncertain tax positions | 3 | | | 60 | | | 44 | |
| Stock-based compensation | 5 | | | 5 | | | 8 | |
| Nondeductible goodwill | 0 | | | 18 | | | 0 | |
| Favorable ruling on foreign withholding tax | (35) | | | 0 | | | 0 | |
| US tax on foreign earnings | (15) | | | (4) | | | (1) | |
| Return to provision adjustment | 1 | | | 12 | | | (16) | |
| Other, net | 2 | | | 17 | | | 6 | |
| Income tax expense | $ | 176 | | | $ | 241 | | | $ | 3 | |
The principal components of deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Deferred tax assets: | | | |
| Tax credit carryforwards | $ | 2 | | | $ | 6 | |
| Net operating loss carryforwards of acquired companies | 23 | | | 21 | |
| Other accruals and reserves not currently tax deductible | 54 | | | 46 | |
| Operating lease liabilities | 29 | | | 12 | |
| Deferred revenue | 0 | | | 2 | |
| Property and equipment | 17 | | | 10 | |
| Intangible assets | 103 | | | 117 | |
| Loss on investments not currently tax deductible | 0 | | | 1 | |
| Stock-based compensation | 7 | | | 21 | |
| Other | 36 | | | 44 | |
| Gross deferred tax assets | 271 | | | 280 | |
| Valuation allowance | (7) | | | (9) | |
| Deferred tax assets, net of valuation allowance | 264 | | | 271 | |
| Deferred tax liabilities: | | | |
| Operating lease assets | (25) | | | (10) | |
| Goodwill | (1) | | | 0 | |
| Deferred revenue | (1) | | | 0 | |
| Unremitted earnings of foreign subsidiaries | (15) | | | (17) | |
| Prepaids and deferred expenses | (2) | | | (2) | |
| Discount on convertible debt | (2) | | | (4) | |
| Deferred tax liabilities | (46) | | | (33) | |
| Net deferred tax assets (liabilities) | $ | 218 | | | $ | 238 | |
The valuation allowance provided against our deferred tax assets as of April 2, 2021, decreased primarily due to a change in tax credit carryforwards. The ending valuation allowance of $7 million is provided primarily against certain foreign tax credits.
As of April 2, 2021, we have U.S. federal net operating losses attributable to various acquired companies of approximately $77 million, which, if not used, will expire between fiscal 2022 and 2039. The remaining net operating loss carryforwards are subject to an annual limitation under U.S. federal tax regulations but are expected to be fully realized. Furthermore, we have U.S. state net operating loss carryforwards attributable to various acquired companies of approximately $13 million. If not used, our U.S. state net operating losses will expire between fiscal 2022 and 2038. In addition, we have foreign net operating loss carryforwards attributable to various foreign companies of approximately $26 million.
In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the current and prior two years; we have strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. We have concluded that this positive evidence outweighs the following restructuringnegative evidence and, separation costs isthus, that the deferred tax assets as of April 2, 2021, are realizable on a “more likely than not” basis.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Balance at beginning of year | $ | 724 | | | $ | 446 | | | $ | 378 | |
| Settlements with tax authorities | (37) | | | (5) | | | (3) | |
| Lapse of statute of limitations | (34) | | | (15) | | | (17) | |
| Increase related to prior period tax positions | 13 | | | 77 | | | 16 | |
| Decrease related to prior period tax positions | (129) | | | (11) | | | (11) | |
| Increase related to current year tax positions | 11 | | | 232 | | | 75 | |
| Increase due to acquisition | 0 | | | 0 | | | 8 | |
| Balance at end of year | $ | 548 | | | $ | 724 | | | $ | 446 | |
There was a change of $176 million in gross unrecognized tax benefits during the year ended April 2, 2021, as disclosed above. This gross liability does not include offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, interest deductions, and state income taxes.
Of the total unrecognized tax benefits at April 2, 2021, $494 million, if recognized, would affect our effective tax rate.
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. At April 2, 2021, before any tax benefits, we had $74 million of accrued interest and penalties on unrecognized tax benefits. Interest included in
our provision for income
from discontinued operations, nettaxes was an expense of
income taxes. |
| | | | | | | | | | | | | | | | | | | |
| | April 3, 2015 | | Costs, Net of
Adjustments | | Cash Payments | | April 1, 2016 | | Cumulative
Incurred to Date |
| | (Dollars in millions) |
| Fiscal 2014 Plan total | $ | 4 |
| | $ | — |
| | $ | (4 | ) | | $ | — |
| | $ | 238 |
|
| Fiscal 2015 Plan | | | | | | | | | |
| Severance costs | 59 |
| | 34 |
| | (88 | ) | | 5 |
| | 136 |
|
| Separation costs | 17 |
| | 214 |
| | (215 | ) | | 16 |
| | 295 |
|
| Other exit and disposal costs | 6 |
| | 18 |
| | (16 | ) | | 8 |
| | 25 |
|
| Fiscal 2015 Plan total | 82 |
| | 266 |
| | (319 | ) | | 29 |
| | $ | 456 |
|
| Restructuring and separation plans total | $ | 86 |
| | 266 |
| | $ | (323 | ) | | $ | 29 |
| | |
Note 7. Commitments and Contingencies
Lease commitments
We lease certain of our facilities, equipment, and co-locations under operating leases that expire at various dates through fiscal 2026. We currently sublease some space under various operating leases that will expire on various dates through fiscal 2023. Some of our leases contain renewal options, escalation clauses, rent concessions, and leasehold improvement incentives. Rent expense under operating leases was $103 million, $113 million, and $106approximately $26 million for fiscal 2016,2021. If the accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced in the period that such determination is made and reflected as a reduction of the overall income tax provision.
On July 27, 2015, the United States Tax Court (Tax Court) issued its opinion in Altera v. Commissioner and 2014, respectively.
concluded that related parties in a cost sharing arrangement are not required to share expenses related to stock-based compensation. The minimum future rentals on non-cancelable operating leases by fiscal year are as follows: |
| | | | |
| | | April 1, 2016 |
| | | (Dollars in millions) |
| 2017 | | $ | 86 |
|
| 2018 | | 66 |
|
| 2019 | | 58 |
|
| 2020 | | 37 |
|
| 2021 | | 32 |
|
| Thereafter | | 25 |
|
| Total minimum future lease payments | | 304 |
|
| Sublease income | | (70 | ) |
| Total minimum future lease payments, net | | $ | 234 |
|
Purchase obligations
We have purchase obligations that are associated with agreements for purchasesCommissioner of goods or services. Management believes that cancellation of these contracts is unlikely and we expect to make future cash payments accordingthe Internal Revenue Service appealed the Tax Court decision to the contract terms.
The following reflects unrecognized purchase obligations by fiscal year: |
| | | | |
| | | April 1, 2016 |
| | | (Dollars in millions) |
| 2017 | | $ | 256 |
|
| 2018 | | 21 |
|
| 2019 | | 50 |
|
| Thereafter | | 2 |
|
| Total purchase obligations | | $ | 329 |
|
Indemnifications
Ninth Circuit. In June 2019, the ordinary courseU.S. Court of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In addition, our bylaws contain indemnification obligations to our directors, officers, employees and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regardingAppeals for the scopeNinth Circuit reversed the July 2015 decision of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs asU.S. Tax Court. As a result of obligations under these agreements andthis decision, we have not accrued any liabilities related to such indemnification obligationsrecorded a cumulative income tax expense of $62 million in our Consolidated Financial Statements.
In connection with the sale of Veritas, we assigned several leases to Veritas Technologies LLC or its related subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC or its related subsidiaries' breach of payment obligations under the terms of the lease. As with our other indemnification obligations discussed above and in general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations under our Consolidated Financial Statements.
We provide limited product warranties and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.
Litigation contingencies
GSA
During the first quarter of fiscal 2013, we were advised2020. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit, but such request was denied on November 12, 2019. In February 2020, Altera requested a hearing before the Supreme Court of the United States. In June 2020, the Supreme Court declined to review the case.
We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. Our most significant tax jurisdictions are the U.S. and Ireland. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. Our fiscal years 2014 through 2021 remain subject to examination by the Commercial Litigation BranchIRS for U.S. federal tax purposes. Our fiscal years prior to 2014 have been settled and closed with the IRS. Our fiscal years 2014 to 2019 are currently under audit by the IRS. Our 2016 through 2021 fiscal years remain subject to examination by the appropriate governmental agencies for Irish tax purposes.
The timing of the Departmentresolution of Justice’s Civil Divisionincome tax examinations is highly uncertain, and the Civil Divisionamounts ultimately paid, if any, upon resolution of the U.S. Attorney’s Officeissues raised by the taxing authorities may differ materially from the amounts accrued for the Districteach year. Although potential resolution of Columbiauncertain tax positions involves multiple tax periods and jurisdictions, it is reasonably possible that the governmentgross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months. Depending on the nature of the settlement or expiration of statutes of limitations, it could affect our income tax provision and therefore benefit the resulting effective tax rate.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.
Note 14. Stockholders’ Equity
Preferred stock
On May 22, 2020, we filed a Certificate of Elimination of Series A Junior Preferred Stock (the “Junior Preferred Stock”) with the Secretary of State of the State of Delaware, to remove the Certificate of Designations of the Junior Preferred Stock from our Amended and Restated Certificate of Incorporation. The Certificate of Elimination became effective upon filing. No shares of the Junior Preferred Stock were issued or outstanding upon filing of the Certificate of Elimination.
Dividends
On May 10, 2021, we announced that our Board of Directors declared a cash dividend of $0.125 per share of common stock to be paid in June 2021. All shares of common stock issued and outstanding and all RSUs and PRUs as of the record date will be entitled to the dividend and dividend equivalent rights (DERs), respectively, which will be paid out if and when the underlying shares are released. Any future dividends and DERs will be subject to the approval of our Board of Directors.
Stock repurchase program
Under our stock repurchase program, we may purchase shares of our outstanding common stock through open market and through accelerated stock repurchase transactions. As of April 2, 2021, we have $274 million remaining under the authorization to be completed in future periods with no expiration date.
The following table summarizes activity related to our stock repurchase program:
| | | | | | | | | | | |
| | Year Ended |
| (In millions, except per share amounts) | April 2, 2021 | | April 3, 2020 |
| Number of shares repurchased | 15 | | | 68 | |
| Average price per share | $ | 20.50 | | | $ | 22.97 | |
| Aggregate purchase price | $ | 304 | | | $ | 1,562 | |
Repurchases of 1 million shares executed during 2019 were settled in fiscal 2020.
On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million, bringing the total authorized under the stock repurchase program to $1,774 million. The authorization does not have an expiration date.
Accumulated other comprehensive income (loss)
Components and activities of AOCI, net of tax, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Foreign Currency Translation Adjustments | | Unrealized Gain (Loss) On Available-For-Sale Securities | | Equity Method Investee | | Total AOCI |
| Balance as of March 29, 2019 | $ | (5) | | | $ | (1) | | | $ | (1) | | | $ | (7) | |
| Other comprehensive income (loss) before reclassifications | (11) | | | 1 | | | 2 | | | (8) | |
| Reclassification to net income | 0 | | | 0 | | | (1) | | | (1) | |
| Balance as of April 3, 2020 | (16) | | | 0 | | | 0 | | | (16) | |
| Other comprehensive income before reclassifications | 63 | | | 0 | | | 0 | | | 63 | |
| Balance as of April 2, 2021 | $ | 47 | | | $ | 0 | | | $ | 0 | | | $ | 47 | |
Note 15. Stock-Based Compensation and Other Benefit Plans
Stock incentive plans
The purpose of our stock incentive plans is investigatingto attract, retain, and motivate eligible persons whose present and potential contributions are important to our compliancesuccess by offering them an opportunity to participate in our future performance through equity awards. We have 1 primary stock incentive plan: the 2013 Equity Incentive Plan (the 2013 Plan), under which incentive stock options may be granted only to employees (including officers and directors who are also employees), and other awards may be granted to employees, officers, directors, consultants, independent contractors, and advisors. As amended, our stockholders have approved and reserved 82 million shares of common stock for issuance under the 2013 Plan. As of April 2, 2021, 18 million shares remained available for future grant, calculated using the maximum potential shares that could be earned and issued at vesting.
In connection with the acquisitions of various companies, we have assumed the equity awards granted under stock incentive plans of the acquired companies or issued equity awards in replacement thereof. No new awards will be granted under our acquired stock plans.
RSUs
| | | | | | | | | | | |
| (In millions, except per share and year data) | Number of
Shares | | Weighted-
Average
Grant Date Fair Value |
| Outstanding as of April 3, 2020 | 7 | | | $ | 21.33 | |
| Granted | 4 | | | $ | 20.70 | |
| Vested | (4) | | | $ | 21.86 | |
| Forfeited | (2) | | | $ | 20.55 | |
| Outstanding as of April 2, 2021 | 5 | | | $ | 20.62 | |
RSUs generally vest over a three-year period. The weighted-average grant date fair value per share of RSUs granted during fiscal 2021, 2020, and 2019 was $20.70, $19.65, and $21.77, respectively. The total fair value of RSUs released in fiscal 2021, 2020, and 2019 was $86 million, $300 million, and $214 million, respectively, which represents the market value of our common stock on the date the RSUs were released.
PRUs
| | | | | | | | | | | |
| (In millions, except per share and year data) | Number of
Shares | | Weighted-
Average
Grant Date Fair Value |
| Outstanding and unvested at April 3, 2020 | 2 | | | $ | 22.68 | |
| Granted | 2 | | | $ | 26.39 | |
| Vested | (2) | | | $ | 23.97 | |
| | | |
| Forfeited | (1) | | | $ | 20.61 | |
| Unvested at April 2, 2021 | 1 | | | $ | 27.50 | |
| Vested and unreleased at April 2, 2021 | 0 | | | |
| Outstanding at April 2, 2021 | 1 | | | |
The total fair value of PRUs released in fiscal 2021, 2020, and 2019 was $43 million, $39 million, and $261 million, respectively, which represents the market value of our common stock on the date the PRUs were released.
We have granted PRUs to certain of our executives. Typically, these PRUs have a three-year vest period. PRUs granted in fiscal 2021 and 2019 contain a combination of our company’s performance and market conditions whereas our fiscal 2020 PRUs only contain market conditions. The performance conditions are based on the achievement of specified one-year non-GAAP financial metrics. The market conditions are based on the achievement of our relative total shareholder return over a two- and three-year period. Typically, 0% to 200% of target shares are eligible to be earned based on the achievement of the performance and market conditions.
Valuation of PRUs
The fair value of each PRU that does not contain a market condition is equal to the market value of our common stock on the date of grant. The fair value of each PRU that contains a market condition is estimated using the Monte Carlo simulation model. The valuation and the underlying weighted-average assumptions for PRUs are summarized below:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Expected term | 2.7 years | | 1.9 years | | 2.7 years |
| Expected volatility | 42.5 | % | | 38.1 | % | | 34.2 | % |
| Risk-free interest rate | 0.2 | % | | 1.7 | % | | 2.7 | % |
| Expected dividend yield | 0 | % | | 1.1 | % | | 0 | % |
| Weighted-average grant date fair value of PRUs | $ | 26.39 | | $ | 21.69 | | $ | 21.30 |
Stock options
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions, except per share and year data) | Number of
Shares | | Weighted-Average Exercise Price | | Weighted-
Average
Remaining Contractual Term
(Years) | | Aggregate Intrinsic
Value |
| Outstanding at April 3, 2020 | 2 | | | $ | 6.85 | | | | | |
| | | | | | | |
| Exercised | (1) | | | $ | 7.25 | | | | | |
| | | | | | | |
| Forfeited and expired | (1) | | | $ | 6.93 | | | | | |
Outstanding at April 2, 2021 (1) | 0 | | | $ | 5.22 | | | | | |
Exercisable at April 2, 2021 (1) | 0 | | | $ | 5.22 | | | 4.75 | | $ | 5 | |
(1) The number of shares is less than 1 million.
The total intrinsic value of options exercised during fiscal 2021, 2020, and 2019 was $18 million, $171 million, and $23 million, respectively. NaN options were granted in fiscal 2021. The fair value of options granted in fiscal 2020 was $4.76 per share.
ESPP
Under our 2008 Employee Stock Purchase Plan, employees may annually contribute up to 10% of their gross compensation, subject to certain limitations, to purchase shares of our common stock at a discounted price. Eligible employees are offered shares through a 12-month offering period, which consists of 2 consecutive 6-month purchase periods, at 85% of the lower of either the fair market value on the purchase date or the fair market value at the beginning of the offering period.
As of April 2, 2021, 38 million shares have been issued under this plan, and 32 million shares remained available for future issuance.
The following table summarizes activity related to the purchase rights issued under the ESPP:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Shares issued under the ESPP | 1 | | | 2 | | | 0 | |
| Proceeds from issuance of shares | $ | 14 | | | $ | 39 | | | $ | 0 | |
The fair value of each stock purchase right under our ESPP is estimated using the Black-Scholes option pricing model. The weighted-average grant date fair value related to rights to acquire shares of common stock under our ESPP in fiscal 2021, 2020, and 2019 was $5.65 per share, $5.17 per share, and $6.22 per share, respectively.
Dividend equivalent rights (DERs)
Our RSUs and PRUs contain dividend equivalent rights (DER) that entitles the recipient of an award to receive cash dividend payments when the associated award is released. The amount of DER equals to the cumulated dividends on the issued number of common stock that would have been payable since the date the associated award was granted. As of April 2, 2021 and April 3, 2020, current dividends payable related to DER was $12 million and $62 million, respectively, recorded as part of Other current liabilities in the Consolidated Balance Sheets, and long-term dividends payable related to DER was $10 million and $31 million, respectively, recorded as part of Other long-term liabilities.
Stock-based award modifications
In connection with the Broadcom sale in fiscal 2020, we approved severance and retention arrangements for certain executives. As a result, these executives are entitled to receive vesting of 50% of their unvested equity, subject to a service condition, and the remaining unvested equity will be earned at levels of 0% to 150%, subject to market and service conditions. In connection with restructuring activities related to the Broadcom sale, we entered into severance and retention arrangements with certain provisionsother employees. These arrangements provided for acceleration of either a portion or all of the vesting of their stock-based awards.
The following table summarizes the stock-based compensation expense recognized as a result of these modifications:
| | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| Sales and marketing | $ | 2 | | | $ | 6 | |
| Research and development | 9 | | | 0 | |
| General and administrative | 8 | | | 20 | |
| Restructuring and other costs | 10 | | | 20 | |
| Discontinued operations | 1 | | | 99 | |
| Total stock-based compensation | $ | 30 | | | $ | 145 | |
Stock-based compensation expense
Total stock-based compensation expense and the related income tax benefit recognized for all of our equity incentive plans in our Consolidated Statements of Operations were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Cost of revenues | $ | 1 | | | $ | 2 | | | $ | 6 | |
| Sales and marketing | 18 | | | 29 | | | 42 | |
| Research and development | 26 | | | 30 | | | 34 | |
| General and administrative | 26 | | | 58 | | | 76 | |
| Restructuring, transition and other costs | 10 | | | 20 | | | 0 | |
| Other income (expense), net | (1) | | | 1 | | | 0 | |
| Total stock-based compensation from continuing operations | 80 | | | 140 | | | 158 | |
| Discontinued operations | 1 | | | 172 | | | 194 | |
| Total stock-based compensation expense | $ | 81 | | | $ | 312 | | | $ | 352 | |
| Income tax benefit for stock-based compensation expense | $ | (18) | | | $ | (55) | | | $ | (73) | |
As of April 2, 2021, the total unrecognized stock-based compensation expense related to our unvested stock-based awards was $94 million, which will be recognized over an estimated weighted-average amortization period of 1.8 years.
Other employee benefit plans
401(k) plan
We maintain a salary deferral 401(k) plan for all of our U.S. General Services Administration (“GSA”) Multiple Award Schedule Contract No. GS-35F-0240T effectiveemployees. This plan allows employees to contribute their pretax salary up to the maximum dollar limitation prescribed by the Internal Revenue Code. We match the first 3.5% of a participant’s eligible compensation up to $6,000 in a calendar year. Our employer matching contributions to the 401(k) plan were as follows, including contributions to employees of our discontinued operations:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| 401(k) matching contributions | $ | 3 | | | $ | 16 | | | $ | 23 | |
Note 16. Net Income Per Share
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding during the period using the treasury stock method. Dilutive potentially issuable common shares include the dilutive effect of the shares underlying convertible debt and employee equity awards. Diluted income (loss) per share was the same as basic income (loss) per share for the year ended March 29, 2019, as there was a loss from continuing operations in the period and inclusion of potentially issuable shares was anti-dilutive.
The components of basic and diluted net income (loss) per share are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions, except per share amounts) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Income (loss) from continuing operations | $ | 696 | | | $ | 578 | | | $ | (110) | |
| Income (loss) from discontinued operations, net of income taxes | (142) | | | 3,309 | | | 141 | |
| Net income | $ | 554 | | | $ | 3,887 | | | $ | 31 | |
| Income (loss) per share - basic: | | | | | |
| Continuing operations | $ | 1.18 | | | $ | 0.94 | | | $ | (0.17) | |
| Discontinued operations | $ | (0.24) | | | $ | 5.38 | | | $ | 0.22 | |
Net income per share - basic (1) | $ | 0.94 | | | $ | 6.32 | | | $ | 0.05 | |
| Income (loss) per share - diluted: | | | | | |
| Continuing operations | $ | 1.16 | | | $ | 0.90 | | | $ | (0.17) | |
| Discontinued operations | $ | (0.24) | | | $ | 5.15 | | | $ | 0.22 | |
Net income per share - diluted (1) | $ | 0.92 | | | $ | 6.05 | | | $ | 0.05 | |
| | | | | |
| Weighted-average outstanding shares - basic | 589 | | | 615 | | | 632 | |
| Dilutive potentially issuable shares: | | | | | |
| Convertible debt | 8 | | | 20 | | | 0 | |
| Employee equity awards | 3 | | | 8 | | | 0 | |
| Weighted-average shares outstanding - diluted | 600 | | | 643 | | | 632 | |
| | | | | |
| Anti-dilutive shares excluded from diluted net income (loss) per share calculation: | | | | | |
| Convertible debt | 8 | | | 5 | | | 91 | |
| Employee equity awards | 0 | | | 2 | | | 47 | |
| Total | 8 | | | 7 | | | 138 | |
(1) Net income per share amounts may not add due to rounding.
Under the treasury stock method, our convertible debt instruments will generally have a dilutive impact on net income per share when our average stock price for the period exceeds the conversion prices for the convertible debt instruments. On February 4, 2020, a portion of the 2.5% Convertible Notes were exchanged for the New 2.5% Convertible Notes, and a portion of the 2.0% Convertible Notes were exchanged for the New 2.0% Convertible Notes. The remaining Convertible Senior Notes received conversion price adjustments. The 2.5% Convertible Notes and 2.0% Convertible Notes were fully repaid on March 10, 2020 and May 26, 2020, respectively. See Note 10 for further information on our convertible debt instruments and Note 19 for information on a convertible note purchase agreement entered into on May 13, 2021. The conversion price of each convertible debt applicable in the periods presented is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| 2.5% Convertible Senior Notes due April 1, 2022 | N/A | | $ 8.40 (1) | | $ | 16.77 | |
| 2.0% Convertible Senior Notes due August 15, 2022 | N/A | | $ 10.23 (1) | | $ | 20.41 | |
| New 2.5% Convertible Senior Notes due April 1, 2022 | $ | 16.77 | | | $ | 16.77 | | | N/A |
| New 2.0% Convertible Senior Notes due August 15, 2022 | $ | 20.41 | | | $ | 20.41 | | | N/A |
(1) Conversion prices of the Convertible Senior Notes prior to their full repayments.
The conversion features of the convertible debt instruments were anti-dilutive during fiscal 2019 due to a loss from continuing operations.
Note 17. Segment and Geographic Information
We operate as 1 reportable segment. Our Chief Operating Decision Maker reviews financial information presented on a consolidated basis to evaluate company performance and to allocate resources.
The following table summarizes net revenues for our major solutions:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Consumer security | $ | 1,513 | | | $ | 1,450 | | | $ | 1,471 | |
| Identity and information protection | 1,038 | | | 994 | | | 937 | |
| ID Analytics | 0 | | | 46 | | | 48 | |
| Total net revenues | $ | 2,551 | | | $ | 2,490 | | | $ | 2,456 | |
From time to time, changes in our product hierarchy cause changes to the product categories above. When changes occur, we recast historical amounts to match the current product hierarchy. The changes have been reflected for all periods presented above. Consumer security products include our Norton 360 Security offerings, Norton Security, Norton Secure VPN, Avira Security, and other consumer security solutions. Identity and information protection products include our Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection solutions. Our ID Analytics solutions were divested on January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices.31, 2020.
As reportedGeographic information
Net revenues by geography are based on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $222 million from the period beginning January 2007 and ending September 2012. We have fully cooperated with the government throughout its investigation and in January 2014, representatives of the government indicated that their initial analysisbilling addresses of our actual damages exposurecustomers. The following table represents net revenues by geographic area for the periods presented:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 2, 2021 | | April 3, 2020 | | March 29, 2019 |
| Americas | $ | 1,827 | | | $ | 1,831 | | | $ | 1,786 | |
| EMEA | 419 | | | 376 | | | 392 | |
| APJ | 305 | | | 283 | | | 278 | |
| Total net revenues | $ | 2,551 | | | $ | 2,490 | | | $ | 2,456 | |
Note: The Americas include U.S., Canada, and Latin America; EMEA includes Europe, Middle East, and Africa; APJ includes Asia Pacific and Japan
Revenues from direct government sales undercustomers inside the GSA schedule was approximately $145 million; since the initial meeting, the government’s analysisU.S. were $1,742 million, $1,747 million, and $1,700 million during fiscal 2021, 2020, and 2019, respectively. No other individual country accounted for more than 10% of our potential damages exposure relating to direct sales has increased. revenues.
The government has also indicated they are going to pursue claims for certain sales to New York, California,table below represents cash, cash equivalents and Florida as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure.
In 2012, a sealed civil lawsuit was filed against Symantec related to compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the lawsuit. On September 16, 2014, the states of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the Department of Justice filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the Department of Justice and the relator on behalf of New York in an Omnibus Complaint; and a First Amended Omnibus Complaint was filed on October 8, 2015; the state claims also do not state specific damages amounts.
It is possible that the litigation could lead to claims or findings of violations of the False Claims Act, and could be material to our results of operations and cash flows for any period. Resolution of False Claims Act investigations can ultimately result in the payment of somewhere between one and three times the actual damages proven by the government, plus civil penalties in some cases, depending upon a number of factors. Our current estimate of the low end of the range of the probable estimated loss from this matter is $25 million, which we have accrued. This amount contemplates estimated losses from both the investigation of compliance with the terms of the GSA Schedule contract as well as possible violations of the False Claims Act.
There is at least a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter, however, we are currently unable to determine the high end of the range of estimated losses resulting from this matter.
IV
On December 8, 2010, Intellectual Ventures ("IV") sued Symantec for patent infringementshort-term investments held in the U.S. District Courtand internationally in Delaware. various foreign subsidiaries:
| | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| U.S. | $ | 536 | | | $ | 1,345 | |
| International | 415 | | | 918 | |
| Total cash, cash equivalents and short-term investments | $ | 951 | | | $ | 2,263 | |
The complaint alleged infringementtable below represents our property and equipment, net of accumulated depreciation and amortization, by various Symantec internet security products. On February 6, 2015,geographic area, based on the jury issued a verdict and subsequent Court decisions invalidated somephysical location of the patents-in-suit, therefore leaving an $8 million damages verdict. Symantec is seeking to overturn that verdict. Symantec does not believe that it is probable that it has incurred a material loss and, as a result, has not made an accrual for this matter.asset, at the end of each period presented:
EDS & NDI | | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| U.S. | $ | 28 | | | $ | 174 | |
| Ireland | 32 | | | 34 | |
| Germany | 14 | | | 4 | |
Other countries (1) | 4 | | | 26 | |
| Total property and equipment, net | $ | 78 | | | $ | 238 | |
On January 24, 2011, a class action lawsuit was filed against the Company and its previous e-commerce vendor Digital River, Inc.; the lawsuit alleged violations of California’s Unfair Competition Law, the California Legal Remedies Act and unjust enrichment related to prior sales of Extended Download Service (“EDS”) and Norton Download Insurance (“NDI”). On March 31, 2014, the U.S. District Court for the District of Minnesota certified a class of all people who purchased these products between January 24, 2005 and March 10, 2011. In August 2015, the parties executed a settlement agreement pursuant to which the Company would pay the plaintiffs $30 million, which we accrued. On October 8, 2015, the Court granted preliminary approval(1) No individual country represented more than 10% of the settlement, which was subsequently paidrespective totals.
Our operating lease assets by geographic area, based on the Company into escrow. The Court granted final approval on April 22, 2016, and entered judgment in the case. Objectors to the settlement have filed notices of appeal to the Eight Circuit Court of Appeals, challenging the Court’s approvalphysical location of the settlement.asset were as follows:
Other | | | | | | | | | | | |
| (In millions) | April 2, 2021 | | April 3, 2020 |
| U.S. | $ | 55 | | | $ | 40 | |
| India | 9 | | | 11 | |
| Japan | 3 | | | 10 | |
Other countries (1) | 9 | | | 27 | |
| Total operating lease assets | $ | 76 | | | $ | 88 | |
We are involved in a number(1)No individual country represented more than 10% of other judicialthe respective totals.
Significant customers
In fiscal 2021, 2020, and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one2019, no customer accounted for 10% or more of the cases, it is not possible to estimate the possible loss or losses from eachour net revenues. See Note 1 for customers that accounted for over 10% of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on our business, results of operations, financial condition or cash flows.net accounts receivable.
Note 8. Segment18. Commitments and Geographic InformationContingencies
Purchase obligations
We have purchase obligations that are associated with agreements for purchases of goods or services. Management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms.
The Company operatesfollowing reflects estimated future payments for purchase obligations by fiscal year. The amount of purchase obligations reflects estimated future payments as of April 2, 2021.
| | | | | |
| (In millions) | April 2, 2021 |
| 2022 | $ | 296 | |
| 2023 | 35 | |
| 2024 | 35 | |
| 2025 | 5 | |
| 2026 | 4 | |
| Thereafter | 5 | |
| Total purchase obligations | $ | 380 | |
Deemed repatriation taxes
Under the Tax Cuts and Jobs Act (H.R.1), we are required to pay a one-time transition tax on untaxed foreign earnings of our foreign subsidiaries through July 2025. The following reflects estimated future payments for deemed repatriation taxes by fiscal year:
| | | | | |
| (In millions) | April 2, 2021 |
| 2022 | $ | 69 | |
| 2023 | 68 | |
| 2024 | 128 | |
| 2025 | 171 | |
| 2026 | 158 | |
| |
| Total obligations | $ | 594 | |
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In addition, our bylaws contain indemnification obligations to our directors, officers, employees, and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the following two reporting segments, which areaggregate maximum potential loss under these indemnification agreements due to the samelimited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements, and we have not accrued any material liabilities related to such indemnification obligations in our operating segments:Consolidated Financial Statements.
Consumer Security: Our Consumer Security segment focuses on making it simple for customers to be productive and protected at home and at work. Our Norton-branded services provide multi-layer security and identity protection on major desktop and mobile operating systems, to defend against increasingly complex online threats to individuals, families, and small businesses.
Enterprise Security:Our Enterprise Security segment protects organizations so they can securely conduct business while leveraging new platforms and data. Our Enterprise Security segment includes our threat protection products, information protection products, cyber security services, and website security offerings, previously named trust services.
There were no intersegment sales for the periods presented. The historical information presented has been retrospectively adjusted to reflectIn connection with the sale of Veritas.
The following table summarizesVeritas and the operating resultssale of our reporting segments: |
| | | | | | | | | | | |
| | Consumer Security | | Enterprise Security | | Total Segments |
| | (Dollars in millions) |
| Fiscal 2016 | | | | | |
| Net revenues | $ | 1,670 |
| | $ | 1,930 |
| | $ | 3,600 |
|
| Operating income | 924 |
| | 102 |
| | 1,026 |
|
| Fiscal 2015 | | | | | |
| Net revenues | $ | 1,887 |
| | $ | 2,069 |
| | $ | 3,956 |
|
| Operating income | 982 |
| | 293 |
| | 1,275 |
|
| Fiscal 2014 | | | | | |
| Net revenues | $ | 2,063 |
| | $ | 2,135 |
| | $ | 4,198 |
|
| Operating income | 928 |
| | 349 |
| | 1,277 |
|
Our operating segments are based upon the nature of ourEnterprise Security business and how our business is managed. During fiscal 2016, 2015, and 2014, our Chief Operating Decision Makers, comprised of our Chief Executive Officer and Chief Financial Officer, use operating segment financial information to evaluate the Company's performance andBroadcom, we assigned several leases to assign resources. Except for goodwill, as disclosed in Note 4, our assets are not discretely identified by segment.
A significant portion of the segments' operating expenses and cost of revenues,Veritas Technologies LLC or Broadcom and/or their related subsidiaries. As a condition to a lesser extent, arise from shared services and infrastructure that we have historically providedconsenting to the segments in orderassignments, certain lessors required us to realize economies of scale andagree to efficiently use resources. These expenses (collectively "corporate charges") include legal, accounting, real estate, information technology services, treasury, human resources, other corporate infrastructure expenses. Corporate charges were allocatedindemnify the lessor under the applicable lease with respect to the segments, and the allocations were determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the segments. Corporate charges previously allocated to Veritas,certain matters, including, but not classified within discontinued operations, were not reallocatedlimited to, our other segments. These unallocated corporate charges also include a $15 million reductionlosses arising out of revenue during fiscal 2014Veritas Technologies LLC, Broadcom, or their related to the GSA investigation. At the beginningsubsidiaries’ breach of the third quarter of fiscal 2016, as Veritas became operationally separate, operating costs related to Veritas were attributed directly to Veritas which reduced our unallocated corporate charges to zero. These charges are presented below as a component of the reconciliation between the total segment operating income and the Company's income from continuing operations and are classified as unallocated corporate charges. In addition, we do not allocate stock-based compensation expense, amortization of intangible assets and restructuring, separation, and transition charges.
The following table provides a reconciliation of the total of the Company's reportable segments’ operating income to the consolidated operating income from continuing operations: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Total segment operating income | $ | 1,026 |
| | $ | 1,275 |
| | $ | 1,277 |
|
| Less reconciling items: | | | | | |
| Unallocated corporate charges | 186 |
| | 704 |
| | 650 |
|
| Stock-based compensation | 161 |
| | 131 |
| | 105 |
|
| Amortization of intangibles | 86 |
| | 122 |
| | 131 |
|
| Restructuring, separation, and transition | 136 |
| | 164 |
| | 247 |
|
| Total consolidated operating income from continuing operations | $ | 457 |
| | $ | 154 |
| | $ | 144 |
|
Product revenue information
The following table summarizes net revenues by significant product categories: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Consumer security | $ | 1,670 |
| | $ | 1,887 |
| | $ | 2,063 |
|
| Threat protection | 1,014 |
| | 1,136 |
| | 1,197 |
|
Others (1) | 916 |
| | 933 |
| | 938 |
|
Total product revenue (2) | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,198 |
|
| |
(1)
| No other product category was material to the respective totals. |
| |
(2)
| A $15 million reduction of revenue during fiscal 2014 related to a loss contingency is unallocated and excluded from total product revenue. |
Geographical information
The following table represents net revenues amounts recognized for sales in the corresponding countries: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| U.S. | $ | 1,897 |
| | $ | 1,960 |
| | $ | 2,049 |
|
Foreign countries (1) | 1,703 |
| | 1,996 |
| | 2,134 |
|
| Total net revenue | $ | 3,600 |
| | $ | 3,956 |
| | $ | 4,183 |
|
| |
(1)
| No individual country represented more than 10% of the respective totals. |
The table below lists our property and equipment, net of accumulated depreciation, by geographic area for the periods presented. We do not identify or allocate our other assets by geographic area: |
| | | | | | | |
| | April 1, 2016 | | April 3, 2015 |
| | (Dollars in millions) |
| U.S. | $ | 809 |
| | $ | 693 |
|
Foreign countries (1) | 148 |
| | 257 |
|
| Total | $ | 957 |
| | $ | 950 |
|
| |
(1)
| No individual country represented more than 10% of the respective totals. |
Significant customers
In fiscal 2016, 2015 and 2014, no customers accounted for more than 10% of our total net revenues.
Note 9. Stockholders' Equity
Dividends
We declared and paid aggregate cash dividends by fiscal year as follows: |
| | | | | | | | | | | |
| | Year Ended
|
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions, except dividends per share) |
| Dividends per share | $ | 4.60 |
| | $ | 0.60 |
| | $ | 0.60 |
|
| Total amount | $ | 3,020 |
| | $ | 413 |
| | $ | 418 |
|
Fiscal 2016 included a special dividend of $4.00 per share that was declared and paid during the fourth quarter of fiscal 2016 and was recorded as a reduction of retained earnings. Our restricted stock and performance-based stock units have DERs entitling holders to dividend equivalents to be paid in the form of cash upon vesting, for each share of the underlying units.
On May 12, 2016, we declared a cash dividend of $0.075 per share of common stock to be paid on June 22, 2016 to all stockholders of record as of the close of business on June 8, 2016. All shares of common stock issued and outstanding, and unvested restricted stock and performance-based stock, as of the record date will be entitled to the dividend and dividend equivalents, respectively. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.
Stock repurchases
Through our stock repurchase programs we have repurchased shares on a quarterly basis since the fourth quarter of fiscal 2004. Under the programs, shares are repurchased on the open market and through accelerated stock repurchase ("ASR") transactions. During the second quarter of fiscal 2016, our Board of Directors authorized a new $1.5 billion stock repurchase program which commenced immediately.
Repurchases on open market transactions
The following table summarizes our stock repurchases on open market transactions for the periods presented and excludes the impact of shares purchased under our ASR agreements (except for the remaining authorization amount): |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (In millions, except per share data) |
| Total number of shares repurchased | 17 |
| | 21 |
| | 21 |
|
| Dollar amount of shares repurchased | $ | 368 |
| | $ | 500 |
| | $ | 500 |
|
| Average price paid per share | $ | 21.69 |
| | $ | 23.73 |
| | $ | 23.87 |
|
| Remaining authorization at end of period | $ | 790 |
| | $ | 1,158 |
| | $ | 658 |
|
Accelerated Stock Repurchase agreements
In November 2015, we entered into an ASR agreement with a financial institution to repurchase an aggregate of $500 million of our common stock. During the third quarter of fiscal 2016, we made an upfront payment of $500 million to the financial institution pursuant to the ASR agreement, and received and retired an initial delivery of 19.9 million shares of our common stock. The ASR was completed on January 15, 2016, which, per the terms of the agreement, resulted in the Company receiving an additional 5.0 million shares of our common stock. The total shares received and retiredobligations under the terms of the ASR agreement were 24.9 million,lease. As with an average price paid per share of $20.08.
In March 2016, we entered into an ASR agreement with financial institutionsour other indemnification obligations discussed above and in general, it is not possible to repurchase andetermine the aggregate of $1.0 billion of our common stock. During the fourth quarter of fiscal 2016, we made an upfront payment of $1.0 billionmaximum potential loss under these indemnification agreements due to the financial institutions pursuant tolimited history of prior indemnification claims and the ASR agreement,unique facts and received and retired an initial delivery of 42.4 million shares ofcircumstances involved in each particular agreement. As with our common stock. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, is determined at the end of the purchase period. The purchase period for the March 2016 ASR agreement will end in or before the third quarter of fiscal 2017.
The upfront payments for the November 2015 and March 2016 ASRother indemnification obligations, such indemnification agreements totaled $1.5 billion and are presented under the caption repurchases of common stock in our Consolidated Statements of Cash Flows.
Changes in accumulated other comprehensive income by component
Components of accumulated other comprehensive income, on a net of tax basis, were as follows: |
| | | | | | | | | | | |
| | Foreign Currency Translation Adjustments | | Unrealized Gain On Available-For-Sale Securities | | Total |
| | (Dollars in millions) |
| Balance as of April 3, 2015 | $ | 101 |
| | $ | 3 |
| | $ | 104 |
|
| Sale of Veritas | (81 | ) | | — |
| | (81 | ) |
| Other comprehensive (loss) income before reclassifications | (6 | ) | | 4 |
| | (2 | ) |
Amounts reclassified from accumulated other
comprehensive income | 1 |
| | — |
| | 1 |
|
| Balance as of April 1, 2016 | $ | 15 |
| | $ | 7 |
| | $ | 22 |
|
In fiscal 2016, we reclassified $1 million of realized loss on foreign currency translation adjustments from accumulated other comprehensive income to other income, net in our Consolidated Statements of Operations.
Note 10. Stock-Based Compensation
Stock purchase plans
2008 Employee Stock Purchase Plan
We maintain the 2008 Employee Stock Purchase Plan, as amended (“ESPP”) under which eligible employees may annually contribute up to 10% of their gross compensation,might not be subject to certain limitations,maximum loss clauses, and to purchase shares ofdate, generally under our common stock at 85% of its fair market value on the purchase date at the end of each purchase period, which is generally six months. As of April 1, 2016, 28 million sharesreal estate obligations, we have been issued under this plan and 42 million shares remained available for future issuance.
Stock award plans
2000 Director Equity Incentive Plan
Our stockholders approved the 2000 Director Equity Incentive Plan and subsequent amendments which reserved 200,000 shares of common stock for issuance thereunder. The purpose of this plan is to provide the members of the Board of Directors with an opportunity to receive common stock for all or a portion of the retainer payable to each director for servingnot incurred material costs as a member. Each director may electresult of such obligations under our leases and have not accrued any portion upliabilities related to 100% of the retainer to be paidsuch indemnification obligations in the form of stock. As of April 1, 2016, a total of 137,000 shares have been issued under this plan and 63,000 shares remained available for future issuance.
2004 and 2013 Equity Incentive Plans
Under both the 2004 Equity Incentive Plan ("2004 Plan") and the 2013 Equity Incentive Plan ("2013 Plan") (collectively “the Equity Plans”), the Company has granted incentive and nonqualified stock options, stock appreciation rights, RSUs, restricted stock awards, and performance-based awards to employees, officers, directors, consultants, independent contractors, and advisors to us. These may also be granted to any parent, subsidiary, or affiliate of ours. The purpose of the Equity Plans has been to attract, retain, and motivate eligible persons whose present and potential contributions are important to our success by offering them an opportunity to participate in our future performance through equity awards. RSUs granted prior to November 2014 generally vest over a four-year period, whereas RSUs granted thereafter generally vest over a three-year period.
All RSUs and performance-based awards granted under the Equity Plans have DERs which entitle participants to the same dividend value per share as holders of Company’s common stock. The DERs are to be paid in the form of cash upon vesting for each share of the underlying award, and are subject to the same terms and conditions as the underlying award.
Upon adoption, our stockholders approved and reserved 45 million shares of common stock for issuance under the 2013 Plan. As of April 1, 2016, 20 million shares remained available for future grant. We use RSUs as our primary equity awards and stock option activity is not material to our Consolidated Financial Statements.
Stock-based compensation expense
The following table sets forth the total stock-based compensation expense recognized in our Consolidated Statements of Operations. |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Cost of revenue | $ | 10 |
| | $ | 15 |
| | $ | 10 |
|
| Sales and marketing | 53 |
| | 46 |
| | 35 |
|
| Research and development | 56 |
| | 39 |
| | 29 |
|
| General and administrative | 42 |
| | 31 |
| | 31 |
|
| Total stock-based compensation expense from continuing operations | 161 |
| | 131 |
| | 105 |
|
| Tax benefit associated with stock-based compensation expense | (50 | ) | | (37 | ) | | (30 | ) |
| Net stock-based compensation expense from continuing operations | 111 |
| | 94 |
| | 75 |
|
| Net stock-based compensation expense from discontinued operations | 56 |
| | 46 |
| | 36 |
|
| Net stock-based compensation expense | $ | 167 |
| | $ | 140 |
| | $ | 111 |
|
Restricted stock units
|
| | | | | | | | | | | | |
| | Number of
Shares | | Weighted-
Average
Grant Date Fair Value | | Weighted-
Average
Remaining
Years | | Aggregate Intrinsic
Value |
| | (In millions, except per share and years data) |
| Outstanding at April 3, 2015 | 26 |
| | $ | 22.23 |
| | | | |
| Granted | 14 |
| | 23.20 |
| | | | |
| Vested and released | (11 | ) | | 21.73 |
| | | | |
| Forfeited | (12 | ) | | 22.91 |
| | | | |
| Outstanding and unvested at April 1, 2016 | 17 |
| | $ | 22.72 |
| | 1.2 | | $ | 306 |
|
| Expected to vest at April 1, 2016 | 14 |
| | | | 1.1 | | $ | 256 |
|
The weighted-average grant date fair value per share of restricted stock granted during fiscal 2016, 2015, and 2014, including assumed restricted stock was $23.20, $22.66, and $23.90, respectively. The total fair value of restricted stock that vested and was released in fiscal 2016, 2015, and 2014 was $250 million, $133 million, and $147 million, respectively.
As of April 1, 2016, total unrecognized compensation cost adjusted for estimated forfeitures related restricted stock was $213 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.9 years.
Performance-based restricted stock units
During fiscal 2016 we granted performance-based restricted stock units ("PRUs") to certain senior level employees under our 2013 Plan. As of April 1, 2016 there were 2 million PRUs outstanding, with a weighted-average grant date fair value of $27.10 per share. As of April 1, 2016, total unrecognized compensation cost related to the PRUs was approximately $16 million, which is expected to be recognized over the remaining weighted-average period of 1.5 years. During fiscal 2016, 2015 and 2014 the total number of PRUs and performance-contingent stock units ("PCSUs") released was 0.4 million, 1.0 million, and 0.5 million, respectively. No PCSUs were granted during fiscal 2016 and none remained unvested as of April 1, 2016.
Shares reserved
We reserved the following shares of authorized but unissued common stock: |
| | |
| April 1, 2016 |
| (In millions) |
Stock purchase plans | 42 |
|
Stock award plans | 39 |
|
Total | 81 |
|
Note 11. Income Taxes
The components of the provision for income taxes recorded in continuing operations are as follows: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Current: | | | | | |
| Federal | $ | 69 |
| | $ | 4 |
| | $ | (18 | ) |
| State | 13 |
| | (18 | ) | | (10 | ) |
| International | 46 |
| | 40 |
| | 31 |
|
| | 128 |
| | 26 |
| | 3 |
|
| Deferred: | | | | | |
| Federal | 1,060 |
| | (38 | ) | | 5 |
|
| State | 15 |
| | (4 | ) | | 12 |
|
| International | 10 |
| | 8 |
| | (4 | ) |
| | 1,085 |
| | (34 | ) | | 13 |
|
| Provision for income taxes | $ | 1,213 |
| | $ | (8 | ) | | $ | 16 |
|
Pretax income from international operations was $125 million, $41 million, and $102 million for fiscal 2016, 2015, and 2014, respectively.
The difference between our effective income tax and the federal statutory income tax is as follows: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Federal statutory tax | $ | 138 |
| | $ | 35 |
| | $ | 38 |
|
| Foreign earnings not considered indefinitely reinvested, net | 1,065 |
| | (8 | ) | | 2 |
|
| State taxes, net of federal benefit | 9 |
| | (13 | ) | | 1 |
|
| Foreign earnings taxed at less than the federal rate | 12 |
| | 34 |
| | 8 |
|
| Domestic production activities deduction | (5 | ) | | (1 | ) | | — |
|
| Federal research and development credit | (9 | ) | | (8 | ) | | (4 | ) |
| Valuation allowance (decrease) increase | 10 |
| | 1 |
| | (3 | ) |
| Nondeductible separation costs | 1 |
| | 2 |
| | — |
|
| Change in uncertain tax positions | (4 | ) | | (57 | ) | | (19 | ) |
| Other, net | (4 | ) | | 7 |
| | (7 | ) |
| Provision for income taxes | $ | 1,213 |
| | $ | (8 | ) | | $ | 16 |
|
The principal components of deferred tax assets are as follows: |
| | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 |
| | (Dollars in millions) |
| Deferred tax assets: | | | |
| Tax credit carryforwards | $ | 53 |
| | $ | 31 |
|
| Net operating loss carryforwards of acquired companies | 34 |
| | 57 |
|
| Other accruals and reserves not currently tax deductible | 112 |
| | 173 |
|
| Deferred revenue | 89 |
| | 74 |
|
| Loss on investments not currently tax deductible | 14 |
| | 16 |
|
| State income taxes | 8 |
| | 14 |
|
| Stock-based compensation | 39 |
| | 45 |
|
| Other | 9 |
| | — |
|
| Gross deferred tax assets | 358 |
| | 410 |
|
| Valuation allowance | (50 | ) | | (60 | ) |
| Deferred tax assets, net of valuation allowance | $ | 308 |
| | $ | 350 |
|
| Deferred tax liabilities: | | | |
| Property and equipment | $ | (106 | ) | | $ | (88 | ) |
| Goodwill | (50 | ) | | (54 | ) |
| Intangible assets | (11 | ) | | (24 | ) |
| Unremitted earnings of foreign subsidiaries | (1,327 | ) | | (273 | ) |
| Prepaids and deferred expenses | (17 | ) | | (42 | ) |
| Total deferred tax liabilities | (1,511 | ) | | (481 | ) |
| Net deferred tax assets (liabilities) | $ | (1,203 | ) | | $ | (131 | ) |
The valuation allowance provided against our deferred tax assets as of April 1, 2016 is mainly attributable to net operating loss and tax credit carryforwards of acquired companies, state tax credits, and net operating losses in foreign jurisdictions. The valuation allowance decreased by a net of $10 million in fiscal 2016 due to changes in corresponding deferred tax assets primarily related to state tax credit carryforwards.
As of April 1, 2016, we have U.S. federal net operating losses attributable to various acquired companies of approximately $47 million, which, if not used, will expire between fiscal 2018 and 2032. These net operating loss carryforwards are subject to an annual limitation under Internal Revenue Code §382, but are expected to be fully realized. Furthermore, we have U.S. state net operating loss and credit carryforwards attributable to various acquired companies of approximately $131 million and $20 million, respectively. If not used, our U.S. state net operating losses will expire between fiscal 2017 and 2033provide limited product warranties, and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.
Litigation contingencies
For a description of our accounting policy regarding litigation and loss contingencies, see “Critical Accounting Policies and Estimates” included in Part II, Item 7 of this annual report.
SEC Investigation
As previously disclosed in our public filings, the Audit Committee of our Board of Directors (the Audit Committee) completed its internal investigation (the Audit Committee Investigation) in September 2018. In connection with the Audit Committee Investigation, we voluntarily contacted the U.S. state credit carryforwards can be carried forward indefinitely. In addition, we have foreign net operating loss carryforwards attributable to various acquired foreign companies of approximately $48 million net of valuation allowances, the majority of which, under current applicable foreign tax law, can be carried forward indefinitely.
In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the currentSecurities and prior two years; we have strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential;Exchange Commission (SEC) in April 2018. The SEC commenced a formal investigation, and we have substantial amountscontinue to cooperate with that investigation. The outcome of scheduled future reversals of taxable temporary differences from our deferred tax liabilities.such an investigation is difficult to predict. We have concluded thatincurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the SEC investigation. At this positive evidence outweighsstage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the negative evidenceSEC’s investigation or estimate the range of any potential loss.
Securities Class Action and thus, that the deferred tax assets as of April 1, 2016 are realizable on a “more likely than not” basis.Derivative Litigation
As of April 1, 2016, no provision hasSecurities class action lawsuits, which have since been made for federal or state income taxes on $3.8 billion of cumulative unremitted earnings ofconsolidated, were filed in May 2018 against us and certain of our foreign subsidiaries since we plan to indefinitely reinvest these earnings. As of April 1, 2016, the unrecognized deferred tax liability for these earnings was approximately $1.1 billion.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (Dollars in millions) |
| Balance at beginning of year | $ | 193 |
| | $ | 282 |
| | $ | 412 |
|
| Settlements with tax authorities | (25 | ) | | (150 | ) | | (122 | ) |
| Lapse of statute of limitations | (15 | ) | | (13 | ) | | (11 | ) |
| Decrease due to divestiture | (7 | ) | | — |
| | — |
|
| Increase related to prior period tax positions | 4 |
| | 147 |
| | 27 |
|
| Decrease related to prior period tax positions | (7 | ) | | (96 | ) | | (50 | ) |
| Increase related to current year tax positions | 54 |
| | 23 |
| | 26 |
|
| Net increase (decrease) | 4 |
| | (89 | ) | | (130 | ) |
| Balance at end of year | $ | 197 |
| | $ | 193 |
| | $ | 282 |
|
There was a change of $4 million in gross unrecognized tax benefits during the fiscal year as disclosed above. This gross liability does not include offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, interest deductions, and state income taxes.
Of the total unrecognized tax benefits at April 1, 2016, $203 million, if recognized, would favorably affect the Company’s effective tax rate, while a $5 million offsetting impact would affect the cumulative translation adjustments. However, one or more of these unrecognized tax benefits could be subject to a valuation allowance if and when recognized in a future period, which could impact the timing of any related effective tax rate benefit.
At April 1, 2016, before any tax benefits, we had $12 million of accrued interest and penalties on unrecognized tax benefits. Interest included in our provision for income taxes was a benefit of approximately $8 million, offset by accruals of $3 million for the year ended April 1, 2016. If the accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced in the period that such determination is made, and reflected as a reduction of the overall income tax provision.
We file income tax returnsformer officers, in the U.S. District Court for the Northern District of California. The lead plaintiff’s consolidated amended complaint alleged that, during a purported class period of May 11, 2017 to August 2, 2018, defendants made false and misleading statements in violation of Sections 10(b) and 20(a), and that certain individuals violated Section 20A, of the Securities Exchange Act. Defendants filed motions to dismiss, which the Court granted in an order dated June 14, 2019. Pursuant to that order, plaintiff filed a motion seeking leave to amend and a proposed first amended complaint on July 11, 2019. The Court granted the motion in part on October 2, 2019 and the first amended complaint was filed on October 11, 2019. The Court’s order dismissed certain claims against certain of our former officers. Defendants filed answers on November 7, 2019. On April 20, 2021, to resolve an alleged conflict of interest raised with respect to the lead plaintiff and its counsel, the Court ordered a federal basissecond Class Notice disclosing the circumstances of the alleged conflict and in many U.S. stateproviding a further period for class members to opt out, which will conclude on July 2, 2021. The initial class opt out period closed on August 25, 2020. In an April 29, 2021 Order, the Court vacated the June 14, 2021 trial date and foreign jurisdictions. Our most significant tax jurisdictions arethe trial is now continued indefinitely. A settlement conference has been set for May 24, 2021.
Purported shareholder derivative lawsuits have been filed against us and certain of our former officers and current and former directors in the U.S., Ireland, and Singapore. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. Our fiscal years 2014 through 2016 remain subject to examination by the Internal Revenue Service (“IRS”) for U.S. federal tax purposes. Our fiscal years prior to 2014 have been settled and closed with the IRS. Our 2012 through 2016 fiscal years remain subject to examination by the appropriate governmental agencies for Irish tax purposes, and our 2011 through 2016 fiscal years remain subject to examination by the appropriate governmental agencies for Singapore tax purposes. Other significant jurisdictions include California, Japan, the UK, India and Australia. We are under examination by the California Franchise Tax Board District Courts for the SymantecDistrict of Delaware and the Northern District of California, income taxesDelaware Chancery Court, and Delaware Superior Court, arising generally out of the same facts and circumstances as alleged in the securities class action and alleging claims for breach of fiduciary duty and related claims; these lawsuits include an action brought derivatively on behalf of our 2008 Employee Stock Purchase Plan. The derivative actions are currently voluntarily stayed in light of the securities class action. No specific amount of damages has been alleged in these lawsuits. We have also received demands from purported stockholders to inspect corporate books and records under Delaware law.
We will continue to incur legal fees in connection with these pending cases and demands, including expenses for the 2009 through 2013 tax years, the Indian income tax authorities for fiscal years 2004 through 2014,reimbursement of legal fees of present and the Australian income tax authorities for fiscal years 2011 through 2014.former officers and directors under indemnification obligations. The expense of
continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we settled and effectively settled matters with the IRS for the Symantec 2005 through 2008 fiscal years. The resultwill be successful in any defense. If any of the settlements, effective settlements,lawsuits are decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations, and re-measurements resulted in a reduction in the balance of our gross unrecognized tax benefits in fiscal year 2014 of $122 million.cash flows.
On March 18, 2015,At this stage, we settled and effectively settled matters with the IRS for the Symantec 2009 through 2013 fiscal years. The settlement and effective settlement resulted in a benefitare unable to tax expense in fiscal year 2015 of $59 million. Additionally, the Company settled transfer price related matters of $158 million, a portion of which was accounted for against deferred tax liabilities on unremitted foreign earnings. The Company has paid in $155 million to cover the final tax and interest liability on the settlement.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, ifassess whether any upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, itmaterial loss or adverse effect is reasonably possible as a result of these lawsuits or estimate the range of any potential loss.
GSA
During the first quarter of fiscal 2013, we were advised by the Commercial Litigation Branch of the Department of Justice’s (DOJ) Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the gross unrecognized tax benefitsgovernment is investigating our compliance with certain provisions of our U.S. General Services Administration (GSA) Multiple Award Schedule Contract No. GS-35F-0240T effective January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices.
As reported on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $222 million from the period beginning January 2007 and ending September 2012. We fully cooperated with the government throughout its investigation, and in January 2014, representatives of the government indicated that their initial analysis of our actual damages exposure from direct government sales under the GSA Schedule contract was approximately $145 million; since the initial meeting, the government’s analysis of our potential damages exposure relating to direct sales has increased. The government also indicated they would pursue claims for certain sales to California, Florida, and New York as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure.
In 2012, a sealed civil lawsuit was filed against us related to these audits could decrease (whether by payment, release, or a combination of both)compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the next 12 months by $7 million. Depending onlawsuit. On September 16, 2014, the naturestates of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the DOJ filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the settlement or expiration of statutes of limitations, we estimate $6 million could affect our income tax provision and therefore benefit the resulting effective tax rate.
We continue to monitor the progress of ongoing income tax controversiesDOJ and the impact, if any,relator on behalf of New York in an Omnibus Complaint, and a First Amended Omnibus Complaint was filed on October 8, 2015; the state claims also do not state specific damages amounts. On June 6, 2019, we filed a motion seeking summary judgment on all claims asserted by all plaintiffs, and the plaintiffs filed a motion for partial summary judgment on elements of liability on their claims. On October 21, 2019, the DOJ moved for a Prejudgment Writ of Sequestration for the Company to set aside $1,090 million to pay a judgment, should the United States prevail in this litigation, under the Federal Debt Collection Procedures Act. The Writ was sought in response to the Company’s announcement of its plans to distribute the after-tax proceeds of the expected tollingsale of the statute of limitations in various taxing jurisdictions.
Note 12. Earnings Per Share
Basic and diluted earnings per share are computedSymantec enterprise business to Broadcom to its shareholders via a special dividend. The Court denied the Writ on December 12, 2019, on the basis of the weighted-averageGovernment’s failure to establish the “probable validity” of the debt, the amount sought to be sequestered, and the Company’s available cash, cash equivalents and short-term investments. The Court permitted the DOJ limited discovery of facts relevant to the Company’s financial state and financial projections and the option to renew its motion if appropriate and supported by the analysis of its own financial expert. That discovery period has now closed. On March 30, 2020, the Court issued an Order granting in part and denying in part our motion for summary judgment and granting in part and denying in part the United States’ motion for partial summary judgment. On September 30, 2020, the Company filed a Motion for Reconsideration of certain rulings in the Court’s March 30 Summary Judgment Order. Court ordered mediations in July 2020 February 2021 were not successful. Trial is set for August 2, 2021. On March 23, 2021, Plaintiffs withdrew their demand for a jury trial and the Company consented to proceed with a bench trail. On May 13, 2021, we reached a settlement in principle with the State of Florida to resolve all claims it asserted in the litigation for $0.5 million. The issue of Relator’s statutory attorney’s fees with respect to the State of Florida’s claims remains unresolved. At this time, our current estimate of the low end of the range of probable estimated losses from this matter is $50 million, inclusive of the settlement with the State of Florida, which we have accrued. It is possible that the litigation could lead to claims or findings of violations of the False Claims Act and could be material to our results of operations and cash flows for any period. Resolution of False Claims Act investigations can ultimately result in the payment of somewhere between 1 and 3 times the actual damages proven by the government, plus civil penalties. There is at least a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter.
Holden v. NortonLifeLock
On February 8, 2021, Lauren Holden filed a putative class action in the Circuit Court for Duval County, Florida alleging that the Company violated the Florida wiretapping statute, Florida Security of Communications Act, Fla. Stat. Ann. § 934.01, et. seq., through the use of session replay technology on www.us.norton.com. The complaint defines the class as consisting of Florida residents who visited the website and whose electronic communications were alleged to have been intercepted by the Company without prior consent and, on behalf of the class, seeks statutory damages, attorney’s fees and costs, and injunctive relief. On March 12, 2021, the Company removed the case to the District Court for the Middle District of Florida and filed its Answer and Affirmative Defenses to the complaint. The Company then filed a Motion for Judgment on the Pleadings on April 20, 2021.
At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this lawsuit or estimate the range of any potential loss. We dispute these claims and intend to defend them vigorously.
Other
We are involved in a number of sharesother judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of common stock outstanding during the period. Diluted earnings per share also includecases, it is not possible to estimate the incremental effectpossible loss or
The components of earnings per share are as follows: |
| | | | | | | | | | | |
| | Year Ended |
| | April 1, 2016 | | April 3, 2015 | | March 28, 2014 |
| | (In millions, except per share data) |
| Income (loss) from continuing operations | $ | (821 | ) | | $ | 109 |
| | $ | 91 |
|
| Income from discontinued operations, net of tax | 3,309 |
| | 769 |
| | 807 |
|
| Net income | $ | 2,488 |
| | $ | 878 |
| | $ | 898 |
|
| Income (loss) per share - basic: | | | | | |
| Continuing operations | $ | (1.23 | ) | | $ | 0.16 |
| | $ | 0.13 |
|
| Discontinued operations | $ | 4.94 |
| | $ | 1.12 |
| | $ | 1.16 |
|
| Net income per share | $ | 3.71 |
| | $ | 1.27 |
| | $ | 1.29 |
|
| Income (loss) per share - diluted: | | | | | |
| Continuing operations | $ | (1.23 | ) | | $ | 0.16 |
| | $ | 0.13 |
|
| Discontinued operations | $ | 4.94 |
| | $ | 1.10 |
| | $ | 1.15 |
|
| Net income per share | $ | 3.71 |
| | $ | 1.26 |
| | $ | 1.28 |
|
| | | | | | |
| Weighted-average outstanding shares - basic | 670 |
| | 689 |
| | 696 |
|
| Dilutive potential shares from stock-based compensation | — |
| | 7 |
| | 8 |
|
| Weighted-average shares outstanding - diluted | 670 |
| | 696 |
| | 704 |
|
| Anti-dilutive potential shares | 20 |
| | 1 |
| | 5 |
|
Net income per share amounts maylosses from each of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not add dueexpected to rounding.have a material adverse effect on our business, results of operations, financial condition or cash flows.
Note 13.19. Subsequent Events
InOn May 2016, the Board of Directors approved13, 2021, we entered into a fiscal 2017 restructuring plan to reduce complexity by means of long-term structural improvements. These actions are expected to be completed in fiscal 2018. We expect to incur total costs between $230 million and $280 million.
In May 2016, we replaced our existing $1.0 billion senior unsecured revolving credit facility (“Old Credit Facility”Convertible Notes Purchase Agreement (the “Agreement”) with aaffiliates of Silver Lake Partners (“Silver Lake”), pursuant to which we agreed to repurchase $250 million in aggregate principal amount of our new $2.0 billion credit facility (“New Credit Facility”2.50% convertible unsecured senior notes due 2022 (the “Note Repurchase”). The New Credit Facility is comprisedThese notes are convertible into our common stock at a rate of 59.6341 shares for each $1,000 principal amount of notes, representing a $1.0 billion senior unsecured revolving credit facility (“New Revolver”) along with a $1.0 billion term loan (“Term Loan”). The New Revolver matures in five years, however, the Term Loan is pre-payable and has no required amortization payments until the final maturity in three years.conversion price of approximately $16.77 per share. Under the terms of the New Credit Facility,Agreement, we must comply with certain financialwill pay Silver Lake an aggregate of $365 million, representing $24.40 per underlying share into which the notes are convertible, accrued and non-financial covenants, includingunpaid interest through the date of settlement, and a covenant to maintain a specified ratio of debt to EBITDA (earnings before interest, taxes, depreciation and amortization), as well as an interest coverage ratio.
On April 28, 2016, Symantec announced that Michael A. Brown would be stepping down as President and Chief Executive Officer ("CEO") of Symantec. Mr. Brown will continue to serve as CEO and on the Board of Directors until a successor has been appointed. The Board of Directors has begun the search for the Company’s next CEO. To facilitate a continued focus on the Company’s strategic priorities throughout the CEO search and transition, the Board of Directors has created an Officeportion of the President composed of: Ajei S. Gopal, Interim President and Chief Operating Officer; Thomas J. Seifert, Symantec’s Executive Vice President and Chiefcash dividend that we declared on May 10, 2021. The Note Repurchase was completed on May 20, 2021.
(2) Financial Officer; and Scott C. Taylor, Symantec’s Executive Vice President, General Counsel and Secretary. The OfficeStatement Schedule
Schedule II
NORTONLIFELOCK INC.
VALUATION AND QUALIFYING ACCOUNTS
All financial statement schedules have been omitted, since the required information is not applicable or is not present in material amounts, and/or changes to such amounts are immaterial to require submission of the Presidentschedule, or because the information required is expected to remainincluded in place until a new CEO has joined the Company.our Consolidated Financial Statements and notes thereto included in this Form 10-K.
(3) Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 2.01(§) | | | | 8-K | | 000-17781 | | 2.01 | | 8/8/2019 | | |
| 3.01 | | | | | | | | | | | | X |
| 3.02 | | | | 8-K | | 000-17781 | | 3.02 | | 11/4/2019 | | |
| 3.03 | | | | 10-K | | 000-17781 | | 3.06 | | 5/28/2020 | | |
| 4.01 | | | | 10-K | | 000-17781 | | 4.01 | | 5/28/2020 | | |
| 4.02 | | | | 10-K | | 000-17781 | | 4.02 | | 5/28/2020 | | |
| 4.03 | | | | 8-K | | 000-17781 | | 4.01 | | 9/16/2010 | | |
| 4.04 | | | | 8-K | | 000-17781 | | 4.04 | | 6/14/2012 | | |
| 4.05 | | | | 8-K | | 000-17781 | | 10.01 | | 2/9/2016 | | |
| 4.06 | | | | 8-K | | 000-17781 | | 10.01 | | 3/7/2016 | | |
| 4.07 | | | | 8-K | | 000-17781 | | 2.02 | | 6/14/2016 | | |
| 4.08 | | | | 10-Q | | 000-17781 | | 2.03 | | 8/5/2016 | | |
| 4.09 | | | | 8-K | | 000-17781 | | 4.01 | | 2/9/2017 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 4.10 | | | | 8-K | | 000-17781 | | 4.02 | | 2/9/2017 | | |
| 4.11 | | | | 8-K | | 000-17781 | | 10.01 | | 11/12/2019 | | |
| 4.12 | | Second Amendment to Investment Agreement, dated November 11, 2019, by and between NortonLifeLock Inc. and BC Bearcat SPV, LP, BCIP Venture Associates, BCIP Venture Associates-B, BCIP Associates IV (US), L.P., BCIP Associates IV-B (US), L.P., BCIP T Associates IV (US), | | 8-K | | 000-17781 | | 10.02 | | 11/12/2019 | | |
| 4.13 | | | | 10-K | | 000-17781 | | 4.14 | | 5/28/2020 | | |
| 4.14 | | | | 10-K | | 000-17781 | | 4.15 | | 5/28/2020 | | |
| 10.01(*) | | | | 8-K | | 000-17781 | | 10.01 | | 1/23/2006 | | |
| 10.02(*) | | | | 8-K | | 000-17781 | | 10.03 | | 3/7/2016 | | |
| 10.03(*) | | | | 10-K | | 000-17781 | | 10.05 | | 5/24/2010 | | |
| 10.04(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 11/1/2011 | | |
| 10.05(*) | | | | 10-Q | | 000-17781 | | 10.06 | | 2/7/2020 | | |
| 10.06(*) | | | | 8-K | | 000-17781 | | 10.01 | | 12/3/2018 | | |
| 10.07(*) | | | | 10-K | | 000-17781 | | 10.10 | | 10/26/2018 | | |
| 10.08(*) | | | | 10-Q | | 000-17781 | | 10.03 | | 8/6/2020 | | |
| 10.09(*) | | | | | | | | | | | | X |
| 10.10(*) | | | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.11 | | Amended and Restated Credit Agreement, effective as of August 1, 2016, among Registrant, the lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Term Loan A-1/Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan A-2 Administrative Agent, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Bank PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Lead Arrangers and Joint Bookrunners in respect of the Term A-2 Facility, Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd. And TD Securities (USA) LLC, as Co-Documentation Agents in respect of the Term A-2 Facility, and Bank of America, N.A., as Syndication Agent in respect of Term A-2 Facility. | | 10-Q | | 000-17781 | | 4.03 | | 8/5/2016 | | |
| 10.12 | | Term Loan Agreement, dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.05 | | 8/5/2016 | | |
| 10.13 | | | | 10-Q | | 000-17781 | | 4.02 | | 8/5/2016 | | |
| 10.14 | | Assignment and Assumption, dated October 3, 2016, to the Term Loan Agreement dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.01 | | 2/3/2017 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.15 | | First Amendment, dated December 12, 2016, to the Term Loan Agreement, dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.02 | | 2/3/2017 | | |
| 10.16 | | First Amendment, dated December 12, 2016, to the Credit Agreement, effective as of August 1, 2016, among the Registrant, the lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Term Loan A-1/Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan A-2 Administrative Agent, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Bank PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Lead Arrangers and Joint Bookrunners in respect of the Term A-2 Facility, Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd. And TD Securities (USA) LLC, as Co-Documentation Agents in respect of the Term A-2 Facility, and Bank of America, N.A., as Syndication Agent in respect of Term A-2 Facility. | | 10-Q | | 000-17781 | | 4.03 | | 2/3/2017 | | |
| 10.17(*) | | | | 8-K | | 000-17781 | | 10.03 | | 10/25/2013 | | |
| 10.18(*) | | | | | | | | | | | | X |
| 10.19(*) | | | | | | | | | | | | X |
| 10.20(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 8/6/2020 | | |
| 10.21(*) | | | | 10-Q | | 000-17781 | | 10.02 | | 8/6/2020 | | |
| 10.22(§§) | | Assignment of Copyright and Other Intellectual Property Rights, by and between Peter Norton and Peter Norton Computing, Inc., dated August 31, 1990. | | S-4 | | 33-35385 | | 10.37 | | 6/13/1990 | | |
| 10.23(†) | | | | S-1/A | | 333-83777 | | 10.27 | | 8/6/1999 | | |
| 10.24 | | | | 10-Q | | 000-17781 | | 10.01 | | 8/7/2007 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.25 | | | | 10-Q | | 000-17781 | | 10.01 | | 11/16/2018 | | |
| 10.26 | | | | 10-Q | | 000-17781 | | 10.02 | | 11/16/2018 | | |
| 10.27(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 7/8/2020 | | |
| 10.28 | | Credit Agreement, effective as of November 4, 2019, among NortonLifeLock Inc., the issuing banks and lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, BofA Securities, Inc., Mizuho Bank, Ltd., Barclays Bank PLC, and The Bank of Nova Scotia, as Lead Arrangers and Joint Bookrunners, Bank of America, N.A., Mizuho Bank, Ltd., Barclays Bank PLC and The Bank of Nova Scotia, as Syndication Agents and and Goldman Sachs Bank USA, HSBC Securities (USA) Inc., MUFG Bank, Ltd., SunTrust Robinson Humphrey, Inc., Citizens Bank, N.A., BMO Capital Markets Corp., BNP Paribas Securities Corp. and Santander Bank, N.A., as Co-Documentation Agents. | | 8-K | | 000-17781 | | 10.01 | | 11/4/2019 | | |
| 10.29 | | | | 8-K | | 000-17781 | | 10.01 | | 7/8/2020 | | |
| 10.30(+) | | | | 10-Q | | 000-17781 | | 10.01 | | 2/5/2021 | | |
| 10.31 | | First Amendment, effective as of May [7], 2021, among NortonLifeLock Inc., JPMorgan Chase Bank, N.A., as Term Loan Administrative Agent, Wells Fargo Bank, National Association, as Revolver Administrative Agent, and the lenders and other parties party thereto. | | | | | | | | | | X |
| 21.01 | | | | | | | | | | | | X |
| 23.01 | | | | | | | | | | | | X |
| 24.01 | | | | | | | | | | | | X |
| 31.01 | | | | | | | | | | | | X |
| 31.02 | | | | | | | | | | | | X |
| 32.01(††) | | | | | | | | | | | | X |
| 32.02(††) | | | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 101.00 | | The following financial information from NortonLifeLock Inc.'s Annual Report on Form 10-K for the fiscal year ended April 2, 2021 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity (Deficit), (vi) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | | | | | | | | | | X |
| 104.00 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | | | X |
| | | | | |
| * | Indicates a management contract, compensatory plan or arrangement. |
| ** | Filed by LifeLock, Inc. |
| § | The exhibits and schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally copies of any such exhibits and schedules to the SEC upon request. |
| §§ | Paper filing. |
| † | Filed by Veritas Software Corporation. |
| †† | This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
| + | Certain portions of this document that constitute confidential information have been redacted in accordance with Regulations S-K, Item 601(b)(10). |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on the 20th21st day of May 2016.
| | | | | | | | |
| NORTONLIFELOCK INC. |
| | |
| SYMANTEC CORPORATIONBy: | /s/ Vincent Pilette |
| | |
| By: | /s/ Michael A. Brown |
| | Michael A. Brown Vincent Pilette
Chief Executive Officer and Director |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael A. Brown, Thomas J. SeifertVincent Pilette, Natalie Derse, and Scott C. Taylor,Bryan Ko, and each or any of them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities to sign any and all amendments to this report on Form 10-K and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
|
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Michael A. Brown | | Chief Executive Officer and Director
(Principal Executive Officer)
| | May 20, 2016 |
Michael A. Brown | | | |
| | | | |
/s/ Thomas J. Seifert | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
| | May 20, 2016 |
Thomas J. Seifert | | | |
| | | | |
/s/ Mark S. Garfield | | Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
| | May 20, 2016 |
Mark S. Garfield | | | |
| | | | |
/s/ Daniel H. Schulman | | Chairman of the Board | | May 20, 2016 |
Daniel H. Schulman | | | |
| | | | |
/s/ Frank E. Dangeard | | Director | | May 20, 2016 |
Frank E. Dangeard | | | |
| | | | |
/s/ Kenneth Y. Hao | | Director | | May 20, 2016 |
Kenneth Y. Hao | | | |
| | | | |
/s/ Geraldine B. Laybourne | | Director | | May 20, 2016 |
Geraldine B. Laybourne | | | |
| | | | |
/s/ David L. Mahoney | | Director | | May 20, 2016 |
David L. Mahoney | | | |
| | | | |
/s/ Robert S. Miller | | Director | | May 20, 2016 |
Robert S. Miller | | | |
| | | | |
/s/ Anita M. Sands | | Director | | May 20, 2016 |
Anita M. Sands | | | |
| | | | |
/s/ V. Paul Unruh | | Director | | May 20, 2016 |
V. Paul Unruh | | | |
| | | | |
|
| | | | |
/s/ Suzanne M. Vautrinot | | Director | | May 20, 2016 |
Suzanne M. Vautrinot | | | |
Schedule II
SYMANTEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
All financial statement schedules have been omitted, since the required information is not applicable or is not present in material amounts, and/or changes to such amounts are immaterial to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and notes thereto included in this Form 10-K.
EXHIBIT INDEX
|
| | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 2.01(§) | | Purchase Agreement dated as of August 11, 2015, by and between Symantec Corporation and Havasu Holdings Ltd. | | 8-K | | 000-17781 | | 2.01 | | 8/13/2015 | | |
| 2.02 | | Amendment, dated January 19, 2016, to the Purchase Agreement dated as of August 11, 2015, by and between Symantec Corporation and Veritas Holdings Ltd. | | 8-K | | 000-17781 | | 2.01 | | 1/20/2016 | | |
| 3.01 | | Amended and Restated Certificate of Incorporation of Symantec Corporation | | S-8 | | 333-119872 | | 4.01 | | 10/21/2004 | | |
| 3.02 | | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Symantec Corporation | | S-8 | | 333-126403 | | 4.03 | | 7/6/2005 | | |
| 3.03 | | Certificate of Amendment to Amended and Restated Certificate of Incorporation of Symantec Corporation | | 10-Q | | 000-17781 | | 3.01 | | 8/5/2009 | | |
| 3.04 | | Certificate of Designations of Series A Junior Preferred Stock of Symantec Corporation dated June 25, 2015 | | 8-K | | 000-17781 | | 3.01 | | 6/26/2015 | | |
| 3.05 | | Bylaws, as amended, of Symantec Corporation | | 8-K | | 000-17781 | | 3.01 | | 5/7/2012 | | |
| 4.01 | | Form of Common Stock Certificate | | S-3ASR | | 333-139230 | | 4.07 | | 12/11/2006 | | |
| 4.02 | | Credit Agreement, dated as of May 10, 2016, among Symantec Corporation, the lenders party thereto (the “Lenders”), Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., Citibank, N.A., and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, Barclays Bank, PLC, HSBC Bank USA, National Association, Mizuho Bank, Ltd., Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. as Co-Documentation Agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Citigroup Global Markets Inc., and JP Morgan Chase Bank, N.A., as Joint Lead Arrangers and Joint Bookrunners | | | | | | | | | | X |
| 4.03 | | Indenture, dated September 16, 2010, between Symantec Corporation and Wells Fargo Bank, National Association, as trustee | | 8-K | | 000-17781 | | 4.01 | | 9/16/2010 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 4.04 | | Form of Global Note for Symantec’s 4.200% Senior Note due 2020 (contained in Exhibit No. 4.02 of Form 8-K) | | 8-K | | 000-17781 | | 4.04 | | 9/16/2010 | | |
| 4.05 | | Form of Global Note for Symantec’s 2.750% Senior Notes due 2017 (contained in Exhibit No. 4.02 of Form 8-K) | | 8-K | | 000-17781 | | 4.03 | | 6/14/2012 | | |
| 4.06 | | Form of Global Note for Symantec’s 3.950% Senior Notes due 2022 (contained in Exhibit No. 4.02 of Form 8-K) | | 8-K | | 000-17781 | | 4.04 | | 6/14/2012 | | |
| 4.07 | | Indenture, dated as of March 4, 2016, by and between Symantec Corporation and Wells Fargo Bank, National Association, as trustee (including the form of 2.500% Convertible Senior Notes Due 2021) | | 8-K | | 000-17781 | | 10.02 | | 3/7/2016 | | |
| 10.01(*) | | Form of Indemnification Agreement for Officers and Directors, as amended (form for agreements entered into prior to January 17, 2006) | | S-1 | | 33-28655 | | 10.17 | | 6/21/1989 | | |
| 10.02(*) | | Form of Indemnification Agreement for Officers, Directors and Key Employees (form for agreements entered into between January 17, 2006 and March 6, 2016) | | 8-K | | 000-17781 | | 10.01 | | 1/23/2006 | | |
| 10.03(*) | | Form of Indemnification Agreement for Officers, Directors and Key Employees, as amended (form for agreements entered into after March 6, 2016) | | 8-K | | 000-17781 | | 10.03 | | 3/7/2016 | | |
| 10.04(*) | | Symantec Corporation 1996 Equity Incentive Plan, as amended, including form of Stock Option Agreement and form of Restricted Stock Purchase Agreement | | 10-K | | 000-17781 | | 10.05 | | 6/9/2006 | | |
| 10.05(*) | | Symantec Corporation Deferred Compensation Plan, restated and amended January 1, 2010, as adopted December 15, 2009 | | 10-K | | 000-17781 | | 10.05 | | 5/24/2010 | | |
| 10.06(*) | | Brightmail Inc. 1998 Stock Option Plan, including form of Stock Option Agreement and form of Notice of Assumption | | 10-K | | 000-17781 | | 10.08 | | 6/9/2006 | | |
| 10.07(*) | | Symantec Corporation 2000 Director Equity Incentive Plan, as amended | | 10-Q | | 000-17781 | | 10.01 | | 11/1/2011 | | |
| 10.08(*) | | Altiris, Inc. 2002 Stock Plan | | S-8 | | 333-141986 | | 99.03 | | 4/10/2007 | | |
| 10.09(*) | | Form of Stock Option Agreement under the Altiris, Inc. 2002 Stock Plan | | S-8 | | 333-141986 | | 99.04 | | 4/10/2007 | | |
| 10.10(*) | | Vontu, Inc. 2002 Stock Option/Stock Issuance Plan, as amended | | | | | | | | | | X |
| 10.11(*) | | Form of Vontu, Inc. Stock Option Agreement | | S-8 | | 333-148107 | | 99.03 | | 12/17/2007 | | |
| 10.12(*) | | Veritas Software Corporation 2003 Stock Incentive Plan, as amended and restated, including form of Stock Option Agreement, form of Stock Option Agreement for Executives and Senior VPs and form of Notice of Stock Option Assumption | | 10-K | | 000-17781 | | 10.15 | | 6/9/2006 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.13(*) | | Symantec Corporation 2004 Equity Incentive Plan, as amended, including Stock Option Grant — Terms and Conditions, form of RSU Award Agreement, form of RSU Award Agreement for Non-Employee Directors and form of PRU Award Agreement | | | | | | | | | | X |
| 10.14(*) | | Clearwell Systems, Inc. 2005 Stock Plan, as amended | | | | | | | | | | X |
| 10.15(*) | | Form of Clearwell Systems, Inc. Stock Option Agreement | | S-8 | | 333-175783 | | 99.02 | | 7/26/2011 | | |
| 10.16(*) | | Symantec Corporation 2008 Employee Stock Purchase Plan, as amended | | 10-Q | | 000-17781 | | 10.01 | | 2/4/2016 | | |
| 10.17(*) | | Symantec Corporation 2013 Equity Incentive Plan, as amended, including form of Stock Option Grant - Terms and Conditions and form of RSU Awards Agreement | | | | | | | | | | X |
| 10.18(*) | | Form of Symantec Corporation Performance Based Restricted Stock Unit Award Agreement under 2013 Equity Incentive Plan | | 10-Q | | 000-17781 | | 10.03 | | 8/12/2015 | | |
| 10.19(*) | | Symantec Senior Executive Incentive Plan, as amended and restated | | 8-K | | 000-17781 | | 10.03 | | 10/25/2013 | | |
| 10.20(*) | | Symantec Corporation Executive Retention Plan, as amended and restated | | 10-K | | 000-17781 | | 10.18 | | 5/22/2015 | | |
| 10.21(*) | | Symantec Corporation Executive Severance Plan | | 10-K | | 000-17781 | | 10.19 | | 5/22/2015 | | |
| 10.22(*) | | Employment Offer Letter, dated January 15, 2014, between Symantec Corporation and Thomas J. Seifert | | 8-K | | 000-17781 | | 10.01 | | 3/3/2014 | | |
| 10.23(*) | | Amendment to Employment Offer Letter, dated April 30, 2014, between Symantec Corporation and Thomas J. Seifert | | 10-Q | | 000-17781 | | 10.01 | | 8/8/2014 | | |
| 10.24(*) | | Employment Offer Letter, dated February 3, 2014, between Symantec Corporation and Mark Garfield | | 8-K | | 000-17781 | | 10.01 | | 3/10/2014 | | |
| 10.25(*) | | Executive Employment Agreement, dated September 24, 2014, by and between Symantec Corporation and Michael A. Brown | | 8-K | | 000-17781 | | 10.01 | | 9/26/2014 | | |
| 10.26(*) | | Amended Executive Employment Agreement, dated April 28, 2016, by and between Symantec Corporation and Michael A. Brown | | | | | | | | | | X |
| 10.27(*) | | Employment Offer Letter, dated April 27, 2016, between Symantec Corporation and Ajei Gopal | | | | | | | | | | X |
| 10.28(*) | | FY16 Executive Annual Incentive Plan -Senior Vice President and Executive Vice President | | 10-Q | | 000-17781 | | 10.02 | | 8/12/2015 | | |
| 10.29(*) | | FY16 Executive Annual Incentive Plan - President and Chief Executive Officer | | 10-Q | | 000-17781 | | 10.01 | | 8/12/2015 | | |
| 10.30 | | Assignment of Copyright and Other Intellectual Property Rights, by and between Peter Norton and Peter Norton Computing, Inc., dated August 31, 1990 | | S-4 | | 33-35385 | | 10.37 | | 6/13/1990 | | |
|
| | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.31† | | Environmental Indemnity Agreement, dated April 23, 1999, between Veritas and Fairchild Semiconductor Corporation, included as Exhibit C to that certain Agreement of Purchase and Sale, dated March 29, 1999, between Veritas and Fairchild Semiconductor of California | | S-1/A | | 333-83777 | | 10.27 Exhibit C | | 8/6/1999 | | |
| 10.32 | | Amendment, dated June 20, 2007, to the Amended and Restated Agreement Respecting Certain Rights of Publicity dated as of August 31, 1990, by and between Peter Norton and Symantec Corporation | | 10-Q | | 000-17781 | | 10.01 | | 8/7/2007 | | |
| 10.33 | | Amendment, effective December 6, 2010, to the Trademark License Agreement, dated August 9, 2010, by and between VeriSign, Inc. and Symantec Corporation | | 10-Q | | 000-17781 | | 10.01 | | 2/2/2011 | | |
| 10.34 | | Master Confirmation - Accelerated Stock Buyback, dated as of November 9, 2015, between Symantec Corporation and Barclays Bank PLC | | 8-K | | 000-17781 | | 10.01 | | 11/10/2015 | | |
| 10.35 | | Master Confirmation - Accelerated Stock Buyback, dated as of March 21, 2016, between Symantec Corporation and Wells Fargo Bank, National Association | | | | | | | | | | X |
| 10.36 | | Master Confirmation - Accelerated Stock Buyback, dated as of March 21, 2016, between Symantec Corporation and Citibank, N.A. | | | | | | | | | | X |
| 10.37 | | Master Confirmation - Accelerated Stock Buyback, dated as of March 21, 2016, between Symantec Corporation and Merrill Lynch International, Acting through its agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated | | | | | | | | | | X |
| 10.38 | | Investment Agreement, dated as of February 3, 2016, by and among Symantec Corporation and Silver Lake Partners IV Cayman (AIV II), L.P. | | 8-K | | 000-17781 | | 10.01 | | 2/9/2016 | | |
| 10.39 | | First Amendment to Investment Agreement, dated as of March 2, 2016, by and among Symantec Corporation and Silver Lake Partners IV Cayman (AIV II), L.P. | | 8-K | | 000-17781 | | 10.01 | | 3/7/2016 | | |
| 21.01 | | Subsidiaries of Symantec Corporation | | | | | | | | | | X |
| 23.01 | | Consent of Independent Registered Public Accounting Firm | | | | | | | | | | X |
| 24.01 | | Power of Attorney (see Signature page to this annual report) | | | | | | | | | | X |
| 31.01 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
| 31.02 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
| 32.01(††) | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
|
| | | | | | | | | | | | |
Exhibit
Number
Signature | | Title | | Incorporated by Reference | | Filed
Herewith
Date |
Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
32.02(††)/s/ Vincent Pilette | | Certification ofChief Executive Officer and Director (Principal Executive Officer) | | May 21, 2021 |
| Vincent Pilette | | |
| | | | |
| /s/ Natalie Derse | | Executive Vice President and Chief Financial Officer pursuant to Section 906
(Principal Financial Officer and Principal Accounting Officer) | | May 21, 2021 |
| Natalie Derse | | |
| | | | |
| /s/ Frank E. Dangeard | | Chairman of the Sarbanes-Oxley Act of 2002Board | | | | | | | | | | XMay 21, 2021 |
101.INSFrank E. Dangeard | | XBRL Instance Document | | | | | | | | | | X |
101.SCH | | XBRL Taxonomy Schema Linkbase Document | | | | | | | | | | X |
101.CAL/s/ Sue Barsamian | | XBRL Taxonomy Calculation Linkbase DocumentDirector | | | | | | | | | | XMay 21, 2021 |
101.LABSue Barsamian | | XBRL Taxonomy Labels Linkbase Document | | | | | | | | | | X |
101.PRE | | XBRL Taxonomy Presentation Linkbase Document | | | | | | | | | | X |
101.DEF/s/ Eric K. Brandt | | XBRL Taxonomy Definition Linkbase DocumentDirector | | May 21, 2021 |
| Eric K. Brandt | | |
| | | | |
| /s/ Nora Denzel | | XDirector | | May 21, 2021 |
| Nora Denzel | | |
| | | | |
| /s/ Peter A. Feld | | Director | | May 21, 2021 |
| Peter A. Feld | | |
| | | | |
| /s/ Kenneth Y. Hao | | Director | | May 21, 2021 |
| Kenneth Y. Hao | | |
| | | | |
| /s/ Emily Heath | | Director | | May 21, 2021 |
| Emily Heath | | |
| | | | |
| /s/ Sherrese M. Smith | | Director | | May 21, 2021 |
| Sherrese M. Smith | | |
* Indicates a management contract, compensatory plan or arrangement.
§ The exhibits and schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally copies of any such exhibits and schedules to the SEC upon request.
† Filed by Veritas Software Corporation.
†† This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
