Washington, D.C. 20549
PART I. FINANCIAL INFORMATION
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”)(GAAP) in the United States of America (“U.S.”) for interim financial information. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.April 2, 2021. The results of operations for the three and nine months ended December 29, 2017,July 2, 2021 are not necessarily indicative of the results expected for the entire fiscal year.
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to three and nine monththree-month periods in this report relate to fiscal periods ended December 29, 2017July 2, 2021 and December 30, 2016.July 3, 2020. The ninethree months ended December 29, 2017July 2, 2021 and December 30, 2016July 3, 2020 each consisted of 3913 weeks. Our 20182022 fiscal year consists of 52 weeks and ends on March 30, 2018.April 1, 2022.
Note 2. Segment InformationRecent Accounting Standards
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In millions) | December 29, 2017 | | December 30, 2016 | | December 29, 2017 | | December 30, 2016 |
Cost of revenues | $ | 7 |
| | $ | 6 |
| | $ | 22 |
| | $ | 14 |
|
Sales and marketing | 30 |
| | 25 |
| | 123 |
| | 63 |
|
Research and development | 49 |
| | 25 |
| | 143 |
| | 64 |
|
General and administrative | 39 |
| | 41 |
| | 160 |
| | 90 |
|
Total stock-based compensation expense | 125 |
| | 97 |
| | 448 |
| | 231 |
|
Tax expense (benefit) associated with stock-based compensation expense | 2 |
| | (34 | ) | | (107 | ) | | (74 | ) |
Net stock-based compensation expense | $ | 127 |
| | $ | 63 |
| | $ | 341 |
| | $ | 157 |
|
The tax expense (benefit) associated with stock-based compensation expensecomponents of basic and diluted net income (loss) per share are as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions, except per share amounts) | July 2, 2021 | | July 3, 2020 | | | | |
Income (loss) from continuing operations | $ | 181 | | | $ | 149 | | | | | |
Income (loss) from discontinued operations | 0 | | | (31) | | | | | |
Net income | $ | 181 | | | $ | 118 | | | | | |
Income (loss) per share - basic: | | | | | | | |
Continuing operations | $ | 0.31 | | | $ | 0.25 | | | | | |
Discontinued operations | $ | 0 | | | $ | (0.05) | | | | | |
Net income per share - basic | $ | 0.31 | | | $ | 0.20 | | | | | |
Income (loss) per share - diluted: | | | | | | | |
Continuing operations | $ | 0.31 | | | $ | 0.24 | | | | | |
Discontinued operations | $ | 0 | | | $ | (0.05) | | | | | |
Net income per share - diluted | $ | 0.31 | | | $ | 0.19 | | | | | |
| | | | | | | |
Weighted-average shares outstanding - basic | 580 | | | 590 | | | | | |
Dilutive potentially issuable shares: | | | | | | | |
Convertible debt | 7 | | | 20 | | | | | |
Employee equity awards | 4 | | | 4 | | | | | |
Weighted-average shares outstanding - diluted | 591 | | | 614 | | | | | |
| | | | | | | |
Anti-dilutive shares excluded from diluted net income per share calculation: | | | | | | | |
| | | | | | | |
Employee equity awards (1) | — | | | 1 | | | | | |
Total | 0 | | | 1 | | | | | |
(1) During the three months ended July 2, 2021, the number of shares was less than 1 million.
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 three and nine months ended December 29, 2017 reflectsperiod exceeds the impact of the enactment of the Act. The tax benefit associated with stock-based compensation expenseconversion prices for the threeconvertible debt instruments. The 2.0% Convertible Notes and nine months ended December 30, 2016 reflectsNew 2.5% Convertible Senior Notes were fully repaid on May 26, 2020 and May 13, 2021, respectively. The conversion price of each convertible debt instrument applicable in the historic tax rates.periods presented is as follows: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| July 2, 2021 | | July 3, 2020 | | | | |
2.0% Convertible Senior Notes due August 15, 2022 | N/A | | $ | 10.23 | | | | | |
New 2.5% Convertible Senior Notes due April 1, 2022 | N/A | | $ | 16.77 | | | | | |
New 2.0% Convertible Senior Notes due August 15, 2022 | $ | 20.41 | | | $ | 20.41 | | | | | |
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 additionalnet revenues for our major solutions: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions) | July 2, 2021 | | July 3, 2020 | | | | |
Consumer security | $ | 412 | | | $ | 363 | | | | | |
Identity and information protection | 274 | | | 251 | | | | | |
Total net revenues | $ | 686 | | | $ | 614 | | | | | |
Consumer security products include our Norton 360 Security offerings, Norton Security, Norton Secure VPN, Avira Security, and other consumer security solutions. Identity and information related toprotection products include our stock-based compensation:Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection solutions.
|
| | | | | | | |
| Nine Months Ended |
(In millions, except per grant data) | December 29, 2017 | | December 30, 2016 |
Restricted stock units: | | | |
Weighted-average fair value per award granted and assumed | $ | 30.20 |
| | $ | 18.80 |
|
Awards granted and assumed | 11.9 |
| | 14.2 |
|
Total fair value of awards released | $ | 265 |
| | $ | 138 |
|
Total unrecognized compensation expense, net of estimated forfeitures | $ | 369 |
| | $ | 257 |
|
Weighted-average remaining recognition period | 1.7 years |
| | 2.0 years |
|
Performance-based restricted stock units: | | | |
Weighted-average fair value per award granted and assumed | $ | 32.94 |
| | $ | 19.99 |
|
Awards granted and assumed | 3.7 |
| | 5.0 |
|
Total fair value of awards released | $ | 24 |
| | $ | 13 |
|
Total unrecognized compensation expense, net of estimated forfeitures | $ | 92 |
| | $ | 63 |
|
Weighted-average remaining recognition period | 0.9 years |
| | 1.2 years |
|
Stock options: | | | |
Total intrinsic value of stock options exercised | $ | 123 |
| | $ | 57 |
|
Total unrecognized compensation expense, net of estimated forfeitures | $ | 79 |
| | $ | 116 |
|
Weighted-average remaining recognition period | 1.0 year |
| | 1.6 years |
|
Geographic informationNet revenues by geography are based on the billing addresses of our customers. The following table represents net revenues by geographic area for the periods presented:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions) | July 2, 2021 | | July 3, 2020 | | | | |
Americas | $ | 477 | | | $ | 448 | | | | | |
EMEA | 127 | | | 96 | | | | | |
APJ | 82 | | | 70 | | | | | |
Total net revenues | $ | 686 | | | $ | 614 | | | | | |
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 customers inside the U.S. were $456 million and $427 million during the three months ended July 2, 2021 and July 3, 2020, respectively. No other individual country accounted for more than 10% of revenues.
The table below represents cash, cash equivalents and short-term investments held in the U.S. and internationally in various foreign subsidiaries.
| | | | | | | | | | | |
(In millions) | July 2, 2021 | | April 2, 2021 |
U.S. | $ | 772 | | | $ | 536 | |
International | 473 | | | 415 | |
Total cash, cash equivalents and short-term investments | $ | 1,245 | | | $ | 951 | |
The table below represents our property and equipment, net of accumulated depreciation and amortization, by geographic area, based on the physical location of the asset, at the end of each period presented.
| | | | | | | | | | | |
(In millions) | July 2, 2021 | | April 2, 2021 |
U.S. | $ | 22 | | | $ | 28 | |
Ireland | 32 | | | 32 | |
Germany | 14 | | | 14 | |
Other countries | 3 | | | 4 | |
Total property and equipment, net | $ | 71 | | | $ | 78 | |
Our operating lease assets by geographic area, based on the physical location of the asset, at the end of each period presented, are as follows:
| | | | | | | | | | | |
(In millions) | July 2, 2021 | | April 2, 2021 |
U.S. | $ | 52 | | | $ | 55 | |
India | 8 | | | 9 | |
Other countries (1) | 11 | | | 12 | |
Total operating lease assets | $ | 71 | | | $ | 76 | |
(1) No other individual country represented more than 10% of the respective totals.
Significant customers
No customer accounted for 10% or more of our net revenues during the three months ended July 2, 2021.Customers that accounted for over 10% of our net accounts receivable were as follows: | | | | | | | | | | | |
| July 2, 2021 | | April 2, 2021 |
Customer A | 44 | % | | 46 | % |
Note 12.18. Commitments and Contingencies
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 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 as a result of obligations under these agreements, and we have not accrued any material liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements.
In connection with the sale of Veritas and the sale of our former information managementEnterprise Security business (“Veritas”),to Broadcom, we assigned several leases to Veritas Technologies LLC or itsBroadcom and/or their 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, Broadcom, or itstheir 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 in our Condensed 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
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. Securities and Exchange Commission (SEC) in April 2018. The SEC commenced a formal investigation, and we continue to cooperate with that investigation. The outcome of such an investigation is difficult to predict. We have incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the SEC investigation. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the SEC’s investigation or estimate the range of any potential loss.
Securities Class Action and Derivative Litigation
Securities class action lawsuits, which have since been consolidated, were filed in May 2018 against us and certain of our former 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 second Class Notice disclosing the circumstances of the alleged conflict and providing a further period for class members to opt out, which closed on July 2, 2021. The initial class opt out period closed on August 25, 2020.
On May 24, 2021, the parties reached a proposed settlement and release of all claims in the class action, for $70 million, and on June 8, 2021, the parties executed a Stipulation and Agreement of Settlement, subject to Court approval and exclusive of any claims that may be brought by shareholders who opted out of the class action. Of the $70M, $67.1 million was covered under the applicable insurance policy with the remainder to be paid by the Company. On July 6, 2021, the plaintiff filed its Motion for Preliminary Settlement Approval and that motion is set to be heard on August 12, 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. District Courts for the District of Delaware and the Northern District of California, Delaware 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 reimbursement of legal fees of present and 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 will be successful in any defense. If any of the 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 cash flows.
At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the derivative 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”)(DOJ) Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the government is investigating our compliance with certain provisions of our U.S. General Services Administration (“GSA”)(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 have 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 scheduleSchedule 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 has also indicated they are going towould 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 Symantecus 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 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 DOJ 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. 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 sale of the Symantec 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 Government’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.
The August 2, 2021 trial date has now been continued until September 27, 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 one1 and three3 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.penalties. 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 unablematter.
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 determinehave been intercepted by the high endCompany without prior consent and, on behalf of the range of estimated losses resulting from this matter.
Finjan
class, seeks statutory damages, attorney’s fees and costs, and injunctive relief. On August 28, 2013, Finjan, Inc. (“Finjan”) filed a complaint against Blue Coat Systems, Inc. inMarch 12, 2021, the U.S.Company removed the case to the District Court for the NorthernMiddle District of California alleging that certain Blue Coat products infringe six of Finjan’s U.S. patents. On August 4, 2015,Florida and filed its Answer and Affirmative Defenses to the complaint. The Company then filed a jury returned a verdict that certain Blue Coat products infringe five of the Finjan patents-in-suit and awarded Finjan lump-sum damages of $40 million. On November 20, 2015, the trial court entered a judgment in favor of FinjanMotion for Judgment on the jury verdict and certain non-jury legal issues.Pleadings on April 20, 2021. On
April 29, 2021, Plaintiff filed a Motion for Leave to File an Amended Complaint. On July 28, 2016, in its ruling22, 2021, the Court granted Plaintiff leave to file an amended complaint and deemed the Motion for Judgment on post-trial motions the trial court denied Blue Coat’s motions seeking a new trialPleadings moot.
At this stage, we are unable to assess whether any material loss or judgmentadverse effect is reasonably possible as a matterresult of lawthis lawsuit or estimate the range of any potential loss. We dispute these claims and denied Finjan’s request for enhanced damages and attorneys’ fees. In August 2016, we completed our acquisition of Blue Coat. We subsequently filed an appeal with the Federal Circuit Court of Appeals. On January 10, 2018, the Federal Circuit Court of Appeals issued an opinion favorableintend to us. The decision reversed or vacated all but $8 million of the judgment against Blue Coat and remanded to the District Court to determine whether Finjan is entitled to a new trial on damages related to one of the patents. Blue Coat previously accrued $40 million in connection with Finjan, which was assumed by us as a part of the acquisition of Blue Coat.defend them vigorously.
Other
We are involved in a number of other judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it is not possible to estimate the possible loss or losses from each 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.
Note 13. Discontinued Operations
On January 29, 2016, we completed the sale of Veritas. The results of Veritas are presented as discontinued operations in our Condensed Consolidated Statements of Operations and have been excluded from continuing operations and segment results for all reported periods.
The following table presents information regarding certain components of income from discontinued operations, net of income taxes:
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In millions) | December 29, 2017 | | December 30, 2016 | | December 29, 2017 | | December 30, 2016 |
Net revenues | $ | 14 |
| | $ | 22 |
| | $ | 51 |
| | $ | 145 |
|
Cost of revenues | (5 | ) | | (3 | ) | | (21 | ) | | (12 | ) |
Operating expenses | (8 | ) | | (2 | ) | | (11 | ) | | (26 | ) |
Gain on sale of Veritas | — |
| | — |
| | — |
| | 38 |
|
Income from discontinued operations before income taxes | 1 |
| | 17 |
| | 19 |
| | 145 |
|
Income tax expense (benefit) | (30 | ) | | (85 | ) | | 7 |
| | 49 |
|
Income from discontinued operations, net of income taxes | $ | 31 |
| | $ | 102 |
| | $ | 12 |
| | $ | 96 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 (including the recent acquisition of Avira), divestitures, restructurings, stock repurchases, and investment activities; the outcome or impact of our restructurings,pending litigation, claims or disputes; our intent to pay quarterly cash dividends in the future,future; plans for and anticipated benefits of our solutions; matters arising out of the ongoing U.S. Securities and Exchange Commission (the SEC) investigation; anticipated tax rates, benefits and expenses; the impact of the COVID-19 pandemic on our operations and financial performance; 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 discuss in Risk Factors, set forth in Part I, Item 1A, of our annual report on Form 10-K for the fiscal year ended March 31, 2017 and in Part II Item 1A, of this quarterly reportQuarterly Report on Form 10-Q. We encourage you to read those sectionsthat section carefully.
OVERVIEW
Our business
Symantec Corporation is a global leaderNortonLifeLock Inc. has the largest Consumer Cyber Safety platform in cybersecurity. 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. This database allows us to reduce the number of false positives and provide faster and better protection for customers through our products.world, empowering nearly 80 million users in more than 150 countries. We are leveraging our capabilitiesthe trusted and number one top of mind brand in consumer Cyber Safety, according to deliver integrated solutions for customers.the 2020 NortonLifeLock brand tracking study. We are also pioneering solutions in markets such as cloud security, digital safety, advanced threat protection, identity protection, information protectionhelp prevent, detect and restore potential damages caused by many cyber security services.criminals.
Fiscal calendar
We have a 52/53-week fiscal year ending on the Friday closest to March 31. The three months ended December 29, 2017 (“Q3 FY18”)July 2, 2021 and December 30, 2016 (“Q3 FY17”) bothJuly 3, 2020 each consisted of 13 weeks. The nine months ended December 29, 2017 (“YTD FY18”) and December 30, 2016 (“YTD FY17”) both consisted of 39 weeks. Our 20182022 fiscal year consists of 52 weeks and ends on March 30, 2018.April 1, 2022.
StrategyKey financial metrics
Our strategy is to deliver comprehensive cyber security solutionsThe following tables provide our key financial metrics for both enterprises and consumers.the periods presented: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions, except for per share amounts) | July 2, 2021 | | July 3, 2020 | | | | |
Net revenues | $ | 686 | | | $ | 614 | | | | | |
Operating income | $ | 287 | | | $ | 120 | | | | | |
Income (loss) from continuing operations | $ | 181 | | | $ | 149 | | | | | |
Income (loss) from discontinued operations | $ | — | | | $ | (31) | | | | | |
Net income | $ | 181 | | | $ | 118 | | | | | |
Net income per share from continuing operations - diluted | $ | 0.31 | | | $ | 0.24 | | | | | |
Net income (loss) per share from discontinued operations - diluted | $ | — | | | $ | (0.05) | | | | | |
Net income per share - diluted | $ | 0.31 | | | $ | 0.19 | | | | | |
Net cash provided by (used in) operating activities | $ | 258 | | | $ | 170 | | | | | |
Our enterprise security strategy is to deliver an Integrated Cyber Defense platform that allows Symantec products to share threat intelligence and improve security outcomes for customers across all control points. Symantec is the leading vendor in protecting users, information, web and messaging across an integrated platform. | | | | | | | | | | | |
| As Of |
(In millions) | July 2, 2021 | | April 2, 2021 |
Cash, cash equivalents and short-term investments | $ | 1,245 | | | $ | 951 | |
Contract liabilities | $ | 1,231 | | | $ | 1,265 | |
Our consumer digital safety strategy is to deliver the most comprehensive consumer digital safety solutions to help people protect their information, identities, devices and families.
OurBelow are our financial highlights for the first quarter of fiscal 2022, compared to the corresponding period in the prior year:
•Net revenues increased $72 million, due to higher sales in both our consumer security products and our identity and information protection products.
•Operating income increased $167 million, primarily due to the increase in revenue and the decrease in restructuring costs for which the related activities were completed in fiscal 2021. The increase was partially offset by our investment in advertising during fiscal 2022.
•Income (loss) from continuing operations increased $32 million, primarily due to the increase in operating income partially offset by an increase in income tax expense.
•Income (loss) from discontinued operations, net of tax, decreased from a loss of $31 million, primarily due to the completion of the discontinued operations activities during fiscal 2021.
•Net income increased $63 million and net income per share increased $0.12, primarily due to the increase in income from continuing operations discussed above, partially offset by the $121 million increase in income tax expense.
COVID-19 UPDATE
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 implemented a near company-wide work-from-home requirement for most employees, made substantial modifications to employee travel policies and cancelled or shifted our conferences and other marketing events to virtual-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 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 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.
Our financial highlightsThe 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 the COVID-19 pandemic, please see “Risk Factors” in Part II, Item 1A below.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Condensed Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S. 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. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and 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 assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, discuss our businessfinancial position and overall analysis of financialcash flows.
Our critical accounting policies and other highlights affecting the company and analyze our financial results comparing the three and nine months ended December 29, 2017 to the prior year periods. This interimestimates were disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&Aincluded in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.
On October 31, 2017, we completed the sale of our website security (“WSS”) and public key infrastructure (“PKI”) solutions to DigiCert Parent Inc. (“DigiCert”) for an aggregate consideration of $1.1 billion, consisting of approximately $960 million in cash and shares of common stock representing an approximate 28% interestApril 2, 2021. There have been no material changes in the outstanding common stock of DigiCert valued at $160 million as of the transaction date. The results of operations of our WSS and PKI solutions prior to the divestiture are reported in our consolidated results of operations through October 31, 2017. The cash consideration is subject to adjustmentmatters for WSS and PKI closing date cash and working capital as specifiedwhich we make critical accounting estimates in the purchase agreement. See Note 6 to thepreparation of our Condensed Consolidated Financial Statements for more information on our divestiture.during the three months ended July 2, 2021.
RESULTS OF OPERATIONS
The following discussion relates to the results oftable sets forth our continuing operations and our total Company cash flows unless stated otherwise.
Our operating segments
Our operating segments are significant strategic business units that offer different products and services distinguished by customer needs. Our operating segments are: Enterprise Security and Consumer Digital Safety.
Enterprise Security. Our Enterprise Security segment solutions protect organizations so they can securely conduct business while leveraging new platforms and data. Our Enterprise Security segment includes our endpoint protection products, endpoint management products, messaging protection products, information protection products, cyber security services, website security (through October 31, 2017) and advanced web and cloud security offerings. See Note 6 to the Condensed Consolidated Financial Statements for more information on our divestiture of our WSS and PKI solutions on October 31, 2017. Our enterprise endpoint, network security and management offerings support evolving endpoints and networks, providing advanced threat protection while helping reduce cost and complexity. These products and solutions are delivered through various methods, such as software, appliance, virtual appliance, Software-as-a-Service (“SaaS”) and managed services.
Consumer Digital Safety. Our Consumer Digital Safety segment focuses on providing a comprehensive Digital Safety solution to protect information, devices, networks and the identities of consumers. This solution includes our Norton-branded services, which provide multi-layer security across major desktop and mobile operating systems, public Wi-Fi connections, and home networks, to defend against increasingly complex online threats to individuals, families and small businesses, and our LifeLock-branded identity protection services. Our LifeLock-branded identity protection services primarily consist of identifying and notifying users of identity-related and other events and assisting users in remediating their impact. With the addition of LifeLock-branded identity protection services, we are providing a comprehensive digital safety solution designed to protect information across devices, customer identities and the connected home and family and accelerating our leadership in Consumer Digital Safety to protect all aspects of consumers’ digital lives.
For more information on our operating segments see Note 2 to the Condensed Consolidated Financial Statements.
Financial highlights and business trends
The following is an overview of key financial metrics in millions and the respective metricsOperations data as a percentage of
revenues.net revenues for the periods indicated: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| July 2, 2021 | | July 3, 2020 | | | | |
Net revenues | 100 | % | | 100 | % | | | | |
Cost of revenues | 15 | | | 14 | | | | | |
Gross profit | 85 | | | 86 | | | | | |
Operating expenses: | | | | | | | |
Sales and marketing | 23 | | | 24 | | | | | |
Research and development | 10 | | | 11 | | | | | |
General and administrative | 7 | | | 9 | | | | | |
Amortization of intangible assets | 3 | | | 3 | | | | | |
Restructuring, transition and other costs | 1 | | | 21 | | | | | |
Total operating expenses | 43 | | | 66 | | | | | |
Operating income | 42 | | | 20 | | | | | |
Interest expense | (5) | | | (7) | | | | | |
Other income (expense), net | — | | | 3 | | | | | |
Income (loss) from continuing operations before income taxes | 37 | | | 16 | | | | | |
Income tax expense (benefit) | 10 | | | (8) | | | | | |
Income (loss) from continuing operations | 26 | | | 24 | | | | | |
Income (loss) from discontinued operations | — | | | (5) | | | | | |
Net income | 26 | % | | 19 | % | | | | |
Note: Percentages may not add due to rounding.
Net revenues | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions, except for percentages) | July 2, 2021 | | July 3, 2020 | | Change in % | | | | | | |
Net revenues | $ | 686 | | | $ | 614 | | | 12 | % | | | | | | |
Below areNet revenues increased $72 million, due to a $49 million increase in sales of our financial highlights forconsumer security products and a $23 million increase in sales of our identity and information protection products. This was driven by an increase in our direct customer count year-over-year, stable annual retention rate and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.
Performance Metrics
We regularly monitor a number of metrics in order to measure our current 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:
| | | | | | | | | | | |
| Three Months Ended |
(In millions, except for per user amounts) | July 2, 2021 | | July 3, 2020 |
Direct customer revenues (1) | $ | 611 | | | $ | 552 | |
Partner revenues | $ | 80 | | | $ | 62 | |
Average direct customer count | 23.0 | | | 20.4 | |
Direct customer count (at quarter end) | 23.1 | | | 20.6 | |
Direct average revenue per user (ARPU) | $ | 8.84 | | | $ | 9.03 | |
(1) Direct customer revenues during the three months ended December 29, 2017, compared toJuly 2, 2021 excludes a $5 million reduction of revenue from a contract liability purchase accounting adjustment. We believe that eliminating the corresponding period inimpact of this adjustment improves the prior year:
Revenue increased by 16% compared tocomparability of revenues between periods. In addition, although the corresponding period in the prior year, driven by a 47% increaseadjustment amounts will never be recognized in our Consumer Digital Safety segment, primarily dueGAAP financial statements, we do not expect the acquisitions to affect the contributionfuture renewal rates of revenues excluded by the adjustments.
We define direct customer revenues as revenues from the February 2017 acquisition of LifeLock, Inc. (“LifeLock”). Revenue in our Enterprise Security segment decreased 3%, primarily due to the divestituresales of our WSSconsumer solutions to direct customers, which we define as active paid users who have a direct billing relationship with the Company at the end of the reported period. We exclude users
on free trials and PKI solutions, partially offset by increased revenue from Blue Coat products.users who have indirectly purchased our product or services through partners unless such users convert or renew their subscription directly with us.
Gross margin increased 2 percentage points compared toAverage direct customer count presents the corresponding period in the prior year due to the mix of customer and products, as our higher margin Consumer Digital Safety segment contributed to a larger proportionaverage of the total gross profit.number of direct customers at the beginning and end of the fiscal quarter.
Operating margin increased 10 percentage points compared to the corresponding period in the prior year primarily driven by increased revenue and decreased sales and marketing and general administrative expense relative to our revenue partially due to savings from our ongoing cost reduction initiatives.
Income tax expense from continuing operationsARPU is calculated as estimated direct customer revenues for the three and nine months ended December 29, 2017 reflectsperiod divided by the discrete effects of the Tax Cuts and Jobs Act (H.R.1), or the “Act”, enacted on December 22, 2017, and includes an income tax benefit of $1.6 billion resulting from the application of the Act to existing deferred tax balances, partially offset by $821 million of tax expense that was recordedaverage direct customer count for the one-time transition tax liability under the Act. In addition, we recorded the benefit of a reduction in our estimated annual effective rate to reflect a change in the federal statutory rate from 35% to 21%, effective January 1, 2018,same period, expressed as a result of the enactment of the Act.
On October 31, 2107, we completed the sale of our WSSmonthly figure. Non-GAAP estimated direct customer revenues and PKI solutions to DigiCert for an aggregate consideration of $1.1 billion, resultingARPU have limitations as analytical tools and should not be considered in a gain of $658 million.
Below are our additional financial highlights for the nine months ended December 29, 2017, compared to the corresponding period in the prior year:
Revenue increased by 25% compared to the corresponding period in the prior year, driven by a 15% and 38% increase in revenue from our Enterprise Security and Consumer Digital Safety segments, respectively, primarily due to the contributions from the acquisitions of Blue Coat and LifeLock.
Gross margin decreased 1 percentage point compared to the corresponding period in the prior year, primarily due to increased amortization of intangible assets of $83 millionisolation or as a result ofsubstitute for GAAP estimated direct customer revenues or other GAAP measures. We monitor ARPU because it helps us understand the rate at which we are monetizing our acquisitions of Blue Coat and LifeLock, partially offset by our higher margin Consumer Digital Safety segment contributing to a larger proportion of the total gross profit.
Operating margin decreased 2 percentage points compared to the corresponding period in the prior year, primarily due to the decreased gross margin, increased stock-based compensation expense and advertising and promotion expense, partly offset by savings from our ongoing cost reduction initiatives.
We repaid debt totaling $2.6 billion as part of our plan to deleverage our balance sheet.
We paid aggregate cash consideration of $402 million for our acquisitions.
RESULTS OF OPERATIONS
Net revenues by geographicgeographical region
Percentage of revenue by geographic region presented below is based on the billing location of the customer. | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| July 2, 2021 | | July 3, 2020 | | | | |
Americas | 70 | % | | 73 | % | | | | |
EMEA | 19 | % | | 16 | % | | | | |
APJ | 11 | % | | 11 | % | | | | |
Note:The Americas include the U.S., Canada and Latin America; EMEA includes Europe, the Middle East and Africa; APJ includes Asia Pacific and JapanJapan.
Our percentagePercentage of revenues fromrevenue by geographic region in the first three months of fiscal 2022 remains primarily in the Americas forbut is beginning to shift into the three and nine months ended December 29, 2017 increased compared to prior year periods primarily as a result of LifeLock salesinternational markets, which are entirely U.S.-based.is consistent with our stated strategy.
Our international sales are expected to continue to be a significant portion of our revenue. As a result, we expect revenue 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
Cost of revenues consists primarily of technical support costs, costs of billable services, fees to original equipment manufacturers under revenue-sharing agreements, hardware costs, and fulfillment costs, as well as intangible asset amortization expense. The amounts below are presented in millions and the percentages are a percentage of revenues.
Three Months Ended December 29, 2017 Compared with Three Months Ended December 30, 2016 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions, except for percentages) | July 2, 2021 | | July 3, 2020 | | Change in % | | | | | | |
Cost of revenues | $ | 102 | | | $ | 86 | | | 19 | % | | | | | | |
Our cost of revenues increased $14$16 million, or 6%, primarily due to cost of revenues related to our acquired LifeLock products, partially offset by lower cost of revenues from our divested WSShigher revenue share costs, payment processing fees and PKI solutions.
Nine Months Ended December 29, 2017 Compared with Nine Months Ended December 30, 2016
Our cost of revenues increased $174 million, or 29%, primarily due to cost of revenues related to our acquired Blue Coat and LifeLock products, including $83 million of increased amortization of acquired intangible assets and $52 million of increased technical support costs primarily driven by the LifeLock acquisition.associated with year-over-year business growth.
Operating expenses
The following amounts are in millions and the percentages are a percentage of revenues. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions, except for percentages) | July 2, 2021 | | July 3, 2020 | | Change in % | | | | | | |
Sales and marketing | $ | 156 | | | $ | 145 | | | 8 | % | | | | | | |
Research and development | 68 | | | 65 | | | 5 | % | | | | | | |
General and administrative | 45 | | | 53 | | | (15) | % | | | | | | |
Amortization of intangible assets | 21 | | | 18 | | | 17 | % | | | | | | |
Restructuring and other costs | 7 | | | 127 | | | (94) | % | | | | | | |
Total operating expenses | $ | 297 | | | $ | 408 | | | (27) | % | | | | | | |
Three Months Ended December 29, 2017 Compared with Three Months Ended December 30, 2016
Sales and marketing expense were relatively flat comparedincreased $11 million, primarily due to the corresponding perioda $19 million increase in advertising and promotional expenses as a result of increased investment in advertising. This is partially offset by a $10 million decrease in IT costs from corporate restructuring and cost reduction efforts in fiscal 2017.2021.
Research and development expense increased $21$3 million, or 10%, primarily due to an increase in compensation and benefits as a result of $24 million in stock-based compensation expense primarily related to the equity awards assumed or granted in connection with our acquisitions.Avira acquisition.
General and administrative expense was relatively flat compareddecreased $8 million, primarily due to the corresponding periodIT asset restructuring and write-offs in fiscal 2017.connection with our November 2019 restructuring plan (the November 2019 Plan).
Amortization of intangible assets increased $9by $3 million primarily due to the intangible assets acquired in the LifeLock acquisition.
Nine Months Ended December 29, 2017 Compared with Nine Months Ended December 30, 2016
Sales and marketing expense increased $233 million, or 23%, primarily as a result of increased expenses from the Blue Coat and LifeLock acquisitions, including increases of $143 million in advertising and promotional expense, largely related to LifeLock, $60 million in stock-based compensation expense, primarily from awards assumed in acquisitions, and $36 million in other compensation and benefits expense. These increases were partially offset by the decreased expenses from our divested WSS and PKI solutions.
Research and development expense increased $125 million, or 22%, primarily as a result of increased expenses from the Blue Coat and LifeLock acquisitions, including increases of $79 million in stock-based compensation expense and $23 million in other compensation and benefits expense.
General and administrative expense increased $71 million primarily as a result of increases of $70 million in stock-based compensation expense and $28 million in other compensation and benefits expense, primarily due to the Blue Coat and LifeLock acquisitions, partially offset by a decrease of $34 million in acquisition-related costs due to a lower level of acquisition activities in fiscal 2018.
Our stock-based compensation expense included in operating expenses increased $209 million, or 96%, primarily due to the equity awards assumed in our acquisitions, and the expected level of achievement for performance-based equity awards.
Amortization of intangible assets increased $75 million primarily due to the intangible assets acquired in the Blue Coat and LifeLock acquisitions.
Restructuring, transition and other costs
We initiated a restructuring plan in the first quarter of fiscal 2017 to reduce complexity by means of long-term structural improvements. We have reduced headcount and closed certain facilities under the restructuring plan. During the three and nine months ended December 29, 2017, we also incurred divestiture costs as a result of the sale of our WSS and PKI solutions, as well as costs associated with our other transition and transformation programs including the implementation of a new enterprise resource planning system and costs to automate business processes. Avira acquisition.
Restructuring transition and other costs primarily consisted ofdecreased $120 million, due to a $47 million decrease in contract cancellation charges, $11 million and $75 million ofdecrease in severance costs, $55 million decrease in asset write-offs and transition costs, respectively, duringa $7 million decrease in stock-based compensation charges, in connection with the thirdNovember 2019 Plan, which was substantially completed in the second quarter in fiscal 2018, compared to $19 million and$26 million, respectively, during the same period in fiscal 2017. Restructuring, transition and other costs primarily consisted of $50 million and $195 million of severance costs and transition costs, respectively, during the first nine months of fiscal 2018, compared to $57 million and $71 million, respectively, during the same period in fiscal 2017. See Note 4 to the Condensed Consolidated Financial Statements for further information on our restructuring, transition and other costs.2021.
Non-operating income (expense), net
The following charts are in millions.
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions) | July 2, 2021 | | July 3, 2020 | | | | |
Interest expense | $ | (32) | | | $ | (40) | | | | | |
Interest income | — | | | 2 | | | | | |
Foreign exchange gain | 1 | | | 1 | | | | | |
Gain (loss) on early extinguishment of debt | (5) | | | 20 | | | | | |
| | | | | | | |
Transition service expense, net | — | | | (8) | | | | | |
Other | 1 | | | 4 | | | | | |
Total non-operating income (expense), net | $ | (35) | | | $ | (21) | | | | | |
Non-operating income (expense), net, increased during the third quarter and the first nine months of fiscal 2018, compared to the same periodsby $14 million in fiscal 2017,expense, primarily due to a $658the absence of gain on early extinguishment of debt of $20 million gain as a result of our divestiture of our WSS and PKI solutions. See Note 6 to the Condensed Consolidated Financial Statements for more information on our divestiture.
The increase in non-operating income (expense), net, forduring the first nine monthsquarter of fiscal 2018 from our divestiture2021, which was partially offset by increased interest expensea $3 million loss on the amendment and extension of $65our credit facility and a $2 million mainly related to the timingloss on early extinguishment of the issuance of the borrowings in fiscal 2017 as well as a foreign currency net loss of $26our $250 million inNew 2.5% Convertible Notes during the first nine monthsquarter of fiscal 2018, compared to a net gain of $3 million in the same period in fiscal 2017.2022.
Provision for income taxes
The following charts are in millions except for percentages.
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
(In millions, except for percentages) | July 2, 2021 | | July 3, 2020 | | | | |
Income (loss) from continuing operations before income taxes | $ | 252 | | | $ | 99 | | | | | |
Income tax expense (benefit) | $ | 71 | | | $ | (50) | | | | | |
Effective tax rate | 28 | % | | (51) | % | | | | |
Our effective tax rate for income from continuing operations for the three and nine months ended December 29, 2017July 2, 2021 differs from the federal statutory income tax rate primarily due to accounting for the effects of enactment of the Tax Cuts and Jobs Act (H.R.1) or the “Act” on December 22, 2017,state taxes, partially offset by the benefits of lower-taxedlower-tax international earnings the research and development tax credit, and excess tax benefits related to stock-based compensation, partially offset by various permanent differences.
In the third quarter of fiscal 2018, we revised our estimated annual effective rate to reflect a change in the federal statutory rate from 35% to 21%, as a result of the enactment of the Act, which included broad tax reforms that are applicable to us. The rate change is effective January 1, 2018 and therefore will require us to use a blended U.S. statutory rate of 31.58% for our fiscal year 2018. As a result, we recognized a tax benefit in our tax provision for the three and nine months ended December 29, 2017 related to applying the new blended tax rate to our taxable income, as well as adjusting our deferred tax balance to reflect the application of the Act.
Our effective tax rate for loss from continuing operations for the three and nineended months ended December 30, 2016 was based on the historic statutory tax rate of 35%. Our effective tax rate for loss from continuing operations for the three months ended December 30, 2016July 3, 2020 differs from the federal statutory income tax rate primarily due to a tax benefit related to a favorable tax ruling, the benefits of lower-taxed international earnings and the research and development tax credit, partially offset by state taxes and various permanent differences. Our effective tax rate for loss from continuing operations for the nine months ended December 30, 2016 differs from the federal statutory income tax rate primarily due to the benefits of lower-taxed international earnings and the research and development credit, partially offset by various permanent differences and tax expense related to the loss of tax attributes due to restructuring activities. Additionally, as pre-tax income (loss) approaches break even, small changes can produce significant variability in the effective tax rate.
For the three and nine months ended December 29, 2017, we recorded an income tax benefit of $30 million and an income tax expense of $7 million on discontinued operations, respectively. For the three and nine months ended December 30, 2016, we recorded an income tax benefit of $85 million and an income tax expense of $49 million on discontinued operations, respectively. See Note 13 for further details regarding discontinued operations.
Income tax expense from continuing operations for the three and nine months ended December 29, 2017 was adjusted to reflect the discrete effects of the Act and resulted in an increase in income tax benefit of $810 million. This includes an income tax benefit of $1.6 billion resulting from the application of the Act to existing deferred tax balances, including a reduction of the previously accrued deferred tax liability for foreign earnings by $1.4 billion. This was partially offset by $821 million of tax expense that was recorded for the one-time transition tax liability under the Act.
As of December 29, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. These amounts may require further adjustments as a result of additional future guidance from the U.S. Department of the Treasury, changes in our assumptions, and the availability of further information and interpretations. In other cases, we have not been able to make a reasonable estimate and we continue to account for those items based on our existing accounting policies and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional tax benefit of $810 million, which is included as a component of income tax expense from continuing operations. See Note 5 to the Condensed Consolidated Financial Statements for more information for additional information regarding our estimates.
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 therefore, is therefore difficult to predict.
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. AlthoughGiven the potential resolution of uncertain tax positions involveinvolves multiple tax periods and jurisdictions, we are unable to accurately estimate when these unrecognized tax benefits will be realized or released. However, it is reasonably possible that the grossthere could be significant changes to our unrecognized tax benefits related to these audits could decrease, whether by payment, release, or a combination of both, in the next 12 months by $13 million, which could reduce our income tax provision and therefore benefit the resulting effective tax rate.months.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.
Segment operating results
Enterprise Security Segment
The following amounts are in millions and the percentages are a percentage of Enterprise Security segment revenues.
Note: We do not allocate to our operating segments certain operating expenses that we manage separately at the corporate level and are not used in evaluating the results of, or in allocating resources to, our segments. These unallocated expenses consist of stock-based compensation expense; amortization of intangible assets; restructuring, transition and other costs; and acquisition-related costs.
Three Months Ended December 29, 2017 Compared with Three Months Ended December 30, 2016
Revenue decreased $19 million, or 3%, primarily due to a $69 million decrease in revenue from our WSS and PKI solutions as a result of the divestiture on October 31, 2017, partially offset by an increase in revenue from our network protection solutions. Revenue during the third quarter of fiscal 2018 was also unfavorably affected by a shift in sales to products with ratable revenue recognition, and away from product and license sales, as customers are increasingly adopting our cloud, subscription and virtual appliance products in line with our business strategy. This resulted in less in-quarter recognized revenue and more revenue deferred to the balance sheet. We expect this trend to continue at least through the fourth quarter of fiscal 2018 as our business model continues to evolve to more arrangements subject to ratable revenue recognition. Operating income increased $78 million, or 134%, primarily due to improved gross margin and decreased sales and marketing expense.
Nine Months Ended December 29, 2017 Compared with Nine Months Ended December 30, 2016
Revenue increased $258 million, or 15%, primarily due to the full period impact of the Blue Coat acquisition, partially offset by a decrease of $80 million in revenue as a result of the divestiture of our WSS and PKI solutions on October 31, 2017. Revenue during the first nine months of fiscal 2018 was also unfavorably affected by our shift to products with ratable revenue recognition as described above. Operating income increased $266 million, or 240%, primarily due to the contribution from the Blue Coat acquisition.
Consumer Digital Safety Segment
The following amounts are in millions and the percentages are a percentage of Consumer Digital Safety Segment revenues.
Note: We do not allocate to our operating segments certain operating expenses that we manage separately at the corporate level and are not used in evaluating the results of, or in allocating resources to, our segments. These unallocated expenses consist of stock-based compensation expense; amortization of intangible assets; restructuring, transition and other costs; and acquisition-related costs.
Three Months Ended December 29, 2017 Compared with Three Months Ended December 30, 2016
Revenue increased $187 million, or 47%, primarily due to revenue from sales of LifeLock products in the third quarter of fiscal 2018, which were absent in the third quarter of fiscal 2017. Our revenue growth reflects the benefit of the shift to subscription-based contracts and combined packaging of our consumer products, which is helping to mitigate the trend of declining revenues from sales of stand-alone Norton-branded products. Operating income increased $89 million, or 42%, primarily due to the contribution from the LifeLock acquisition.
Nine Months Ended December 29, 2017 Compared with Nine Months Ended December 30, 2016
Revenue increased $462 million, or 38%, primarily due to revenue from sales of LifeLock products in the first nine months of fiscal 2018, which were absent in the same period in fiscal 2017. We were also impacted by the trends related to our Norton products discussed above. Operating income increased $122 million, or 18%, primarily due to the contribution from the LifeLock acquisition.
LIQUIDITY, AND CAPITAL RESOURCES AND CASH REQUIREMENTS
Liquidity and Capital Resources
We have historically relied on cash flowgenerated from operations, borrowings under credit facilities, issuances of debt and the sale of a business,proceeds from divestitures for our liquidity needs.
Our principal cash requirements are primarily to meet our working capital needs, support on-going business activities, including payment of taxes and cash dividends, funding capital expenditures, servicing existing debt, repurchasing shares of our common stock and investing 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 the repurchase of shares of our common stock.
Cash and cash equivalents
As of December 29, 2017,July 2, 2021, we had cash, cash equivalents and short-term investments of $2.5 billion.
We manage$1,245 million, of which $473 million was held by our investment portfolio with the objective to achieve greater investment diversification and higher yields while preserving capital and liquidity.
Another potential source of liquidity is our unused credit facility of $1.0 billion, which expires in May 2021.
foreign subsidiaries. Our principal cash requirements primarily consist of acquisitions, operating expenses, payment of taxes, capital expenditures, and contractual payments of principal and interest on debt. As a part of our plan to deleverage our balance sheet, we may from time to time in the future make additional optional repayments of our debt obligations, which may include repurchases of our outstanding debt, depending on various factors such as market conditions.
As of December 29, 2017, $1.6 billion in cash, cash equivalents and short-term investments were held by ourare 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 subject to applicable state or foreign subsidiaries. taxes.
Debt
We have an undrawn revolving credit facility of $1 billion, which expires in May 2026.
On May 7, 2021, we entered into the first amendment to our credit agreement (the First Amendment), which provided U.S. deferred taxes on a portionfor an incremental increase under the Initial Term Loan, and extended the maturity date of the Initial Term Loan, the Delayed Draw Term Loan, and revolving credit facility from November 2024 to May 2026. We borrowed $525 million under the First Amendment of our undistributed foreign earnings sufficient to addressInitial Term Loan. For additional discussion on the incremental U.S. tax that would be due if we needed those funds to support our operations in the U.S. As a resultamendment, see Note 10 of the Act enactedNotes to Condensed Consolidated Financial Statements included in this Quarterly Report on December 22, 2017,Form 10-Q.
On May 20, 2021, we have recorded a provisional liability forsettled the one-time transition tax, payable over eight years, of $821 million. Approximately $92$250 million is reflected as a current tax payableprincipal and the remainder as a long-term liability.
Furthermore, our capital allocation strategy contemplates a quarterly cash dividend and an on-going evaluationconversion rights of our ability to repurchase sharesNew 2.5% Convertible Notes in cash. The aggregate settlement amount of $364 million was based on $24.40 per underlying share into which the New 2.5% Convertible Notes were convertible. In addition, we paid $1 million of accrued and unpaid interest through the date of settlement and $1 million of cash dividends that we declared on May 10, 2021.
Sale of certain assets
On July 14, 2021, we completed the sale of certain land and buildings in Mountain View, which were previously classified as held for sale, for cash consideration of $358 million.
Cash flows
The following summarizes our common stock.cash flow activities:
We initiated a restructuring plan in the first quarter of fiscal 2017 to reduce complexity by means of long-term structural improvements. We have reduced headcount and closed certain facilities under the restructuring plan. We expect the plan to be substantially completed in the first half of fiscal 2019 and expect additional cash charges of approximately $70 million to $90 million, primarily related to severance benefits and facilities exit costs. | | | | | | | | | | | |
| Three Months Ended |
(In millions) | July 2, 2021 | | July 3, 2020 |
Net cash provided by (used in): | | | |
Operating activities | $ | 258 | | | $ | 170 | |
Investing activities | $ | (1) | | | $ | 23 | |
Financing activities | $ | 44 | | | $ | (1,305) | |
See Note 47 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information on our restructuring plan.supplemental cash flow information.
Sources and uses of cash
The following summarizes selected items in our Condensed Consolidated Statements of Cash Flows for the nine months ended December 29, 2017 and December 30, 2016, in millions.
Operatingfrom operating activities
Our primary source of cash has been cash collections from our customers. Due to seasonality, our orders are generally higher in our third and fourth fiscal quarters and lower in our first and second fiscal quarters. Cash inflows are affected by these fluctuations in our billings and timing of the related collections.
Our primary uses of cash include payments for compensation and related costs, payments to our resellers and distribution partners, payments for income taxes, and other general corporate expenditures.
Our cash flows from operations for the first nine months of fiscal 2018 were $684operating activities increased by $88 million, comparedprimarily due to net cash used of $564 million for the same periodhigher profit before taxes adjusted by non-cash items and an increase in fiscal 2017. Our cash flows in the first nine months of fiscal 2018 reflected $1.6 billion of discrete deferred income tax benefit related to adjustments of deferred taxesaccounts payable as a result of the enactmenttiming of the Actpayments and an increase in December 2017 and $821 millioninincome taxespayable as a result of transition taxes. a higher pre-tax income and subsequent tax provision during the first three months of fiscal 2022.
Cash from investing activities
Our cash flows from investing activities decreased $24 million, primarily due to a decrease in proceeds from maturities and sales of short-term investments.
Cash from financing activities
Our cash flows from financing activities increased $1,349 million, primarily due to $512 million of proceeds from the issuance of our Initial Term Loan and decreases in repayments of debt and payments of dividends and dividend equivalents. The first ninethree months of fiscal 2017 reflected a one-time tax2022 reflects the settlement of our New 2.5% Convertible Notes of $364 million and payment of $887dividends and dividend equivalents of $84 million, relatedcompared to the gain on sale from the divestituresettlement of Veritas. In addition, our cash flows from operations in2.0% Convertible Notes of $1,179 million and payment of dividends and dividend equivalents of $105 million during the first ninethree months of fiscal 2018, compared to the corresponding period in the prior year, were favorably impacted by an increase in deferred revenue of $258 million, reflecting increased billings and collections for ratable contracts, as well as longer contract duration.
Investing activities
Our investing cash flows consist primarily of proceeds from divestitures, payments for acquisitions and net purchases of short-term investments. Our investing activities2021. Dividend equivalents paid during the first ninethree months of fiscal 20182021 included $946 milliona larger portion of awards released that were entitled to the special $12 dividend declared in net cash proceeds from the divestiturefiscal 2020.
Cash Requirements
Debt. As of July 2, 2021, our WSS and PKI solutions in the third quartertotal outstanding principal amount of fiscal 2018, partially offset by $402 million paid for acquisitions during the first nine months of fiscal 2018, compared to $4.5 billion paid during the same period for fiscal 2017 for the Blue Coat acquisition.indebtedness is summarized as follows. See Note 610 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for morefurther information on our divestituredebt.
| | | | | |
(In millions) | July 2, 2021 |
Term Loans | $ | 1,741 | |
Senior Notes | 1,500 | |
Convertible Senior Notes | 625 | |
Mortgage Loans | 10 | |
Total debt | $ | 3,876 | |
Debt covenant compliance. The credit agreement we entered into in November 2019, which was amended and acquisitions. In addition, during the first nine months of fiscal 2018, we had net purchases of $383 million of short-term investments.
Financing activities
Our financing cash flows consist primarily of issuancesextended through May 2026 on May 7, 2021, contains customary representations and repayments of debt, payment of dividendswarranties, non-financial covenants for financial reporting and dividend equivalents to stockholders,affirmative and tax payments related to shares withheld in the settlement of restricted stock units (“RSUs”)negative covenants, including compliance with specified financial ratios. Our primary financing activities during the first nine months of fiscal 2018 consisted of debt repayments of $2.6 billion, while our primary financing activities in the first nine months of fiscal 2017 consisted of borrowings of $5.0 billion, net of issuance costs.
Debt.As of December 29, 2017, our total outstanding principal amountJuly 2, 2021, we
were in compliance with all debt was $5.7 billion.covenants. See Note 810of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information on our debt.regarding financial ratios and debt covenant compliance
Dividends. On January 31, 2018,July 27, 2021, we declaredannounced the declaration of a cash dividend of $0.075$0.125 per share of common stock to be paid on March 14, 2018, to all stockholders of record as of the close of business on February 20, 2018. All shares of common stock issued and outstanding and all shares of unvested restricted stock and performance-based stock as of the record date will be entitled to the dividend and dividend equivalents, respectively.in September 2021. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors. See Note 10 to the Condensed Consolidated Financial Statements for more information on our dividends and dividend equivalents.
Share repurchases.Stock repurchases. Under our stock repurchase programs,program, we may purchase shares of our outstanding common stock through open market and through accelerated stock repurchase (“ASR”)transactions, open market transactions (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act) and privately-negotiated transactions. On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million. No shares were repurchased during the three months ended July 2, 2021.As of December 29, 2017,July 2, 2021, the remaining balance of our sharestock repurchase authorization is $800was $1,774 million and 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 December 2020, we have incurred cash expenditures primarily for severance and termination benefits. As of July 2, 2021, we estimate remaining costs of up to $5 million in connection with the December 2020 Plan. During the three months ended July 2, 2021, we made $4 million in cash payments related to the December 2020 Plan. Actions under the December 2020 Plan are expected to be completed in fiscal 2022. See Note 12 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further cash flow information associated with our restructuring activities.
Contractual obligations
obligations. Our contractual obligations primarilyprincipal commitments consist of futureprincipal and interest payments duerelated to our debt instruments, obligations under our debt, purchase orders, lease arrangementsagreements, repatriation tax payments under the Tax Cuts and certainJobs Acts and obligations under various non-cancellable leases. Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax regulations. The table below summarizes contractual obligationsbenefits and other long-term taxes as of December 29, 2017 that have materially changedJuly 2, 2021, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $563 million in long-term income taxes payable has been excluded from our disclosure in Management’s Discussion and Analysisquarterly review of Financial Condition and Resultstiming of Operations, set forth in Part II, Item 7,contractual obligations.
Commitments related to the principal payments of our debt instruments increased $256 million from our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.April 2, 2021 primarily due to additional borrowings under our Initial Term Loan, partially offset by the repayment of our New 2.5% Convertible Notes. There have been no other material changes, outside the ordinary course of business, to the contractual obligations reported in our Annual Report. For additional information about our debt obligations and certain other contingencies, see Note 10 and Note 18, respectively, of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our credit facility, will be sufficient to meet our working capital needs and support on-going business activities through at least the next 12 months and to meet our known long-term contractual obligations. However, our future liquidity and capital requirements may vary materially from those as of July 2, 2021 depending on several factors, including, but not limited to, economic conditions; the expansion of sales and marketing activities; the costs to acquire or invest in businesses; and the risks and uncertainties discussed in “Risk Factors” in Part II, Item 1A below.
Indemnifications
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Fiscal Period |
(In millions) | Total | | Remainder of 2018 | | 2019 - 2020 | | 2021 - 2022 | | Thereafter |
Debt (1) | $ | 5,670 |
| | $ | — |
| | $ | 1,170 |
| | $ | 3,000 |
| | $ | 1,500 |
|
Interest payments on debt (2) | 845 |
| | 43 |
| | 369 |
| | 233 |
| | 200 |
|
Purchase obligations (3) | 340 |
| | 242 |
| | 45 |
| | 51 |
| | 2 |
|
Deemed repatriation taxes (4) | 856 |
| | 92 |
| | 133 |
| | 133 |
| | 498 |
|
| |
(1) | See Note 8 to the Condensed Consolidated Financial Statements for further information on our debt. |
| |
(2) | Interest payments were calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes and Senior Term Facilities. Interest on variable rate debt was calculated using the interest rate in effect as of December 29, 2017. See Note 8 to the Condensed Consolidated Financial Statements for further information on the Senior Notes, Convertible Senior Notes and Senior Term Facilities. |
| |
(3) | 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. |
| |
(4) | These amounts represent the transition tax on untaxed foreign earnings of foreign subsidiaries under the Act which may be paid in installments over an eight-year period. See Note 5 to the Condensed Consolidated Financial Statements for further information on our income taxes and the impact from the recently enacted legislation. |
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 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 as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements.
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 itsBroadcom and/or their 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 termsSee Note 18 of the lease. As with our other indemnification obligations discussed above and in general, it is not possibleNotes 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 in our Condensed 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our Condensed Consolidated Financial Statements during the nine months ended December 29, 2017, as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annualthis Quarterly Report on Form 10-K10-Q for the fiscal year ended March 31, 2017.
Recently issued authoritative guidance not yet adopted
Revenue Recognition - Contracts with Customers. In May 2014, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance for revenue from contracts with customers. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In March 2016, the FASB clarified implementation guidance on principal versus agent considerations. In April 2016, the FASB issued guidance related to identifying performance obligations and licensing which reduces the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis.
The new guidance may be applied retrospectively to each prior period presented (“retrospective”) or retrospectively with cumulative effect recognized in retained earnings as of the date of adoption (“modified retrospective”). We expect to adopt the new standard on a modified retrospective basis in our first quarter of fiscal 2019.
We are continuing to assess the impact of this standardfurther information on our financial position, results of operations and related disclosures and have not yet determined whether the effect will be material. We do not expect that the adoption of this standard will have a material impact on our operating cash flows. We believe that the new guidance will impact our following policies and disclosures:indemnifications.
the pattern and timing of the recognition of revenue for certain license fees;
the allocation of revenue across performance obligations in multiple element arrangements; and
required disclosures, including information about the transaction price allocated to remaining performance obligations and expected timing of revenue recognition.
We will continue to assess the impact of new guidance including any changes to systems, processes and the control environment as we work through the adoption, and there remain areas still to be fully concluded upon.
Financial Instruments - Recognition and Measurement. In January 2016, the FASB issued new authoritative guidance on financial instruments. The new guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The new guidance will be effective for us in our first quarter of fiscal 2019. Early adoption is permitted under limited circumstances but we do not intend to adopt the provisions of the new guidance early. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements.
Leases. In February 2016, the FASB issued new guidance on lease accounting which will require lessees to recognize assets and liabilities on their balance sheet for the rights and obligations created by operating leases and will also require disclosures designed to give users of financial statements information on the amount, timing, and uncertainty of cash flows arising from leases. The new guidance will be effective for us in our first quarter of fiscal 2020. Early adoption is permitted but we do not plan to adopt the provisions of the new guidance early. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements. We are currently in the assessment phase to determine the adoption methodology and are evaluating the impact of this new standard on our consolidated financial statements and disclosures. We expect that most of our operating lease commitments will be subject to the new standard and recognized as lease liabilities and right-of-use assets upon adoption, which will increase the total assets and total liabilities we report. We are evaluating the impact to our consolidated financial statements as it relates to other aspects of the business.
Credit Losses. In June 2016, the FASB issued new authoritative guidance on credit losses which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, we will be required to use a new forward-looking “expected loss” model. Additionally, for available-for-sale debt securities with unrealized losses, we will measure credit losses in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will be effective for us in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements.
Income Taxes - Intra-Entity Asset Transfers Other Than Inventory. In October 2016, the FASB issued new authoritative guidance that requires entities to immediately recognize the tax consequences of intercompany asset transfers, excluding inventory, at the transaction date, rather than deferring the tax consequences under current U.S. GAAP. The standard will be effective for us in our first quarter of fiscal 2019, and requires a modified retrospective transition method. We are currently evaluating the impact of the adoption of this guidance and anticipate it will have a material impact on our Consolidated Financial Statements.
Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our consolidated financial position, operating results or disclosures.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
Interest rate risk
There have been no significant changes into our interest ratemarket risk exposures during the ninefirst three months ended December 29, 2017,of fiscal 2022, as compared to the interest rate risk exposuresthose discussed in Management’s DiscussionQuantitative and Analysis of Financial Condition and Results of Operations,Qualitative Disclosures About Market Risk, set forth in Part II, Item 7A, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.April 2, 2021.
Foreign currency exchange rate risk
There have been no significant changes to the estimated fair value change to our foreign currency hedging derivatives for a given change in foreign currency exchange rates during the nine months ended December 29, 2017, as compared to that discussed in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission (“SEC”)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 (“CEO”) and Chief Financial Officer (“CFO”))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 CEOChief Executive Officer and our CFOChief 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) Changes in Internal Control over Financial Reporting
There were no changes in our internal controlcontrols over financial reporting or in other factors during the three months ended December 29, 2017,first quarter of fiscal 2022, that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
(c) Limitations on Effectiveness of Controls
Our management, including our CEOChief Executive Officer and CFO,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
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this Item may be found under the heading “Litigation contingencies” in Note 1218 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.
Item 1A. Risk Factors
A description of the risksrisk factors associated with our business is set forth below. The list is not exhaustive, and you should carefully consider these risks and uncertainties before investing in our common stock.
COVID-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 COVID-19 pandemic. Although we did not experience a material increase in cancellations by customers or a material reduction in our retention rate in fiscal 2021 or in the first quarter of fiscal 2022, 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. If we are not able to respond to and manage the impact of such events effectively and if the macroeconomic conditions of the general economy or the industries in which we operate do not improve, or deteriorate further, our business, operating results, financial condition and cash flows could be adversely affected.
RISKS RELATED TO OUR BUSINESS STRATEGY AND INDUSTRY
If we are unable to develop new and enhanced solutions, or if we are unable to continually improve the performance, features, and reliability of our existing solutions, our business and operating results could be adversely affected.
Our future success depends on our ability to effectively respond to evolving threats to consumers, as well as competitive technological developments and industry changes, by developing or introducing new and enhanced solutions on a timely basis.
We have in the past incurred, and will continue to incur, significant research and development expenses as we focus on organic growth through internal innovation. We believe that we also must continue to 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 and competitive developments. Customers may require features and capabilities that our current solutions do not have. Our failure to develop new solutions and 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 retain our customers and attract new customers. A loss of customers would adversely impact our business and operating results.
The development and introduction of new solutions involve a significant commitment of time and resources and are subject to a number of risks and challenges including but not limited to:
•Lengthy development cycles;
•Evolving industry and regulatory standards and technological developments by our competitors and customers;
•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;
•The integration of products and solutions from acquired companies;
•Entering into new or unproven markets; and
•Executing new product and service strategies.
In addition, third parties, including operating systems and internet browser companies, may take steps to limit the interoperability of our solutions with their own products and services, in some cases to promote 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 harm to our reputation, and adversely affect our business, financial condition, results of operations, and cash flows.
If we are not successful in managing these risks and challenges, or if our new or 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 solutions.
We operate in intensely competitive markets that experience frequent 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 continually evolving conditions, we could lose market share and experience a decline in our revenues. To compete successfully, we must maintain an innovative research and development effort to develop new solutions and enhance our existing solutions, effectively adapt to changes in the technology or product rights held by our competitors as well as the ways our information is accessed, used and stored by our customers, and appropriately respond to competitive strategies.
Our competitors include software vendors and operating system providers that offer solutions that directly compete with our offerings. We face growing competition from other technology companies, as 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 compete at some level with our 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 solutions. We face additional risk that these products could limit the operability of our solutions for our customers. Some of our competitors have greater financial, technical, marketing, or other resources than we do and consequently, may have the ability to influence customers to purchase their products instead of 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. We also face competition from many smaller companies that specialize in particular segments of the market in which we compete.
In addition to competing with these vendors directly for sales to end-users of our solutions, we compete with them for the opportunity to have our solutions bundled with the offerings of our strategic 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 solutions with those of our competitors 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 choose to bundle their solutions with their own or other vendors’ solutions or may limit our access to standard interfaces and inhibit our ability to develop solutions for their platform. In the future, further product development by these vendors could cause our solutions to become redundant, which could significantly impact our sales and operating results.
We may need to change our pricing models to compete successfully.
The intense competition we face, in addition to general and economic 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 (freemium products) that compete with ours, we may need to lower prices or offer similar 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 our financial results.
Additionally, our business may be affected by changes in the macroeconomic 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 customers or a material reduction in our retention rate in fiscal 2021 or in the first quarter of fiscal 2022, we may experience such an increase or reduction in the future, especially in the event of a prolonged recession or a worsening of current conditions as a 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 solutions. 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 providers such as us and 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 sales and increase our expenses as well as weaken our competitive position.
Our revenue and operating results depend significantly on our ability to retain our existing customers, convert existing non-paying customers to paying customers, and add new customers.
We 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 offered by our competitors;
•Disruption by new services or changes in law or regulations that impact the need for efficacy of our products and services;
•Changes in auto-renewal 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 revenue to may grow more slowly than expected or decline; and our operating 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 business strategy, we may acquire or divest businesses or assets. For example, in 2019 we completed the sale of certain of our enterprise security assets to Broadcom Inc. (the “Broadcom sale”) and in January 2021, we completed 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 ability to achieve 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 industry 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 industry structure and market conditions, we may be required to strategically reallocate our resources 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 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 technology, 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 substantially 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 affect 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 reduce awards of equity-based compensation, which could impair our 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.
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 other 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 on 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 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 subject us to legal claims and liabilities or regulatory penalties. In addition, unauthorized parties might alter information in our 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 solutions are complex and operate in a wide variety of environments, systems and configurations, which could result in failures of our solutions to function as designed.
Because we offer very complex solutions, errors, defects, disruptions, or other performance problems with our solutions 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 websites 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 solutions, 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 a disaster recovery scenario.
Negative publicity regarding our brand, solutions and business 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 attracting new customers. Our business could be harmed due to errors, defects, disruptions or other performance problems with our solutions causing our customers and potential customers to believe our solutions 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.
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 business, particularly in relation to our identity and information protection offerings.
The personal information we 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.
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 (the FTC) 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. This could have an adverse effect on our reputation and business. In addition, such third parties could expose us to compromised data or technology, or be the target of cyberattack and other data breaches which could impact our systems or our customers’ records. Further, we could be the target of a cyberattack or other action that impacts our systems and results in a data breach of our customers’ records. This could have an adverse effect on our reputation and business.
LEGAL AND COMPLIANCE RISKS
Matters relating to or arising from our completed Audit Committee Investigation, including regulatory investigations and proceedings, litigation matters, and potential additional expenses, may adversely affect our business and results of operations.
As previously disclosed in our public filings, the Audit Committee completed its internal investigation in September 2018. In connection with the Audit Committee Investigation, we voluntarily self-reported to the SEC. The SEC commenced a formal investigation, and we continue to cooperate 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 become subject to injunctions, a cease and desist order, and other equitable remedies. We can provide no assurances as to the outcome of any governmental investigation.
We have incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the ongoing 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 significant. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of very large or indeterminate amounts or seek to impose sanctions, including significant monetary penalties. The monetary and other impact of these litigations, proceedings, or actions may remain unknown for substantial periods of time. Further, an unfavorable resolution of litigations, proceedings or actions could have a material adverse effect on our business, financial condition, and results of operations is set forthand cash flows. Any future investigations or additional lawsuits may also adversely affect our business, financial condition, results of operations, and cash flows.
Our solutions are highly regulated, which could impede our ability to market and provide our solutions or adversely affect our business, financial position, and results of operations.
Our solutions are subject to a high degree of regulation, including a wide variety of federal, state, and 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 Part I, Item 1A,violation of the FTC Act, which impose additional restrictions on our business, including prohibitions against making any misrepresentation of “the means, methods, procedures, effects, effectiveness, coverage, or scope of” our solutions. NortonLifeLock signed an Undertaking, effective June 14, 2021, with the United Kingdom’s Competition and Markets Authority (CMA) requiring NortonLifeLock to make certain changes to its policies and practices related to automatically renewing subscriptions in the United Kingdom as part of the CMA’s investigation into auto-renewal practices in the antivirus sector it launched in December 2018. 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.
Additionally, the nature of our Annualidentity and information protection products subjects us to the broad regulatory, supervisory, and enforcement powers of the Consumer Financial Protection Bureau which may exercise authority with respect to our services, or the marketing and servicing of those services, through the oversight of our financial institution or credit reporting agency customers and 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.
Much 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, 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 consumer agreements do not require 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.
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 have 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.
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 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 solutions, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our 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-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-party software, could result in delivery delays or other disruptions in our business that could materially and adversely affect our operating results.
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. 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-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.
RISKS 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 July 2, 2021, we had an aggregate of $3,876 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 the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-K10-Q for further information on our outstanding debt. Our ability to meet expenses, remain in compliance with the fiscal year ended March 31, 2017. Therecovenants under our debt instruments, pay interest and repay principal for our substantial level of indebtedness depends on, among other things, our operating performance, competitive developments, and financial market conditions, all of which are significantly affected by financial, business, economic, and other factors. We are not able to control many of these factors. Accordingly, our 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 been no material changesother important consequences, including the following:
•We must use a substantial portion of our cash flow from operations to pay interest and principal on the risk factors previously disclosedterm 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 refinance our indebtedness or to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes;
•We are exposed to fluctuations in 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 may be more vulnerable to an economic downturn or recession and adverse developments in our Annual Report, except for the following risk factor. The risk factor below shouldbusiness;
•We may be read in conjunctionunable to comply with the risk factorsfinancial and other information disclosedcovenants in our Form 10-K.debt agreements, which could result in an event of default that, if not cured or waived, may result in acceleration of certain of our debt 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 our outlook or credit rating could negatively affect the value of our debt and/or our common stock, adversely affect our access to debt markets, and increase the interest we pay on outstanding or future debt; and
•Conversion of our convertible note could result in significant dilution of our common stock, which could result in significant dilution to our existing stockholders and cause the market price of our common stock to decline.
There can be no assurance that we will be able to manage 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 generation 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 do 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.
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, a committee of private sector entities 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 a secured lending rate, and SOFR 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 interest 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 revolving 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 ability of our restricted subsidiaries to:
•Incur additional debt;
•Create liens on certain assets to secure debt;
•Enter into certain sale and leaseback 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 covenants may adversely affect our ability to finance our operations, meet or otherwise address our capital needs, pursue business opportunities, react to market conditions, or otherwise restrict activities or business plans. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and, to the extent such indebtedness is secured in the future, proceed against any collateral securing that indebtedness.
GENERAL RISKS
Fluctuations in our quarterly financial results have affected the trading price of our outstanding securities in the past and could affect the trading price of our outstanding securities in the future.
Our quarterly financial results have fluctuated in the past and are likely to vary in the future due 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 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. Factors associated with our industry, the operation of our business, and the 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 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 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 impacts of the recently enacted Tax Cuts and Jobs Act,potential for corporate tax increases under the consequences of which have not yet been fully determined;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’sDevelopment'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;
•The tax effects of purchase accounting for acquisitions and restructuring chargessignificant infrequently occurring events that may cause fluctuations between reporting periods; and
•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.place; and
We report•Taxes arising in connection to changes in our results ofworkforce, corporate entity structure or operations based on our determination of the aggregate amount of taxes owed in theas they relate to tax jurisdictions in which we operate. incentives and tax rates.
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.Repurchase of equity securities
(b) None.Under our stock repurchase programs, shares may be repurchased on the open market and through accelerated stock repurchase transactions. As of July 2, 2021, we have $1,774 million remaining authorized to be completed in future periods with no expiration date. No share were repurchased during the three months ended July 2, 2021.
(c) None.
Item 6. Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed/Furnished with this 10-Q |
Exhibit Description | | Form | | File Number | | Exhibit | | File Date | |
10.01 | | 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. | | 10-K | | 000-17781 | | 10.31 | | 5/21/2021 | | |
10.02 | | | | 8-K | | 000-17781 | | 10.01 | | 6/7/2021 | | |
10.03* | | | | | | | | | | | | X |
10.04* | | | | | | | | | | | | X |
31.01 | | | | | | | | | | | | X |
31.02 | | | | | | | | | | | | X |
32.01† | | | | | | | | | | | | X |
32.02† | | | | | | | | | | | | X |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | FiledFiled/Furnished with this 10-Q |
Exhibit Description | | Form | | File Number | | Exhibit | | File Date | |
10.01*101 | | blocks of text and including detailed tags. | | 10-Q | | 000-17781 | | 10.01 | | 11/3/2017 | | X |
31.01104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | | | X |
31.02 | | | | | | | | | | | | X |
32.01† | | | | | | | | | | | | X |
32.02† | | | | | | | | | | | | X |
101.INS | | XBRL Instance Document | | | | | | | | | | X |
101.SCH | | XBRL Taxonomy Schema Linkbase Document | | | | | | | | | | X |
101.CAL | | XBRL Taxonomy Calculation Linkbase Document | | | | | | | | | | X |
101.DEF | | XBRL Taxonomy Definition Linkbase Document | | | | | | | | | | X |
101.LAB | | XBRL Taxonomy Labels Linkbase Document | | | | | | | | | | X |
101.PRE | | XBRL Taxonomy Presentation Linkbase Document | | | | | | | | | | X |
|
| | | | |
* | Indicates a management contract or compensatory plan or arrangement. |
† | 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. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| NORTONLIFELOCK INC. |
| (Registrant) |
| | |
| SYMANTEC CORPORATIONBy: | /s/ Vincent Pilette |
| (Registrant) |
| | |
| By: | /s/ Gregory S. Clark |
| | Gregory S. Clark Vincent Pilette
Chief Executive Officer and Director |
| | |
| By: | /s/ Nicholas R. NovielloNatalie Derse |
| | Nicholas R. Noviello Natalie Derse
Executive Vice President and Chief Financial Officer
|
FebruaryAugust 2, 2018
2021