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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 29, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO
_______.
COMMISSION FILE NUMBER 0-17781
- --------------------------------------------------------------------------------
SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
20330 STEVENS CREEK BLVD., CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 517-8000
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, including 1,305,585 shares of Delrina exchangeable stock, as
of January 26, 2001:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 75,647,449 SHARES
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SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED DECEMBER 29, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 2000 and March 31, 2000......................................... 3
Condensed Consolidated Statements of Income
for the three and nine months ended December 31, 2000 and 1999..................... 4
Condensed Consolidated Statements of Cash Flow
for the nine months ended December 31, 2000 and 1999............................... 5
Notes to Condensed Consolidated Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................ 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................. 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 30
Item 4. Submission of Matters to a Vote of Security Holders..................................... 30
Item 6. Exhibits and Reports on Form 8-K........................................................ 30
Signatures....................................................................................... 32
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
(In thousands) 2000 2000
- ---------------------------------------------------------------------- ----------- -----------
ASSETS (unaudited)
Current assets:
Cash, cash equivalents and short-term investments ............... $ 715,904 $ 431,550
Trade accounts receivable ....................................... 117,663 47,266
Inventories ..................................................... 4,636 5,675
Deferred income taxes ........................................... 50,423 40,189
Other ........................................................... 23,310 20,857
----------- -----------
Total current assets .......................................... 911,936 545,537
Restricted investments ............................................... 73,310 81,956
Equipment and leasehold improvements, net ............................ 77,005 51,905
Deferred income taxes ................................................ 4,247 38,827
Acquired product rights, net ......................................... 116,412 34,070
Goodwill, net ........................................................ 771,145 82,972
Other, net ........................................................... 38,250 10,760
----------- -----------
$ 1,992,305 $ 846,027
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 59,473 $ 43,030
Accrued compensation and benefits ............................... 32,496 25,714
Deferred revenue ................................................ 162,085 90,813
Other accrued expenses .......................................... 46,896 61,594
Income taxes payable ............................................ 58,692 5,366
----------- -----------
Total current liabilities ..................................... 359,642 226,517
Long-term obligations ................................................ 2,363 1,553
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 300,000; issued and outstanding: 75,974
and 60,309 shares, respectively) .............................. 760 603
Capital in excess of par value .................................. 1,367,202 435,663
Notes receivable from stockholders .............................. -- (24)
Unearned compensation ........................................... (1,181) (677)
Retained earnings ............................................... 301,483 210,099
Accumulated other comprehensive loss ............................ (37,964) (27,707)
----------- -----------
Total stockholders' equity .................................... 1,630,300 617,957
----------- -----------
$ 1,992,305 $ 846,027
=========== ===========
The accompany Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
(In thousands, except per share data; unaudited) 2000 1999 2000 1999
- -------------------------------------------------- --------- --------- --------- ---------
Net revenues ..................................... $ 219,294 $ 200,847 $ 602,948 $ 558,520
Cost of revenues ................................. 30,938 30,799 85,383 92,064
--------- --------- --------- ---------
Gross margin ................................ 188,356 170,048 517,565 466,456
Operating expenses:
Research and development .................... 31,524 28,674 86,004 83,583
Sales and marketing ......................... 87,093 80,603 239,489 230,030
General and administrative .................. 11,297 12,673 30,949 31,427
Amortization of goodwill .................... 11,965 4,287 22,342 13,391
Amortization of other intangibles
from acquisitions ...................... 320 250 880 657
Acquired in-process
research and development ............... 22,300 -- 22,300 1,200
Restructuring and other expenses ............ 1,282 2,246 1,282 5,059
--------- --------- --------- ---------
Total operating expenses .................... 165,781 128,733 403,246 365,347
--------- --------- --------- ---------
Operating income ................................. 22,575 41,315 114,319 101,109
Interest income ............................. 8,797 3,116 23,506 7,807
Income, net of expense, from sale of
technologies and product lines ............ 5,000 89,967 16,198 99,867
Other (expense) income, net ................. (126) 771 (99) 982
--------- --------- --------- ---------
Income before income taxes ....................... 36,246 135,169 153,924 209,765
Provision for income taxes .................. 22,372 46,156 62,540 71,193
--------- --------- --------- ---------
Net income ....................................... $ 13,874 $ 89,013 $ 91,384 $ 138,572
========= ========= ========= =========
Net income per share - basic ..................... $ 0.22 $ 1.52 $ 1.49 $ 2.42
========= ========= ========= =========
Net income per share - diluted ................... $ 0.21 $ 1.41 $ 1.41 $ 2.27
========= ========= ========= =========
Shares used to compute net income
per share - basic .......................... 63,071 58,400 61,527 57,265
========= ========= ========= =========
Shares used to compute net income
per share - diluted ......................... 65,484 63,020 64,904 61,058
========= ========= ========= =========
The accompany Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months Ended
December 31,
-------------------------
(In thousands; unaudited) 2000 1999
- ------------------------------------------------------------------------------------ --------- ---------
Operating Activities:
Net income ...................................................................... $ 91,384 $ 138,572
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of equipment and leasehold improvements ......... 20,751 18,133
Amortization and write-off of capitalized software development costs .......... 6,925 7,792
Amortization of goodwill ...................................................... 22,342 13,391
Write-off of acquired in-process research and development ..................... 22,300 1,200
Write-off of equipment and leasehold improvements ............................. 1,396 2,097
Deferred income taxes ......................................................... (5,064) (26,273)
Gain on divestiture of product lines .......................................... -- (86,808)
Net change in assets and liabilities, excluding effects of acquisitions:
Trade accounts receivable ................................................... (45,213) 28,744
Inventories ................................................................. 923 (2,045)
Other current assets ........................................................ 1,321 967
Other assets ................................................................ 729 (370)
Accounts payable ............................................................ 5,980 (3,186)
Accrued compensation and benefits ........................................... 7,042 2,931
Other accrued expenses ...................................................... (24,414) 3,401
Deferred revenue ............................................................ 51,423 29,970
Income taxes payable ........................................................ 53,188 5,243
Income tax benefit from stock options ....................................... 2,236 40,547
--------- ---------
Net cash provided by operating activities .......................................... 213,249 174,306
--------- ---------
Investing Activities:
Capital expenditures ............................................................ (33,953) (23,215)
Purchased intangibles ........................................................... (1,561) (1,000)
Proceeds from divestiture of Visual Cafe product line ........................... -- 75,000
Cash paid to 20/20 Software shareholders ........................................ (8,000) --
Purchase of URLabs .............................................................. -- (42,100)
Purchase of remaining minority interest in Quarterdeck .......................... -- (16,394)
Cash acquired from AXENT acquisition ............................................ 37,414 --
Payment of note related to purchase of IBM's anti-virus business ................ -- (8,000)
Purchases of marketable securities .............................................. (434,190) (180,044)
Proceeds from sales of marketable securities .................................... 366,653 52,551
Proceeds from sales of long-term, restricted investments and other investments .. 8,646 4,270
Purchases of long-term, restricted investments, and other investments ........... (18,000) (9,546)
--------- ---------
Net cash used in investing activities .............................................. (82,991) (148,478)
--------- ---------
Financing Activities:
Net proceeds from sales of common stock and other ............................... 23,613 51,364
Repurchases of common stock ..................................................... -- (18,722)
--------- ---------
Net cash provided by financing activities .......................................... 23,613 32,642
Effect of exchange rate fluctuations on cash and cash equivalents .................. (2,335) 1,245
--------- ---------
Increase in cash and cash equivalents .............................................. 151,536 59,715
Beginning cash and cash equivalents ................................................ 104,000 153,873
--------- ---------
Ending cash and cash equivalents ................................................... $ 255,536 $ 213,588
========= =========
The accompany Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Symantec Corporation
("Symantec" or the "Company") as of December 31, 2000, and for the three and
nine months ended December 31, 2000 and 1999, are unaudited and, in the opinion
of management, contain all adjustments, consisting of only normal recurring
items necessary for the fair presentation of the financial position and results
of operations for the interim periods. These condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in Symantec's Annual Report on Form 10-K
for the year ended March 31, 2000. The results of operations for the three and
nine months ended December 31, 2000 are not necessarily indicative of the
results to be expected for the entire year. All significant intercompany
accounts and transactions have been eliminated. Certain previously reported
amounts have been reclassified to conform to the current presentation format.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended December 31, 2000, March 31, 2000 and December 31,
1999 reflect amounts as of and for the periods ended December 29, 2000, March
31, 2000 and December 31, 1999, respectively. The three months ended December
31, 2000 and 1999 comprised 13 weeks of activity. The nine months ended December
31, 2000 and 1999 comprised 39 weeks of activity.
On December 18, 2000, the Company acquired AXENT Technologies, Inc. ("AXENT")
(See Note 7 of Notes to Condensed Consolidated Financial Statements in this Form
10-Q). This acquisition was accounted for as a purchase. The results of
operations from this acquisition have been included in Symantec's results of
operations from the date of acquisition.
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 2. BALANCE SHEET INFORMATION
December 31, March 31,
(In thousands) 2000 2000
- ------------------------------------------------------- ------------ ---------
(unaudited)
Cash, cash equivalents and short-term investments:
Cash ............................................... $ 81,294 $ 60,103
Cash equivalents ................................... 174,242 43,897
Short-term investments ............................. 460,368 327,550
--------- ---------
$ 715,904 $ 431,550
========= =========
Trade accounts receivable:
Receivables ........................................ $ 127,452 $ 53,710
Less: allowance for doubtful accounts .............. (9,789) (6,444)
--------- ---------
$ 117,663 $ 47,266
========= =========
Inventories:
Raw materials ...................................... $ 1,161 $ 2,483
Finished goods ..................................... 3,475 3,192
--------- ---------
$ 4,636 $ 5,675
========= =========
Equipment and leasehold improvements:
Computer hardware and software ..................... $ 180,701 $ 142,290
Office furniture and equipment ..................... 45,002 39,330
Leasehold improvements ............................. 27,689 19,585
--------- ---------
253,392 201,205
Less: accumulated depreciation and amortization .... (176,387) (149,300)
--------- ---------
$ 77,005 $ 51,905
========= =========
Acquired product rights:
Acquired product rights ............................ $ 140,110 $ 54,592
Less: accumulated amortization ..................... (23,698) (20,522)
--------- ---------
$ 116,412 $ 34,070
========= =========
Goodwill:
Goodwill ........................................... $ 817,547 $ 107,032
Less: accumulated amortization ..................... (46,402) (24,060)
--------- ---------
$ 771,145 $ 82,972
========= =========
Accumulated other comprehensive loss:
Unrealized loss on available-for-sale investments .. $ (8,879) $ (2,373)
Cumulative translation adjustment .................. (29,085) (25,334)
--------- ---------
$ (37,964) $ (27,707)
========= =========
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 3. NET INCOME PER SHARE
The components of net income per share are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ---------------------
(In thousands, except per share data; unaudited) 2000 1999 2000 1999
- -------------------------------------------------- -------- -------- -------- --------
BASIC NET INCOME PER SHARE
Net income ....................................... $ 13,874 $ 89,013 $ 91,384 $138,572
======== ======== ======== ========
Weighted average number of common
shares outstanding during the period ........ 63,071 58,400 61,527 57,265
======== ======== ======== ========
Basic net income per share ....................... $ 0.22 $ 1.52 $ 1.49 $ 2.42
======== ======== ======== ========
DILUTED NET INCOME PER SHARE
Net income ....................................... $ 13,874 $ 89,013 $ 91,384 $138,572
======== ======== ======== ========
Weighted average number of common
shares outstanding during the period ........ 63,071 58,400 61,527 57,265
Shares issuable from assumed exercise
of options .................................. 2,413 4,620 3,377 3,793
-------- -------- -------- --------
Total shares for purpose of calculating
diluted net income per share ................ 65,484 63,020 64,904 61,058
======== ======== ======== ========
Diluted net income per share ..................... $ 0.21 $ 1.41 $ 1.41 $ 2.27
======== ======== ======== ========
For the three and nine months ended December 31, 2000, shares issuable from
assumed exercise of options exclude approximately 5,692,000 and 3,771,000
options respectively, as their effect on diluted net income per share would have
been anti-dilutive. For the three and nine months ended December 31, 1999,
shares issuable from assumed exercise of options exclude approximately 153,000
and 399,000 options respectively, as their effect on diluted net income per
share would have been anti-dilutive.
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 4. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
(In thousands; unaudited) 2000 1999 2000 1999
- -------------------------------------------------------- --------- --------- --------- ---------
Net income ............................................. $ 13,874 $ 89,013 $ 91,384 $ 138,572
Other comprehensive income (loss):
Change in unrealized (loss) gain on
available-for-sale investments,
net of a tax (benefit) provision of ($242),
$1,562, ($3,061) and $1,622 .................. (514) 3,319 (6,506) 3,482
Change in cumulative translation adjustment,
net of a tax provision (benefit) of $4,944,
($1,933), ($1,765), and ($344) ............... 10,505 (4,108) (3,751) (732)
--------- --------- --------- ---------
Total other comprehensive income (loss) ................ 9,991 (789) (10,257) 2,750
--------- --------- --------- ---------
Comprehensive income ................................... $ 23,865 $ 88,224 $ 81,127 $ 141,322
========= ========= ========= =========
NOTE 5. LITIGATION AND CONTINGENCIES
On February 19, 1998, a class action complaint was filed by the law firm of
Milberg, Weiss, Bershad, Hynes & Lerach in Santa Clara County Superior Court, on
behalf of a class of purchasers of pre-version 4.0 Norton AntiVirus products. A
similar complaint was filed in the same court on March 6, 1998, by an Oregon law
firm. Those actions were consolidated and a consolidated amended complaint was
filed in late October 1998. The complaint originally purported to assert claims
for breach of implied warranty, fraud, unfair business practices and violation
of California's Consumer Legal Remedies Act, among others, arising from the
alleged inability of earlier versions of Norton AntiVirus to function properly
after the year 2000. As of September 30, 2000, all but the unfair business
practice claims had been dismissed following our demurrer. In the December 2000
quarter, the unfair business practice claims were dismissed and the case was
resolved with no material financial impact to the Company.
On May 12, 1999, a venture capital entity and a former stockholder owning less
than a majority share of CKS Limited, which AXENT acquired in March 1999,
commenced an action in the Suffolk County Superior Court in Boston,
Massachusetts against AXENT and its directors. The action alleges violations of
the Massachusetts Uniform Securities Act, negligent misrepresentations and
unfair trade practices. Symantec inherited this case upon its acquisition of
AXENT. Symantec believes the claims are without merit and intends to vigorously
defend the action.
Over the past few years, it has become common for software companies, including
Symantec, to receive claims of patent infringement. Symantec is currently
evaluating claims of patent infringement asserted by several parties, with
respect to certain of the Company's products. While the Company believes that it
has valid defenses to these claims, the outcome of any related litigation or
negotiation could have a material adverse impact on the Company's future results
of operations or cash flows.
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business. The Company intends to defend all of the
aforementioned pending lawsuits vigorously, and although adverse decisions
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(or settlements) may occur in one or more of the cases, the final resolution of
these lawsuits, individually or in the aggregate, is not expected to have a
material adverse affect on the financial condition of the Company, although it
is not possible to estimate the possible loss or losses from each of these
cases. Depending, however, on the amount and timing of an unfavorable resolution
of these lawsuits, it is possible that the Company's future results of
operations or cash flows could be materially adversely affected in a particular
period. The Company has accrued certain estimated legal fees and expenses
related to certain of these matters; however, actual amounts may differ
materially from those estimated amounts. For further information on these cases
refer to the Company's previously filed Annual Report on Form 10-K for the year
ended March 31, 2000.
NOTE 6. RESTRUCTURING AND OTHER EXPENSES
During the December 2000 quarter, Symantec reduced a portion of its operation in
Toronto and recorded approximately $0.4 million for the costs of severance,
related benefits and abandonment of certain equipment. These severance packages
were paid in the December 2000 quarter. In addition, approximately $0.9 million
was provided for costs of severance and related benefits for four members of
senior management due to a realignment of certain responsibilities. Symantec
expects to pay these amounts during the March 2001 quarter.
Details of the fiscal 2001 restructuring charges are as follows:
Cash/ Original Amount Amount Balance
(In thousands) Non-cash Charge Paid Adjusted 12/31/00
- -------------------------------------- --------------- -------- ------- -------- --------
Employee severance and outplacement Cash $ 1,142 $ (187) $ -- $ 955
Excess facilities and equipment Cash & Non-cash 140 (140) -- --
------- ------- -------- -------
Total restructuring and other expenses $ 1,282 $ (327) $ -- $ 955
======= ======= ======== =======
During the March 2000 quarter, Symantec reduced operations in its Melville and
Toronto sites, thereby reducing its workforce by 96 employees. Each of these
employees either received a separation package or accepted offers to move to
other Symantec offices. As a result, the facility in Melville was vacated and
the Company is reducing the space occupied in Toronto. The Company recorded
approximately $3.4 million for employee severance, outplacement and abandonment
of certain facilities and equipment during the March 2000 quarter. In addition,
approximately $0.7 million was provided for costs of severance, related benefits
and outplacement services for two members of senior management due to the
realignment of Symantec's business units and their resulting departures during
the March 2000 quarter.
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
During the December 1999 quarter, management reduced its Internet Tools business
unit's workforce and reduced its Sales workforce. There were 48 employees in the
Internet Tools business unit affected, resulting in approximately $1.8 million
of severance, related benefits and outplacement services being accrued during
the December 1999 quarter. The Sales workforce reduction affected 10 employees,
resulting in approximately $0.4 million of severance, related benefits and
outplacement services being accrued in the December 1999 quarter.
During the September 1999 quarter, Symantec provided approximately $0.7 million
for costs of severance, related benefits and outplacement services for two
members of senior management due to the realignment of its business units and
their resulting departures. The Company also accrued approximately $2.7 million
for certain costs related to an agreement reached with its former CEO in the
June 1999 quarter. These costs were comprised of severance and modification of
his stock option grants.
As of the December 2000 quarter, of the fiscal 2000 restructuring charges,
approximately $8.4 million has been paid for employee severance and outplacement
and approximately $0.6 million has been paid for excess facilities and
equipment.
Details of the fiscal 2000 restructuring charges are as follows:
Cash/ Original Amount Amount Balance
(In thousands) Non-cash Charge Paid Adjusted 12/31/00
- -------------------------------------- --------------- -------- ------- -------- --------
Employee severance and outplacement Cash & Non-cash $ 8,733 $ (8,363) $ -- $ 370
Excess facilities and equipment Cash & Non-cash 953 (558) -- 395
-------- --------- -------- -------
Total restructuring and other expenses $ 9,686 $ (8,921) $ -- $ 765
======== ========= ======== =======
During the September 1998 quarter, Symantec made a decision to restructure its
operations and outsource domestic manufacturing operations. As a result,
management originally recorded a $3.8 million charge for personnel severance to
reduce the workforce by approximately 5% in both domestic and international
operations and a $1.3 million charge for the planned abandonment of a
manufacturing facility lease. These estimates were subsequently revised in the
September 1999 quarter, resulting in a reduction in the accruals by
approximately $0.7 million. As of the December 2000 quarter, approximately $4.3
million has been paid.
Details of the fiscal 1999 restructuring charges are as follows:
Cash/ Original Amount Amount Balance
(In thousands) Non-cash Charge Paid Adjusted 12/31/00
- -------------------------------------- --------------- -------- ------- -------- --------
Employee severance and outplacement Cash $ 3,800 $ (3,800) $ -- $ --
Excess facilities and equipment Cash & Non-cash 1,305 (527) (668) 110
-------- --------- -------- -------
Total restructuring and other expenses $ 5,105 $ (4,327) $ (668) $ 110
======== ========= ======== =======
NOTE 7. ACQUISITIONS
AXENT TECHNOLOGIES, INC.
On July 26, 2000, the Company signed an agreement to acquire 100% of the
outstanding shares of AXENT. After obtaining necessary government approvals, the
shareholders of Symantec and AXENT met separately on December 15, 2000 to vote
on the merger, which was approved by the shareholders of both companies. The
merger was effective December 18, 2000. One share of Symantec common stock was
exchanged for every two shares of AXENT outstanding common stock. Symantec
issued approximately 14.5 million shares in connection with the merger. In
addition, Symantec assumed approximately 1.9 million outstanding employee stock
options as of
11
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 18, 2000. The transaction was accounted for as a purchase. The total
purchase price was approximately $925 million. This amount includes shares
issued, stock options assumed and estimated transaction costs. In allocating the
purchase price, the Company recorded approximately $76 million in developed
technology, $11 million in assembled workforce, $4 million in trade name, $715
million in goodwill, $22 million in acquired in-process research and
development, and $132 million in net tangible assets, offset by approximately
$35 million in income tax related liabilities. The allocation of the purchase
price is tentative and may change over the next year once certain estimates are
finalized. The goodwill and intangible assets will be amortized over a four-year
period. A valuation specialist used management's estimates to establish the
amount of acquired in-process research and development. During the December 2000
quarter, the Company recorded approximately $7.7 million of amortization related
to these intangibles.
The following unaudited pro forma results of operations are as if the AXENT
acquisition had occurred at the beginning of fiscal 2000. The pro forma
information excludes $22.3 million of acquired in-process research and
development. The pro forma information has been prepared for comparative
purposes only and is not indicative of what operating results would have been if
the acquisitions had taken place at the beginning of fiscal 2000 or of future
operating results.
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
(In thousands, except per share data; unaudited) 2000 1999 2000 1999
- ------------------------------------------------ --------- --------- --------- ---------
Net revenues ................................... $ 241,752 $ 237,315 $ 693,544 $ 649,889
Net income before acquisition amortization ..... 40,382 99,690 136,054 162,634
Diluted net income per share before
acquisition amortization ..................... $ 0.52 $ 1.79 $ 1.79 $ 2.28
Net (loss) income .............................. (39,692) 42,096 (57,961) (9,047)
Basic net (loss) income per share .............. $ (0.51) $ 0.58 $ (0.76) $ (0.13)
Diluted net (loss) income per share ............ $ (0.51) $ 0.54 $ (0.76) $ (0.13)
20/20 SOFTWARE
On March 31, 2000, Symantec purchased 100% of the outstanding common stock of
20/20 Software, Inc. ("20/20") for up to $16.5 million. The terms of the
agreement require two guaranteed payments totaling approximately $7.5 million
plus contingent payments based on targeted future sales of certain of our
products. The contingency period is from July 1, 2000 to June 30, 2001. The
maximum contingency payment per the agreement is $9.0 million. The transaction
was accounted for as a purchase. In connection with the transaction, the Company
originally recorded approximately $6.1 million for goodwill and $2.3 million for
acquired product rights, offset by $0.9 million in related deferred income tax
liabilities. In the September 2000 quarter, an additional amount of
approximately $0.5 million was paid under this agreement, which was recorded as
additional goodwill. As of December 31, 2000, the Company has paid a total of
$8.0 million. As the Company continues to make additional payments under the
agreement over the contingency period, additional goodwill will be recorded
equal to these payments. The goodwill and acquired product rights are being
amortized over a five-year period.
NOTE 8. STOCK REPURCHASE
On March 22, 1999, the Board of Directors (the "Board") of Symantec authorized a
repurchase of up to $75 million of Symantec's outstanding common stock. As of
December 31, 2000, the Company has repurchased 1,000,000 shares at prices
ranging from $17.90 to $19.90, for an aggregate amount of $18.7 million. All of
these shares were purchased in the June 1999 quarter. In January 2001, the Board
replaced this resolution with a new authorization to
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SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
repurchase up to $700 million of Symantec's outstanding common stock. As of
February 7, 2001, the Company had repurchased 1,860,000 shares at prices ranging
from $46.07 to $51.16, for an aggregate amount of $90.5 million.
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133,
which defers the adoption of SFAS No. 133 for one year. In June 2000, the FASB
issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, which amends certain provisions of SFAS No. 133. SFAS 133
will be effective for the Company at the beginning of the June 2001 quarter for
both annual and interim reporting periods. The Company does not believe that
this accounting pronouncement will have a material impact on its required
disclosures and accounting practices, upon implementation.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. In June 2000, the SEC released SAB
No. 101B, which defers reporting the effects of the adoption of SAB No. 101
until our fourth fiscal quarter of fiscal 2001. The adoption of this Staff
Accounting Bulletin is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25. This Interpretation clarifies the application of Opinion No. 25 for certain
issues including: (a) the definition of an employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award and (d) the accounting for
an exchange of stock compensation awards in a business combination. Management
has adopted this Interpretation. As a result, the adoption of the Interpretation
did not have a material effect on the Company's consolidated financial position
or results of operations.
NOTE 10. SEGMENT INFORMATION
Symantec's operating segments are significant strategic business units that
offer different products and services, distinguished by customer needs. The
Company has five operating segments: Consumer and Small Business, Enterprise
Solutions, e-Support, Professional Services and Other.
The Consumer and Small Business segment focuses on delivering security and
problem-solving products to individual users and small companies. The Enterprise
Solutions segment focuses on delivering more complex and specialized products to
meet the needs of organizations' networks and support for their large workforce
throughout the organization. The e-Support segment focuses on helping IT
departments be more effective and efficient through remote management solutions.
The Professional Services segment is focused on providing consulting services to
our customers and assisting organizations to understand and implement Internet
security infrastructure and policy management. Prior to the December 2000
quarter, the Company included technical support activities in the Professional
Services Segment. After a realignment of the segments subsequent to the
acquisition of AXENT, technical support revenues and costs are reported in their
respective segments. The following table has been revised for all periods to
reflect this change. The Other segment is comprised of sunset products, products
nearing the end of their life cycle, and operations from our divested product
lines ACT! and Visual Cafe. Also included in the Other segment are all indirect
costs, general and administrative expenses, amortization of goodwill and other
intangibles and charges that are one-time in nature, such as acquired in-process
research and development and restructuring and
13
14
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
other expenses which are not charged to the other operating segments.
The following table summarizes each segment's net revenues from external
customers, operating income (loss) and depreciation and amortization expense:
Consumer
and Small Enterprise Professional Total
(In thousands) Business Solutions e-Support Services Other Company
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31, 2000
Revenue from
external customers ........ $ 96,153 $ 71,064 $ 51,360 $ 437 $ 280 $ 219,294
Operating income (loss) ...... 44,349 8,443 43,814 (423) (73,608) 22,575
Depreciation &
amortization expense ......... 2,630 1,944 1,405 12 8 5,999
THREE MONTHS ENDED
DECEMBER 31, 1999
Revenue from
external customers ........ 82,793 44,186 58,618 -- 15,250 200,847
Operating income (loss) ...... 31,800 2,315 50,276 -- (43,076) 41,315
Depreciation &
amortization expense ......... 2,167 1,157 1,534 -- 399 5,257
NINE MONTHS ENDED
DECEMBER 31, 2000
Revenue from
external customers ........ 252,392 180,026 167,877 445 2,208 602,948
Operating income (loss) ...... 103,595 14,187 146,535 (1,614) (148,384) 114,319
Depreciation &
amortization expense ...... 8,686 6,196 5,778 15 76 20,751
NINE MONTHS ENDED
DECEMBER 31, 1999
Revenue from
external customers ........ 225,512 122,018 168,998 415 41,577 558,520
Operating income (loss) ...... 77,098 3,235 143,354 397 (122,975) 101,109
Depreciation &
amortization expense ...... 7,322 3,961 5,487 13 1,350 18,133
14
15
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
GEOGRAPHICAL INFORMATION
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
(In thousands) 2000 1999 2000 1999
- -------------- -------- -------- -------- --------
Net revenues from
external customers:
United States ......... $109,302 $109,728 $311,328 $309,875
Foreign countries ..... 109,992 91,119 291,620 248,645
-------- -------- -------- --------
$219,294 $200,847 $602,948 $558,520
======== ======== ======== ========
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS RISK FACTORS
The following discussion contains forward-looking statements that involve known
and unknown risks and uncertainties. Our actual results, levels of activity,
performance or achievements may be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Factors that may cause or contribute to this
difference include, among others things, those risk factors set forth in this
section and elsewhere in this report. We identify forward-looking statements by
words such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or similar terms that refer to the future. We cannot guarantee future results,
levels of activity, performance or achievements.
WE HAVE GROWN, AND MAY CONTINUE TO GROW, THROUGH ACQUISITIONS WHICH GIVE RISE TO
A NUMBER OF RISKS THAT COULD HAVE ADVERSE CONSEQUENCES FOR OUR FUTURE OPERATING
RESULTS. We have made eight acquisitions within the last two fiscal years, with
our acquisition of AXENT Technologies, Inc. being the largest and most recent.
Integrating acquired businesses into our existing business may distract our
management focus from other opportunities and challenges. Our past acquisitions
have given rise to, and future acquisitions may result in, substantial levels of
goodwill and other intangible assets that will be amortized in future years and
our future operating results will be adversely affected if we do not achieve
benefits from these acquisitions commensurate with these charges. In addition, a
number of our recent acquisitions have resulted in our incurring substantial
write-offs of acquired in-process research and development costs and this also
may occur as a result of future acquisitions. We may issue equity, or incur debt
financing, for future acquisitions that are dilutive to our existing
stockholders.
INTEGRATION OF AXENT MAY BE DIFFICULT TO ACHIEVE, WHICH MAY ADVERSELY AFFECT
OPERATIONS. Our acquisition of AXENT involves risks related to the integration
and management of acquired technology, operations and personnel. The integration
of AXENT with our business has been and will continue to be a complex,
time-consuming and expensive process and may disrupt our business if not
completed in a timely and efficient manner. We must operate as a combined
organization utilizing common information and communications systems, operating
procedures, financial controls and human resources practices.
We may encounter substantial difficulties, costs and delays involved in
integrating our operations, including:
o potential conflicts between business cultures;
o perceived adverse changes in business focus;
o potential conflicts in distribution, marketing or other important
relationships; and
o the loss of key employees and/or the diversion of management's
attention from other ongoing business concerns.
IF WE DO NOT SUCCESSFULLY INTEGRATE AXENT, OR IF THE MERGER'S BENEFITS DO NOT
MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY ANALYSTS, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE.
The market price of our common stock could decline if:
o the integration of AXENT is unsuccessful;
o we are unable to successfully market our products and services to
AXENT's customers or AXENT's products and services to our customers;
16
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
o we do not achieve the perceived benefits of the merger as rapidly as,
or to the extent, anticipated by financial or industry analysts, or
such analysts do not perceive the same benefits to the merger as both
AXENT and we do; or
o the effect of the merger on our financial results is not consistent
with the expectations of financial or industry analysts.
OUR INCREASED SALES OF ENTERPRISE-WIDE SITE LICENSES MAY INCREASE FLUCTUATIONS
IN OUR FINANCIAL RESULTS. Sales of enterprise-wide site licenses through our
Enterprise Solutions segment are a major portion of our business. This portion
of our business could increase significantly due to our recent acquisition of
AXENT. This enterprise market has significantly different characteristics than
the consumer market and requires different skills and resources to penetrate.
Licensing arrangements tend to involve a longer sales cycle than sales through
other distribution channels, require greater investment of resources in
establishing the enterprise relationship and can sometimes result in lower
operating margins. The timing of the execution of volume licenses, or their
nonrenewal or renegotiation by large customers, could cause our results of
operations to vary significantly from quarter to quarter and could have a
material adverse impact on our results of operations.
WE RESTRUCTURED OUR INTERNAL FOCUS AND OPERATIONS AND WE COULD INCUR ADVERSE
OPERATING RESULTS AS A CONSEQUENCE OF THESE CHANGES. In fiscal 2000, we
restructured our operations on the basis of a customer segment orientation
rather than a product oriented structure. We also divested two product lines
that did not fit with our future focus. Changes of this nature inevitably cause
disruptions within an organization that may adversely affect results as the
changes are being absorbed, and these changes may not achieve their desired
long-term benefits. Overseeing these changes requires significant attention from
our senior management and may detract from senior management's ability to focus
on other important opportunities or problems that might confront us. We have
lost personnel, including management, and we may continue to do so as a
consequence of these and similar changes. In addition, we may not be able to
introduce new products that are as beneficial to us as those that we divested.
OUR SOFTWARE PRODUCTS AND WEB SITE MAY BE SUBJECT TO INTENTIONAL DISRUPTION.
Although we believe we have sufficient controls in place to prevent intentional
disruptions, such as software viruses specifically designed to impede the
performance of our products, we expect to be an ongoing target of such
disruptions. Similarly, experienced computer programmers, or hackers, may
attempt to penetrate our network security or the security of our web site and
misappropriate proprietary information or cause interruptions of our services.
Our activities could be substantially disrupted and our reputation, and future
sales, harmed if these efforts are successful.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR OPERATING RESULTS AND FINANCIAL
CONDITION COULD BE ADVERSELY AFFECTED BY THIS COMPETITION. Our markets are
intensely competitive. This competition could adversely affect our operating
results by reducing our sales or the prices we can charge for our products. Our
ability to remain competitive depends, in part, on our ability to enhance our
products or develop new products that are compatible with new hardware and
operating systems. We have no control over, and limited insight into,
development efforts by third parties with respect to new hardware and operating
systems and we may not be able to respond effectively or timely to such changes
in the market. In addition, we have limited resources and we must make strategic
decisions as to the best allocation of our resources to position ourselves for
changes in our markets. We may from time to time allocate resources to projects
or markets that do not develop as rapidly or fully as we expect. We may fail to
allocate resources to third party products or to markets that are more
successful than we anticipate.
INTRODUCTION OF NEW OPERATING SYSTEMS MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS
AND STOCK PRICE. The inclusion of security or anti-virus tools in new operating
systems and hardware packages could adversely affect our sales. For example, the
inclusion of features by Microsoft in new or upcoming versions of Windows, such
as current and future editions of Whistler, which directly compete with our
products may decrease or delay the demand for certain of our products, including
those currently under development and products specifically intended for
Whistler. Our financial results and our stock price declined significantly
within approximately six months after the
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
releases of Windows 3.1, Windows 95 and Windows 98. The consumer/desktop
oriented Windows Millennium Edition, the successor to Windows 98, was released
in the September 2000 quarter, and, as a result, we could face adverse financial
results and additional stock price declines. Additionally, as hardware vendors
incorporate additional server-based network management and security tools into
network operating systems, the demand may decrease for some of our products,
including those currently under development.
With the rise of Linux-based and PDA operating systems, we may lose market share
if we are unable to significantly penetrate the Linux-based market in a timely
and effective manner.
OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Due to
many factors, including those noted in this section, our earnings and stock
price have been and may continue to be subject to significant volatility. There
have been previous quarters in which we have experienced shortfalls in revenue
and earnings from levels expected by securities analysts and investors, which
have had an immediate and significant adverse effect on the trading price of our
common stock. This may occur again in the future.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS HAVE AFFECTED OUR STOCK PRICE IN
THE PAST AND COULD AFFECT OUR STOCK PRICE IN THE FUTURE. If our quarterly
operating results fail to meet the expectations of analysts, the trading price
of shares of our common stock could be negatively affected. Our quarterly
operating results have varied substantially in the past and may vary
substantially in the future depending upon a number of factors, including:
o the timing of announcements and releases of new or enhanced versions
of our products and product upgrades;
o the introduction of competitive products by existing or new
competitors;
o reduced demand for any given product;
o seasonality in the end-of-period buying patterns of foreign and
domestic software markets; and
o the market's transition between new releases of operating systems.
In addition to the foregoing factors, the risk of quarterly fluctuations is
increased by the fact that a significant portion of our net revenues has
historically been generated during the last month of each fiscal quarter. Most
resellers tend to make a majority of their purchases at the end of a fiscal
quarter. In addition, many enterprise customers negotiate site licenses near the
end of each quarter. In part, this is because these two groups are able, or
believe that they are able, to negotiate lower prices and more favorable terms
at that time. Our reliance on a large portion of revenue occurring at the end of
the quarter and the increase in the dollar value of transactions that occur at
the end of a quarter can result in increased uncertainty relating to quarterly
revenues. Due to this end-of-period buying pattern, forecasts may not be
achieved, either because expected sales do not occur or because they occur at
lower prices or on terms that are less favorable to us. In addition, these
factors increase the chances that our results could diverge from the
expectations of investors and analysts.
WE FACE RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. A significant portion of
our net revenues, manufacturing costs and operating expenses result from
transactions outside of the United States, often in foreign currencies. During
the December 2000 quarter, fluctuations in foreign currency significantly and
adversely affected our operating results. Our future operating results could be
materially and adversely affected by fluctuations in currency exchange rates and
general uncertainty with each country's political and economic structure.
WE MUST EFFECTIVELY ADAPT TO CHANGES IN A DYNAMIC TECHNOLOGICAL ENVIRONMENT. We
are increasingly focused on the Internet security market, which, in turn is
dependent on further acceptance and increased use of the Internet. The following
critical issues concerning the use of the Internet remain unresolved and may
affect the market for our products and the use of the Internet as a medium to
distribute or support our software products and the functionality of some of our
products:
o security;
o reliability;
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
o cost;
o ease of use;
o accessibility;
o quality of service; and
o potential tax or other government regulations.
In addition, new technologies, such as non PC-based Internet access devices and
handheld organizers are gaining acceptance. We must adapt to these changing
technological demands. If we are unable to timely assimilate changes brought
about by the Internet and non PC-based environments, our future net revenues and
operating results could be adversely affected.
THE RESULTS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE UNCERTAIN. We believe
that we will need to incur significant research and development expenditures to
remain competitive. The products we are currently developing or may develop in
the future may not be technologically successful. In addition, the length of our
product development cycle has generally been greater than we originally
expected. We are likely to experience delays in future product development. If
they are not technologically successful, our resulting products may not achieve
market acceptance or compete effectively with products of our competitors.
WE ARE DEPENDENT UPON CERTAIN DISTRIBUTION CHANNELS. A large portion of our
sales is made through the retail distribution channel, which is subject to
events that cause unpredictability in consumer demand. This increases the risk
that we may not plan effectively for the future, which could result in adverse
operating results in future periods. Our retail distribution customers also
carry our competitors' products. These retail distributors may have limited
capital to invest in inventory. Their decisions to purchase our products are
partly a function of pricing, terms and special promotions offered by our
competitors and other factors that we do not control and cannot predict. Our
agreements with retail distributors are generally nonexclusive and may be
terminated by them or by us without cause. We would be adversely affected if
companies in our chain of distributors chose to increase purchases from our
competition relative to the amount they buy from us.
Some distributors and resellers have experienced financial difficulties in the
past. Distributors that account for a significant portion of our sales may
experience financial difficulties in the future. If these distributors do
experience financial difficulties and we are unable to move their inventories to
other distributors, we may experience reduced sales or increased write-offs,
which would adversely affect our operating results.
WE MAY BE UNSUCCESSFUL IN UTILIZING NEW DISTRIBUTION CHANNELS. We currently
offer a broad range of products and services over the Internet, which is a
relatively new distribution channel for our business. We may not be able to
effectively adapt our existing, or adopt new, methods of distributing our
software products utilizing the rapidly evolving Internet and related
technologies. The adoption of new channels may adversely impact existing
channels and/or product pricing, which may reduce our future revenues and
profitability.
CHANNEL FILL AND PRODUCT RETURNS MAY NEGATIVELY AFFECT OUR NET REVENUES. Our
pattern of net revenues and earnings may be affected by "channel fill."
Distributors may fill their distribution channels in anticipation of price
increases, sales promotions or incentives. Channels may also become filled
simply because the distributors do not sell their inventories to retail
distribution or from retailers to end-users as anticipated. If sales to
retailers or end-users do not occur at a sufficient rate, distributors will
delay purchases or cancel orders in later periods or return prior purchases in
order to reduce their inventories.
Product returns can occur when we introduce upgrades and new versions of
products or when distributors or retailers have excess inventories. Our return
policy allows distributors, subject to various limitations, to return purchased
products in exchange for new products or for credit towards future purchases.
End-users may return our products through dealers and distributors within a
reasonable period from the date of purchase for a full refund. In
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20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
addition, subject to limitations, retailers may return older versions of our
products. We estimate and maintain reserves for product returns which to date
have been materially consistent with our actual experience. Future returns
could, however, exceed the reserves we have established, which could have a
material adverse effect on our operating results.
WE DEPEND ON INTERNAL COMMUNICATIONS SYSTEMS THAT MAY BE DISRUPTED. Our order
entry and product shipping centers are geographically dispersed. A business
disruption could occur as a result of natural disasters or the interruption in
service by communications carriers. If our communications between these centers
are disrupted, particularly at the end of a fiscal quarter, we may suffer an
unexpected shortfall in net revenues and a resulting adverse impact on our
operating results. Communications and Internet connectivity disruptions may also
cause delays in customer access to our Internet-based services or product sales.
WE EXPECT TO MAKE SUBSTANTIAL CHANGES TO OUR INFORMATION SYSTEMS THAT COULD
DISRUPT OUR BUSINESS. The information systems that support our accounting,
finance and manufacturing systems are based on Oracle 10.7, and many of the
business applications used in other aspects of our business have been tightly
coupled with Oracle 10.7. Oracle has released a new version, 11i, and has
announced that support for 10.7 will be discontinued at the end of 2001. In
addition, as our business has grown, we have developed needs for an increasingly
robust customer relationship management ("CRM") system. Over the next 11 months,
we will be implementing Oracle 11i and a new CRM system. These types of
transitions frequently prove disruptive to the underlying business of an
enterprise and may cause us to incur higher costs than we anticipate. Failure to
manage a smooth transition to the new systems could result in a material adverse
effect on our business operations.
WE ARE SUBJECT TO LITIGATION THAT COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.
From time to time, we may be subject to claims that we have infringed the
intellectual property rights of others, or other product liability claims, or
other claims incidental to our business. We are currently involved in a number
of lawsuits. For a discussion of material changes and events related to our
current litigation, see Note 5 of Notes to Condensed Consolidated Financial
Statements of this Form 10-Q and our previously filed Form 10-K for the year
ended March 31, 2000. We intend to defend all of these lawsuits vigorously.
However, it is possible that we could suffer an unfavorable outcome in one or
more of these cases. Depending on the amount and timing of any unfavorable
resolutions of these lawsuits, our future results of operations or cash flows
could be materially adversely affected in a particular period.
Although infringement claims may ultimately prove to be without merit, they are
expensive to defend and may consume our resources or divert our attention from
day-to-day operations. If a third party alleges that we have infringed their
intellectual property rights, we may choose to litigate the claim and/or seek an
appropriate license from the third party. If we engage in litigation and the
third party is found to have a valid patent claim against us and a license is
not available on reasonable terms, our business, operating results and financial
condition may be materially adversely affected.
THE TREND TOWARD CONSOLIDATION IN THE SOFTWARE INDUSTRY COULD IMPEDE OUR ABILITY
TO COMPETE EFFECTIVELY. Consolidation is underway among companies in the
software industry as firms seek to offer more extensive suites of software
products and broader arrays of software solutions. Changes resulting from this
consolidation may negatively impact our competitive condition. In addition, to
the extent that we seek to expand our product lines, and skills and capacity
through acquisitions, the trend toward consolidation may result in our
encountering competition, and paying higher prices, for acquired businesses.
WE MUST ATTRACT AND RETAIN PERSONNEL WHILE COMPETITION FOR PERSONNEL IN OUR
INDUSTRY IS INTENSE. Competition in recruiting personnel in the software
industry is intense. We believe that our future success will depend in part on
our ability to recruit and retain highly skilled management, marketing and
technical personnel. To accomplish this, we believe that we must provide
personnel with a competitive compensation package, including stock options which
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
require ongoing stockholder approval. Such approval may not be forthcoming and,
as a result, we may be impaired in our efforts to attract necessary personnel.
OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY NOT BE ADEQUATELY PROTECTED
FROM ALL UNAUTHORIZED USES. We regard our software and underlying technology as
proprietary. We seek to protect our proprietary rights through a combination of
confidentiality agreements and copyright, patent, trademark and trade secret
laws. Third parties may copy aspects of our products or otherwise obtain and use
our proprietary information without authorization or develop similar technology
independently. All of our products are protected by copyright laws, and we have
a number of patents and patent applications pending. We may not achieve the
desired protection from, and third parties may design around, our patents. In
addition, existing copyright laws afford limited practical protection.
Furthermore, the laws of some foreign countries do not offer the same level of
protection of our proprietary rights as the laws of the United States, and we
may be subject to unauthorized use of our products. Any legal action that we may
bring to protect proprietary information could be expensive and may distract
management from day-to-day operations.
OUR PRODUCTS ARE COMPLEX AND ARE OPERATED IN A WIDE VARIETY OF COMPUTER
CONFIGURATIONS, WHICH COULD RESULT IN ERRORS OR PRODUCT FAILURES. Because we
offer very complex products, undetected errors, failures or bugs may occur when
they are first introduced or when new versions are released. Our products often
are installed and used in large-scale computing environments with different
operating systems, system management software and equipment and networking
configurations, which may cause errors or failures in our products or may
disclose undetected errors, failures or bugs in our products. In the past, we
have discovered software errors, failures and bugs in certain of our product
offerings after their introduction and have experienced delays or lost revenues
during the period required to correct these errors. Our customers' computer
environments are often characterized by a wide variety of standard and
non-standard configurations that make pre-release testing for programming or
compatibility errors very difficult and time-consuming. Despite testing by us
and by others, errors, failures or bugs may not be found in new products or
releases after commencement of commercial shipments. Errors, failures or bugs in
products released by us could result in negative publicity, product returns,
loss of or delay in market acceptance of our products or claims by customers or
others. Alleviating such problems could require significant expenditures of our
capital and resources and could cause interruptions, delays or cessation of our
product licensing, which would adversely affect results of operations.
Most of our license agreements with customers contain provisions designed to
limit our exposure to potential product liability claims. It is possible,
however, that these provisions limiting our liability may not be valid as a
result of federal, state, local or foreign laws or ordinances or unfavorable
judicial decisions.
INCREASED UTILIZATION AND COSTS OF OUR TECHNICAL SUPPORT SERVICES MAY ADVERSELY
AFFECT OUR FINANCIAL RESULTS. Like many companies in the software industry,
technical support costs comprise a significant portion of our operating costs
and expenses. Over the short term, we may be unable to respond to fluctuations
in customer demand for support services. We also may be unable to modify the
format of our support services to compete with changes in support services
provided by competitors. Further, customer demand for these services could cause
increases in the costs of providing such services and adversely affect our
operating results.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
OVERVIEW
Symantec, a world leader in Internet security technology, provides a broad range
of content and network security solutions to individuals and enterprises. As a
leader in Internet security, we offer a breadth of solutions including virus
protection, risk management, Internet content and e-mail filtering, remote
management and mobile code detection technologies to enterprises and individual
customers. Founded in 1982, we have offices in 36 countries worldwide. The
December 31, 2000 and 1999 quarters closed on December 29, 2000 and December 31,
1999, respectively, and each comprised 13 weeks of revenue and expense activity.
Each of the nine month periods ended December 31, 2000 and 1999 comprised 39
weeks of revenue and expense activity.
RESULTS OF OPERATIONS
The following table sets forth each item from our consolidated statements of
income as a percentage of net revenues and the percentage change in the total
amount of each item for the periods indicated:
Three Months Percent Nine Months Percent
Ended Change Ended Change
December 31, in Dollar December 31, in Dollar
2000 1999 Amounts 2000 1999 Amounts
------ ------ ------- ------ ------ -------
(Unaudited)
Net revenues ................................ 100% 100% 9% 100% 100% 8%
Cost of revenues ............................ 14 15 * 14 16 (7)
----- ----- ----- -----
Gross margin ......................... 86 85 11 86 84 11
Operating expenses:
Research and development ............... 14 14 10 14 15 3
Sales and marketing .................... 40 40 8 40 41 4
General and administrative ............. 5 6 (11) 5 6 (2)
Amortization of goodwill ............... 5 2 179 4 2 67
Amortization of other intangibles ...... -- -- 28 -- -- 34
Acquired in-process research and
development ........................ 10 -- * 4 -- *
Restructuring and other expense ........ 1 1 (43) -- 1 (75)
----- ----- ----- -----
Total operating expenses ............. 75 63 29 67 65 10
----- ----- ----- -----
Operating income ............................ 11 22 (45) 19 19 13
Interest income ............................. 4 2 182 4 1 201
Income, net of expense, from sale of
technologies and product lines ..... 2 44 (94) 3 18 (84)
Other (expense) income, net ................. -- -- (116) -- -- (110)
----- ----- ----- -----
Income before income taxes ................. 17 68 (73) 26 38 (27)
Provision for income taxes .................. 10 24 (52) 11 13 (12)
----- ----- ----- -----
Net income .................................. 7% 44% (84) 15% 25% (34)
===== ===== ===== =====
* percentage change is not meaningful.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
NET REVENUES
Net revenues increased 9% to $219.3 million in the December 2000 quarter from
$200.8 million in the December 1999 quarter. Of the $18.5 million increase in
revenue, $7.9 million was from AXENT revenue for the two weeks between the
closing of the related transaction and December 31, 2000. The balance of the
increase was attributable to growth in our Consumer and Small Business,
Enterprise Solutions and Professional Services segments, partially offset by a
decline in our e-Support and Other segments' revenues. The revenue increase in
the Consumer and Small Business and Enterprise Solutions segments was due to
strong growth in our anti-virus solutions and internet security solutions. The
revenue decline in our e-Support segment was due primarily to weakness in demand
for our pcANYWHERE product line. The revenue decline in our Other segment was
due primarily to our divestiture of our ACT! and Visual Cafe product lines in
the December 1999 quarter, from which we earned revenues in the December 1999
quarter.
Net revenues increased 8% to $602.9 million in the nine month period ended
December 31, 2000 from $558.5 million in the comparable period ended December
31, 1999. The increase in total revenue was due to growth in all of the segments
except for the e-Support and Other segments.
INTERNATIONAL
Net revenues from sales outside of North America were $101.6 million and $84.8
million and represented 46% and 42% of total net revenues in the quarters ended
December 31, 2000 and 1999, respectively. Net revenues from sales outside of
North America were $269.2 million and $227.6 million and represented 45% and 41%
of total net revenues in the nine month periods ended December 31, 2000 and
1999, respectively. International net revenues in the three and nine month
periods ended December 31, 2000 were negatively impacted by foreign currencies
which resulted in a $15.3 million and $23.8 million revenue decline,
respectively, as compared to the functional rates in effect during the three and
nine month periods ended December 31, 1999. There are no assurances that there
will not be a continued decline due to the weakness of foreign currencies.
SEGMENTS
The Consumer and Small Business segment provides security and problem-solving
products to individual consumers, home offices and small businesses. The
segment's charter is to ensure that consumers and their information are secure
and protected in a connected world. The Consumer and Small Business segment
comprised approximately 44% and 41% of net revenues in the quarters ended
December 31, 2000 and 1999, respectively. The Consumer and Small Business
segment comprised approximately 42% and 40% of net revenues in the nine month
periods ended December 31, 2000 and 1999, respectively. Increased net revenues
for this segment in both the three and nine month periods ended December 31,
2000, compared to the three and nine month periods ended December 31, 1999, were
primarily related to strong growth with our anti-virus and internet security
solutions.
The Enterprise Solutions segment provides a broad range of security solutions
for our enterprise customers. Our enterprise customers need to protect their
businesses from the threats associated with the use of the Internet. The
Enterprise Solutions segment comprised approximately 33% and 22% of net revenues
in the quarters ended December 31, 2000 and 1999, respectively. The Enterprise
Solutions segment comprised approximately 30% and 22% of net revenues in the
nine month periods ended December 31, 2000 and 1999, respectively. Increased net
revenues for this segment in both the three and nine month periods ended
December 31, 2000, compared to the three and nine month periods ended December
31, 1999, were primarily related to strong growth in our corporate anti-virus
and desktop firewall solutions. In addition, the $7.9 million of AXENT revenue
is included in this segment for the three and nine months ended
December 31, 2000.
The e-Support segment offers products that enable companies to be more effective
and efficient within their IT departments. Remote management solutions help
remote professionals to remain productive while providing
23
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
companies access to information, applications and data from any location. The
e-Support segment comprised approximately 23% and 29% of net revenues in the
quarters ended December 31, 2000 and 1999, respectively. The e-Support segment
comprised approximately 28% and 30% of net revenues in the nine month periods
ended December 31, 2000 and 1999, respectively. The segment's net revenues were
lower in the quarter ended December 31, 2000 as compared to the quarter ended
December 31, 1999, due to a decline in sales of our pcANYWHERE product,
partially offset by growth of our Ghost product. Although the segment's net
revenues decreased as a percentage of total revenues, absolute dollars remained
relatively flat for the nine month period ended December 31, 2000 compared to
the nine month period ended December 31, 1999.
The Professional Services segment provides primarily consulting services to
enterprise customers to assist them with the planning, designing and
implementing of enterprise security solutions in the anti-virus and Internet
content filtering technologies. The Other segment is comprised of sunset
products, products nearing the end of their life cycle, and operations of our
ACT! and Visual Cafe product lines that we divested in the December 1999
quarter. The Other segment comprised approximately 0% and 8% of net revenues in
the quarters ended December 31, 2000 and 1999, respectively. The Other segment
comprised approximately 0% and 8% of net revenues in the nine month periods
ended December 31, 2000 and 1999, respectively. The segment's net revenues were
lower in the three and nine months ended December 31, 2000 over the three and
nine months ended December 31, 1999, due to our divestiture of the ACT! and
Visual Cafe product lines in the December 1999 quarter, which revenues had been
included in the fiscal 2000 periods.
GROSS MARGIN
Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing expenses, costs for producing manuals,
packaging costs, royalties paid to third parties under publishing contracts and
amortization and write-off of capitalized software, or acquired product rights.
Gross margin increased to 86% of net revenues in the December 2000 quarter from
85% in the December 1999 quarter. Gross margin increased to 86% for the nine
months ending December 31, 2000 from 84% for the nine months ending December 31,
1999. Factors contributing to the increase in gross margin percentage include
substantial cost savings achieved in reduced packaging costs and standardized
packaging.
Amortization and write-off of acquired product rights totaled approximately $3.4
million and $2.3 million for the December 2000 and 1999 quarters, respectively.
The $3.4 million of amortization and write-off of acquired product rights in the
December 2000 quarter includes $0.9 million from AXENT for the two weeks ended
December 31, 2000. The balance of the increase is due to our other acquisitions
in fiscal 2001. Amortization and write-off of acquired product rights totaled
approximately $8.5 million and $6.5 million for the nine month periods ending
December 31, 2000 and 1999, respectively. Of this $2.0 million increase, AXENT
accounted for $0.9 million and the balance of the increase is due to our other
acquisitions in both fiscal 2000 and 2001.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 10% from approximately $28.7 million
in the December 1999 quarter to $31.5 million in the December 2000 quarter. The
$31.5 million of research and development expenses in the December 2000 quarter
includes $1.1 million from AXENT for the two weeks ended December 31, 2000. The
balance of the $2.8 million increase was primarily due to an increase in
headcount related to the Enterprise Solutions segment and other new projects.
This increase was partially offset by reduced expenses associated with the
divested ACT! and Visual Cafe product lines as well as a decrease in costs for
patent claim settlements for the Consumer and Small Business segment. Research
and development expenses increased 3% from approximately $83.6 million for the
nine months ending December 31, 1999 to $86.0 million for the nine months ending
December 31, 2000. This $2.4 million increase is due to $1.1 million from AXENT
and an increase in headcount related to the Enterprise Solutions segment offset
by a drop in headcount following our divestiture of ACT! and Visual Cafe in the
December 1999 quarter.
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25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 8% from approximately $80.6 million in
the December 1999 quarter to $87.1 million in the December 2000 quarter. The
$87.1 million of sales and marketing expenses in the December 2000 quarter
includes $3.9 million from AXENT for the two weeks ended December 31, 2000. The
balance of the increase in sales and marketing expenses was due to increased
headcount and marketing expenses for the Enterprise Solutions segment partially
offset by lower headcount and lower marketing expenses related to the divested
ACT! and Visual Cafe product lines. Sales and marketing expenses increased 4%
from approximately $230.0 million for the nine months ending December 31, 1999
to $239.5 million for the nine months ending December 31, 2000. This $9.5
million increase is due to $3.9 million from AXENT and an increase in the
headcount in both the Professional Services and the Enterprise Solutions
segments, partially offset by lower headcount and marketing expenses related to
the divested ACT! and Visual Cafe product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased to 5% of net revenues in the
December 2000 quarter from 6% in the December 1999 quarter. General and
administrative decreased to 5% for the nine months ending December 31, 2000 from
6% for the nine months ending December 31, 1999. General and administrative
expenses in absolute dollars were relatively flat as compared with prior
periods.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles increased approximately $7.8
million from $4.5 million in the December 1999 quarter to $12.3 million in the
December 2000 quarter. Amortization of goodwill and other intangibles increased
approximately $9.2 million from $14.0 million in the nine months ending December
31,1999 to $23.2 million for the nine months ending December 31, 2000. These
increases were primarily due to our acquisition of AXENT and due to amortization
of additional goodwill and other intangibles from acquisitions we made in the
last half of fiscal 2000.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
Acquired in-process research and development was $22.3 million in both the three
and nine months ended December 31, 2000, due to our acquisition of AXENT in the
December 2000 quarter. Acquired in-process research and development was $1.2
million in the nine months ended December 31, 1999, due to our acquisition of
URLabs, Inc. in the September 1999 quarter. There were no expenses for acquired
in-process research and development in the three months ended December 31, 1999.
We are using the acquired in-process research and development associated with
AXENT to create additional opportunities in Internet security, primarily in the
assessment and management of securing networks for enterprises.
The efforts required to develop the acquired in-process technology principally
relate to the completion of all planning, design, development and test
activities that are necessary to establish that the product or service can be
produced to meet its design specifications, including features, functions and
performance. We expect the acquired in-process technology to be developed into
commercially feasible products. However, there are no assurances that this will
occur. If we fail to complete these products in their entirety, or in a timely
manner, we may not continue to attract new users, we may be unable to retain our
existing users and the value of the other intangible assets may become impaired.
We determined the fair value of the acquired in-process technology for each of
the purchases by estimating the projected cash flows related to these projects
and future revenues to be earned upon commercialization of the products. We
discounted the resulting cash flows back to their net present values. We based
the net cash flows from such projects on our analysis of the respective markets
and estimates of revenues and operating profits related to these projects.
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26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
A valuation specialist used our estimates to establish the amount of acquired
in-process research and development to be written off for the acquisition of
AXENT in the December 2000 quarter. As a result, we wrote-off $22.3 million in
the December 2000 quarter using the following analyses:
The in-process technology acquired in the AXENT acquisition consisted primarily
of research and development related to the next generation of ESM, Intruder
Alert, Raptor Firewall, Webthority and other projects for future technology
and/or products. AXENT's research and development was focused on providing more
robust features in its development of these next generation products.
We assumed that revenue attributable to AXENT's in-process technologies would be
approximately $43 million in the first year and increase in the second and third
years of the five-year projection period at annual rates of 59% and 2%,
respectively, and then decrease at rates of 16% and 37% over the remaining two
years. We projected annual revenues to range between approximately $37 million
and $70 million over the projected period. These projections were based on:
o aggregate growth rates for the business as a whole;
o individual product revenues;
o anticipated product development cycles; and
o the life of the underlying technology.
We estimated selling, general and administrative expenses for the in-process
technology to be 45% of revenue in each year of the 5-year projection period.
We projected operating results before acquisition related amortization charges
to range from an $8 million profit during the first year to an $18 million
profit during each of the second and third years. We projected that the
operating profits would then decrease 16% in the fourth year and 38% in the
fifth year, resulting in profits of approximately $15 million and $9 million,
respectively.
We estimated costs to be incurred to reach technological feasibility of the
in-process technologies from AXENT as of the date of the acquisition to total
approximately $4.7 million. We estimated the in-process technology to be between
40% and 60% complete at that time.
We used a discount rate of 25% for valuing the in-process technologies from
AXENT, which we believe reflects the risk associated with the completion of
these research and development projects and the estimated future economic
benefits to be generated subsequent to their completion. This discount rate is
higher than the weighted average cost of capital of 15%, due to the fact that
the technology had not reached technological feasibility as of the date of the
valuation.
The assumptions and projections discussed for the technologies acquired from
AXENT were based on information available at the time and should not be taken as
indications of actual results, which could vary materially based on the risks
and uncertainties identified in the risk factors set forth in this Form 10-Q.
RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses for a reduction in our Toronto workforce and
the departure of four members of our senior management amounted to approximately
$1.3 million for the three and nine months ended December 31, 2000.
Restructuring and other expenses amounted to approximately $2.2 million and $5.1
million for the three and nine months ended December 31, 1999, respectively, for
certain costs related to an agreement reached with our former CEO and reductions
of our ACT! and Internet Tools business units' workforce in fiscal 2000. See
Note 6 of Notes to Condensed Consolidated Financial Statements in this
Form 10-Q.
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27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
INTEREST AND OTHER INCOME
Interest income was approximately $8.8 million and $3.1 million for the quarters
ended December 31, 2000 and 1999, respectively. Interest income increased 182%
for the quarter ended December 31, 2000 over the quarter ended December 31,
1999, primarily due to higher invested cash balances of approximately $716
million for the December 2000 quarter compared to $404 million for the December
1999 quarter.
Interest income was approximately $23.5 million and $7.8 million for the nine
months ended December 31, 2000 and 1999, respectively. Interest income increased
201% for the nine months ended December 31, 2000 over the nine months ended
December 31, 1999, primarily due to higher average invested cash balances and
higher average interest rates.
Other income (expense) decreased approximately $0.9 million from $0.8 million of
income in the December 1999 quarter to ($0.1) million of expense in the December
2000 quarter. Other income (expense) decreased approximately $1.1 million from
$1.0 million of income in the nine months ending December 31, 1999 to ($0.1)
million of expense in the nine months ending December 31, 2000.
INCOME, NET OF EXPENSE, FROM SALE OF TECHNOLOGIES AND PRODUCT LINES
Income, net of expense, from sale of technologies and product lines decreased
from $90.0 million for the December 1999 quarter to $5.0 million for the
December 2000 quarter. The $90.0 million for the December 1999 quarter was
comprised of $68.5 million for the Visual Cafe divestiture, $18.3 million for
the ACT! divestiture and $3.2 million for payments from HP and JetForm. The $5.0
million in the December 2000 quarter was related to royalties received as a
result of our sale of the ACT! product line. Income, net of expense, from sale
of technologies and product lines decreased from $99.9 million in the nine month
period ending December 31, 1999 to $16.2 million for the nine month period
ending December 31, 2000. The $99.9 million for the nine month period ending
December 31, 1999 was comprised of $68.5 million for the Visual Cafe
divestiture, $18.3 million for the ACT! divestiture and $13.1 million for
payments from HP and JetForm. The $16.2 million for the nine month period ending
December 31, 2000 was comprised of $15.8 million related to royalties and other
transition fees received as a result of our sale of the ACT! and Visual Cafe
product lines and the last payment from JetForm of $0.4 million received in the
June 2000 quarter.
INCOME TAX PROVISION
Excluding the impact of goodwill amortization, restructuring charges and
acquired in-process research and development charges, the effective tax rate on
income before income taxes was 32% for the three and nine months ended December
31, 2000 and December 31, 1999. This rate is lower than the U.S. federal
statutory tax rate primarily due to a lower statutory tax rate on our Irish
operations.
The tax provision for the nine months ended December 2000 consists of a 32% tax
rate applied to income before goodwill amortization, restructuring charges and
acquired in-process research and development, and a $1.4 million tax benefit on
$45.9 million of goodwill amortization and charges for restructuring and
acquired in-process research and development. Similarly, the tax provision for
the nine months ended December 1999 consists of a 32% tax rate applied to income
before goodwill amortization, restructuring charges and acquired in-process
research and development, and a $2.2 million tax benefit on $19.7 million of
goodwill amortization and charges for restructuring and acquired in-process
research and development. The tax benefit on the goodwill amortization,
restructuring and acquired in-process research and development charges is less
than the U.S. federal statutory tax rate due to non-deductible in-process
research and development charges and goodwill amortization.
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28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased approximately $284
million to $716 million at December 31, 2000 from $432 million at March 31,
2000. This increase is largely due to cash provided from operating activities,
net proceeds from the exercise of stock options, quarterly royalties from
Interact Commerce Corporation and acquired AXENT cash balances, offset by cash
paid for capital expenditures, investments and transaction fees associated with
our acquisition of AXENT.
In addition to cash and short-term investments, we have approximately $73
million of restricted investments as of December 31, 2000 related to collateral
requirements under certain lease agreements. We are obligated under these lease
agreements for two existing office buildings in Cupertino, California, to
maintain a restricted cash balance invested in U.S. Treasury securities with
maturities not to exceed three years. In accordance with the lease terms, these
funds are not available to meet our operating cash requirements. In addition, we
are obligated to comply with certain financial covenants. Future acquisitions
may cause us to be in violation of these financial covenants.
Net cash provided by operating activities was approximately $213 million and was
comprised of net income of $91 million, non-cash related expenses of $69 million
and a net decrease in assets net of liabilities of $53 million.
Net trade accounts receivable increased $71 million to $118 million at December
31, 2000, from $47 million at March 31, 2000. This increase is a result of our
acquisition of AXENT's net trade accounts receivable balances of approximately
$29 million at December 31, 2000 and an increase in revenues in the month of
December 2000 compared to the month of March 2000 in most of our regions.
On March 22, 1999, our Board of Directors, (the "Board"), authorized the
repurchase of up to $75 million of our outstanding common stock with no
expiration date. As of December 31, 2000, we have purchased 1,000,000 shares at
prices ranging from $17.90 to $19.90, for an aggregate amount of $18.7 million.
All of these shares were purchased in the June 1999 quarter. In January 2001,
the Board replaced this authorization with a new authorization to repurchase up
to $700 million of our outstanding common stock. As of February 7, 2001, we had
repurchased 1,860,000 shares at prices ranging from $46.07 to $51.16, for an
aggregate amount of $90.5 million.
We have a $10 million line of credit, which expires in May 2001. We were in
compliance with the debt covenants for this line of credit as of December 31,
2000. As of December 31, 2000, there were no borrowings and less than $1 million
of standby letters of credit outstanding under this line. Future acquisitions
may cause us to be in violation of the line of credit covenants. However, we
believe that if the line of credit is canceled or amounts are not available
under the line, there would not be a material adverse impact on our financial
results, liquidity or capital resources.
If we were to sustain significant losses, we could be required to reduce
operating expenses, which could result in product delays and could cause us to
reassess acquisition opportunities, which could negatively impact our growth
objectives and/or pursue further financing options. We believe existing cash and
short-term investments and cash generated from operating activities will be
sufficient to fund operations for the next year.
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29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to equity price risk on the marketable portion of our portfolio
of equity securities. We typically do not attempt to reduce or eliminate the
market exposure on our securities. As of March 31, 2000, these securities
consisted of approximately 600,000 shares of Interact Commerce Corporation
("IACT"), a publicly traded company (Nasdaq symbol "IACT"), with a market value
of approximately $16.9 million. Since April 2000, many high-technology stocks
have experienced increased volatility and a significant decrease in value,
including these shares. If these securities had been valued using prices as of
January 26, 2001, the value of these securities would have decreased by
approximately $10.8 million as compared to the March 31, 2000 value. The value
of these securities may vary over time and the value as of January 26, 2001 was
approximately $6.1 million. After considering such factors as IACT's results
compared to plan, current market conditions and our ability to maintain our
investment in IACT without materially affecting our operating or capital needs,
we believe the unrealized loss in IACT is temporary.
In the September 2000 quarter, we made an investment of $18 million in a
non-public Internet technology company. As of December 31, 2000, we believe the
value of this investment has not significantly changed.
We believe there have been no other significant changes in our market risk
exposures as compared to what was previously disclosed in our Form 10-K for the
year ended March 31, 2000.
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30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Note 5 of
Notes to Condensed Consolidated Financial Statements included herein on page 9
of this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of stockholders of Symantec was held on
December 15, 2000.
(b) Matters voted on at the meeting and votes cast on each were as follows:
Broker
For Against Abstain "Non-Votes"
----------- ----------- ----------- -----------
1. To consider and act upon a proposal 41,780,237 1,259,605 167,533 11,036,152
to approve the issuance of shares
of Symantec common stock in the
merger of Apache Acquisition Corp.,
a wholly owned subsidiary of
Symantec, with and into AXENT
Technologies.
Broker
For Against Abstain "Non-Votes"
----------- ----------- ----------- -----------
2. To consider and act upon a proposal to 46,389,354 8,015,915 131,421 293,326
approve an amendment to Symantec's
1996 Equity Incentive Plan to make
available for issuance thereunder
an additional 2,400,000 shares of
Symantec common stock.
Broker
For Against Abstain "Non-Votes"
----------- ----------- ----------- -----------
3. To consider and act upon a proposal to 48,586,749 5,833,035 116,906 293,326
approve an amendment to the
certificate of incorporation to
increase the number of authorized
shares of Symantec common stock to
300,000,000 shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of this Form 10-Q:
2.01 The AXENT Merger Agreement. (Incorporated by reference to
Registrant's Report S-4 filed on September 20, 2000.)
3.01 The Registrant's Restated Certificate of Incorporation.
(Incorporated by reference to Annex G filed with the Registrant's
Joint Management Information Circular and Proxy Statement (No.
000-17781) dated October 17, 1995.)
3.02 The Registrant's Bylaws, as amended and restated effective August
11, 1998. (Incorporated by reference to Exhibit 3.1 filed with
the Registrant's Current Report 8-K filed August 19, 1998.)
10.01 Symantec Corporation 1999 Acquisition Plan Stock Option Agreement
with Acceleration by and between Symantec Corporation and Gary P.
Warren. (Incorporated by reference to Registrant's Report 10-Q
filed August 11, 2000.)
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31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
10.02 Employment offer by and between Symantec Corporation and Ron
Moritz. (Incorporated by reference to Registrant's Report 10-Q
filed August 11, 2000.)
10.03 Employment offer by and between Symantec Corporation and Gail
Hamilton. (Incorporated by reference to Registrant's Report 10-Q
filed August 11, 2000.)
10.04 The Registrant's 2000 Directors Equity Incentive Plan.
(Incorporated by reference to Registrant's Report S-8 filed
October 10, 2000.)
10.05 AXENT Technologies, Inc. 1999 Incentive Stock Plan. (Incorporated
by reference to Registrant's Report S-8 filed December 19, 2000.)
10.06 AXENT Technologies, Inc. 1998 Incentive Stock Plan. (Incorporated
by reference to Registrant's Report S-8 filed December 19, 2000.)
10.07 AXENT Technologies, Inc. 1996 Amended and Restated Stock Option
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.08 AXENT Technologies, Inc. 1996 Amended and Restated Directors'
Stock Option Plan (Incorporated by reference to Registrant's
Report S-8 filed December 19, 2000.)
10.09 AXENT Technologies, Inc. Amended and Restated 1991 Stock Option
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.10 AXENT Technologies, Inc. 1998 Exchange Option Plan. (Incorporated
by reference to Registrant's Report S-8 filed December 19, 2000.)
10.11 AXENT Technologies, Inc. 1999 PassGo Technologies Exchange Option
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.12 AXENT Technologies, Inc. Internet Tools 1997 Equity Incentive
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.13 AssureNet Pathways, Inc. Restated 1982 Stock Option Plan assumed
by AXENT Technologies, Inc. (Incorporated by reference to
Registrant's Report S-8 filed December 19, 2000.)
10.14 AXENT Technologies, Inc. 1998 Employee Stock Purchase Plan.
(Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.15 Termination agreement by and between Symantec Corporation and
Derek Witte.
10.16 Termination agreement by and between Symantec Corporation and Ron
Moritz.
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on December 4, 2000,
reporting that the Company announced a realignment of its technology and
operations activities to improve operational efficiencies. Symantec's core
technology operations will be aligned with its enterprise security
operations and its manufacturing and facilities operations will report to
the Chief Financial Officer.
ITEMS 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 7, 2001 SYMANTEC CORPORATION
By /s/ John W. Thompson
-------------------------------------
John W. Thompson
Chairman, President and
Chief Executive Officer
By /s/ Gregory Myers
-------------------------------------
Gregory Myers
Chief Financial Officer and
Chief Accounting Officer
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33
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.01 The AXENT Merger Agreement. (Incorporated by reference to
Registrant's Report S-4 filed on September 20, 2000.)
3.01 The Registrant's Restated Certificate of Incorporation.
(Incorporated by reference to Annex G filed with the Registrant's
Joint Management Information Circular and Proxy Statement (No.
000-17781) dated October 17, 1995.)
3.02 The Registrant's Bylaws, as amended and restated effective August
11, 1998. (Incorporated by reference to Exhibit 3.1 filed with
the Registrant's Current Report 8-K filed August 19, 1998.)
10.01 Symantec Corporation 1999 Acquisition Plan Stock Option Agreement
with Acceleration by and between Symantec Corporation and Gary P.
Warren. (Incorporated by reference to Registrant's Report 10-Q
filed August 11, 2000.)
10.02 Employment offer by and between Symantec Corporation and Ron
Moritz. (Incorporated by reference to Registrant's Report 10-Q
filed August 11, 2000.)
10.03 Employment offer by and between Symantec Corporation and Gail
Hamilton. (Incorporated by reference to Registrant's Report 10-Q
filed August 11, 2000.)
10.04 The Registrant's 2000 Directors Equity Incentive Plan.
(Incorporated by reference to Registrant's Report S-8 filed
October 10, 2000.)
10.05 AXENT Technologies, Inc. 1999 Incentive Stock Plan. (Incorporated
by reference to Registrant's Report S-8 filed December 19, 2000.)
10.06 AXENT Technologies, Inc. 1998 Incentive Stock Plan. (Incorporated
by reference to Registrant's Report S-8 filed December 19, 2000.)
10.07 AXENT Technologies, Inc. 1996 Amended and Restated Stock Option
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.08 AXENT Technologies, Inc. 1996 Amended and Restated Directors'
Stock Option Plan (Incorporated by reference to Registrant's
Report S-8 filed December 19, 2000.)
10.09 AXENT Technologies, Inc. Amended and Restated 1991 Stock Option
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.10 AXENT Technologies, Inc. 1998 Exchange Option Plan. (Incorporated
by reference to Registrant's Report S-8 filed December 19, 2000.)
10.11 AXENT Technologies, Inc. 1999 PassGo Technologies Exchange Option
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.12 AXENT Technologies, Inc. Internet Tools 1997 Equity Incentive
Plan. (Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.13 AssureNet Pathways, Inc. Restated 1982 Stock Option Plan assumed
by AXENT Technologies, Inc. (Incorporated by reference to
Registrant's Report S-8 filed December 19, 2000.)
10.14 AXENT Technologies, Inc. 1998 Employee Stock Purchase Plan.
(Incorporated by reference to Registrant's Report S-8 filed
December 19, 2000.)
10.15 Termination agreement by and between Symantec Corporation and
Derek Witte.
10.16 Termination agreement by and between Symantec Corporation and Ron
Moritz.
33