e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended October 1, 2010
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from
to
Commission File Number 000-17781
Symantec Corporation
(Exact name of the registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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77-0181864
(I.R.S. employer
Identification no.) |
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350 Ellis Street, |
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Mountain View, California
(Address of principal executive offices)
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94043
(Zip Code) |
Registrants telephone number, including area code:
(650) 527-8000
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Shares of Symantec common stock, $0.01 par value per share, outstanding as of October 29,
2010: 776,254,468 shares.
SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended October 1, 2010
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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October 1, |
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April 2, |
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2010 |
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2010 * |
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(Unaudited) |
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(In millions) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
2,256 |
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$ |
3,029 |
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Short-term investments |
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8 |
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15 |
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Trade accounts receivable, net |
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682 |
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856 |
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Inventories |
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23 |
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25 |
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Deferred income taxes |
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196 |
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176 |
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Other current assets |
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278 |
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250 |
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Total current assets |
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3,443 |
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4,351 |
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Property and equipment, net |
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1,009 |
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949 |
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Intangible assets, net |
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1,724 |
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1,179 |
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Goodwill |
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5,485 |
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4,605 |
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Investment in joint venture |
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47 |
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58 |
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Other long-term assets |
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111 |
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90 |
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Total assets |
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$ |
11,819 |
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$ |
11,232 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
257 |
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$ |
214 |
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Accrued compensation and benefits |
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304 |
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349 |
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Deferred revenue |
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2,725 |
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2,835 |
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Current portion of long-term debt |
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578 |
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Income taxes payable |
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62 |
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35 |
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Other current liabilities |
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308 |
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338 |
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Total current liabilities |
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4,234 |
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3,771 |
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Long-term debt |
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1,962 |
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1,871 |
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Long-term deferred revenue |
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379 |
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371 |
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Long-term deferred tax liabilities |
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236 |
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195 |
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Long-term income taxes payable |
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359 |
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426 |
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Other long-term obligations |
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60 |
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50 |
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Total liabilities |
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7,230 |
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6,684 |
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Commitments and contingencies |
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Stockholders equity: |
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Symantec Corporation stockholders equity: |
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Common stock |
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8 |
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8 |
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Additional paid-in capital |
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8,660 |
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8,990 |
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Accumulated other comprehensive income |
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149 |
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159 |
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Accumulated deficit |
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(4,312 |
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(4,609 |
) |
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Total Symantec Corporation stockholders equity |
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4,505 |
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4,548 |
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Noncontrolling interest in subsidiary |
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84 |
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Total stockholders equity |
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4,589 |
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4,548 |
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Total liabilities and stockholders equity |
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$ |
11,819 |
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$ |
11,232 |
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* |
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Derived from audited financial statements. |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
3
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended |
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Six Months Ended |
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October 1, |
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October 2, |
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October 1, |
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October 2, |
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2010 |
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2009 * |
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2010 |
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2009 * |
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(Unaudited) |
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(In millions, except per share data) |
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Net revenue: |
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Content, subscription, and maintenance |
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$ |
1,270 |
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$ |
1,254 |
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$ |
2,518 |
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$ |
2,463 |
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License |
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210 |
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220 |
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395 |
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443 |
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Total net revenue |
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1,480 |
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1,474 |
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2,913 |
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2,906 |
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Cost of revenue: |
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Content, subscription, and maintenance |
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217 |
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207 |
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434 |
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416 |
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License |
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6 |
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5 |
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9 |
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10 |
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Amortization of acquired product rights |
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23 |
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47 |
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68 |
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145 |
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Total cost of revenue |
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246 |
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259 |
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511 |
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571 |
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Gross profit |
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1,234 |
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1,215 |
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2,402 |
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2,335 |
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Operating expenses: |
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Sales and marketing |
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612 |
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576 |
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1,185 |
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1,135 |
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Research and development |
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208 |
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210 |
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416 |
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431 |
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General and administrative |
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100 |
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84 |
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192 |
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173 |
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Amortization of other purchased intangible assets |
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67 |
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63 |
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128 |
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125 |
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Restructuring and transformation |
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28 |
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25 |
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68 |
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59 |
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Loss and impairment of assets held for sale |
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1 |
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1 |
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3 |
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Total operating expenses |
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1,016 |
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958 |
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1,990 |
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1,926 |
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Operating income |
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218 |
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257 |
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412 |
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409 |
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Interest income |
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2 |
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1 |
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4 |
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3 |
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Interest expense |
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(36 |
) |
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(31 |
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(69 |
) |
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(63 |
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Other income, net |
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14 |
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2 |
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15 |
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8 |
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Loss on early extinguishment of debt |
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(16 |
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(16 |
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Income before income taxes and loss from joint venture |
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182 |
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229 |
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346 |
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357 |
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Provision for income taxes |
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44 |
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68 |
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40 |
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110 |
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Loss from joint venture |
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4 |
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6 |
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11 |
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18 |
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Net income |
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134 |
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155 |
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295 |
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229 |
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Less: Loss attributable to noncontrolling interest |
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(2 |
) |
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(2 |
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Net income attributable to Symantec Corporation stockholders |
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$ |
136 |
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$ |
155 |
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$ |
297 |
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$ |
229 |
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Net income per share attributable to Symantec Corporation
stockholders basic |
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$ |
0.17 |
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$ |
0.19 |
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$ |
0.38 |
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$ |
0.28 |
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Net income per share attributable to Symantec Corporation
stockholders diluted |
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$ |
0.17 |
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$ |
0.19 |
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$ |
0.37 |
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$ |
0.28 |
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Weighted-average shares outstanding attributable to Symantec
Corporation stockholders basic |
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782 |
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812 |
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789 |
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814 |
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Weighted-average shares outstanding attributable to Symantec
Corporation stockholders diluted |
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786 |
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819 |
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795 |
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823 |
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* |
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As adjusted for the impact of our joint ventures adoption of new authoritative guidance on
revenue recognition during the fourth quarter of fiscal 2010 as of the first quarter of fiscal
2010. |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
4
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended |
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October 1, |
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October 2, |
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2010 |
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2009 * |
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(Unaudited) |
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(In millions) |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
295 |
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$ |
229 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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323 |
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|
395 |
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Amortization of discount on debt |
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54 |
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51 |
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Stock-based compensation expense |
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71 |
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|
85 |
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Loss on early extinguishment of debt |
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16 |
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Impairment of assets held for sale |
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1 |
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3 |
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Deferred income taxes |
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29 |
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4 |
|
Income tax benefit from the exercise of stock options |
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(5 |
) |
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2 |
|
Excess income tax benefit from the exercise of stock options |
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(1 |
) |
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(6 |
) |
Loss from joint venture |
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11 |
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18 |
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Other |
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(10 |
) |
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Net change in assets and liabilities, excluding effects of acquisitions: |
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Trade accounts receivable, net |
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233 |
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|
171 |
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Inventories |
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3 |
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|
5 |
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Accounts payable |
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27 |
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(7 |
) |
Accrued compensation and benefits |
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(65 |
) |
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(79 |
) |
Deferred revenue |
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(238 |
) |
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(259 |
) |
Income taxes payable |
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(79 |
) |
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(15 |
) |
Other assets |
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12 |
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(8 |
) |
Other liabilities |
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(32 |
) |
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8 |
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Net cash provided by operating activities |
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|
645 |
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|
597 |
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INVESTING ACTIVITIES: |
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Purchase of property and equipment |
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(116 |
) |
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(108 |
) |
Proceeds from sale of property and equipment |
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3 |
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Cash (payments for) returned from acquisitions, net of cash acquired |
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(1,528 |
) |
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3 |
|
Purchase of equity investments |
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(6 |
) |
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(16 |
) |
Purchases of available-for-sale securities |
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(2 |
) |
Proceeds from sales of available-for-sale securities |
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3 |
|
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|
189 |
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|
|
|
|
|
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|
Net cash (used in) provided by investing activities |
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(1,647 |
) |
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|
69 |
|
FINANCING ACTIVITIES: |
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|
Net proceeds from sales of common stock under employee stock benefit plans |
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|
46 |
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|
54 |
|
Excess income tax benefit from the exercise of stock options |
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|
1 |
|
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|
6 |
|
Tax payments related to restricted stock issuance |
|
|
(18 |
) |
|
|
(18 |
) |
Proceeds from debt issuance, net of discount |
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|
1,097 |
|
|
|
|
|
Repurchase of debt |
|
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(510 |
) |
|
|
|
|
Proceeds from sale of bond hedge |
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|
13 |
|
|
|
|
|
Debt issuance costs |
|
|
(10 |
) |
|
|
|
|
Repurchase of common stock |
|
|
(425 |
) |
|
|
(243 |
) |
Repayment of other long-term liabilities |
|
|
(2 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
192 |
|
|
|
(205 |
) |
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
37 |
|
|
|
60 |
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(773 |
) |
|
|
521 |
|
Beginning cash and cash equivalents |
|
|
3,029 |
|
|
|
1,793 |
|
|
|
|
|
|
|
|
Ending cash and cash equivalents |
|
$ |
2,256 |
|
|
$ |
2,314 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
As adjusted for the impact of our joint ventures adoption of new authoritative guidance on
revenue recognition during the fourth quarter of fiscal 2010 as of the first quarter of fiscal
2010. |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
5
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements of Symantec Corporation (we, us, our,
and the Company refer to Symantec Corporation and all of its subsidiaries) as of October 1, 2010
and April 2, 2010, and for the three and six months ended October 1, 2010 and October 2, 2009, have
been prepared in accordance with the instructions on Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). In accordance with those rules and
regulations, we have omitted certain information and notes normally provided in our annual
consolidated financial statements. In the opinion of management, the condensed consolidated
financial statements contain all adjustments, consisting only of normal recurring items, except as
otherwise noted, necessary for the fair presentation of our financial position and results of
operations for the interim periods. The condensed consolidated financial statements for the three
and six months ended October 2, 2009 have been adjusted for the impact of our joint ventures
adoption of new authoritative guidance on revenue recognition during the fourth quarter of fiscal
2010 as of the first quarter of fiscal 2010. These condensed consolidated financial statements
should be read in conjunction with the Consolidated Financial Statements and Notes thereto included
in our Annual Report on Form 10-K for the fiscal year ended April 2, 2010. The results of
operations for the three and six months ended October 1, 2010 are not necessarily indicative of the
results expected for the entire fiscal year. All significant intercompany accounts and transactions
have been eliminated.
On August 9, 2010, we completed the acquisition of the identity and authentication business of
VeriSign, Inc. (VeriSign), including a controlling interest in its subsidiary VeriSign Japan K.K.
(VeriSign Japan), a publicly traded company on the Tokyo Stock Exchange. Given the Companys
majority ownership interest in VeriSign Japan, the accounts of VeriSign Japan have been
consolidated with the accounts of the Company, and a noncontrolling interest has been recorded for
the noncontrolling investors interests in the equity and operations of VeriSign Japan. See Note 3.
Fiscal year end
We have a 52/53-week fiscal accounting year ending on the Friday closest to March 31. The
three months ended October 1, 2010 and October 2, 2009 both consisted of 13 weeks. The six months
ended October 1, 2010 and October 2, 2009 both consisted of 26 weeks. Our 2011 fiscal year consists
of 52 weeks and ends on April 1, 2011.
Significant accounting policies
There have been no changes in our significant accounting policies for the six months ended
October 1, 2010 as compared to the significant accounting policies described in our Annual Report
on Form 10-K for the fiscal year ended April 2, 2010.
Recently adopted authoritative guidance
In the first quarter of fiscal 2011, we adopted new authoritative guidance which changes the
model for determining whether an entity should consolidate a variable interest entity (VIE). The
standard replaces the quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a VIE with an approach focused on identifying
which enterprise has the power to direct the activities of a VIE and the obligation to absorb
losses of the entity or the right to receive the entitys residual returns. The adoption of this
guidance did not have an impact on our condensed consolidated financial statements for the three
and six months ended October 1, 2010.
Note 2. Fair Value Measurements
We measure assets and liabilities at fair value based on an expected exit price as defined by
the authoritative guidance on fair value measurements, which represents the amount that would be
received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly
transaction between market participants. As such, fair value may be based on assumptions that
market participants would use in pricing an asset or liability. The authoritative guidance on fair
value measurements establishes a consistent framework for measuring fair value on either a
recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a
hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
|
|
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets. |
|
|
|
|
Level 2: Observable inputs that reflect quoted prices for identical assets or liabilities in
markets that are not active; quoted prices for similar assets or liabilities in active
markets; inputs other than quoted prices that are observable for the assets or liabilities; or
inputs that are derived principally from or corroborated by observable market data by
correlation or other means. |
|
|
|
|
Level 3: Unobservable inputs reflecting our own assumptions incorporated in valuation
techniques used to determine fair value. These assumptions are required to be consistent
with market participant assumptions that are reasonably available. |
6
All of our financial instruments are measured and recorded at fair value. For certain
financial instruments, including cash and cash equivalents, accounts payable and other current
liabilities, the carrying value approximates the fair value due to the relative short maturity of
these instruments. For our other financial instruments and/or financial assets, specifically
short-term investments which primarily consist of available-for-sale securities, the fair value is
determined using different assumptions as outlined above. Our equity investments in privately-held
entities ($30 million as of October 1, 2010) are carried at cost and reduced to fair value if and when
determined to be impaired. Our convertible senior notes, senior notes, and credit facility are
carried at amortized cost and fair value measurements are made on a nonrecurring basis, as
necessary.
Assets measured and recorded at fair value on a recurring basis
The following table summarizes our assets that are measured at fair value on a recurring
basis, by level, within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 1, 2010 |
|
|
As of April 2, 2010 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
(In millions) |
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (1) |
|
$ |
1,228 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,228 |
|
|
$ |
2,046 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,046 |
|
Bank securities and deposits (2) |
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
216 |
|
Government securities (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,228 |
|
|
$ |
201 |
|
|
$ |
|
|
|
$ |
1,429 |
|
|
$ |
2,046 |
|
|
$ |
332 |
|
|
$ |
|
|
|
$ |
2,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Level 1 securities are based on quoted market prices of the identical
underlying security. |
|
(2) |
|
Level 2 securities are priced using quoted market prices for similar
instruments and nonbinding market prices that are corroborated by observable market data. |
Liabilities measured and recorded at fair value on a nonrecurring basis
During the three months ended October 1, 2010, we repurchased $500 million of aggregate
principal amount of our 0.75% convertible senior notes, which had a net book value of $481 million.
Concurrently with the repurchase, we sold a proportionate share of the
initial note hedges back to the note hedge counterparties for approximately $13 million. These
transactions resulted in a loss from extinguishment of debt of approximately $16 million, which
represents the difference between book value of the notes net of the remaining unamortized discount
prior to repurchase and the fair value of the
liability component of the notes upon repurchase. The fair value of the liability
component was estimated to be $497 million using level 2 inputs based on market prices for similar
convertible debt instruments and resulting yields thereof and level 3 inputs based on discounted
cash flows based for future fixed amounts. Also see Note 6.
Note 3. Acquisitions
VeriSign, Inc.
On August 9, 2010, we completed the acquisition of the identity and authentication business of
VeriSign, which included a controlling interest in VeriSign Japan and equity interests in certain
other subsidiary entities. In exchange for the assets and liabilities of the acquired business, we
paid a total purchase price of $1.29 billion in cash, which included estimated net cash and working
capital adjustments of $8 million. No equity interests were issued. The results of operations of
the identification and authentication business of VeriSign are included since the date of
acquisition as part of the Security and Compliance segment. Supplemental pro forma information for
VeriSign was not material to our financial results and was therefore not included. For the three
and six months ended October 1, 2010, we recorded acquisition-related transaction costs of $11
million, which were included in general and administrative expenses.
7
The initial allocation of the purchase price was based on a preliminary valuation, and our
estimates and assumptions are subject to change within the measurement period (up to one year from
the acquisition date). The purchase accounting items that are not yet finalized include the
valuation of intangible assets acquired, the fair value of certain tangible assets and liabilities
acquired, the calculation of certain deferred tax assets and liabilities, and the net cash and working capital
adjustments noted above. The following table presents the initial purchase price allocation
included in our Condensed Consolidated Balance Sheet (in millions):
|
|
|
|
|
Net tangible assets (1) |
|
$ |
146 |
|
Intangible assets (2) |
|
|
628 |
|
Goodwill (3) |
|
|
605 |
|
Deferred tax liability |
|
|
(6 |
) |
Noncontrolling interest in VeriSign Japan (4) |
|
|
(85 |
) |
|
|
|
|
Total purchase price |
|
$ |
1,288 |
|
|
|
|
|
|
|
|
(1) |
|
Net tangible assets included deferred revenue, which was adjusted down from $286
million to $68 million, representing our estimate of the fair value of the contractual
obligation assumed for support services. |
|
(2) |
|
Intangible assets included customer relationships of $226 million,
developed technology of $123 million, which have weighted-average estimated useful lives of
8.0 years and 9.0 years, respectively, and indefinite-lived tradenames and trademarks of $279
million. These intangible assets are amortized over their estimated useful lives of five to
nine years. |
|
(3) |
|
Goodwill is partially tax deductible. The goodwill amount resulted
primarily from our expectation of synergies from the integration of VeriSign product
offerings with our product offerings. |
|
(4) |
|
The fair value of the noncontrolling interest was calculated on a market
basis using the closing stock price of VeriSign Japan on the date of acquisition. |
PGP Corporation
On June 4, 2010, we completed the acquisition of PGP Corporation (PGP), a nonpublic provider
of email and data encryption software. In exchange for all of the voting equity interests of PGP,
we paid a total purchase price of $306 million, excluding cash acquired. The results of operations
of PGP are included since the date of acquisition as part of the Security and Compliance segment.
Supplemental pro forma information for PGP was not material to our financial results and was
therefore not included. For the six months ended October 1, 2010, we recorded acquisition-related
transaction costs of $3 million, which were included in general and administrative expense.
The following table presents the purchase price allocation included in our Condensed Consolidated
Balance Sheet (in millions):
|
|
|
|
|
Net tangible assets (1) |
|
$ |
7 |
|
Intangible assets (2) |
|
|
74 |
|
Goodwill (3) |
|
|
225 |
|
|
|
|
|
Total purchase price |
|
$ |
306 |
|
|
|
|
|
|
|
|
(1) |
|
Net tangible assets included deferred revenue, which was adjusted down from $55
million to $9 million, representing our estimate of the fair value of the contractual
obligation assumed for support services. |
|
(2) |
|
Intangible assets included customer relationships of $29 million, developed
technology of $39 million, and definite-lived tradenames of $3 million, which have
weighted-average estimated useful lives of 8.0 years, 5.0 years, and 2.0 years, respectively.
These intangible assets are amortized over their estimated useful lives of two to eight years.
These intangible assets also included in-process research and development (IPR&D) of $3
million, which is classified as an indefinite-lived intangible asset until the project is
completed or abandoned. |
|
(3) |
|
Goodwill is not tax deductible. The goodwill amount resulted primarily from our
expectation of synergies from the integration of PGP product offerings with our product
offerings. |
Other Fiscal 2011 acquisitions
During fiscal 2011, we completed the acquisition of GuardianEdge Technologies, Inc.
(GuardianEdge), a nonpublic provider of email and data encryption software. In exchange for all
the voting equity interests, we paid a total purchase price of $73 million, excluding cash
acquired. This includes $1 million in assumed equity awards at fair value. We also completed the
acquisition of a business from a public provider of telecommunications and related
services for a total purchase price of $6 million. The results
of operations from both acquisitions are included since the date of acquisition as part of the
Security and Compliance segment. Supplemental pro forma information for both acquisitions was not
material to our financial results and was therefore not included. For the six months ended October
1, 2010, we recorded acquisition-related transaction costs of $1 million, which were included in
general and administrative expense.
8
The following table presents the purchase price allocation included in our Condensed Consolidated
Balance Sheet (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GuardianEdge |
|
|
Other |
|
|
Total |
|
|
|
(In millions) |
|
Acquisition date |
|
June 3, 2010 |
|
|
August 23, 2010 |
|
|
|
|
|
Net tangible assets (1) |
|
$ |
3 |
|
|
$ |
|
|
|
$ |
3 |
|
Intangible assets (2) |
|
|
30 |
|
|
|
3 |
|
|
|
33 |
|
Goodwill (3) |
|
|
40 |
|
|
|
3 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
73 |
|
|
$ |
6 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net tangible assets included deferred revenue, which was adjusted down from $17
million to $2 million, representing our estimate of the fair value of the contractual
obligation assumed for support services. |
|
(2) |
|
Intangible assets included customer relationships of $22 million and developed
technology of $11 million, which have weighted-average estimated useful lives of 9.0 years and
5.0 years, respectively. These intangible assets are amortized over their estimated useful
lives of five to nine years. |
|
(3) |
|
Goodwill is partially tax deductible. The goodwill amount resulted primarily from
our expectation of synergies from the integration of both acquisitions product offerings with
our product offerings. |
Note 4. Goodwill and Intangible Assets
Goodwill
Goodwill is allocated by reportable segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and |
|
|
Storage and Server |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Compliance |
|
|
Management |
|
|
Services |
|
|
Total |
|
|
|
(In millions) |
|
Balance as of April 2, 2010 |
|
$ |
356 |
|
|
$ |
1,582 |
|
|
$ |
2,648 |
|
|
$ |
19 |
|
|
$ |
4,605 |
|
Goodwill acquired through business combinations (1) |
|
|
|
|
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
873 |
|
Goodwill adjustments (2) |
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 1, 2010 |
|
$ |
360 |
|
|
$ |
2,458 |
|
|
$ |
2,648 |
|
|
$ |
19 |
|
|
$ |
5,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 3 for acquisitions completed in fiscal 2011. |
|
(2) |
|
Reflects adjustments made to goodwill as a result of foreign currency exchange rate
fluctuations. |
We apply a fair value based impairment test to the carrying value of goodwill and
indefinite-lived intangible assets on an annual basis in the fourth quarter of each fiscal year or
earlier if indicators of impairment exist. As of October 1, 2010, no indicators of impairment were
identified.
9
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 1, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Remaining |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Useful Life |
|
|
|
($ in millions) |
|
Customer relationships |
|
$ |
2,122 |
|
|
$ |
(1,095 |
) |
|
$ |
1,027 |
|
|
4 years |
Developed technology |
|
|
1,809 |
|
|
|
(1,524 |
) |
|
|
285 |
|
|
4 years |
Definite-lived tradenames |
|
|
131 |
|
|
|
(73 |
) |
|
|
58 |
|
|
4 years |
Patents |
|
|
75 |
|
|
|
(57 |
) |
|
|
18 |
|
|
3 years |
Indefinite-lived tradenames |
|
|
333 |
|
|
|
|
|
|
|
333 |
|
|
Indefinite |
Indefinite-lived IPR&D |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,473 |
|
|
$ |
(2,749 |
) |
|
$ |
1,724 |
|
|
4 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 2, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Remaining |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Useful Life |
|
|
|
($ in millions) |
|
Customer relationships |
|
$ |
1,839 |
|
|
$ |
(973 |
) |
|
$ |
866 |
|
|
4 years |
Developed technology |
|
|
1,635 |
|
|
|
(1,458 |
) |
|
|
177 |
|
|
1 year |
Definite-lived tradenames |
|
|
128 |
|
|
|
(66 |
) |
|
|
62 |
|
|
5 years |
Patents |
|
|
75 |
|
|
|
(54 |
) |
|
|
21 |
|
|
3 years |
Indefinite-lived tradenames |
|
|
53 |
|
|
|
|
|
|
|
53 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,730 |
|
|
$ |
(2,551 |
) |
|
$ |
1,179 |
|
|
3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $90 million and $196 million for the three and six months ended
October 1, 2010, respectively, and $110 million and $270 million for the three and six months ended
October 2, 2009, respectively.
Total future amortization expense for intangible assets that have definite lives, based on our
existing intangible assets and their current estimated useful lives as of October 1, 2010, is
estimated as follows (in millions):
|
|
|
|
|
Remainder of fiscal 2011 |
|
$ |
186 |
|
2012 |
|
|
357 |
|
2013 |
|
|
324 |
|
2014 |
|
|
180 |
|
2015 |
|
|
126 |
|
Thereafter |
|
|
215 |
|
|
|
|
|
Total |
|
$ |
1,388 |
|
|
|
|
|
Note 5. Supplemental Financial Information
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
October 1, |
|
|
April 2, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(In millions) |
|
Computer hardware and software |
|
$ |
1,369 |
|
|
$ |
1,237 |
|
Office furniture and equipment |
|
|
198 |
|
|
|
185 |
|
Buildings |
|
|
456 |
|
|
|
440 |
|
Leasehold improvements |
|
|
247 |
|
|
|
245 |
|
|
|
|
|
|
|
|
|
|
|
2,270 |
|
|
|
2,107 |
|
Less: accumulated depreciation and amortization |
|
|
(1,433 |
) |
|
|
(1,299 |
) |
|
|
|
|
|
|
|
|
|
|
837 |
|
|
|
808 |
|
Construction in progress |
|
|
89 |
|
|
|
70 |
|
Land |
|
|
83 |
|
|
|
71 |
|
|
|
|
|
|
|
|
Property and equipment, net: |
|
$ |
1,009 |
|
|
$ |
949 |
|
|
|
|
|
|
|
|
Depreciation expense was $64 million and $123 million for the three and six months ended
October 1, 2010, respectively, and $62 million and $122 million for the three and six months ended
October 2, 2009, respectively.
10
Comprehensive income
The components of comprehensive income, net of tax, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 1, |
|
|
October 2, |
|
|
October 1, |
|
|
October 2, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions) |
|
|
Net income |
|
$ |
134 |
|
|
$ |
155 |
|
|
$ |
295 |
|
|
$ |
229 |
|
Other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
(14 |
) |
|
|
3 |
|
|
|
(8 |
) |
|
|
3 |
|
Less:
reclassification adjustments for gains included in net income |
|
|
|
|
|
|
(27 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign
currency translation adjustments, net of tax |
|
|
(14 |
) |
|
|
(24 |
) |
|
|
(8 |
) |
|
|
(19 |
) |
Available-for-sale
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains |
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
3 |
|
Less:
reclassification adjustment for gains included in net income |
|
|
(12 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
adjustments for available-for-sale securities, net of tax |
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss |
|
|
(16 |
) |
|
|
(24 |
) |
|
|
(10 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
118 |
|
|
|
131 |
|
|
|
285 |
|
|
|
213 |
|
Less:
Comprehensive loss attributable to noncontrolling interest in
subsidiary |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income attributable to Symantec Corporation Stockholders |
|
$ |
117 |
|
|
$ |
131 |
|
|
$ |
284 |
|
|
$ |
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Debt
Senior notes
In the second quarter of fiscal 2011, we issued $350 million in principal amount of 2.75%
senior notes (2.75% Notes) due September 15, 2015 and $750 million in principal amount of 4.20%
senior notes (4.20% Notes) due September 15, 2020, for an aggregate principal amount of $1.1
billion. The 2.75% Notes and 4.20% Notes are senior unsecured obligations of the Company that rank
equally in right of payment with all of our existing and future unsecured and unsubordinated
obligations and are redeemable by us at any time, subject to a make-whole premium. Our proceeds
were $1.1 billion, net of an issuance discount of approximately $3 million resulting from sale of
the notes at a yield slightly above the stated coupons. We also incurred issuance costs of
approximately $6 million. Both the discount and issuance costs are being amortized as incremental
non-cash interest expense over the respective terms of the notes. The 2.75% Notes and 4.20% Notes
bear interest at 2.75% and 4.20% per annum, respectively. Interest is payable semiannually in
arrears on the 15th of March and September, beginning March 15, 2011. There
was no cash paid for interest during the three and six months ended October 1, 2010.
Convertible senior notes
In the first quarter of fiscal 2007, we issued $1.1 billion in principal amount of 0.75%
convertible senior notes (0.75% Notes) due June 15, 2011 and $1.0 billion in principal amount of
1.00% senior notes (1.00% Notes) due June 15, 2013. We received proceeds of $2.1 billion from the
0.75% Notes and 1.00% Notes and incurred net transaction costs of approximately $33 million, of
which $9 million was allocated to equity and the remainder allocated proportionately to the 0.75%
Notes and 1.00% Notes. The 0.75% Notes and 1.00% Notes were each issued at par and bear interest at
0.75% and 1.00% per annum, respectively. Interest is payable semiannually in arrears on June 15 and
December 15.
Concurrent with the issuance of the 0.75% Notes and 1.00% Notes, the Company entered into note
hedge transactions with affiliates of certain initial purchasers whereby the Company has the option
to purchase up to 110 million shares of SYMC common stock at a price of $19.12 per share. The cost
of the note hedge transactions was approximately $592 million.
In the second quarter of fiscal 2011, we repurchased $500 million of aggregate principal
amount of our 0.75% Notes. Concurrently with the repurchase, we sold a proportionate share of the
initial note hedges back to the note hedge counterparties for approximately $13 million. These
transactions resulted in a loss from extinguishment of debt of approximately $16 million, which
represents the difference between book value of the notes net of the remaining unamortized discount
prior to repurchase and the fair value of the
liability component of the notes upon repurchase. The net cost of the repurchase of the 0.75% Notes
and the concurrent sale of the note hedges was $497 million in cash.
11
Revolving credit facility
In the second quarter of fiscal 2011, we entered into a four-year $1.0 billion senior
unsecured revolving credit facility that expires in September 2014. The credit facility provides
that we may borrow up to $1.0 billion under revolving loans. Revolving loans under the credit
facility bear interest, at our option, either at a rate equal to a) a LIBOR plus a margin based on
our consolidated leverage ratio, as defined in the credit facility agreement or b) the banks prime
rate plus a margin based on our consolidated leverage ratio, as defined in the credit facility
agreement. Under the terms of this credit facility, we must comply with certain financial and
non-financial covenants, including a covenant to maintain a specified ratio of debt to earnings
(before interest, taxes, depreciation and amortization, and impairments). As of October 1, 2010, we
were in compliance with all required covenants, and there was no outstanding balance on the credit
facility.
In addition, in the second quarter of fiscal 2011, we terminated our previous $1.0 billion
senior unsecured revolving credit facility that we entered into in July 2006. At the time of
termination, there was no outstanding balance on the credit facility. The original expiration date
for this credit facility was July 2011.
Note 7. Restructuring
Our restructuring costs and liabilities consist of severance, benefits, facilities, and other
costs. Severance and benefits generally include severance, outplacement services, health insurance
coverage, effects of foreign currency exchange, and legal costs. Facilities costs generally include
rent expense, less expected sublease income and lease termination costs. Also included in
Restructuring in our Condensed Consolidated Statements of Income are transition and transformation
fees, consulting services, and other costs related to the outsourcing of back office functions.
Restructuring expenses are included in the Other reporting segment.
Charges for restructuring costs were $28 million and $68 million for the three and six months
ended October 1, 2010, respectively, and $25 million and $59 million for the three and six months
ended October 2, 2009, respectively. These amounts include transition, transformation, consulting,
and other related costs of $4 million and $9 million for the three and six months ended October 1,
2010, respectively, and $10 million and $22 million for the three and six months ended October 2,
2009, respectively. Transition and transformation related activities are expected to be
substantially completed by the end of fiscal 2011. Total remaining costs for transition and
transformation activities are estimated to range from approximately $6 million to $11 million.
Restructuring Plans
The following details restructuring plans that management has committed to and are not
substantially completed:
2011 Restructuring Plan (2011 Plan)
In the first quarter of fiscal 2011, management approved and initiated the following
restructuring events:
|
|
|
Expansion of Consulting partner sales and delivery capabilities. This action was
initiated to expand our partner eco-system to better leverage their customer reach and
operational scale, which will result in a headcount reduction within our consulting services
organization. It is intended for our customers to have greater choice in their providers for
technology services. These actions are expected to be substantially completed by the end of
fiscal 2011, and the total remaining costs for severance and benefits are estimated to range
from $15 million to $20 million. |
2010 Restructuring Plan (2010 Plan)
|
|
In the fourth quarter of fiscal 2010, management approved and initiated the following
restructuring events: |
|
|
|
Reduce operating costs through a workforce realignment. This action was initiated to more
appropriately allocate resources to the Companys key strategic initiatives. Charges related
to this action are for severance and benefits. These actions are expected to be
substantially completed by the first quarter of fiscal 2012. Total remaining costs for
severance and benefits are estimated to range from $20 million to $30 million. |
12
|
|
|
Reduce operating costs through a facilities consolidation. This action was initiated to
streamline our operations and deliver better and more efficient support to our customers and
employees. Charges related to this action are for consolidating certain facilities in North
America and Europe. These actions are expected to be substantially completed by the end of
fiscal 2011. Total remaining costs for facilities are estimated to range from $15 million to
$25 million. |
2008 Restructuring Plan (2008 Plan)
In the third quarter of fiscal 2008, management approved and initiated the following
restructuring events:
|
|
|
Reduce operating costs through a worldwide headcount reduction. This action was
initiated in the third quarter of fiscal 2008 and was substantially completed in the
fourth quarter of fiscal 2008. Charges related to this action are for severance and
benefits. Total remaining headcount reduction costs are not expected to be significant. |
|
|
|
|
Reduce operating costs, implement management structure changes, optimize the business
structure, and discontinue certain products. Charges related to these actions are for
severance and benefits. These actions were initiated in the third quarter of fiscal 2008
and were substantially completed in the second quarter of fiscal 2011. Total remaining
headcount reduction costs are not expected to be significant. |
|
|
|
|
Outsource certain back office functions worldwide. Charges related to these actions are
primarily for severance and benefits. These actions were initiated in the second quarter
of fiscal 2009 and were substantially completed in the second quarter of fiscal 2011.
Total remaining headcount reduction costs are not expected to be significant. |
Acquisition-related Plans
As a result of business acquisitions, management may deem certain job functions to be
redundant and facilities to be in excess either at the time of acquisition or for a period of
time after the acquisition in conjunction with our integration efforts. As of October 1, 2010,
acquisition-related restructuring liabilities, primarily related to excess facility obligations
at several locations around the world, are expected to be paid over the respective lease terms,
the longest of which extends through fiscal 2018.
Restructuring summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Liability |
|
|
|
|
|
|
|
Costs, |
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
April 2, |
|
|
Net of |
|
|
Cash |
|
|
October 1, |
|
|
Incurred to |
|
|
|
2010 |
|
|
Adjustments (1) |
|
|
Payments |
|
|
2010 |
|
|
Date |
|
|
|
(In millions) |
|
2011 Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
$ |
|
|
|
$ |
9 |
|
|
$ |
(6 |
) |
|
$ |
3 |
|
|
$ |
9 |
|
2010 Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
20 |
|
|
|
26 |
|
|
|
(39 |
) |
|
|
7 |
|
|
|
49 |
|
Facilities |
|
|
|
|
|
|
17 |
|
|
|
(5 |
) |
|
|
12 |
|
|
|
17 |
|
2008 Restructuring Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
3 |
|
|
|
|
|
|
|
(2 |
) |
|
|
1 |
|
|
|
96 |
|
Acquisition-related Restructuring Plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
1 |
|
|
|
4 |
|
|
|
(2 |
) |
|
|
3 |
|
|
|
6 |
|
Facilities |
|
|
12 |
|
|
|
3 |
|
|
|
(4 |
) |
|
|
11 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36 |
|
|
$ |
59 |
|
|
$ |
(58 |
) |
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition, transformation and other costs |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring Charges |
|
|
|
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
$ |
22 |
|
|
|
|
|
Other long-term liabilities |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36 |
|
|
|
|
|
|
|
|
|
|
$ |
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total net adjustments or reversals were not material for the six months ended October 1, 2010. |
13
Note 8. Commitments and Contingencies
Indemnification
As permitted under Delaware law, we have agreements whereby we agree to indemnify our officers
and directors for certain events or occurrences while the officer or director is, or was, serving
at our request in such capacity. The maximum potential amount of future payments we could be
required to make under these indemnification agreements is not limited; however, we have directors
and officers insurance coverage that reduces our exposure and may enable us to recover a portion
of any future amounts paid. We believe the estimated fair value of these indemnification agreements
in excess of applicable insurance coverage is minimal.
We provide limited product warranties, and the majority of our software license agreements
contain provisions that indemnify licensees of our software from damages and costs resulting from
claims alleging that our software infringes the intellectual property rights of a third party.
Historically, payments made under these provisions have been immaterial. We monitor the conditions
that are subject to indemnification to identify if a loss has occurred.
Litigation
For a discussion of our pending tax litigation with the Internal Revenue Service relating to
the 2000 and 2001 tax years of Veritas, see Note 12.
On July 7, 2004, a purported class action complaint entitled Paul Kuck, et al. v. Veritas
Software Corporation, et al. was filed in the United States District Court for the District of
Delaware. The lawsuit alleges violations of federal securities laws in connection with Veritas
announcement on July 6, 2004 that it expected results of operations for the fiscal quarter ended
June 30, 2004 to fall below earlier estimates. The complaint generally seeks an unspecified amount
of damages. Subsequently, additional purported class action complaints have been filed in Delaware
federal court, and, on March 3, 2005, the Court entered an order consolidating these actions and
appointing lead plaintiffs and counsel. A consolidated amended complaint (CAC), was filed on May
27, 2005, expanding the class period from April 23, 2004 through July 6, 2004. The CAC also named
another officer as a defendant and added allegations that Veritas and the named officers made false
or misleading statements in press releases and SEC filings regarding Veritass financial results,
which allegedly contained revenue recognized from contracts that were unsigned or lacked essential
terms. The defendants to this matter filed a motion to dismiss the CAC in July 2005; the motion was
denied in May 2006. In April 2008, the parties filed a stipulation of settlement. On July 31, 2008,
the Court held a final approval hearing and, on August 5, 2008, the Court entered an order
approving the settlement. An objector to the fees portion of the settlement has lodged an appeal.
In fiscal 2008, we recorded an accrual in the amount of $21.5 million for this matter and, pursuant
to the terms of the settlement, we established a settlement fund of $21.5 million on May 1, 2008.
We are also involved in a number of other judicial and administrative proceedings that are
incidental to our business. Although adverse decisions (or settlements) may occur in one or more of
the cases, it is not possible to estimate the possible loss or losses from each of these cases. The
final resolution of these lawsuits, individually or in the aggregate, is not expected to have a
material adverse effect on our financial condition or results of operations.
Note 9. Stock Repurchases
The following table summarizes our stock repurchases:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, 2010 |
|
October 1, 2010 |
|
|
(In millions, except per share data) |
Total number of shares repurchased |
|
|
17 |
|
|
|
31 |
|
Dollar amount of shares repurchased |
|
$ |
225 |
|
|
$ |
425 |
|
Average price paid per share |
|
$ |
13.16 |
|
|
$ |
13.75 |
|
Range of price paid per share |
|
$ |
12.07 to 14.99 |
|
|
$ |
12.07 to 15.31 |
|
We have had stock repurchase programs in the past and have repurchased shares on a quarterly
basis since the fourth quarter of fiscal 2004 under new and existing programs. Our most recent
program was authorized by our Board of Directors on October 27, 2009 to repurchase up to $1 billion
of our common stock. This program does not have an expiration date and as of October 1, 2010, $322
million remained authorized for future repurchases.
14
Note 10. Segment Information
As of October 1, 2010, our five reportable segments are the same as our operating segments and
are as follows:
|
|
|
Consumer. Our Consumer segment focuses on delivering our Internet security, PC tune-up,
and backup products to individual users and home offices. |
|
|
|
|
Security and Compliance. Our Security and Compliance segment focuses on providing large,
medium, and small-sized businesses with solutions for endpoint security and management,
compliance, messaging management, data loss prevention solutions, and identity and
authentication services. These products allow our customers to secure, provision, and
remotely access their laptops, PCs, mobile devices, and servers. We also provide our
customers with solutions delivered through our Software-as-a-Service (SaaS) security
offerings. |
|
|
|
|
Storage and Server Management. Our Storage and Server Management segment focuses on
providing large, medium, and small-sized businesses with storage and server management,
backup, archiving, and data protection solutions across heterogeneous storage and server
platforms, as well as solutions delivered through our SaaS offerings. |
|
|
|
|
Services. Our Services segment provides customers with implementation services and
solutions designed to assist them in maximizing the value of their Symantec software. Our
offerings include consulting, business critical services, education, and managed security
services. |
|
|
|
|
Other. Our Other segment is comprised of sunset products and products nearing the end of
their life cycle. It also includes general and administrative expenses; amortization of
acquired product rights, intangible assets, and other assets; goodwill impairment charges;
charges such as stock-based compensation and restructuring; and certain indirect costs that
are not charged to the other operating segments. |
The accounting policies of the segments are described in our Annual Report on Form 10-K for
the fiscal year ended April 2, 2010 and have not changed as of October 1, 2010. There were no
intersegment sales for the three and six months ended October 1, 2010.
Segment information
The following table summarizes the results of our operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storage and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and |
|
Server |
|
|
|
|
|
|
|
|
|
Total |
|
|
Consumer |
|
Compliance |
|
Management |
|
Services |
|
Other |
|
Company |
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
Three months ended October 1, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
468 |
|
|
$ |
363 |
|
|
$ |
557 |
|
|
$ |
92 |
|
|
$ |
|
|
|
$ |
1,480 |
|
Percentage of total net revenue |
|
|
32 |
% |
|
|
24 |
% |
|
|
38 |
% |
|
|
6 |
% |
|
|
0 |
% |
|
|
100 |
% |
Operating income (loss) |
|
|
211 |
|
|
|
57 |
|
|
|
275 |
|
|
|
8 |
|
|
|
(333 |
) |
|
|
218 |
|
Operating margin of segment |
|
|
45 |
% |
|
|
16 |
% |
|
|
49 |
% |
|
|
9 |
% |
|
|
* |
|
|
|
|
|
Three months ended October 2, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
463 |
|
|
$ |
345 |
|
|
$ |
563 |
|
|
$ |
103 |
|
|
$ |
|
|
|
$ |
1,474 |
|
Percentage of total net revenue |
|
|
31 |
% |
|
|
24 |
% |
|
|
38 |
% |
|
|
7 |
% |
|
|
0 |
% |
|
|
100 |
% |
Operating income (loss) |
|
|
216 |
|
|
|
89 |
|
|
|
275 |
|
|
|
14 |
|
|
|
(337 |
) |
|
|
257 |
|
Operating margin of segment |
|
|
47 |
% |
|
|
26 |
% |
|
|
49 |
% |
|
|
14 |
% |
|
|
* |
|
|
|
|
|
Six months ended October 1, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
941 |
|
|
$ |
703 |
|
|
$ |
1,081 |
|
|
$ |
188 |
|
|
$ |
|
|
|
$ |
2,913 |
|
Percentage of total net revenue |
|
|
32 |
% |
|
|
24 |
% |
|
|
37 |
% |
|
|
7 |
% |
|
|
0 |
% |
|
|
100 |
% |
Operating income (loss) |
|
|
436 |
|
|
|
135 |
|
|
|
515 |
|
|
|
12 |
|
|
|
(686 |
) |
|
|
412 |
|
Operating margin of segment |
|
|
46 |
% |
|
|
19 |
% |
|
|
48 |
% |
|
|
6 |
% |
|
|
* |
|
|
|
|
|
Six months ended October 2, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
910 |
|
|
$ |
681 |
|
|
$ |
1,116 |
|
|
$ |
199 |
|
|
$ |
|
|
|
$ |
2,906 |
|
Percentage of total net revenue |
|
|
31 |
% |
|
|
24 |
% |
|
|
38 |
% |
|
|
7 |
% |
|
|
0 |
% |
|
|
100 |
% |
Operating income (loss) |
|
|
439 |
|
|
|
167 |
|
|
|
536 |
|
|
|
19 |
|
|
|
(752 |
) |
|
|
409 |
|
Operating margin of segment |
|
|
48 |
% |
|
|
25 |
% |
|
|
48 |
% |
|
|
10 |
% |
|
|
* |
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful. |
15
During the three months ended October 1, 2010, we recorded adjustments to revenue of the
Consumer segment and research and development expense of the Security and Compliance segment. The
revenue adjustment reduced the Consumer segment revenue by approximately $10 million, as a result
of certain consumers not receiving their subscription entitlements on a timely basis. The research
and development expense adjustment reduced the Security and Compliance segment expense by
approximately $10 million related to increased capitalization of certain costs for internally
developed software.
We assessed the materiality of these adjustments as required by the authoritative guidance on
accounting changes and error corrections, which included an evaluation of all relevant quantitative
and qualitative factors, and determined that the impact of the resulting adjustments is not
material to our financial statements for the three and six months ended October 1, 2010 or to the
projected full year results for fiscal 2011. In addition, we do not believe the adjustments are
material to the amounts reported in prior periods. As a result of this assessment, the adjustments
were included in our condensed consolidated financial statements during the three months ended
October 1, 2010.
Note 11. Stock-based Compensation
The following table summarizes the total stock-based compensation expense recognized in our
Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 1, |
|
|
October 2, |
|
|
October 1, |
|
|
October 2, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions, except per share data) |
|
Cost of revenue Content, subscription, and maintenance |
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
7 |
|
|
$ |
7 |
|
Cost of revenue License |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
Sales and marketing |
|
|
14 |
|
|
|
14 |
|
|
|
28 |
|
|
|
32 |
|
Research and development |
|
|
12 |
|
|
|
12 |
|
|
|
22 |
|
|
|
29 |
|
General and administrative |
|
|
6 |
|
|
|
6 |
|
|
|
13 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
|
36 |
|
|
|
36 |
|
|
|
71 |
|
|
|
85 |
|
Tax benefit associated with stock-based compensation expense |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
(20 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense |
|
$ |
26 |
|
|
$ |
26 |
|
|
$ |
51 |
|
|
$ |
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense per share basic |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense per share diluted |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes additional information pertaining to our stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
|
2010 |
|
2009 |
|
|
(In millions, except per share data) |
Restricted stock units (RSUs) |
|
|
|
|
|
|
|
|
Weighted-average fair value per grant |
|
$ |
14.50 |
|
|
$ |
15.39 |
|
Fair value of RSUs granted |
|
$ |
144 |
|
|
$ |
150 |
|
Total fair value of RSUs vested (1) |
|
$ |
65 |
|
|
$ |
65 |
|
Total unrecognized compensation expense |
|
$ |
188 |
|
|
$ |
140 |
|
Weighted-average remaining vesting period |
|
|
3 years |
|
|
|
3 years |
|
Stock options |
|
|
|
|
|
|
|
|
Weighted-average fair value per grant |
|
$ |
4.00 |
|
|
$ |
5.15 |
|
Total intrinsic value of stock options exercised (1) |
|
$ |
15 |
|
|
$ |
30 |
|
Total unrecognized compensation expense |
|
$ |
38 |
|
|
$ |
65 |
|
Weighted-average remaining vesting period |
|
3 years |
|
2 years |
|
|
|
(1) |
|
Includes awards assumed in business combinations. |
16
Note 12. Income Taxes
The effective tax rate was approximately 24% and 12% for the three and six months ended
October 1, 2010, respectively, and 30% and 31% for the three and six months ended October 2, 2009,
respectively.
As discussed below, we recognized a $38.5 million additional tax benefit arising from the
Veritas v. Commissioner Tax Court decision in the six months ended October 1, 2010 as well as a
$4.4 million and a $14.9 million tax benefit during the three months and six months ended October
1, 2010, respectively, for discrete events primarily related to tax settlements, lapses of statutes
of limitations, and adjustments of prior year items. We recognized a $2 million tax benefit during
the three months ended October 2, 2009 from favorable adjustments for prior year items. As
discussed further below, we recorded a $7 million tax expense for the six months ended October 2,
2009 related to the U.S. tax treatment of certain stock based compensation under Xilinx v.
Commissioner.
The provision for the six-month periods ended October 1, 2010 and October 2, 2009 otherwise
reflects a forecasted tax rate of 28% and 31% (excluding the tax benefit from our joint venture
with Huawei), respectively. The forecasted tax rates for both periods presented reflect the
benefits of lower-taxed foreign earnings, domestic manufacturing incentives, and research and
development credits (the U.S. federal R&D tax credit expired on December 31, 2009), partially
offset by state income taxes. The forecasted tax rate for fiscal 2011 is lower than in fiscal 2010,
primarily due to higher benefits from lower-taxed foreign earnings.
We include the tax benefit associated with the loss from our joint venture with Huawei in
income tax expense rather than netting the tax benefit against our joint venture loss with Huawei.
However, the effective rate applied to our joint venture loss with Huawei for purposes of
determining the tax benefit is based only on our joint venture loss with Huawei and its tax impact.
On May 27, 2009, the U.S. Court of Appeals for the Ninth Circuit overturned a 2005 U.S. Tax
Court ruling in Xilinx v. Commissioner, holding that stock-based compensation related Research and
Development (R&D) must be shared by the participants of a R&D cost sharing arrangement. The Ninth
Circuit held that related parties to such an arrangement must share stock option costs,
notwithstanding the U.S. Tax Courts finding that unrelated parties in such an arrangement would
not share such costs. Symantec has a similar R&D cost sharing arrangement in place. The Ninth
Circuits reversal of the U.S. Tax Courts decision changed our estimate of stock option related
tax benefits previously recognized under the authoritative guidance on income taxes. As a result of
the Ninth Circuits ruling, we increased our liability for unrecognized tax benefits, recording a
tax expense of approximately $7 million and a reduction of additional paid-in capital of
approximately $30 million in the first quarter of fiscal 2010. On January 13, 2010, the Ninth
Circuit Court of Appeals withdrew its issued opinion. On March 22, 2010, the Ninth Circuit Court of
Appeals issued a revised decision affirming the decision of the Tax Court. The Ninth Circuits
decision agreed with the Tax Courts finding that related companies are not required to share such
costs. As a result of the Ninth Circuits revised ruling, we released the liability established in
our first quarter of fiscal 2010, which resulted in a $7 million tax benefit and an increase of
additional paid-in capital of approximately $30 million in the fourth quarter of fiscal 2010. For
fiscal 2010, there was no net income tax expense impact.
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe $867
million of additional taxes, excluding interest and penalties, for the 2000 and 2001 tax years,
based on an audit of Veritas. On June 26, 2006, we filed a petition with the U.S. Tax Court
protesting the IRS claim for such additional taxes. In the fourth quarter of fiscal 2007, we agreed
to pay $7 million out of $35 million originally assessed by the IRS in connection with several of
the lesser issues covered in the assessment. The IRS agreed to waive the assessment of penalties.
During July 2008, we completed the trial phase of the Tax Court case, which dealt with the
remaining issue covered in the assessment. At trial, the IRS changed its position with respect to
this remaining issue, which decreased the remaining amount at issue from $832 million to $545
million, excluding interest. We filed our post-trial briefs in October 2008 and rebuttal briefs in
November 2008 with the U.S. Tax Court.
On December 10, 2009, the U.S. Tax Court issued its opinion, finding that our transfer pricing
methodology, with appropriate adjustments, was the best method for assessing the value of the
transaction at issue between Veritas and its international subsidiary. The Tax Court judge provided
guidance as to how adjustments would be made to correct the application of the method used by
Veritas. We remeasured and decreased our liability for unrecognized tax benefits accordingly,
resulting in a $78.5 million tax benefit in the third quarter in fiscal 2010. In June 2010, we
reached an agreement with the IRS concerning the amount of the adjustment related to the U.S. Tax
Court decision. As a result of the agreement, we further reduced our liability for unrecognized tax
benefits, resulting in an additional $38.5 million tax benefit in the first quarter in fiscal 2011.
On August 10, 2010, the Tax Court Judge issued the final decision order reflecting the agreed-to
income adjustment. The IRS has until November 8, 2010 to appeal the tax court decision.
17
In July 2008, we reached an agreement with the IRS concerning our eligibility to claim a lower
tax rate on a distribution made from a Veritas international subsidiary prior to the July 2005
acquisition. The distribution was intended to be made pursuant to the
American Jobs Creation Act of 2004, and therefore is eligible for a 5.25% effective U.S. federal
rate of tax, in lieu of the 35% statutory rate. The final impact of this agreement is not yet known
since this relates to the taxability of earnings that are otherwise the subject of transfer pricing
matters at issue in the IRS examination of Veritas tax years 2002-2005. To the extent that we owe
taxes as a result of these transfer pricing matters in years prior to the distribution, we
anticipate that the incremental tax due from this negotiated agreement will decrease. We currently
estimate that the most probable outcome from this negotiated agreement will be that we will owe $13
million or less, for which an accrual has already been made.
On December 2, 2009, we received a Revenue Agents Report from the IRS for the Veritas 2002
through 2005 tax years assessing additional taxes due. We agree with $30 million of the tax
assessment, excluding interest, but will contest the other $80 million of tax assessed and all
penalties. The unagreed issues concern transfer pricing matters comparable to the one that was
resolved in our favor in the Veritas v. Commissioner Tax Court decision. On January 15, 2010, we
filed a protest with the IRS in connection with the $80 million of tax assessed. On September 28,
2010, the case was formally accepted into Appeals for consideration.
We made a payment of $130 million to the IRS in May 2006 to address the Veritas matters
described above for our 2000-2005 tax years.
We continue to monitor the progress of ongoing tax controversies and the impact, if any, of
the expected tolling of the statute of limitations in various taxing jurisdictions.
Note 13. Earnings per Share
The components of earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 1, |
|
|
October 2, |
|
|
October 1, |
|
|
October 2, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In millions, except per share data) |
|
Net income per share attributable to Symantec
Corporation stockholdersbasic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Symantec Corporation stockholders |
|
$ |
136 |
|
|
$ |
155 |
|
|
$ |
297 |
|
|
$ |
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Symantec Corporation
stockholdersbasic |
|
$ |
0.17 |
|
|
$ |
0.19 |
|
|
$ |
0.38 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Symantec
Corporation stockholdersdiluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Symantec Corporation stockholders |
|
$ |
136 |
|
|
$ |
155 |
|
|
$ |
297 |
|
|
$ |
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Symantec Corporation
stockholdersdiluted |
|
$ |
0.17 |
|
|
$ |
0.19 |
|
|
$ |
0.37 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding common shares attributable to
Symantec Corporation stockholdersbasic |
|
|
782 |
|
|
|
812 |
|
|
|
789 |
|
|
|
814 |
|
Shares issuable from assumed exercise of options |
|
|
3 |
|
|
|
6 |
|
|
|
4 |
|
|
|
7 |
|
Dilutive impact of restricted stock |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted-average shares outstanding attributable to
Symantec Corporation stockholdersdiluted |
|
|
786 |
|
|
|
819 |
|
|
|
795 |
|
|
|
823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive weighted-average stock options |
|
|
54 |
|
|
|
56 |
|
|
|
51 |
|
|
|
56 |
|
Anti-dilutive weighted-average restricted stock |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
The effect of the warrants issued and options purchased in connection with the convertible
senior notes were excluded from earnings per share for the reasons discussed in our Annual Report
on Form 10-K for the fiscal year ended April 2, 2010.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors That May Affect Future Results
The discussion below contains forward-looking statements, which are subject to safe harbors
under the Securities Act of 1933, as amended, or the Securities Act, and the Exchange Act.
Forward-looking statements include references to our ability to utilize our deferred tax assets, as
well as statements including words such as expects, plans, anticipates, believes,
estimates, predicts, projects, and similar expressions. In addition, statements that refer to
projections of our future financial performance, anticipated growth and trends in our businesses
and in our industries, the anticipated impacts of acquisitions, and other characterizations of
future events or circumstances are forward-looking statements. These statements are only
predictions, based on our current expectations about future events and may not prove to be
accurate. We do not undertake any obligation to update these forward-looking statements to reflect
events occurring or circumstances arising after the date of this report. These forward-looking
statements involve risks and uncertainties, and our actual results, performance, or achievements
could differ materially from those expressed or implied by the forward-looking statements on the
basis of several factors, including those that we discuss in Risk Factors, set forth in Part I,
Item 1A, of our annual report on Form 10-K for the fiscal year ended April 2, 2010. We encourage
you to read that section carefully.
Fiscal Calendar
We have a 52/53-week fiscal accounting year ending on the Friday closest to March 31. The
three months ended October 1, 2010 and October 2, 2009 both consisted of 13 weeks. The six months
ended October 1, 2010 and October 2, 2009 both consisted of 26 weeks.
OVERVIEW
Our Business
Symantec is a global provider of security, storage, and systems management solutions that help
businesses and consumers secure and manage their information. We provide customers worldwide with
software and services that protect, manage and control information risks related to security, data
protection, storage, compliance, and systems management. We help our customers manage cost,
complexity, and compliance by protecting their IT infrastructure as they seek to maximize value
from their IT investments.
Our Operating Segments
Our operating segments are significant strategic business units that offer different products
and services, distinguished by customer needs. Since the fourth quarter of fiscal 2008, we have
operated in five operating segments: Consumer, Security and Compliance, Storage and Server
Management, Services, and Other. For further descriptions of our operating segments, see Note 10 of
the Notes to Condensed Consolidated Financial Statements in this quarterly report. Our reportable
segments are the same as our operating segments.
Financial Results and Trends
Revenue was flat for the three and six months ended October 1, 2010 as compared to the same
periods last year. During the first six months of fiscal 2011, we experienced growth in our
Security and Compliance segment as a result of revenue associated
with our acquisitions and, to a lesser extent, revenue from our hosted services. We also experienced growth
in our Consumer businesses, driven by our multi-channel strategy. Within our Storage and Server
Management segment, strength in our backup and archiving solutions was offset by weakness in our
storage management solutions evidenced in particular by lower revenues from our relationship with
Sun/Oracle. During the first quarter of fiscal 2011, we completed the transition to our
internally-developed eCommerce platform for the companys Norton-branded consumer products
worldwide, excluding Japan. The fees we had previously paid to Digital River had been recorded as
an offset to revenue; however, we now incur expenses resulting from our eCommerce platform that
appear as a cost of revenue and an operating expense. For the six months ended October 1, 2010, we
acquired PGP Corporation, GuardianEdge Technologies, Inc. and the identity and authentication
business of VeriSign, Inc, for an aggregate amount of approximately $1.5 billion. We expect that
these acquisitions will contribute positively to our revenue in future periods, in the Security and
Compliance segment.
Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our
international revenue by approximately $29 million and $51 million for the three and six months
ended October 1, 2010 as compared to the same periods last year. We are unable to predict the
extent to which revenue in future periods will be impacted by changes in foreign currency exchange
rates. If our level of international sales and expenses increase in the future, changes in foreign exchange
rates may have a potentially greater impact on our revenue and operating results.
19
Our net income attributable to Symantec Corporation stockholders was $136 million and $297
million for the three and six months ended October 1, 2010 and was positively impacted by a
decrease of $25 million and $68 million, respectively, in cost of revenue related to certain
acquired product rights from our acquisition of Veritas becoming fully amortized during the first
and second quarter of fiscal 2010. Net income was also positively impacted by tax benefits
primarily resulting from the reversal of accrued liabilities related to the Veritas Software tax
assessment for 2000 and 2001 of $4 million and $53 million for the three and six months ended
October 1, 2010, respectively.
Critical Accounting Estimates
There have been no changes in the matters for which we make critical accounting estimates in
the preparation of our Condensed Consolidated Financial Statements during the six months ended
October 1, 2010 as compared to those disclosed in Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year
ended April 2, 2010.
Recently Adopted Authoritative Guidance
Information with respect to Recently Adopted Authoritative Guidance is in Note 1 of Notes to
Condensed Consolidated Financial Statements in this Form 10-Q, which information is incorporated
herein by reference.
RESULTS OF OPERATIONS
Total Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Net revenue |
|
$ |
1,480 |
|
|
$ |
1,474 |
|
|
$ |
6 |
|
|
|
0 |
% |
|
$ |
2,913 |
|
|
$ |
2,906 |
|
|
$ |
7 |
|
|
|
0 |
% |
Net revenue was flat for the three and six months ended October 1, 2010, as compared to
the same periods last year, driven by the items discussed above under Financial Results and
Trends.
The changes in revenue for the three and six months ended October 1, 2010 are further
described in the segment discussions that follow.
Content, subscription, and maintenance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Content, subscription, and maintenance revenue |
|
$ |
1,270 |
|
|
$ |
1,254 |
|
|
$ |
16 |
|
|
|
1 |
% |
|
$ |
2,518 |
|
|
$ |
2,463 |
|
|
$ |
55 |
|
|
|
2 |
% |
Percentage of total net revenue |
|
|
86 |
% |
|
|
85 |
% |
|
|
|
|
|
|
|
|
|
|
86 |
% |
|
|
85 |
% |
|
|
|
|
|
|
|
|
Content, subscription, and maintenance revenue increased for the three and six months
ended October 1, 2010, as compared to the same periods last year, primarily as a result of strength
in our Consumer segment where we completed the transition to our new eCommerce platform during the
first quarter of fiscal 2011 and continued to benefit from our broad range of distribution
agreements with retailers and PC manufacturers. The growth in content, subscription, and
maintenance revenue also reflects the expansion of our hosted services customer base and the
identity and authentication business of VeriSign, Inc., as well as the matters discussed above
under Financial Results and Trends.
20
License revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
License revenue |
|
$ |
210 |
|
|
$ |
220 |
|
|
$ |
(10 |
) |
|
|
(5 |
)% |
|
$ |
395 |
|
|
$ |
443 |
|
|
$ |
(48 |
) |
|
|
(11 |
)% |
Percentage of total net revenue |
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
License
revenue decreased for the three months ended October 1, 2010, as
compared to the same period last year, primarily due to weakness in
our storage management solutions evidenced in particular by lower
revenues from our relationship with Sun/Oracle, as well as due to the lengthening of procurement cycles driven by continued cautiousness among IT buyers.
License revenue decreased for the six months ended October 1, 2010, as compared
to the same period last year, primarily due to the lengthening of procurement cycles driven by
continued cautiousness among IT buyers, particularly with respect to the storage management
products within the Storage and Server Management segment, as well as for the reasons discussed
above under Financial Results and Trends.
Net revenue and operating income by segment
Consumer segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer revenue |
|
$ |
468 |
|
|
$ |
463 |
|
|
$ |
5 |
|
|
|
1 |
% |
|
$ |
941 |
|
|
$ |
910 |
|
|
$ |
31 |
|
|
|
3 |
% |
Percentage of total net revenue |
|
|
32 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
32 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
Consumer operating income |
|
$ |
211 |
|
|
$ |
216 |
|
|
$ |
(5 |
) |
|
|
(2 |
)% |
|
$ |
436 |
|
|
$ |
439 |
|
|
$ |
(3 |
) |
|
|
(1 |
)% |
Percentage of Consumer revenue |
|
|
45 |
% |
|
|
47 |
% |
|
|
|
|
|
|
|
|
|
|
46 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
Consumer revenue increased for the three and six months ended October 1, 2010, as
compared to the same periods last year, primarily due to increased sales of our premium security
suite and for the reasons discussed above under Financial Results and Trends. Consumer revenue,
for the three months ended October 1, 2010, includes an adjustment as a result of certain consumers
not receiving their subscription entitlements on a timely basis, which resulted in a $10 million
decrease to revenue and a reduction to operating income during the three and six months ended
October 1, 2010.
Our
electronic channel sales are derived from online sales (which
includes new subscriptions, renewals, and upgrades), original
equipment manufacturers (OEMs), and internet service
providers. For the three and six months ended October 1, 2010, electronic channel revenue increased
as compared to the same periods last year. Electronic sales accounted for approximately 84% of
Consumer revenue for the three and six months ended October 1, 2010, as compared to 81% and 80% in
the same periods last year, respectively.
Operating income for the Consumer segment decreased for the three months ended October 1,
2010, as compared to the same period last year, due to the revenue adjustment as mentioned above.
Operating income for the Consumer segment decreased for the six months ended October 1, 2010,
compared to the same period last year, primarily as a result of higher OEM placement fees and costs
associated with our new proprietary eCommerce platform.
Security and Compliance segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Security and Compliance revenue |
|
$ |
363 |
|
|
$ |
345 |
|
|
$ |
18 |
|
|
|
5 |
% |
|
$ |
703 |
|
|
$ |
681 |
|
|
$ |
22 |
|
|
|
3 |
% |
Percentage of total net revenue |
|
|
24 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
24 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
Security and Compliance operating income |
|
$ |
57 |
|
|
$ |
89 |
|
|
$ |
(32 |
) |
|
|
(36 |
)% |
|
$ |
135 |
|
|
$ |
167 |
|
|
$ |
(32 |
) |
|
|
(19 |
)% |
Percentage of Security and Compliance revenue |
|
|
16 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
19 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
Security and Compliance revenue increased for the three and six months ended October 1,
2010, as compared to the same periods last year, due to our acquisition of the identity and
authentication business of VeriSign, Inc. (VeriSign), as well as our acquisitions of PGP
Corporation (PGP) and GuardianEdge Technologies, Inc. (GuardianEdge).
Security and Compliance operating income decreased for the three and six months ended October
1, 2010, as compared to the same periods last year, due to increased expenses related to our fiscal
2011 acquisitions as mentioned above. These increases were partially offset by an adjustment that
resulted in a decrease to research and development expense by approximately $10 million.
21
Storage and Server Management segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Storage and Server Management revenue |
|
$ |
557 |
|
|
$ |
563 |
|
|
$ |
(6 |
) |
|
|
(1 |
)% |
|
$ |
1,081 |
|
|
$ |
1,116 |
|
|
$ |
(35 |
) |
|
|
(3 |
)% |
Percentage of total net revenue |
|
|
38 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
37 |
% |
|
|
38 |
% |
|
|
|
|
|
|
|
|
Storage and Server Management operating income |
|
$ |
275 |
|
|
$ |
275 |
|
|
$ |
|
|
|
|
0 |
% |
|
$ |
515 |
|
|
$ |
536 |
|
|
$ |
(21 |
) |
|
|
(4 |
)% |
Percentage of Storage and Server Management revenue |
|
|
49 |
% |
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
48 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
Storage and Server Management revenue decreased for the three and six months ended
October 1, 2010, as compared to the same periods last year, primarily due to a decrease in OEM
royalty revenue related to our storage management products. These decreases in revenue for the three and six months ended October 1, 2010 were
partially offset by demand for our backup and archiving solutions.
Operating income as a percentage of related revenue for the Storage and Server Management
segment remained consistent for the three and six months ended October 1, 2010, as compared to the
same periods last year.
Services segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Services revenue |
|
$ |
92 |
|
|
$ |
103 |
|
|
$ |
(11 |
) |
|
|
(11 |
)% |
|
$ |
188 |
|
|
$ |
199 |
|
|
$ |
(11 |
) |
|
|
(6 |
)% |
Percentage of total net revenue |
|
|
6 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
7 |
% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
Services operating income |
|
$ |
8 |
|
|
$ |
14 |
|
|
$ |
(6 |
) |
|
|
(43 |
)% |
|
$ |
12 |
|
|
$ |
19 |
|
|
$ |
(7 |
) |
|
|
(37 |
)% |
Percentage of Services revenue |
|
|
9 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
6 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
Services revenue decreased for the three and six months ended October 1, 2010, as
compared to the same periods last year, as we continue to support our partner led consulting
program while we focus on our core software business.
Operating income as a percentage of related revenue for the Services segment remained
consistent for the three and six months ended October 1, 2010, as compared to the same periods last
year.
Other segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Other revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
* |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
* |
|
Percentage of total net revenue |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
Other operating loss |
|
$ |
(333 |
) |
|
$ |
(337 |
) |
|
$ |
4 |
|
|
|
1 |
% |
|
$ |
(686 |
) |
|
$ |
(752 |
) |
|
$ |
66 |
|
|
|
9 |
% |
Percentage of Other revenue |
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful. |
The operating loss of our Other segment includes general and administrative expenses; amortization
of acquired product rights, intangible assets, and other assets; charges such as stock-based
compensation and restructuring; and certain indirect costs that are not charged to the other
operating segments.
22
Net revenues by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas (U.S., Canada and Latin America) |
|
$ |
815 |
|
|
$ |
791 |
|
|
$ |
24 |
|
|
|
3 |
% |
|
$ |
1,611 |
|
|
$ |
1,575 |
|
|
$ |
36 |
|
|
|
2 |
% |
Percentage of total net revenue |
|
|
55 |
% |
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
|
55 |
% |
|
|
54 |
% |
|
|
|
|
|
|
|
|
EMEA (Europe, Middle East, Africa) |
|
$ |
414 |
|
|
$ |
457 |
|
|
$ |
(43 |
) |
|
|
(9 |
)% |
|
$ |
822 |
|
|
$ |
890 |
|
|
$ |
(68 |
) |
|
|
(8 |
)% |
Percentage of total net revenue |
|
|
28 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
28 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
Asia Pacific/Japan |
|
$ |
251 |
|
|
$ |
226 |
|
|
$ |
25 |
|
|
|
11 |
% |
|
$ |
480 |
|
|
$ |
441 |
|
|
$ |
39 |
|
|
|
9 |
% |
Percentage of total net revenue |
|
|
17 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
17 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our
international revenue by $29 million and $51 million in the three and six months ended October 1,
2010, respectively.
Americas revenue increased for the three and six months ended October 1, 2010, as compared to
the same periods last year, primarily due to increased revenue related to our Consumer segment.
EMEA revenue decreased for the three and six months ended October 1, 2010, as compared to the
same periods last year, primarily due to the impact of the change in foreign currency exchange
rates.
Asia Pacific/Japan revenue increased for the three and six months ended October 1, 2010, as
compared to the same periods last year, primarily due to the impact of the change in foreign
currency exchange rates and strength in our Consumer and Security and Compliance segments.
Our international sales are and will continue to be a significant portion of our net revenue.
As a result, net revenue will continue to be affected by foreign currency exchange rates as
compared to the U.S. dollar. We are unable to predict the extent to which revenue in future
periods will be impacted by changes in foreign currency exchange rates. If international sales
become a greater portion of our total sales in the future, changes in foreign currency exchange
rates may have a potentially greater impact on our revenue and operating results.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Cost of revenue |
|
$ |
246 |
|
|
$ |
259 |
|
|
$ |
(13 |
) |
|
|
(5 |
)% |
|
$ |
511 |
|
|
$ |
571 |
|
|
$ |
(60 |
) |
|
|
(11 |
)% |
Gross margin |
|
|
83 |
% |
|
|
82 |
% |
|
|
|
|
|
|
|
|
|
|
82 |
% |
|
|
80 |
% |
|
|
|
|
|
|
|
|
Cost of revenue consists primarily of the amortization of acquired product rights,
fee-based technical support costs, costs of billable services, payments to OEMs under
revenue-sharing arrangements, manufacturing, and direct material costs, and royalties paid to
third parties under technology licensing agreements.
Cost of revenue decreased for the three and six months ended October 1, 2010, as compared to
the same period last year, primarily due to a decrease in amortization of acquired product rights.
Cost of content, subscription, and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Cost of content, subscription, and maintenance |
|
$ |
217 |
|
|
$ |
207 |
|
|
$ |
10 |
|
|
|
5 |
% |
|
$ |
434 |
|
|
$ |
416 |
|
|
$ |
18 |
|
|
|
4 |
% |
As a percentage of related revenue |
|
|
17 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
17 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
Cost of content, subscription, and maintenance consists primarily of fee-based technical
support costs, costs of billable services, and payments to OEMs under revenue-sharing agreements.
Cost of content, subscription, and maintenance as a percentage of related revenue remained
consistent for the three and six months ended October 1, 2010, as compared to the same periods
last year.
23
Cost of license
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Cost of license |
|
$ |
6 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
|
20 |
% |
|
$ |
9 |
|
|
$ |
10 |
|
|
$ |
(1 |
) |
|
|
(10 |
)% |
As a percentage of related revenue |
|
|
3 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
Cost of license consists primarily of royalties paid to third parties under technology
licensing agreements, manufacturing and direct material costs. Cost of license remained consistent
as a percentage of the related revenue for the three and six months ended October 1, 2010, as
compared to the same periods last year.
Amortization of acquired product rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Amortization of acquired product rights |
|
$ |
23 |
|
|
$ |
47 |
|
|
$ |
(24 |
) |
|
|
(51 |
)% |
|
$ |
68 |
|
|
$ |
145 |
|
|
$ |
(77 |
) |
|
|
(53 |
)% |
Percentage of total net revenue |
|
|
2 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
Acquired product rights are comprised of developed technologies and patents from
acquired companies. The decrease in amortization for the three and six months ended October 1,
2010, as compared to the same periods last year is primarily due to certain acquired product
rights from our acquisition of Veritas becoming fully amortized.
Operating Expenses
Operating expenses overview
Our operating expenses during the three months ended October 1, 2010 were favorably impacted
by the restructuring plans discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Sales and marketing expense |
|
$ |
612 |
|
|
$ |
576 |
|
|
$ |
36 |
|
|
|
6 |
% |
|
$ |
1,185 |
|
|
$ |
1,135 |
|
|
$ |
50 |
|
|
|
4 |
% |
Percentage of total net revenue |
|
|
41 |
% |
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
41 |
% |
|
|
39 |
% |
|
|
|
|
|
|
|
|
Research and development expense |
|
$ |
208 |
|
|
$ |
210 |
|
|
$ |
(2 |
) |
|
|
(1 |
)% |
|
$ |
416 |
|
|
$ |
431 |
|
|
$ |
(15 |
) |
|
|
(3 |
)% |
Percentage of total net revenue |
|
|
14 |
% |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
$ |
100 |
|
|
$ |
84 |
|
|
$ |
16 |
|
|
|
19 |
% |
|
$ |
192 |
|
|
$ |
173 |
|
|
$ |
19 |
|
|
|
11 |
% |
Percentage of total net revenue |
|
|
7 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
7 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
As a percentage of revenue, sales and marketing, research and development and general
and administrative expenses remained relatively flat during the three and six months ended October
1, 2010.
Sales and marketing expense increased during the three months ended October 1, 2010, as
compared to the same period last year, primarily due to our fiscal 2011 acquisitions. Sales and
marketing expense increased slightly during the six months ended October 1, 2010, as compared to
the same period last year, as a result of increased OEM placement fees and costs associated with
the deployment of our new proprietary eCommerce platform and our fiscal 2011 acquisitions.
Research and development expense decreased during the three and six months ended October 1,
2010, as compared to the same periods last year, as a result of a shift of labor to lower cost
regions. Research and development expense was also impacted by an adjustment of approximately $10
million related to increased capitalization of certain costs for internally developed software,
which resulted in a decrease to research and development expense during the three and six months
ended October 1, 2010.
General and administrative expense increased slightly for the three and six months ended
October 1, 2010, as compared to the same periods last year, due to our fiscal 2011 acquisitions.
24
Amortization of other purchased intangible assets
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Amortization of other purchased intangible assets |
|
$ |
67 |
|
|
$ |
63 |
|
|
$ |
4 |
|
|
|
6 |
% |
|
$ |
128 |
|
|
$ |
125 |
|
|
$ |
3 |
|
|
|
2 |
% |
Percentage of total net revenue |
|
|
5 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
4 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
Other purchased intangible assets are comprised of customer relationships and
tradenames. Amortization was flat for the three and six months ended October 1, 2010, as compared
to the same periods last year.
We expect the amortization of other purchased intangible assets to increase in future
quarters as a result of the acquisition of VeriSigns identity and authentication business. See
Note 3 of the Notes to the Condensed Consolidated Financial Statements.
Restructuring and transformation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 1, |
|
|
October 2, |
|
|
Change in |
|
|
October 1, |
|
|
October 2, |
|
|
Change in |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
($ in millions) |
|
Severance |
|
$ |
16 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
$ |
39 |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
Facilities and other |
|
|
8 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
Transition, transformation and other costs |
|
|
4 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and transformation |
|
$ |
28 |
|
|
$ |
25 |
|
|
$ |
3 |
|
|
|
12 |
% |
|
$ |
68 |
|
|
$ |
59 |
|
|
$ |
9 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenue |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
The restructuring and transformation charges for the three and six months ended October
1, 2010 primarily consisted of severance and other charges related to the 2011 Restructuring Plan
(2011 Plan), the 2010 Restructuring Plan (2010 Plan), and transition and transformation costs
related to the outsourcing of certain back office functions.
Total remaining severance charges are estimated to range from $35 million to $50 million,
primarily for the 2011 Plan and 2010 Plan. Total remaining facilities charges are estimated to
range from $15 million to $25 million related to the 2010 Plan. Total remaining costs for the
transition and transformation activities associated with outsourcing back office functions are
estimated to be approximately $6 million to $11 million. For further information on restructuring,
see Note 7 of the Notes to Condensed Consolidated Financial Statements.
Impairment of assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Impairment of assets held for sale |
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
|
NA |
|
$ |
1 |
|
|
$ |
3 |
|
|
$ |
(2 |
) |
|
|
(67 |
)% |
Percentage of total net revenue |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
During the six months ended October 1, 2010 and October 2, 2009, we recognized an
impairment of $1 million and $3 million, respectively, on certain land and buildings classified as
held for sale. These impairments were recorded in accordance with the authoritative guidance that
requires a long-lived asset classified as held for sale to be measured at the lower of its
carrying amount or fair value, less cost to sell.
Non-operating Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
October 1, |
|
|
October 2, |
|
|
Change in |
|
|
October 1, |
|
|
October 2, |
|
|
Change in |
|
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
|
($ in millions) |
|
Interest income |
|
$ |
2 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
$ |
4 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(36 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
(69 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
Other income, net |
|
|
14 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
(16 |
) |
|
|
|
|
|
$ |
8 |
|
|
|
29 |
% |
|
|
(16 |
) |
|
|
|
|
|
$ |
14 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(36 |
) |
|
$ |
(28 |
) |
|
|
|
|
|
|
|
|
|
$ |
(66 |
) |
|
$ |
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenue |
|
|
(2 |
)% |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
(2 |
)% |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
25
Non-operating expense increased due to the repurchase of $500 million of aggregate
principal amount of the 0.75% convertible senior notes due on June 15, 2011, which resulted in a
loss from extinguishment of debt of approximately $16 million. See Note 6 of the Notes to Condensed
Consolidated Financial Statements. This loss was offset by an increase in Other income, net, due to
a realized gain on marketable securities.
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Provision for income taxes |
|
$ |
44 |
|
|
$ |
68 |
|
|
$ |
(24 |
) |
|
|
(35 |
)% |
|
$ |
40 |
|
|
$ |
110 |
|
|
$ |
(70 |
) |
|
|
(64 |
)% |
Effective tax rate on earnings |
|
|
24 |
% |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
12 |
% |
|
|
31 |
% |
|
|
|
|
|
|
|
|
The effective tax rate was approximately 24% and 12% for the three and six months ended
October 1, 2010, respectively, and 30% and 31% for the three and six months ended October 2, 2009,
respectively.
As discussed below, we recognized a $38.5 million additional tax benefit arising from the
Veritas v. Commissioner Tax Court decision in the six months ended October 1, 2010 as well as a
$4.4 million and a $14.9 million tax benefit during the three months and six months ended October
1, 2010, respectively, for discrete events primarily related to tax settlements, lapses of statutes
of limitations, and adjustments of prior year items. We recognized a $2 million tax benefit during
the three months ended October 2, 2009 from favorable adjustments for prior year items. As
discussed further below, we recorded a $7 million tax expense for the six months ended October 2,
2009 related to the U.S. tax treatment of certain stock based compensation under Xilinx v.
Commissioner.
The provision for the six-month periods ended October 1, 2010 and October 2, 2009 otherwise
reflects a forecast tax rate of 28% and 31% (excluding the tax benefit from our joint venture with
Huawei), respectively. The forecast tax rates for both periods presented reflect the benefits of
lower-taxed foreign earnings, domestic manufacturing incentives, and research and development
credits (the U.S. federal R&D tax credit expired on December 31, 2009), partially offset by state
income taxes. The forecast tax rate in fiscal 2011 is lower than in fiscal 2010 primarily due to
higher benefits from lower-taxed foreign earnings.
We include the tax benefit associated with the loss from our joint venture with Huawei in
income tax expense rather than netting the tax benefit against our joint venture loss with Huawei.
However, the effective rate applied to our joint venture loss with Huawei for purposes of
determining the tax benefit is based only on our joint venture loss with Huawei and its tax impact.
On May 27, 2009, the U.S. Court of Appeals for the Ninth Circuit overturned a 2005 U.S. Tax
Court ruling in Xilinx v. Commissioner, holding that stock-based compensation related R&D must be
shared by the participants of a R&D cost sharing arrangement. The Ninth Circuit held that related
parties to such an arrangement must share stock option costs, notwithstanding the U.S. Tax Courts
finding that unrelated parties in such an arrangement would not share such costs. Symantec has a
similar R&D cost sharing arrangement in place. The Ninth Circuits reversal of the U.S. Tax Courts
decision changed our estimate of stock option related tax benefits previously recognized under the
authoritative guidance on income taxes. As a result of the Ninth Circuits ruling, we increased our
liability for unrecognized tax benefits, recording a tax expense of approximately $7 million and a
reduction of additional paid-in capital of approximately $30 million in the first quarter of fiscal
2010. On January 13, 2010, the Ninth Circuit Court of Appeals withdrew its issued opinion. On March
22, 2010, the Ninth Circuit Court of Appeals issued a revised decision affirming the decision of
the Tax Court. The Ninth Circuits decision agreed with the Tax Courts finding that related
companies are not required to share such costs. As a result of the Ninth Circuits revised ruling,
we released the liability established in our first quarter of fiscal 2010, which resulted in a $7
million tax benefit and increase of additional paid-in capital of approximately $30 million in the
fourth quarter of fiscal 2010. For fiscal 2010, there was no net income tax expense impact.
On March 29, 2006, we received a Notice of Deficiency from the IRS claiming that we owe $867
million of additional taxes, excluding interest and penalties, for the 2000 and 2001 tax years
based on an audit of Veritas. On June 26, 2006, we filed a petition with the U.S. Tax Court
protesting the IRS claim for such additional taxes. In the fourth quarter of fiscal 2007, we agreed
to pay $7 million out of $35 million originally assessed by the IRS in connection with several of
the lesser issues covered in the assessment. The IRS agreed to waive the assessment of penalties.
During July 2008, we completed the trial phase of the Tax Court case, which dealt with the
remaining issue covered in the assessment. At trial, the IRS changed its position with respect to
this remaining issue, which decreased the remaining amount at issue from $832 million to $545
million, excluding interest. We filed our post-trial briefs in October 2008 and rebuttal briefs in
November 2008 with the U.S. Tax Court.
26
On December 10, 2009, the U.S. Tax Court issued its opinion, finding that our transfer pricing
methodology, with appropriate adjustments, was the best method for assessing the value of the
transaction at issue between Veritas and its international subsidiary.
The Tax Court judge provided
guidance as to how adjustments would be made to correct the application of the method used by
Veritas. We remeasured and decreased our liability for unrecognized tax benefits accordingly,
resulting in a $78.5 million tax benefit in the third quarter in fiscal 2010. In June 2010, we
reached an agreement with the IRS concerning the amount of the adjustment related to the U.S. Tax
Court decision. As a result of the agreement, we further reduced our liability for unrecognized tax
benefits, resulting in an additional $38.5 million tax benefit in the first quarter in fiscal 2011.
On August 10, 2010, the Tax Court Judge issued the final decision order reflecting the agreed-to
income adjustment. The IRS has until November 8, 2010 to appeal the tax court decision.
In July 2008, we reached an agreement with the IRS concerning our eligibility to claim a lower
tax rate on a distribution made from a Veritas international subsidiary prior to the July 2005
acquisition. The distribution was intended to be made pursuant to the American Jobs Creation Act of
2004, and therefore eligible for a 5.25% effective U.S. federal rate of tax, in lieu of the 35%
statutory rate. The final impact of this agreement is not yet known since this relates to the
taxability of earnings that are otherwise the subject of transfer pricing matters at issue in the
IRS examination of Veritas tax years 2002-2005. To the extent that we owe taxes as a result of
these transfer pricing matters in years prior to the distribution, we anticipate that the
incremental tax due from this negotiated agreement will decrease. We currently estimate that the
most probable outcome from this negotiated agreement will be that we will owe $13 million or less,
for which an accrual has already been made.
On December 2, 2009, we received a Revenue Agents Report from the IRS for the Veritas 2002
through 2005 tax years assessing additional taxes due. We agree with $30 million of the tax
assessment, excluding interest, but will contest the other $80 million of tax assessed and all
penalties. The unagreed issues concern transfer pricing matters comparable to the one that was
resolved in our favor in the Veritas v. Commissioner Tax Court decision. On January 15, 2010, we
filed a protest with the IRS in connection with the $80 million of tax assessed. On September 28,
2010, the case was formally accepted into Appeals for consideration.
We made a payment of $130 million to the IRS in May 2006 to address the Veritas matters
described above for our 2000-2005 tax years.
We continue to monitor the progress of ongoing tax controversies and the impact, if any, of
the expected tolling of the statute of limitations in various taxing jurisdictions.
Loss from joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
Change in |
|
October 1, |
|
October 2, |
|
Change in |
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
|
($ in millions) |
Loss from joint venture |
|
$ |
4 |
|
|
$ |
6 |
|
|
$ |
(2 |
) |
|
|
(33 |
)% |
|
$ |
11 |
|
|
$ |
18 |
|
|
$ |
(7 |
) |
|
|
(39 |
)% |
Percentage of total net revenue |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
On February 5, 2008, Symantec formed Huawei-Symantec, Inc. (joint venture) with a
subsidiary of Huawei Technologies Co., Ltd. (Huawei). The joint venture is domiciled in Hong Kong
with principal operations in Chengdu, China. The joint venture develops, manufactures, markets and
supports security and storage appliances to global telecommunications carriers and enterprise
customers.
For the three and six months ended October 1, 2010, we recorded a loss of approximately $4
million and $11 million related to our share of the joint ventures net loss for the period from
April 1, 2010 to June 30, 2010, and the period from January 1, 2010 to June 30, 2010, respectively.
For the three and six months ended October 2, 2009, we recorded a loss of approximately $6 million
and $18 million related to our share of the joint ventures net loss incurred for the period from
April 1, 2009 to June 30, 2009, and the period from January 1, 2009 to June 30, 2009, respectively.
We record our proportionate share of the joint ventures net income or loss one quarter in arrears.
Loss attributable to noncontrolling interest
For
the three and six months ended October 1, 2010, the loss
attributable to the noncontrolling interest in VeriSign Japan K.K.
(VeriSign Japan) was $2 million. This represents the loss
attributable to the noncontrolling shareholders ownership in
VeriSign Japan.
27
LIQUIDITY AND CAPITAL RESOURCES
Sources of cash
We have historically relied on cash flow from operations, borrowings under a credit facility,
and issuances of debt and equity securities for our liquidity needs. Key sources of cash include
earnings from operations, existing cash and cash equivalents, and our revolving credit facility.
In the second quarter of fiscal 2011, we entered into a $1 billion senior unsecured revolving
credit facility that expires in September 2014. Under the terms of this credit facility, we must
comply with certain financial and non-financial covenants, including a covenant to maintain a
specified ratio of debt to earnings (before interest, taxes, depreciation and amortization, and
impairments). As of October 1, 2010, we were in compliance with all required covenants, and there
was no outstanding balance on the credit facility.
In addition, in the second quarter of fiscal 2011, we terminated our previous $1 billion
senior unsecured revolving credit facility that we entered into in July 2006. At the time of
termination, there was no outstanding balance on the credit facility. The original expiration date
for this credit facility was July 2011.
In September 2010, we issued $350 million in principal amount of 2.75% senior notes (2.75%
Notes) due September 15, 2015 and $750 million in principal amount of 4.20% senior notes (4.20%
Notes) due September 15, 2020, for an aggregate principal amount of $1.1 billion. As of
October 1, 2010, we had cash and cash equivalents of $2.3 billion and short-term investments of $8
million resulting in a net liquidity position of approximately $3.3 billion, which is defined as
unused availability under the credit facility, cash and cash equivalents and short-term
investments.
We believe that our existing cash and investment balances, our borrowing capacity, and cash
generated from operations will be sufficient to meet our working capital and capital expenditures
requirements for at least the next 12 months.
Uses of cash
Our principal cash requirements include working capital, capital expenditures, payments of
principal and interest on our debt and payments of taxes. In addition, we regularly evaluate our
ability to repurchase stock, pay debts and acquire other businesses.
Acquisition-related. For the six months ended October 1, 2010, we acquired PGP Corporation,
GuardianEdge Technologies, Inc. and the identity and authentication business of VeriSign, Inc, for
an aggregate amount of $1.5 billion, net of cash acquired. We did not acquire any businesses in the
six months ended October 2, 2009.
Convertible senior notes. In June 2006, we issued $1.1 billion principal amount of 0.75%
convertible senior notes (0.75% Notes) due June 15, 2011, and $1.0 billion principal amount of
1.00% convertible senior notes (1.00% Notes) due June 15, 2013, to initial purchasers in a
private offering for resale to qualified institutional buyers pursuant to SEC Rule 144A. In the six
months ended October 1, 2010, we repurchased $500 million of aggregate principal amount of our
0.75% Notes in privately negotiated transactions for approximately $510 million. Concurrently with
the repurchase, we sold a proportionate share of the note hedges that we entered into at the time
of the issuance of the convertible notes back to the note hedge counterparties for approximately
$13 million. The net cost of the repurchase of the 0.75% Notes and the concurrent sale of the note
hedges was $497 million in cash.
Stock Repurchases. In the six months ended October 1, 2010, we repurchased 31 million shares,
or $425 million, of our common stock. In the six months ended October 2, 2009, we repurchased 16
million shares, or $243 million, of our common stock.
28
Cash flows
The following table summarizes, for the periods indicated, selected items in our Condensed
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
October 1, |
|
October 2, |
|
|
2010 |
|
2009 |
|
|
(In millions) |
Net cash provided by (used in) |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
645 |
|
|
$ |
597 |
|
Investing activities |
|
|
(1,647 |
) |
|
|
69 |
|
Financing activities |
|
|
192 |
|
|
|
(205 |
) |
Operating activities
Net cash provided by operating activities was $645 million in the first six months of fiscal
2011, which resulted from net income of $295 million adjusted for non-cash items, including
depreciation and amortization charges of $377 million, as well as from increased collections of
trade accounts receivable of $233 million. These amounts were partially offset by decreases in
deferred revenue of $238 million.
Net cash provided by operating activities was $597 million in the first six months of fiscal
2010, which resulted from net income of $229 million adjusted for non-cash items, including
depreciation and amortization charges of $446 million and stock-based compensation expense of $85
million, as well as from increased collections of trade accounts receivable of $171 million. These
amounts were partially offset by decreases in deferred revenue of $259 million and accrued
compensation and benefits of $79 million.
Investing activities
Net cash used in investing activities of $1.6 billion in the first six months of fiscal 2011
was due to $1.5 billion of payments for acquisitions, net of cash acquired, and $116 million paid
for capital expenditures.
Net cash provided by investing activities of $69 million in the first six months of fiscal
2010 was due to net proceeds from the sale of available-for-sale securities of $187 million,
partially offset by $108 million paid for capital expenditures and $16 million paid for an equity
investment.
Financing activities
Net cash provided by financing activities of $192 million in the first six months of fiscal
2011 was due to proceeds from debt issuance, net of discount, of $1.1 billion, partially offset by
repurchases of long-term debt of $510 million and repurchases of common stock of $425 million.
Net cash used in financing activities of $205 million in the first six months of fiscal 2010
was due to repurchases of common stock of $243 million, partially offset by net proceeds from sales
of common stock through employee stock plans of $54 million.
29
Contractual Obligations
There have been no significant changes during the six months ended October 1, 2010 to the
contractual obligations disclosed in Managements Discussion and Analysis of Financial Condition
and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the
fiscal year ended April 2, 2010, other than the addition of the senior notes and related interest
and the repurchase of convertible senior notes and the adjustment of related interest payments.
The table below sets forth these changes but does not update the
other line items in the contractual obligations table that appears in the section of our
Annual Report on Form 10-K described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Periods |
|
|
|
|
|
|
|
Remiander of |
|
Fiscal 2012 |
|
Fiscal 2014 |
|
Fiscal 2016 |
|
|
|
Total |
|
Fiscal 2011 |
|
and Fiscal 2013 |
|
and Fiscal 2015 |
|
and Thereafter |
|
|
|
(In millions) |
Senior notes (1) |
|
$ |
1,100 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,100 |
|
|
Interest payments on senior notes (1) |
|
|
363 |
|
|
|
21 |
|
|
|
82 |
|
|
|
83 |
|
|
|
177 |
|
|
Convertible senior notes (2) |
|
|
1,600 |
|
|
|
|
|
|
|
600 |
|
|
|
1,000 |
|
|
|
|
|
|
Interest payments on convertible senior notes (2) |
|
|
30 |
|
|
|
7 |
|
|
|
21 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
(1) |
|
In the second quarter of fiscal 2011, we issued $350
million in principal amount of 2.75% senior notes (2.75%
Notes) due September 15, 2015 and $750 million in
principal amount of 4.20% senior notes (4.20% Notes) due
September 15, 2020. Interest payments were calculated
based on terms of the related notes. For further
information on senior notes, see Note 6 of the Notes to
Condensed Consolidated Financial Statements. |
|
(2) |
|
In the first quarter of fiscal 2007, we issued $1.1
billion in principal amount of 0.75% convertible senior
notes (0.75% Notes) due June 15, 2011 and $1.0 billion
in principal amount of 1.00% senior notes (1.00% Notes)
due June 15, 2013. In the second quarter of fiscal 2011,
we repurchased $500 million of aggregate principal amount
of our 0.75% Notes. Interest payments were calculated
based on terms of the related notes. For further
information on convertible senior notes, see Note 6 of the
Notes to Condensed Consolidated Financial Statements. |
30
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in our market risk exposures during the six months
ended October 1, 2010, as compared to the market risk exposures disclosed in Managements
Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II,
Item 7A, of our Annual Report on Form 10-K for the fiscal year ended April 2, 2010.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The SEC defines the term disclosure controls and procedures to mean a companys controls and
other procedures that are designed to ensure that information required to be disclosed in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuers management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief
Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act) by our management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, that our disclosure controls and procedures were effective as of the end of the
period covered by this report.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months
ended October 1, 2010 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
(c) Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal controls will prevent all errors
and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within our Company have been detected.
31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this Item may be found in Note 8 of Notes to Condensed
Consolidated Financial Statements in this Form 10-Q, which information is incorporated into this
Part II, Item 1 by reference.
Item 1A. Risk Factors
A description of the risks associated with our business, financial condition, and results of
operations is set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year
ended April 2, 2010. There have been no material changes in our risks from such description.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock repurchases during the three months ended October 1, 2010 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Dollar |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Value of Shares That |
|
|
|
|
|
|
|
|
|
|
Under Publicly |
|
May Yet Be |
|
|
Total Number of |
|
Average Price |
|
Announced Plans |
|
Purchased Under the |
|
|
Shares Purchased |
|
Paid per Share |
|
or Programs |
|
Plans or Programs |
|
|
(In millions, except per share data) |
July 3, 2010 to July 30, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
547 |
|
July 31, 2010 to August 27, 2010 |
|
|
14 |
|
|
$ |
12.97 |
|
|
|
14 |
|
|
$ |
362 |
|
August 28, 2010 to October 1, 2010 |
|
|
3 |
|
|
$ |
14.08 |
|
|
|
3 |
|
|
$ |
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
|
$ |
13.16 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For information regarding our stock repurchase programs, see Note 9 of Notes to Condensed
Consolidated Financial Statements, which information is incorporated herein by reference.
32
Item 6. Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
Exhibit |
|
|
|
|
|
File |
|
|
|
|
|
File |
|
Filed with |
Number |
|
Exhibit Description |
|
Form |
|
Number |
|
Exhibit |
|
Date |
|
this 10-Q |
1.01
|
|
Underwriting
Agreement, dated
September 13, 2010,
by and among
Symantec, J.P. Morgan
Securities LLC,
Morgan Stanley & Co.
Incorporated and UBS
Securities LLC, on
behalf of the several
underwriters named
therein
|
|
8-K
|
|
000-17781
|
|
|
1.01 |
|
|
09/16/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01
|
|
Credit Agreement,
dated as of September
8, 2010, by and among
Symantec Corporation,
the lenders party
thereto (the
Lenders), Wells
Fargo Bank, National
Association, as
Administrative Agent,
Bank of America, N.A.
and Citibank, N.A.,
as Co-Syndication
Agents, JPMorgan
Chase Bank, N.A. and
Morgan Stanley Senior
Funding, Inc., as
Co-Documentation
Agents, and Wells
Fargo Securities,
LLC, Banc of America
Securities LLC and
Citigroup Global
Markets Inc., as
Joint Bookrunners and
Joint Lead Arrangers
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.02
|
|
Indenture, dated
September 16, 2010,
between Symantec
Corporation and Wells
Fargo Bank, National
Association, as
trustee
|
|
8-K
|
|
000-17781
|
|
|
4.01 |
|
|
09/16/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.03
|
|
Officers Certificate
dated September 16,
2010
|
|
8-K
|
|
000-17781
|
|
|
4.02 |
|
|
09/16/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.04
|
|
Form of Global Note
for Symantecs 2.750%
Senior Note due 2015
(contained in Exhibit
No. 4.02)
|
|
8-K
|
|
000-17781
|
|
|
4.03 |
|
|
09/16/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.05
|
|
Form of Global Note
for Symantecs 4.200%
Senior Note due 2020
(contained in Exhibit
No. 4.02)
|
|
8-K
|
|
000-17781
|
|
|
4.04 |
|
|
09/16/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.01*
|
|
Symantec Corporation
2004 Equity Incentive
Plan, as amended
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02*
|
|
Symantec Corporation
2008 Employee Stock
Purchase Plan, as
amended
|
|
|
|
|
|
|
|
|
|
|
|
X |
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
Exhibit |
|
|
|
|
|
File |
|
|
|
|
|
File |
|
Filed with |
Number |
|
Exhibit Description |
|
Form |
|
Number |
|
Exhibit |
|
Date |
|
this 10-Q |
10.03*
|
|
Separation and
Release Agreement,
effective August 31,
2010, between
Symantec Corporation
and Gregory Hughes
|
|
8-K
|
|
000-17781
|
|
|
10.01 |
|
|
09/07/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.04
|
|
Convertible Note
Purchase and
Amendment Agreement,
dated September 17,
2010, between
Symantec Corporation
and Bank of America,
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.05
|
|
Convertible Note
Purchase and
Amendment Agreement,
dated September 17,
2010, between
Symantec Corporation
and Citibank, N.A.
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.01
|
|
Certification of
Chief Executive
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.02
|
|
Certification of
Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.01
|
|
Certification of
Chief Executive
Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.02
|
|
Certification of
Chief Financial
Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Schema
Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy
Calculation Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Labels
Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy
Presentation Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy
Definition Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
* |
|
Indicates a management contract or compensatory plan or arrangement. |
|
|
|
This exhibit is being furnished rather than filed, and shall not be
deemed incorporated by reference into any filing, in accordance with
Item 601 of Regulation S-K. |
|
|
|
In accordance with Rule 406T of Regulation S-T, the information in
these exhibits is furnished and deemed not filed or part of a
registration statement or prospectus for purposes of sections 11 or 12
of the Securities Act of 1933, is deemed not filed for purposes of
section 18 of the Exchange Act of 1934, and otherwise is not subject to
liability under these sections. |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
SYMANTEC CORPORATION
(Registrant)
|
|
|
By: |
/s/ Enrique Salem
|
|
|
|
Enrique Salem |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
By: |
/s/ James A. Beer
|
|
|
|
James A. Beer |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
Date: November 3, 2010
35
SYMANTEC CORPORATION
Q2 FY11 Form 10-Q
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
Exhibit |
|
|
|
|
|
File |
|
|
|
|
|
File |
|
Filed with |
Number |
|
Exhibit Description |
|
Form |
|
Number |
|
Exhibit |
|
Date |
|
this 10-Q |
1.01
|
|
Underwriting
Agreement, dated
September 13, 2010,
by and among
Symantec, J.P. Morgan
Securities LLC,
Morgan Stanley & Co.
Incorporated and UBS
Securities LLC, on
behalf of the several
underwriters named
therein
|
|
8-K
|
|
000-17781
|
|
|
1.01 |
|
|
09/16/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01
|
|
Credit Agreement,
dated as of September
8, 2010, by and among
Symantec Corporation,
the lenders party
thereto (the
Lenders), Wells
Fargo Bank, National
Association, as
Administrative Agent,
Bank of America, N.A.
and Citibank, N.A.,
as Co-Syndication
Agents, JPMorgan
Chase Bank, N.A. and
Morgan Stanley Senior
Funding, Inc., as
Co-Documentation
Agents, and Wells
Fargo Securities,
LLC, Banc of America
Securities LLC and
Citigroup Global
Markets Inc., as
Joint Bookrunners and
Joint Lead Arrangers
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X |
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4.02
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Indenture, dated
September 16, 2010,
between Symantec
Corporation and Wells
Fargo Bank, National
Association, as
trustee
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8-K
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000-17781
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4.01 |
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09/16/10 |
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4.03
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Officers Certificate
dated September 16,
2010
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8-K
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000-17781
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4.02 |
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09/16/10 |
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4.04
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Form of Global Note
for Symantecs 2.750%
Senior Note due 2015
(contained in Exhibit
No. 4.02)
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8-K
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000-17781
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4.03 |
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09/16/10 |
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4.05
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Form of Global Note
for Symantecs 4.200%
Senior Note due 2020
(contained in Exhibit
No. 4.02)
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8-K
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000-17781
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4.04 |
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09/16/10 |
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10.01*
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Symantec Corporation
2004 Equity Incentive
Plan, as amended
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X |
36
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Incorporated by Reference |
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Exhibit |
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File |
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File |
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Filed with |
Number |
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Exhibit Description |
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Form |
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Number |
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Exhibit |
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Date |
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this 10-Q |
10.02*
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Symantec Corporation
2008 Employee Stock
Purchase Plan, as
amended
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X |
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10.03*
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Separation and
Release Agreement,
effective August 31,
2010, between
Symantec Corporation
and Gregory Hughes
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8-K
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000-17781
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10.01 |
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09/07/10 |
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10.04
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Convertible Note
Purchase and
Amendment Agreement,
dated September 17,
2010, between
Symantec Corporation
and Bank of America,
N.A.
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X |
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10.05
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Convertible Note
Purchase and
Amendment Agreement,
dated September 17,
2010, between
Symantec Corporation
and Citibank, N.A.
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X |
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31.01
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Certification of
Chief Executive
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of
2002
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X |
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31.02
|
|
Certification of
Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of
2002
|
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X |
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32.01
|
|
Certification of
Chief Executive
Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of
2002
|
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X |
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32.02
|
|
Certification of
Chief Financial
Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of
2002
|
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X |
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101.INS
|
|
XBRL Instance Document
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X |
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101.SCH
|
|
XBRL Taxonomy Schema
Linkbase Document
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X |
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101.CAL
|
|
XBRL Taxonomy
Calculation Linkbase
Document
|
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X |
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101.LAB
|
|
XBRL Taxonomy Labels
Linkbase Document
|
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|
X |
|
|
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|
101.PRE
|
|
XBRL Taxonomy
Presentation Linkbase
Document
|
|
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|
X |
|
|
|
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|
|
101.DEF
|
|
XBRL Taxonomy
Definition Linkbase
Document
|
|
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|
X |
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* |
|
Indicates a management contract or compensatory plan or arrangement. |
|
|
|
This exhibit is being furnished rather than filed, and shall not be
deemed incorporated by reference into any filing, in accordance with
Item 601 of Regulation S-K. |
|
|
|
In accordance with Rule 406T of Regulation S-T, the information in these
exhibits is furnished and deemed not filed or part of a registration
statement or prospectus for purposes of sections 11 or 12 of the
Securities Act of 1933, is deemed not filed for purposes of section 18
of the Exchange Act of 1934, and otherwise is not subject to liability
under these sections. |
37