e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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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
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For the Quarterly Period Ended
September 28, 2007
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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
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For the Transition Period
from
to
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Commission File Number
000-17781
Symantec Corporation
(Exact name of the registrant as
specified in its charter)
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Delaware
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77-0181864
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. employer
identification no.)
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20330 Stevens Creek Blvd.,
Cupertino, California
(Address of principal
executive offices)
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95014-2132
(Zip Code)
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Registrants telephone number, including area code:
(408) 517-8000
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a
non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
Filer
o Non-accelerated
filer 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 26, 2007: 867,277,815 shares.
SYMANTEC
CORPORATION
FORM 10-Q
Quarterly
Period Ended September 30, 2007
TABLE OF
CONTENTS
2
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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CONDENSED
CONSOLIDATED BALANCE SHEETS
|
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|
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September 30,
|
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|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
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|
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|
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(In thousands, except par value)
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ASSETS
|
Current assets:
|
|
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|
|
|
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Cash and cash equivalents
|
|
$
|
1,388,364
|
|
|
$
|
2,559,034
|
|
Short-term investments
|
|
|
627,478
|
|
|
|
428,619
|
|
Trade accounts receivable, net
|
|
|
601,837
|
|
|
|
666,968
|
|
Inventories
|
|
|
32,735
|
|
|
|
42,183
|
|
Deferred income taxes
|
|
|
172,422
|
|
|
|
165,323
|
|
Other current assets
|
|
|
206,840
|
|
|
|
208,920
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|
|
|
|
|
|
|
|
|
|
Total current assets
|
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|
3,029,676
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|
|
|
4,071,047
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Property and equipment, net
|
|
|
1,125,560
|
|
|
|
1,092,240
|
|
Acquired product rights, net
|
|
|
788,884
|
|
|
|
909,878
|
|
Other intangible assets, net
|
|
|
1,315,003
|
|
|
|
1,245,638
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Goodwill
|
|
|
10,948,364
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|
|
|
10,340,348
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|
Other long-term assets
|
|
|
59,264
|
|
|
|
63,987
|
|
Non-current deferred income taxes
|
|
|
49,998
|
|
|
|
27,732
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,316,749
|
|
|
$
|
17,750,870
|
|
|
|
|
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|
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LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
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$
|
169,422
|
|
|
$
|
149,131
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|
Accrued compensation and benefits
|
|
|
324,236
|
|
|
|
307,824
|
|
Current deferred revenue
|
|
|
2,265,575
|
|
|
|
2,387,733
|
|
Income taxes payable
|
|
|
40,520
|
|
|
|
238,486
|
|
Other current liabilities
|
|
|
191,500
|
|
|
|
234,915
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|
|
|
|
|
|
|
|
|
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Total current liabilities
|
|
|
2,991,253
|
|
|
|
3,318,089
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Convertible senior notes
|
|
|
2,100,000
|
|
|
|
2,100,000
|
|
Long-term deferred revenue
|
|
|
333,022
|
|
|
|
366,050
|
|
Non-current deferred tax liabilities
|
|
|
277,041
|
|
|
|
343,848
|
|
Long-term income taxes payable
|
|
|
424,595
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|
|
|
|
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Other long-term obligations
|
|
|
85,419
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|
|
|
21,370
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|
|
|
|
|
|
|
|
|
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Total liabilities
|
|
|
6,211,330
|
|
|
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6,149,357
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Commitments and contingencies
|
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|
|
|
|
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Stockholders equity:
|
|
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|
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|
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Preferred stock (par value: $0.01, 1,000 shares authorized;
none issued and outstanding)
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Common stock (par value: $0.01, 3,000,000 shares
authorized; 1,248,600 and 1,283,113 shares issued at
September 30, 2007 and March 31, 2007; 864,949 and
899,417 shares outstanding at September 30, 2007 and
March 31, 2007)
|
|
|
8,650
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|
|
|
8,994
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Capital in excess of par value
|
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9,495,987
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|
|
|
10,061,144
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|
Accumulated other comprehensive income
|
|
|
195,814
|
|
|
|
182,933
|
|
Retained earnings
|
|
|
1,404,968
|
|
|
|
1,348,442
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|
|
|
|
|
|
|
|
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Total stockholders equity
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|
11,105,419
|
|
|
|
11,601,513
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|
|
|
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|
|
|
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Total liabilities and stockholders equity
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|
$
|
17,316,749
|
|
|
$
|
17,750,870
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|
|
|
|
|
|
|
|
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|
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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September 30,
|
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September 30,
|
|
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|
2007
|
|
|
2006
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|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
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|
(In thousands, except net income per share data)
|
|
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Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Content, subscriptions, and maintenance
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|
$
|
1,117,165
|
|
|
$
|
955,025
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$
|
2,203,683
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$
|
1,872,571
|
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Licenses
|
|
|
301,924
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|
|
|
305,383
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|
|
|
615,744
|
|
|
|
653,705
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
1,419,089
|
|
|
|
1,260,408
|
|
|
|
2,819,427
|
|
|
|
2,526,276
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Content, subscriptions, and maintenance
|
|
|
205,572
|
|
|
|
203,524
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|
|
|
415,238
|
|
|
|
398,660
|
|
Licenses
|
|
|
9,892
|
|
|
|
11,539
|
|
|
|
21,130
|
|
|
|
27,451
|
|
Amortization of acquired product rights
|
|
|
89,062
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|
|
|
85,338
|
|
|
|
178,422
|
|
|
|
172,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
304,526
|
|
|
|
300,401
|
|
|
|
614,790
|
|
|
|
599,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,114,563
|
|
|
|
960,007
|
|
|
|
2,204,637
|
|
|
|
1,927,216
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
595,162
|
|
|
|
464,589
|
|
|
|
1,163,692
|
|
|
|
932,038
|
|
Research and development
|
|
|
221,057
|
|
|
|
218,250
|
|
|
|
446,635
|
|
|
|
431,445
|
|
General and administrative
|
|
|
86,405
|
|
|
|
80,076
|
|
|
|
172,250
|
|
|
|
158,697
|
|
Amortization of other purchased intangible assets
|
|
|
56,926
|
|
|
|
50,480
|
|
|
|
113,851
|
|
|
|
101,094
|
|
Restructuring
|
|
|
9,578
|
|
|
|
6,220
|
|
|
|
28,578
|
|
|
|
19,478
|
|
Write-down of intangible assets
|
|
|
86,546
|
|
|
|
|
|
|
|
86,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,055,674
|
|
|
|
819,615
|
|
|
|
2,011,552
|
|
|
|
1,642,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
58,889
|
|
|
|
140,392
|
|
|
|
193,085
|
|
|
|
284,464
|
|
Interest income
|
|
|
19,179
|
|
|
|
34,983
|
|
|
|
40,000
|
|
|
|
62,799
|
|
Interest expense
|
|
|
(6,617
|
)
|
|
|
(8,052
|
)
|
|
|
(12,908
|
)
|
|
|
(14,730
|
)
|
Other income, net
|
|
|
1,965
|
|
|
|
15,581
|
|
|
|
3,231
|
|
|
|
15,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
73,416
|
|
|
|
182,904
|
|
|
|
223,408
|
|
|
|
347,932
|
|
Provision for income taxes
|
|
|
23,048
|
|
|
|
56,722
|
|
|
|
77,834
|
|
|
|
121,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,368
|
|
|
$
|
126,182
|
|
|
$
|
145,574
|
|
|
$
|
226,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
|
0.06
|
|
|
|
0.13
|
|
|
|
0.16
|
|
|
|
0.23
|
|
Net income per share diluted
|
|
|
0.06
|
|
|
|
0.13
|
|
|
|
0.16
|
|
|
|
0.22
|
|
Shares used to compute net income per share basic
|
|
|
875,662
|
|
|
|
966,757
|
|
|
|
883,652
|
|
|
|
997,789
|
|
Shares used to compute net income per share diluted
|
|
|
892,759
|
|
|
|
987,916
|
|
|
|
901,683
|
|
|
|
1,018,427
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
145,574
|
|
|
$
|
226,716
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
127,689
|
|
|
|
126,381
|
|
Amortization
|
|
|
289,804
|
|
|
|
282,113
|
|
Stock-based compensation expense
|
|
|
81,734
|
|
|
|
82,629
|
|
Impairment of equity investments
|
|
|
|
|
|
|
2,841
|
|
Write-down of intangible assets
|
|
|
86,546
|
|
|
|
|
|
Deferred income taxes
|
|
|
(103,900
|
)
|
|
|
(17,122
|
)
|
Income tax benefit from stock options
|
|
|
17,268
|
|
|
|
10,843
|
|
Excess income tax benefit from stock options
|
|
|
(13,529
|
)
|
|
|
(5,894
|
)
|
(Gain) loss on sale of property and equipment
|
|
|
3,076
|
|
|
|
(16,716
|
)
|
Other
|
|
|
|
|
|
|
(144
|
)
|
Net change in assets and liabilities, excluding effects of
acquisitions:
|
|
|
|
|
|
|
|
|
Trade accounts receivable, net
|
|
|
118,986
|
|
|
|
119,617
|
|
Inventories
|
|
|
10,497
|
|
|
|
8,157
|
|
Accounts payable
|
|
|
7,647
|
|
|
|
(14,015
|
)
|
Accrued compensation and benefits
|
|
|
(418
|
)
|
|
|
(16,743
|
)
|
Deferred revenue
|
|
|
(229,013
|
)
|
|
|
22,628
|
|
Income taxes payable
|
|
|
131,436
|
|
|
|
(157,447
|
)
|
Other operating assets and liabilities
|
|
|
8,881
|
|
|
|
(8,964
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
682,278
|
|
|
|
644,880
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(138,029
|
)
|
|
|
(236,487
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
86,904
|
|
Purchase of intangible assets
|
|
|
(14
|
)
|
|
|
|
|
Cash payments for business acquisitions, net of cash and cash
equivalents acquired
|
|
|
(852,272
|
)
|
|
|
(4,590
|
)
|
Purchases of available-for-sale securities
|
|
|
(640,570
|
)
|
|
|
(42,492
|
)
|
Proceeds from sales of available-for-sale securities
|
|
|
498,386
|
|
|
|
245,968
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,132,499
|
)
|
|
|
49,303
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of convertible senior notes
|
|
|
|
|
|
|
2,067,762
|
|
Purchase of hedge on convertible senior notes
|
|
|
|
|
|
|
(592,490
|
)
|
Sale of common stock warrants
|
|
|
|
|
|
|
326,102
|
|
Repurchase of common stock
|
|
|
(899,984
|
)
|
|
|
(1,866,318
|
)
|
Net proceeds from sales of common stock under employee stock
benefit plans
|
|
|
130,220
|
|
|
|
117,982
|
|
Repayment of long term liability
|
|
|
(7,604
|
)
|
|
|
(520,000
|
)
|
Taxes paid on vested restricted stock issuances
|
|
|
(3,050
|
)
|
|
|
|
|
Excess tax benefit from stock options
|
|
|
13,529
|
|
|
|
5,894
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(766,889
|
)
|
|
|
(461,068
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
46,440
|
|
|
|
59,049
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(1,170,670
|
)
|
|
|
292,164
|
|
Beginning cash and cash equivalents
|
|
|
2,559,034
|
|
|
|
2,315,622
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
1,388,364
|
|
|
$
|
2,607,786
|
|
|
|
|
|
|
|
|
|
|
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, and our
refer to Symantec Corporation and all of its subsidiaries) as of
September 30, 2007 and March 31, 2007 and for the
three and six month periods ended September 30, 2007 and
2006 have been prepared in accordance with the instructions for
Form 10-Q
pursuant to the rules and regulations of the Securities and
Exchange Commission, or SEC, and, therefore, do not include all
information and notes normally provided in audited 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 balance sheet at March 31, 2007 has
been derived from the audited consolidated financial statements,
but it does not include all disclosures required by generally
accepted accounting principles. 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 March 31, 2007. The results of
operations for the three and six month periods ended
September 30, 2007 are not necessarily indicative of the
results to be expected for the entire fiscal year. All
significant intercompany accounts and transactions have been
eliminated. Certain previously reported amounts have been
reclassified to conform to the current presentation, primarily
relating to changes in our segments as discussed in Note 13.
We have a 52/53-week fiscal accounting year. Accordingly, all
references as of and for the periods ended September 30,
2007, March 31, 2007, and September 30, 2006 reflect
amounts as of and for the periods ended September 28, 2007,
March 30, 2007, and September 29, 2006, respectively.
The three month periods ended September 30, 2007 and 2006
each comprised 13 weeks of activity. The six month periods
ended September 30, 2007 and 2006 each comprised of
26 weeks of activity.
Significant
accounting policies
On April 1, 2007, we adopted Financial Accounting Standards
Board, or FASB Interpretation No. 48, or FIN 48,
Accounting for Uncertainty in Income Taxes, as discussed
more fully below. Other than this change, there have been no
significant changes in our significant accounting policies
during the six months ended September 30, 2007 as compared
to the significant accounting policies described in our Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2007.
Income
Taxes
We adopted the provisions of FIN 48 effective April 1,
2007. FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is
required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition.
FIN 48 prescribes a two-step process to determine the
amount of tax benefit to be recognized. The first step is to
evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.
The second step requires us to estimate and measure the tax
benefit as the largest amount that is more than 50% likely of
being realized upon ultimate settlement. It is inherently
difficult and subjective to estimate such amounts, as this
requires us to determine the probability of various possible
outcomes. We reevaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on factors including,
but not limited to, changes in facts or circumstances, changes
in tax law, effectively settled issues under audit, and new
audit activity. Such a change in recognition or measurement
would result in the recognition of a tax benefit or an
additional charge to the tax provision in the period.
6
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
accounting pronouncements
In August 2007, the Financial Accounting Standards Board
(FASB) issued for comment proposed FASB Staff
Position (FSP) No. APB
14-a,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB
14-a).
The proposed FSP would require the issuer of convertible debt
instruments with cash settlement features to separately account
for the liability and equity components of the instrument. The
debt would be recognized at the present value of its cash flows
discounted using the issuers nonconvertible debt borrowing
rate at the time of issuance. The equity component would be
recognized as the difference between the proceeds from the
issuance of the note and the fair value of the liability. The
proposed FSP would also require an accretion of the resultant
debt discount over the expected life of the debt. The proposed
transition guidance requires retrospective application to all
periods presented, and does not grandfather existing
instruments. The proposed FSP would be effective for us on
April 1, 2008. If the FSP is issued as proposed, we expect
the increase in non-cash interest expense recognized on our
consolidated financial statements to be significant.
In February 2007, the FASB issued Statement of Financial
Accounting Standards, or SFAS, No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities, including
an amendment of SFAS No. 115.
SFAS No. 159 permits companies to choose to
measure certain financial instruments and certain other items at
fair value and requires unrealized gains and losses on items for
which the fair value option has been elected to be reported in
earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. We are currently in the
process of evaluating the impact of SFAS No. 159 on
our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
establishes a framework for measuring the fair value of assets
and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some
cases require, estimates of fair market value.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. Earlier application is encouraged, provided that
the reporting entity has not yet issued financial statements for
that fiscal year, including any financial statements for an
interim period within that fiscal year. We are currently in the
process of evaluating the impact of SFAS No. 157 on
our consolidated financial statements.
In September 2006, the FASB issued Emerging Issues Task Force
Issue, or EITF,
No. 06-1,
Accounting for Consideration Given by a Service Provider to a
Manufacturer or Reseller of Equipment Necessary for an
End-Customer to Receive Service from the Service Provider.
EITF
No. 06-1
requires that we provide disclosures regarding the nature of
arrangements in which we provide consideration to manufacturers
or resellers of equipment necessary for an end-customer to
receive service from us, including the amounts recognized in the
Consolidated Statements of Income. EITF
No. 06-1
is effective for fiscal years beginning after June 15,
2007. We do not expect the adoption of EITF
No. 06-1
to have a material impact on our consolidated financial
statements.
7
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 2. Balance
Sheet Information
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Trade accounts receivable, net:
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
625,168
|
|
|
$
|
687,580
|
|
Less: allowance for doubtful accounts
|
|
|
(9,062
|
)
|
|
|
(8,391
|
)
|
Less: reserve for product returns
|
|
|
(14,269
|
)
|
|
|
(12,221
|
)
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable, net:
|
|
$
|
601,837
|
|
|
$
|
666,968
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
932,690
|
|
|
$
|
842,691
|
|
Office furniture and equipment
|
|
|
243,932
|
|
|
|
282,838
|
|
Buildings
|
|
|
574,653
|
|
|
|
533,319
|
|
Leasehold improvements
|
|
|
249,206
|
|
|
|
237,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,481
|
|
|
|
1,896,691
|
|
Less: accumulated depreciation and amortization
|
|
|
(988,507
|
)
|
|
|
(917,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,011,974
|
|
|
|
979,334
|
|
Land
|
|
|
113,586
|
|
|
|
112,906
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net:
|
|
$
|
1,125,560
|
|
|
$
|
1,092,240
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
|
Comprehensive
Income
|
The components of comprehensive income, net of tax, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
50,368
|
|
|
$
|
126,182
|
|
|
$
|
145,574
|
|
|
$
|
226,716
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on available-for-sale securities, net
of tax
|
|
|
1,882
|
|
|
|
2,089
|
|
|
|
580
|
|
|
|
3,866
|
|
Change in cumulative translation adjustment, net of tax
|
|
|
4,207
|
|
|
|
160
|
|
|
|
12,301
|
|
|
|
24,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
6,089
|
|
|
|
2,249
|
|
|
|
12,881
|
|
|
|
28,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
56,457
|
|
|
$
|
128,431
|
|
|
$
|
158,455
|
|
|
$
|
254,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income as of September 30,
2007 and March 31, 2007 consists primarily of foreign
currency translation adjustments, net of taxes. Unrealized gains
and losses on available-for-sale investments, net of taxes, were
immaterial for all periods presented.
8
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Business
Combinations
|
Company-i
On December 1, 2006, we completed our acquisition of
Company-i Limited, or Company-i, a UK-based professional
services firm that specialized in addressing key challenges
associated with operating and managing a data center in the
financial services industry, for $26 million in cash,
including an immaterial amount for acquisition related expenses.
The purchase price was subject to an adjustment of up to
$11 million in cash if Company-i achieved certain billings
targets by March 31 or September 30, 2007, or
September 30, 2008. During the June 2007 quarter, we
determined that the billing targets were met as of June 29,
2007 and therefore recorded a liability of approximately
$12 million, including the effects of foreign exchange, and
booked an adjustment to goodwill in accordance with
SFAS No. 141, Business Combinations. The liability of
$12 million was paid during the quarter ended
September 30, 2007.
Altiris
On April 6, 2007, we completed our acquisition of 100% of
the equity interest of Altiris Inc., or Altiris, a leading
provider of information technology management software that
enables businesses to easily manage and service network-based
endpoints. The aggregate purchase price, including acquisition
related costs, was approximately $1,045 million, of which
approximately $841 million was paid in cash, which amount
was net of Altiris cash and cash equivalents balance. We
believe this acquisition will enable us to help customers better
manage and enforce security policies at the endpoint, identify
and protect against threats, and repair and service assets. The
aggregate purchase price was allocated as of the date of
acquisition as follows: goodwill, $633 million; other
intangible assets, $223 million; net income tax
liabilities, $139 million; developed technology,
$90 million; and net tangible assets, $238 million.
Goodwill resulted primarily from our expectation of synergies
from the integration of Altiris service offerings with our
service offerings. The amount allocated to Developed technology
is being amortized to Cost of revenues in the Condensed
Consolidated Statements of Income over its estimated useful life
of one to six years. The amount allocated to Other intangible
assets is being amortized to Operating expenses in the Condensed
Consolidated Statements of Income over its estimated useful life
of three to eight years. The results of operations of Altiris
have been included in our results of operations since its
acquisition date. The financial results of this acquisition are
considered immaterial for purposes of pro forma financial
disclosures. Altiris is included in the new Altiris segment.
Huawei
Technologies Joint Venture
In May 2007, we signed an agreement to invest in a joint venture
with Huawei Technologies Co., Ltd., or the joint venture. The
joint venture will develop, manufacture, market and support
security and storage appliances to global telecommunications
carriers and enterprise customers. We will contribute storage
and security software and $150 million in cash in return
for a 49% interest in the joint venture. The joint venture is
expected to close by early calendar year 2008, pending required
regulatory and governmental approvals.
9
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5.
|
Goodwill,
Acquired Product Rights, and Other Intangible Assets
|
Goodwill
In accordance with SFAS No. 142, we allocate goodwill
to our reporting units, which are the same as our operating
segments. Goodwill is allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Data
|
|
|
Data Center
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Products
|
|
|
Management(a)
|
|
|
Management
|
|
|
Services(a)
|
|
|
Altiris(a)
|
|
|
Company
|
|
|
|
(In thousands)
|
|
|
Balance as of March 31, 2007
|
|
$
|
102,810
|
|
|
$
|
4,169,684
|
|
|
$
|
5,400,718
|
|
|
$
|
346,391
|
|
|
$
|
320,745
|
|
|
$
|
10,340,348
|
|
Goodwill acquired through business combination(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,705
|
|
|
|
633,233
|
|
|
|
644,938
|
|
Goodwill adjustments(c),(d)
|
|
|
|
|
|
|
(12,472
|
)
|
|
|
(14,799
|
)
|
|
|
|
|
|
|
(9,651
|
)
|
|
|
(36,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
$
|
102,810
|
|
|
$
|
4,157,212
|
|
|
$
|
5,385,919
|
|
|
$
|
358,096
|
|
|
$
|
944,327
|
|
|
$
|
10,948,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the June 2007 quarter, we revised our segment reporting
structure, as discussed in Note 13. As a result of this
revision, we have recast our prior year Goodwill balances for
the Security and Data Management, Services, and Altiris segments
to reflect the current reporting structure. |
|
(b) |
|
Reflects adjustments made to goodwill acquired through business
combinations of approximately $12 million, including the
effects of foreign exchange, for Company-i and approximately
$633 million for Altiris. See Note 4 for further
details. |
|
(c) |
|
On April 1, 2007, we adjusted the Security and Data
Management segment Goodwill balance related to a prior
acquisition as a result of the adoption of FIN 48. During
the six months ended September 30, 2007, we adjusted the
Goodwill balance associated with the Altiris acquisition as a
result of tax adjustments to stock based compensation, lease
payoffs, and restricted stock award reversals. |
|
(d) |
|
The decrease of $15 million in the Goodwill balance for the
Data Center Management segment is attributable to the intangible
asset write-down recorded during the second quarter of fiscal
2008. See Note 6 for further details. |
Acquired
product rights, net
Acquired product rights, net subject to amortization are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
1,674,953
|
|
|
$
|
(929,014
|
)
|
|
$
|
745,939
|
|
Patents
|
|
|
72,221
|
|
|
|
(29,276
|
)
|
|
|
42,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,747,174
|
|
|
$
|
(958,290
|
)
|
|
$
|
788,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
1,610,199
|
|
|
$
|
(754,328
|
)
|
|
$
|
855,871
|
|
Patents
|
|
|
79,684
|
|
|
|
(25,677
|
)
|
|
|
54,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,689,883
|
|
|
$
|
(780,005
|
)
|
|
$
|
909,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the three month periods ended September 30, 2007 and
2006, amortization expense for acquired product rights was
$89 million and $85 million, respectively. During the
six month periods ended September 30, 2007 and 2006,
amortization expense for acquired product rights was
$178 million and $173 million, respectively.
Amortization of acquired product rights is included in Cost of
revenues in the Condensed Consolidated Statements of Income. The
weighted-average remaining estimated lives of acquired product
rights are approximately two years for developed technology and
approximately three years for patents. The weighted-average
remaining estimated life of acquired product rights is
approximately two years. Amortization expense for acquired
product rights, based upon our existing acquired product rights
and their current useful lives as of September 30, 2007, is
estimated to be as follows (in thousands):
|
|
|
|
|
Remaing two quarters of fiscal 2008
|
|
$
|
168,850
|
|
2009
|
|
|
334,485
|
|
2010
|
|
|
192,596
|
|
2011
|
|
|
60,431
|
|
2012
|
|
|
21,072
|
|
Thereafter
|
|
|
11,450
|
|
|
|
|
|
|
Total
|
|
$
|
788,884
|
|
|
|
|
|
|
Other
intangible assets, net
Other intangible assets, net subject to amortization are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Customer base
|
|
$
|
1,633,447
|
|
|
$
|
(436,001
|
)
|
|
$
|
1,197,446
|
|
Trade name
|
|
|
147,842
|
|
|
|
(30,668
|
)
|
|
|
117,174
|
|
Partnership agreements
|
|
|
2,300
|
|
|
|
(1,917
|
)
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,783,589
|
|
|
$
|
(468,586
|
)
|
|
$
|
1,315,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Customer base
|
|
$
|
1,500,201
|
|
|
$
|
(335,393
|
)
|
|
$
|
1,164,808
|
|
Trade name
|
|
|
107,207
|
|
|
|
(27,335
|
)
|
|
|
79,872
|
|
Partnership agreements
|
|
|
2,300
|
|
|
|
(1,342
|
)
|
|
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,609,708
|
|
|
$
|
(364,070
|
)
|
|
$
|
1,245,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three month periods ended September 30, 2007 and
2006, amortization expense for other intangible assets was
$57 million and $50 million, respectively. During the
six month periods ended September 30, 2007 and 2006,
amortization expense for other intangible assets was
$114 million and $101 million, respectively.
Amortization of other intangible assets is included in Operating
expenses in the Condensed Consolidated Statements of Income. The
weighted-average remaining estimated lives for other intangible
assets are approximately six years for customer base,
approximately eight years for trade name, and approximately
one-half year for partnership agreements. The weighted-average
remaining estimated life of other intangible assets is
approximately six years.
11
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense for other intangible assets, based upon our
existing other intangible assets and their current useful lives
as of September 30, 2007, is estimated to be as follows
(in thousands):
|
|
|
|
|
Remaining two quarters of fiscal 2008
|
|
$
|
130,379
|
|
2009
|
|
|
215,657
|
|
2010
|
|
|
214,028
|
|
2011
|
|
|
213,289
|
|
2012
|
|
|
211,238
|
|
Thereafter
|
|
|
330,412
|
|
|
|
|
|
|
Total
|
|
$
|
1,315,003
|
|
|
|
|
|
|
On June 20, 2007, we and Peter Norton amended the Amended
Agreement Respecting Certain Rights of Publicity dated
August 31, 1990, concerning Symantecs license to
Peter Nortons publicity rights. The amendment replaced the
royalty payments previously paid to Mr. Norton, based on
certain product sales, with fixed monthly payments totaling
$33 million through 2016 and made other conforming changes.
As a result of this amendment, we recorded a long-term liability
for the net present value of the payments of $29 million,
an indefinite-lived intangible asset of $22 million, and a
reduction of accrued royalties of $7 million for accrued
royalties forgiven as part of the amendment. The
indefinite-lived intangible asset will not be amortized and will
be tested for impairment in accordance with
SFAS No. 142, Goodwill and Other Intangible Assets
(as amended). During the second quarter of fiscal 2008 the
Peter Norton indefinite-lived intangible asset of
$22 million was reclassified from Developed technology,
within Acquired product rights, net, to Trade name, within Other
intangible assets, net.
|
|
Note 6.
|
Write-down
of intangible assets
|
During the second quarter of fiscal 2008, we determined that
certain tangible and intangible assets and liabilities of the
Data Center Management segment did not meet the long term
strategic objectives of the segment. Accordingly, we have
recorded a write-down of $87 million to value these assets
and liabilities at their respective estimated fair value. The
fair value of these assets as a result of this write-down,
$23 million, primarily consists of intangible assets of
$18 million, and is included in Other current assets on the
Condensed Consolidated Balance Sheet. The fair value of the
liabilities totaling $10 million, are included in Other
current liabilities on the Condensed Consolidated Balance Sheet.
|
|
Note 7.
|
Stock
Transactions
|
Stock
repurchases
During the three month period ended June 30, 2007, we
repurchased 25 million shares of our common stock at prices
ranging from $19.53 to $20.14 per share for an aggregate amount
of $500 million, which completed the $1 billion share
repurchase program announced in January 2007.
On June 14, 2007, we announced that our Board of Directors
authorized the repurchase of an additional $2 billion of
Symantec common stock. The repurchase authorization does not
have a scheduled expiration date.
During the three month period ended September 30, 2007, we
repurchased 22 million shares of our common stock at prices
ranging from $17.61 to $19.70 per share for an aggregate amount
of $400 million. As of September 30, 2007, an
aggregate of $1.6 billion remained authorized for future
repurchases under our authorized stock repurchase programs.
|
|
Note 8.
|
Stock-Based
Compensation
|
We currently have in effect certain stock purchase plans, stock
award plans, and equity incentive plans, as described in detail
in Note 11 of Notes to Consolidated Financial Statements in
our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007.
12
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Valuation
of stock-based awards
The fair value of each stock option granted under our equity
incentive plans is estimated on the date of grant using the
Black-Scholes option pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
3 years
|
|
Expected volatility
|
|
|
33
|
%
|
|
|
34
|
%
|
|
|
33
|
%
|
|
|
34
|
%
|
Risk-free interest rate
|
|
|
4.9
|
%
|
|
|
5.1
|
%
|
|
|
4.7
|
%
|
|
|
4.9
|
%
|
The expected life of options is based on an analysis of our
historical experience of employee exercise and post-vesting
termination behavior considered in relation to the contractual
life of the option. Expected volatility is based on the average
of the historical volatility for the period commensurate with
the expected life of the option and the implied volatility of
traded options. The risk-free interest rate is equal to the
U.S. Treasury constant maturity rates for the period equal
to the expected life. We do not currently pay cash dividends on
our common stock and do not anticipate doing so in the
foreseeable future. Accordingly, our expected dividend yield is
zero. The fair value of each Restricted Stock Unit, or RSU, is
equal to the market value of Symantecs common stock on the
date of grant. The fair value of each Employee Stock Purchase
Plan, or ESPP, purchase right granted from July 1, 2005
onwards is equal to the 15% discount on shares purchased. We
estimate forfeitures of options, RSUs, and ESPP purchase rights
at the time of grant based on historical experience and record
compensation expense only for those awards that are expected to
vest.
Stock-based
compensation expense
Stock-based compensation is classified in the Condensed
Consolidated Statements of Income in the same expense line items
as cash compensation. The following table sets forth the total
stock-based compensation expense recognized in our Condensed
Consolidated Statements of Income for the three and six month
periods ended September 30, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cost of revenues Content, subscriptions, and
maintenance
|
|
$
|
3,542
|
|
|
$
|
3,897
|
|
|
$
|
6,953
|
|
|
$
|
6,761
|
|
Cost of revenues Licenses
|
|
|
957
|
|
|
|
1,285
|
|
|
|
1,942
|
|
|
|
2,403
|
|
Sales and marketing
|
|
|
13,957
|
|
|
|
17,106
|
|
|
|
28,421
|
|
|
|
31,250
|
|
Research and development
|
|
|
14,842
|
|
|
|
16,906
|
|
|
|
29,008
|
|
|
|
31,004
|
|
General and administrative
|
|
|
7,692
|
|
|
|
6,616
|
|
|
|
15,410
|
|
|
|
11,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
40,990
|
|
|
|
45,810
|
|
|
|
81,734
|
|
|
|
82,629
|
|
Tax benefit associated with stock-based compensation expense
|
|
|
10,484
|
|
|
|
10,478
|
|
|
|
19,712
|
|
|
|
17,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense on net income
|
|
$
|
30,506
|
|
|
$
|
35,332
|
|
|
$
|
62,022
|
|
|
$
|
64,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense on net income per
share basic
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense on net income per
share diluted
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of September 30, 2007, total unrecognized compensation
cost related to unvested stock options, RSUs, and Restricted
Stock Agreements, or RSAs, was $176 million,
$66 million, and $3 million, respectively, which is
expected to be recognized over the remaining weighted-average
vesting periods of three years for stock options, two years for
RSUs, and one year for RSAs.
The weighted-average fair value per share of options granted
during the six months ended September 30, 2007 and 2006 was
$5.68 and $4.81, respectively. The total intrinsic value of
options exercised during the six months ended September 30,
2007 and 2006 was $89 million and $62 million,
respectively.
The weighted-average fair value per share of RSUs granted during
the six months ended September 30, 2007 and 2006 was $19.44
and $16.41, respectively. The total fair value of RSUs that
vested during the six months ended September 30, 2007 and
2006 was $12 million and an immaterial amount, respectively.
Assumed
Altiris Stock Options and Awards
In connection with our acquisition of Altiris, we assumed all of
the outstanding options to purchase Altiris common stock. Each
option assumed was converted into an option to purchase Symantec
common stock after applying the exchange ratio of
1.9075 shares of Symantec common stock for each share of
Altiris common stock. In total, we assumed and converted Altiris
options into options to purchase approximately 3 million
shares of Symantec common stock. In addition, we assumed and
converted all outstanding Altiris RSUs into approximately
320,000 Symantec RSUs, based on the same exchange ratio.
Furthermore, we assumed all outstanding Altiris RSAs which were
converted into the right to receive cash of $33.00 per share
upon vesting. The total value of the assumed RSAs on the date of
acquisition was approximately $9 million, assuming no RSAs
are forfeited prior to vesting. The total unrecognized
compensation cost as of September 30, 2007 related to the
Altiris unvested stock options, RSUs and RSAs, was
$3 million, $2 million, and $3 million,
respectively.
The assumed options, RSUs, and RSAs retained all applicable
terms and vesting periods, except for certain options, RSAs and
RSUs that were accelerated according to the executive vesting
plan and will generally vest over a four to twelve month period
from the date of acquisition and certain other options that
vested in full as of the acquisition date. In general, the
assumed options typically vest over a period of three to four
years from the original date of grant and have a maximum term of
ten years. The assumed RSUs and RSAs typically vest over a
period of two to three years from the original date of grant.
As of September 30, 2007, we had a restructuring and
employee termination benefit accrual of $19 million, of
which $10 million was included in Other accrued expenses
and $9 million was included in Other long-term obligations
on the Condensed Consolidated Balance Sheet. The restructuring
accrual consists of $2 million related to the Altiris
acquisition, $8 million related to accruals established for
the fiscal year 2007 plans, $4 million related to
restructuring accruals established for the fiscal 2006 plan, and
$5 million related to a restructuring accrual assumed from
the Veritas acquisition.
Restructuring
charges
In fiscal 2007, we implemented restructuring plans to better
align our expenses with our revenue expectations. The costs
included amounts for severance, associated benefits,
outplacement services, and termination of excess facilities. As
of March 31, 2007, $46 million remained related to
this accrual. During the six months ended September 30,
2007, we increased this accrual by approximately
$27 million and paid approximately $65 million related
to this accrual. As of September 30, 2007, $8 million
remained in this accrual, which we expect to be paid by the end
of fiscal 2010.
14
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In fiscal 2006, we recorded restructuring costs related to
severance, associated benefits, and outplacement services, and
related excess facilities. As of March 31, 2007,
$5 million remained related to this accrual, the majority
of which relates to excess facilities. During the six months
ended September 30, 2007, there were no material payments
under, or adjustments to, this accrual. As of September 30,
2007, $4 million remained in this accrual, which we expect
to be paid by the end of fiscal 2018.
Amounts related to restructuring expense are included in
Restructuring on the Condensed Consolidated Statements of Income.
Acquisition-related
restructuring
In connection with the Altiris acquisition, we recorded a
restructuring accrual of $4 million related to severance,
associated benefits, outplacement services, and related excess
facilities. During the six months ended September 30, 2007,
we paid approximately $2 million related to this accrual
and decreased this accrual by an immaterial amount as we
determined that the costs related to certain facilities would be
less than originally accrued. The remaining accrual amount of
$2 million will be paid over the remaining lease terms,
ending at various dates through fiscal 2009.
In connection with the Veritas acquisition, we assumed a
restructuring accrual related to the 2002 Veritas facilities
restructuring plan. As of March 31, 2007, $4 million
remained related to this accrual. During the six months ended
September 30, 2007, we paid approximately $1 million
related to this accrual and increased this accrual by
$2 million as we determined that the costs related to
certain facilities would be greater than originally accrued. The
remaining accrual amount of $5 million will be paid over
the remaining lease terms, ending at various dates through
fiscal 2016.
|
|
Note 10.
|
Net
Income Per Share
|
The components of net income per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Six Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Net income per share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,368
|
|
|
$
|
126,182
|
|
|
$
|
145,574
|
|
|
$
|
226,716
|
|
Weighted average number of common shares outstanding during the
period
|
|
|
875,662
|
|
|
|
966,757
|
|
|
|
883,652
|
|
|
|
997,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.06
|
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,368
|
|
|
$
|
126,182
|
|
|
$
|
145,574
|
|
|
$
|
226,716
|
|
Weighted average number of common shares outstanding during the
period
|
|
|
875,662
|
|
|
|
966,757
|
|
|
|
883,652
|
|
|
|
997,789
|
|
Shares issuable from assumed exercise of options using the
treasury stock method
|
|
|
15,952
|
|
|
|
20,762
|
|
|
|
16,799
|
|
|
|
20,439
|
|
Dilutive impact of restricted stock units using the treasury
stock method
|
|
|
1,145
|
|
|
|
397
|
|
|
|
1,232
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for purposes of calculating diluted net income per
share diluted
|
|
|
892,759
|
|
|
|
987,916
|
|
|
|
901,683
|
|
|
|
1,018,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.06
|
|
|
$
|
0.13
|
|
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following potential common shares were excluded from the
computation of diluted net income per share as their effect
would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Stock options
|
|
|
64,828
|
|
|
|
71,775
|
|
|
|
64,972
|
|
|
|
73,180
|
|
Restricted stock units
|
|
|
10
|
|
|
|
51
|
|
|
|
13
|
|
|
|
25
|
|
For the three and six month periods ended September 30,
2007 and 2006, we excluded the effect of the Senior Notes and
warrants for the reasons discussed in Note 6 of Notes to
Consolidated Financial Statements in our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007.
The effective tax rate was approximately 31% for both three
month periods and 35% for both six month periods ended
September 30, 2007 and September 30, 2006,
respectively. The effective tax rates for all periods are
favorably impacted by the benefits of lower-taxed foreign
earnings and domestic manufacturing tax incentives, offset by
state income taxes and non-deductible stock-based compensation
resulting from the adoption of SFAS No. 123(R),
Share-Based Payment. Additionally, the effective tax
rates for both September quarters are lower due to the benefit
items described below. The September 2007 quarter includes a
full 40% tax benefit related to the write-down of intangible and
tangible assets related to the Data Center Management segment,
as discussed in Note 6. The September 2006 quarter includes
an $8 million tax benefit recorded for the final Internal
Revenue Service, or IRS, audit settlement of Symantecs
fiscal years 2003 and 2004. Further, the tax expense for the six
months ended September 30, 2006 includes an accrual of
approximately $6 million for penalty risks associated with
the late filing of Veritas final pre-acquisition income
tax return that was recorded in the June 2006 quarter.
We adopted the provisions of FIN 48 effective April 1,
2007. FIN 48 addresses the accounting for and disclosure of
uncertainty in income tax positions by prescribing a minimum
recognition threshold that a tax position is required to satisfy
before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
The cumulative effect of adopting FIN 48 was a decrease in
tax reserves of $18 million, resulting in a decrease to
Veritas goodwill of $10 million, an increase of
$7 million to the April 1, 2007 Retained earnings
balance, and a $1 million increase in Capital in excess of
par value. Upon adoption, the gross liability for unrecognized
tax benefits at April 1, 2007 was $454 million,
exclusive of interest and penalties. This gross liability is
reduced by offsetting tax benefits associated with the
correlative effects of potential transfer pricing adjustments,
and state income taxes as well as payments made to date. Of the
total unrecognized tax benefits, $88 million, if recognized
would favorably affect our effective tax rate while the
remaining amount would reduce Goodwill. In addition, consistent
with the provisions of FIN 48, certain reclassifications
were made to the balance sheet, including the reclassification
of $350 million of income tax liabilities from current to
non-current liabilities because payment of cash is not
anticipated within one year of the balance sheet date.
Our policy to include interest and penalties related to gross
unrecognized tax benefits within our provision for income taxes
did not change upon the adoption of FIN 48. If the accrued
interest and penalties do not ultimately become payable, amounts
accrued will be reduced in the period that such determination is
made, and reflected as a reduction of the overall income tax
provision, to the extent that the interest expense had been
provided through the tax provision, or as a reduction to
Goodwill if it had been recorded through purchase accounting. At
April 1, 2007, before any tax benefits, we had
$92 million of accrued interest and $13 million of
accrued penalties on unrecognized tax benefits. Interest
included in our provision for income taxes was approximately
$10 million for the six months ended September 30,
2007.
16
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recorded a net increase of unrecognized tax benefits of
approximately $66 million during the six months ended
September 30, 2007, of which $57 million is related to
the acquisition of Altiris and is reflected in the purchase
accounting for the acquisition.
We file income tax returns in the United States
(U.S.) on a federal basis and in many
U.S. state and foreign jurisdictions. Our two most
significant tax jurisdictions are the U.S. and Ireland. Our
tax filings remain subject to examination by applicable tax
authorities for a certain length of time following the tax year
to which those filings relate. Our 2000 through 2007 tax years
remain subject to examination by the IRS for U.S. federal
tax purposes, and our 1995 through 2007 tax years remain subject
to examination by the appropriate governmental agencies for
Irish tax purposes. Other significant jurisdictions include
California and Japan. As of April 1, 2007, we are under
examination by the IRS, for the Veritas U.S. federal income
taxes for the 2002 through 2005 tax years.
On June 26, 2006, we filed a petition with the
U.S. Tax Court to protest a Notice of Deficiency from the
IRS claiming that we owe $867 million, excluding penalties
and interest, for the 2000 and 2001 tax years of Veritas. On
August 30, 2006, the IRS answered our petition and the case
has been docketed for trial in U.S. Tax Court and is
scheduled to begin on June 30, 2008. In the March 2007
quarter, the IRS agreed to dismiss any penalty assessment, and
we have otherwise agreed to settle several of the lesser issues
(representing $35 million of the total assessment) for
$7 million of tax. As a result, the outstanding issue
represents $832 million of tax. No payments will be made on
the assessment until the issue is definitively resolved. If,
upon resolution, we are required to pay an amount in excess of
our provision for this matter, the incremental amounts due would
be accounted for principally as additions to the Veritas
purchase price as an increase to goodwill. Any incremental
interest accrued related to periods subsequent to the date of
the Veritas acquisition would be recorded as an expense in the
period the matter is resolved.
The Company continues to monitor the progress of ongoing income
tax controversies and the impact, if any, of the expected
tolling of the statute of limitations in various taxing
jurisdictions. Considering these facts, the Company does not
currently believe there is a reasonable possibility of any
significant change to its total unrecognized tax benefits within
the next twelve months.
On March 29, 2006, we received a Notice of Deficiency from
the IRS claiming that we owe additional taxes, plus interest and
penalties, for the 2000 and 2001 tax years based on an audit of
Veritas. The incremental tax liability asserted by the IRS was
$867 million, excluding penalties and interest. On
June 26, 2006, we filed a petition with the U.S. Tax
Court protesting the IRS claim for such additional taxes. On
August 30, 2006, the IRS answered our petition and this
matter has been docketed for trial in U.S. Tax Court and is
scheduled to begin on June 30, 2008. We have subsequently
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 has also agreed to
waive the assessment of penalties. We do not agree with the IRS
on the $832 million remaining at issue. We strongly believe
the IRS position with regard to this matter is
inconsistent with applicable tax laws and existing Treasury
regulations, and that our previously reported income tax
provision for the years in question is appropriate. See
Note 11 for additional information on this matter.
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, or 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 the
companys financial results, which allegedly contained
revenue recognized
17
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. The defendants to
this matter intend to defend this case vigorously. Because our
liability, if any, cannot be reasonably estimated, no amounts
have been accrued for this matter. An adverse outcome in this
matter could have a material adverse effect on our financial
position and results of operations.
After Veritas announced in January 2003 that it would restate
its financial results as a result of transactions entered into
with AOL Time Warner in September 2000, numerous separate
complaints purporting to be class actions were filed in the
United States District Court for the Northern District of
California alleging that Veritas and some of its officers and
directors violated provisions of the Securities Exchange Act of
1934. The complaints contain varying allegations, including that
Veritas made materially false and misleading statements with
respect to its 2000, 2001 and 2002 financial results included in
its filings with the SEC, press releases and other public
disclosures. A consolidated complaint entitled In Re VERITAS
Software Corporation Securities Litigation was filed by the lead
plaintiff on July 18, 2003. On February 18, 2005, the
parties filed a Stipulation of Settlement in the class action.
On March 18, 2005, the Court entered an order preliminarily
approving the class action settlement. Pursuant to the terms of
the settlement, a $35 million settlement fund was
established on March 25, 2005. Veritas insurance
carriers provided for the entire amount of the settlement fund.
In July 2007, the Court of Appeals vacated the settlement,
finding that the notice of settlement was inadequate. The matter
has been returned to the District Court for further proceedings,
including reissuance of the notice. If the settlement is not
approved, an adverse outcome in this matter could have a
material adverse effect on our financial position and results of
operations.
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 13.
|
Segment
Information
|
Beginning in the June 2007 quarter, we added an additional
segment called Altiris that consists of the products we acquired
as a result of our April 2007 acquisition of Altiris. We also
moved (1) our
Ghosttm,
pcAnywheretm,
and
LiveStatetm
Delivery products from the Security and Data Management segment
to the Altiris segment, and (2) our Managed Security
Services and DeepSight products and services from the Security
and Data Management segment to the Services segment. In
addition, following implementation of our new enterprise
resource planning system completed during the December 2006
quarter, we refined the methodology of allocating maintenance
revenues among our enterprise segments. The maintenance analysis
largely impacts our Data Center Management segment, offset by
the impact to our Security and Data Management segment. As a
result of these revisions, we have recast segment information
for fiscal 2007 to reflect the segment reporting structure
described below. During the September 2007 quarter, we continued
to refine our segment structure, and recast certain amounts from
the Services segment to the Security and Data Management segment.
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. As of September 30, 2007, we operated in
six operating segments:
|
|
|
|
|
Consumer Products. Our Consumer Products
segment focuses on delivering our Internet security, PC tuneup,
and backup products to individual users and home offices.
|
|
|
|
Security and Data Management. Our Security and
Data Management segment focuses on providing large, medium, and
small-sized business with solutions for compliance and security
management, endpoint security, messaging management, and data
protection management software solutions that allow our
customers to secure, provision, backup, and remotely access
their laptops, PCs, mobile devices, and servers.
|
|
|
|
Data Center Management. Our Data Center
Management segment focuses on providing enterprise and large
enterprise customers with storage and server management, data
protection, and application performance management solutions
across heterogeneous storage and server platforms.
|
18
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Services. Our Services segment provides
customers with leading IT risk management services and solutions
to manage security, availability, performance and compliance
risks across multi-vendor environments. In addition, our
services, including maintenance and technical support, managed
security services, consulting, education, and threat and early
warning systems, help customers optimize and maximize their
Symantec technology investments.
|
|
|
|
Altiris. Our Altiris segment provides
information technology management software that enables
businesses to easily manage and service network-based endpoints.
This allows customers to better manage and enforce security
policies at the endpoint, identify and protect against threats,
and repair and service assets.
|
|
|
|
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, other intangible
assets, and other assets; charges, such as acquired in-process
research and development, patent settlement, 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 March 31, 2007. There are no
intersegment sales. Our chief operating decision maker evaluates
performance based on direct profit or loss from operations
before income taxes not including nonrecurring gains and losses,
foreign exchange gains and losses, and certain income and
expenses. Except for goodwill, as disclosed in Note 5, the
majority of our assets are not discretely identified by segment.
The depreciation and amortization of our property, equipment,
and leasehold improvements are allocated based on headcount,
unless specifically identified by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
and Data
|
|
|
Data Center
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Products
|
|
|
Management
|
|
|
Management
|
|
|
Services
|
|
|
Altiris(a)
|
|
|
Other
|
|
|
Company
|
|
|
|
(In thousands)
|
|
|
Three months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
433,508
|
|
|
$
|
422,464
|
|
|
$
|
398,355
|
|
|
$
|
86,010
|
|
|
$
|
78,424
|
|
|
$
|
328
|
|
|
$
|
1,419,089
|
|
Operating income (loss)
|
|
|
226,373
|
|
|
|
110,490
|
|
|
|
67,419
|
|
|
|
(9,522
|
)
|
|
|
18,008
|
|
|
|
(353,879
|
)
|
|
|
58,889
|
|
Depreciation and amortization expense
|
|
|
1,783
|
|
|
|
7,674
|
|
|
|
13,364
|
|
|
|
2,765
|
|
|
|
297
|
|
|
|
178,165
|
|
|
|
204,048
|
|
Three months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
394,382
|
|
|
$
|
394,892
|
|
|
$
|
363,778
|
|
|
$
|
66,356
|
|
|
$
|
40,933
|
|
|
$
|
67
|
|
|
$
|
1,260,408
|
|
Operating income (loss)
|
|
|
243,012
|
|
|
|
103,968
|
|
|
|
120,915
|
|
|
|
(11,207
|
)
|
|
|
21,502
|
|
|
|
(337,798
|
)
|
|
|
140,392
|
|
Depreciation and amortization expense
|
|
|
1,228
|
|
|
|
8,963
|
|
|
|
12,818
|
|
|
|
2,647
|
|
|
|
135
|
|
|
|
175,827
|
|
|
|
201,618
|
|
Six months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
857,258
|
|
|
$
|
845,725
|
|
|
$
|
797,580
|
|
|
$
|
167,156
|
|
|
$
|
151,139
|
|
|
$
|
569
|
|
|
$
|
2,819,427
|
|
Operating income (loss)
|
|
|
460,160
|
|
|
|
230,392
|
|
|
|
210,095
|
|
|
|
(24,399
|
)
|
|
|
34,410
|
|
|
|
(717,573
|
)
|
|
|
193,085
|
|
Depreciation and amortization expense
|
|
|
3,387
|
|
|
|
15,377
|
|
|
|
27,113
|
|
|
|
5,862
|
|
|
|
554
|
|
|
|
365,200
|
|
|
|
417,493
|
|
Six months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
776,161
|
|
|
$
|
799,181
|
|
|
$
|
731,832
|
|
|
$
|
138,270
|
|
|
$
|
80,762
|
|
|
$
|
70
|
|
|
$
|
2,526,276
|
|
Operating income (loss)
|
|
|
483,504
|
|
|
|
201,150
|
|
|
|
250,800
|
|
|
|
(14,510
|
)
|
|
|
41,836
|
|
|
|
(678,316
|
)
|
|
|
284,464
|
|
Depreciation and amortization expense
|
|
|
2,393
|
|
|
|
17,635
|
|
|
|
25,577
|
|
|
|
5,463
|
|
|
|
266
|
|
|
|
357,160
|
|
|
|
408,494
|
|
|
|
|
(a) |
|
Included in the Altiris segment are the
GhostTM,
pcAnywhereTM,
and
LiveStateTM
Delivery products which we moved from the Security and Data
Management segment. |
19
|
|
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 Securities Exchange Act
of 1934, as amended, or 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 March 31, 2007. We encourage you
to read that section carefully.
OVERVIEW
Our
Business
We are a world leader in providing infrastructure software to
protect individuals and enterprises from a variety of risks. We
provide consumers, home offices, and small businesses with
Internet security and personal computer, or PC, problem-solving
products; we provide small and medium-sized businesses with
software to provision, backup, secure, and remotely access their
PCs and servers; we provide enterprise and large enterprise
customers with security, storage and server management, data
protection, and application performance management solutions;
and we provide a full range of consulting and educational
services to enterprises of all sizes. In addition, we
continually work to enhance the features and functionality of
our existing products, extend our product leadership, and create
innovative solutions for our customers to address the rapidly
changing threat environment. Founded in 1982, we have operations
in 43 countries worldwide.
On April 6, 2007, we completed our acquisition of Altiris,
Inc., a leading provider of IT management software that enables
businesses to easily manage and service network-based endpoints.
We used approximately $841 million of our cash and cash
equivalents to fund the acquisition, which amount was net of
Altiris cash and cash equivalents balance. We believe this
acquisition will enable us to help customers better manage and
enforce security policies at the endpoint, identify and protect
against threats, and repair and service assets.
Our
Operating Segments
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. Beginning in the June 2007 quarter, we added an
additional segment called Altiris that consists of the products
we acquired as a result of our April 2007 acquisition of
Altiris, Inc. We also moved (1) our
Ghosttm,
pcAnywheretm,
and
LiveStatetm
Delivery products from the Security and Data Management segment
to the Altiris segment, and (2) our Managed Security
Services and DeepSight products and services from the Security
and Data Management segment to the Services segment. In
addition, following implementation of our new enterprise
resource planning system completed during the December 2006
quarter, we refined the methodology of allocating maintenance
revenues among our enterprise segments. This change largely
positively impacts our Data Center Management segment to the
offsetting detriment of the Security and Data Management
segment. These initiatives have resulted in us recasting our
segment data for all periods presented.
As of September 30, 2007, we operated in six segments,
descriptions of which are provided in Note 13 of Notes to
Condensed Consolidated Financial Statements.
20
Financial
Results and Trends
Our net income was $50 million and $146 million,
respectively, for the three and six months ended
September 30, 2007 as compared to our net income of
$126 million and $227 million, respectively, for the
three and six months ended September 30, 2006. The lower
net income for the fiscal 2008 periods as compared to the fiscal
2007 periods was primarily due to higher sales and marketing
expenses, an $87 million write-down in the September 2007
quarter related to non-strategic assets of the Data Center
Management segment, and restructuring charges of
$29 million incurred in the six months ended
September 30, 2007 related to the 2007 cost savings
initiative discussed below. During the September 2007 quarter,
employee headcount increased by approximately 5% from
March 31, 2007 and approximately 9% from September 30,
2006, primarily due to our April 2007 acquisition of Altiris.
Revenue for the three and six months ended September 30,
2007 was 13% and 12% higher, respectively, than revenue for the
three and six months ended September 2006. For the three and six
months ended September 30, 2007, we delivered revenue
growth across all of our geographic regions as compared to the
three and six months ended September 30, 2006 and
experienced revenue growth in all of our segments. This growth
was largely due to our having a higher deferred revenue balance
at the beginning of the June and September 30, 2007
quarters than at the beginning of the June and
September 30, 2006 quarters, which resulted in a larger
amount of deferred revenue being converted into revenue in the
fiscal 2008 periods compared to the fiscal 2007 periods. The
factors contributing to the growth in revenue and deferred
revenue are discussed more fully in Results of
Operations below.
Weakness in the U.S. dollar compared to foreign currencies
positively impacted our international revenue growth by
approximately $41 million and $79 million,
respectively, during the three and six month periods ended
September 30, 2007 as compared to the comparable prior year
periods. We are unable to predict the extent to which revenues
in future periods will be impacted by changes in foreign
currency exchange rates. To the extent that international sales
become a greater portion of our total sales in the future,
changes in foreign exchange rates may have a potentially greater
impact on our revenues and operating results.
In the fourth quarter of fiscal 2007, we implemented a cost
savings initiative, which included a workforce reduction of
approximately five percent worldwide. We have substantially
implemented these cost reductions and, as a result, we expect to
save approximately $200 million in costs on an annualized
basis. The cost savings initiative resulted in restructuring
charges totaling $29 million in the first two quarters of
fiscal 2008. The cost savings initiative may result in
additional restructuring charges in future periods.
During the September 2007 quarter, we determined that specified
tangible and intangible assets and liabilities of the Data
Center Management segment did not meet the long term strategic
objectives of the segment. Accordingly, we have recorded a
write-down of $87 million to value these assets and
liabilities at their respective estimated fair value.
Our gross margins and operating expenses were affected in the
June and September 2007 quarters, and we expect them to be
affected in future periods, as a result of recent changes in the
terms of some of our relationships with key Original Equipment
Manufacturers, or OEMs. We have negotiated new contract terms
with some of our OEM partners, which have resulted in payments
to OEM partners being included in our Condensed Consolidated
Statements of Income as Operating expenses rather than Cost of
revenues. In general, payments to OEMs made on a placement fee
per unit basis will be treated as Operating expenses, while
payments based on a revenue-sharing model will be amortized as
Cost of revenues. As a result of these recent changes, we expect
Cost of revenues to decrease and we expect Operating expenses to
increase. The increase in Operating expenses will more than
offset the decrease in Cost of revenues because placement fee
arrangements are expensed on an estimated average cost basis,
while revenue-sharing arrangements are amortized ratably over a
one-year period, and because payments to OEMs have increased.
Critical
Accounting Estimates
On April 1, 2007, we adopted a new pronouncement related to
income taxes, as discussed under the Significant Accounting
Policies portion of Note 1. Other than this, there have
been no significant changes in our critical accounting estimates
during the six months ended September 30, 2007 as compared
to the critical accounting estimates disclosed in
Managements Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007.
21
RESULTS
OF OPERATIONS
Total Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Net revenues
|
|
$
|
1,419,089
|
|
|
$
|
1,260,408
|
|
|
$
|
2,819,427
|
|
|
$
|
2,526,276
|
|
Period over period increase
|
|
$
|
158,681
|
|
|
|
|
|
|
$
|
293,151
|
|
|
|
|
|
|
|
|
13
|
%
|
|
|
|
|
|
|
12
|
%
|
|
|
|
|
The increase in revenues for the three months ended
September 30, 2007 as compared to the comparable period
last year is primarily due to higher amortization of deferred
revenue as a result of the higher amount of deferred revenue at
the beginning of the September 2007 period than at the beginning
of the September 2006 period. Our total deferred revenue was
$2.665 billion and $2.305 billion at the beginning of
the three month periods ended September 30, 2007 and 2006,
respectively, and was $2.599 billion and
$2.325 billion at the end of the September 2007 and 2006
periods, respectively. The higher deferred revenue balance at
the beginning of the September 2007 period is due to a greater
portion of the revenue from transactions being subject to
deferral in our fiscal year ended March 31, 2007 and in the
first quarter of fiscal 2008 compared to the comparable prior
year periods. This increase in deferred revenue is the result of
closing more multi-year contracts, selling more services along
with our license and maintenance arrangements, and the
combination of our buying programs for all of our enterprise
offerings, which resulted in a change in the vendor-specific
objective evidence, VSOE, of fair value for our storage and
availability offerings. The increase in the September 2007
quarter revenues was also augmented by $39 million as a
result of prior period growth in demand for our Consumer
products.
Furthermore, during the three month period ended September 2007,
revenues increased $42 million due to the sales of products
acquired through our April 6, 2007 acquisition of Altiris
for which there is no comparable revenue in the same prior year
period. Included in the total net revenues increase for the
three months ended September 30, 2007 is a favorable
foreign currency impact of $41 million.
As a result of our initiative to offer customers a more
comprehensive solution to protect and manage a global IT
infrastructure, we expect to sell more services with our license
and maintenance contracts. VSOE may not exist for some of these
services, which will result in our recognizing an increased
amount of deferred revenue, and increased classification of
revenues as Content, subscriptions, and maintenance revenue,
from these contracts. We also increased the amount of
maintenance renewals sold with a license component, resulting in
a larger portion of revenues associated with contracts being
classified as Content, subscriptions, and maintenance revenue,
which is subject to deferral, instead of Licenses revenue, which
is generally recognized immediately.
The increase in revenues for the six month period ended
September 30, 2007 as compared to the six month period
ended September 30, 2006 is primarily due to higher
amortization of deferred revenue as a result of the higher
amount of deferred revenue at the beginning of the six month
period ended September 30, 2007 period than at the
beginning of the comparable prior year period. Our total
deferred revenue was $2.754 billion and $2.163 billion
at the beginning of the six month periods ended
September 30, 2007 and 2006, respectively, and was
$2.599 billion and $2.325 billion at the end of the
six month periods ended September 30, 2007 and 2006,
respectively, for the reasons discussed above. Furthermore,
revenue for the six months ended September 30, 2007 was
augmented by $81 million as a result prior period growth in
demand for our Consumer Products. In addition, revenues for the
six month period ended September 30, 2007 increased by
$79 million due to the sales of products acquired through
our acquisition of Altiris for which there is no comparable
revenue in the comparable prior year period. Also included in
the total net revenues increase for the six months ended
September 30, 2007 is a favorable foreign currency impact
of $79 million.
The revenue increases during the three and six months ended
September 30, 2007 discussed above are further described in
the segment discussions that follow.
22
Content,
subscriptions, and maintenance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Content, subscriptions, and maintenance revenues
|
|
$
|
1,117,165
|
|
|
$
|
955,025
|
|
|
$
|
2,203,683
|
|
|
$
|
1,872,571
|
|
Percentage of total net revenues
|
|
|
79
|
%
|
|
|
76
|
%
|
|
|
78
|
%
|
|
|
74
|
%
|
Period over period increase
|
|
$
|
162,140
|
|
|
|
|
|
|
$
|
331,112
|
|
|
|
|
|
|
|
|
17
|
%
|
|
|
|
|
|
|
18
|
%
|
|
|
|
|
Content, subscriptions, and maintenance revenue includes
arrangements for software maintenance and technical support for
our products, content and subscription services primarily
related to our security products, revenue from arrangements
where VSOE of the fair value of undelivered elements does not
exist, and managed security services. These arrangements are
generally offered to our customers over a specified period of
time and we recognize the related revenue ratably over the
maintenance, subscription, or service period. Beginning with the
release of our 2006 consumer products that include content
updates in the December 2005 quarter, we recognize revenue
related to these products ratably. As a result, this revenue has
been classified as Content, subscriptions, and maintenance
beginning in the December 2005 quarter. In addition, as noted
above, increased flexibility in contract terms and the
combination of our buying programs in the December 2006 quarter
have impacted revenue recognition. These changes cause a larger
portion of revenue associated with contracts to be classified as
Content, subscriptions, and maintenance revenue instead of
Licenses revenue.
Content, subscriptions, and maintenance revenue also includes
professional services revenue, which consists primarily of the
fees we earn related to consulting and educational services. We
generally recognize revenue from our professional services as
the services are performed or upon written acceptance from
customers, if applicable, assuming all other conditions for
revenue recognition have been met.
Content, subscriptions, and maintenance revenues increased for
the three and six month periods ended September 30, 2007 as
compared to the comparable prior year periods primarily due to
increases of $105 million and $214 million,
respectively, in revenue related to enterprise products and
services, excluding acquired Altiris products. This increase in
enterprise product and services revenue was largely attributable
to higher amortization of deferred revenue, for reasons
discussed above.
Revenue related to our Consumer Products increased
$39 million and $81 million in the three and six month
periods ended September 30, 2007 as compared to the
comparable prior year periods, respectively, primarily due to
prior period growth in sales of Norton Internet Security
products and in online revenues due to growth in the use of the
Internet, and the increased awareness and sophistication of
security threats. Furthermore, revenues for the three and six
month periods ended September 30, 2007 increased
$17 million and $28 million, respectively, due to the
sales of products acquired through our acquisition of Altiris
for which there is no comparable revenue in the three and six
month periods ended September 30, 2006.
Licenses
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Licenses revenues
|
|
$
|
301,924
|
|
|
$
|
305,383
|
|
|
$
|
615,744
|
|
|
$
|
653,705
|
|
Percentage of total net revenues
|
|
|
21
|
%
|
|
|
24
|
%
|
|
|
22
|
%
|
|
|
26
|
%
|
Period over period decrease
|
|
$
|
(3,459
|
)
|
|
|
|
|
|
$
|
(37,961
|
)
|
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
(6
|
)%
|
|
|
|
|
Licenses revenues decreased in the three and six month periods
ended September 30, 2007 as compared to the comparable
prior year periods primarily due to an aggregate decrease in
revenues from the Security and Data Management and Data Center
Management segments of $23 million and $72 million,
respectively, as a result of
23
increased flexibility in contract terms and the combination of
our buying programs in the December 2006 quarter, causing a
larger portion of revenue associated with contracts to be
classified as content, subscriptions, and maintenance revenue
instead of licenses revenue. The decreases in revenue for the
three and six month periods ended September 30, 2007 are
partially offset by an increase of $25 million and
$51 million, respectively, due to the sales of products
acquired through our acquisition of Altiris for which there is
no comparable revenue in the three and six month periods ended
September 30, 2006.
Net
revenues by segment
Consumer
Products segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Consumer Products revenues
|
|
$
|
433,508
|
|
|
$
|
394,382
|
|
|
$
|
857,258
|
|
|
$
|
776,160
|
|
Percentage of total net revenues
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
Period over period increase
|
|
$
|
39,126
|
|
|
|
|
|
|
$
|
81,098
|
|
|
|
|
|
|
|
|
10
|
%
|
|
|
|
|
|
|
10
|
%
|
|
|
|
|
Consumer Products revenues increased in the three and six month
periods ended September 30, 2007 as compared to the
comparable prior year periods due to an aggregate increase of
$77 million and $153 million, respectively, in revenue
from our Norton Internet Security and Norton 360 products. These
increases are due to the increase in demand of our products
during prior periods, which became recognized as current period
revenue. These increases are partially offset by aggregate
decreases of $35 million and $65 million in revenue
from our Norton AntiVirus and Norton System
Workstm
products in the three and six month periods ended
September 30, 2007, respectively. These decreases resulted
from our customers continued migration to the Norton
Internet Security products and to our new Norton 360 products,
which offer broader protection to address the rapidly changing
threat environment. Our electronic orders include OEM,
subscriptions, upgrades, online sales, and renewals. Revenue
from electronic orders (which includes sales of our Norton
Internet Security products, Norton 360 products, and our Norton
AntiVirus products) grew by $33 million and
$84 million in the three and six month periods ended
September 30, 2007 as compared to the three and six month
periods ended September 30, 2006, respectively. Included in
the total Consumer Products increase is a favorable foreign
currencies impact of $14 million and $28 million in
the three and six month periods ended September 30, 2007 as
compared to the three and six month periods ended
September 30, 2006, respectively.
Security
and Data Management segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Security and Data Management revenues
|
|
$
|
422,464
|
|
|
$
|
394,892
|
|
|
$
|
845,725
|
|
|
$
|
799,181
|
|
Percentage of total net revenues
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
|
|
32
|
%
|
Period over period increase
|
|
$
|
27,572
|
|
|
|
|
|
|
$
|
46,544
|
|
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
The increase in revenues from our Security and Data Management
segment in the three and six month periods ended
September 30, 2007 as compared to the comparable prior year
periods was primarily due to an aggregate increase in revenue
from our Data and Systems Management and Enterprise Messaging
products of $25 million and $38 million for the three
and six month periods, respectively. This was a result of higher
amortization of deferred revenue, driven by a higher amount of
deferred revenue at the beginning of the three and six month
periods ended September 30, 2007 than at the beginning of
the comparable prior year periods, for the reasons discussed
above in Total Net Revenues. Included in the total
Security and Data Management increase is a favorable foreign
currencies impact of $12 million and $23 million in
the three and six month periods ended September 30, 2007 as
compared to the three and six month periods ended
September 30, 2006, respectively.
24
Data
Center Management segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Data Center Management revenues
|
|
$
|
398,355
|
|
|
$
|
363,778
|
|
|
$
|
797,580
|
|
|
$
|
731,832
|
|
Percentage of total net revenues
|
|
|
28
|
%
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
29
|
%
|
Period over period increase
|
|
$
|
34,577
|
|
|
|
|
|
|
$
|
65,748
|
|
|
|
|
|
|
|
|
10
|
%
|
|
|
|
|
|
|
9
|
%
|
|
|
|
|
The increase in revenues from our Data Center Management segment
in the three and six month periods ended September 30, 2007
as compared to the same prior year periods was primarily due to
an aggregate increase in revenue from our NetBackup and Storage
Foundation products of $37 million and $62 million for
the three and six month periods, respectively, driven by
increased demand for products related to the standardization and
simplification of data center infrastructure and higher
amortization of deferred revenue, as a result of the higher
amount of deferred revenue at the beginning of the three and six
month periods ended September 30, 2007 than at the
beginning of the comparable period last year, for the reasons
discussed above in Total Net Revenues. Included in
the total Data Center Management increase is a favorable foreign
currencies impact of $11 million and $21 million in
the three and six month periods ended September 30, 2007
as compared to the three and six month periods ended
September 30, 2006, respectively.
Services
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Services revenues
|
|
$
|
86,010
|
|
|
$
|
66,356
|
|
|
$
|
167,156
|
|
|
$
|
138,270
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
Period over period increase
|
|
$
|
19,654
|
|
|
|
|
|
|
$
|
28,886
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
|
|
|
|
21
|
%
|
|
|
|
|
Revenue from our Services segment increased in the three and six
month periods ended September 30, 2007 as compared to the
comparable prior year periods due to increased demand in our
service offerings and the contribution to Service revenues from
service offerings acquired in our December 2006 acquisition of
Company-i for which there is no comparable revenue in the
comparable prior year periods.
Altiris
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Altiris revenues
|
|
$
|
78,424
|
|
|
$
|
40,933
|
|
|
$
|
151,139
|
|
|
$
|
80,762
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
3
|
%
|
|
|
5
|
%
|
|
|
3
|
%
|
Period over period increase
|
|
$
|
37,491
|
|
|
|
|
|
|
$
|
70,377
|
|
|
|
|
|
|
|
|
92
|
%
|
|
|
|
|
|
|
87
|
%
|
|
|
|
|
The increase in Altiris revenue in the three and six month
periods ended September 30, 2007 as compared to the
comparable prior year periods was primarily due to
$42 million and $79 million, respectively, in sales of
products acquired through our April 2007 acquisition of Altiris
for which there is no comparable revenue in the comparable prior
year periods. This amount was offset slightly by the continued
decline in sales of our pcAnywhere product.
25
Other
segment
Our Other segment is comprised primarily of sunset products and
products nearing the end of their life cycle. Revenues from the
Other segment during the three and six month periods ended
September 30, 2007 and 2006 were immaterial.
Net
revenues by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
North America (U.S. and Canada)
|
|
$
|
737,662
|
|
|
$
|
673,953
|
|
|
$
|
1,462,667
|
|
|
$
|
1,342,431
|
|
Percentage of total net revenues
|
|
|
52
|
%
|
|
|
53
|
%
|
|
|
52
|
%
|
|
|
53
|
%
|
Period over period increase
|
|
$
|
63,709
|
|
|
|
|
|
|
$
|
120,236
|
|
|
|
|
|
EMEA (Europe, Middle East, Africa)
|
|
$
|
460,485
|
|
|
$
|
386,423
|
|
|
$
|
918,289
|
|
|
$
|
783,970
|
|
Percentage of total net revenues
|
|
|
32
|
%
|
|
|
31
|
%
|
|
|
32
|
%
|
|
|
31
|
%
|
Period over period increase
|
|
$
|
74,062
|
|
|
|
|
|
|
$
|
134,319
|
|
|
|
|
|
Asia Pacific/Japan
|
|
$
|
194,134
|
|
|
$
|
177,605
|
|
|
$
|
385,220
|
|
|
$
|
352,081
|
|
Percentage of total net revenues
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
14
|
%
|
Period over period increase
|
|
$
|
16,529
|
|
|
|
|
|
|
$
|
33,139
|
|
|
|
|
|
Latin America
|
|
$
|
26,808
|
|
|
$
|
22,427
|
|
|
$
|
53,251
|
|
|
$
|
47,794
|
|
Percentage of total net revenues
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Period over period increase
|
|
$
|
4,381
|
|
|
|
|
|
|
$
|
5,457
|
|
|
|
|
|
International revenues increased in the three and six month
periods ended September 30, 2007 as compared to the
comparable prior year periods primarily due to the growth in
revenues from our Consumer Products of $24 million and
$56 million, respectively, driven by prior period demand
for Norton Internet Security products, growth in revenues from
our Data Center Management products of $25 million and
$47 million, respectively, as a result of increased demand
for products related to the standardization and simplification
of data center infrastructure, the higher amortization of
deferred revenue, and sales of products acquired through our
April 2007 acquisition of Altiris of $17 million and
$28 million, respectively, for which there is no comparable
revenue in the three and six month periods ended
September 30, 2006. In North America, the increases from
the three and six month periods ended September 30, 2007
period compared to the three and six month periods ended
September 30, 2006 was primarily due to sales of products
acquired through our acquisition of Altiris of $27 million
and $50 million, respectively, for which there is no
comparable revenue in the three and six months ended
September 30, 2006, and growth in revenues from our
Consumer Products of $15 million and $25 million,
respectively, driven by prior period demand for Norton Internet
Security products. Both domestic and international revenue were
positively impacted by higher amortization of deferred revenue,
as a result of the higher amount of deferred revenue at the
beginning of the three and six months ended September 30,
2007 than at the beginning of the comparable prior year periods,
for the reasons discussed above.
Foreign currencies had a favorable impact on net revenues of
$41 million and $79 million in the three and six
months ended September 30, 2007 as compared to the
comparable prior year periods. We are unable to predict the
extent to which revenues in future periods will be impacted by
changes in foreign currency exchange rates. If international
sales become a greater portion of our total sales in the future,
changes in foreign currency exchange rates may have a
potentially greater impact on our revenues and operating results.
26
Cost of
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Cost of revenues
|
|
$
|
304,526
|
|
|
$
|
300,401
|
|
|
$
|
614,790
|
|
|
$
|
599,060
|
|
Gross margin
|
|
|
79
|
%
|
|
|
76
|
%
|
|
|
78
|
%
|
|
|
76
|
%
|
Period over period increase
|
|
$
|
4,125
|
|
|
|
|
|
|
$
|
15,730
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
Cost of revenues consists primarily of 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.
Gross margin increased in the three months ended
September 30, 2007 as compared to the three months ended
September 30, 2006 due primarily to higher revenues being
realized from deferred revenue, along with lower royalty
payments, which more than offset year over year increases in
services and technical support costs. Gross margin increased in
the six months ended September 30, 2007 as compared to the
comparable period last year due to lower amortization of
acquired product rights as a percentage of revenue as well as
lower scrap and obsolescence charges, offset in part by higher
costs for services and technical support. We anticipate that our
net revenues from our Services segment may grow to comprise a
higher percentage of our total net revenues, which would have a
negative impact on our gross margin, as our services typically
have a higher Cost of revenues than our software products. Gross
margin was also impacted as the terms of several of our OEM
arrangements changed from revenue-sharing arrangements to
placement fee arrangements during fiscal 2007. Placement fee
arrangements are expensed on an estimated average cost basis as
sales and marketing expenses, while revenue-sharing arrangements
are amortized as Cost of revenues ratably over a one-year period.
Cost
of content, subscriptions, and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Cost of content, subscriptions, and maintenance
|
|
$
|
205,572
|
|
|
$
|
203,524
|
|
|
$
|
415,238
|
|
|
$
|
398,660
|
|
As a percentage of related revenue
|
|
|
18
|
%
|
|
|
21
|
%
|
|
|
19
|
%
|
|
|
21
|
%
|
Period over period increase
|
|
$
|
2,048
|
|
|
|
|
|
|
$
|
16,578
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
Cost of content, subscriptions, 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, subscriptions, and maintenance
decreased as a percentage of the related revenue in the three
months ended September 30, 2007 as compared to the three
months ended September 30, 2006. The quarter over quarter
increase in margin is primarily driven by higher revenues and
lower OEM royalties and technical support costs as a percentage
of revenue more than offsetting increases in Services expenses.
In addition, costs related to our Services consulting increased
$40 million and those related to consumer products
decreased $7 million in the three months ended
September 30, 2007 compared to the three months ended
September 30, 2006.
During the six months ended September 30, 2007, Cost of
content, subscriptions, and maintenance decreased as a
percentage of the related revenue as compared to the comparable
period last year due primarily to increased costs of billable
services being more than offset by decreases in technical
support costs, OEM royalties and scrap and obsolescence charges
as a percentage of related revenue. In addition, during the six
months ended September 30, 2007, costs related to Services
consulting increased $81 million and costs related to
consumer products decreased $5 million, compared to the
comparable prior year period.
27
We expect our cost of content, subscriptions and maintenance to
be affected in future periods as a result of recent changes in
the terms of some of our key OEM relationships, as discussed
above under Financial Results and Trends.
Cost
of licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Cost of licenses
|
|
$
|
9,892
|
|
|
$
|
11,539
|
|
|
$
|
21,130
|
|
|
$
|
27,451
|
|
As a percentage of related revenue
|
|
|
3
|
%
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
4
|
%
|
Period over period decrease
|
|
$
|
(1,647
|
)
|
|
|
|
|
|
$
|
(6,321
|
)
|
|
|
|
|
|
|
|
(14
|
)%
|
|
|
|
|
|
|
(23
|
)%
|
|
|
|
|
Cost of licenses consists primarily of royalties paid to third
parties under technology licensing agreements and manufacturing
and direct material costs. Cost of licenses decreased as a
percentage of the related revenue in the three and six months
ended September 30, 2007 as compared to the three and six
months ended September 30, 2006. The decrease in absolute
dollars is primarily due to high obsolete reserves in the
June 30, 2006 quarter due to the Companys decision to
exit certain aspects of the appliance business.
Amortization
of acquired product rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
($ in thousands)
|
|
|
Amortization of acquired product rights
|
|
$
|
89,062
|
|
|
$
|
85,338
|
|
|
$
|
178,422
|
|
|
$
|
172,949
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
7
|
%
|
|
|
6
|
%
|
|
|
7
|
%
|
Period over period increase (decrease)
|
|
$
|
3,724
|
|
|
|
|
|
|
$
|
5,473
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
Acquired product rights are comprised of developed technologies
and patents from acquired companies. The amortization in the
three month periods ended September 30, 2006 and 2007 is
primarily associated with the Veritas acquisition, for which
amortization began in July 2005. In connection with the Veritas
acquisition, we recorded $1.3 billion in acquired product
rights which are being amortized over their expected useful
lives of three months to five years. We amortize the fair value
of all other acquired product rights over their expected useful
lives, generally one to eight years. Amortization in the three
months ended September 30, 2007 was higher than
amortization in the three months ended September 30, 2006
primarily resulting from amortization associated with the
Altiris acquisition, which was offset in part by certain
acquired product rights becoming fully amortized. The increase
in amortization in the six months ended September 30, 2007
as compared to the six months ended September 30, 2006 is
primarily due to the Altiris acquisition. For further discussion
of acquired product rights and related amortization, see
Note 5 of the Notes to Condensed Consolidated Financial
Statements.
28
Operating
Expenses
Sales
and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Sales and marketing
|
|
$
|
595,162
|
|
|
$
|
464,589
|
|
|
$
|
1,163,692
|
|
|
$
|
932,038
|
|
Percentage of total net revenues
|
|
|
42
|
%
|
|
|
37
|
%
|
|
|
41
|
%
|
|
|
37
|
%
|
Period over period increase
|
|
$
|
130,573
|
|
|
|
|
|
|
$
|
231,654
|
|
|
|
|
|
|
|
|
28
|
%
|
|
|
|
|
|
|
25
|
%
|
|
|
|
|
The increase in sales and marketing expense in the three and six
months ended September 30, 2007 as compared to the
comparable prior year periods was primarily due to an increase
in headcount and the change in our OEM arrangements. The
increase in headcount contributed approximately $66 million
in employee compensation expense for the three months ended
September 30, 2007. The balance of the increase for such
three-month period is primarily a result of changes in our OEM
arrangements discussed above under Financial Results and
Trends, which accounted for $57 million of the
increase from the September 2006 quarter. The increase in sales
and marketing expenses in the six months ended
September 30, 2007 as compared to the comparable period in
2006 is due primarily to the increase in headcount which
contributed $130 million in employee compensation expense.
The remaining increase for such six-month period is a result of
changes in our OEM arrangements, which accounted for
$101 million of the increase from the six months ended
September 30, 2006. We expect sales and marketing expenses
to continue to increase for the remainder of fiscal 2008
compared to the comparable fiscal 2007 periods due to recent
changes in the terms of some of our key OEM relationships, as
discussed above.
Research
and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
Research and development
|
|
$
|
221,057
|
|
|
$
|
218,250
|
|
|
$
|
446,635
|
|
|
$
|
431,445
|
|
Percentage of total net revenues
|
|
|
16
|
%
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
17
|
%
|
Period over period increase
|
|
$
|
2,807
|
|
|
|
|
|
|
$
|
15,190
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
Research and development expense remained relatively consistent
as a percentage of revenues for the three months ended
September 30, 2007 compared to the comparable period last
year. The increase in research and development expenses in the
six months ended September 2007 as compared to the comparable
period last year was due primarily to an increase in employee
headcount, resulting in additional employee compensation expense.
General
and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
General and administrative
|
|
$
|
86,405
|
|
|
$
|
80,076
|
|
|
$
|
172,250
|
|
|
$
|
158,697
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
Period over period increase
|
|
$
|
6,329
|
|
|
|
|
|
|
$
|
13,553
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
9
|
%
|
|
|
|
|
The increase in general and administrative expenses for the
three and six months ended September 30, 2007 as compared
to the comparable periods last year was due to increases in
miscellaneous variable expenses.
29
Amortization
of other purchased intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Amortization of other intangible assets
|
|
$
|
56,926
|
|
|
$
|
50,480
|
|
|
$
|
113,851
|
|
|
$
|
101,094
|
|
Percentage of total net revenues
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
Period over period increase
|
|
$
|
6,446
|
|
|
|
|
|
|
$
|
12,757
|
|
|
|
|
|
|
|
|
13
|
%
|
|
|
|
|
|
|
13
|
%
|
|
|
|
|
Other intangible assets are comprised of customer base, trade
names, partnership agreements, and marketing-related assets. The
increased amortization in the three and six months ended
September 30, 2007 compared to the comparable periods last
year is primarily associated with the acquisitions of Company-i
and 4FrontSecurity, Inc. that occurred during fiscal 2007, and
the acquisition of Altiris, which occurred on April 6,
2007. We recorded $223 million of intangible assets related
to the Altiris acquisition, which will be amortized over their
useful lives of one to eight years. For further discussion of
other intangible assets and related amortization, see
Note 5 of Notes to Condensed Consolidated Financial
Statements.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Restructuring
|
|
$
|
9,578
|
|
|
$
|
6,220
|
|
|
$
|
28,578
|
|
|
$
|
19,478
|
|
Percentage of total net revenues
|
|
|
1
|
%
|
|
|
|
*
|
|
|
1
|
%
|
|
|
1
|
%
|
Period over period increase
|
|
$
|
3,358
|
|
|
|
|
|
|
$
|
9,100
|
|
|
|
|
|
|
|
|
54
|
%
|
|
|
|
|
|
|
47
|
%
|
|
|
|
|
In the three and six months ended September 30, 2007, we
recorded approximately $10 million and $29 million,
respectively, of restructuring expenses related to the 2007 cost
savings initiative announced in January 2007. The costs recorded
during the three months ended September 30, 2007 were
primarily related to facilities exit costs, while the majority
of the costs in the six months ended September 30, 2007
were related to employee termination costs associated with
redundant employees located outside of the United States. For
further information, see Note 9 of Notes to the Condensed
Consolidated Financial Statements.
In the three and six months ended September 30, 2006, we
recorded restructuring costs of $6 million and
$19 million, respectively. These restructuring costs
related to executive severance and to severance, associated
benefits, and outplacement services for the termination of 323
redundant employees located in the United States, Europe, and
Asia Pacific.
Write-down
of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Write-down of intangible assets
|
|
$
|
86,546
|
|
|
$
|
|
|
|
$
|
86,546
|
|
|
$
|
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
Period over period increase
|
|
$
|
86,546
|
|
|
|
|
|
|
$
|
86,546
|
|
|
|
|
|
|
|
|
NA
|
|
|
|
|
|
|
|
NA
|
|
|
|
|
|
During the three months ended September 30, 2007, we
determined that certain tangible and intangible assets and
liabilities of the Data Center Management segment did not meet
the long term strategic objectives of the
30
segment. Accordingly, we have recorded a write- down of
$87 million to value these assets and liabilities at their
respective estimated fair value. The fair value of these assets,
totaling $23 million, primarily consists of intangible
assets of $18 million, and is included in Other Current
Assets on the Condensed Consolidated Balance Sheet. The fair
value of the liabilities totaling $10 million, are included
in Other Current Liabilities on the Condensed Consolidated
Balance Sheet.
Non-operating
Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Interest income
|
|
$
|
19,179
|
|
|
$
|
34,983
|
|
|
$
|
40,000
|
|
|
$
|
62,799
|
|
Interest expense
|
|
|
(6,617
|
)
|
|
|
(8,052
|
)
|
|
|
(12,908
|
)
|
|
|
(14,730
|
)
|
Other income (expense), net
|
|
|
1,965
|
|
|
|
15,581
|
|
|
|
3,231
|
|
|
|
15,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,527
|
|
|
$
|
42,512
|
|
|
$
|
30,323
|
|
|
$
|
63,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenues
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
1
|
%
|
|
|
3
|
%
|
Period over period decrease
|
|
$
|
(27,985
|
)
|
|
|
|
|
|
$
|
(33,145
|
)
|
|
|
|
|
|
|
|
(66
|
)%
|
|
|
|
|
|
|
(52
|
)%
|
|
|
|
|
The decrease in interest income in the three and six months
ended September 30, 2007 as compared to the comparable
periods last year was due primarily to a lower average balance
of our invested cash due to our use of cash for the repurchase
of our stock on the open market and our purchase of Altiris on
April 6, 2007.
Interest expense in the three and six months ended
September 30, 2007 as compared to the comparable periods
last year remained relatively consistent.
The decrease in other income (expense), net for the three and
six months ended September 30, 2007 as compared to the
comparable periods last year is primarily due to the gain of
$17 million from the sale of property and equipment,
primarily related to the sale of a building located in Milpitas,
California, which occurred in fiscal 2007.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Provision for income taxes
|
|
$
|
23,048
|
|
|
$
|
56,722
|
|
|
$
|
77,834
|
|
|
$
|
121,216
|
|
Effective income tax rate
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Period over period decrease
|
|
$
|
(33,674
|
)
|
|
|
|
|
|
$
|
(43,382
|
)
|
|
|
|
|
|
|
|
(59
|
)%
|
|
|
|
|
|
|
(36
|
)%
|
|
|
|
|
The effective tax rate was approximately 31% for both three
month periods and 35% for both six month periods ended
September 30, 2007 and September 30, 2006,
respectively. The effective tax rates for all periods are
favorably impacted by the benefits of lower-taxed foreign
earnings and domestic manufacturing tax incentives, offset by
state income taxes and non-deductible stock-based compensation
resulting from the adoption of SFAS No. 123(R),
Share-Based Payment. Additionally, the effective tax
rates for both September quarters are lower due to the benefit
items described below. The September 2007 quarter includes a
full 40% tax benefit related to the write-down of intangible and
tangible assets related to the Data Center Management segment,
as discussed in Note 6 to our Condensed Consolidated
Financial Statements. The September 2006 quarter includes an
$8 million tax benefit recorded for the final IRS audit
settlement of Symantecs fiscal years 2003 and 2004.
Further, the tax expense for the six months ended
September 30, 2006 includes an accrual of approximately
$6 million for penalty risks associated with the late
filing of Veritas final pre-acquisition income tax return
that was recorded in the June 2006 quarter.
31
The decrease in tax expense for the three and six month periods
ended September 30, 2007 is primarily attributable to the
$35 million tax benefit associated with the write-down of
intangible and tangible assets of the Data Center Management
segment.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, (FIN 48) effective April 1,
2007. FIN 48 addresses the accounting for and disclosure of
uncertainty in income tax positions, by prescribing a minimum
recognition threshold that a tax position is required to satisfy
before being recognized in the financial statements. FIN 48
also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
The cumulative effect of adopting FIN 48 was a decrease in
tax reserves of $18 million, resulting in a decrease to
Veritas goodwill of $10 million, an increase of
$7 million to the April 1, 2007 Retained Earnings
balance, and a $1 million increase in Paid in Capital. Upon
adoption, the gross liability for unrecognized tax benefits at
April 1, 2007 was $454 million, exclusive of interest
and penalties. This gross liability is reduced by offsetting tax
benefits associated with the correlative effects of potential
transfer pricing adjustments and state income taxes as well as
payments made to date. Of the total unrecognized tax benefits,
$88 million, if recognized, would favorably affect the
companys effective tax rate while the remaining amount
would affect goodwill. In addition, consistent with the
provisions of FIN 48, certain reclassifications were made
to the balance sheet, including the reclassification of
$350 million of income tax liabilities from current to
non-current liabilities because payment of cash is not
anticipated within one year of the balance sheet date.
We believe realization of substantially all of our net deferred
tax assets as of September 30, 2007 is more likely than not
based on the future reversal of temporary tax differences and
upon future taxable earnings exclusive of reversing temporary
differences in certain foreign jurisdictions. Levels of future
taxable income are subject to the various risks and
uncertainties discussed in Risk Factors, set forth in
Part I, Item 1A, of our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007. An additional
valuation allowance against net deferred tax assets may be
necessary if it is more likely than not that all or a portion of
the net deferred tax assets will not be realized. We assess the
need for an additional valuation allowance on a quarterly basis.
We must make certain estimates and judgments in determining
income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of tax credits,
benefits, and deductions, and in the calculation of certain tax
assets and liabilities, which arise from differences in the
timing of recognition of revenue and expense for tax and
financial statement purposes, as well as the interest and
penalties relating to these uncertain tax positions. Significant
changes to these estimates may result in an increase or decrease
to our tax provision in a subsequent period.
We report our results of operations based on our determinations
of the amount of taxes owed in the various tax jurisdictions in
which we operate. As a United States company with significant
international activities and operations, we make transfer
pricing determinations with respect to transfers of intellectual
property, goods and services between and among us and our
foreign subsidiaries. These pricing determinations can be
complex and are subject to challenge by taxing authorities in
the various tax jurisdictions in which we and our subsidiaries
operate. From time to time, we receive notices that a tax
authority to which we are subject has determined that we owe a
greater amount of tax than we have reported to such authority,
and we are regularly engaged in discussions, and sometimes
disputes, with these tax authorities. Our current disputes with
the U.S. Internal Revenue Service, which relate in large
part to transfer pricing matters, are an example of this type of
matter. If our transfer pricing methodologies are successfully
challenged in the matters currently in dispute, it is likely
that subsequent inter-company transfers that have been valued
using similar methodologies will also be challenged.
If the ultimate determination of our taxes owed in any of these
jurisdictions is for an amount in excess of the tax provision we
have recorded or reserved for, our operating results, cash
flows, and financial condition could be adversely affected.
32
LIQUIDITY
AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
($ in thousands)
|
|
|
Net cash provided by (used for)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
682,278
|
|
|
$
|
644,880
|
|
Investing activities
|
|
|
(1,132,499
|
)
|
|
|
49,303
|
|
Financing activities
|
|
|
(766,889
|
)
|
|
|
(461,068
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
46,440
|
|
|
|
59,049
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(1,170,670
|
)
|
|
$
|
292,164
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007, our principal source of liquidity
was our existing cash, cash equivalents, and short-term
investments of $2.0 billion, of which 26% was held
domestically and the remainder was held outside of the
U.S. In April 2007, we completed our acquisition of
Altiris, Inc. We used approximately $841 million of our
domestic cash and cash equivalents balance to fund the purchase
price of Altiris, which amount is net of Altiris cash and
cash equivalents balances.
On January 24, 2007, we announced that the Board of
Directors authorized the repurchase of $1 billion of
Symantec common stock without a scheduled expiration date. As of
June 30, 2007, we completed the $1 billion share
repurchase program. On June 14, 2007, we announced that our
Board of Directors authorized the repurchase of an additional
$2 billion of Symantec common stock, without a scheduled
expiration date. As of September 30, 2007 we have
repurchased $400 million worth of shares under this plan
and $1.6 million of this new authorization remained
available for future repurchases.
In June 2006, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes due June 15, 2011, and
$1.0 billion principal amount of 1.00% Convertible
Senior Notes due June 15, 2013, to initial purchasers in a
private offering for resale to qualified institutional buyers
pursuant to SEC Rule 144A. We refer to these Notes
collectively as the Senior Notes. Concurrently with the issuance
of the Senior Notes, we entered into note hedge transactions
with affiliates of certain of the initial purchasers whereby we
have the option to purchase up to 110 million shares of our
common stock at a price of $19.12 per share. In addition,
concurrently with the issuance of the Senior Notes, we also sold
warrants to affiliates of certain of the initial purchasers
whereby they have the option to purchase up to 110 million
shares of our common stock at a price of $27.3175 per share. The
warrants expire on various dates from July 2011 through August
2013 and must be settled in net shares.
The cost incurred in connection with the note hedge
transactions, net of the related tax benefit and the proceeds
from the sale of the warrants, is included as a net reduction in
Capital in excess of par value in the accompanying Condensed
Consolidated Balance Sheets as of June 30, 2007, in
accordance with the guidance in Emerging Issues Task Force
Issue, or EITF,
No. 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock.
During April 2006, we purchased two office buildings totaling
approximately 236,000 square feet in Cupertino, California
for $81 million. Approximately 64,000 square feet is
leased to a third party.
Operating
activities
Net cash provided by operating activities during the six months
ended September 30, 2007 resulted largely from net income
of $146 million, adjusted for non-cash depreciation and
amortization charges of $417 million, a write-down of
intangible assets of $87 million, and non-cash stock-based
compensation expense of $82 million. Trade accounts
receivable decreased $119 million due to strong cash
collections. This was substantially offset by decreases in
deferred revenue of $229 million, reflecting amortization
of deferred revenue into revenue during the September 2007
quarter. Income taxes payable also increased by
$131 million, primarily due to the FIN 48
implementation and Altiris acquisition during the first quarter
of fiscal 2008.
33
Net cash provided by operating activities during the six months
ended September 30, 2006 resulted largely from net income
of $227 million, adjusted for non-cash depreciation and
amortization charges of $408 million and non-cash
stock-based compensation expense of $83 million. Trade
accounts receivable decreased $120 million due to strong
cash collections. Conversely, accounts payable and accrued
compensation and benefits decreased an aggregate of
$31 million reflecting payments, and income taxes payable
decreased $157 million primarily due to payments, including
amounts related to Veritas pre-acquisition tax liabilities on
foreign subsidiary distributions.
Investing
Activities
Net cash used in investing activities during the six months
ended September 30, 2007 was primarily the result of the
use of $841 million to fund the purchase price of Altiris,
which amount is net of Altiris cash and cash equivalents
balances, capital expenditures of $138 million and
purchases of short term investments of $641 million. This
was offset by proceeds from sales of short term investments of
$498 million.
Net cash provided by investing activities during the six months
ended September 30, 2006 was primarily the result of net
proceeds from the sale of property and equipment, primarily a
building in Milpitas, California, of $87 million and
proceeds of $246 million from sales of available-for-sale
securities. These items were offset by purchases of
available-for-sale securities of $42 million and capital
expenditures of $236 million, which included
$81 million for the purchase of two office buildings in
Cupertino, California.
Financing
Activities
During the six month period ended September 30, 2007, we
repurchased a total of 47 million shares of our common
stock, under the plans announced in January 2007 and June 2007,
at prices ranging from $17.61 to $20.14 per share for an
aggregate amount of $900 million. As of September 30,
2007, $1.6 billion remained authorized for future
repurchases.
During the six month period ended September 30, 2006, we
repurchased 110 million shares of our common stock at
prices ranging from $15.61 to $21.09 per share for an aggregate
amount of $1.9 billion. For further information regarding
stock repurchase activity see Part II, Item 2,
Unregistered Sales of Equity Securities and Use of Proceeds
of this quarterly report and Note 7 of the Notes to
Condensed Consolidated Financial Statements in this quarterly
report, which information is incorporated herein by reference.
In the June 2006 quarter, we issued the Senior Notes for
proceeds of approximately $2.1 billion. We used
$1.5 billion of the proceeds to repurchase shares of our
common stock, as discussed above, and used the remaining
$520 million to redeem the Veritas 0.25% Notes in
August 2006. We also purchased hedges related to the Senior
Notes for $592 million and received proceeds of
$326 million from the sale of common stock warrants.
In the six months ended September 30, 2007 and 2006, we
received net proceeds of $130 million and
$118 million, respectively, from the issuance of our common
stock through employee benefit plans.
Contractual
Obligations
Convertible
senior notes
Holders of the Senior Notes may convert their Senior Notes prior
to maturity upon the occurrence of certain circumstances. Upon
conversion, we would pay the holder the cash value of the
applicable number of shares of Symantec common stock, up to the
principal amount of the note. Amounts in excess of the principal
amount, if any, may be paid in cash or in stock at our option.
As of September 30, 2007, the conditions to convertibility
of the Senior Notes had not been met.
Purchase
obligations
We enter into purchase obligations in the normal course of our
business. There were no significant changes in our purchase
obligations during the six months ended September 30, 2007
as compared to what was previously reported in Part II,
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, in our Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2007.
34
Development
agreement
During fiscal 2006, we entered into an agreement in connection
with the construction of, or refurbishments to, a building in
Culver City, California. Payment is contingent upon the
achievement of certain
agreed-upon
milestones. The remaining commitment under the agreement is
$23 million as of September 30, 2007.
Royalties
We have certain royalty commitments associated with the shipment
and licensing of certain products. Royalty expense is generally
based on a dollar amount per unit shipped or a percentage of
underlying revenue. Certain royalty commitments have minimum
commitment obligations; however, as of September 30, 2007,
all such obligations are immaterial.
Leases
We lease office space in North America (principally in the
United States) and various locations throughout the world. Our
operating lease commitments at September 30, 2007 increased
by approximately $76 million as compared to what was
previously reported in Part II, Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, in our Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007. The following
table updates and summarizes our operating leases as of
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Remaining 2 Quarters
|
|
|
Fiscal 2009
|
|
|
Fiscal 2011
|
|
|
Fiscal 2013 and
|
|
|
|
Total
|
|
|
of Fiscal 2008
|
|
|
and 2010
|
|
|
and 2012
|
|
|
thereafter
|
|
|
|
(In thousands)
|
|
|
Operating leases(1)
|
|
$
|
491,001
|
|
|
$
|
50,702
|
|
|
$
|
160,441
|
|
|
$
|
106,418
|
|
|
$
|
173,440
|
|
|
|
|
(1) |
|
Includes $15 million related to facilities included in our
restructuring reserve. |
Indemnification
As permitted under Delaware law, we have agreements whereby we
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.
Uncertain
tax positions
Upon adoption of FIN 48 on April 1, 2007, we reflected
$6 million in current taxes payable and $350 million
in long-term taxes payable related to unrecognized tax benefits.
We also recorded additional long-term taxes payable of
$75 million in the six months ended September 30,
2007. At this time, we are unable to make a reasonably reliable
estimate of the timing of payments in individual years beyond
the next twelve months due to uncertainties in the timing of the
commencement and settlement of potential tax audits and
controversies.
Norton
agreement
On June 20, 2007, the Company and Peter Norton amended the
Amended Agreement Respecting Certain Rights of Publicity dated
August 31, 1990, concerning Symantecs license to
Peter Nortons publicity rights. As a result of this
amendment the Company has recorded a long-term liability for the
net present value of the payments of $29 million with
$5 million due in the last two quarters of fiscal 2008,
$8 million in 2009, $6 million in 2010,
$4 million in 2011, $2 million in 2012, and an
immaterial amount thereafter.
35
Purchase
price adjustment
On December 1, 2006, we completed our acquisition of
Company-i for $26 million in cash. The purchase price was
subject to an adjustment of up to $11 million in cash if
Company-i achieved certain billings targets by March 31 or
September 30, 2007 or September 30, 2008. During the
June quarter, we determined that the billing target was met as
of June 29, 2007 and therefore recorded a liability of
approximately $12 million, including the effects of foreign
exchange, and booked an adjustment to goodwill, in accordance
with SFAS No. 141, Business Combinations. We
made this payment during the second quarter of fiscal 2008.
Huawei
Technologies Joint Venture
In May 2007, we signed an agreement to invest in a joint venture
with Huawei Technologies Co., Ltd. Upon the closing of the joint
venture, we will contribute storage and security software and
$150 million in cash in return for a 49% interest in the
entity. The joint venture is expected to close by early calendar
year 2008, pending required regulatory and governmental
approvals.
Recent
Accounting Pronouncements
Information with respect to Recent Accounting Pronouncements may
be found in Note 1 of Notes to Condensed Consolidated
Financial Statements in this
Form 10-Q,
which information is incorporated herein by reference.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We believe there have been no significant changes in our market
risk exposures during the six months ended September 30,
2007 as compared to what was previously disclosed in our Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2007.
|
|
Item 4.
|
Controls
and Procedures
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures
|
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 of 1934, as amended) 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 quarter ended September 28, 2007 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.
36
PART II.
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Information with respect to this Item may be found in
Note 12 of Notes to Condensed Consolidated Financial
Statements in this
Form 10-Q,
which information is incorporated into this Item 1 by
reference.
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 March 31, 2007. 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 month period ended
September 28, 2007 were as follows:
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchase
|
|
|
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)
|
|
|
June 30, 2007 to July 27, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,000
|
|
July 28, 2007 to August 24, 2007
|
|
|
12,632,315
|
|
|
$
|
18.21
|
|
|
|
12,632,315
|
|
|
$
|
1,770
|
|
August 25, 2007 to September 28, 2007
|
|
|
8,982,300
|
|
|
$
|
18.93
|
|
|
|
8,982,300
|
|
|
$
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21,614,615
|
|
|
$
|
18.51
|
|
|
|
21,614,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For information with regard to our stock repurchase programs,
including programs completed during the period covered by this
Report, see Note 7 of Notes to Condensed Consolidated
Financial Statements, which information is incorporated herein
by reference.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We held our Annual Meeting of Stockholders on September 13,
2007. At the meeting, our stockholders voted on the four
proposals described below. All nine of our board nominees were
elected under Proposal 1; Proposals 2 and 3 were
approved; and Proposal 4, a stockholder proposal, was not
approved. Our stockholders cast their votes as follows:
Proposal 1: To elect nine directors to
our Board of Directors, each to hold office until the next
annual meeting of stockholders and until his successor is
elected and qualified or until his earlier resignation or
removal:
|
|
|
|
|
|
|
|
|
Nominee
|
|
For
|
|
|
Withheld
|
|
|
John W. Thompson
|
|
|
762,495,709
|
|
|
|
23,697,484
|
|
Michael Brown
|
|
|
771,685,691
|
|
|
|
14,507,502
|
|
William T. Coleman
|
|
|
771,792,584
|
|
|
|
14,400,609
|
|
Frank E. Dangeard
|
|
|
769,254,170
|
|
|
|
16,939,023
|
|
David L. Mahoney
|
|
|
771,758,768
|
|
|
|
14,434,425
|
|
Robert S. Miller
|
|
|
737,401,988
|
|
|
|
48,791,205
|
|
George Reyes
|
|
|
434,685,461
|
|
|
|
351,507,732
|
|
Daniel H. Schulman
|
|
|
771,776,467
|
|
|
|
14,416,726
|
|
V. Paul Unruh
|
|
|
771,712,693
|
|
|
|
14,480,500
|
|
37
Proposal 2: To approve the amendment and
restatement of our 2000 Director Equity Incentive Plan to
increase the number of shares authorized for issuance thereunder
from 100,000 to 150,000:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Broker Non-Votes
|
|
|
|
602,575,367
|
|
|
|
56,359,063
|
|
|
|
5,311,555
|
|
|
|
121,947,208
|
|
Proposal 3: To ratify the selection of
KPMG LLP as our independent registered public accounting firm
for our 2008 fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non-Votes
|
|
|
775,872,026
|
|
|
|
5,363,160
|
|
|
|
4,958,007
|
|
|
|
|
|
Proposal 4: Stockholder proposal that our
Symantec Board of Directors adopt a policy that company
shareholders be given the opportunity at each annual meeting of
shareholders to vote on an advisory resolution to ratify the
compensation of the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Broker Non-Votes
|
|
|
|
310,137,497
|
|
|
|
327,784,398
|
|
|
|
26,298,265
|
|
|
|
121,973,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
|
|
File
|
|
Filed with
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Number
|
|
Exhibit
|
|
Date
|
|
this 10-Q
|
|
|
10
|
.01
|
|
Symantec Corporation 2000 Director Equity Incentive Plan,
as amended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
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. |
38
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYMANTEC CORPORATION
(Registrant)
John W. Thompson
Chairman of the Board and
Chief Executive Officer
James A. Beer
Executive Vice President and
Chief Financial Officer
Date: November 2, 2007
39
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
File
|
|
|
|
|
|
Filed with
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Number
|
|
Exhibit
|
|
File Date
|
|
this 10-Q
|
|
|
10
|
.01
|
|
Symantec Corporation 2000 Director Equity Incentive Plan,
as amended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
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. |