e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(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 |
For the Quarterly Period Ended July 1, 2011
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 000-17781
Symantec Corporation
(Exact name of the registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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77-0181864
(I.R.S. employer
Identification no.) |
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350 Ellis Street,
Mountain View, California
(Address of principal executive offices)
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94043
(Zip Code) |
Registrants telephone number, including area code:
(650) 527-8000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Shares of Symantec common stock, $0.01 par value per share, outstanding as of July 29, 2011:
749,745,683 shares.
SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended July 1, 2011
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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July 1, |
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April 1, |
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2011 |
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2011 * |
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(Unaudited) |
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(In millions) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
2,290 |
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$ |
2,950 |
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Short-term investments |
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7 |
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8 |
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Trade accounts receivable, net |
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675 |
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1,013 |
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Inventories |
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28 |
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30 |
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Deferred income taxes |
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226 |
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223 |
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Other current assets |
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258 |
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262 |
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Total current assets |
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3,484 |
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4,486 |
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Property and equipment, net |
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1,040 |
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1,050 |
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Intangible assets, net |
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1,591 |
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1,511 |
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Goodwill |
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5,739 |
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5,494 |
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Investment in joint venture |
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14 |
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27 |
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Other long-term assets |
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155 |
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151 |
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Total assets |
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$ |
12,023 |
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$ |
12,719 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
260 |
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$ |
260 |
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Accrued compensation and benefits |
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329 |
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443 |
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Deferred revenue |
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3,180 |
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3,321 |
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Current portion of long-term debt |
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596 |
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Income taxes payable |
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21 |
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24 |
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Other current liabilities |
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261 |
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249 |
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Total current liabilities |
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4,051 |
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4,893 |
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Long-term debt |
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1,999 |
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1,987 |
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Long-term deferred revenue |
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509 |
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498 |
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Long-term deferred tax liabilities |
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349 |
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296 |
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Long-term income taxes payable |
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392 |
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361 |
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Other long-term obligations |
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79 |
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79 |
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Total liabilities |
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7,379 |
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8,114 |
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Commitments and contingencies (Note 8) |
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Stockholders equity: |
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Symantec Corporation stockholders equity: |
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Common Stock |
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8 |
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8 |
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Additional paid-in capital |
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8,226 |
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8,361 |
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Accumulated other comprehensive income |
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170 |
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171 |
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Accumulated deficit |
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(3,840 |
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(4,012 |
) |
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Total Symantec Corporation stockholders equity |
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4,564 |
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4,528 |
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Noncontrolling interest in subsidiary |
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80 |
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77 |
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Total stockholders equity |
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4,644 |
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4,605 |
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Total liabilities and stockholders equity |
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$ |
12,023 |
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$ |
12,719 |
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* |
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Derived from audited financial statements. |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
3
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Ended |
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July 1, |
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July 2, |
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2011 |
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2010 |
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(Unaudited) |
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(In millions, except per share data) |
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Net revenue: |
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Content, subscription, and maintenance |
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$ |
1,447 |
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$ |
1,248 |
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License |
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206 |
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185 |
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Total net revenue |
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1,653 |
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1,433 |
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Cost of revenue: |
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Content, subscription, and maintenance |
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230 |
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217 |
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License |
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7 |
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3 |
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Amortization of acquired product rights |
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22 |
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45 |
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Total cost of revenue |
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259 |
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265 |
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Gross profit |
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1,394 |
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1,168 |
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Operating expenses: |
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Sales and marketing |
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665 |
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573 |
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Research and development |
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239 |
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208 |
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General and administrative |
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105 |
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92 |
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Amortization of other purchased intangible assets |
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71 |
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61 |
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Restructuring and transition |
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12 |
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40 |
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Total operating expenses |
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1,092 |
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974 |
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Operating income |
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302 |
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194 |
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Interest income |
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4 |
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2 |
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Interest expense |
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(32 |
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(33 |
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Other (expense) income, net |
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(4 |
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1 |
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Income before income taxes and loss from joint venture |
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270 |
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164 |
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Provision (benefit) for income taxes |
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67 |
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(4 |
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Loss from joint venture |
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13 |
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7 |
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Net income |
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190 |
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161 |
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Less: Loss attributable to noncontrolling interest |
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(1 |
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Net income attributable to Symantec Corporation stockholders |
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$ |
191 |
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$ |
161 |
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Net income per share attributable to Symantec Corporation stockholders basic |
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$ |
0.25 |
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$ |
0.20 |
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Net income per share attributable to Symantec Corporation stockholders diluted |
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$ |
0.25 |
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$ |
0.20 |
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Weighted-average shares outstanding attributable to Symantec Corporation stockholders basic |
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755 |
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796 |
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Weighted-average shares outstanding attributable to Symantec Corporation stockholders
diluted |
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765 |
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805 |
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
4
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended |
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July 1, |
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July 2, |
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2011 |
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2010 |
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(Unaudited) |
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(In millions) |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
190 |
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$ |
161 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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161 |
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167 |
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Amortization of discount on debt |
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17 |
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27 |
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Stock-based compensation expense |
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39 |
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35 |
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Deferred income taxes |
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17 |
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10 |
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Excess income tax benefit from the exercise of stock options |
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(4 |
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(1 |
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Loss from joint venture |
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13 |
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7 |
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Other |
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4 |
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2 |
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Net change in assets and liabilities, excluding effects of acquisitions: |
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Trade accounts receivable, net |
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359 |
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285 |
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Inventories |
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4 |
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3 |
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Accounts payable |
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(8 |
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4 |
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Accrued compensation and benefits |
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(121 |
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(68 |
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Deferred revenue |
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(182 |
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(177 |
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Income taxes payable |
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22 |
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(79 |
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Other assets |
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(10 |
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Other liabilities |
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2 |
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(41 |
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Net cash provided by operating activities |
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503 |
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335 |
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INVESTING ACTIVITIES: |
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Purchase of property and equipment |
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(51 |
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(52 |
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Cash payments for acquisitions, net of cash acquired |
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(364 |
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(362 |
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Other |
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(4 |
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Net cash used in investing activities |
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(415 |
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(418 |
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FINANCING ACTIVITIES: |
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Net proceeds from sales of common stock under employee stock benefit plans |
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35 |
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10 |
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Excess income tax benefit from the exercise of stock options |
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4 |
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1 |
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Tax payments related to restricted stock issuance |
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(19 |
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(17 |
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Repayment of debt |
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(600 |
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Repurchase of common stock |
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(198 |
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(200 |
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Repayment of other long-term obligations |
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(1 |
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Net cash used in financing activities |
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(778 |
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(207 |
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Effect of exchange rate fluctuations on cash and cash equivalents |
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30 |
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(13 |
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Change in cash and cash equivalents |
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(660 |
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(303 |
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Beginning cash and cash equivalents |
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2,950 |
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3,029 |
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Ending cash and cash equivalents |
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$ |
2,290 |
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$ |
2,726 |
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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 accompanying unaudited condensed consolidated financial statements of Symantec Corporation
(we, us, our, and the Company refer to Symantec Corporation and all of its subsidiaries) as
of July 1, 2011 and April 1, 2011, and for the three months ended July 1, 2011 and July 2, 2010,
have been prepared in accordance with generally accepted accounting principles in the United States
of America for interim financial information and with the instructions on Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). In accordance with those
rules and regulations, we have omitted certain information and notes normally provided in our
annual consolidated financial statements. In the opinion of management, the unaudited condensed
consolidated financial statements contain all adjustments, consisting only of normal recurring
items, except as otherwise noted, necessary for the fair presentation of our financial position and
results of operations for the interim periods. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited Consolidated Financial Statements and
Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 1, 2011.
The results of operations for the three months ended July 1, 2011 are not necessarily indicative of
the results expected for the entire fiscal year. All significant intercompany accounts and
transactions have been eliminated.
Significant Accounting Policies
There have been no changes in our significant accounting policies for the three months ended
July 1, 2011 as compared to the significant accounting policies described in our Annual Report on
Form 10-K for the fiscal year ended April 1, 2011.
Recently Issued and Adopted Authoritative Guidance
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, (ASU 2011-04). ASU 2011-04
changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value
and for disclosing information about fair value measurements to ensure consistency between U.S.
GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are
estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied
prospectively for reporting periods beginning on or after December 15, 2011. We anticipate that the
adoption of this standard will not materially impact our Condensed Consolidated Financial
Statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income
(Topic 220): Presentation of Comprehensive Income, (ASU 2011-05). ASU 2011-05 eliminates the
option to report other comprehensive income and its components in the statement of changes in
equity. ASU 2011-05 requires that all nonowner changes in stockholders equity be presented in
either a single continuous statement of comprehensive income or in two separate but consecutive
statements. This new guidance is to be applied retrospectively for interim and annual periods
beginning after December 15, 2011. We anticipate that the adoption of this standard will not
materially impact our Condensed Consolidated Financial Statements.
In the first quarter of fiscal 2012, we adopted updated authoritative accounting guidance
related to impairment testing of goodwill. The guidance modified Step 1 of the impairment test for
reporting units with zero or negative carrying amounts whereby an entity is required to perform
Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment
exists. We performed a Step 2 test on our Services reporting unit due to certain adverse
qualitative factors within the reporting unit, which resulted in a goodwill impairment of $19
million. This impairment was recorded to beginning Accumulated
deficit as a cumulative-effect adjustment upon
adoption.
Note 2. Fair Value Measurements
For assets and liabilities measured at fair value such amounts are based on an expected exit
price, representing the amount that would be received on the sale of an asset or paid to transfer a
liability, as the case may be, in an orderly transaction between market participants. As such, fair
value may be based on assumptions that market participants would use in pricing an asset or
liability. The authoritative guidance on fair value measurements establishes a consistent framework
for measuring fair
6
value on either a recurring or nonrecurring basis whereby inputs, used in valuation
techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs
to measure fair value:
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Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets. |
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Level 2: Observable inputs that reflect quoted prices for identical assets or
liabilities in markets that are not active; quoted prices for similar assets or liabilities
in active markets; inputs other than quoted prices that are observable for the assets or
liabilities; or inputs that are derived principally from or corroborated by observable
market data by correlation or other means. |
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Level 3: Unobservable inputs reflecting our own assumptions incorporated in valuation
techniques used to determine fair value. These assumptions are required to be consistent
with market participant assumptions that are reasonably available. |
Assets Measured and Recorded at Fair Value on a Recurring Basis
There have been no transfers between fair value measurement levels during the three months
ended July 1, 2011. The following table summarizes our assets measured at fair value on a
recurring basis, by level, within the fair value hierarchy (Level 1 and 2 inputs are defined as
above):
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As of July 1, 2011 |
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As of April 1, 2011 |
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Level 1 |
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Level 2 |
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Total |
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Level 1 |
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Level 2 |
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Total |
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(In millions) |
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Cash equivalents: |
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Money market funds (1) |
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$ |
1,112 |
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$ |
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$ |
1,112 |
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$ |
1,866 |
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$ |
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$ |
1,866 |
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Bank securities and deposits (2) |
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250 |
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250 |
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204 |
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204 |
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Total |
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$ |
1,112 |
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$ |
250 |
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$ |
1,362 |
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$ |
1,866 |
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$ |
204 |
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$ |
2,070 |
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(1) |
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Level 1 securities are based on quoted market prices of the identical underlying
security. |
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(2) |
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Level 2 securities are priced using quoted market prices for similar instruments and
nonbinding market prices that are corroborated by observable market data. |
Asset Measured and Recorded at Fair Value on a Nonrecurring Basis
During
the three months ended July 1, 2011, we did not record any
impairment loss on those assets
required to be measured at fair value on a nonrecurring basis, other
than the cumulative-effect adjustment recorded to beginning
Accumulated deficit, See Note 4 for further information.
Note 3. Acquisition
On June 24, 2011, we completed the acquisition of Clearwell Systems Inc. (Clearwell), a
privately-held provider of eDiscovery solutions. In exchange for all of the voting equity
interests of Clearwell, we paid a total purchase price of $392 million, including cash acquired of
$20 million and stock options assumed of $8 million. The objective of the acquisition is to enhance
our eDiscovery, archiving and backup offerings to our customers. The results of operations of
Clearwell are included since the date of acquisition as part of the Storage and Server Management
segment. Supplemental pro forma information for Clearwell was not material to our financial results
and therefore has not been included.
The initial allocation of the purchase price was based on a preliminary valuation, and our
estimates and assumptions are subject to change within the measurement period, up to one year from
the acquisition date. The purchase accounting items that are not yet finalized include the
valuation of intangible assets acquired, the fair value of certain tangible assets and liabilities
acquired, and the calculation of certain deferred tax assets and liabilities.
The following table presents the preliminary purchase price allocation included in our
Condensed Consolidated Balance Sheets (in millions):
|
|
|
|
|
Net tangible assets (1) |
|
$ |
31 |
|
Intangible assets (2) |
|
|
168 |
|
Goodwill (3) |
|
|
258 |
|
Net tax liabilities |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
392 |
|
|
|
|
|
7
|
|
|
(1) |
|
Net tangible assets included deferred revenue which was adjusted down from $13
million to $3 million representing our estimate of the fair value of the contractual
obligation assumed for support services. |
|
(2) |
|
Intangible assets included developed technology, customer relationships and
tradename of $60 million, $96 million and $12 million, respectively, which are amortized over
their estimated useful lives of seven to eight years. |
|
(3) |
|
Goodwill is not tax deductible. The amount resulted primarily from our expectation
of synergies from the integration of Clearwell product offerings with our product offerings. |
Note 4. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and |
|
|
Storage and Server |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Compliance |
|
|
Management |
|
|
Services |
|
|
Total |
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Balance as of April 1, 2011 |
|
$ |
363 |
|
|
$ |
2,464 |
|
|
$ |
2,648 |
|
|
$ |
19 |
|
|
$ |
5,494 |
|
Goodwill impairment (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
(19 |
) |
Goodwill acquired through business combinations (2) |
|
|
|
|
|
|
|
|
|
|
258 |
|
|
|
|
|
|
|
258 |
|
Goodwill adjustments (3) |
|
|
4 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 1, 2011 |
|
$ |
367 |
|
|
$ |
2,466 |
|
|
$ |
2,906 |
|
|
$ |
|
|
|
$ |
5,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Due to the adoption of new authoritative accounting guidance at the beginning of
our fiscal year (see Note 1), we were required to perform a goodwill Step 2 impairment test for our
Services reporting unit. As a result, we recognized an impairment loss of $19 million which reduced
the carrying value of goodwill reported in the Services reporting segment to zero. The valuation
technique used by the Company to estimate the fair value of the Services reporting unit goodwill,
relies on Level 3 inputs, including estimated fair value using future cash flows or profit
streams. This impairment was recorded to beginning Accumulated deficit as a cumulative-effect
adjustment upon adoption. |
|
(2) |
|
Goodwill acquired through business combinations is related to the acquisition of
Clearwell, see Note 3 for further information. |
|
(3) |
|
Reflects adjustments made to goodwill as a result of foreign currency exchange rate
fluctuations. |
The effects of cumulative-effect application are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Total Symantec |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Other |
|
|
Corporation |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders |
|
|
Stockholders |
|
|
Interest in |
|
|
Stockholders |
|
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
|
Equity |
|
|
Subsidiary |
|
|
Equity |
|
|
|
(In millions) |
|
Beginning balance as
of April 2, 2011 |
|
$ |
(4,012 |
) |
|
$ |
171 |
|
|
$ |
8,369 |
|
|
$ |
4,528 |
|
|
$ |
77 |
|
|
$ |
4,605 |
|
Cumulative effect adjustment |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance as adjusted |
|
$ |
(4,031 |
) |
|
$ |
171 |
|
|
$ |
8,369 |
|
|
$ |
4,509 |
|
|
$ |
77 |
|
|
$ |
4,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We apply a fair value based impairment test to the carrying value of goodwill and
indefinite-lived intangible assets on an annual basis in the fourth quarter of each fiscal year or
earlier if indicators of impairment exist. As of July 1, 2011, no further indicators of impairment
were identified, except as it relates to the Services reporting unit as described above.
8
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 1, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Remaining |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Useful Life |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Customer relationships |
|
$ |
2,226 |
|
|
$ |
(1,296 |
) |
|
$ |
930 |
|
|
3 years |
Developed technology (1) |
|
|
1,871 |
|
|
|
(1,588 |
) |
|
|
283 |
|
|
4 years |
Finite-lived tradenames |
|
|
144 |
|
|
|
(83 |
) |
|
|
61 |
|
|
4 years |
Patents (1) |
|
|
75 |
|
|
|
(63 |
) |
|
|
12 |
|
|
6 years |
Indefinite-lived tradenames |
|
|
302 |
|
|
|
|
|
|
|
302 |
|
|
Indefinite |
Indefinite-lived IPR&D |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,621 |
|
|
$ |
(3,030 |
) |
|
$ |
1,591 |
|
|
3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 1, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Remaining |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Useful Life |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Customer relationships |
|
$ |
2,121 |
|
|
$ |
(1,227 |
) |
|
$ |
894 |
|
|
3 years |
Developed technology (1) |
|
|
1,810 |
|
|
|
(1,567 |
) |
|
|
243 |
|
|
4 years |
Finite-lived tradenames |
|
|
136 |
|
|
|
(80 |
) |
|
|
56 |
|
|
4 years |
Patents (1) |
|
|
75 |
|
|
|
(62 |
) |
|
|
13 |
|
|
2 years |
Indefinite-lived tradenames |
|
|
302 |
|
|
|
|
|
|
|
302 |
|
|
Indefinite |
Indefinite-lived IPR&D |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,447 |
|
|
$ |
(2,936 |
) |
|
$ |
1,511 |
|
|
3 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortization related to developed technology and patents is recorded as Amortization
of acquired product rights in the Condensed Consolidated Statements of Income. |
Total amortization expense for intangible assets that have finite lives was $93 million and
$106 million for the three months ended July 1, 2011 and July 2, 2010, respectively. Total future
amortization expense for intangible assets that have finite lives, based on our existing intangible
assets and their current estimated useful lives as of July 1, 2011, is estimated as follows (in
millions):
|
|
|
|
|
Remainder of fiscal 2012 |
|
$ |
287 |
|
2013 |
|
|
349 |
|
2014 |
|
|
204 |
|
2015 |
|
|
150 |
|
2016 |
|
|
99 |
|
Thereafter |
|
|
197 |
|
|
|
|
|
Total |
|
$ |
1,286 |
|
|
|
|
|
Note 5. Supplemental Financial Information
Property and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
July 1, |
|
|
April 1, |
|
|
|
2011 |
|
|
2011 |
|
|
|
(In millions) |
|
Computer hardware and software |
|
$ |
1,509 |
|
|
$ |
1,458 |
|
Office furniture and equipment |
|
|
190 |
|
|
|
189 |
|
Buildings |
|
|
487 |
|
|
|
467 |
|
Leasehold improvements |
|
|
271 |
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
2,457 |
|
|
|
2,384 |
|
Less: accumulated depreciation and amortization |
|
|
(1,581 |
) |
|
|
(1,530 |
) |
|
|
|
|
|
|
|
|
|
|
876 |
|
|
|
854 |
|
Construction in progress |
|
|
85 |
|
|
|
117 |
|
Land |
|
|
79 |
|
|
|
79 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
1,040 |
|
|
$ |
1,050 |
|
|
|
|
|
|
|
|
Depreciation expense was $67 million and $59 million for the three months ended July 1, 2011
and July 2, 2010, respectively.
Comprehensive Income
9
The components of comprehensive income, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Net income |
|
$ |
190 |
|
|
$ |
161 |
|
Foreign currency translation adjustments, net of tax |
|
|
(1 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
189 |
|
|
|
167 |
|
Less: Comprehensive (loss) attributable to noncontrolling interest |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Symantec Corporation stockholders |
|
$ |
194 |
|
|
$ |
167 |
|
|
|
|
|
|
|
|
Note 6. Debt
Senior notes
In fiscal 2011, we issued $350 million in principal amount of 2.75% senior notes (2.75%
Notes) due September 15, 2015 and $750 million in principal amount of 4.20% senior notes (4.20%
Notes) due September 15, 2020, collectively referred to as the Senior Notes, for an aggregate
principal amount of $1.1 billion. The 2.75% Notes and 4.20% Notes are senior unsecured obligations
of the Company that rank equally in right of payment with all of our existing and future unsecured
and unsubordinated obligations and are redeemable by us at any time, subject to a make-whole
premium. Our proceeds were $1.1 billion, net of an issuance discount of approximately $3 million
resulting from sale of the notes at a yield slightly above the stated coupons. We also incurred
issuance costs of approximately $6.2 million. Both the discount and issuance costs are being
amortized as incremental non-cash interest expense over the respective terms of the notes. The
2.75% Notes and 4.20% Notes bear interest at 2.75% and 4.20% per annum, respectively. Interest is
payable semiannually in arrears on the 15th of March and September, beginning March 15, 2011.
Convertible senior notes
In fiscal 2007, we issued $1.1 billion in principal amount of 0.75% convertible senior notes
(0.75% Notes) due June 15, 2011 and $1.0 billion in principal amount of 1.00% convertible senior
notes (1.00% Notes) due June 15, 2013. In the second quarter of fiscal 2011, we repurchased $500
million aggregate principal amount of our 0.75% Notes and sold a proportionate share of the initial
note hedges back to the note hedge counterparties for approximately $13 million. On June 15, 2011,
the remaining principal balance on our 0.75% Notes matured and was settled by a cash payment of
$600 million. Concurrent with the maturity of the 0.75% Notes, the remaining related note hedges
expired. No portion of the 0.75% Notes were converted into our common shares upon maturity.
Revolving credit facility
In fiscal 2011, we entered into a four-year $1.0 billion senior unsecured revolving credit
facility that expires in September 2014 (the credit facility). The credit facility provides that
we may borrow up to $1.0 billion under revolving loans. Revolving loans under the credit facility
bear interest, at our option, either at a rate equal to a) LIBOR plus a margin based on our
consolidated leverage ratio, as defined in the credit facility agreement or b) the banks prime
rate plus a margin based on our consolidated leverage ratio, as defined in the credit facility
agreement. Under the terms of this credit facility, we must comply with certain financial and
non-financial covenants, including a covenant to maintain a specified ratio of debt to EBITDA
(earnings before interest, taxes, depreciation and amortization). As of July 1, 2011, we were in
compliance with all required covenants, and there was no outstanding balance on the credit
facility.
Note 7. Restructuring
Our restructuring costs and liabilities consist primarily of severance, benefits, and
facilities costs. Severance and benefits generally include severance payments, outplacement
services, health insurance coverage, effects of foreign currency exchange, and legal costs.
Facilities costs generally include rent expense, less expected sublease income and lease
termination costs. Restructuring expenses are included in the Other segment.
Restructuring Plans
10
The following restructuring plans are substantially complete:
|
|
|
Fiscal 2011 Plan. In the first quarter of fiscal 2011, management approved and
initiated a plan to expand our consulting partner sales and delivery capabilities. This
action was initiated to expand our partner eco-system to better leverage their customer
reach and operational scale, which resulted in a headcount reduction within our consulting
services organization. |
|
|
|
Fiscal 2010 Plan. In the fourth quarter of fiscal 2010, management approved and
initiated a plan to reduce worldwide operating costs through a workforce realignment and to
reduce operating costs through a facilities consolidation. These actions were initiated to
appropriately allocate resources to our key strategic initiatives and streamline our
operations to deliver better and more efficient support to our customers and employees.
During fiscal 2011, we terminated operating leases and consolidated facilities in North
America and Europe. Excess facility obligations are expected to be paid over the
respective lease terms, the longest of which extends through fiscal 2016. |
Other Exit and Disposal Costs
Largely as a result of business acquisitions, management may deem certain leased facilities to
be in excess and make a plan to exit them either at the time of acquisition or after the
acquisition in conjunction with our efforts to integrate and streamline our operations. As of July
1, 2011, liabilities for these excess facility obligations at several locations around the world
are expected to be paid over the respective lease terms, the longest of which extends through
fiscal 2018.
Restructuring Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
Costs, net of |
|
|
|
|
|
|
|
|
|
|
Incurred to |
|
|
|
April 1, 2011 |
|
|
Adjustments |
|
|
Cash Payments |
|
|
July 1, 2011 |
|
|
Date |
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
(3 |
) |
|
$ |
2 |
|
|
$ |
72 |
|
Facilities |
|
|
10 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
11 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring |
|
|
13 |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
13 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other exit and disposal costs |
|
|
13 |
|
|
|
3 |
|
|
|
(4 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
26 |
|
|
$ |
7 |
|
|
$ |
(8 |
) |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition and other related costs |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges |
|
|
|
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
$ |
12 |
|
|
|
|
|
Other long-term obligations |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Commitments and Contingencies
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.
11
Litigation Contingencies
For a discussion of our pending tax litigation with the Internal Revenue Service relating to
the 2000 and 2001 tax years of Veritas, see Note 12.
We are involved in a number of judicial and administrative proceedings that are incidental to
our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it
is not possible to estimate the possible loss or losses from each of these cases. The final
resolution of these lawsuits, individually or in the aggregate, is not expected to have a material
adverse effect on our financial condition or results of operations.
Note 9. Stock Repurchases
The following table summarizes our stock repurchases:
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, 2011 |
|
|
|
(In millions, except |
|
|
|
per share data) |
|
Total number of shares repurchased attributable to Symantec Corporation |
|
|
10.43 |
|
Dollar amount of shares repurchased attributable to Symantec Corporation |
|
$ |
198 |
|
Average price paid per share |
|
$ |
18.98 |
|
Range of price paid per share |
|
$ |
18.01 to 20.51 |
|
We have had stock repurchase programs in the past and have repurchased shares on a quarterly
basis since the fourth quarter of fiscal 2004 under new and existing programs. Our most recent
program was authorized by our Board of Directors on January 25, 2011 to repurchase up to $1 billion
of our common stock. This program does not have an expiration date and as of July 1, 2011, $679
million remained authorized for future repurchases.
Note 10. Segment Information
As of July 1, 2011, our five reportable segments are the same as our operating segments and
are as follows:
|
|
|
Consumer. Our Consumer segment focuses on delivering internet security, PC tune-up, and
online backup solutions and services to individual users and home offices. |
|
|
|
|
Security and Compliance. Our Security and Compliance segment focuses on providing large,
medium, and small-sized businesses with solutions for endpoint security and management,
compliance, messaging management, data loss prevention, encryption, managed security
services, and authentication services. These products allow our customers to secure,
provision, and remotely manage their laptops, PCs, mobile devices, and servers. We also
provide our customers with solutions delivered through our Software-as-a-Service (SaaS)
security offerings. |
|
|
|
|
Storage and Server Management. Our Storage and Server Management segment focuses on
providing large, medium, and small-sized businesses with storage and server management,
backup, archiving, and data protection solutions across heterogeneous storage and server
platforms, as well as solutions delivered through our SaaS offerings. |
|
|
|
|
Services. Our Services segment provides customers with implementation services and
solutions designed to assist them in maximizing the value of their Symantec software. Our
offerings include consulting, business critical services, and education. |
|
|
|
|
Other. Our Other segment is comprised of sunset products and products nearing the end of
their life cycle. It also includes general and administrative expenses; amortization of
acquired product rights, intangible assets, and other assets; goodwill and intangible asset
impairment charges; charges such as stock-based compensation and restructuring; and certain
indirect costs that are not charged to the other operating segments. |
There were no intersegment sales for the three months ended July 1, 2011 or July 2, 2010. The
following table summarizes the results of our operating segments:
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storage and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and |
|
|
Server |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Consumer |
|
|
Compliance |
|
|
Management |
|
|
Services |
|
|
Other |
|
|
Company |
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
Three months ended July 1, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
525 |
|
|
$ |
468 |
|
|
$ |
597 |
|
|
$ |
63 |
|
|
$ |
|
|
|
$ |
1,653 |
|
Percentage of total net revenue |
|
|
32 |
% |
|
|
28 |
% |
|
|
36 |
% |
|
|
4 |
% |
|
|
0 |
% |
|
|
100 |
% |
Operating income (loss) |
|
|
255 |
|
|
|
90 |
|
|
|
278 |
|
|
|
8 |
|
|
|
(329 |
) |
|
|
302 |
|
Operating margin of segment |
|
|
49 |
% |
|
|
19 |
% |
|
|
47 |
% |
|
|
13 |
% |
|
|
* |
|
|
|
|
|
Three months ended July 2, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
$ |
473 |
|
|
$ |
357 |
|
|
$ |
524 |
|
|
$ |
79 |
|
|
$ |
|
|
|
$ |
1,433 |
|
Percentage of total net revenue |
|
|
33 |
% |
|
|
25 |
% |
|
|
36 |
% |
|
|
6 |
% |
|
|
0 |
% |
|
|
100 |
% |
Operating income (loss) |
|
|
225 |
|
|
|
83 |
|
|
|
240 |
|
|
|
(1 |
) |
|
|
(353 |
) |
|
|
194 |
|
Operating margin of segment |
|
|
48 |
% |
|
|
23 |
% |
|
|
46 |
% |
|
|
(1 |
)% |
|
|
* |
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
During the first quarter of fiscal year 2012, we modified our segment reporting structure to
more readily match our operating structure. The following modification was made to the segment
reporting structure: managed security services revenue and expenses moved to the Security and
Compliance segment from the Services segment. All historical periods have been adjusted to reflect
this modified reporting structure.
Note 11. Stock-based Compensation
The following table summarizes the total stock-based compensation expense recognized in our
Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions, except per share data) |
|
Cost of revenue Content, subscription, and maintenance |
|
$ |
4 |
|
|
$ |
3 |
|
Cost of revenue License |
|
|
1 |
|
|
|
1 |
|
Sales and marketing |
|
|
15 |
|
|
|
14 |
|
Research and development |
|
|
11 |
|
|
|
10 |
|
General and administrative |
|
|
8 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
|
39 |
|
|
|
35 |
|
Tax benefit associated with stock-based compensation expense |
|
|
(11 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
Net stock-based compensation expense |
|
$ |
28 |
|
|
$ |
25 |
|
|
|
|
|
|
|
|
Net stock-based compensation expense per share attributable
to Symantec Corporation stockholders basic |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
Net stock-based compensation expense per share attributable
to Symantec Corporation stockholders diluted |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
|
|
|
|
|
|
The following table summarizes additional information pertaining to our stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions, except per grant data) |
|
Restricted stock units (RSUs) |
|
|
|
|
|
|
|
|
Weighted-average fair value per grant |
|
$ |
18.54 |
|
|
$ |
14.52 |
|
Fair value of RSUs granted |
|
|
155 |
|
|
|
118 |
|
Total fair value of RSUs vested |
|
|
71 |
|
|
|
63 |
|
Total unrecognized compensation expense |
|
|
235 |
|
|
|
197 |
|
Weighted-average remaining vesting period |
|
3 years |
|
3 years |
Stock options |
|
|
|
|
|
|
|
|
Weighted-average fair value per grant |
|
$ |
5.31 |
|
|
$ |
3.99 |
|
Total intrinsic value of stock options exercised |
|
|
19 |
|
|
|
7 |
|
Total unrecognized compensation expense |
|
|
32 |
|
|
|
45 |
|
Weighted-average remaining vesting period |
|
3 years |
|
3 years |
13
During the first quarter of fiscal 2012, we granted 91,368 Restricted Stock Awards (RSAs) to
members of our board of directors. Each RSA had a fair value of $19.70 and vested immediately upon
grant. As a result, we recorded approximately $2 million of stock-based compensation expense for
these RSAs during the first quarter of fiscal 2012.
Performance Based Awards
During the first quarter of fiscal 2012, we granted performance based restricted stock units
(PRUs) to certain senior level employees under our 2004 Equity Incentive Plan. The PRU grants are
in lieu of the stock option grants typically awarded as part of our annual compensation program.
These PRUs can be earned depending upon the achievement of a company-specific performance condition
and a market condition as follows: (1) our achievement of a specified company-specific performance
target for fiscal 2012 and (2) our two and three year cumulative relative total shareholder return
ranked against that of other companies that are included in the Standard & Poors 500 Index. These
PRUs are also subject to a three year continued service vesting provision with earlier vesting
permitted under certain conditions, such as upon a change of control of the company. The
determination of the fair value of these awards takes into consideration the likelihood of
achievement of the market condition, and the compensation expense for the PRUs is initially also
based on the probability of achieving the target level of the company-specific performance
condition, and will be adjusted for subsequent changes in the estimated or actual outcome of this
performance condition. The weighted average grant date fair value of the PRUs was $23.58 per share.
Assumed Clearwell stock options
In connection with our acquisition of Clearwell, we assumed all unexercised, outstanding
options to purchase Clearwell common stock. Each unexercised, outstanding option assumed was
converted into an option to purchase our common stock after applying the exchange ratio of 0.40906
shares of our common stock for each share of Clearwell common stock which resulted in an allocation
of approximately 1 million shares of our common stock to the assumed options. As of July 1, 2011
total unrecognized compensation cost related to the assumed, unvested Clearwell stock options was
$7 million, including estimated forfeitures.
Furthermore, all shares obtained upon early exercise of unvested Clearwell options were
converted into the right to receive a cash consideration of $7.65 per share upon vesting. The
total value of the early exercised, unvested Clearwell shares on the date of acquisition was
approximately $4 million, assuming no forfeitures, prior to vesting. As of July 1, 2011, total
unrecognized compensation cost related to early exercised, unvested Clearwell shares was
approximately $4 million.
Note 12. Income Taxes
The effective tax rate was approximately 25% and (2) % for the three months ended July 1, 2011
and July 2, 2010, respectively.
For the three months ended July 1, 2011, the tax expense was reduced by a $7 million tax
benefit primarily related to lapses of statutes of limitations. For the three months ended July 2,
2010, the tax expense was significantly reduced by the following benefits recognized in the first
quarter of fiscal 2011: (1) $39 million tax benefit arising from the Veritas v. Commissioner Tax
Court decision (see further discussion below) and (2) $11 million tax benefit primarily related to
tax settlements and lapses of statutes of limitations.
The provision for both three-month periods ended July 1, 2011 and July 2, 2010 otherwise
reflects a forecast tax rate of 28% (excluding the tax benefit from our joint venture with Huawei).
We include the tax benefit associated with the loss from our joint venture with Huawei in income
tax expense rather than netting the tax benefit against our joint venture loss with Huawei.
However, the effective rate applied to our joint venture loss with Huawei for purposes of
determining the tax benefit is based only on our joint venture loss and its tax impact. The
forecast tax rates for both periods presented reflect the benefits of lower-taxed foreign earnings,
domestic manufacturing incentives, and research and development credits ( the U.S. federal R&D tax
credit is currently set to expire on December 31, 2011), partially offset by state income taxes.
On December 10, 2009, the U.S. Tax Court issued its opinion in Veritas v. Commissioner,
finding that our transfer pricing methodology, with appropriate adjustments, was the best method
for assessing the value of the transaction at issue between Veritas and its international
subsidiary in the 2000 to 2001 tax years. The Tax Court judge provided guidance as to how
adjustments would be made to correct the application of the method used by Veritas. In June 2010,
we reached an agreement with the IRS concerning the amount of the adjustment related to the U.S.
Tax Court decision. As a result of the agreement, we
14
reduced our liability for unrecognized tax benefits, resulting in a $39 million tax benefit in
the first quarter of fiscal 2011. This matter has now been closed and no further adjustments to
the accrued liability are expected.
On December 2, 2009, we received a Revenue Agents Report from the IRS for the Veritas 2002
through 2005 tax years assessing additional taxes due. We have contested $80 million of the tax
assessed and all penalties. The unresolved amounts concern a transfer pricing matter comparable to
the one that was resolved in our favor in the Veritas v. Commissioner Tax Court decision. The
matter is being addressed within the IRS Appeals process and remains outstanding with no scheduled
date for completion. It is reasonably possible that a reduction of the reserves for unrecognized
tax benefits primarily related to the matters associated with this IRS examination cycle may occur
within the next 12 months.
We continue to monitor the progress of ongoing income tax controversies and the impact, if
any, of the expected tolling of the statute of limitations in various taxing jurisdictions.
Note 13. Earnings per Share
The components of earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions, except per |
|
|
|
share data) |
|
Net income per share attributable to Symantec Corporation stockholdersbasic: |
|
|
|
|
|
|
|
|
Net income attributable to Symantec Corporation stockholders |
|
$ |
191 |
|
|
$ |
161 |
|
|
|
|
|
|
|
|
Net income per share attributable to Symantec Corporation stockholdersbasic |
|
$ |
0.25 |
|
|
$ |
0.20 |
|
Net income per share attributable to Symantec Corporation stockholdersdiluted: |
|
|
|
|
|
|
|
|
Net income attributable to Symantec Corporation stockholders |
|
$ |
191 |
|
|
$ |
161 |
|
|
|
|
|
|
|
|
Net income per share attributable to Symantec Corporation stockholdersdiluted |
|
$ |
0.25 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
Weighted-average outstanding common shares attributable to Symantec Corporation
stockholdersbasic |
|
|
755 |
|
|
|
796 |
|
Shares issuable from assumed exercise of stock options |
|
|
5 |
|
|
|
5 |
|
Dilutive impact of restricted stock |
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Total weighted-average outstanding common shares attributable to Symantec
Corporation stockholdersdiluted |
|
|
765 |
|
|
|
805 |
|
|
|
|
|
|
|
|
Anti-dilutive weighted-average stock options |
|
|
32 |
|
|
|
54 |
|
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors That May Affect Future Results
The discussion below contains forward-looking statements, which are subject to safe harbors
under the Securities Act of 1933, as amended, or the Securities Act, and the Exchange Act.
Forward-looking statements include references to our ability to utilize our deferred tax assets, as
well as statements including words such as expects, plans, anticipates, believes,
estimates, predicts, projects, and similar expressions. In addition, statements that refer to
projections of our future financial performance, anticipated growth and trends in our businesses
and in our industries, the anticipated impacts of acquisitions, and other characterizations of
future events or circumstances are forward-looking statements. These statements are only
predictions, based on our current expectations about future events and may not prove to be
accurate. We do not undertake any obligation to update these forward-looking statements to reflect
events occurring or circumstances arising after the date of this report. These forward-looking
statements involve risks and uncertainties, and our actual results, performance, or achievements
could differ materially from those expressed or implied by the forward-looking statements on the
basis of several factors, including those that we discuss in Risk Factors, set forth in Part I,
Item 1A, of our annual report on Form 10-K for the fiscal year ended April 1, 2011. We encourage
you to read that section carefully.
Fiscal Calendar
We have a 52/53-week fiscal accounting year ending on the Friday closest to March 31. The
three months ended July 1, 2011 and July 2, 2010 both consisted of 13 weeks.
OVERVIEW
Our Business
Symantec is a global provider of security, storage, and systems management solutions that help
businesses and consumers secure and manage their information. We provide customers worldwide with
software and services that protect, manage and control information risks related to security, data
protection, storage, compliance, and systems management. We help our customers manage cost,
complexity, and compliance by protecting their IT infrastructure as they seek to maximize value
from their IT investments.
Our Operating Segments
Our operating segments are significant strategic business units that offer different products
and services, distinguished by customer needs. Since the fourth quarter of fiscal 2008, we have
operated in five operating segments: Consumer, Security and Compliance, Storage and Server
Management, Services, and Other. During the first quarter of fiscal year 2012, we modified our
segment reporting structure to more readily match our operating structure. For further
descriptions of our operating segments, see Note 10 of the Notes to Condensed Consolidated
Financial Statements in this quarterly report. Our reportable segments are the same as our
operating segments.
Financial Results and Trends
Revenue increased by $220 million for the three months ended July 1, 2011 as compared to the
same period last year. We experienced growth in our Security and Compliance segment primarily as a
result of revenue associated with our fiscal 2011 acquisitions. We expect that these acquisitions
will continue to contribute positively to our revenue in future periods in the Security and
Compliance segment. Sales of both our information management and storage and availability
management products experienced growth within our Storage and Server Management segment for the
three months ended July 1, 2011 as compared to the same period last year. Consumer segment
revenues continued to increase due to continued customer acceptance of our security products,
particularly our premium security suite products.
Fluctuations in the U.S. dollar compared to foreign currencies favorably impacted our
international revenue by approximately $87 million for the three months ended July 1, 2011 as
compared to the same period last year. We are unable to predict the extent to which revenue in
future periods will be impacted by changes in foreign currency exchange rates. If our level of
international sales and expenses increase in the future, changes in foreign exchange rates may have
a potentially greater impact on our revenue and operating results.
16
Our net income was $191 million for the three months ended July 1, 2011 and was positively
impacted by a year-over-year decrease of $23 million in cost of revenue related to certain acquired
product rights from past acquisitions becoming fully amortized during fiscal 2011.
Critical Accounting Estimates
There have been no changes in the matters for which we make critical accounting estimates in
the preparation of our Condensed Consolidated Financial Statements during the three months ended
July 1, 2011 as compared to those disclosed in Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended
April 1, 2011.
Recently Adopted Authoritative Guidance
Information with respect to Recently Adopted Authoritative Guidance is in Note 1 of the Notes
to Condensed Consolidated Financial Statements in this Form 10-Q, which information is incorporated
herein by reference.
RESULTS OF OPERATIONS
Total Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Content, subscription, and maintenance revenue |
|
$ |
1,447 |
|
|
$ |
1,248 |
|
|
$ |
199 |
|
|
|
16 |
% |
Percentage of total net revenue |
|
|
88 |
% |
|
|
87 |
% |
|
|
|
|
|
|
|
|
License revenue |
|
$ |
206 |
|
|
$ |
185 |
|
|
$ |
21 |
|
|
|
11 |
% |
Percentage of total net revenue |
|
|
12 |
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,653 |
|
|
$ |
1,433 |
|
|
$ |
220 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content, subscription, and maintenance revenue increased for the three months ended July 1,
2011, as compared to the same period last year, primarily as a result of increased sales of
existing products, the impact of the change in foreign currency exchange rates, and revenue
associated with our fiscal 2011 acquisitions.
License revenue increased for the three months ended July 1, 2011, as compared to the same
period last year, primarily due to growth in both the information management and storage and
availability management products, as well as for the reasons discussed above under Financial
Results and Trends.
The changes in total net revenue for the three months ended July 1, 2011 are further described
in the segment discussions that follow.
Net revenue and operating income by segment
Consumer segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Consumer revenue |
|
$ |
525 |
|
|
$ |
473 |
|
|
$ |
52 |
|
|
|
11 |
% |
Percentage of total net revenue |
|
|
32 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
|
Consumer operating income |
|
$ |
255 |
|
|
$ |
225 |
|
|
$ |
30 |
|
|
|
13 |
% |
Percentage of Consumer revenue |
|
|
49 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
17
Consumer revenue increased for the three months ended July 1, 2011, as compared to the same
period last year, primarily due to the continued adoption of our premium security suite products
and the impact of the change in foreign currency exchange rates.
Operating income for the Consumer segment increased for the three months ended July 1, 2011,
as compared to the same period last year. Total expenses for the segment increased, primarily as a
result of higher salaries and wages.
Security and Compliance segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Security and Compliance revenue |
|
$ |
468 |
|
|
$ |
357 |
|
|
$ |
111 |
|
|
|
31 |
% |
Percentage of total net revenue |
|
|
28 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
Security and Compliance operating income |
|
$ |
90 |
|
|
$ |
83 |
|
|
$ |
7 |
|
|
|
8 |
% |
Percentage of Security and
Compliance revenue |
|
|
19 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
|
Security and Compliance revenue and operating income increased for the three months ended July
1, 2011, as compared to the same period last year, primarily due to our fiscal 2011 acquisitions,
as well as strength in sales of our data loss prevention products, and the impact of the change in
foreign currency exchange rates.
Storage and Server Management segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Storage and Server Management revenue |
|
$ |
597 |
|
|
$ |
524 |
|
|
$ |
73 |
|
|
|
14 |
% |
Percentage of total net revenue |
|
|
36 |
% |
|
|
36 |
% |
|
|
|
|
|
|
|
|
Storage and Server Management operating income |
|
$ |
278 |
|
|
$ |
240 |
|
|
$ |
38 |
|
|
|
16 |
% |
Percentage of Storage and
Server Management revenue |
|
|
47 |
% |
|
|
46 |
% |
|
|
|
|
|
|
|
|
Storage and Server Management revenue increased for the three months ended July 1, 2011, as
compared to the same period last year, primarily due to an increase in revenue from both the
information management and storage and availability management products, as well as the impact of
the change in foreign currency exchange rates.
Operating income for the Storage and Server Management segment increased for the three months
ended July 1, 2011, as compared to the same period last year, as the increase in revenues exceeded
the increase in expenses. Total expenses for the segment increased, primarily as a result of higher
salaries and wages.
Services segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Services revenue |
|
$ |
63 |
|
|
$ |
79 |
|
|
$ |
(16 |
) |
|
|
(20 |
)% |
Percentage of total net revenue |
|
|
4 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
Services operating income (loss) |
|
$ |
8 |
|
|
$ |
(1 |
) |
|
$ |
9 |
|
|
|
* |
|
Percentage of Services revenue |
|
|
13 |
% |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
18
Services revenue decreased for the three months ended July 1, 2011, as compared to the same
period last year, as we continue to support the transition to our partner led consulting program
while we focus on our core software business.
Services operating income increased for the three months ended July 1, 2011, as compared to
the same period last year, as various cost control initiatives led to better margins.
Other segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Other revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
* |
|
Percentage of total net revenue |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
Other operating loss |
|
$ |
(329 |
) |
|
$ |
(353 |
) |
|
$ |
24 |
|
|
|
7 |
% |
Percentage of Other revenue |
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
Revenue from our Other segment consists primarily of sunset products and products nearing the
end of their life cycle. The operating loss of our Other segment includes general and
administrative expenses; amortization of acquired product rights, other purchased intangible
assets, and other assets; charges such as stock-based compensation and restructuring; and certain
indirect costs that are not charged to the other operating segments.
Net revenue by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Americas (U.S., Canada and Latin America) |
|
$ |
884 |
|
|
$ |
796 |
|
|
$ |
88 |
|
|
|
11 |
% |
Percentage of total net revenue |
|
|
53 |
% |
|
|
56 |
% |
|
|
|
|
|
|
|
|
EMEA (Europe, Middle East, Africa) |
|
$ |
474 |
|
|
$ |
408 |
|
|
$ |
66 |
|
|
|
16 |
% |
Percentage of total net revenue |
|
|
29 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
Asia Pacific/Japan |
|
$ |
295 |
|
|
$ |
229 |
|
|
$ |
66 |
|
|
|
29 |
% |
Percentage of total net revenue |
|
|
18 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,653 |
|
|
$ |
1,433 |
|
|
|
|
|
|
|
|
|
Fluctuations in the U.S. dollar compared to foreign currencies favorably impacted our
international revenue by $87 million.
Americas revenue increased for the three months ended July 1, 2011, as compared to the same
period last year, primarily due to increased revenue related to our Security and Compliance,
Storage and Server Management, and Consumer segments, partially offset by decreased revenue related
to our Services segment.
EMEA revenue increased for the three months ended July 1, 2011, as compared to the same period
last year, primarily due to increased revenue related to our Security and Compliance segment,
Storage and Server Management segment and the impact of the change in foreign currency exchange
rates and for the other reasons discussed above under Financial Results and Trends.
Asia Pacific Japan revenue increased for the three months ended July 1, 2011, as compared to
the same period last year, primarily due to strength in our Security and Compliance, and Storage
and Server Management segments, as well as the impact of the change in foreign currency exchange
rates and for the other reasons discussed above under Financial Results and Trends.
19
Our international sales are and will continue to be a significant portion of our net revenue.
As a result, net revenue will continue to be affected by foreign currency exchange rates as
compared to the U.S. dollar. We are unable to predict the extent to which revenue in future periods
will be impacted by changes in foreign currency exchange rates. If international sales
become a greater portion of our total sales in the future, changes in foreign currency
exchange rates may have a potentially greater impact on our revenue and operating results.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Cost of content, subscription, and maintenance |
|
$ |
230 |
|
|
$ |
217 |
|
|
$ |
13 |
|
|
|
6 |
% |
As a percentage of related revenue |
|
|
16 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
Cost of license |
|
$ |
7 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
|
133 |
% |
As a percentage of related revenue |
|
|
3 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
Amortization of acquired product rights |
|
$ |
22 |
|
|
$ |
45 |
|
|
$ |
(23 |
) |
|
|
(51 |
)% |
Percentage of total net revenue |
|
|
1 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
259 |
|
|
$ |
265 |
|
|
$ |
(6 |
) |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
84 |
% |
|
|
82 |
% |
|
|
|
|
|
|
|
|
Cost of content, subscription, and maintenance consists primarily of fee-based technical
support costs, costs of billable services, and payments to OEMs under revenue-sharing agreements.
Cost of content, subscription, and maintenance increased for the three months ended July 1, 2011,
as compared to the same period last year, primarily due to higher technical support costs.
Cost of license consists primarily of royalties paid to third parties under technology
licensing agreements, manufacturing and direct material costs. Cost of license increased in the
three months ended July 1, 2011 compared to the same period last year as a result of increased cost
of royalties.
Acquired product rights are comprised of developed technologies and patents from acquired
companies. The decrease in amortization for the three months ended July 1, 2011 as compared to the
same period last year is primarily due to certain acquired product rights from our various past
acquisitions becoming fully amortized during fiscal 2011.
Operating Expenses
Operating expenses overview
Our operating expenses increased during the three months ended July 1, 2011, as compared to
the same period last year, due to the fiscal 2011 acquisitions and the impact of the change in
foreign currency exchange rates, offset by cost savings generated from our restructuring plans
discussed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Sales and marketing expense |
|
$ |
665 |
|
|
$ |
573 |
|
|
$ |
92 |
|
|
|
16 |
% |
Percentage of total net revenue |
|
|
40 |
% |
|
|
40 |
% |
|
|
|
|
|
|
|
|
Research and development expense |
|
$ |
239 |
|
|
$ |
208 |
|
|
$ |
31 |
|
|
|
15 |
% |
Percentage of total net revenue |
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
$ |
105 |
|
|
$ |
92 |
|
|
$ |
13 |
|
|
|
14 |
% |
Percentage of total net revenue |
|
|
6 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
20
As a percentage of revenue, sales and marketing, research and development and general and
administrative expenses remained consistent during the three months ended July 1, 2011.
Sales and marketing expense increased during the three months ended July 1, 2011, as compared
to the same period last year, largely as a result of our fiscal 2011 acquisitions, as well as the
impact of the change in foreign currency exchange rates.
Research and development, and General and administrative expenses increased during the three
months ended July 1, 2011, as compared to the same period last year, largely as a result of our
fiscal 2011 acquisitions.
Amortization of other purchased intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Amortization of other purchased
intangible assets |
|
$ |
71 |
|
|
$ |
61 |
|
|
$ |
10 |
|
|
|
16 |
% |
Percentage of total net revenue |
|
|
4 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
Other purchased intangible assets are comprised of customer relationships and tradenames. The
increase in amortization of other purchased intangible assets for the three months ended July 1,
2011 compared to the same period last year was primarily due to our fiscal 2011 acquisitions.
Restructuring and transition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Severance |
|
$ |
4 |
|
|
$ |
23 |
|
|
|
|
|
|
|
|
|
Facilities |
|
|
3 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
Transition and other related |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and transition |
|
$ |
12 |
|
|
$ |
40 |
|
|
$ |
(28 |
) |
|
|
(70 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenue |
|
|
1 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
The restructuring and transition charges for the three months ended July 1, 2011 primarily
consisted of severance and charges related to the 2011 Restructuring Plan (2011 Plan), the 2010
Restructuring Plan (2010 Plan), and transition and other costs related to the outsourcing of
certain back office functions. For further information on restructuring, see Note 7 of the Notes to
Condensed Consolidated Financial Statements.
Non-operating Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Interest income |
|
$ |
4 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(32 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
Other (expense) income, net |
|
|
(4 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(32 |
) |
|
$ |
(30 |
) |
|
$ |
(2 |
) |
|
|
(7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenue |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
Non-operating income and expense was flat during the three months ended July 1, 2011, as
compared to the same period last year.
21
Provision (benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Provision (benefit) for income taxes |
|
$ |
67 |
|
|
$ |
(4 |
) |
|
$ |
71 |
|
|
|
1775 |
% |
Effective tax rate on earnings |
|
|
25 |
% |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
The effective tax rate was approximately 25% and (2) % for the three months ended July 1, 2011
and July 2, 2010, respectively.
For the three months ended July 1, 2011, the tax expense was reduced by a $7 million tax
benefit primarily related to lapses of statutes of limitations. For the three months ended July 2,
2010, the tax expense was significantly reduced by the following benefits recognized in the first
quarter of fiscal 2011: (1) $39 million tax benefit arising from the Veritas v. Commissioner Tax
Court decision (see further discussion below) and (2) $11 million tax benefit primarily related to
tax settlements and lapses of statutes of limitations.
The provision for both three-month periods ended July 1, 2011 and July 2, 2010 otherwise
reflects a forecast tax rate of 28% (excluding the tax benefit from our joint venture with Huawei).
We include the tax benefit associated with the loss from our joint venture with Huawei in income
tax expense rather than netting the tax benefit against our joint venture loss with Huawei.
However, the effective rate applied to our joint venture loss with Huawei for purposes of
determining the tax benefit is based only on our joint venture loss and its tax impact. The
forecast tax rates for both periods presented reflect the benefits of lower-taxed foreign earnings,
domestic manufacturing incentives, and research and development credits ( the U.S. federal R&D tax
credit is currently set to expire on December 31, 2011), partially offset by state income taxes.
On December 10, 2009, the U.S. Tax Court issued its opinion in Veritas v. Commissioner,
finding that our transfer pricing methodology, with appropriate adjustments, was the best method
for assessing the value of the transaction at issue between Veritas and its international
subsidiary in the 2000 to 2001 tax years. The Tax Court judge provided guidance as to how
adjustments would be made to correct the application of the method used by Veritas. In June 2010,
we reached an agreement with the IRS concerning the amount of the adjustment related to the U.S.
Tax Court decision. As a result of the agreement, we reduced our liability for unrecognized tax
benefits, resulting in a $39 million tax benefit in the first quarter of fiscal 2011. This matter
has now been closed and no further adjustments to the accrued liability are warranted.
On December 2, 2009, we received a Revenue Agents Report from the IRS for the Veritas 2002
through 2005 tax years assessing additional taxes due. We have contested $80 million of tax
assessed and all penalties. The unresolved amounts concern a transfer pricing matter comparable to
the one that was resolved in our favor in the Veritas v. Commissioner Tax Court decision. The
matter is being addressed within the IRS Appeals process and remains outstanding with no scheduled
date for completion. It is reasonably possible that a reduction of the reserves for unrecognized
tax benefits primarily related to the matters associated with this IRS examination cycle may occur
within the next 12 months.
We continue to monitor the progress of ongoing income tax controversies and the impact, if
any, of the expected tolling of the statute of limitations in various taxing jurisdictions.
Loss from joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
Change in |
|
|
|
2011 |
|
|
2010 |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Loss from joint venture |
|
$ |
13 |
|
|
$ |
7 |
|
|
$ |
6 |
|
|
|
86 |
% |
Percentage of total net revenue |
|
|
1 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
On February 5, 2008, Symantec formed Huawei-Symantec, Inc. (joint venture) with a subsidiary
of Huawei Technologies Co., Ltd. (Huawei). The joint venture is domiciled in Hong Kong with
principal operations in Chengdu, China. The joint venture develops, manufactures, markets, and
supports security and storage appliances on behalf of global telecommunications carriers and
enterprise customers. We record our proportionate share of the joint ventures net income or loss
one quarter in arrears.
22
For the three months ended July 1, 2011, we recorded a loss of approximately $13 million
related to our share of the joint ventures net loss incurred for the period from January 1, 2011
to March 31, 2011. For the three months ended July 2, 2010, we recorded a loss of approximately $7
million related to our share of the joint ventures net loss for the period from January 1, 2010 to
March 31, 2010.
Loss attributable to noncontrolling interest
In the second quarter of fiscal 2011, we completed the acquisition of the identity and
authentication business of VeriSign, Inc. (VeriSign), including a controlling interest in its
subsidiary, VeriSign Japan K.K. (VeriSign Japan), a publicly traded company on the Tokyo Stock
Exchange. Given the Companys majority ownership interest of approximately 54% in VeriSign Japan,
the accounts of VeriSign Japan have been consolidated with the accounts of the Company, and a
noncontrolling interest has been recorded for the noncontrolling investors interests in the equity
and operations of VeriSign Japan. For the first quarter of fiscal 2012, the loss attributable to
the noncontrolling interest in VeriSign Japan was approximately $1 million.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash
We have historically relied on cash flow from operations, borrowings under a credit facility,
and issuances of debt and equity securities for our liquidity needs. As of July 1, 2011, we had
cash and cash equivalents of $2.3 billion resulting in a net liquidity position of approximately
$3.3 billion, which is defined as cash and cash equivalents and unused availability of the credit
facility.
Senior Notes. In the second quarter of fiscal 2011, we issued $350 million in principal
amount of 2.75% Notes due September 15, 2015 and $750 million in principal amount of 4.20% Notes
due September 15, 2020, for an aggregate principal amount of $1.1 billion.
Revolving Credit Facility. In the second quarter of fiscal 2011, we also entered into a $1
billion senior unsecured revolving credit facility that expires in September 2014. Under the terms
of this credit facility, we must comply with certain financial and non-financial covenants,
including a covenant to maintain a specified ratio of debt to EBITDA (earnings before interest,
taxes, depreciation and amortization). As of July 1, 2011, we were in compliance with all required
covenants, and there was no outstanding balance on the credit facility.
We believe that our existing cash and investment balances, our borrowing capacity, our ability
to issue new debt instruments, and cash generated from operations will be sufficient to meet our
working capital and capital expenditures requirements for at least the next 12 months.
Uses of Cash
Our principal cash requirements include working capital, capital expenditures, payments of
principal and interest on our debt, and payments of taxes. Also, we may, from time to time, engage
in the open market purchase of our convertible notes prior to their maturity. In addition, we
regularly evaluate our ability to repurchase stock, pay debts and acquire other businesses.
Acquisition-Related. For the three months ended July 1, 2011, we acquired Clearwell System
Inc. (Clearwell) for an aggregate payment of $364 million, net of cash acquired. For the three
months ended July 1, 2011, we acquired PGP Corporation (PGP) and GuardianEdge Technologies, Inc.
(GuardianEdge) for an aggregate payment of $362 million, net of cash acquired.
Convertible Senior Notes. During the three months ended July 1, 2011, the remaining balance
of our 0.75% Notes matured and we settled with the holders with a cash payment of $600 million. See
Note 6 of the Notes to Condensed Consolidated Financial Statements in this quarterly report for
further discussion. For the three months ended July 2, 2010, we did not repay any of this debt
other than the related interest costs.
23
Stock Repurchases. For the three months ended July 1, 2011, we repurchased 10 million shares,
or $198 million, of our common stock. For the three months ended July 2, 2010, we repurchased 14
million shares, or $200 million, of our common stock. As of July 1, 2011, we had $679 million
remaining under the plan authorized for future repurchases.
As of July 1, 2011, $1.6 billion of the $2.3 billion of cash, cash equivalents, and marketable
securities was held by our foreign subsidiaries. We have provided U.S. deferred taxes on a portion
of our undistributed foreign earnings sufficient to address the incremental U.S. tax that would be
due if we needed these funds for our operations in the U.S.
Cash Flows
The following table summarizes selected items in our Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
July 1, |
|
|
July 2, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In millions) |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
503 |
|
|
$ |
335 |
|
Investing activities |
|
|
(415 |
) |
|
|
(418 |
) |
Financing activities |
|
|
(778 |
) |
|
|
(207 |
) |
Operating Activities
Net cash provided by operating activities was $503 million for the three months ended July 1,
2011, which resulted from net income of $190 million adjusted for non-cash items, which largely
included depreciation and amortization charges of $178 million, as well as increased collections of
trade receivables of $359 million. These amounts were partially offset by decreases in deferred
revenue of $182 million and increases in accrued compensation of $121 million.
Net cash provided by operating activities was $335 million for the three months ended July 2,
2010, which resulted from net income of $161 million adjusted for non-cash items, which largely
included depreciation and amortization charges of $194 million, as well as increased collections of
trade receivables of $285 million. These amounts were partially offset by decreases in deferred
revenue of $177 million, accrued compensation and other liabilities of $109 million, and income
taxes payable of $79 million.
Investing Activities
Net cash used in investing activities was $415 million for the three months ended July 1, 2011
and was primarily due to payments for acquisitions, net of cash acquired, of $364 million and $51
million paid for capital expenditures.
Net cash used in investing activities was $418 million for the three months ended July 2, 2010
and was primarily due to payments for acquisitions, net of cash acquired, of $362 million and $52
million paid for capital expenditures.
Financing Activities
Net cash used in financing activities was $778 million for the three months ended July 1, 2011
and was primarily due to the extinguishment of our outstanding 0.75% Notes of $600 million and
repurchases of our common stock of $198 million.
Net cash used in financing activities was $207 million for the three months ended July 2, 2010
and was primarily due to repurchases of our common stock of $200 million.
Contractual Obligations
There have been no significant changes during the three months ended July 1, 2011 to the
contractual obligations disclosed in Managements Discussion and Analysis of Financial Condition
and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the
fiscal year ended April 1, 2011, other than the extinguishment of our $600 million principal amount
of 0.75% convertible senior notes. The table below sets forth these changes but does not update
the other line items in the contractual obligations table that appears in the section of our Annual
Report on Form 10-K described above:
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Periods |
|
|
|
|
|
|
Remainder of |
|
Fiscal 2013 |
|
Fiscal 2015 |
|
Fiscal 2017 |
|
|
Total |
|
Fiscal 2012 |
|
and Fiscal 2014 |
|
and Fiscal 2016 |
|
and Thereafter |
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
Convertible senior notes(1)
|
|
$ |
1,000 |
|
|
$-
|
|
$ |
1,000 |
|
|
$-
|
|
$ |
|
|
|
(1) |
|
In fiscal 2007, we issued $1.1 billion in principal amount
of 0.75% convertible senior notes (0.75% Notes) due June
15, 2011 and $1.0 billion in principal amount of 1.00%
convertible senior notes (1.00% Notes) due June 15,
2013. In the second quarter of fiscal 2011, we
repurchased $500 million aggregate principal amount of our
0.75% Notes and sold a proportionate share of the initial
note hedges back to the note hedge counterparties for
approximately $13 million. On June 15, 2011, the
remaining principal balance on our 0.75% Notes matured and
was settled by a cash payment of $600 million. Concurrent
with the maturity of the 0.75% Notes, the remaining
related note hedges expired. No portion of the 0.75% Notes
were converted into our common shares upon maturity. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in our market risk exposures during the three months
ended July 1, 2011 as compared to the market risk exposures disclosed in Managements Discussion
and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7A, of
our Annual Report on Form 10-K for the fiscal year ended April 1, 2011.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The SEC defines the term disclosure controls and procedures to mean a companys controls and
other procedures that are designed to ensure that information required to be disclosed in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuers management, including its principal
executive and principal financial officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief
Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act) by our management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, that our disclosure controls and procedures were effective as of the end of the
period covered by this report.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months
ended July 1, 2011 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.
25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this Item may be found in Note 8 of Notes to Condensed
Consolidated Financial Statements in this Form 10-Q, which information is incorporated into this
Part II, Item 1 by reference.
Item 1A. Risk Factors
A description of the risks associated with our business, financial condition, and results of
operations is set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year
ended April 1, 2011. There have been no material changes in our risks from such description.
26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock repurchases during the three months ended July 1, 2011 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Dollar |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
Value of Shares That |
|
|
|
|
|
|
|
|
|
|
|
Under Publicly |
|
|
May Yet Be |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Announced Plans |
|
|
Purchased Under the |
|
|
|
Shares Purchased |
|
|
Paid per Share |
|
|
or Programs |
|
|
Plans or Programs |
|
|
|
|
|
|
|
(In millions, except per share data) |
|
|
|
|
|
April 2, 2011 to April 29, 2011 |
|
|
3 |
|
|
$ |
18.63 |
|
|
|
3 |
|
|
$ |
818 |
|
April 30, 2011 to May 27, 2011 |
|
|
3 |
|
|
$ |
19.48 |
|
|
|
3 |
|
|
$ |
761 |
|
May 28, 2011 to July 1, 2011 |
|
|
4 |
|
|
$ |
18.91 |
|
|
|
4 |
|
|
$ |
679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10 |
|
|
$ |
18.98 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For information regarding our stock repurchase programs, see Note 9 of Notes to Condensed
Consolidated Financial Statements, which information is incorporated herein by reference.
27
Item 6. Exhibits
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
Exhibit |
|
|
|
|
|
File |
|
|
|
|
|
File |
|
Filed with |
Number |
|
Exhibit Description |
|
Form |
|
Number |
|
Exhibit |
|
Date |
|
this 10-Q |
3 .01
|
|
Symantec Corporation
Bylaws, as amended
April 26, 2011
|
|
8-K
|
|
000-17781
|
|
|
3.01 |
|
|
05/02/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.01*
|
|
FY12 Long Term
Incentive Plan
|
|
10-K
|
|
000-17781
|
|
|
10.29 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02*
|
|
FY12 Executive Annual
Incentive Plan
Chief Executive
Officer
|
|
10-K
|
|
000-17781
|
|
|
10.30 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.03*
|
|
FY12 Executive Annual
Incentive Plan
Executive Vice
President and Group
President 95%
|
|
10-K
|
|
000-17781
|
|
|
10.31 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.04*
|
|
FY12 Executive Annual
Incentive Plan
Executive Vice
President and Group
President
|
|
10-K
|
|
000-17781
|
|
|
10.32 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.01
|
|
Certification of Chief
Executive Officer
pursuant to Section
302 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.02
|
|
Certification of Chief
Financial Officer
pursuant to Section
302 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.01
|
|
Certification of Chief
Executive Officer
pursuant to Section
906 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.02
|
|
Certification of Chief
Financial Officer
pursuant to Section
906 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Schema
Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy
Calculation Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Labels
Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy
Presentation Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy
Definition Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
28
|
|
|
* |
|
Indicates a management contract or compensatory plan or arrangement. |
|
|
|
This exhibit is being furnished rather than filed, and shall not be
deemed incorporated by reference into any filing, in accordance with
Item 601 of Regulation S-K. |
|
|
|
In accordance with Rule 406T of Regulation S-T, the information in
these exhibits is furnished and deemed not filed or part of a
registration statement or prospectus for purposes of sections 11 or 12
of the Securities Act of 1933, is deemed not filed for purposes of
section 18 of the Exchange Act of 1934, and otherwise is not subject
to liability under these sections. |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
SYMANTEC CORPORATION
(Registrant)
|
|
|
By: |
/s/ Enrique Salem
|
|
|
|
Enrique Salem |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
By: |
/s/ James A. Beer
|
|
|
|
James A. Beer |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
Date: August 3, 2011
30
SYMANTEC CORPORATION
Q1 FY11 Form 10-Q
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference |
|
|
Exhibit |
|
|
|
|
|
File |
|
|
|
|
|
File |
|
Filed with |
Number |
|
Exhibit Description |
|
Form |
|
Number |
|
Exhibit |
|
Date |
|
this 10-Q |
3.01
|
|
Symantec Corporation
Bylaws, as amended
April 26, 2011
|
|
8-K
|
|
000-17781
|
|
|
3.01 |
|
|
05/02/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.01*
|
|
FY12 Long Term
Incentive Plan
|
|
10-K
|
|
000-17781
|
|
|
10.29 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02*
|
|
FY12 Executive Annual
Incentive Plan
Chief Executive
Officer
|
|
10-K
|
|
000-17781
|
|
|
10.30 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.03*
|
|
FY12 Executive Annual
Incentive Plan
Executive Vice
President and Group
President 95%
|
|
10-K
|
|
000-17781
|
|
|
10.31 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.04*
|
|
FY12 Executive Annual
Incentive Plan
Executive Vice
President and Group
President
|
|
10-K
|
|
000-17781
|
|
|
10.32 |
|
|
05/20/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.01
|
|
Certification of Chief
Executive Officer
pursuant to Section
302 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.02
|
|
Certification of Chief
Financial Officer
pursuant to Section
302 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.01
|
|
Certification of Chief
Executive Officer
pursuant to Section
906 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.02
|
|
Certification of Chief
Financial Officer
pursuant to Section
906 of the
Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Schema
Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy
Calculation Linkbase
Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Labels
Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy
Presentation Linkbase
Document
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101 .DEF
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XBRL Taxonomy
Definition Linkbase
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Indicates a management contract or compensatory plan or arrangement. |
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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. |
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In accordance with Rule 406T of Regulation S-T, the information in
these exhibits is furnished and deemed not filed or part of a
registration statement or prospectus for purposes of sections 11 or 12
of the Securities Act of 1933, is deemed not filed for purposes of
section 18 of the Exchange Act of 1934, and otherwise is not subject
to liability under these sections. |
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