e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
July 4, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission File Number
000-17781
Symantec Corporation
(Exact name of the registrant as
specified in its charter)
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Delaware
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77-0181864
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. employer
identification no.)
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20330 Stevens Creek Blvd.,
Cupertino, California
(Address of principal
executive offices)
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95014-2132
(Zip Code)
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Registrants telephone number, including area code:
(408) 517-8000
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, 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):
þ Large
accelerated
filer o Accelerated
filer o Non-accelerated
filer o Smaller
reporting company
(Do not check if a smaller reporting company)
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 August 1, 2008: 839,099,530 shares.
SYMANTEC
CORPORATION
FORM 10-Q
Quarterly
Period Ended July 4, 2008
TABLE OF
CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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3
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Condensed Consolidated Balance Sheets as of July 4, 2008
and March 28, 2008
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3
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Condensed Consolidated Statements of Income for the three months
ended July 4, 2008 and June 29, 2007
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4
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Condensed Consolidated Statements of Cash Flows for the three
months ended July 4, 2008 and June 29, 2007
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5
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Notes to Condensed Consolidated Financial Statements
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6
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Item 2.
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Managements Discussion and Analysis of Financial
Condition and Results of Operations
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21
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Item 3.
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Quantitative and Qualitative Disclosures about Market
Risk
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33
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Item 4.
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Controls and Procedures
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33
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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34
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Item 1A.
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Risk Factors
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34
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Item 2.
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Unregistered Sales of Equity Securities and Use of
Proceeds
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34
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Item 5.
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Other Information
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34
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Item 6.
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Exhibits
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35
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Signatures
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36
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2
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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SYMANTEC
CORPORATION
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July 4,
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March 28,
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2008
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2008
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(Unaudited)
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*
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(In thousands, except par value)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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2,045,243
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$
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1,890,225
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Short-term investments
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241,062
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536,728
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Trade accounts receivable, net
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652,458
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758,200
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Inventories
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28,324
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34,138
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Deferred income taxes
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199,188
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193,775
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Other current assets
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233,381
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316,852
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Total current assets
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3,399,656
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3,729,918
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Property and equipment, net
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1,028,534
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1,001,750
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Acquired product rights, net
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607,600
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648,950
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Other intangible assets, net
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1,197,604
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1,243,524
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Goodwill
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11,312,011
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11,207,357
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Investment in joint venture
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143,819
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150,000
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Other long-term assets
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61,323
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55,291
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Long-term deferred income taxes
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58,521
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55,304
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Total assets
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$
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17,809,068
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$
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18,092,094
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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181,326
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$
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169,631
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Accrued compensation and benefits
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349,055
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431,345
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Current deferred revenue
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2,602,551
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2,661,515
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Income taxes payable
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77,807
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72,263
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Short-term borrowing
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200,000
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Other current liabilities
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222,340
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264,832
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Total current liabilities
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3,433,079
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3,799,586
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Convertible senior notes
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2,100,000
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2,100,000
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Long-term deferred revenue
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409,131
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415,054
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Long-term deferred tax liabilities
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197,069
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219,341
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Long-term income taxes payable
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499,519
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478,743
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Other long-term liabilities
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104,302
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106,187
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Total liabilities
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6,743,100
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7,118,911
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Commitments and contingencies
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Stockholders equity:
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Preferred stock (par value: $0.01, 1,000 shares authorized;
none issued and outstanding)
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Common stock (par value: $0.01, 3,000,000 shares
authorized; 1,221,324 and 1,223,038 shares issued at
July 4, 2008 and March 28, 2008; 837,673 and
839,387 shares outstanding at July 4, 2008 and
March 28, 2008)
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8,376
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8,393
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Additional paid-in capital
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9,097,974
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9,139,084
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Accumulated other comprehensive income
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158,637
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159,792
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Retained earnings
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1,800,981
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1,665,914
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Total stockholders equity
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11,065,968
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10,973,183
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Total liabilities and stockholders equity
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$
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17,809,068
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$
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18,092,094
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* |
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Derived from audited financials |
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 4,
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June 29,
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2008
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2007
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(Unaudited)
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(In thousands, except earnings per share data)
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Net revenues:
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Content, subscriptions, and maintenance
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$
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1,290,992
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$
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1,086,518
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Licenses
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359,330
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313,820
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Total net revenues
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1,650,322
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1,400,338
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Cost of revenues:
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Content, subscriptions, and maintenance
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218,574
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209,666
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Licenses
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8,447
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11,238
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Amortization of acquired product rights
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84,961
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89,360
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Total cost of revenues
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311,982
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310,264
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Gross profit
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1,338,340
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1,090,074
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Operating expenses:
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Sales and marketing
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662,819
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568,530
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Research and development
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231,435
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225,578
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General and administrative
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92,766
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85,845
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Amortization of other purchased intangible assets
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55,379
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56,925
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Restructuring
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17,005
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19,000
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Total operating expenses
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1,059,404
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955,878
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Operating income
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278,936
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134,196
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Interest income
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17,988
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20,821
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Interest expense
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(9,569
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(6,291
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)
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Other income (expense), net
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(61
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1,266
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Income before income taxes and loss from unconsolidated entity
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287,294
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149,992
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Provision for income taxes
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94,421
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54,786
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Loss from unconsolidated entity
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6,181
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Net income
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$
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186,692
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$
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95,206
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Earnings per share basic
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$
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0.22
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$
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0.11
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Earnings per share diluted
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$
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0.22
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$
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0.10
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Weighted-average shares outstanding basic
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838,564
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891,642
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Weighted-average shares outstanding diluted
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853,994
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910,302
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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 4,
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June 29,
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2008
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2007
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(Unaudited)
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(In thousands)
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OPERATING ACTIVITIES:
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Net income
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$
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186,692
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$
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95,206
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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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200,056
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213,445
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Stock-based compensation expense
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44,847
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40,743
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Deferred income taxes
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14,717
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(25,119
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)
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Income tax benefit from the exercise of stock options
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9,945
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9,863
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Excess income tax benefit from the exercise of stock options
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(9,033
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)
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(9,044
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)
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Loss from unconsolidated entity
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6,181
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Other
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6,160
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(260
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)
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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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118,885
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141,391
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Inventories
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5,824
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7,706
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Accounts payable
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(8,665
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)
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12,682
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Accrued compensation and benefits
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(90,906
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)
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(16,480
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)
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Deferred revenue
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(70,266
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)
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(110,004
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)
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Income taxes payable
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(30,592
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)
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19,392
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Other assets
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80,673
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20,329
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Other liabilities
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(50,942
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)
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(48,541
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)
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Net cash provided by operating activities
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413,576
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351,309
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INVESTING ACTIVITIES:
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Purchase of property and equipment
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(57,695
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)
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(74,688
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Proceeds from sale of property and equipment
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903
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Cash payments for business acquisitions, net of cash and cash
equivalents acquired
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(166,356
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)
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(840,568
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)
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Purchases of
available-for-sale
securities
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(172,596
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)
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(300,531
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)
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Proceeds from sales of
available-for-sale
securities
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471,998
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103,611
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Net cash provided by (used in) investing activities
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75,351
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(1,111,273
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)
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FINANCING ACTIVITIES:
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Repurchase of common stock
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(199,998
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)
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(499,995
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)
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Net proceeds from sales of common stock under employee stock
benefit plans
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74,987
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62,163
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Repayment of short-term borrowing
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(200,000
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)
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Excess income tax benefit from the exercise of stock options
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9,033
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9,044
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Repayment of other long-term liability
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(1,842
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)
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(5,333
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)
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Tax payments related to restricted stock issuance
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|
|
(14,768
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)
|
|
|
(2,939
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)
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|
|
|
|
|
|
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Net cash used in financing activities
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|
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(332,588
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)
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|
|
(437,060
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)
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Effect of exchange rate fluctuations on cash and cash equivalents
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|
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(1,321
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)
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|
|
12,039
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|
|
|
|
|
|
|
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Increase (decrease) in cash and cash equivalents
|
|
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155,018
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|
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(1,184,985
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)
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Beginning cash and cash equivalents
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|
|
1,890,225
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|
|
|
2,559,034
|
|
|
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|
|
|
|
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Ending cash and cash equivalents
|
|
$
|
2,045,243
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|
|
$
|
1,374,049
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|
|
|
|
|
|
|
|
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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 condensed consolidated financial statements of Symantec
Corporation (we, us, and our
refer to Symantec Corporation and all of its subsidiaries) as of
July 4, 2008 and March 28, 2008 and for the three
months ended July 4, 2008 and June 29, 2007 have been
prepared in accordance with the instructions for
Form 10-Q
pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, therefore, do not
include all information and notes normally provided in audited
financial statements. In the opinion of management, the
condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring items, except
as otherwise noted, necessary for the fair presentation of our
financial position and results of operations for the interim
periods. The condensed consolidated balance sheet as of
March 28, 2008 has been derived from the audited
consolidated financial statements, however it does not include
all disclosures required by generally accepted accounting
principles. These condensed consolidated financial statements
should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in our Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008. The results of
operations for the three months ended July 4, 2008 are not
necessarily indicative of the results to be expected for the
entire fiscal year. All significant intercompany accounts and
transactions have been eliminated.
We have a 52/53-week fiscal accounting year. Unless otherwise
stated, references to three month ended periods in this report
relate to fiscal periods ended July 4, 2008 and
June 29, 2007. The July 4, 2008 fiscal quarter
consisted of 14 weeks, whereas the June 29, 2007
fiscal quarter consisted of 13 weeks. Our 2009 fiscal year
consists of 53 weeks and ends on April 3, 2009.
Significant
accounting policies
There have been no changes in our significant accounting
policies during the three months ended July 4, 2008 as
compared to the significant accounting policies described in our
Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008.
Recent
accounting pronouncements
In June 2008, the Financial Accounting Standards Board
(FASB) issued Emerging Issues Task Force
(EITF) Issue
No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) Is
Indexed to an Entitys Own Stock. EITF Issue
No. 07-5
provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and
settlement provisions. It also clarifies the impact of foreign
currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation. EITF Issue
No. 07-5
is effective for fiscal years beginning after December 15,
2008. We are currently assessing the impact of EITF Issue
No. 07-5
on our consolidated financial statements.
In May 2008, the FASB issued FASB Staff Position
(FSP) APB
No. 14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement). The FSP will require the issuer of convertible
debt instruments with cash settlement features to separately
account for the liability and equity components of the
instrument. The debt will be recognized at the present value of
its cash flows discounted using the issuers nonconvertible
debt borrowing rate at the time of issuance. The equity
component will be recognized as the difference between the
proceeds from the issuance of the note and the fair value of the
liability. The FSP will also require an accretion as interest
expense of the resultant debt discount over the expected life of
the debt. The transition guidance requires retrospective
application to all periods presented, and does not grandfather
existing instruments. The guidance will be effective for fiscal
years beginning after December 15, 2008, and interim
periods within those years. Upon adoption of the FSP, we expect
the increase in non-cash interest expense recognized on our
consolidated financial statements to be significant.
6
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets.
The position amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB
Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets. The position applies to intangible assets
that are acquired individually or with a group of other assets
and in business combinations and asset acquisitions.
FSP 142-3
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We do not
expect the adoption of FSP
No. 142-3
to have a material impact on our consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133.
SFAS No. 161 requires disclosures of how and why an
entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for and how derivative
instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows.
SFAS No. 161 is effective for fiscal years beginning
after November 15, 2008, with early adoption permitted. We
do not expect the adoption of SFAS No. 161 to have a
material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51. The standard
changes the accounting for noncontrolling (minority) interests
in consolidated financial statements including the requirements
to classify noncontrolling interests as a component of
consolidated stockholders equity, to identify earnings
attributable to noncontrolling interests reported as part of
consolidated earnings, and to measure the gain or loss on the
deconsolidated subsidiary using the fair value of a
noncontrolling equity investment. Additionally,
SFAS No. 160 revises the accounting for both increases
and decreases in a parents controlling ownership interest.
SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. We
do not expect the adoption of SFAS No. 160 to have a
material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations. This standard changes the
accounting for business combinations by requiring that an
acquiring entity measures and recognizes identifiable assets
acquired and liabilities assumed at the acquisition date fair
value with limited exceptions. The changes include the treatment
of acquisition related transaction costs, the valuation of any
noncontrolling interest at the acquisition date fair value, the
recording of acquired contingent liabilities at acquisition date
fair value and the subsequent re-measurement of such liabilities
after acquisition date, the recognition of capitalized
in-process research and development, the accounting for
acquisition-related restructuring cost accruals subsequent to
the acquisition date, and the recognition of changes in the
acquirers income tax valuation allowance.
SFAS No. 141R is effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. If
the current level of acquisitions activity continues, we expect
the implementation of SFAS No. 141R to have a material
impact on our consolidated financial statements when it becomes
effective. The accounting treatment related to pre-acquisition
uncertain tax positions will change when SFAS No. 141R
becomes effective, which will be in first quarter of our fiscal
year 2010. At such time, any changes to the recognition or
measurement of uncertain tax positions related to
pre-acquisition periods will be recorded through income tax
expense, where currently the accounting treatment would require
any adjustment to be recognized through the purchase price.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, which defines fair value,
establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. SFAS No. 157
does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior
accounting pronouncements and is effective for fiscal years
beginning after November 15, 2007. In February 2008, the
FASB issued FSP No.
157-2,
The Effective Date of FASB Statement No. 157, which
delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually), until
fiscal years beginning after November 15, 2008, and interim
periods within those fiscal years. These nonfinancial items
include assets and liabilities such as reporting units measured
at fair value in a goodwill impairment test and
7
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
nonfinancial assets acquired and liabilities assumed in a
business combination. Effective March 29, 2008, we adopted
SFAS 157 for financial assets and liabilities recognized at
fair value on a recurring basis. The partial adoption of
SFAS 157 for financial assets and liabilities did not have
a material impact on our consolidated financial position,
results of operations or cash flows. See Note 2 for
information and related disclosures regarding our fair value
measurements.
|
|
Note 2.
|
Financial
Instruments
|
We measure financial assets and liabilities at fair value based
upon exit price, representing the amount that would either be
received to sell an asset or be paid to transfer a liability in
an orderly transaction between market participants. As such, it
may be based on assumptions that market participants would use
in pricing an asset or liability. SFAS No. 157 (as
impacted by FSP Nos.
157-1 and
157-2)
establishes a consistent framework for measuring fair value on
either a recurring or nonrecurring basis whereby inputs, used in
valuation techniques, are assigned a hierarchical level. The
following are the hierarchical levels of inputs to measure fair
value:
|
|
|
|
|
Level 1: Observable inputs that reflect
quoted prices (unadjusted) for identical assets or liabilities
in active markets.
|
|
|
|
Level 2: Inputs reflect quoted prices for
identical assets or liabilities in markets that are not active;
quoted prices for similar assets or liabilities in active
markets; inputs other than quoted prices that are observable for
the assets or liabilities; or inputs that are derived
principally from or corroborated by observable market data by
correlation or other means.
|
|
|
|
Level 3: Unobservable inputs reflecting
our own assumptions incorporated in valuation techniques used to
determine fair value. These assumptions are required to be
consistent with market participant assumptions that are
reasonably available.
|
The following table summarizes the Companys financial
assets and liabilities measured at fair value on a recurring
basis, by level within the fair value hierarchy, as of
July 4, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 4, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
669,528
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
669,528
|
|
Bank securities and deposits
|
|
|
|
|
|
|
45,486
|
|
|
|
|
|
|
|
45,486
|
|
Commercial paper
|
|
|
|
|
|
|
688,477
|
|
|
|
|
|
|
|
688,477
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
28,158
|
|
|
|
|
|
|
|
28,158
|
|
Commercial paper
|
|
|
|
|
|
|
209,408
|
|
|
|
|
|
|
|
209,408
|
|
Equity investments(1)
|
|
|
3,490
|
|
|
|
|
|
|
|
|
|
|
|
3,490
|
|
Deferred compensation plan assets(2)
|
|
|
|
|
|
|
15,398
|
|
|
|
|
|
|
|
15,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
673,018
|
|
|
$
|
986,927
|
|
|
$
|
|
|
|
$
|
1,659,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Equity investments relate to our investments in the securities
of other public companies. Such investments are included in
Short-term investments. |
|
(2) |
|
Deferred compensation plan assets are fund-of-funds and consist
primarily of corporate equity securities. Such assets are
included in Other assets. |
8
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Certain financial assets and liabilities are not included in the
table above because they are measured at fair value on a
nonrecurring basis. These assets and liabilities include
non-public equity investments, convertible senior notes and bond
hedge (including the derivative call option).
The effective date for measuring fair value of nonfinancial
assets and liabilities which are recognized or disclosed at fair
value on a nonrecurring basis is the fiscal year starting
April 4, 2009 and interim period within this fiscal year
under FSP
FAS No. 157-2.
This deferral applies to us for such items as nonfinancial
assets and liabilities initially measured at fair value in a
business combination but not measured at fair value in
subsequent periods, nonfinancial long-lived and intangible asset
groups measured at fair value for an impairment assessment,
reporting units measured at fair value in the first step of a
goodwill impairment test, and nonfinancial restructuring
liabilities.
|
|
Note 3.
|
Balance
Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
July 4,
|
|
|
March 28,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
964,559
|
|
|
$
|
925,156
|
|
Office furniture and equipment
|
|
|
224,888
|
|
|
|
292,306
|
|
Buildings
|
|
|
492,848
|
|
|
|
492,857
|
|
Leasehold improvements
|
|
|
305,333
|
|
|
|
276,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,987,628
|
|
|
|
1,986,435
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,053,866
|
)
|
|
|
(1,079,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
933,762
|
|
|
|
906,967
|
|
Land
|
|
|
94,772
|
|
|
|
94,783
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,028,534
|
|
|
$
|
1,001,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Comprehensive
Income
|
The components of comprehensive income, net of tax, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
186,692
|
|
|
$
|
95,206
|
|
Other comprehensive income, (loss):
|
|
|
|
|
|
|
|
|
Reclassification adjustment relating to the legal liquidation of
foreign entities
|
|
|
(4,636
|
)
|
|
|
|
|
Change in cumulative translation adjustment, net of tax
|
|
|
3,196
|
|
|
|
8,094
|
|
Change in unrealized gain (loss) on available-for-sale
securities, net of tax
|
|
|
286
|
|
|
|
(1,302
|
)
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, (loss)
|
|
|
(1,154
|
)
|
|
|
6,792
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
185,538
|
|
|
$
|
101,998
|
|
|
|
|
|
|
|
|
|
|
The reclassification adjustment relates to the realization of a
foreign exchange translation adjustment relating to the legal
liquidation of foreign entities. Accumulated other comprehensive
income as of July 4, 2008 and March 28, 2008 primarily
consists of foreign currency translation adjustments, net of
taxes.
9
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
AppStream
Purchase
On April 18, 2008, we completed the acquisition of
AppStream, Inc. (AppStream), a Palo Alto,
California-based provider of endpoint virtualization software.
AppStream was acquired to complement our endpoint management and
virtualization portfolio and strategy. AppStreams
application streaming technology provides an on-demand delivery
mechanism that leverages application virtualization to enable
greater flexibility and control. In exchange for all voting
equity interests, we purchased AppStream for $53 million,
which included acquisition related costs. Cash was used to fund
the transaction, and no equity interests were issued. Of the
aggregate purchase price, $15 million was allocated to
tangible assets, $11 million to identified intangible
assets, primarily developed technology, and the remaining
$27 million resulted in goodwill. Goodwill, none of which
was deductible for tax purposes, resulted primarily from our
expectation of synergies from the integration of
AppStreams product offerings with our product offerings.
The results of operations for AppStream, since the date of
acquisition, are included as part of the Security and Compliance
segment. Supplemental proforma information for AppStream is not
material and was therefore not included.
SwapDrive
Purchase
On June 6, 2008, we completed the acquisition of SwapDrive,
Inc. (SwapDrive), a Washington D.C.-based provider
of online storage products. SwapDrive was acquired to strengthen
and expand the Norton consumer portfolio by leveraging online
backup and storage platform technologies. In exchange for all
voting equity interests, we purchased SwapDrive for
$124 million, which included acquisition related costs.
Cash was used to fund the transaction, and no equity interests
were issued. Of the aggregate purchase price, $2 million
was allocated to tangible assets and $41 million was
allocated to identified intangible assets, primarily developed
technology and customer relationships, and the remaining
$81 million resulted in goodwill. Goodwill, none of which
was deductible for tax purposes, resulted primarily from our
expectation of synergies from the integration of
SwapDrives product offerings with our product offerings.
The results of operations for SwapDrive, since the date of
acquisition, are included as part of the Consumer segment.
Supplemental proforma information for SwapDrive was not material
and is therefore not included.
|
|
Note 6.
|
Investment
in Joint Venture
|
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. We contributed cash of
$150 million, licenses related to certain intellectual
property and other intangible assets in exchange for 49% of the
outstanding common shares of the joint venture. The joint
venture will develop, manufacture, market and support security
and storage appliances to global telecommunications carriers and
enterprise customers. Huawei contributed its telecommunications
storage and security business assets, engineering, sales and
marketing resources, personnel, and licenses related to
intellectual property in exchange for a 51% ownership interest
in the joint venture.
The contribution of assets to the joint venture was accounted
for at its carrying value. The historical carrying value of the
assets contributed by Symantec comprised a significant portion
of the net assets of the joint venture. As a result, our
carrying value of the investment in the joint venture exceeded
our proportionate share in the underlying net assets of the
joint venture by approximately $73 million upon formation
of the joint venture. As the contributions for both Symantec and
Huawei were recorded at historical carrying value by the joint
venture, this basis difference is attributable to the
contributed identified intangible assets. The basis difference
is being amortized over a weighted-average period of
9 years, the estimated useful lives of the underlying
identified intangible assets to which the basis difference is
attributed.
10
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We account for our investment in the joint venture under the
equity method of accounting. Under this method, we record our
proportionate share of the joint ventures net income or
loss based on the quarterly financial statements of the joint
venture. We record our proportionate share of net income or loss
one quarter in arrears. In determining our share of the joint
ventures net income or loss, we adjust the joint
ventures reported results to recognize the amortization
expense associated with the basis difference. For the three
months ended July 4, 2008, we recorded a loss of
approximately $6 million related to our share of the joint
ventures net loss, including the amortization of the basis
difference described above, for the joint ventures period
ended March 31, 2008. This loss is included in the
accompanying Condensed Consolidated Statement of Income under
the caption Loss from unconsolidated entity. The
carrying value of our investment in the joint venture as of
July 4, 2008 was approximately $144 million.
Summarized unaudited statement of operations information for the
joint venture and the calculation of our share of the joint
ventures loss are as follows:
|
|
|
|
|
|
|
For the
|
|
|
|
Period from
|
|
|
|
February 5,
|
|
|
|
2008 to
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net revenues
|
|
$
|
14
|
|
Gross margin
|
|
|
(198
|
)
|
Net loss, as reported by the joint venture
|
|
$
|
(9,818
|
)
|
Symantecs ownership interest
|
|
|
49
|
%
|
|
|
|
|
|
Symantecs proportionate share of net loss
|
|
|
(4,811
|
)
|
Adjustment for amortization of basis difference
|
|
|
(1,370
|
)
|
|
|
|
|
|
Loss from unconsolidated entity
|
|
$
|
(6,181
|
)
|
|
|
|
|
|
|
|
Note 7.
|
Goodwill,
Acquired Product Rights, and Other Intangible Assets
|
Goodwill
In accordance with SFAS No. 142, we allocate goodwill
to our reporting units, which are the same as our operating
segments. Goodwill is allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Security and
|
|
|
Storage and Server
|
|
|
|
|
|
Total
|
|
|
|
Products
|
|
|
Compliance
|
|
|
Management
|
|
|
Services
|
|
|
Company
|
|
|
|
(In thousands)
|
|
|
Balance as of March 28, 2008
|
|
$
|
102,810
|
|
|
$
|
4,080,717
|
|
|
$
|
6,665,734
|
|
|
$
|
358,096
|
|
|
$
|
11,207,357
|
|
Goodwill acquired through business combination(a)
|
|
|
80,850
|
|
|
|
27,402
|
|
|
|
|
|
|
|
|
|
|
|
108,252
|
|
Goodwill adjustments(b)
|
|
|
|
|
|
|
(2,234
|
)
|
|
|
(1,364
|
)
|
|
|
|
|
|
|
(3,598
|
)
|
Operating segment reclassification(c)
|
|
|
|
|
|
|
(84,376
|
)
|
|
|
|
|
|
|
84,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of July 4, 2008
|
|
$
|
183,660
|
|
|
$
|
4,021,509
|
|
|
$
|
6,664,370
|
|
|
$
|
442,472
|
|
|
$
|
11,312,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects goodwill acquired through business combinations of
approximately $81 million in the Consumer Products segment
for SwapDrive, Inc., and approximately $27 million in the
Security and Compliance segment for AppStream, Inc. See
Note 5 for further details. |
11
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(b) |
|
Reflects adjustments made to goodwill related to prior
acquisitions as a result of tax adjustments to stock-based
compensation. |
|
(c) |
|
During the three months ended July 4, 2008, we moved the
Altiris services from the Security and Compliance segment to the
Services segment. As a result of this reclassification, the
above adjustment was made in accordance with SFAS No. 142. |
Goodwill is tested for impairment on an annual basis during the
March quarter, or earlier if indicators of impairment exist.
Based on our review as of July 4, 2008, no indicators of
impairment were identified.
Acquired
product rights, net
Acquired product rights subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 4, 2008
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Weighted-Average
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Remaining Life
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
1,699,495
|
|
|
$
|
(1,128,460
|
)
|
|
$
|
571,035
|
|
|
|
2 years
|
|
Patents
|
|
|
71,260
|
|
|
|
(34,695
|
)
|
|
|
36,565
|
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,770,755
|
|
|
$
|
(1,163,155
|
)
|
|
$
|
607,600
|
|
|
|
2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 28, 2008
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Weighted-Average
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Remaining Life
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
1,655,895
|
|
|
$
|
(1,045,383
|
)
|
|
$
|
610,512
|
|
|
|
2 years
|
|
Patents
|
|
|
71,313
|
|
|
|
(32,875
|
)
|
|
|
38,438
|
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,727,208
|
|
|
$
|
(1,078,258
|
)
|
|
$
|
648,950
|
|
|
|
2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for acquired product rights was
$85 million and $89 million for the three months ended
July 4, 2008 and June 29, 2007, respectively.
Amortization of acquired product rights is included in Cost of
revenues in the Condensed Consolidated Statements of Income.
Amortization expense for acquired product rights, based upon our
existing acquired product rights and their current useful lives
as of July 4, 2008, is estimated to be as follows (in
thousands):
|
|
|
|
|
Remainder of fiscal 2009
|
|
$
|
260,372
|
|
2010
|
|
|
209,590
|
|
2011
|
|
|
78,735
|
|
2012
|
|
|
36,385
|
|
2013
|
|
|
12,277
|
|
Thereafter
|
|
|
10,241
|
|
|
|
|
|
|
Total
|
|
$
|
607,600
|
|
|
|
|
|
|
12
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
intangible assets, net
Other intangible assets subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 4, 2008
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Weighted-Average
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Remaining Life
|
|
|
(In thousands)
|
|
Customer base
|
|
$
|
1,671,083
|
|
|
$
|
(578,694
|
)
|
|
$
|
1,092,389
|
|
|
5 years
|
Trade name
|
|
|
125,263
|
|
|
|
(42,131
|
)
|
|
|
83,132
|
|
|
7 years
|
Norton tradename
|
|
|
22,083
|
|
|
|
|
|
|
|
22,083
|
|
|
indefinite
|
Partnership agreements
|
|
|
2,300
|
|
|
|
(2,300
|
)
|
|
|
|
|
|
Fully amortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,820,729
|
|
|
$
|
(623,125
|
)
|
|
$
|
1,197,604
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 28, 2008
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Weighted-Average
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Remaining Life
|
|
|
(In thousands)
|
|
Customer base
|
|
$
|
1,661,683
|
|
|
$
|
(526,512
|
)
|
|
$
|
1,135,171
|
|
|
5 years
|
Tradename
|
|
|
125,203
|
|
|
|
(38,933
|
)
|
|
|
86,270
|
|
|
7 years
|
Norton tradename
|
|
|
22,083
|
|
|
|
|
|
|
|
22,083
|
|
|
indefinite
|
Partnership agreements
|
|
|
2,300
|
|
|
|
(2,300
|
)
|
|
|
|
|
|
Fully amortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,811,269
|
|
|
$
|
(567,745
|
)
|
|
$
|
1,243,524
|
|
|
6 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for other intangible assets was
$55 million and $57 million for the three months ended
July 4, 2008 and June 29, 2007, respectively.
Amortization of other intangible assets is included in Operating
expenses in the Condensed Consolidated Statements of Income.
Amortization expense for other intangible assets, based upon our
existing other intangible assets and their current useful lives
as of July 4, 2008, is estimated to be as follows (in
thousands):
|
|
|
|
|
Remainder of fiscal 2009
|
|
$
|
188,753
|
|
2010
|
|
|
220,312
|
|
2011
|
|
|
219,558
|
|
2012
|
|
|
217,484
|
|
2013
|
|
|
215,519
|
|
Thereafter
|
|
|
135,978
|
|
|
|
|
|
|
Total
|
|
$
|
1,197,604
|
|
|
|
|
|
|
In July 2006, we entered into a five-year $1 billion senior
unsecured revolving credit facility that expires in July 2011.
Borrowings under the facility bear interest, at our option, at
either a rate equal to the banks base rate or a rate equal
to LIBOR plus a margin based on our leverage ratio, as defined
in the credit facility agreement. In connection with the credit
facility, we must maintain certain covenants, including a
specified ratio of debt to earnings before interest, taxes,
depreciation, and amortization, as well as various other
non-financial covenants.
On November 29, 2007, we borrowed $200 million under
this credit agreement to partially finance our acquisition of
Vontu with an interest rate of 4.7075% per annum due and payable
quarterly. During the first quarter
13
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of fiscal 2009, we repaid the entire Line of Credit principal
amount of $200 million and total interest amount of
$3 million. Total interest expense associated with this
borrowing was approximately $6 million. As of July 4,
2008, we were in compliance with all required covenants, and
there was no outstanding balance on the credit facility.
|
|
Note 9.
|
Assets
Held for Sale
|
We have committed to sell vacant buildings and land with a total
carrying value of $40 million and no associated
liabilities. In accordance with the provisions of
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, we designated these buildings
and land as assets held for sale and included them in Other
current assets on our Condensed Consolidated Balance Sheets. We
believe that these sales will be completed no later than the
first quarter of fiscal 2010.
|
|
Note 10.
|
Stock
repurchases
|
During the three months ended July 4, 2008, we repurchased
9.7 million shares of our common stock at prices ranging
from $19.35 to $21.75 per share for an aggregate amount of
$200 million. As of July 4, 2008, an aggregate of
$800 million remained authorized for future repurchases
from the June 14, 2007 stock repurchase plan.
|
|
Note 11.
|
Earnings
Per Share
|
The components of earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Earnings per share basic:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
186,692
|
|
|
$
|
95,206
|
|
Weighted average outstanding common shares
|
|
|
838,564
|
|
|
|
891,642
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
0.22
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
186,692
|
|
|
$
|
95,206
|
|
Weighted average outstanding common shares
|
|
|
838,564
|
|
|
|
891,642
|
|
Shares issuable from assumed exercise of options
|
|
|
13,116
|
|
|
|
17,644
|
|
Dilutive impact of restricted stock and resticted stock units
|
|
|
1,711
|
|
|
|
1,016
|
|
Dilutive impact of assumed conversion of Senior Notes using the
treasury stock method(1)
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for purposes of calculating diluted earnings per
share
|
|
|
853,994
|
|
|
|
910,302
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
$
|
0.22
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 9 of Notes to Consolidated Financial Statements in
our Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008 for an explanation
of the impact of the Senior Notes on Earnings per share -
diluted. |
14
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following potential common shares were excluded from the
computation of diluted earnings per share, as their effect would
have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Stock options
|
|
|
54,930
|
|
|
|
61,055
|
|
Restricted stock units
|
|
|
2
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,932
|
|
|
|
61,074
|
|
|
|
|
|
|
|
|
|
|
For the three months ended July 4, 2008 and June 29,
2007, the effect of the warrants issued and options purchased in
connection with the convertible senior notes were excluded for
the reasons discussed in Note 9 of Notes to Consolidated
Financial Statements in our Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008.
|
|
Note 12.
|
Stock-based
Compensation
|
We currently have in effect certain stock purchase plans, stock
award plans, and equity incentive plans, as described in detail
in Note 15 of Notes to Consolidated Financial Statements in
our Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008.
Stock-based compensation is included in the same expense line
items as salaries and wages in the Condensed Consolidated
Statements of Income. The following table sets forth the total
stock-based compensation expense recognized in our Condensed
Consolidated Statements of Income for the three months ended
July 4, 2008 and June 29, 2007.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except earnings per
|
|
|
|
share data)
|
|
|
Cost of revenues Content, subscriptions, and
maintenance
|
|
$
|
2,844
|
|
|
$
|
3,411
|
|
Cost of revenues Licenses
|
|
|
792
|
|
|
|
985
|
|
Sales and marketing
|
|
|
19,360
|
|
|
|
14,463
|
|
Research and development
|
|
|
13,127
|
|
|
|
14,166
|
|
General and administrative
|
|
|
8,724
|
|
|
|
7,718
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
44,847
|
|
|
|
40,743
|
|
Tax benefit associated with stock-based compensation expense
|
|
|
12,075
|
|
|
|
9,228
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense on net income
|
|
$
|
32,772
|
|
|
$
|
31,515
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense on earnings per
share basic
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based compensation expense on earnings per
share diluted
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
As of July 4, 2008, total unrecognized compensation cost
adjusted for estimated forfeitures, related to unvested stock
options, RSUs, and Restricted Stock Agreements
(RSAs), was $134 million, $155 million,
and $1 million, respectively, which is expected to be
recognized over the remaining weighted-average vesting periods
of 2.5 years for stock options, 2.6 years for RSUs,
and 0.5 years for RSAs.
15
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The weighted-average fair value per option granted during the
three months ended July 4, 2008 and June 29, 2007,
including assumed options, was $5.23 and $6.23, respectively.
The total intrinsic value of options exercised during the three
months ended July 4, 2008 and June 29, 2007, including
assumed options, was $52 million and $61 million,
respectively.
The weighted-average fair value per RSU granted during the three
months ended July 4, 2008 and June 29, 2007, including
assumed RSUs, was $19.94 and $19.45, respectively. The fair
value of RSUs granted for the three months ended July 4,
2008 and June 29, 2007 was $171 million and
$68 million, respectively. The total fair value of RSUs
that vested during the three months ended July 4, 2008 and
June 29, 2007, including assumed RSUs, was $49 million
and $12 million, respectively.
Our restructuring costs consist of severance, benefits, facility
and other charges. Severance and benefits generally include
severance, stay-put or one-time bonuses, outplacement services,
health insurance coverage, effects of foreign currency exchange
and legal costs. Facilities and other costs generally include
rent expense less expected sublease income, lease termination
costs, asset abandonment costs and the effects of foreign
currency exchange. Restructuring expenses generally do not
impact a particular reporting segment and are included in the
Other reporting segment.
2008
Restructuring Plan
In fiscal 2008, management approved and initiated a
restructuring plan to reduce costs, implement management
structure changes, optimize the business structure and
discontinue certain products. Projects within the plan began in
the third quarter of fiscal 2008. Severance payments related to
the plan are expected to be completed by the fourth quarter of
fiscal 2009 and excess facility obligations are to be paid
through the first quarter of fiscal 2012. Charges during the
three months ended July 4, 2008 were $10 million
related to severance and benefit costs and $5 million
related to facility and other costs. Total remaining costs of
the restructuring plan, consisting of both severance and
benefits and excess facilities costs, are estimated to range
between approximately $65 million and $95 million.
2007
Restructuring Plans
In fiscal 2007, management entered into restructuring plans to
consolidate facilities and reduce operating costs. As part of
the plan, we consolidated certain facilities and exited
facilities related to earlier acquisitions. Excess facilities
obligations are expected to be paid through the second quarter
of fiscal 2010. Future costs for exited facilities associated
with these events are not expected to be significant.
Prior
and Acquisition-Related Restructuring Plans
2006
Restructuring Plans
In fiscal 2006, management entered into restructuring plans to
reduce operating costs and consolidate facilities. Restructuring
liabilities related to these events as of July 4, 2008 are
$3 million primarily related to excess facilities and are
expected to be paid through the fourth quarter of fiscal 2018.
Acquisition-Related
Restructuring Plans
Restructuring liabilities related to acquisitions as of
July 4, 2008 were $6 million, consisting primarily of
excess facilities obligations. Of the $6 million
restructuring liability, $3 million relates to the Vontu
acquisition and $3 million relates to the Veritas
acquisition. These amounts are expected to be paid through the
first quarter of fiscal 2013 and 2014, respectively. Charges
during the three months ended July 4, 2008 were not
significant and primarily represent adjustments to previously
recorded costs. Further severance and benefit charges are not
expected to be recognized in future periods.
16
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Liabilities
|
|
|
|
|
|
|
Charges,
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
As of March 28,
|
|
|
Net of
|
|
|
Cash
|
|
|
As of July 4,
|
|
|
Incurred
|
|
|
|
2008
|
|
|
Adjustments(1)
|
|
|
Payments
|
|
|
2008
|
|
|
to Date
|
|
|
|
(In thousands)
|
|
|
2008 Restructuring Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
16,337
|
|
|
$
|
9,960
|
|
|
$
|
(16,804
|
)
|
|
$
|
9,493
|
|
|
$
|
51,585
|
|
Facilities & Other
|
|
|
1,031
|
|
|
|
2,497
|
|
|
|
(425
|
)
|
|
|
3,103
|
|
|
|
3,780
|
|
Asset impairments
|
|
|
|
|
|
|
1,769
|
|
|
|
|
|
|
|
|
|
|
|
1,769
|
|
Other
|
|
|
|
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
1,256
|
|
2007 Restructuring Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
20
|
|
|
|
1,145
|
|
|
|
(929
|
)
|
|
|
236
|
|
|
|
86,317
|
|
Facilities & Other
|
|
|
2,585
|
|
|
|
(241
|
)
|
|
|
(1,336
|
)
|
|
|
1,008
|
|
|
|
9,732
|
|
Prior & Acquisition Restructuring Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,536
|
|
Facilities & Other
|
|
|
10,647
|
|
|
|
619
|
|
|
|
(2,440
|
)
|
|
|
8,826
|
|
|
|
21,730
|
|
Purchase price adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,620
|
|
|
$
|
17,005
|
|
|
$
|
(21,934
|
)
|
|
$
|
22,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
24,062
|
|
|
|
|
|
|
|
|
|
|
$
|
17,048
|
|
|
|
|
|
Other long-term liabilities
|
|
|
6,558
|
|
|
|
|
|
|
|
|
|
|
|
5,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,620
|
|
|
|
|
|
|
|
|
|
|
$
|
22,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total net adjustments during the three months ended July 4,
2008 were not significant and related to accrued sublease income
and the effects of foreign currency. |
The effective tax rate was approximately 33% and 37% for the
three months ended July 4, 2008 and June 29, 2007,
respectively. The effective tax rates for both periods are
impacted by the benefits of lower-taxed foreign earnings and
domestic manufacturing tax incentives, offset by state income
taxes and non-deductible stock-based compensation. Additionally,
we recorded a $5 million tax benefit related to a favorable
Irish settlement for the three months ended July 4, 2008.
We file income tax returns in the U.S. on a federal basis
and in many U.S. state and foreign jurisdictions. Our two
most significant tax jurisdictions are the U.S. and
Ireland. Our tax filings remain subject to examination by
applicable tax authorities for a certain length of time
following the tax year to which those filings relate. Our 2000
through 2007 tax years remain subject to examination by the IRS
for U.S. federal tax purposes, and our 2003 through 2007
tax years remain subject to examination by the appropriate
governmental agencies for Irish tax purposes. Other significant
jurisdictions include California and Japan. As of July 4,
2008, we are under examination by the IRS, for the Veritas
U.S. federal income taxes for the 2002 through 2005 tax
years.
On March 29, 2006, we received a Notice of Deficiency from
the IRS claiming that we owe additional taxes, plus interest and
penalties, for the 2000 and 2001 tax years based on an audit of
Veritas. The incremental tax liability asserted by the IRS was
$867 million, excluding penalties and interest. On
June 26, 2006, we filed a petition with the
17
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S. Tax Court protesting the IRS claim for such additional
taxes. The IRS answered our petition on August 30, 2006, at
which point the dispute was docketed for trial. In the March
2007 quarter, we agreed to pay $7 million out of
$35 million originally assessed by the IRS in connection
with several of the lesser issues covered in the assessment. The
IRS also agreed to waive the assessment of penalties. During
July 2008, we completed the trial phase of the Tax Court case,
which dealt with the remaining issue covered in the assessment.
At trial, the IRS changed its position with respect to this
remaining issue, which decreased the remaining amount at issue
from $832 million to $545 million, excluding interest.
We strongly believe the IRS position with regard to this
matter is inconsistent with applicable tax laws and existing
Treasury regulations, and that our previously reported income
tax provision for the years in question is appropriate. If, upon
resolution, we are required to pay an amount in excess of our
provision for this matter, the incremental amounts due would be
accounted for principally as additions to the cost of Veritas
purchase price. Any incremental interest accrued subsequent to
the date of the Veritas acquisition would be recorded as an
expense in the period the matter is resolved.
In July 2008, we reached an agreement with the IRS concerning
our eligibility to claim a lower tax rate on a distribution made
from a Veritas foreign subsidiary prior to the July 2005
acquisition. The distribution was intended to be made pursuant
to the American Jobs Creation Act of 2004, and therefore
eligible for a 5.25% effective U.S. federal rate of tax, in
lieu of the 35% statutory rate. The final impact of this
agreement is not yet known since this relates to the taxability
of earnings that are otherwise the subject of the tax years
2000-2001
transfer pricing dispute which in turn is being addressed in the
U.S. Tax Court. To the extent that we owe taxes as a result
of the transfer pricing dispute, we anticipate that the
incremental tax due from this negotiated agreement will
decrease. We currently estimate that the most probable outcome
from this negotiated agreement will be $13 million or less,
for which an accrual has already been made. As previously
disclosed in
Form 10-K
for the fiscal year ended March 28, 2008, we made a payment
of $130 million to the IRS for this matter in May 2006. We
now intend to apply the excess payment as a deposit on the
outstanding transfer pricing matter for the tax years
2000-2001.
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.
Considering these facts, we do not currently believe there is a
reasonable possibility of any significant change to our total
unrecognized tax benefits within the next twelve months.
See Note 14 for a discussion of our tax litigation with the
IRS relating to the 2000 and 2001 tax year of Veritas.
On July 7, 2004, a purported class action complaint
entitled Paul Kuck, et al. v. Veritas Software Corporation,
et al. was filed in the United States District Court for the
District of Delaware. The lawsuit alleges violations of federal
securities laws in connection with Veritas announcement on
July 6, 2004 that it expected results of operations for the
fiscal quarter ended June 30, 2004 to fall below earlier
estimates. The complaint generally seeks an unspecified amount
of damages. Subsequently, additional purported class action
complaints have been filed in Delaware federal court, and, on
March 3, 2005, the Court entered an order consolidating
these actions and appointing lead plaintiffs and counsel. A
consolidated amended complaint (CAC), was filed on
May 27, 2005, expanding the class period from
April 23, 2004 through July 6, 2004. The CAC also
named another officer as a defendant and added allegations that
Veritas and the named officers made false or misleading
statements in press releases and SEC filings regarding the
companys financial results, which allegedly contained
revenue recognized from contracts that were unsigned or lacked
essential terms. The defendants to this matter filed a motion to
dismiss the CAC in July 2005; the motion was denied in May 2006.
In April 2008, the parties filed a stipulation of settlement,
which if approved by the Court will resolve the matter. On
July 31, 2008, the Court held a final approval hearing and,
on August 5, 2008, the Court entered an order approving the
settlement. As of March 28, 2008, we have recorded an
accrual in the amount of $21.5 million for this matter and,
pursuant to the terms of the settlement, we established a
settlement fund of $21.5 million on May 1, 2008.
18
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
After Veritas announced in January 2003 that it would restate
its financial results as a result of transactions entered into
with AOL Time Warner in September 2000, numerous separate
complaints purporting to be class actions were filed in the
United States District Court for the Northern District of
California alleging that Veritas and some of its officers and
directors violated provisions of the Securities Exchange Act of
1934. The complaints contain varying allegations, including that
Veritas made materially false and misleading statements with
respect to its 2000, 2001 and 2002 financial results included in
its filings with the SEC, press releases and other public
disclosures. A consolidated complaint entitled In Re VERITAS
Software Corporation Securities Litigation was filed by the lead
plaintiff on July 18, 2003. On February 18, 2005, the
parties filed a Stipulation of Settlement in the class action.
On March 18, 2005, the Court entered an order preliminarily
approving the class action settlement. Pursuant to the terms of
the settlement, a $35 million settlement fund was
established on March 25, 2005. Veritas insurance
carriers provided for the entire amount of the settlement fund.
In July 2007, the Court of Appeals vacated the settlement,
finding that the notice of settlement was inadequate. The matter
has been returned to the District Court for further
proceedings, including reissuance of the notice. If the
settlement is not approved, an adverse outcome in this matter
could have a material adverse effect on our financial position,
results of operations and cash flows.
We are also involved in a number of other judicial and
administrative proceedings that are incidental to our business.
Although adverse decisions (or settlements) may occur in one or
more of the cases, it is not possible to estimate the possible
loss or losses from each of these cases. The final resolution of
these lawsuits, individually or in the aggregate, is not
expected to have a material adverse effect on our financial
condition or results of operations.
|
|
Note 16.
|
Segment
Information
|
During the first quarter of fiscal 2009, we changed our
reporting segments to better align our operating structure.
Altiris services that were formerly included in the Security and
Compliance segment were moved to the Services segment. This move
is as a result of operational changes in our Services segment
and the continued integration of our Altiris business. We
revised the segment information for the prior year to conform to
the new presentation. As of July 4, 2008, our five
operating segments are:
|
|
|
|
|
Consumer Products. Our Consumer Products
segment focuses on delivering our Internet security, PC tuneup,
and backup products to individual users and home offices.
|
|
|
|
Security and Compliance. Our Security and
Compliance segment focuses on providing large, medium, and
small-sized businesses with solutions for compliance and
security management, endpoint security, messaging management,
and data protection management software solutions that allow our
customers to secure, provision, backup, and remotely access
their laptops, PCs, mobile devices, and servers.
|
|
|
|
Storage and Server Management. Our Storage and
Server Management segment focuses on providing enterprise and
large enterprise customers with storage and server management,
and data protection solutions across heterogeneous storage and
server platforms.
|
|
|
|
Services. Our Services segment provides
customers with leading IT risk management services and solutions
to manage security, availability, performance and compliance
risks across multi-vendor environments. In addition, our
services including managed security services, consulting,
education, and threat and early warning systems, help customers
optimize and maximize the value of their Symantec technology
investments.
|
|
|
|
Other. Our Other segment is comprised of
sunset products and products nearing the end of their life
cycle. It also includes general and administrative expenses;
amortization of acquired product rights, other intangible
assets, and other assets and charges, such as acquired
in-process research and development, stock-based compensation,
restructuring and certain indirect costs that are not charged to
the other operating segments.
|
19
SYMANTEC
CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our reportable segments are the same as our operating segments.
The accounting policies of the segments are described in our
Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008. There are no
intersegment sales. Our chief operating decision maker evaluates
performance based on direct profit or loss from operations
before income taxes not including nonrecurring gains and losses,
foreign exchange gains and losses, and miscellaneous other
income and expenses. Except for goodwill, as disclosed in
Note 7, the majority of our assets are not discretely
identified by segment. The depreciation and amortization of our
property, equipment, and leasehold improvements are allocated
based on headcount, unless specifically identified by segment.
Segment
information
The following table presents a summary of our operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Storage and
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Security and
|
|
|
Server
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Products
|
|
|
Compliance
|
|
|
Management
|
|
|
Services
|
|
|
Other
|
|
|
Company
|
|
|
|
(In thousands)
|
|
|
Three months ended July 4, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
472,331
|
|
|
$
|
445,647
|
|
|
$
|
615,156
|
|
|
$
|
116,713
|
|
|
$
|
475
|
|
|
$
|
1,650,322
|
|
Percentage of total net revenues
|
|
|
29
|
%
|
|
|
27
|
%
|
|
|
37
|
%
|
|
|
7
|
%
|
|
|
0
|
%
|
|
|
100
|
%
|
Operating income (loss)
|
|
|
275,505
|
|
|
|
81,160
|
|
|
|
306,340
|
|
|
|
(3,459
|
)
|
|
|
(380,610
|
)
|
|
|
278,936
|
|
Percentage of segment revenue
|
|
|
58
|
%
|
|
|
18
|
%
|
|
|
50
|
%
|
|
|
(3
|
)%
|
|
|
*
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,607
|
|
|
|
6,635
|
|
|
|
13,578
|
|
|
|
2,904
|
|
|
|
175,332
|
|
|
|
200,056
|
|
Three months ended June 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
423,750
|
|
|
$
|
387,669
|
|
|
$
|
505,580
|
|
|
$
|
83,098
|
|
|
$
|
241
|
|
|
$
|
1,400,338
|
|
Percentage of total net revenues
|
|
|
30
|
%
|
|
|
28
|
%
|
|
|
36
|
%
|
|
|
6
|
%
|
|
|
0
|
%
|
|
|
100
|
%
|
Operating income (loss)
|
|
|
233,787
|
|
|
|
60,102
|
|
|
|
222,616
|
|
|
|
(18,616
|
)
|
|
|
(363,693
|
)
|
|
|
134,196
|
|
Percentage of segment revenue
|
|
|
55
|
%
|
|
|
16
|
%
|
|
|
44
|
%
|
|
|
(22
|
)%
|
|
|
*
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,608
|
|
|
|
6,848
|
|
|
|
15,368
|
|
|
|
2,646
|
|
|
|
186,975
|
|
|
|
213,445
|
|
Period over period comparison:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period over period operating income change
|
|
$
|
41,718
|
|
|
$
|
21,058
|
|
|
$
|
83,724
|
|
|
$
|
15,157
|
|
|
$
|
(16,917
|
)
|
|
|
|
|
Period over period operating income percentage change
|
|
|
18
|
%
|
|
|
35
|
%
|
|
|
38
|
%
|
|
|
81
|
%
|
|
|
(5
|
)%
|
|
|
|
|
Period over period operating margin percentage change
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
6
|
%
|
|
|
19
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
20
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements and Factors That May Affect Future Results
The discussion below contains forward-looking statements, which
are subject to safe harbors under the Securities Act of 1933, as
amended, or the Securities Act, and the Securities Exchange Act
of 1934, as amended, or the Exchange Act. Forward-looking
statements include references to our ability to utilize our
deferred tax assets, as well as statements including words such
as expects, plans,
anticipates, believes,
estimates, predicts,
projects, and similar expressions. In addition,
statements that refer to projections of our future financial
performance, anticipated growth and trends in our businesses and
in our industries, the anticipated impacts of acquisitions, and
other characterizations of future events or circumstances are
forward-looking statements. These statements are only
predictions, based on our current expectations about future
events and may not prove to be accurate. We do not undertake any
obligation to update these forward-looking statements to reflect
events occurring or circumstances arising after the date of this
report. These forward-looking statements involve risks and
uncertainties, and our actual results, performance, or
achievements could differ materially from those expressed or
implied by the forward-looking statements on the basis of
several factors, including those that we discuss in Risk
Factors, set forth in Part I, Item 1A, of our annual
report on
Form 10-K
for the fiscal year ended March 28, 2008. We encourage you
to read that section carefully.
OVERVIEW
Our
Business
Symantec is a global leader in providing security, storage and
systems management solutions to 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.
We have a 52/53-week fiscal accounting year. Unless otherwise
stated, references to three month ended periods in this report
relate to fiscal periods ended July 4, 2008 and
June 29, 2007. The July 4, 2008 fiscal quarter
consisted of 14 weeks, whereas the June 29, 2007
fiscal quarter consisted of 13 weeks. The extra week in the
July 4, 2008 period positively impacted our revenue and
earnings for the period, which was partially offset by its
negative impact on our cost of revenues and operating expenses.
Our
Operating Segments
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. Since the March 2008 quarter, we have operated
in five operating segments: Consumer Products, Security and
Compliance, Storage and Server Management, Services, and Other.
During the first quarter of fiscal 2009, we changed our
reporting segments to better align our operating structure.
Altiris services that were formerly included in the Security and
Compliance segment were moved to the Services segment. This move
is as a result of operational changes in our Services segment
and the continued integration of our Altiris business. We
revised the segment information for the prior year to conform to
the new presentation. For further descriptions of our operating
segments, see Note 16 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
Our net income was $187 million for the three months ended
July 4, 2008 as compared to our net income of
$95 million for the three months ended June 29, 2007.
The higher net income for the first quarter of fiscal 2009 as
compared to the comparable period last year was primarily due to
higher revenues of $1,650 million compared to
$1,400 million.
Revenue for the three months ended July 4, 2008 was 18%
higher than revenue for the three months ended June 29,
2007. During the three months ended July 4, 2008, we
delivered revenue growth across all of our
21
geographic regions as compared to the same period last year and
experienced revenue growth in all of our segments. In addition
to the foreign currency effects described below, we believe our
increased revenue was largely driven by continued demand for our
products as a result of the proliferation of structured and
unstructured data, the need to simplify and standardize data
center infrastructures, the convergence of endpoint security and
management, and increased adoption of our Consumer Products
suites. Our revenue growth is also attributable to increased
awareness of Internet-related security threats around the world
and demand for storage solutions.
Weakness in the U.S. dollar compared to foreign currencies
positively impacted our international revenue growth by
approximately $102 million during the three months ended
July 4, 2008 as compared to the same period last year. We
are unable to predict the extent to which revenues in future
periods will be impacted by changes in foreign currency exchange
rates. If international sales become a greater portion of our
total sales in the future, changes in foreign exchange rates may
have a potentially greater impact on our revenues and operating
results.
Critical
Accounting Estimates
During the first quarter of fiscal 2009 we adopted Statement of
Financial Accounting Standard (SFAS) No. 157 ,
Fair Value Measurements. See Note 2 of the Notes to
the Condensed Consolidated Financial Statements for further
details.
In addition, the section entitled Income Taxes in
our Critical Accounting Estimates section of our
Form 10-K
for fiscal year 2008 is hereby updated as follows:
In July 2008, we reached an agreement with the Internal Revenue
Service (IRS) concerning our eligibility to claim a
lower tax rate on a distribution made from a Veritas foreign
subsidiary prior to the July 2005 acquisition. The distribution
was intended to be made pursuant to the American Jobs Creation
Act of 2004, and therefore eligible for a 5.25% effective
U.S. federal rate of tax, in lieu of the 35% statutory
rate. The final impact of this agreement is not yet known since
this relates to the taxability of earnings that are otherwise
the subject of the tax years
2000-2001
transfer pricing dispute which in turn is being addressed in the
U.S. Tax Court. To the extent that we owe taxes as a result
of the transfer pricing dispute, we anticipate that the
incremental tax due from this negotiated agreement will
decrease. We currently estimate that the most probable outcome
from this negotiated agreement will be $13 million or less,
for which an accrual has already been made. As previously
disclosed in
Form 10-K
for the fiscal year ended March 28, 2008, we made a payment
of $130 million to the IRS for this matter in May 2006. We
now intend to apply the excess payment as a deposit on the
outstanding transfer pricing matter for the tax years
2000-2001.
Other than these changes, there have been no changes in our
critical accounting estimates during the three months ended
July 4, 2008 as compared to the critical accounting
estimates disclosed in Managements Discussion and Analysis
of Financial Condition and Results of Operations included in our
Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008.
RESULTS
OF OPERATIONS
Total Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Net revenues
|
|
$
|
1,650,322
|
|
|
$
|
1,400,338
|
|
Period over period change
|
|
$
|
249,984
|
|
|
|
|
|
|
|
|
18
|
%
|
|
|
|
|
Net revenues increased for the three months ended July 4,
2008 as compared to the same period last year primarily due to
$147 million in increased sales related to our Storage
Foundation, Net Backup, and core Consumer products. The increase
in these product lines is driven by continued demand for
products related to the standardization and simplification of
data center infrastructures, the proliferation of structured and
unstructured data, the convergence of endpoint security and
management and increased adoption of our Consumer Products
suites. We
22
realized revenue of approximately $75 million as a result
of the three months ended July 4, 2008 being comprised of
14 weeks as compared to 13 weeks for the same period
last year. Also, as discussed above, under Financial
Results and Trends revenues were favorably impacted by the
weakness of the U.S. dollar compared to foreign currencies.
The revenue increases for the three months ended July 4,
2008 discussed above are further described in the segment
discussions that follow.
Content,
subscriptions, and maintenance revenues
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Content, subscriptions, and maintenance revenues
|
|
$
|
1,290,992
|
|
|
$
|
1,086,518
|
|
Percentage of total net revenues
|
|
|
78
|
%
|
|
|
78
|
%
|
Period over period change
|
|
$
|
204,474
|
|
|
|
|
|
|
|
|
19
|
%
|
|
|
|
|
Content, subscriptions, and maintenance revenues increased for
the three months ended July 4, 2008 as compared to the same
period last year primarily due to an increase of
$162 million in revenue related to enterprise products and
services. This increase in enterprise product and services
revenue is largely attributable to demand for our Storage
Foundation, Net Backup, Backup Exec, and Endpoint Protection
products as a result of increased demand for security and
storage solutions. This increased demand was driven by the
proliferation of structured and unstructured data, the
convergence of endpoint security and management, and increasing
sales of services in conjunction with our license sales as a
result of our focus on offering our customers a more
comprehensive IT solution. To a lesser extent, content,
subscriptions, and maintenance revenues benefited from an
additional week of deferred revenue amortization as a result of
the July 4, 2008 quarter being comprised of 14 weeks
compared to 13 weeks for the same period last year.
Licenses
revenues
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Licenses revenues
|
|
$
|
359,330
|
|
|
$
|
313,820
|
|
Percentage of total net revenues
|
|
|
22
|
%
|
|
|
22
|
%
|
Period over period change
|
|
$
|
45,510
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
Licenses revenues increased for the three months ended
July 4, 2008 as compared to the same period last year
primarily due to increases in revenue from our Storage
Foundation, Net Backup, Altiris and Data Loss Prevention
products as a result of increased demand for security and
storage solutions. This increased demand was driven by the
proliferation of structured and unstructured data, the
convergence of endpoint security and management, and the
successful integration of the products we acquired from
acquisitions into our sales portfolio.
23
Net
revenue and operating income by segment
Consumer
Products segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Consumer Products revenues
|
|
$
|
472,331
|
|
|
$
|
423,750
|
|
Percentage of total net revenues
|
|
|
29
|
%
|
|
|
30
|
%
|
Period over period change
|
|
$
|
48,581
|
|
|
|
|
|
|
|
|
11
|
%
|
|
|
|
|
Consumer Products operating income
|
|
$
|
275,505
|
|
|
$
|
233,787
|
|
Percentage of Consumer Products revenues
|
|
|
58
|
%
|
|
|
55
|
%
|
Period over period change
|
|
$
|
41,718
|
|
|
|
|
|
|
|
|
18
|
%
|
|
|
|
|
Consumer Products revenues increased for the three months ended
July 4, 2008 as compared to the same period last year
primarily due to an increase of $99 million in revenue from
our new Consumer Products suite and to a lesser extent by a
favorable impact of foreign currencies in relation to the
U.S. dollar. This revenue increase is due to the increase
in demand for Norton 360 during fiscal 2008, as the revenue from
our consumer products is generally recognized ratably over the
12 months after the product is sold. This increase is
partially offset by aggregate decreases of $51 million in
revenue from our Norton Internet Security and Norton AntiVirus
products. This decrease results from our customers
continued migration to our Norton 360 product, which offers
broader protection and backup features to address the rapidly
changing threat environment. Our electronic orders include sales
derived from OEMs, subscriptions, upgrades, online sales, and
renewals. Revenue from electronic orders (which includes sales
of the aforementioned products) grew by $64 million for the
three months ended July 4, 2008 as compared to the same
period last year. Electronic orders constituted 78% of Consumer
Product revenues for the three months ended July 4, 2008 as
compared to 72% for the same period last year.
Operating income for the Consumer Product segment increased, as
revenue growth exceeded the growth in total expenses for the
segment primarily due to our cost containment measures. Total
expenses from our Consumer Products segment increased for the
three months ended July 4, 2008 as compared to the same
period last year because of higher overall sales expenses.
Security
and Compliance segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Security and Compliance revenues
|
|
$
|
445,647
|
|
|
$
|
387,669
|
|
Percentage of total net revenues
|
|
|
27
|
%
|
|
|
28
|
%
|
Period over period change
|
|
$
|
57,978
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
Security and Compliance operating income
|
|
$
|
81,160
|
|
|
$
|
60,102
|
|
Percentage of Security and Compliance revenues
|
|
|
18
|
%
|
|
|
16
|
%
|
Period over period change
|
|
$
|
21,058
|
|
|
|
|
|
|
|
|
35
|
%
|
|
|
|
|
Security and Compliance revenues increased for the three months
ended July 4, 2008 as compared to the same period last year
primarily due to an aggregate increase of $50 million in
revenue as a result of increased demand driven by the
convergence of endpoint security and management, and the
successful integration of acquired products into our product
portfolio.
24
Operating income for the Security and Compliance segment
increased, as revenue growth exceeded the growth in total
expenses for the segment. Total expenses from our Security and
Compliance segment increased for the three months ended
July 4, 2008 as compared to the same period last year by
$37 million. This was primarily due to higher overall sales
expenses in addition to the inclusion of the Vontu acquisition
in this segment.
Storage
and Server Management segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Storage and Server Management revenues
|
|
$
|
615,156
|
|
|
$
|
505,580
|
|
Percentage of total net revenues
|
|
|
37
|
%
|
|
|
36
|
%
|
Period over period change
|
|
$
|
109,576
|
|
|
|
|
|
|
|
|
22
|
%
|
|
|
|
|
Storage and Server Management operating income
|
|
$
|
306,340
|
|
|
$
|
222,616
|
|
Percentage of Storage and Server Management revenues
|
|
|
50
|
%
|
|
|
44
|
%
|
Period over period change
|
|
$
|
83,724
|
|
|
|
|
|
|
|
|
38
|
%
|
|
|
|
|
Storage and Server Management revenues increased for the three
months ended July 4, 2008 as compared to the same period
last year primarily due to an aggregate increase of
$126 million in revenue driven by increased demand for
products related to the standardization and simplification of
data center infrastructures and due to the proliferation of
structured and unstructured data.
Operating income for the Storage and Server Management segment
increased, as revenue growth exceeded the growth in total
expenses for the segment. Total expenses in our Storage and
Server Management segment increased for the three months ended
July 4, 2008 as compared to the same period last year by
$26 million. These increases were primarily due to higher
overall sales expenses.
Services
segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Services revenues
|
|
$
|
116,713
|
|
|
$
|
83,098
|
|
Percentage of total net revenues
|
|
|
7
|
%
|
|
|
6
|
%
|
Period over period change
|
|
$
|
33,615
|
|
|
|
|
|
|
|
|
40
|
%
|
|
|
|
|
Services operating loss
|
|
$
|
(3,459
|
)
|
|
$
|
(18,616
|
)
|
Percentage of Services revenues
|
|
|
(3
|
)%
|
|
|
(22
|
)%
|
Period over period change
|
|
$
|
15,157
|
|
|
|
|
|
|
|
|
81
|
%
|
|
|
|
|
Services revenues increased for the three months ended
July 4, 2008 as compared to the same period last year
primarily due to an increase in consulting services of
$22 million as a result of increased demand for more
comprehensive software implementation assistance. Customers are
increasingly purchasing our service offerings in conjunction
with the purchase of our products and augmenting the
capabilities of their own IT staff with our onsite consultants.
To a lesser extent Services revenue increased due to increased
demand for our Business Critical Services.
Operating losses for the Services segment decreased, as revenue
growth exceeded the growth in total expenses for the segment.
The Services operating margin improvement was the result of
financial and operational efficiencies aimed at driving
profitability. Total expenses from our Services segment
increased for the three months ended
25
July 4, 2008 as compared to the same period last year by
$18 million. This increase is primarily due to higher wages
and outside services costs of $15 million required to
support the segments revenue growth.
Other
segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Other revenues
|
|
$
|
475
|
|
|
$
|
241
|
|
Percentage of total net revenues
|
|
|
0
|
%
|
|
|
0
|
%
|
Period over period change
|
|
$
|
234
|
|
|
|
|
|
|
|
|
97
|
%
|
|
|
|
|
Other operating loss
|
|
$
|
(380,610
|
)
|
|
$
|
(363,693
|
)
|
Period over period change
|
|
$
|
(16,917
|
)
|
|
|
|
|
|
|
|
(5
|
)%
|
|
|
|
|
Revenue from our Other segment is comprised primarily of sunset
products and products nearing the end of their life cycle. The
operating loss of our Other segment also includes general and
administrative expenses; amortization of acquired product
rights, other intangible assets, and other assets; charges, such
as acquired in-process research and development, stock-based
compensation, and restructuring; and certain indirect costs that
are not charged to the other operating segments.
Net
revenues by geographic region
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Americas (U.S., Canada and Latin America)
|
|
$
|
861,454
|
|
|
$
|
751,448
|
|
Percentage of total net revenues
|
|
|
52
|
%
|
|
|
53
|
%
|
Period over period change
|
|
$
|
110,006
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
EMEA (Europe, Middle East, Africa)
|
|
$
|
557,839
|
|
|
$
|
457,804
|
|
Percentage of total net revenues
|
|
|
34
|
%
|
|
|
33
|
%
|
Period over period change
|
|
$
|
100,035
|
|
|
|
|
|
|
|
|
22
|
%
|
|
|
|
|
Asia Pacific/Japan
|
|
$
|
231,029
|
|
|
$
|
191,086
|
|
Percentage of total net revenues
|
|
|
14
|
%
|
|
|
14
|
%
|
Period over period change
|
|
$
|
39,943
|
|
|
|
|
|
|
|
|
21
|
%
|
|
|
|
|
Total net revenues
|
|
$
|
1,650,322
|
|
|
$
|
1,400,338
|
|
EMEA and Asia Pacific/Japan revenues increased in the three
months ended July 4, 2008 as compared to the three months
ended June 29, 2007 primarily due to increased revenues
related to our Storage and Server Management and Security and
Compliance products of $101 million, as a result of
increased demand for products related to the standardization and
simplification of data center infrastructures, the proliferation
of structured and unstructured data, and the convergence of
endpoint security and management. This increased demand was
driven by the successful integration of acquired products into
our product portfolio. Revenues in EMEA and Asia Pacific/Japan
also increased by $21 million in the three months ended
July 4, 2008 as compared to the three months ended
June 29, 2007 from sales of our Consumer Products, driven
by demand for our Consumer Products suites. Americas revenues
increased in the three months ended July 4, 2008 as
compared to the three months ended June 29, 2007
26
primarily due to increased revenues related to our Storage and
Server Management, Security and Compliance, and our Consumer
Products segments of $95 million, as a result of increased
demand as discussed above.
Foreign currencies had a favorable impact on net revenues for
the three months ended July 4, 2008 as compared to the same
period last year. We are unable to predict the extent to which
revenues in future periods will be impacted by changes in
foreign currency exchange rates. If international sales become a
greater portion of our total sales in the future, changes in
foreign currency exchange rates may have a potentially greater
impact on our revenues and operating results.
Cost of
Revenues
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Cost of revenues
|
|
$
|
311,982
|
|
|
$
|
310,264
|
|
Gross margin
|
|
|
81
|
%
|
|
|
78
|
%
|
Period over period change
|
|
$
|
1,718
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
Cost of revenues consists primarily of the amortization of
acquired product rights, fee-based technical support costs, the
costs of billable services, payments to OEMs under
revenue-sharing arrangements, manufacturing and direct material
costs, and royalties paid to third parties under technology
licensing agreements.
Gross margin increased by three percentage points for the three
months ended July 4, 2008 as compared to the same period
last year primarily due to higher revenues and to a lesser
extent lower OEM royalty payments, which were offset in part by
a year over year increase in consulting services and technical
support costs.
Cost
of content, subscriptions, and maintenance
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Cost of content, subscriptions, and maintenance
|
|
$
|
218,574
|
|
|
$
|
209,666
|
|
As a percentage of related revenue
|
|
|
17
|
%
|
|
|
19
|
%
|
Period over period change
|
|
$
|
8,908
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
Cost of content, subscriptions, and maintenance consists
primarily of fee-based technical support costs, costs of
billable services, and payments to OEMs under revenue-sharing
agreements. Cost of content, subscriptions, and maintenance
decreased as a percentage of the related revenue for the three
months ended July 4, 2008 as compared to the same period
last year. The quarter over quarter increase in margin is
primarily driven by higher revenues and lower OEM royalties as a
percentage of revenue more than offsetting increases in
technical support and services expenses.
Cost
of licenses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Cost of licenses
|
|
$
|
8,447
|
|
|
$
|
11,238
|
|
As a percentage of related revenue
|
|
|
2
|
%
|
|
|
4
|
%
|
Period over period change
|
|
$
|
(2,791
|
)
|
|
|
|
|
|
|
|
(25
|
)%
|
|
|
|
|
27
Cost of licenses consists primarily of royalties paid to third
parties under technology licensing agreements and manufacturing
and direct material costs. Cost of licenses decreased as a
percentage of the related revenue for the three months ended
July 4, 2008 as compared to the same period last year,
primarily due to lower manufacturing and distribution costs.
Amortization
of acquired product rights
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Amortization of acquired product rights
|
|
$
|
84,961
|
|
|
$
|
89,360
|
|
Percentage of total net revenues
|
|
|
5
|
%
|
|
|
6
|
%
|
Period over period change
|
|
$
|
(4,399
|
)
|
|
|
|
|
|
|
|
(5
|
)%
|
|
|
|
|
Acquired product rights are comprised of developed technologies
and patents from acquired companies. The amortization for the
three months ended July 4, 2008 and June 29, 2007 is
primarily associated with the Veritas acquisition, for which
amortization began in July 2005. Amortization for the three
months ended July 4, 2008 was lower than the amortization
in the same period last year primarily due to the Application
Performance Management (APM) business divestiture,
which was offset in part by amortization associated with the
Vontu acquisition. For further discussion of acquired product
rights and related amortization, see Note 7 of the Notes to
Condensed Consolidated Financial Statements.
Operating
Expenses
Operating
Expenses Overview
As discussed above, under Our Business our operating
expenses were adversely impacted by the 14th week in the
three months ended July 4, 2008 compared to the three
months ended June 29, 2007. In addition, the operating
expenses that we incurred internationally were adversely
impacted by the weakness of the U.S. dollar compared to
foreign currencies. Our ongoing cost and expense discipline
positively contributed to our increased operating margins for
the three months ended July 4, 2008 compared to the three
months ended June 29, 2007.
Sales
and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Sales and marketing
|
|
$
|
662,819
|
|
|
$
|
568,530
|
|
Percentage of total net revenues
|
|
|
40
|
%
|
|
|
41
|
%
|
Period over period change
|
|
$
|
94,289
|
|
|
|
|
|
|
|
|
17
|
%
|
|
|
|
|
As a percent of net revenues, sales and marketing expenses
decreased to 40% from 41% for the three months ended
July 4, 2008 and June 29, 2007, respectively, after
taking into account the items discussed above under
Operating Expenses Overview.
28
Research
and development expenses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Research and development
|
|
$
|
231,435
|
|
|
$
|
225,578
|
|
Percentage of total net revenues
|
|
|
14
|
%
|
|
|
16
|
%
|
Period over period change
|
|
$
|
5,857
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
As a percent of net revenues, research and development expenses
decreased to 14% from 16% for the three months ended
July 4, 2008 and June 29, 2007, respectively, after
taking into account the items discussed above under
Operating Expenses Overview.
General
and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
General and administrative
|
|
$
|
92,766
|
|
|
$
|
85,845
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
6
|
%
|
Period over period change
|
|
$
|
6,921
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
As a percent of net revenues, general and administrative
expenses remained relatively constant for the three months ended
July 4, 2008 and June 29, 2007, respectively, after
taking into account the items discussed above under
Operating Expenses Overview.
Amortization
of other purchased intangible assets
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Amortization of other purchased intangible assets
|
|
$
|
55,379
|
|
|
$
|
56,925
|
|
Percentage of total net revenues
|
|
|
3
|
%
|
|
|
4
|
%
|
Period over period change
|
|
$
|
(1,546
|
)
|
|
|
|
|
|
|
|
(3
|
)%
|
|
|
|
|
Other purchased intangible assets are comprised of customer
bases and tradenames. Amortization for the three months ended
July 4, 2008 compared to the three months ended
June 29, 2007 remained relatively stable.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Severance
|
|
$
|
11,105
|
|
|
$
|
17,967
|
|
Facilities & Other
|
|
|
5,900
|
|
|
|
1,033
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
$
|
17,005
|
|
|
$
|
19,000
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenues
|
|
|
1
|
%
|
|
|
1
|
%
|
Period over period change
|
|
$
|
(1,995
|
)
|
|
|
|
|
|
|
|
(11
|
)%
|
|
|
|
|
29
In fiscal 2008, we approved and initiated a restructuring plan
(2008 Plan) to reduce costs, implement management
structure changes and optimize the business structure and
discontinue certain products. Projects within the plan began in
the third quarter of fiscal 2008. Severance payments related to
the plan are expected to be completed by the fourth quarter of
fiscal 2009 and excess facility obligations are to be paid
through the first quarter of fiscal 2012. Charges during the
three months ended July 4, 2008 are primarily related to
severance and benefit costs of the 2008 Plan.
In fiscal 2007, we entered into restructuring plans (2007
Plans) to consolidate facilities and reduce operating
costs. We also consolidated certain facilities and exited
facilities as a result of earlier acquisitions. Charges during
the three months ended June 29, 2007 are primarily related
to severance and benefit costs associated with the 2007 Plan.
For further discussion on restructuring, please see Note 13
of the Notes to Condensed Consolidated Financial Statements.
Non-operating
Income and Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Interest income
|
|
$
|
17,988
|
|
|
$
|
20,821
|
|
Interest expense
|
|
|
(9,569
|
)
|
|
|
(6,291
|
)
|
Other income (expense), net
|
|
|
(61
|
)
|
|
|
1,266
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,358
|
|
|
$
|
15,796
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenues
|
|
|
1
|
%
|
|
|
1
|
%
|
Period over period change
|
|
$
|
(7,438
|
)
|
|
|
|
|
|
|
|
(47
|
)%
|
|
|
|
|
The decrease in interest income during the three months ended
July 4, 2008 as compared to the same period last year is
primarily due to a lower average yield on our invested cash and
short term investment balances.
Interest expense for the three months ended July 4, 2008
includes interest associated with our $200 million
borrowing on our senior unsecured revolving credit facility,
which was not outstanding during the three months ended
June 29, 2007. We repaid this borrowing on July 3,
2008.
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Provision for income taxes
|
|
$
|
94,421
|
|
|
$
|
54,786
|
|
Effective income tax rate
|
|
|
32.8
|
%
|
|
|
36.5
|
%
|
Period over period change
|
|
$
|
39,635
|
|
|
|
|
|
|
|
|
72
|
%
|
|
|
|
|
The effective tax rate was approximately 33% and 37% for the
three months ended July 4, 2008 and June 29, 2007,
respectively. The effective tax rates for both periods are
impacted by the benefits of lower-taxed foreign earnings and
domestic manufacturing tax incentives, offset by state income
tax expenses and non-deductible stock-based compensation
expense. Additionally, we recorded a $5 million tax benefit
related to a favorable Irish settlement for the three months
ended July 4, 2008. The increase in the tax expense related
to the three months ended July 4, 2008 relates to higher
pre-tax earnings.
30
Loss from
unconsolidated entity
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
July 4,
|
|
June 29,
|
|
|
2008
|
|
2007
|
|
|
($ in thousands)
|
|
Loss from unconsolidated entity
|
|
$
|
6,181
|
|
|
$
|
|
|
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 will develop, manufacture, market and
support security and storage appliances to global
telecommunications carriers and enterprise customers.
As described further in Note 6 of the Notes to Condensed
Consolidated Financial Statements in this quarterly report, we
account for our investment in the joint venture under the equity
method of accounting. Under this method, we record our
proportionate share of the joint ventures net income or
loss based on the quarterly financial statements of the joint
venture. We record our proportionate share of net income or loss
one quarter in arrears. For the three months ended July 4,
2008, we recorded a loss of approximately $6 million
related to our share of the joint ventures net loss
incurred by the joint venture for the period from
February 5, 2008 (its date of inception) to March 31,
2008.
LIQUIDITY
AND CAPITAL RESOURCES
Sources
of Cash
We have historically relied on cash flow from operations,
borrowings under a credit facility and issuances of convertible
notes and equity securities for our liquidity needs. Key sources
of cash are provided by operations, existing cash, cash
equivalents, short-term investments, and our revolving credit
facility.
In the second quarter of fiscal 2007, we entered into a
five-year $1 billion senior unsecured revolving credit
facility that expires in July 2011. In order to be able to draw
on the credit facility, we must maintain certain covenants,
including a specified ratio of debt to earnings before interest,
taxes, depreciation, and amortization as well as various other
non-financial covenants. As of July 4, 2008, we were in
compliance with all required covenants, and there was no
outstanding balance on the credit facility.
As of July 4, 2008, we had cash and cash equivalents of
$2.0 billion and short-term investments of
$241 million resulting in a net liquidity position defined
as unused availability of the credit facility, cash and cash
equivalents and short-term investments of approximately
$3.3 billion.
We believe that our existing cash balances, the cash that we
generate from operations and our borrowing capacity will be
sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next
12 months.
Uses of
Cash
Our principal cash requirements include working capital, capital
expenditures, payments of principal and interest on our debt and
payments of taxes. In addition, we regularly evaluate our
ability to repurchase stock, pay long-term debts and acquire
other businesses.
Line of Credit. During the first quarter of
fiscal 2009, we repaid the entire $200 million principal
amount plus $3 million of accrued interest related to our
senior unsecured revolving credit facility.
Acquisition-Related. We generally use cash to
fund the acquisition of other businesses and, from time to time,
use our revolving credit facility when necessary. During the
first quarter of fiscal 2009, we acquired AppStream and paid
$49 million. During the same period, we acquired SwapDrive
and paid $117 million, net of cash acquired.
31
During the first quarter of fiscal 2008, we acquired the
outstanding common stock of Altiris, Inc. and paid
$841 million, net of cash acquired, which reflects
$165 million of cash acquired and $17 million of cash
paid for transaction costs.
Stock Repurchases. During the first quarter of
fiscal 2009, we repurchased 9.7 million shares, or
$200 million, of our Companys common stock. As of
July 4, 2008, we have $800 million remaining
authorized for future repurchases from the June 14, 2007
stock repurchase plan.
Cash
Flows
The following table summarizes, for the periods indicated,
selected items in our Condensed Consolidated Statements of Cash
Flows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
July 4,
|
|
|
June 29,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
($ in thousands)
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
413,576
|
|
|
$
|
351,309
|
|
Investing activities
|
|
|
75,351
|
|
|
|
(1,111,273
|
)
|
Financing activities
|
|
|
(332,588
|
)
|
|
|
(437,060
|
)
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
(1,321
|
)
|
|
|
12,039
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
155,018
|
|
|
$
|
(1,184,985
|
)
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash provided by operating activities during the three
months ended July 4, 2008 resulted largely from net income
of $187 million, plus non-cash depreciation and
amortization charges of $200 million, non-cash stock-based
compensation expense of $45 million, increased collection
of our trade accounts receivable of $119 million and net
receipt of litigation settlements of $58.5 million. These
amounts were partially offset by a decrease in accrued
compensation and benefits of $91 million, deferred revenue
of $70 million, and income taxes payable of
$31 million.
Net cash provided by operating activities during the three
months ended June 29, 2007 resulted largely from net income
of $95 million, plus non-cash depreciation and amortization
charges of $213 million, non-cash stock-based compensation
expense of $41 million, and a decrease in trade accounts
receivable of $141 million. This was substantially offset
by decreases in deferred revenue, of $110 million,
reflecting amortization of deferred revenue into revenue during
the quarter.
Investing
Activities
Cash provided by investing activities was $75 million for
the first quarter of fiscal 2009 compared to cash used of
$1.1 billion during the same period last year. For the
three months ended July 4, 2008, we received net proceeds
from the sale of short-term investments of $299 million,
partially offset by payments totaling $166 million for the
acquisitions of AppStream and SwapDrive and $58 million
paid for capital expenditures. For the three months ended
June 29, 2007, we paid $841 million to acquire
Altiris, recorded $197 million in net purchases of
short-term investments and utilized $75 million for capital
expenditures.
Financing
Activities
Cash used in financing was $333 million for the first
quarter of fiscal 2009 compared to $437 million for the
same period last year. For the three months ended July 4,
2008, we repurchased 9.7 million shares of our common stock
for $200 million and paid off the $200 million
borrowed under the senior unsecured revolving credit facility.
These amounts were partially offset by the net proceeds of
$75 million received from the issuance of our common stock
through employee stock plans. For the three months ended
June 29, 2007, we repurchased 25 million shares of
32
our common stock for an aggregate amount of $500 million,
which was partially offset by net proceeds of $62 million
from the issuance of our common stock through employee stock
plans.
Contractual
Obligations
There have been no significant changes in our contractual
obligations during the three months ended July 4, 2008 as
compared 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 March 28, 2008.
|
|
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 4, 2008 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 March 28, 2008.
|
|
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 of 1934, as amended) by our
management, with the participation of our Chief Executive
Officer and our Chief Financial Officer, that our disclosure
controls and procedures were effective as of the end of the
period covered by this report.
|
|
(b)
|
Changes
in Internal Control over Financial Reporting
|
There were no changes in our internal control over financial
reporting during the three months ended July 4, 2008 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.
33
PART II.
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Information with respect to this Item may be found in
Note 15 of Notes to Condensed Consolidated Financial
Statements in this
Form 10-Q,
which information is incorporated into this Part II,
Item 1 by reference.
A description of the risks associated with our business,
financial condition, and results of operations is set forth in
Part I, Item 1A, of our Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008. There have been
no material changes in our risks from such description.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Stock repurchases during the three months ended July 4,
2008 were as follows:
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchase
|
|
|
Value of Shares That
|
|
|
|
|
|
|
|
|
|
as Part of 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)
|
|
|
March 29, 2008 to April 25, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1,000
|
|
April 26, 2008 to May 23, 2008
|
|
|
7,382,266
|
|
|
$
|
20.32
|
|
|
|
7,382,266
|
|
|
$
|
850
|
|
May 24, 2008 to July 4, 2008
|
|
|
2,347,590
|
|
|
$
|
21.30
|
|
|
|
2,347,590
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,729,856
|
|
|
$
|
20.55
|
|
|
|
9,729,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For information with regard to our stock repurchase programs,
including programs completed during the period covered by this
report, see Note 10 of Notes to Condensed Consolidated
Financial Statements, which information is incorporated herein
by reference.
|
|
Item 5.
|
Other
Information
|
As previously disclosed in Note 14 to our Annual Report on
Form 10-K
for the fiscal year ended March 28, 2008, the rights under
our existing stockholder rights plan will expire on
August 12, 2008. Symantec does not, at this time, have an
intention to adopt a new stockholder rights plan.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
|
|
Exhibit
|
|
|
|
|
|
|
|
File
|
|
|
|
|
|
File
|
|
|
Filed with
|
|
Number
|
|
|
Exhibit Description
|
|
Form
|
|
|
Number
|
|
|
Exhibit
|
|
|
Date
|
|
|
this 10-Q
|
|
|
|
10
|
.01
|
*
|
|
Form of FY09 Executive Annual Incentive Plan
Executive Officers other than Group Presidents responsible for
one of Symantecs business segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
10
|
.02
|
*
|
|
Form of FY09 Executive Annual Incentive Plan Group
Presidents responsible for one of Symantecs business
segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
10
|
.03
|
*
|
|
FY09 Long Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
31
|
.01
|
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
31
|
.02
|
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
32
|
.01
|
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
32
|
.02
|
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
|
|
This exhibit is being furnished rather than filed, and shall not
be deemed incorporated by reference into any filing, in
accordance with Item 601 of
Regulation S-K. |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYMANTEC CORPORATION
(Registrant)
John W. Thompson
Chairman of the Board and
Chief Executive Officer
James A. Beer
Executive Vice President and
Chief Financial Officer
Date: August 8, 2008
36
EXHIBIT INDEX
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Incorporated by Reference
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Exhibit
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File
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File
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Filed with
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Number
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Exhibit Description
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Form
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Number
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Exhibit
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Date
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this 10-Q
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10
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.01
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*
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Form of FY09 Executive Annual Incentive Plan
Executive Officers other than Group Presidents responsible for
one of Symantecs business segments
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X
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10
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.02
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*
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Form of FY09 Executive Annual Incentive Plan Group
Presidents responsible for one of Symantecs business
segments
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X
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10
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.03
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*
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FY09 Long Term Incentive Plan
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X
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31
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.01
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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X
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31
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.02
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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X
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32
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.01
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Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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X
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32
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.02
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Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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X
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* |
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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. |