e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
March 30, 2007
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OR
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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
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95014-2132
(zip code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(408) 517-8000
Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock, par value $0.01
per share, and Related Preferred Stock Purchase Rights
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The Nasdaq Stock Market LLC
(Name of each
exchange on which registered)
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(Title of each
class)
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated
Filer þ Accelerated
Filer o Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Aggregate market value of the voting stock held by
non-affiliates of the registrant, based upon the closing sale
price of Symantec common stock on September 29, 2006 as
reported on the Nasdaq Global Select Market: $19,987,197,653.
Number of shares outstanding of the registrants common
stock as of April 27, 2007: 901,018,438
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
stockholders in connection with our Annual Meeting of
Stockholders for 2007 are incorporated by reference into
Part III herein.
SYMANTEC
CORPORATION
FORM 10-K
For the Fiscal Year Ended March 30, 2007
TABLE OF CONTENTS
Symantec, we, us, and
our refer to Symantec Corporation and all of its
subsidiaries. Symantec, the Symantec Logo, Norton, and Veritas
are trademarks or registered trademarks of Symantec Corporation
in the U.S. and other countries. Other names may be trademarks
of their respective owners.
2
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 the expected results of the
cost savings initiative that was announced in January 2007 and
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 under Item 1A, Risk
Factors, beginning on page 15. We encourage you to read
that section carefully.
3
PART I
Symantec is a global leader in infrastructure software, enabling
businesses and consumers to have confidence in a connected
world. We help our customers protect their infrastructure,
information, and interactions by delivering software and
services that address risks to information security,
availability, compliance, and information technology, or IT,
systems performance. We strive to help our customers manage
compliance, complexity, and cost by protecting their IT
infrastructure as they seek to maximize value from their IT
investments.
We deliver a comprehensive and diverse set of security and
availability products and services to large enterprises,
governments, small and medium-sized businesses, and consumers on
a worldwide basis. Our delivery network includes direct, inside,
and channel sales resources that support our ecosystem of more
than 50,000 partners worldwide, as well as various
relationships with original equipment manufacturers, or OEMs,
Internet service providers, or ISPs, and retail and online
stores. We operate in three geographic regions: Americas, which
includes North America, Canada, and Latin America; EMEA, which
includes Europe, Middle East and Africa; and Asia Pacific Japan.
We operate primarily in two growing, diversified markets within
the software sector: the security market and the storage
software market. The security market includes products that
protect consumers and enterprises from threats to personal
computers, or PCs, computer networks, and electronic
information. The storage software market includes products that
manage, archive, protect, and recover business-critical data. We
believe that these markets are converging as customers
increasingly require our help in mitigating their risk profiles
and managing their storage solutions in order to safeguard their
IT infrastructure, information, and interactions.
In the ever-changing threat landscape and increasingly complex
IT environment for consumers and enterprises alike, we believe
product differentiation will be the key to sustaining market
leadership. Thus, we continually work to enhance the features
and functionality of our existing products, extend our product
leadership, and create innovative solutions for our customers.
We focus on generating profitable and sustainable growth through
internal research and development, licensing from third parties,
and acquisitions of companies with leading technologies.
During fiscal 2007, we took the following actions to support our
business:
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We developed and launched several new products and integrated
new feature functionality into new versions of products, some of
which include: Norton
360tm,
Norton Internet
Securitytm
2007, Norton
Confidentialtm,
Veritas Storage
Foundationtm
5.0, Veritas Cluster
Servertm
5.0,
NetBackuptm
6.0, Symantec Information
Foundationtm
2007, Backup
Exectm
11d, and
Symantectm
Security Information Manager. Customers are leveraging our
broader product portfolio to help them solve the cost,
complexity, and compliance issues for their IT environments.
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We expanded our services offerings to provide enterprise
customers with an extended range of infrastructure management
options that incorporates best practice and improves IT risk
management.
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We merged the Symantec and Veritas enterprise sales forces into
one integrated sales team. This structure allows better account
and opportunity coverage, while leveraging our broad product
portfolio.
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We consolidated two enterprise resource planning, or ERP,
systems into a single enhanced system and implemented a new
buying program in order to drive operational efficiencies and
create a platform from which we can work to improve the ease of
transacting business with our customers.
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We consolidated three of our enterprise business segments into
two segments and now operate in five operating segments. During
fiscal 2008, we will also operate in a new segment consisting of
our Altiris business, which was acquired in April 2007, and we
will realign some of our existing segments. See Note 15 of
the Notes to Consolidated Financial Statements for more
information.
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In January 2007, we announced plans to reduce our cost structure
in order to better align expenses with revenue expectations,
which included a workforce reduction of approximately five
percent worldwide. Once
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the reductions are fully implemented, the plan is expected to
save approximately $200 million in costs on an annualized
basis.
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We completed two small acquisitions during fiscal 2007,
Company-i Limited and 4FrontSecurity, Inc. In addition, in a
more significant transaction announced during fiscal 2007, and
completed in April 2007, we acquired Altiris, Inc., a leading
provider of IT management software. We believe this acquisition
will enable us to help customers better manage and enforce
security policies at the endpoint, identify and protect against
threats, and repair and service their IT assets.
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We expanded our operations in India and China as we look to
broaden our access to engineering talent, primarily in product
support and development, on a worldwide basis. This has
increased the efficiency of our support and development
activities.
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We repurchased 162 million shares of our common stock for
an aggregate amount of $2.8 billion.
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Founded in 1982, Symantec has grown to approximately
$5.2 billion in revenue in fiscal 2007, positioning
Symantec as the fourth largest independent software company in
the world based on revenue. We have operations in 40 countries
and our principal executive offices are located at 20330 Stevens
Creek Blvd, Cupertino, California 95014. Our telephone number at
that location is
(408) 517-8000.
Our home page on the Internet is www.symantec.com. Other
than the information expressly set forth in this annual report,
the information contained, or referred to, on our website is not
part of this annual report.
Industry
The security market consists of endpoint security; the
protection and compliance of end-user devices such as desktop
computers, laptops, and handhelds; data and messaging security;
network security; and security services. Over the past several
years, we have seen security threats continue to evolve from
traditional viruses, worms, Trojan horses, and other
vulnerabilities, and more recently from threats such as phishing
(attacks that use spoofed websites and emails designed to record
keystrokes or to fool recipients into divulging personal
financial data), email fraud, and identity theft. We have also
seen security rise to a top priority for enterprises as
information security is increasingly linked to regulatory
compliance. This evolution is a key driver of our research and
development and acquisition strategies, as we strive to
differentiate our solutions from the competition and address our
customers changing needs.
As a result of our acquisition of Veritas in July 2005, we are
now the leading supplier of hardware-independent storage
software. The worldwide storage software market consists of
storage management, server and application management, backup
and archiving, and infrastructure software products and
services. Key drivers of demand in this market include the
ever-increasing quantity of data being collected, the need for
data to be protected, recoverable, and accessible at all times,
and the need for a growing number of critical applications to be
continuously available and highly performing.
Other factors driving demand in this market include the increase
in the number of Internet users, computing devices, companies
conducting business online, the continuous automation of
business processes, the on-going desire of organizations to
manage their overall IT risk, the increasing pressure on
companies to lower storage and server management costs while
simultaneously increasing the utilization, availability levels,
and performance of their existing IT infrastructure, and the
increasing importance of document retention and regulatory
compliance solutions.
For information regarding our revenue by segment, revenue by
geographical area, and long-lived assets by geographical area,
see Note 15 of the Notes to Consolidated Financial
Statements. For information regarding the amount and percentage
of our revenue contributed in each of our product categories and
our financial information, including information about
geographic areas in which we operate, see Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Note 15 of the
Notes to Consolidated Financial Statements. For information
regarding risks associated with our international operations,
see Item 1A, Risk Factors.
5
Operating
Segments and Products
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. During fiscal 2007, we operated in five
operating segments: Consumer Products, Security and Data
Management, Data Center Management, Services, and Other. The
Other segment is comprised of sunset products and products
nearing the end of their life cycle and also includes general
and administrative expenses; amortization of acquired product
rights, other intangible assets, and other assets; charges, such
as acquired in-process research and development, patent
settlement, stock-based compensation, and restructuring; and
certain indirect costs that are not charged to the other
operating segments.
During the June 2007 quarter, we will add an additional segment
which will consist of the Altiris products. We will also move
our
Ghosttm,
pcAnywheretm,
and
LiveStatetm
Delivery products from the Security and Data Management segment
to the Altiris segment. In addition, we will move our Managed
Security Services, DeepSight, and Software-As-A-Service products
and services from the Security and Data Management segment to
the Services segment.
Consumer
Products
Our Consumer Products segment focuses on delivering our Internet
security, PC tuneup, and backup products to individual users and
home offices. Our
Nortontm
brand of consumer security software products provides protection
for
Windows®
and
Macintosh®
platforms. More than 95 percent of our sales within the
Consumer Products segment consist of products providing
protection from malicious attacks.
During fiscal 2007, the growth in our consumer business was
driven in part by the evolving threat landscape, including
malicious threats and crimeware, and increased demand for
products that secure sensitive online consumer interactions,
such as financial transactions, and in part by the shift to
recognizing consumer revenue on a ratable basis.
Many of Symantecs consumer products include an ongoing
commitment to provide product technology and feature updates
throughout the typical
12-month
term of the subscription, to help ensure
up-to-the-minute
protection against the latest threats. Most of the products that
we are currently marketing or developing feature
LiveUpdatetm
functionality, which automatically updates these products with
the latest technology, virus definitions, firewall rules,
Uniform Resource Locator, or URL, databases, and uninstall
scripts.
Our primary consumer products are:
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Norton Internet Security
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This PC and transaction security
suite helps defend home and home office users against the latest
online threats by blocking online identity theft, detecting and
eliminating spyware, removing viruses and worms, and protecting
against hackers from entering a users system. The 2007
solution delivers essential protection antivirus,
antispyware, antiphishing, two-way firewall, rootkit detection,
and intrusion prevention as well as significantly
improved performance. Customers can also receive antispam and
parental controls through an optional add-on pack.
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Norton
AntiVirustm
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This product safeguards against
viruses, spyware, and other security risks. The 2007 version
optimizes performance while providing enhanced Internet worm
protection that blocks attacks from entire worm and virus
families without requiring individual virus and worm signatures;
enhanced kernel level rootkit protection, which protects against
known and emerging hidden threats located at the deepest level
of the operating system; enhanced pre-install scan to help
ensure a successful installation process; and cookie tracking
support, which provides customers with the ability to remove
tracking items known as cookies.
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Norton 360
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This new,
all-in-one
comprehensive security service for mainstream computer users,
introduced in February 2007, delivers protection across four
categories: PC security, transaction security, online backup and
restore, and PC tuneup. It also includes embedded support.
Customers can also receive antispam and parental controls
through an optional add-on pack.
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For most of our consumer products, we translate the
documentation, software, and packaging into the local language
and prepare marketing programs tailored for each local market.
Security
and Data Management
Our Security and Data Management segment focuses on providing
large to small and medium-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.
Our comprehensive solutions include virus protection and content
filtering, antispam, endpoint security, firewall and virtual
private networking, or VPN, intrusion protection, policy
compliance, security management, managed security services, and
early warning services. At the gateway level, our products run
on
Windows NT®,
Solaristm,
and
Linux®
platforms. At the server level, our products operate on
Windows NT,
UNIX®,
Linux, and other key server platforms. At the client level, our
products run on the Windows platform.
During fiscal 2007, our enterprise antivirus and backup products
continued to experience increased competition as negotiations
for new and renewal business were aggressive.
Our primary enterprise security solutions address the following
areas:
Endpoint
Security
Our security solutions enable organizations to evaluate,
protect, and remediate both managed and unmanaged systems as
they connect to corporate assets. Integrated solutions, such as
Symantec
AntiVirustm
and Symantec Client Security, include antivirus, anti-spyware,
firewall, intrusion prevention, and network access control
technologies. Client machines, servers, and mobile devices are
all protected by Symantecs technologies.
Data
Protection and Systems Management
Through solutions such as Backup Exec, pcAnywhere, and Ghost,
Symantec enables customers to manage their computing systems and
devices, including backup, recovery, deployment, migration, data
archiving, and help-desk remote control.
Enterprise
Messaging Management
Our Enterprise Messaging Solutions provide a common framework
for customers to consistently enforce content control policies
across the enterprise, from email and instant messaging security
to archiving. These solutions are built on market-leading
antispam, content filtering, policy management, and archiving
and retention technologies, allowing IT professionals to
proactively prevent the risks of data leakage and policy
violations while rapidly and cost-effectively responding to
e-Discovery
requests. Products include Symantec Information
Foundationtm
2007, Symantec Mail Security, and Symantec Enterprise
Vaulttm.
Compliance
and Security Management
We provide solutions to help customers define, control, and
govern their IT policies from a central location. These
solutions help organizations protect critical assets and reduce
business risk by probing for network vulnerabilities, monitoring
threats in real-time, retaining logs for analysis, managing
security incidents, and demonstrating compliance with internal
mandates and external regulations. Our solutions include
Symantec Control Compliance Suite, Symantec
BindViewtm
Policy Manager, Symantec Security Information Manager, and
Symantec Enterprise Security Manager.
Managed
Security Services
Symantec Managed Security Services are designed to allow
enterprise IT organizations to cost-effectively outsource their
security management, monitoring, and response needs. Our
comprehensive service offerings leverage the knowledge of
Internet security experts to protect the value of an
organizations networked assets and infrastructure. We
provide remote monitoring and management of vendor neutral
firewall and VPN solutions; real-
7
time monitoring and analysis of intrusion detection alerts;
coordinated event monitoring, analysis, and management of
Symantec security appliances; and integrated global intelligence
services from our early warning solutions. Symantec Managed
Security Services uses global intelligence to offer fast and
accurate analysis of security data to protect customers against
emerging threats and reduce overall security risk.
Threat
and Early Warning Systems
Our customized and comprehensive alerts of impending
Internet-based attacks worldwide with
countermeasures to prevent attacks before they occur
enable companies to mitigate risk, manage threats, and help
ensure business continuity.
Data
Center Management
Our Data Center Management segment focuses on providing
enterprise and large enterprise customers with storage and
server management, data protection, and application performance
management solutions across heterogeneous storage and server
platforms. These solutions enable companies to standardize on a
single layer of infrastructure software that works on every
major distributed operating system and supports every major
storage device, database, and application.
Our primary data center management solutions address the
following areas:
Storage
Management
These solutions provide storage management, storage resource
management, storage utilization management, Storage Area
Network, or SAN, management, storage virtualization and
replication solutions. Storage Foundation 5.0, announced in May
2006, provides IT organizations with visibility and control of
storage assets in their heterogeneous data centers with recent
enhancements including centralized management and enhanced
storage virtualization, and includes Storage Foundation Basic
designed for edge-tier workloads. Veritas Command
Centraltm
Storage, a storage resource management and SAN management
solution, enables administrators to gain visibility into all the
physical devices on their SAN, and provide capacity and
utilization management and reporting.
Server
Management
These solutions allow enterprises to ensure the availability of
critical applications, and to understand and manage their server
and application infrastructure in a more effective and automated
fashion. Veritas Cluster Server allows critical applications to
remain operational, even when the underlying physical servers
running those applications experience outages. Through solutions
such as Server Foundation, Symantec provides enterprise
customers the ability to discover in detail what is running on
all the servers in their data center, and to actively manage and
administer those servers. The Server Foundation suite of
products provides application virtualization, patch management,
configuration management, server provisioning, and server
management across heterogeneous storage and server platforms and
virtual machines. In November 2006, we further expanded Server
Foundation with the addition of Veritas Application Director.
Application Director helps companies share server resources
across applications to maximize server utilization and
application availability.
Data
Protection
The NetBackup solutions are designed to protect, backup,
archive, and restore data across a broad range of enterprise
computing environments from large corporate data
centers to remote offices and desktop and laptop computers.
Veritas NetBackup
PureDisktm,
announced in April 2006, combines disk-based data protection and
advanced data de-duplication technology to enable companies to
centrally manage and administer data protection for hundreds or
even thousands of remote offices.
Application
Performance Management
These products provide monitoring and reporting of performance
management across business production environments, enabling
organizations to meet stringent Service Level Agreements
set for important applications.
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The Application Service Dashboard, announced in January 2007,
allows IT organizations to easily customize Symantec
i3tm
performance and service-level metrics via a single dashboard,
enabling IT staff members to maximize their efficiency in
supporting todays multi-tier business applications.
Services
Our Services segment consists of consultants with extensive
technical knowledge, business expertise, and global insight
across multi-vendor environments who assist organizations in
managing IT risk on an ongoing basis. Services addresses the
primary areas of IT risk security, availability,
performance, and compliance. We provide customers with
maintenance and technical support, consulting, education, and
business critical services.
The primary classes of consulting service that we offer are:
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Symantec Advisory Services
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Advisory Services consultants
combine technical expertise with a business focus to create
comprehensive plans and strategies. Each area of our expertise
has a portfolio of defined services and deliverables, as well as
custom offerings.
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Symantec Solutions Enablement
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Solutions Enablement consultants
provide organizations with the expertise to optimize and
accelerate the benefits of IT infrastructure investments by
designing, implementing, and rolling out solutions.
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Symantec Residency and Operational
Services
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In December 2006, we expanded our
services to include support for customers long-term
programs. These consultants offer deployment and migration
assistance and management, support IT staffs, and provide
continuous
on-site
technology and business expertise.
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Sales and
Channel Strategy
Consumer
Products
We sell our consumer products to individuals and home offices
globally through a multi-tiered network of distribution
partners. Our strategy is to place our products in a variety of
channels where consumers might consider purchasing security and
backup products.
Our products are available to customers through channels that
include distributors, retailers, direct marketers,
Internet-based resellers, OEMs, system builders, educational
institutions, and ISPs. We separately sell annual content update
subscriptions directly to end-users primarily through the
Internet. We also sell some of our products and product upgrades
in conjunction with channel partners through direct mail/email
and over the Internet.
Sales in the Consumer Products business through our electronic
distribution channel, which includes OEM subscriptions,
upgrades, online sales, and renewals, grew by $221 million
in fiscal 2007 over fiscal 2006. During fiscal 2007, nearly
70 percent of revenue in the Consumer Products segment came
from our electronic channels. We also made infrastructure
improvements in order to capture more direct renewal business
from customers originally reached through these channels.
Enterprise
Solutions
We sell and market our products and related services to
enterprise customers both directly and through a variety of
indirect sales channels, which include value-added resellers, or
VARs, large account resellers, or LARs, distributors, system
integrators, or SIs, and OEMs. Our enterprise customers include
many leading global corporations, small and medium-sized
businesses, and many government agencies around the world. Many
of our products involve a consultative, solution-oriented sales
model. Thus, our sales efforts are targeted to senior executives
and IT department personnel who are responsible for managing a
companys IT initiatives.
Our primary method of demand generation for enterprise customers
is through our direct sales force. We ended fiscal 2007 with
approximately 7,800 individuals in our sales and services
groups. Account managers are responsible for customer
relationships and opportunity management and are supported by
product and services
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specialists. In the June 2006 quarter, we integrated the
Symantec and Veritas sales forces and moved to a single account
manager per major account model in order to provide customers
with more relationship oriented service.
We complement our direct sales efforts with indirect sales
channels such as resellers, VARs, LARs, distributors, and SIs,
primarily to address the small to medium-sized enterprise
market. We sell our products through authorized distributors in
more than 40 countries throughout the world. Our top
distributors are Ingram Micro, Inc. and Tech Data Product
Management, Inc.
Another important element of our Enterprise Solutions strategy
involves our relationships with OEM partners that incorporate
our products into their products, bundle our products with their
products, or serve as authorized resellers of our products.
Marketing
and Advertising
Our marketing expenditure is primarily spent on advertising and
promotion, which includes demand generation and brand
recognition of our consumer and enterprise products. Our
advertising and promotion efforts include, but are not limited
to, electronic and print advertising, trade shows, collateral
production, and all forms of direct marketing. We also invest in
cooperative marketing campaigns with distributors, resellers,
retailers, OEMs, and industry partners.
We continually conduct market research to understand evolving
customer needs and buying behaviors to identify the latest
consumer and enterprise trends, as well as overall customer
satisfaction with our products and services. We also communicate
with customers through the Symantec website, regularly scheduled
Web-based seminars and online newsletters, as well as through
direct mailings, both physical and electronic, to existing
end-users and prospects.
Other marketing activities include the production of brochures,
sales tools, multi-media product demonstrations, packaging, and
other collateral materials. We help drive awareness and
acquisition through search engine marketing, online content
syndication, various online and entertainment sponsorships, and
word-of-mouth
marketing, as well as participation in focused trade and
computer shows, sponsorship of industry analyst conferences, and
execution of Symantec road shows, seminars, and user group
conferences. In addition, we invest in various retention
marketing and customer loyalty programs to help drive renewals
and encourage customer advocacy and referrals. We also provide
focused vertical marketing programs in targeted industries and
countries.
We typically offer two types of rebate programs within most
countries: volume incentive rebates to channel partners and
promotional rebates to distributors and end-users. Distributors
and resellers earn volume incentive rebates primarily based upon
product sales to end-users. We also offer rebates to individual
users who purchase products through various resale channels.
We regularly offer upgrade rebates to consumers purchasing a new
version of a product. Both volume incentive rebates and end-user
rebates are accrued as an offset to revenue.
Support
We maintain centralized support facilities throughout the world
that provide rapid,
around-the-clock
responses to complex customer inquiries. We have support
facilities with experts in technical areas associated with the
products we produce and the operating environments in which
these products are deployed by many of our customers. During
fiscal 2007, we made investments in technology to link our
global support centers together, which has increased our
capacity to deliver technical support to our customers
24 hours a day, seven days a week. Additionally, our
technology investments improved our ability to deliver online
solutions to our customers. Our technical support experts
provide customers with information on product implementation and
usage, issue resolution, and countermeasures and identification
tools for new threats. Support is available in multiple
languages including Cantonese, Dutch, English, French, German,
Italian, Japanese, Korean, Mandarin, Portuguese, and Spanish. We
believe that enhanced language support is an important element
of our success and plan to continue our investments in the
delivery of non-English technical support.
Our Security Response Team consists of dedicated intrusion
experts, security engineers, virus hunters, and members of the
global technical support teams that work in tandem to provide
extensive coverage for enterprises
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and consumers. Symantec Security Response provides customers
with comprehensive and global Internet security expertise,
24 hours a day, seven days a week, to guard against
todays multi-faceted Internet threats. The Symantec
Security Response Team issues a semi-annual Internet Security
Threat report that provides an analysis and discussion of trends
in Internet attacks, vulnerabilities, malicious code activity,
and other security risks. We believe that this report is one of
the most comprehensive sources of Internet threat data in the
world, identifying emerging trends in attacks and malicious code
activity. When a new threat or vulnerability is discovered, our
Security Response experts provide a rapid emergency response
that consists of communication with customers and delivery of
security updates for our security products.
Our enterprise security support program offers annual
maintenance support contracts to enterprise customers worldwide,
including content, upgrades, and technical support. Our standard
technical support includes the following:
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Unlimited hotline service delivered by telephone, fax, email,
and over the Internet
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Immediate patches for severe problems
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Periodic software updates
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Access to our technical knowledge base and frequently asked
questions, or FAQ, facility
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An invitation to our annual user group meeting
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Our consumer product support program provides self-help online
services, chat, and email support to consumer customers
worldwide. A team of product experts, editors, and language
translators are dedicated to maintaining the robustness of the
online knowledge base. Generally, telephone product support is
provided for a fee by an outside vendor. Customers that
subscribe to LiveUpdate receive automatic downloads of the
latest virus definitions, application bug fixes, and patches for
most of our consumer products.
Customers
Our solutions are used worldwide by individual and enterprise
customers in a wide variety of industries, small and
medium-sized enterprises, as well as various governmental
entities. In fiscal 2007, one distributor, Ingram Micro,
accounted for more than 10 percent of total net revenues.
In fiscal 2006 and 2005, two distributors, Ingram Micro and Tech
Data Product Management, each accounted for more than
10 percent of our total net revenues. In fiscal 2007, 2006,
and 2005, one reseller, Digital River, Inc., accounted for more
than 10 percent of our total net revenues.
Research
and Development
We believe that technical leadership is essential to our
success. Therefore, we expect to continue to commit substantial
resources to research and development. Whether we maintain our
technical leadership position will largely depend on our ability
to enhance existing products, respond to changing customer
requirements, and develop and introduce new products in a timely
manner.
The Symantec Security Response Team is responsible for a
significant component of our research and development efforts.
Our Security Response experts, located at research centers
throughout the world, are focused on collecting and analyzing
the latest malware threats, ranging from network security
threats and vulnerabilities to viruses and worms. To simplify
and speed up the delivery of security updates for our product
offerings at the server, gateway, and desktop levels, we use our
LiveUpdatetm
technology.
Outside of our Security Response research centers, other major
research and development initiatives for storage and
availability products include:
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Continued focus on operating system platform expansion
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Development of new infrastructure products, including server
provisioning, clustering, application performance management,
and service level management
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Initiatives to improve replication, storage resource management,
and next generation virtualization technology
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Development of new data protection technologies for disk-based
data protection
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Continued efforts to ensure regulatory compliance and enhanced
disaster recovery
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Symantec Research Labs, or SRL, is a group designed to foster
new technologies and products to help us maintain leadership in
existing markets. A key component of the SRL is our Advanced
Concepts group, which is focused on identifying new markets and
quickly transforming ideas into products for those markets.
Independent contractors are used for various aspects of the
product development process. In addition, elements of some of
our products are licensed from third parties.
We had research and development expenses, exclusive of
in-process research and development associated with
acquisitions, of $867 million in fiscal 2007,
$682 million in fiscal 2006, and $334 million in
fiscal 2005. We believe that technical leadership is essential
to our success and we expect to continue to commit substantial
resources to research and development.
Acquisitions
Our strategic technology acquisitions are designed to enhance
the features and functionality of our existing products, as well
as extend our product leadership. We use strategic acquisitions
to provide certain technology, people, and products for our
overall product and services strategy. We consider both time to
market and potential market share gains when evaluating
acquisitions of technologies, product lines, or companies. We
have completed a number of acquisitions of technologies,
companies, and products in the past, and we have also disposed
of technologies and products. We may acquire
and/or
dispose of other technologies, companies, and products in the
future.
During fiscal 2007, we completed the following acquisitions:
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4FrontSecurity
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4FrontSecurity was acquired in
February 2007 and develops proprietary risk software, assessment
software, and content-rich assessment tools that improve
customers insight of risk, regulatory, compliance, and
security control criteria for organizational information and
business objectives.
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Company-i
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Company-i is a United
Kingdom-based professional services firm that we acquired in
December 2006. The firm specializes in addressing key challenges
associated with operating and managing a data center in the
financial services industry. Company-i expands the capability of
Symantecs global consulting services group to help clients
manage IT risk and cost, particularly in the data center.
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For further discussion of our acquisitions, see Note 3 of
the Notes to Consolidated Financial Statements.
Competition
Our markets are consolidating, are highly competitive, and are
subject to rapid changes in technology. Our competitiveness
depends on our ability to deliver products that meet our
customers needs by enhancing our existing solutions and
services and offering reliable, scalable, and standardized new
solutions on a timely basis. We believe that the principal
competitive factors necessary to be successful in our industry
also include integration of advanced technology, time to market,
price, reputation, financial stability, breadth of product
offerings, customer support, brand recognition, and effective
sales and marketing efforts.
In addition to the competition we face from direct competitors,
we face indirect or potential competition from application
providers, operating system providers, network equipment
manufacturers, and other OEMs, who may provide various solutions
and functions in their current and future products. We also
compete for access to retail distribution channels and for the
attention of customers at the retail level and in corporate
accounts. In addition, we compete with other software companies,
operating system providers, network equipment manufacturers and
other OEMs to acquire technologies, products, or companies and
to publish software developed by third parties. We also compete
with other software companies in our effort to place our
products on the computer equipment sold to consumers by OEMs.
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The competitive environments in which each segment operates are
described below
Consumer
Products
Some of the channels in which our consumer products are offered
are highly competitive. Our competitors are sometimes intensely
focused on customer acquisition, which has led such competitors
to offer their technology for free, engage in aggressive
marketing, or enter into competitive partnerships.
Our primary competitors in the Consumer Products segment are
McAfee, Inc., Microsoft Corporation, and Trend Micro, Inc. There
are also several smaller regional security companies that we
compete against primarily in the EMEA and Asia Pacific Japan
regions. During fiscal 2007, Microsoft launched a security suite
that competes with our consumer products. This security suite
includes antispyware and antivirus features, PC tuneup, a
managed two-way firewall, and a backup utility. In addition,
Microsoft has recently added security features to new versions
of its operating system products that provide some of the same
functions offered in our products.
Security
and Data Management
In the security and data management markets, we compete against
many companies that offer competing products to our technology
solutions and competing services to our response and support
services. Our primary competitors in the security market are
McAfee, Trend Micro, Cisco Systems, Inc, and Microsoft. There
are also several smaller regional security companies that we
compete against primarily in the EMEA and APJ regions. The
market for data protection products is characterized by ongoing
technological innovation. Many of our strategic partners offer
software products that compete with our products or have
announced their intention to focus on developing or acquiring
their own backup, archive, and data restoration software
products. Our primary competitors in the data protection
business are International Business Machines Corporation, or
IBM, CA, Inc., EMC Corporation, CommVault Systems, Inc., and
Microsoft. In the managed security services business, our
primary competitors are VeriSign, Inc. and IBM.
Recent security acquisitions and offerings by EMC, IBM and
Microsoft are indicators of the move into the security market
which could lead to the release of stand-alone enterprise
products or to the inclusion of security functionality in future
versions of the operating system products. With security being a
required solution for enterprises of all sizes, we believe that
product differentiation is essential for us to maintain our
leadership position. We are focused on integrating next
generation technology capabilities into our solution set in
order to differentiate ourselves from the competition.
Data
Center Management
The markets for data center management are intensely
competitive. In the areas of storage management, application
management and server management, our primary competitors are
EMC, IBM, Hewlett-Packard Company, or HP, Sun Microsystems,
Inc., Oracle Corporation, and Microsoft.
Services
We believe that the principal competitive factors for our
services segment include technical capability, customer
responsiveness, and our ability to hire and retain talented and
experienced services personnel. Our primary competitors in the
services segment are EMC, HP, IBM, and regional specialized
consulting firms.
Intellectual
Property
Protective
Measures
We regard some of the features of our internal operations,
software, and documentation as proprietary and rely on
copyright, patent, trademark and trade secret laws,
confidentiality procedures, contractual arrangements, and
13
other measures to protect our proprietary information. Our
intellectual property is an important and valuable asset that
enables us to gain recognition for our products, services, and
technology and enhance our competitive position.
As part of our confidentiality procedures, we generally enter
into non-disclosure agreements with our employees, distributors,
and corporate partners, and we enter into license agreements
with respect to our software, documentation, and other
proprietary information. These license agreements are generally
non-transferable and have a perpetual term. We also educate our
employees on trade secret protection and employ measures to
protect our facilities, equipment, and networks.
Trademarks,
Patents, Copyrights, and Licenses
Symantec and the Symantec logo are trademarks or registered
trademarks in the U.S. and other countries. In addition to
Symantec and the Symantec logo, we have used, registered,
and/or
applied to register other specific trademarks and service marks
to help distinguish our products, technologies, and services
from those of our competitors in the U.S. and foreign countries
and jurisdictions. We enforce our trademark, service mark, and
trade name rights in the U.S. and abroad. The duration of our
trademark registrations varies from country to country, and in
the U.S. we generally are able to maintain our trademark
rights and renew any trademark registrations for as long as the
trademarks are in use.
We have a number of U.S. and foreign issued patents and pending
patent applications, including patents and rights to patent
applications acquired through strategic transactions, which
relate to various aspects of our products and technology. The
duration of our patents is determined by the laws of the country
of issuance and for the U.S. is typically 17 years
from the date of issuance of the patent or 20 years from
the date of filing of the patent application resulting in the
patent, which we believe is adequate relative to the expected
lives of our products.
Our products are protected under U.S. and international
copyright laws and laws related to the protection of
intellectual property and proprietary information. We take
measures to label such products with the appropriate proprietary
rights notices, and we actively enforce such rights in the U.S.
and abroad. However, these measures may not provide sufficient
protection, and our intellectual property rights may be
challenged. In addition, we license some intellectual property
from third parties for use in our products, and generally must
rely on the third party to protect the licensed intellectual
property rights. While we believe that our ability to maintain
and protect our intellectual property rights is important to our
success, we also believe that our business as a whole is not
materially dependent on any particular patent, trademark,
license, or other intellectual property right.
Seasonality
As is typical for many large software companies, our business is
seasonal. Software license and maintenance orders are generally
higher in our third and fourth fiscal quarters and lower in our
first and second fiscal quarters. A significant decline in
license and maintenance orders is typical in the first quarter
of our fiscal year as compared to license and maintenance orders
in the fourth quarter of the prior fiscal year. In addition, we
generally receive a higher volume of software license and
maintenance orders in the last month of a quarter, with orders
concentrated in the later part of that month. We believe that
this seasonality primarily reflects customer spending patterns
and budget cycles, as well as the impact of compensation
incentive plans for our sales personnel. Revenue generally
reflects similar seasonal patterns but to a lesser extent than
orders because revenue is not recognized until an order is
shipped or services are performed and other revenue recognition
criteria are met.
Employees
As of March 31, 2007, we employed approximately
17,100 people worldwide, approximately 54 percent of
whom reside in the U.S. Approximately 6,000 employees work
in sales, marketing, and related activities; 5,000 in product
development; 3,600 in support and services; and 2,500 in
management, manufacturing, and administration.
Other
Information
Our Internet address is www.symantec.com. We make
available free of charge on our website our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
and current reports on
Form 8-K,
and amendments to those
14
reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable
after we electronically file such material with, or furnish it
to, the Securities and Exchange Commission, or SEC. Other than
the information expressly set forth in this annual report, the
information contained, or referred to, on our website is not
part of this annual report.
The public may also read and copy any materials we file with the
SEC at the SECs Public Reference Room at 100 F Street, NE,
Room 1580, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov that
contains reports, proxy and information statements, and other
information regarding issuers, such as us, that file
electronically with the SEC.
A description of the risk factors associated with our business
is set forth below. The list is not exhaustive and you should
carefully consider these risks and uncertainties before
investing in our common stock.
If we
are unable to develop new and enhanced products and services
that achieve widespread market acceptance, or if we are unable
to continually improve the performance, features, and
reliability of our existing products and services or adapt our
business model to keep pace with industry trends, our business
and operating results could be adversely affected.
Our future success depends on our ability to respond to the
rapidly changing needs of our customers by developing or
introducing new products, product upgrades, and services on a
timely basis. We have in the past incurred, and will continue to
incur, significant research and development expenses as we
strive to remain competitive. New product development and
introduction involves a significant commitment of time and
resources and is subject to a number of risks and challenges
including:
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Managing the length of the development cycle for new products
and product enhancements, which has frequently been longer than
we originally expected
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Adapting to emerging and evolving industry standards and to
technological developments by our competitors and customers
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Extending the operation of our products and services to new
platforms and operating systems
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Entering into new or unproven markets with which we have limited
experience
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Managing new product and service strategies, including
integrating our various security and storage technologies,
management solutions, customer service, and support into unified
enterprise security and storage solutions
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Incorporating acquired products and technologies
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Trade compliance issues affecting our ability to ship new
products
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Developing or expanding efficient sales channels
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Obtaining sufficient licenses to technology and technical access
from operating system software vendors on reasonable terms to
enable the development and deployment of interoperable products,
including source code licenses for certain products with deep
technical integration into operating systems
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In addition, if we cannot adapt our business models to keep pace
with industry trends, our revenue could be negatively impacted.
In connection with our enterprise software offerings, we license
our applications on a variety of bases, such as per server, per
processor, or based on performance criteria such as per amount
of data processed or stored. If enterprises migrate towards
solutions, such as virtualization, which allow enterprises to
run multiple applications and operating systems on a single
server and thereby reduce the number of servers they are
required to own and operate, we may experience lower license
revenues unless we are able to successfully change our
enterprise licensing model to take into account the impact of
these new solutions.
15
If we are not successful in managing these risks and challenges,
or if our new products, product upgrades, and services are not
technologically competitive or do not achieve market acceptance,
our business and operating results could be adversely affected.
Fluctuations
in demand for our products and services are driven by many
factors, and a decrease in demand for our products could
adversely affect our financial results.
We are subject to fluctuations in demand for our products and
services due to a variety of factors, including competition,
product obsolescence, technological change, budget constraints
of our actual and potential customers, levels of broadband
usage, awareness of security threats to IT systems, and other
factors. While such factors may, in some periods, increase
product sales, fluctuations in demand can also negatively impact
our product sales. As attention to security threats fluctuates,
the growth rates in sales of security products have been
impacted, particularly in our Consumer Products segment. If
demand for our products declines, our revenues and gross margin
could be adversely affected.
We
operate in a highly competitive environment, and our competitors
may gain market share in the markets for our products that could
adversely affect our business and cause our revenues to
decline.
We operate in intensely competitive markets that experience
rapid technological developments, changes in industry standards,
changes in customer requirements, and frequent new product
introductions and improvements. If we are unable to anticipate
or react to these competitive challenges or if existing or new
competitors gain market share in any of our markets, our
competitive position could weaken and we could experience a drop
in revenues that could adversely affect our business and
operating results. To compete successfully, we must maintain a
successful research and development effort to develop new
products and services and enhance existing products and
services, effectively adapt to changes in the technology or
product rights held by our competitors, appropriately respond to
competitive strategy, and effectively adapt to technological
changes and changes in the ways that our information is
accessed, used, and stored within our enterprise and consumer
markets. If we are unsuccessful in responding to our competitors
or to changing technological and customer demands, we could
experience a negative effect on our competitive position and our
financial results.
Our traditional competitors include independent software vendors
that offer software products that directly compete with our
product offerings. In addition to competing with these vendors
directly for sales to end-users of our products, we compete with
them for the opportunity to have our products bundled with the
product offerings of our strategic partners such as computer
hardware OEMs and ISPs. Our competitors could gain market share
from us if any of these strategic partners replace our products
with the products of our competitors or if they more actively
promote our competitors products than our products. In
addition, software vendors who have bundled our products with
theirs may choose to bundle their software with their own or
other vendors software or may limit our access to standard
product interfaces and inhibit our ability to develop products
for their platform.
We face growing competition from network equipment and computer
hardware manufacturers and large operating system providers.
These firms are increasingly developing and incorporating into
their products data protection and storage and server management
software that competes at some levels with our product
offerings. Our competitive position could be adversely affected
to the extent that our customers perceive the functionality
incorporated into these products as replacing the need for our
products. Microsoft has added remote access features to its
operating systems and has made announcements of actual and
anticipated product features and new product offerings that
compete with a number of our product offerings. In addition, we
believe that Microsoft has recently made changes to its
operating systems that make it more difficult for independent
security vendors to provide solutions for their customers. We
could be adversely affected if customers, particularly
consumers, perceive that features incorporated into the
Microsoft operating system reduce the need for our products or
if they prefer to purchase other Microsoft products that are
bundled with its operating systems and compete with our products.
Another growing industry trend is the software-as-a-service
(SaaS) business model, whereby software vendors develop and host
their applications for use by customers over the Internet. This
allows enterprises to obtain the benefits of commercially
licensed, internally operated software without the associated
complexity or high initial
set-up and
operational costs. Advances in the SaaS business model could
enable the growth of our competitors and
16
could affect the success of our traditional software licensing
models. We have recently released our own SaaS offerings;
however, it is uncertain whether our SaaS strategy will prove
successful or whether we will be able to successfully
incorporate our SaaS offering into our current licensing models.
Our inability to successfully develop and market SaaS product
offerings could cause us to lose business to competitors.
Many of our competitors have greater financial, technical,
sales, marketing, or other resources than we do and consequently
may have the ability to influence customers to purchase their
products instead of ours. We also face competition from many
smaller companies that specialize in particular segments of the
markets in which we compete.
If we
fail to manage our sales and distribution channels effectively
or if our partners choose not to market and sell our products to
their customers, our operating results could be adversely
affected.
We sell our products to customers around the world through
multi-tiered sales and distribution networks. Sales through
these different channels involve distinct risks, including the
following:
Direct Sales. A significant portion of our
revenues from enterprise products is derived from sales by our
direct sales force to end-users. Special risks associated with
this sales channel include:
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Longer sales cycles associated with direct sales efforts
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Difficulty in hiring, retaining, and motivating our direct sales
force
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Substantial amounts of training for sales representatives to
become productive, including regular updates to cover new and
revised products
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Indirect Sales Channels. A significant portion
of our revenues is derived from sales through indirect channels,
including distributors that sell our products to end-users and
other resellers. This channel involves a number of risks,
including:
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Our lack of control over the timing of delivery of our products
to end-users
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Our resellers and distributors are not subject to minimum sales
requirements or any obligation to market our products to their
customers
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Our reseller and distributor agreements are generally
nonexclusive and may be terminated at any time without cause
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Our resellers and distributors frequently market and distribute
competing products and may, from time to time, place greater
emphasis on the sale of these products due to pricing,
promotions, and other terms offered by our competitors
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OEM Sales Channels. A significant portion of
our revenues is derived from sales through our OEM partners that
incorporate our products into, or bundle our products with,
their products. Our reliance on this sales channel involves many
risks, including:
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Our lack of control over the shipping dates or volume of systems
shipped
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Our OEM partners are generally not subject to minimum sales
requirements or any obligation to market our products to their
customers
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Our OEM partners may terminate or renegotiate their arrangements
with us and new terms may be less favorable due, among other
things, to an increasingly competitive relationship with certain
partners
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Sales through our OEM partners are subject to changes in
strategic direction, competitive risks, and other issues that
could result in reduction of OEM sales
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The development work that we must generally undertake under our
agreements with our OEM partners may require us to invest
significant resources and incur significant costs with little or
no associated revenues
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The time and expense required for the sales and marketing
organizations of our OEM partners to become familiar with our
products may make it more difficult to introduce those products
to the market
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Our OEM partners may develop, market, and distribute their own
products and market and distribute products of our competitors,
which could reduce our sales
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If we fail to manage our sales and distribution channels
successfully, these channels may conflict with one another or
otherwise fail to perform as we anticipate, which could reduce
our sales and increase our expenses as well as weaken our
competitive position. Some of our distribution partners have
experienced financial difficulties in the past, and if our
partners suffer financial difficulties in the future, we may
have reduced sales or increased bad debt expense that could
adversely affect our operating results. In addition, reliance on
multiple channels subjects us to events that could cause
unpredictability in demand, which could increase the risk that
we may be unable to plan effectively for the future, and could
result in adverse operating results in future periods.
We
have grown, and may continue to grow, through acquisitions that
give rise to risks and challenges that could adversely affect
our future financial results.
We have in the past acquired, and we expect to acquire in the
future, other businesses, business units, and technologies.
Acquisitions can involve a number of special risks and
challenges, including:
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Complexity, time, and costs associated with the integration of
acquired business operations, workforce, products, and
technologies into our existing business, sales force, employee
base, product lines, and technology
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Diversion of management time and attention from our existing
business and other business opportunities
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Loss or termination of employees, including costs associated
with the termination or replacement of those employees
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Assumption of debt or other liabilities of the acquired
business, including litigation related to the acquired business
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The incurrence of additional acquisition-related debt as well as
increased expenses and working capital requirements
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Dilution of stock ownership of existing stockholders
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Increased costs and efforts in connection with compliance with
Section 404 of the Sarbanes-Oxley Act
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Substantial accounting charges for restructuring and related
expenses, write-off of in-process research and development,
impairment of goodwill, amortization of intangible assets, and
stock-based compensation expense
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Integrating acquired businesses has been and will continue to be
a complex, time consuming, and expensive process, and can impact
the effectiveness of our internal control over financial
reporting. For example, as disclosed in Item 9A in this
annual report, we have remediated a material weakness in our
internal control over financial reporting that was largely
related to Symantec having insufficient personnel resources with
adequate expertise to properly manage the increased volume and
complexity of income tax matters arising from the acquisition of
Veritas.
If integration of our acquired businesses is not successful, we
may not realize the potential benefits of an acquisition or
undergo other adverse effects that we currently do not foresee.
To integrate acquired businesses, we must implement our
technology systems in the acquired operations and integrate and
manage the personnel of the acquired operations. We also must
effectively integrate the different cultures of acquired
business organizations into our own in a way that aligns various
interests, and may need to enter new markets in which we have no
or limited experience and where competitors in such markets have
stronger market positions.
Any of the foregoing, and other factors, could harm our ability
to achieve anticipated levels of profitability from acquired
businesses or to realize other anticipated benefits of
acquisitions. In addition, because acquisitions of high
technology companies are inherently risky, no assurance can be
given that our previous or future acquisitions will be
successful and will not adversely affect our business, operating
results, or financial condition.
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We
have not historically maintained substantial levels of
indebtedness, and our financial condition and results of
operations could be adversely affected if we do not effectively
manage our liabilities.
In June 2006, we sold $2.1 billion in aggregate principal
amount of convertible senior notes. As a result of the sale of
the notes, we have a substantially greater amount of long term
debt than we have maintained in the past. In addition, we have
entered into a credit facility with a borrowing capacity of
$1 billion. Our credit facility allows us immediate access
to domestic funds if we identify opportunities for its use. We
may also incur additional indebtedness in the future. Our
maintenance of substantial levels of debt could adversely affect
our flexibility to take advantage of certain corporate
opportunities and could adversely affect our financial condition
and results of operations.
Our
international operations involve risks that could increase our
expenses, adversely affect our operating results, and require
increased time and attention of our management.
We derive a substantial portion of our revenues from customers
located outside of the U.S. and we have significant operations
outside of the U.S., including engineering, sales, customer
support, and production. We plan to expand our international
operations, but such expansion is contingent upon the financial
performance of our existing international operations as well as
our identification of growth opportunities. Our international
operations are subject to risks in addition to those faced by
our domestic operations, including:
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Potential loss of proprietary information due to
misappropriation or laws that may be less protective of our
intellectual property rights than U.S. laws
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Requirements of foreign laws and other governmental controls,
including trade and labor restrictions and related laws that
reduce the flexibility of our business operations
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Regulations or restrictions on the use, import, or export of
encryption technologies that could delay or prevent the
acceptance and use of encryption products and public networks
for secure communications
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Central bank and other restrictions on our ability to repatriate
cash from our international subsidiaries or to exchange cash in
international subsidiaries into cash available for use in the
U.S.
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Fluctuations in currency exchange rates and economic instability
such as higher interest rates in the U.S. and inflation that
could reduce our customers ability to obtain financing for
software products or that could make our products more expensive
or could increase our costs of doing business in certain
countries
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Limitations on future growth or inability to maintain current
levels of revenues from international sales if we do not invest
sufficiently in our international operations
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Longer payment cycles for sales in foreign countries and
difficulties in collecting accounts receivable
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Difficulties in staffing, managing, and operating our
international operations, including difficulties related to
administering our stock plans in some foreign countries
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Difficulties in coordinating the activities of our
geographically dispersed and culturally diverse operations
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Seasonal reductions in business activity in the summer months in
Europe and in other periods in other countries
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Reduced sales due to the failure to obtain any required export
approval of our technologies, particularly our encryption
technologies
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Costs and delays associated with developing software in multiple
languages
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Political unrest, war, or terrorism, particularly in areas in
which we have facilities
|
A significant portion of our transactions outside of the
U.S. are denominated in foreign currencies. Accordingly,
our future operating results will continue to be subject to
fluctuations in foreign currency rates. We may be negatively
affected by fluctuations in foreign currency rates in the
future, especially if international sales continue to grow as a
percentage of our total sales.
19
The level of corporate tax from sales to our
non-U.S. customers
is less than the level of tax from sales to our
U.S. customers. This benefit is contingent upon existing
tax regulations in the U.S. and in the countries in which our
international operations are located. Future changes in domestic
or international tax regulations could adversely affect our
ability to continue to realize these tax benefits.
Our
products are complex and operate in a wide variety of computer
configurations, which could result in errors or product
failures.
Because we offer very complex products, undetected errors,
failures, or bugs may occur, especially when products are first
introduced or when new versions are released. Our products are
often installed and used in large-scale computing environments
with different operating systems, system management software,
and equipment and networking configurations, which may cause
errors or failures in our products or may expose undetected
errors, failures, or bugs in our products. Our customers
computing environments are often characterized by a wide variety
of standard and non-standard configurations that make
pre-release testing for programming or compatibility errors very
difficult and time-consuming. In addition, despite testing by us
and others, errors, failures, or bugs may not be found in new
products or releases until after commencement of commercial
shipments. In the past, we have discovered software errors,
failures, and bugs in certain of our product offerings after
their introduction and, in some cases, may have experienced
delayed or lost revenues as a result of these errors.
Errors, failures, or bugs in products released by us could
result in negative publicity, product returns, loss of or delay
in market acceptance of our products, loss of competitive
position, or claims by customers or others. Many of our end-user
customers use our products in applications that are critical to
their businesses and may have a greater sensitivity to defects
in our products than to defects in other, less critical,
software products. In addition, if an actual or perceived breach
of information integrity or availability occurs in one of our
end-user customers systems, regardless of whether the
breach is attributable to our products, the market perception of
the effectiveness of our products could be harmed. Alleviating
any of these problems could require significant expenditures of
our capital and other resources and could cause interruptions,
delays, or cessation of our product licensing, which could cause
us to lose existing or potential customers and could adversely
affect our operating results.
If we
are unable to attract and retain qualified employees, lose key
personnel, fail to integrate replacement personnel successfully,
or fail to manage our employee base effectively, we may be
unable to develop new and enhanced products and services,
effectively manage or expand our business, or increase our
revenues.
Our future success depends upon our ability to recruit and
retain our key management, technical, sales, marketing, finance,
and other critical personnel. Our officers and other key
personnel are
employees-at-will,
and we cannot assure you that we will be able to retain them.
Competition for people with the specific skills that we require
is significant. In order to attract and retain personnel in a
competitive marketplace, we believe that we must provide a
competitive compensation package, including cash and
equity-based compensation. The volatility in our stock price may
from time to time adversely affect our ability to recruit or
retain employees. In addition, we may be unable to obtain
required stockholder approvals of future increases in the number
of shares available for issuance under our equity compensation
plans, and recent changes in accounting rules require us to
treat the issuance of employee stock options and other forms of
equity-based compensation as compensation expense. As a result,
we may decide to issue fewer equity-based incentives and may be
impaired in our efforts to attract and retain necessary
personnel. If we are unable to hire and retain qualified
employees, or conversely, if we fail to manage employee
performance or reduce staffing levels when required by market
conditions, our business and operating results could be
adversely affected.
Key personnel have left our company in the past and there likely
will be additional departures of key personnel from time to time
in the future. The loss of any key employee could result in
significant disruptions to our operations, including adversely
affecting the timeliness of product releases, the successful
implementation and completion of company initiatives, the
effectiveness of our disclosure controls and procedures and our
internal control over financial reporting, and the results of
our operations. In addition, hiring, training, and successfully
integrating replacement sales and other personnel could be time
consuming, may cause additional disruptions to our operations,
and may be unsuccessful, which could negatively impact future
revenues.
20
We are
a party to several class action lawsuits, which could require
significant management time and attention and result in
significant legal expenses, and which could, if not determined
favorably, negatively impact our business, financial condition,
results of operations, and cash flows.
We have been named as a party to class action lawsuits, and we
may be named in additional litigation. The expense of defending
such litigation may be costly and divert managements
attention from the
day-to-day
operations of our business, which could adversely affect our
business, results of operations, and cash flows. In addition, an
unfavorable outcome in such litigation could negatively impact
our business, results of operations, and cash flows.
Third
parties claiming that we infringe their proprietary rights could
cause us to incur significant legal expenses and prevent us from
selling our products.
From time to time, we receive claims that we have infringed the
intellectual property rights of others, including claims
regarding patents, copyrights, and trademarks. In addition,
former employers of our former, current, or future employees may
assert claims that such employees have improperly disclosed to
us the confidential or proprietary information of these former
employers. Any such claim, with or without merit, could result
in costly litigation and distract management from
day-to-day
operations. If we are not successful in defending such claims,
we could be required to stop selling, delay shipments of, or
redesign our products, pay monetary amounts as damages, enter
into royalty or licensing arrangements, or satisfy
indemnification obligations that we have with some of our
customers.
In addition, we license and use software from third parties in
our business. These third party software licenses may not
continue to be available to us on acceptable terms or at all,
and may expose us to additional liability. This liability, or
our inability to use any of this third party software, could
result in shipment delays or other disruptions in our business
that could materially and adversely affect our operating results.
If we
do not protect our proprietary information and prevent third
parties from making unauthorized use of our products and
technology, our financial results could be harmed.
Most of our software and underlying technology are proprietary.
We seek to protect our proprietary rights through a combination
of confidentiality agreements and procedures and through
copyright, patent, trademark, and trade secret laws. However,
all of these measures afford only limited protection and may be
challenged, invalidated, or circumvented by third parties. Third
parties may copy all or portions of our products or otherwise
obtain, use, distribute, and sell our proprietary information
without authorization. Third parties may also develop similar or
superior technology independently by designing around our
patents. Our shrink-wrap license agreements are not signed by
licensees and therefore may be unenforceable under the laws of
some jurisdictions. Furthermore, the laws of some foreign
countries do not offer the same level of protection of our
proprietary rights as the laws of the U.S., and we may be
subject to unauthorized use of our products in those countries.
The unauthorized copying or use of our products or proprietary
information could result in reduced sales of our products. Any
legal action to protect proprietary information that we may
bring or be engaged in with a strategic partner or vendor could
adversely affect our ability to access software, operating
system, and hardware platforms of such partner or vendor, or
cause such partner or vendor to choose not to offer our products
to their customers. In addition, any legal action to protect
proprietary information that we may bring or be engaged in,
alone or through our alliances with the Business Software
Alliance (BSA), or the Software & Information Industry
Association (SIIA), could be costly, may distract management
from
day-to-day
operations, and may lead to additional claims against us, which
could adversely affect our operating results.
Some
of our products contain open source software, and
any failure to comply with the terms of one or more of these
open source licenses could negatively affect our
business.
Certain of our products are distributed with software licensed
by its authors or other third parties under so-called open
source licenses, which may include, by way of example, the
GNU General Public License (GPL), GNU Lesser General Public
License (LGPL), the Mozilla Public License, the BSD License, and
the Apache License. Some of these licenses contain requirements
that we make available source code for modifications or
21
derivative works we create based upon the open source software,
and that we license such modifications or derivative works under
the terms of a particular open source license or other license
granting third parties certain rights of further use. If we
combine our proprietary software with open source software in a
certain manner, we could, under certain of the open source
licenses, be required to release the source code of our
proprietary software. In addition to risks related to license
requirements, usage of open source software can lead to greater
risks than use of third party commercial software, as open
source licensors generally do not provide warranties or controls
on origin of the software. We have established processes to help
alleviate these risks, including a review process for screening
requests from our development organizations for the use of open
source, but we cannot be sure that all open source is submitted
for approval prior to use in our products. In addition, many of
the risks associated with usage of open source cannot be
eliminated, and could, if not properly addressed, negatively
affect our business.
Our
software products and website may be subject to intentional
disruption that could adversely impact our reputation and future
sales.
Although we believe we have sufficient controls in place to
prevent intentional disruptions, we expect to be an ongoing
target of attacks specifically designed to impede the
performance of our products. Similarly, experienced computer
programmers may attempt to penetrate our network security or the
security of our website and misappropriate proprietary
information or cause interruptions of our services. Because the
techniques used by such computer programmers to access or
sabotage networks change frequently and may not be recognized
until launched against a target, we may be unable to anticipate
these techniques. Our activities could be adversely affected and
our reputation and future sales harmed if these intentionally
disruptive efforts are successful.
Increased
customer demands on our technical support services may adversely
affect our relationships with our customers and our financial
results.
We offer technical support services with many of our products.
We may be unable to respond quickly enough to accommodate
short-term increases in customer demand for support services. We
also may be unable to modify the format of our support services
to compete with changes in support services provided by
competitors or successfully integrate support for our customers.
Further customer demand for these services, without
corresponding revenues, could increase costs and adversely
affect our operating results.
We have outsourced a substantial portion of our worldwide
consumer support functions to third party service providers. If
these companies experience financial difficulties, do not
maintain sufficiently skilled workers and resources to satisfy
our contracts, or otherwise fail to perform at a sufficient
level under these contracts, the level of support services to
our customers may be significantly disrupted, which could
materially harm our relationships with these customers.
Accounting
charges may cause fluctuations in our quarterly financial
results.
Our financial results have been in the past, and may continue to
be in the future, materially affected by non-cash and other
accounting charges, including:
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Amortization of intangible assets, including acquired product
rights
|
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|
Impairment of goodwill
|
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|
|
Stock-based compensation expense
|
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|
|
Restructuring charges
|
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Impairment of long-lived assets
|
For example, in connection with our acquisition of Veritas, we
have recorded approximately $2.8 billion of acquired
product rights and other intangible assets and $8.6 billion
of goodwill. We have recorded and will continue to record future
amortization charges with respect to a portion of these
intangible assets and stock-based compensation expense related
to the stock options to purchase Veritas common stock assumed by
us. In addition, we will evaluate our long-lived assets,
including property and equipment, goodwill, acquired product
rights, and other intangible assets, whenever events or
circumstances occur which indicate that these assets might be
impaired.
22
Goodwill is evaluated annually for impairment in the fourth
quarter of each fiscal year or more frequently if events and
circumstances warrant, and our evaluation depends to a large
degree on estimates and assumptions made by our management. Our
assessment of any impairment of goodwill is based on a
comparison of the fair value of each of our reporting units to
the carrying value of that reporting unit. Our determination of
fair value relies on managements assumptions of our future
revenues, operating costs, and other relevant factors. If
managements estimates of future operating results change,
or if there are changes to other assumptions such as the
discount rate applied to future operating results, the estimate
of the fair value of our reporting units could change
significantly, which could result in a goodwill impairment
charge.
The foregoing types of accounting charges may also be incurred
in connection with or as a result of other business
acquisitions. The price of our common stock could decline to the
extent that our financial results are materially affected by the
foregoing accounting charges.
Our
effective tax rate may increase, which could increase our income
tax expense and reduce our net income.
Our effective tax rate could be adversely affected by several
factors, many of which are outside of our control, including:
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Changes in the relative proportions of revenues and income
before taxes in the various jurisdictions in which we operate
that have differing statutory tax rates
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Changing tax laws, regulations, and interpretations in multiple
jurisdictions in which we operate as well as the requirements of
certain tax rulings
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The tax effects of purchase accounting for acquisitions and
restructuring charges that may cause fluctuations between
reporting periods
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|
Tax assessments, or any related tax interest or penalties, could
significantly affect our income tax expense for the period in
which the settlements take place.
|
The price of our common stock could decline if our financial
results are materially affected by an adverse change in our
effective tax rate.
We report our results of operations based on our determinations
of the amount of taxes owed in the various tax jurisdictions in
which we operate. From time to time, we receive notices that a
tax authority to which we are subject has determined that we owe
a greater amount of tax than we have reported to such authority,
and we are regularly engaged in discussions, and sometimes
disputes, with these tax authorities. We are engaged in disputes
of this nature at this time. If the ultimate determination of
our taxes owed in any of these jurisdictions is for an amount in
excess of the tax provision we have recorded or reserved for,
our operating results, cash flows, and financial condition could
be adversely affected.
Fluctuations
in our quarterly financial results have affected the price of
our common stock in the past and could affect our stock price in
the future.
Our quarterly financial results have fluctuated in the past and
are likely to vary significantly in the future due to a number
of factors, many of which are outside of our control and which
could adversely affect our operations and operating results. If
our quarterly financial results or our predictions of future
financial results fail to meet the expectations of securities
analysts and investors, our stock price could be negatively
affected. Any volatility in our quarterly financial results may
make it more difficult for us to raise capital in the future or
pursue acquisitions that involve issuances of our stock. Our
operating results for prior periods may not be effective
predictors of our future performance.
Factors associated with our industry, the operation of our
business, and the markets for our products may cause our
quarterly financial results to fluctuate, including:
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Reduced demand for any of our products
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Entry of new competition into our markets
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23
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Competitive pricing pressure for one or more of our classes of
products
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Our ability to timely complete the release of new or enhanced
versions of our products
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The number, severity, and timing of threat outbreaks (e.g. worms
and viruses)
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Our resellers making a substantial portion of their purchases
near the end of each quarter
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Enterprise customers tendency to negotiate site licenses
near the end of each quarter
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Cancellation, deferral, or limitation of orders by customers
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Fluctuations in foreign currency exchange rates
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Movement in interest rates
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The rate of adoption of new product technologies and new
releases of operating systems
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Weakness or uncertainty in general economic or industry
conditions in any of the multiple markets in which we operate
that could reduce customer demand and ability to pay for our
products and services
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|
Political and military instability, which could slow spending
within our target markets, delay sales cycles, and otherwise
adversely affect our ability to generate revenues and operate
effectively
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Budgetary constraints of customers, which are influenced by
corporate earnings and government budget cycles and spending
objectives
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Disruptions in our highly automated business operations caused
by, among other things,
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Earthquakes, floods, or other natural disasters affecting our
headquarters located in Silicon Valley, California, an area
known for seismic activity, or our other locations worldwide
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Acts of war or terrorism
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Intentional disruptions by third parties
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Any of the foregoing factors could cause the trading price of
our common stock to fluctuate significantly.
Our
stock price may be volatile in the future, and you could lose
the value of your investment.
The market price of our common stock has experienced significant
fluctuations in the past and may continue to fluctuate in the
future, and as a result you could lose the value of your
investment. The market price of our common stock may be affected
by a number of factors, including:
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Announcements of quarterly operating results and revenue and
earnings forecasts by us that fail to meet or be consistent with
our earlier projections or the expectations of our investors or
securities analysts
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Announcements by either our competitors or customers that fail
to meet or be consistent with their earlier projections or the
expectations of our investors or securities analysts
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Rumors, announcements, or press articles regarding our or our
competitors operations, management, organization,
financial condition, or financial statements
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|
Changes in revenue and earnings estimates by us, our investors,
or securities analysts
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Accounting charges, including charges relating to the impairment
of goodwill
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Announcements of planned acquisitions by us or by our competitors
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Announcements of new or planned products by us, our competitors,
or our customers
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Gain or loss of a significant customer
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Inquiries by the SEC, NASDAQ, law enforcement, or other
regulatory bodies
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Acts of terrorism, the threat of war, and other crises or
emergency situations
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24
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Economic slowdowns or the perception of an oncoming economic
slowdown in any of the major markets in which we operate
|
The stock market in general, and the market prices of stocks of
technology companies in particular, have experienced extreme
price volatility that has adversely affected, and may continue
to adversely affect, the market price of our common stock for
reasons unrelated to our business or operating results.
Problems
with our information systems could interfere with our business
and operations.
We rely on our information systems and those of third parties
for processing customer orders, shipping of products, providing
services and support to our customers, billing and tracking our
customers, fulfilling contractual obligations, and otherwise
running our business. Any disruption in our information systems
and those of the third parties upon whom we rely could have a
significant impact on our business. In addition, we are in the
process of enhancing our information systems. The implementation
of these types of enhancements is frequently disruptive to the
underlying business of an enterprise, which may especially be
the case for us due to the size and complexity of our
businesses. Any disruptions relating to our systems
enhancements, particularly any disruptions impacting our
operations during the implementation period, could adversely
affect our business in a number of respects. Even if we do not
encounter these adverse effects, the implementation of these
enhancements may be much more costly than we anticipated. If we
are unable to successfully implement the information systems
enhancements as planned, our financial position, results of
operations, and cash flows could be negatively impacted.
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Item 1B.
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Unresolved
Staff Comments
|
There are currently no unresolved issues with respect to any
Commission staffs written comments that were received at
least 180 days before the end of our fiscal year to which
this report relates and that relate to our periodic or current
reports under the Exchange Act.
Our properties consist primarily of owned and leased office
facilities for sales, research and development, administrative,
customer service, and technical support personnel. Our Dublin,
Ireland facility also includes manufacturing operations. Our
corporate headquarters is located in Cupertino, California in a
532,000 square foot facility that we own. We occupy an
additional 772,000 square feet in the San Francisco
Bay Area, of which 592,000 square feet is owned and
180,000 square feet is leased. Our leased facilities are
occupied under leases that expire at various times through 2026.
The table below shows the approximate square footage of our
facilities as of March 31, 2007, excluding executive suites.
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Approximate Total Square
Footage(1)
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Location
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Owned
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Leased
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North America
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1,680,000
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1,697,000
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Europe, Middle East, and Africa
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285,000
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680,000
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Asia Pacific/Japan
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5,000
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1,105,000
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Latin America
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42,000
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Total
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1,970,000
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3,524,000
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(1) |
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Total square footage excludes approximately 82,000 square
feet of space in the United States and 74,000 square feet
in EMEA that we sublease to third parties. Also not included is
149,000 square feet of owned property that we lease to
third parties. |
We also lease additional properties throughout the world,
totaling approximately 89,000 square feet that are
currently vacant. We are currently building a facility in Culver
City, California that we expect to occupy in October 2007.
We believe that our existing facilities are adequate for our
current needs and that the productive capacity of our facilities
is substantially utilized.
25
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Item 3.
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Legal
Proceedings
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Information with respect to this Item may be found in
Note 14 of the Notes to Consolidated Financial Statements
in this annual report which information is incorporated into
this Item 3 by reference. In addition to the information
included in Note 14 referred to above, the matter described
below was resolved during fiscal 2007.
In February 2007, the SEC filed a complaint in the United States
District Court for the District of Columbia against Veritas
asserting Securities Act and Exchange Act violations related to
Veritas previously disclosed transactions with AOL Time
Warner and to matters underlying Veritas restatement of
its financial statements announced in March 2004. At the same
time, without admitting or denying the allegations in the
SECs complaint, Veritas consented to the entry of a final
judgment permanently enjoining it from violating
Section 17(a) of the Securities Act of 1933,
Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the
Exchange Act, and Exchange Act
rules 10b-5,
12b-20,13a-1,13a-11,
13a-13, and
13b2-1 and from aiding and abetting violations of
Section 10(b) of the Exchange Act and Exchange Act
rule 10b-5,
and paid a civil penalty of $30 million.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2007.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
for Our Common Stock
Our common stock is traded on the Nasdaq Global Select Market
under the symbol SYMC. The high and low sales prices
set forth below are as reported on the Nasdaq Global Select
Market (formerly the Nasdaq National Market).
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Fiscal 2007
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|
Fiscal 2006
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|
Mar. 31,
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Dec. 31,
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Sep. 30,
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Jun. 30,
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Mar. 31,
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Dec. 31,
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Sep. 30,
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Jun. 30,
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2007
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2006
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2006
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2006
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2006
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2005
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2005
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2005
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High
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$
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21.86
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$
|
22.19
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$
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21.42
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$
|
17.90
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$
|
19.94
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$
|
24.01
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$
|
24.38
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$
|
22.90
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Low
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$
|
16.20
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$
|
18.59
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$
|
14.78
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$
|
14.98
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$
|
15.30
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$
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16.32
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$
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19.63
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$
|
18.01
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As of March 31, 2007, there were approximately 4,000
stockholders of record of Symantec common stock. Symantec has
never declared or paid any cash dividends on its capital stock.
We currently intend to retain future earnings for use in our
business, and, therefore, we do not anticipate paying any cash
dividends on our capital stock in the foreseeable future.
26
Repurchases
of Our Equity Securities
Stock repurchases during the three-month period ended
March 31, 2007 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
Dollar Value
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
That May Yet be
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Purchased Under
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Purchased Under Publicly
|
|
|
the Plans
|
|
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
Announced Plans or Programs
|
|
|
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
December 30, 2006 to
January 26, 2007
|
|
|
4,417,074
|
|
|
$
|
21.51
|
|
|
|
4,417,074
|
|
|
$
|
1,000
|
|
January 27, 2007 to
February 23, 2007
|
|
|
13,910,500
|
|
|
$
|
17.97
|
|
|
|
13,910,500
|
|
|
$
|
750
|
|
February 24, 2007 to
March 30, 2007
|
|
|
14,808,368
|
|
|
$
|
16.88
|
|
|
|
14,808,368
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
33,135,942
|
|
|
$
|
17.96
|
|
|
|
33,135,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have operated stock repurchase programs since 2001. As of
January 2007, we completed the $1 billion share repurchase
program announced in January 2006 as well as the
$1.5 billion share repurchase program announced in June
2006. On January 24, 2007, we announced that the Board
authorized the repurchase of an additional $1 billion of
Symantec common stock, without a scheduled expiration date.
During fiscal 2007, we repurchased 162 million shares of
our common stock at prices ranging from $15.61 to
$21.66 per share for an aggregate amount of
$2.8 billion. During fiscal 2006, we repurchased
174 million shares at prices ranging from $15.83 to
$23.85 per share for an aggregate amount of
$3.6 billion. During fiscal 2005, we repurchased eight
million shares at prices ranging from $21.05 to $30.77 per
share for an aggregate amount of $192 million. As of
March 31, 2007, $500 million remained authorized for
future repurchases. See Note 8 of the Notes to Consolidated
Financial Statements section for more information.
27
Stock
Performance Graphs
These performance graphs shall not be deemed filed
for purposes of Section 18 of the Exchange Act or otherwise
subject to the liabilities under that Section, and shall not be
deemed to be incorporated by reference into any filing of
Symantec under the Securities Act or the Exchange Act.
Comparison
of cumulative total return March 31, 2002 to
March 31, 2007
The graph below compares the cumulative total stockholder return
on Symantec common stock from March 31, 2002 to
March 31, 2007 with the cumulative total return on the
S&P 500 Composite Index and the S&P Information
Technology Index over the same period (assuming the investment
of $100 in Symantec common stock and in each of the other
indices on March 31, 2002, and reinvestment of all
dividends, although no dividends other than stock dividends have
been declared on Symantec common stock). The comparisons in the
graph below are based on historical data and are not intended to
forecast the possible future performance of Symantec common
stock.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Symantec Corporation, The S & P 500 Index
And The S & P Information Technology Index
*$100 invested on 3/31/02 in stock or index
including reinvestment of dividends. Fiscal years ending
March 31.
Copyright
©
2007, Standard & Poors, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/02
|
|
|
3/03
|
|
|
3/04
|
|
|
3/05
|
|
|
3/06
|
|
|
3/07
|
Symantec Corporation
|
|
|
|
100.00
|
|
|
|
|
95.07
|
|
|
|
|
224.70
|
|
|
|
|
207.04
|
|
|
|
|
163.36
|
|
|
|
|
167.92
|
|
S & P 500
|
|
|
|
100.00
|
|
|
|
|
75.24
|
|
|
|
|
101.66
|
|
|
|
|
108.47
|
|
|
|
|
121.19
|
|
|
|
|
135.52
|
|
S & P Information
Technology
|
|
|
|
100.00
|
|
|
|
|
67.34
|
|
|
|
|
97.01
|
|
|
|
|
94.60
|
|
|
|
|
107.39
|
|
|
|
|
110.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Comparison
of cumulative total return June 23, 1989(1) to
March 31, 2007
The graph below compares the cumulative total stockholder return
on Symantec common stock from June 23, 1989 (the date of
Symantecs initial public offering) to March 31, 2007
with the cumulative total return on the S&P 500 Composite
Index and the S&P Information Technology Index over the
same period (assuming the investment of $100 in Symantec common
stock and in each of the other indices on June 30, 1989,
and reinvestment of all dividends, although no dividends other
than stock dividends have been declared on Symantec common
stock). Symantec has provided this additional data to provide
the perspective of a longer time period which is consistent with
Symantecs history as a public company. The comparisons in
the graph below are based on historical data and are not
intended to forecast the possible future performance of Symantec
common stock.
COMPARISON
OF 18 YEAR CUMULATIVE TOTAL RETURN*
Among Symantec Corporation, The S & P 500 Index
And The S & P Information Technology Index
* $100 invested on 6/23/89 in stock or on 5/31/89 in
index including reinvestment of dividends. Fiscal
years ending March 31.
Copyright
©
2007, Standard & Poors, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/89
|
|
|
3/90
|
|
|
3/91
|
|
|
3/92
|
|
|
3/93
|
|
|
3/94
|
|
|
3/95
|
|
|
3/96
|
|
|
3/97
|
|
|
3/98
|
Symantec Corporation
|
|
|
|
100.00
|
|
|
|
|
173.91
|
|
|
|
|
419.57
|
|
|
|
|
743.48
|
|
|
|
|
223.91
|
|
|
|
|
271.74
|
|
|
|
|
400.00
|
|
|
|
|
223.91
|
|
|
|
|
247.83
|
|
|
|
|
468.48
|
|
S & P 500
|
|
|
|
100.00
|
|
|
|
|
108.97
|
|
|
|
|
124.68
|
|
|
|
|
138.45
|
|
|
|
|
159.53
|
|
|
|
|
161.88
|
|
|
|
|
187.08
|
|
|
|
|
247.13
|
|
|
|
|
296.13
|
|
|
|
|
438.26
|
|
S & P Information
Technology
|
|
|
|
100.00
|
|
|
|
|
100.09
|
|
|
|
|
120.61
|
|
|
|
|
134.62
|
|
|
|
|
149.21
|
|
|
|
|
168.16
|
|
|
|
|
235.25
|
|
|
|
|
327.47
|
|
|
|
|
464.37
|
|
|
|
|
721.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/99
|
|
|
3/00
|
|
|
3/01
|
|
|
3/02
|
|
|
3/03
|
|
|
3/04
|
|
|
3/05
|
|
|
3/06
|
|
|
3/07
|
Symantec Corporation
|
|
|
|
294.57
|
|
|
|
|
1306.52
|
|
|
|
|
727.17
|
|
|
|
|
1433.39
|
|
|
|
|
1362.78
|
|
|
|
|
3220.87
|
|
|
|
|
2967.65
|
|
|
|
|
2341.57
|
|
|
|
|
2406.96
|
|
S & P 500
|
|
|
|
519.16
|
|
|
|
|
612.32
|
|
|
|
|
479.59
|
|
|
|
|
480.75
|
|
|
|
|
361.71
|
|
|
|
|
488.74
|
|
|
|
|
521.45
|
|
|
|
|
582.60
|
|
|
|
|
651.53
|
|
S & P Information
Technology
|
|
|
|
1230.76
|
|
|
|
|
2471.26
|
|
|
|
|
1062.30
|
|
|
|
|
1011.07
|
|
|
|
|
703.44
|
|
|
|
|
1005.80
|
|
|
|
|
989.28
|
|
|
|
|
1128.76
|
|
|
|
|
1175.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Symantecs initial public offering was on June 23,
1989. Data is shown beginning June 30, 1989 because data
for cumulative returns on the S&P 500 and the S&P
Information Technology indices are available only at month end. |
29
|
|
Item 6.
|
Selected
Financial Data
|
The following selected consolidated financial data is derived
from Symantecs consolidated financial statements. This
data is qualified in its entirety by and should be read in
conjunction with the more detailed consolidated financial
statements and related notes included in this annual report and
with Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations. Historical
results may not be indicative of future results.
During the past five fiscal years, we have made the following
acquisitions:
|
|
|
|
|
Company-i Limited and 4FrontSecurity, Inc. during fiscal 2007
|
|
|
|
Veritas Software Corporation, XtreamLok Pty. Ltd.,
WholeSecurity, Inc., Sygate Technologies, Inc., BindView
Development Corporation, IMlogic, Inc., and Relicore, Inc.
during fiscal 2006
|
|
|
|
Brightmail, Inc., TurnTide, Inc., @stake, Inc., LIRIC Associates
Ltd, and Platform Logic, Inc. during fiscal 2005
|
|
|
|
Nexland, Inc., PowerQuest, Inc., Safeweb, Inc., and ON
Technology Corp. during fiscal 2004
|
|
|
|
Riptech, Inc., Recourse Technologies, Inc., SecurityFocus, Inc.,
and Mountain Wave, Inc. during fiscal 2003
|
Each of these acquisitions was accounted for as a business
purchase and, accordingly, the operating results of these
businesses have been included in our consolidated financial
statements since their respective dates of acquisition.
In April 2003, we purchased certain assets related to Roxio
Inc.s
GoBacktmcomputer
recovery software business. In addition, in August 2003, we
purchased a security technology patent as part of a legal
settlement in Hilgraeve, Inc. v. Symantec Corporation
and in May 2005, we resolved patent litigation matters with
Altiris, Inc. by entering into a cross-licensing agreement that
resolved all legal claims between the companies. We subsequently
acquired Altiris in April 2007. See Note 17 of the Notes to
Consolidated Financial Statements.
Five-Year
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31,(c)
|
|
|
|
2007(a)
|
|
|
2006(b)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except net income per share)
|
|
|
Consolidated Statements of Income
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
5,199,366
|
|
|
$
|
4,143,392
|
|
|
$
|
2,582,849
|
|
|
$
|
1,870,129
|
|
|
$
|
1,406,946
|
|
Acquired in-process research and
development(d)
|
|
|
|
|
|
|
285,100
|
|
|
|
3,480
|
|
|
|
3,710
|
|
|
|
4,700
|
|
Restructuring
|
|
|
70,236
|
|
|
|
24,918
|
|
|
|
2,776
|
|
|
|
907
|
|
|
|
11,089
|
|
Integration
|
|
|
744
|
|
|
|
15,926
|
|
|
|
3,494
|
|
|
|
|
|
|
|
|
|
Patent
settlement(e)
|
|
|
|
|
|
|
2,200
|
|
|
|
375
|
|
|
|
13,917
|
|
|
|
|
|
Operating income
|
|
|
519,742
|
|
|
|
273,965
|
|
|
|
819,266
|
|
|
|
513,585
|
|
|
|
341,512
|
|
Interest
expense(f)
|
|
|
(27,233
|
)
|
|
|
(17,996
|
)
|
|
|
(12,323
|
)
|
|
|
(21,164
|
)
|
|
|
(21,166
|
)
|
Income, net of expense, from sale
of technologies and product
lines(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,547
|
|
|
|
6,878
|
|
Net income
|
|
$
|
404,380
|
|
|
$
|
156,852
|
|
|
$
|
536,159
|
|
|
$
|
370,619
|
|
|
$
|
248,438
|
|
Net income per share
basic(h)
|
|
$
|
0.42
|
|
|
$
|
0.16
|
|
|
$
|
0.81
|
|
|
$
|
0.61
|
|
|
$
|
0.43
|
|
Net income per share
diluted(h)
|
|
$
|
0.41
|
|
|
$
|
0.15
|
|
|
$
|
0.74
|
|
|
$
|
0.54
|
|
|
$
|
0.38
|
|
Shares used to compute net income
per share
basic(h)
|
|
|
960,575
|
|
|
|
998,733
|
|
|
|
660,631
|
|
|
|
611,970
|
|
|
|
581,580
|
|
Shares used to compute net income
per share
diluted(h)
|
|
|
983,261
|
|
|
|
1,025,856
|
|
|
|
738,245
|
|
|
|
719,110
|
|
|
|
682,872
|
|
30
|
|
|
(a) |
|
In fiscal 2007, we adopted SFAS No. 123R, which
resulted in stock-based compensation charges of
$154 million. |
|
(b) |
|
We acquired Veritas on July 2, 2005 and its results of
operations are included from the date of acquisition. |
|
(c) |
|
We have a
52/53-week
fiscal year. Fiscal 2007, 2006, 2005, and 2003 were each
comprised of 52 weeks of operations. Fiscal 2004 was
comprised of 53 weeks of operations. |
|
(d) |
|
In fiscal 2006, we wrote off $284 million and
$1 million, respectively, of acquired in-process research
and development in connection with our acquisitions of Veritas
and BindView Development Corporation. |
|
(e) |
|
In fiscal 2006, we recorded patent settlement costs and entered
into a cross-licensing agreement with Altiris, Inc. For more
information, see Note 4 of the Notes to Consolidated
Financial Statements. In fiscal 2004, we recorded patent
settlement costs and purchased a security technology patent as
part of a settlement in Hilgraeve, Inc. v. Symantec
Corporation. |
|
(f) |
|
In fiscal 2007, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes and $1.0 billion
principal amount of 1.00% Convertible Senior Notes. In
fiscal 2006, in connection with our acquisition of Veritas, we
assumed $520 million of 0.25% convertible subordinated
notes which we paid off in their entirety in August 2006. In
October 2001, we issued $600 million of 3% convertible
subordinated notes. In November 2004, substantially all of the
outstanding 3% convertible subordinated notes were
converted into 70.3 million shares of our common stock and
the remainder was redeemed for cash. For more information, see
Note 6 of the Notes to Consolidated Financial Statements. |
|
(g) |
|
Income, net of expense, from sale of technologies and product
lines primarily related to royalty payments received in
connection with the licensing of substantially all of the
ACT!tm
product line technology. In December 2003, Interact Commerce
Corporation purchased this technology from us. |
|
(h) |
|
Share and per share amounts reflect the
two-for-one
stock splits effected as stock dividends, which occurred on
November 30, 2004, and November 19, 2003. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital(i)
|
|
$
|
752,958
|
|
|
$
|
430,365
|
|
|
$
|
1,987,259
|
|
|
$
|
1,555,094
|
|
|
$
|
1,152,773
|
|
Total assets
|
|
|
17,750,870
|
|
|
|
17,913,183
|
|
|
|
5,614,221
|
|
|
|
4,456,498
|
|
|
|
3,265,730
|
|
Convertible subordinated
notes(j)
|
|
|
|
|
|
|
512,800
|
|
|
|
|
|
|
|
599,987
|
|
|
|
599,998
|
|
Convertible senior
notes(k)
|
|
|
2,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations, less
current portion
|
|
|
21,370
|
|
|
|
24,916
|
|
|
|
4,408
|
|
|
|
6,032
|
|
|
|
6,729
|
|
Stockholders equity
|
|
|
11,601,513
|
|
|
|
13,668,471
|
|
|
|
3,705,453
|
|
|
|
2,426,208
|
|
|
|
1,764,379
|
|
|
|
|
(i) |
|
A portion of deferred revenue as of March 31, 2003 was
reclassified from current to long-term to conform to the current
presentation. |
|
(j) |
|
In fiscal 2006, in connection with our acquisition of Veritas,
we assumed $520 million of 0.25% convertible
subordinated notes, which are classified as a current liability
and are included in the calculation of working capital. These
notes were paid off in their entirety in August 2006. For more
information, see Note 6 of the Notes to Consolidated
Financial Statements. In October 2001, we issued
$600 million of 3% convertible subordinated notes. In
November 2004, substantially all of the outstanding 3%
convertible subordinated notes were converted into
70.3 million shares of our common stock and the remainder
was redeemed for cash. |
|
(k) |
|
In fiscal 2007, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes and $1.0 billion
principal amount of 1.00% Convertible Senior Notes. For
more information, see Note 6 of the Notes to Consolidated
Financial Statements. |
31
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
Our
Business
Symantec is a global leader in infrastructure software, enabling
businesses and consumers to have confidence in a connected
world. We help our customers protect their infrastructure,
information, and interactions by delivering software and
services that address risks to information security,
availability, compliance, and information technology, or IT,
systems performance. We strive to help our customers manage
compliance, complexity, and cost by protecting their IT
infrastructure as they seek to maximize value from their IT
investments. We deliver a comprehensive and diverse set of
security and availability products and services to a wide range
of customers, including large enterprises, governments, small
and medium-sized businesses, and consumers. Our delivery network
includes direct, inside, and channel sales resources which
support our ecosystem of more than 50,000 partners across the
world, as well as various relationships with original equipment
manufacturers, or OEMs, Internet service providers, or ISPs, and
retail and online stores. Founded in 1982, we have operations in
40 countries.
We have a
52/53-week
fiscal accounting year. Accordingly, all references as of and
for the fiscal years ended March 31, 2007, 2006, and 2005
reflect amounts as of and for the periods ended March 30,
2007, March 31, 2006, and April 1, 2005, respectively,
each of which consisted of 52 weeks.
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. In the June 2006 quarter, we consolidated our
Enterprise Security, Data Protection, and Storage and Server
Management segments into two segments the Security
and Data Management segment and the Data Center Management
segment. Amounts for the years ended March 31, 2006 and
2005 have been reclassified to conform to our current
presentation. As of March 31, 2007, we had five operating
segments, descriptions of which are provided in Note 15 of
the Notes to Consolidated Financial Statements.
On July 2, 2005, we completed the acquisition of Veritas,
whereby Veritas became a wholly owned subsidiary of Symantec in
a transaction accounted for using the purchase method. The
results of Veritas operations have been included in our
results of operations beginning on July 2, 2005, and have
had a significant impact on our revenues, cost of revenues, and
operating expenses since the date of acquisition.
On April 6, 2007, we completed our acquisition of Altiris,
Inc., a leading provider of IT management software that enables
businesses to easily manage and service network-based endpoints.
The aggregate purchase price, excluding acquisition related
costs, was approximately $815 million in cash, which amount
was net of Altiris cash balance. We believe this
acquisition will enable us to help customers better manage and
enforce security policies at the endpoint, identify and protect
against threats, and repair and service assets. The Altiris
business will constitute a new business segment in fiscal 2008.
We will also move our Ghost, pcAnywhere, and LiveState Delivery
products from the Security and Data Management segment to the
Altiris segment. In addition, we will move our Managed Security
Services, DeepSight, and Software-As-A-Service products and
services from the Security and Data Management segment to the
Services segment.
Financial
Results and Trends
Our net income was $404 million for fiscal 2007 as compared
to $157 million and $536 million for fiscal 2006 and
2005, respectively. The higher net income for fiscal 2007 as
compared to fiscal 2006 was primarily due to the write-off in
fiscal 2006 of $284 million of acquired in-process research
and development, or IPR&D, as a result of the Veritas
acquisition for which there is no comparable charge in fiscal
2007. This increase was partially offset by $154 million of
stock-based compensation expense related to our adoption of
Statement of Financial Accounting Standards, or SFAS,
No. 123R, Share-Based Payment, effective
April 1, 2006, higher employee compensation costs resulting
from increased employee headcount, and $70 million of
restructuring charges. As of March 31, 2007, employee
headcount had increased by approximately 8% from March 31,
2006.
During fiscal 2007, we delivered revenue growth across all of
our geographic regions as compared to fiscal 2006 and 2005. The
overall growth is due primarily to the Veritas acquisition,
which was included in our results for
32
the full year in fiscal 2007 as compared to only the nine months
subsequent to the acquisition date of July 2, 2005 in
fiscal 2006. We believe our revenue growth is also partly
attributable to increased awareness of Internet-related 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 $105 million
in fiscal 2007 compared to fiscal 2006. 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.
Although revenue for fiscal 2007 was higher than revenue for
fiscal 2006 and 2005, certain portions of our business are
maturing and our rate of revenue growth is slowing for several
reasons. During fiscal 2007, particularly in the December 2006
and March 2007 quarters, we provided more flexibility in our
contract terms and in product deployments and provided more
services in combination with licenses, we experienced an
increase in the value of multi-year arrangements compared to
prior periods, particularly within our Data Center Management
segment, and we had a large number of maintenance renewals.
These changes resulted in a greater percentage of revenue being
deferred and recognized over an extended period of time. In
addition, in the December 2006 quarter we combined the legacy
buying programs of Symantec and Veritas into one buying program
for all of our enterprise offerings, which resulted in a change
in the vendor-specific objective evidence, or VSOE, of pricing
for our storage and availability offerings. Additional
information regarding factors that we believe impacted net
revenue during fiscal 2007 is discussed under Total Net
Revenues below.
In light of the foregoing factors and our slowing rate of
revenue growth, we implemented a cost savings initiative in the
fourth quarter of fiscal 2007 to better align our expenses with
our new revenue expectations. The cost savings initiative
included a workforce reduction of approximately five percent
worldwide. Once these cost reductions are fully implemented, we
expect to save approximately $200 million in costs on an
annualized basis and to have a lower rate of operating expense
growth than in recent periods. The cost savings initiative
resulted in a restructuring charge of $51 million in the
fourth quarter of fiscal 2007. We expect that the cost savings
initiative will result in an additional restructuring charge in
the first quarter of fiscal 2008 and potentially in other future
periods.
We expect our gross margins and operating expenses to be
affected in future periods as a result of recent changes in the
terms of some of our key OEM relationships. We have negotiated
new contract terms with some of our OEM partners, which will
result in payments to OEM partners being included as Operating
expenses rather than Cost of revenues. In general, payments to
OEMs made on a placement fee per unit basis will be treated as
Operating expenses, while payments based on a revenue-sharing
model will be amortized as Cost of revenues. As a result, we
expect Cost of revenues to decrease and we expect Operating
expenses to increase. The increase in Operating expenses will
more than offset the decrease in Cost of revenues because
placement fee arrangements are expensed on an estimated average
cost basis, while revenue-sharing arrangements are amortized
ratably over a one-year period, and because payments to OEMs
have increased.
Cash flows were strong in fiscal 2007 as we achieved
$1.7 billion in operating cash flow. We ended fiscal 2007
with $3.0 billion in cash, cash equivalents, and short-term
investments. In addition, during fiscal 2007 we repurchased
162 million shares of our common stock at prices ranging
from $15.61 to $21.66 per share for an aggregate amount of
$2.8 billion.
CRITICAL
ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements and
related notes in accordance with generally accepted accounting
principles requires us to make estimates, which include
judgments and assumptions, that affect the reported amounts of
assets, liabilities, revenue, and expenses, and related
disclosure of contingent assets and liabilities. We have based
our estimates on historical experience and on various
assumptions that we believe to be reasonable under the
circumstances. We evaluate our estimates on a regular basis and
make changes accordingly. Historically, our critical accounting
estimates have not differed materially from actual results;
however, actual results may differ from these estimates under
different conditions. If actual results differ from these
estimates and other considerations used in estimating amounts
reflected in our consolidated financial statements, the
resulting changes could have a material adverse effect on our
Consolidated Statements of Income, and in certain situations,
could have a material adverse effect on liquidity and our
financial condition.
33
A critical accounting estimate is based on judgments and
assumptions about matters that are uncertain at the time the
estimate is made. Different estimates that reasonably could have
been used or changes in accounting estimates could materially
impact the financial statements. We believe that the estimates
described below represent our critical accounting estimates, as
they have the greatest potential impact on our consolidated
financial statements. We also refer you to our Summary of
Significant Accounting Policies included in the Consolidated
Financial Statements in this annual report.
Revenue
Recognition
We recognize revenue in accordance with generally accepted
accounting principles that have been prescribed for the software
industry. Primarily, we recognize revenue pursuant to the
requirements of Statement of Position, or
SOP 97-2,
Software Revenue Recognition,, issued by the American
Institute of Certified Public Accountants, and any applicable
amendments or modifications. Revenue recognition requirements in
the software industry are very complex and require us to make
many estimates.
In arrangements that include multiple elements, including
perpetual software licenses and maintenance
and/or
services, and packaged products with content updates, we
allocate and defer revenue for the undelivered items based on
VSOE of the fair value of the undelivered elements, and
recognize the difference between the total arrangement fee and
the amount deferred for the undelivered items as revenue. Our
deferred revenue consists primarily of the unamortized balance
of enterprise product maintenance, consumer product content
updates, and arrangements where VSOE does not exist. Deferred
revenue totaled approximately $2.8 billion as of
March 31, 2007, of which $366 million was presented as
Long-term deferred revenue in the Consolidated Balance Sheets.
VSOE of each element is based on the price for which the
undelivered element is sold separately. We determine fair value
of the undelivered elements based on historical evidence of our
stand-alone sales of these elements to third parties or from the
stated renewal rate for the undelivered elements. When VSOE does
not exist for undelivered items such as maintenance, then the
entire arrangement fee is recognized ratably over the
performance period. Changes to the elements in a software
arrangement, the ability to identify VSOE for those elements,
the fair value of the respective elements, changes to a
products estimated life cycle, and increasing flexibility
in contractual arrangements could materially impact the amount
of recognized and deferred revenue.
For our consumer products that include content updates, we
recognize revenue ratably over the term of the subscription upon
sell through to end-users. Associated cost of revenues is also
recorded ratably. We record as deferred revenue and inventory
the respective revenue and cost of revenue amounts of unsold
product held by our distributors and resellers.
We expect our distributors and resellers to maintain adequate
inventory of consumer packaged products to meet future customer
demand, which is generally four or six weeks of customer demand
based on recent buying trends. We ship product to our
distributors and resellers at their request and based on their
valid purchase orders. Our distributors and resellers base the
quantity of their orders on their estimates to meet future
customer demand, which may exceed our expected level of a four
or six week supply. We offer limited rights of return if the
inventory held by our distributors and resellers is below the
expected level of a four or six week supply. We estimate future
returns under these limited rights of return in accordance with
SFAS No. 48, Revenue Recognition When Right of
Return Exists. We typically offer liberal rights of return
if inventory held by our distributors and resellers exceeds the
expected level. Because we cannot reasonably estimate the amount
of excess inventory that will be returned, we primarily offset
Deferred revenue against Trade accounts receivable for the
amount of revenue in excess of the expected inventory levels. If
we made different estimates, material differences may result in
the amount and timing of our net revenues and cost of revenues
for any period presented.
Reserves
for product returns
We reserve for estimated product returns as an offset to revenue
based primarily on historical trends. We fully reserve for
obsolete products in the distribution channels as an offset to
deferred revenue. If we made different estimates, material
differences could result in the amount and timing of our net
revenues for any period presented. More or less product may be
returned than what was estimated
and/or the
amount of inventory in the channel could
34
be different than what was estimated. These factors and
unanticipated changes in the economic and industry environment
could make actual results differ from our return estimates.
Reserves
for rebates
We estimate and record reserves for channel and end-user rebates
as an offset to revenue. For consumer products that include
content updates, rebates are recorded as a ratable offset to
revenue over the term of the subscription. Our estimated
reserves for channel volume incentive rebates are based on
distributors and resellers actual performance
against the terms and conditions of volume incentive rebate
programs, which are typically entered into quarterly. Our
reserves for end-user rebates are estimated based on the terms
and conditions of the promotional programs, actual sales during
the promotion, amount of actual redemptions received, historical
redemption trends by product and by type of promotional program,
and the value of the rebate. We also consider current market
conditions and economic trends when estimating our reserves for
rebates. If we made different estimates, material differences
may result in the amount and timing of our net revenues for any
period presented.
Business
Combinations
When we acquire businesses, we allocate the purchase price to
tangible assets and liabilities and identifiable intangible
assets acquired. Any residual purchase price is recorded as
goodwill. The allocation of the purchase price requires
management to make significant estimates in determining the fair
values of assets acquired and liabilities assumed, especially
with respect to intangible assets. These estimates are based on
historical experience and information obtained from the
management of the acquired companies. These estimates can
include, but are not limited to, the cash flows that an asset is
expected to generate in the future, the appropriate
weighted-average cost of capital, and the cost savings expected
to be derived from acquiring an asset. These estimates are
inherently uncertain and unpredictable. In addition,
unanticipated events and circumstances may occur which may
affect the accuracy or validity of such estimates.
At March 31, 2007, Goodwill was $10.3 billion, Other
intangible assets, net were $1.2 billion, and Acquired
product rights, net were $910 million. We assess goodwill
for impairment within our reporting units annually or more often
if events or changes in circumstances indicate that the carrying
value may not be recoverable. We evaluate goodwill for
impairment by comparing the fair value of each of our reporting
units, which are the same as our operating segments, to its
carrying value, including the goodwill allocated to that
reporting unit. To determine the reporting units fair
value in the current year evaluation, we used the income
approach under which we calculate the fair value of each
reporting unit based on the estimated discounted future cash
flows of that unit. Our cash flow assumptions are based on
historical and forecasted revenue, operating costs, and other
relevant factors. If managements estimates of future
operating results change, or if there are changes to other
assumptions, the estimate of the fair value of our goodwill
could change significantly. Such change could result in goodwill
impairment charges in future periods, which could have a
significant impact on our consolidated financial statements.
We assess the impairment of acquired product rights and other
identifiable intangible assets whenever events or changes in
circumstances indicate that an assets carrying amount may
not be recoverable. An impairment loss would be recognized when
the sum of the estimated future cash flows expected to result
from the use of the asset and its eventual disposition is less
than its carrying amount. Such impairment loss would be measured
as the difference between the carrying amount of the asset and
its fair value. Our cash flow assumptions are based on
historical and forecasted revenue, operating costs, and other
relevant factors. If managements estimates of future
operating results change, or if there are changes to other
assumptions, the estimate of the fair value of our acquired
product rights and other identifiable intangible assets could
change significantly. Such change could result in impairment
charges in future periods, which could have a significant impact
on our consolidated financial statements.
Accounting
for Excess Facilities
We have estimated expenses for excess facilities related to
consolidating, moving, and relocating personnel or sites as a
result of restructuring activities and business acquisitions. In
determining our estimates, we obtain information from third
party leasing agents to calculate anticipated third party
sublease income and the vacancy
35
period prior to finding a
sub-lessee.
Market conditions may affect our ability to sublease facilities
on terms consistent with our estimates. Our ability to sublease
facilities on schedule or to negotiate lease terms resulting in
higher or lower sublease income than estimated may affect our
accrual for site closures. In addition, differences between
estimated and actual related broker commissions, tenant
improvements, and related exit costs may increase or decrease
our accrual upon final negotiation. If we made different
estimates regarding these various components of our excess
facilities costs, the amount recorded for any period presented
could vary materially from those actually recorded.
Stock-based
Compensation
Effective April 1, 2006, we adopted the provisions of, and
accounted for stock-based compensation in accordance with,
SFAS No. 123R. Under SFAS No. 123R, we must
measure the fair value of all stock-based awards, including
stock options, restricted stock units, or RSUs, and purchase
rights under our employee stock purchase plan, or ESPP, on the
date of grant and amortize the fair value of the award over the
requisite service period. We elected the modified prospective
application method, under which prior periods are not revised
for comparative purposes. The valuation provisions of
SFAS No. 123R apply to new awards and to awards that
were outstanding as of the effective date and are subsequently
modified. For stock-based awards granted on or after
April 1, 2006, we recognize stock-based compensation
expense on a straight-line basis over the requisite service
period, which is generally the vesting period. We also recognize
estimated compensation expense for the unvested portion of
awards that were outstanding as of the effective date on a
straight-line basis over the remaining service period using the
compensation costs estimated for the SFAS No. 123 pro
forma disclosures.
We currently use the Black-Scholes option-pricing model to
determine the fair value of stock options. The determination of
the fair value of stock-based awards on the date of grant using
an option-pricing model is affected by our stock price as well
as assumptions regarding a number of complex and subjective
variables. These variables include our expected stock price
volatility over the term of the awards, actual and projected
employee stock option exercise behaviors, risk-free interest
rates, and expected dividends.
We estimate the expected life of options granted based on an
analysis of our historical experience of employee exercise and
post-vesting termination behavior considered in relation to the
contractual life of the option. Expected volatility is based on
the average of historical volatility for the period commensurate
with the expected life of the option and the implied volatility
of traded options. The risk free interest rate is equal to the
U.S. Treasury constant maturity rates for the period equal
to the expected life. We do not currently pay cash dividends on
our common stock and do not anticipate doing so in the
foreseeable future. Accordingly, our expected dividend yield is
zero. We are required to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. We estimate forfeitures
of options, RSUs, and ESPP purchase rights at the time of grant
based on historical experience and record compensation expense
only for those awards that are expected to vest. All stock-based
awards are amortized on a straight-line basis over the requisite
service periods of the awards, which are generally the vesting
periods.
If factors change and we employ different assumptions for
estimating stock-based compensation expense in future periods or
if we decide to use a different valuation model, the amount of
such expense recorded in future periods may differ significantly
from what we have recorded in the current period.
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable, characteristics not
present in our option grants. Existing valuation models,
including the Black-Scholes and lattice binomial models, may not
provide reliable measures of the fair values of our stock-based
compensation. Consequently, there is a risk that our estimates
of the fair values of our stock-based compensation awards on the
grant dates may bear little resemblance to the actual values
realized upon the exercise, expiration, early termination, or
forfeiture of those stock-based payments in the future. Certain
stock-based payments, such as employee stock options, may expire
worthless or otherwise result in zero intrinsic value as
compared to the fair values originally estimated on the grant
date and reported in our financial statements. Alternatively,
value may be realized from these instruments that is
significantly higher than the fair values originally estimated
on the grant date and reported in our financial statements.
36
The application of these principles may be subject to further
interpretation and refinement over time. There are significant
differences among valuation models, and there is a possibility
that we will adopt different valuation models in the future.
This may result in a lack of consistency in future periods and
materially affect the fair value estimate of stock-based
payments. It may also result in a lack of comparability with
other companies that use different models, methods, and
assumptions.
Stock-based compensation expense related to employee stock
options, RSUs, and employee stock purchases recognized under
SFAS No. 123R for the year ended March 31, 2007
was $154 million.
See Note 11 of the Notes to Consolidated Financial
Statements for further information regarding
SFAS No. 123R disclosures.
Income
Taxes
We are required to compute our income taxes in each federal,
state, and international jurisdiction in which we operate. This
process requires that we estimate the current tax exposure as
well as assess temporary differences between the accounting and
tax treatment of assets and liabilities, including items such as
accruals and allowances not currently deductible for tax
purposes. The income tax effects of the differences we identify
are classified as current or long-term deferred tax assets and
liabilities in our Consolidated Balance Sheets. Our judgments,
assumptions, and estimates relative to the current provision for
income tax take into account current tax laws, our
interpretation of current tax laws, and possible outcomes of
current and future audits conducted by foreign and domestic tax
authorities. Changes in tax laws or our interpretation of tax
laws and the resolution of current and future tax audits could
significantly impact the amounts provided for income taxes in
our Consolidated Balance Sheets and Consolidated Statements of
Income. We must also assess the likelihood that deferred tax
assets will be realized from future taxable income and, based on
this assessment, establish a valuation allowance, if required.
Our determination of our valuation allowance is based upon a
number of assumptions, judgments, and estimates, including
forecasted earnings, future taxable income, and the relative
proportions of revenue and income before taxes in the various
domestic and international jurisdictions in which we operate. To
the extent we establish a valuation allowance or change the
valuation allowance in a period, we reflect the change with a
corresponding increase or decrease to our tax provision in our
Consolidated Statements of Income, or to goodwill to the extent
that the valuation allowance related to tax attributes of the
acquired entities.
We failed to file in a timely fashion the final pre-acquisition
tax return for Veritas, and as a result, it is uncertain whether
we can claim a lower tax rate on a dividend made from a Veritas
foreign subsidiary under the American Jobs Creation Act of 2004.
We are currently petitioning the IRS for relief to allow us to
claim the lower rate of tax. Because we were unable to obtain
this relief prior to filing the Veritas tax return in May 2006,
we have paid $130 million of additional U.S. taxes.
The potential outcomes with respect to our payment of this
amount include:
|
|
|
|
|
If we ultimately obtain relief from the IRS on this matter, the
$130 million that we paid in May 2006 will be refunded to
us and we will use that amount to increase our income tax
accrual for the Veritas transfer pricing disputes. For more
information see Note 13 of the Notes to Consolidated
Financial Statements.
|
|
|
|
If we ultimately do not receive relief from the IRS on this
matter, and we otherwise have an adjustment arising from the
Veritas transfer pricing disputes, then we would only owe
additional tax with regard to such disputes to the extent that
such adjustment is in excess of $130 million.
|
|
|
|
If we ultimately do not receive relief from the IRS on this
matter, and we otherwise do not have an adjustment arising from
the Veritas transfer pricing disputes, then (1) we would be
required to adjust the purchase price of Veritas to reflect a
reduction in the amount of pre-acquisition tax liabilities
assumed; and (2) we would be required to recognize an equal
amount of income tax expense, up to $130 million.
|
In June 2006, the Financial Accounting Standards Board, or FASB,
issued Interpretation No., or FIN, 48, Accounting for
Uncertainty in Income Taxes an interpretation of
SFAS No. 109. The provisions of FIN 48 are
effective beginning in the first quarter of fiscal 2008. See
Newly Adopted and Recently Issued Accounting
Pronouncements under Summary of Significant Accounting
Policies included in the Consolidated Financial Statements
in this annual report for further discussion.
37
RESULTS
OF OPERATIONS
Total Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Net revenues
|
|
$
|
5,199,366
|
|
|
$
|
4,143,392
|
|
|
$
|
2,582,849
|
|
Period over period increase
|
|
|
1,055,974
|
|
|
|
1,560,543
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
60
|
%
|
|
|
|
|
We were required under purchase accounting rules to reduce the
amount of Veritas deferred revenue that we recorded in
connection with our July 2005 acquisition of Veritas to an
amount equal to the fair value of our contractual obligation
related to that deferred revenue. A portion of the increase in
revenue related to storage and availability products and
services in fiscal 2007 is due to the fact that the amount of
revenue recognized in fiscal 2006 was lower as a result of the
purchase accounting adjustment relating to deferred revenue. A
majority of the increase in such revenue in fiscal 2006 is due
to the fact that we had no such comparable revenue in fiscal
2005 for those storage and availability products and services
obtained through our acquisition of Veritas. Unless otherwise
specified, storage and availability products and
services include products and services obtained through
our acquisition of Veritas, and complementary products and
services obtained or developed subsequent to such acquisition.
Several factors have contributed to increased deferred revenue
and lower current period revenue in fiscal 2007. In fiscal 2007,
we began negotiating more transactions that commit customers to
multi-year periods, offer more flexibility in contractual terms
and in product deployments, and provide more services in
combination with license and maintenance sales. In the December
2006 quarter, we combined our buying programs for all of our
enterprise offerings to provide our customers and partners a
single vendor relationship and simplify the way we do business.
Previously, our storage and availability products and services
were sold under Veritas pre-merger buying programs, while
our security products and services were sold under our
historical buying programs. These factors have resulted in, and
will continue to result in, lower near-term recognized revenue
growth rates. For example, an increase in multi-year contracts
results in a higher level of revenue attributable to content
and/or
maintenance included in those transactions, which resulted in a
larger portion of our revenues being recognized ratably over the
term of the arrangement and a smaller portion being recognized
in the current period. More flexibility in contractual terms,
such as installment payments, increases our deferred revenue as
such flexibility may result in ratable recognition or
recognition on a due and payable basis.
Our customers have also requested increased flexibility in
product deployments in site license arrangements. This may
result in an increase in deferred revenue and classification of
all revenues associated with the specific contract as Content,
subscriptions, and maintenance revenue, which is recognized over
time, as VSOE may not exist in certain types of flexible
deployment contracts. As a result of our initiative to offer
customers a more comprehensive solution to protect and manage a
global IT infrastructure, we expect to see an increasing amount
of services sold in conjunction with license and maintenance
contracts. Inclusion of such services often results in increased
deferred revenue and increased classification of revenues as
Content, subscriptions, and maintenance revenue, as VSOE may not
exist for some of the services provided. The combination of
buying programs resulted in a change in the VSOE for some of our
storage and availability products and services. This change,
coupled with increased maintenance renewals sold with a license
component, resulted in a larger portion of revenues associated
with contracts being classified as Content, subscriptions, and
maintenance revenue, which is subject to deferral, instead of
Licenses revenue, which is generally recognized immediately.
Net revenues increased in fiscal 2007 as compared to fiscal 2006
primarily due to the inclusion of the storage and availability
products and services that were obtained through our acquisition
of Veritas for the full twelve months in the 2007 period
compared to nine months in the 2006 period. These products and
services contributed $518 million of net revenues in the
June 2006 quarter for which there was no comparable revenue in
the June 2005 quarter. In addition, the purchase accounting
adjustment contributed $271 million (cumulatively) in the
September 2006, December 2006, and March 2007 quarters as
compared to the comparable quarters of the prior year. The
38
remainder of the revenue increase is due to increases in our
consumer products revenue and services offerings of
$181 million and $83 million, respectively, due to
continued growth in demand. The segment discussions that follow
further describe the revenue increases. These increases are
partially offset by the effects of the increased flexibility in
contract terms and the combination of our buying programs
discussed above.
Net revenues increased in fiscal 2006 as compared to fiscal 2005
primarily due to the inclusion of the storage and availability
products and services obtained through our acquisition of
Veritas. These products and services contributed
$1.4 billion of net revenues in fiscal 2006 for which there
was no comparable revenue in fiscal 2005. In addition, revenues
from our enterprise security products increased
$122 million and revenues from our consumer products
increased $67 million in fiscal 2006 compared to fiscal
2005. The increased revenues from these products were due
primarily to continued growth in demand for our enterprise virus
protection and anti-spam solutions as well as our consumer
security protection products, as described further in the
segment discussions that follow. Beginning in the December 2005
quarter, as a result of increases in future subscription pricing
for our 2006 consumer products that include content updates,
revenue for these products is recognized on a ratable basis over
the term of the subscription.
Content,
subscriptions, and maintenance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Content, subscriptions, and
maintenance revenues
|
|
$
|
3,917,572
|
|
|
$
|
2,873,211
|
|
|
$
|
1,945,310
|
|
Percentage of total net revenues
|
|
|
75
|
%
|
|
|
69
|
%
|
|
|
75
|
%
|
Period over period increase
|
|
$
|
1,044,361
|
|
|
$
|
927,901
|
|
|
|
|
|
|
|
|
36
|
%
|
|
|
48
|
%
|
|
|
|
|
Content, subscriptions, and maintenance revenue includes
arrangements for software maintenance and technical support for
our products, content and subscription services primarily
related to our security products, revenue from arrangements
where VSOE of the fair value of undelivered elements does not
exist, and managed security services. These arrangements are
generally offered to our customers over a specified period of
time and we recognize the related revenue ratably over the
maintenance, subscription, or service period. Beginning with the
release of our 2006 consumer products that include content
updates in the December 2005 quarter, we recognize revenue
related to these products ratably. As a result, this revenue has
been classified as Content, subscriptions, and maintenance
beginning in the December 2005 quarter. In addition, as noted
above, increased flexibility in contract terms and the
combination of our buying programs in the December 2006 quarter
have impacted revenue recognition. These changes caused a larger
portion of revenue associated with contracts to be classified as
Content, subscriptions, and maintenance revenue, which is
subject to deferral, instead of Licenses revenue, which is
generally recognized immediately, as discussed above in
Total Net Revenues.
Content, subscriptions, and maintenance revenue also includes
professional services revenue, which consists primarily of the
fees we earn related to consulting and educational services. We
generally recognize revenue from our professional services as
the services are performed or upon written acceptance from
customers, if applicable, assuming all other conditions for
revenue recognition have been met.
Content, subscriptions, and maintenance revenues increased in
fiscal 2007 as compared to fiscal 2006 primarily due to the
inclusion of the storage and availability products and services
obtained through our acquisition of Veritas for the full twelve
months in the 2007 period compared to nine months in the 2006
period. These products and services contributed
$250 million of Content, subscriptions, and maintenance
revenues in the June 2006 quarter for which there was no
comparable revenue in the June 2005 quarter. In addition, in
fiscal 2007, Content, subscriptions, and maintenance revenue
related to our enterprise products increased $271 million
due to the fact that the amount of revenue recognized in the
comparable 2006 period was lower as a result of the purchase
accounting adjustment discussed under Total Net
Revenues above. Revenue related to our consumer products
increased $179 million as compared to the 2006 period due
primarily to growth in Norton Internet Security products and
online revenues due to growth in the use of the Internet, and
increased awareness and sophistication of security threats.
Enterprise products and services, excluding Veritas-related
products and services, increased $309 million as
39
a result of growth in our maintenance renewals due to an
increasing installed base, increased demand for our service
offerings, other acquisitions, and the combination of our buying
programs implemented in the December 2006 quarter, which
impacted VSOE methodology and classification of Licenses revenue
and Content, subscriptions, and maintenance revenue, as
discussed above under Total Net Revenues.
Content, subscriptions, and maintenance revenues increased in
fiscal 2006 as compared to fiscal 2005 primarily due to the
inclusion of the storage and availability products and services
obtained through our acquisition of Veritas. These product and
services contributed $534 million of Content,
subscriptions, and maintenance revenues in fiscal 2006 for which
there was no comparable revenue in fiscal 2005. In addition, in
fiscal 2006, Content, subscriptions, and maintenance revenues
related to our consumer security products increased
$233 million as compared to fiscal 2005 due primarily to
the classification of $160 million of consumer revenue as
Content, subscriptions, and maintenance (rather than Licenses)
in fiscal 2006 as a result of recognizing revenue from sales of
consumer products that include content updates ratably beginning
in the December 2005 quarter as discussed above. Revenue related
to our enterprise security products increased $133 million,
primarily due to increased awareness of information security
threats.
Licenses
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Licenses revenue
|
|
$
|
1,281,794
|
|
|
$
|
1,270,181
|
|
|
$
|
637,539
|
|
Percentage of total net revenues
|
|
|
25
|
%
|
|
|
31
|
%
|
|
|
25
|
%
|
Period over period increase
(decrease)
|
|
$
|
11,613
|
|
|
$
|
632,642
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
99
|
%
|
|
|
|
|
Licenses revenue increased in fiscal 2007 as compared to fiscal
2006 primarily due to the inclusion of the storage and
availability products obtained through our acquisition of
Veritas for the full twelve months in the 2007 period compared
to nine months in the 2006 period. These products contributed
$268 million of Licenses revenues in the June 2006 quarter
for which there was no comparable revenue in the June 2006
quarter. Excluding this June 2006 contribution, License revenues
were down significantly in both Security and Data Management and
Data Center Management segments as a result of the increased
flexibility in contract terms and the combination of our buying
programs implemented in the December 2006 quarter, both of which
caused a larger portion of contracts to be classified as
Content, subscriptions, and maintenance, which is subject to
deferral, instead of Licenses revenue, which is generally
recognized immediately, as discussed above in Total Net
Revenues.
Licenses revenue increased in fiscal 2006 as compared to fiscal
2005 primarily due to the inclusion of the storage and
availability products obtained through our acquisition of
Veritas. These products contributed $835 million of
Licenses revenue in fiscal 2006 for which there was no
comparable revenue in fiscal 2005. Our 2006 consumer products
that include content updates were released in the December 2005
quarter, and we recognize revenue related to these products
ratably as Content, subscriptions, and maintenance revenues,
which resulted in a decrease in Licenses revenue of
$160 million in fiscal 2006. Competitive pressures, a lack
of high profile information security threat activity during
fiscal 2006, and to a lesser extent, a decrease in licensing of
our enterprise security products, also partially offset the
overall increase in Licenses revenue.
Net
revenues by segment
Consumer
Products segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Consumer products revenues
|
|
$
|
1,590,529
|
|
|
$
|
1,409,582
|
|
|
$
|
1,343,059
|
|
Percentage of total net revenues
|
|
|
30
|
%
|
|
|
34
|
%
|
|
|
52
|
%
|
Period over period increase
|
|
$
|
180,947
|
|
|
$
|
66,523
|
|
|
|
|
|
|
|
|
13
|
%
|
|
|
5
|
%
|
|
|
|
|
40
Consumer Products revenues increased in fiscal 2007 as compared
to fiscal 2006 primarily due to an increase of $293 million
in revenue from our Norton Internet Security products. This
increase was partially offset by aggregate decreases in revenue
from our Norton AntiVirus and Norton System
Workstm
products of $100 million. These decreases resulted from our
customers continued migration to the Norton Internet
Security products, which offer broader protection to address the
rapidly changing threat environment. Our electronic orders
include OEM subscriptions, upgrades, online sales, and renewals.
Revenue from electronic orders (which includes sales of our
Norton Internet Security products and our Norton AntiVirus
products) grew by $221 million in fiscal 2007 as compared
to fiscal 2006.
Consumer Products revenues increased in fiscal 2006 as compared
to fiscal 2005 primarily due to an increase of $156 million
in revenue from our Norton Internet Security products. The
majority of the increase in revenue was booked through
electronic orders. This increase was partially offset by the
change in our consumer product revenue recognition model for our
2006 consumer products that include content updates. Beginning
in the December 2005 quarter, as a result of increases in future
subscription pricing for our 2006 consumer products that include
content updates, revenue for these products is recognized
ratably over the term of the subscription upon sell through to
end-users. This change in our product revenue recognition model
resulted in a 7% reduction in Consumer Products revenues for
fiscal 2006. In addition, revenue from our Norton AntiVirus
products decreased $67 million as our customers migrated to
the Norton Internet Security products. Revenue from our
electronic distribution channel grew by $168 million in
fiscal 2006 as compared to fiscal 2005. We believe that, in
addition to the factors noted above, the lower growth rate in
our Consumer Products segment was attributable to a reduced
threat environment in fiscal 2006 compared to fiscal 2005. In
addition, during fiscal 2006, pricing for subscriptions
increased while pricing in retail and online stores remained
consistent or decreased.
Security
and Data Management Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Security and Data Management
revenues
|
|
$
|
2,004,690
|
|
|
$
|
1,720,646
|
|
|
$
|
1,199,406
|
|
Percentage of total net revenues
|
|
|
39
|
%
|
|
|
41
|
%
|
|
|
46
|
%
|
Period over period increase
|
|
|
284,044
|
|
|
|
521,240
|
|
|
|
|
|
|
|
|
17
|
%
|
|
|
43
|
%
|
|
|
|
|
Security and Data Management revenues increased in fiscal 2007
as compared to fiscal 2006 primarily due to the inclusion of the
storage and availability products obtained through our
acquisition of Veritas for the full twelve months in the 2007
period compared to nine months in the 2006 period. These
products contributed $151 million of Security and Data
Management revenue in the June 2006 quarter for which there was
no comparable revenue in the June 2005 quarter. In addition the
purchase accounting adjustment, discussed under Total Net
Revenues above, contributed $88 million
(cumulatively) in the September 2006, December 2006, and March
2007 quarters as compared to the comparable quarters of the
prior year. In addition, revenues increased $40 million in
fiscal 2007 as a result of acquisitions, excluding Veritas, for
which there was not a full twelve months of revenue or no
comparable revenue in fiscal 2006.
Security and Data Management revenues increased in fiscal 2006
as compared to fiscal 2005 primarily due to the inclusion of the
storage and availability products obtained through our
acquisition of Veritas. These products contributed
$410 million of Security and Data Management revenues
during fiscal 2006 for which there was no comparable revenue in
fiscal 2005. In addition, revenue increased $110 million as
a result of growth from our enterprise security products.
41
Data
Center Management Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Data Center Management revenues
|
|
$
|
1,369,287
|
|
|
$
|
861,046
|
|
|
$
|
|
|
Percentage of total net revenues
|
|
|
26
|
%
|
|
|
21
|
%
|
|
|
*
|
%
|
Period over period increase
|
|
$
|
508,241
|
|
|
$
|
861,046
|
|
|
|
|
|
|
|
|
59
|
%
|
|
|
*
|
%
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
The Data Center Management segment is comprised of storage and
availability products. The increase in Data Center Management
revenue in fiscal 2007 as compared to fiscal 2006 was primarily
due to the inclusion of storage and availability products
obtained through our acquisition of Veritas for the full twelve
month period compared to nine months in the fiscal 2006 period.
These products contributed $339 million of Data Center
Management revenue in the June 2006 quarter for which there was
no comparable revenue in the June 2005 quarter. The effect of
the purchase accounting adjustment discussed under Total
Net Revenues above also contributed $173 million to
the increase in revenue in fiscal 2007. Excluding the effects of
the aforementioned items, revenue in fiscal 2007 as compared to
fiscal 2006 was relatively flat due to the combination of the
buying programs for all of our enterprise offerings in the
December 2006 quarter. This combination resulted in lower
recognized revenue and increased deferred revenue as discussed
under Total Net Revenues above.
In fiscal 2006, the Data Center Management segment was solely
comprised of the storage and availability products obtained
through our acquisition of Veritas. Revenue from our Data Center
Management segment was $861 million in fiscal 2006 and was
comprised primarily of revenue related to Storage Foundation and
Server Foundation product families and NetBackup products of
$501 million and $332 million, respectively.
Services
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Services revenues
|
|
$
|
234,738
|
|
|
$
|
152,091
|
|
|
$
|
40,261
|
|
Percentage of total net revenues
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
Period over period increase
|
|
$
|
82,647
|
|
|
$
|
111,830
|
|
|
|
|
|
|
|
|
54
|
%
|
|
|
*
|
%
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
Revenue from our Services segment increased in fiscal 2007 as
compared to fiscal 2006 due to a $58 million increase in
security consulting services and the inclusion of the storage
and availability services obtained through our acquisition of
Veritas for the full twelve months in the 2007 period compared
to nine months in the 2006 period. These acquired services
offerings contributed $28 million of Services revenues in
the June 2006 quarter for which there was no comparable revenue
in the June 2005 quarter.
The increase in revenue from our Services segment in fiscal 2006
as compared to fiscal 2005 was primarily due to the inclusion of
the storage and availability services obtained through our
acquisition of Veritas. These services contributed
$94 million of services revenues during fiscal 2006 for
which there was no comparable revenue in fiscal 2005. In
addition, the increase was due to an increase in our security
consulting services of $13 million in fiscal 2006 as
compared to fiscal 2005.
Other
segment
Our Other segment is comprised primarily of sunset products and
products nearing the end of their life cycle. Revenues from the
Other segment during fiscal 2007, 2006, and 2005 were
insignificant.
42
Net
revenues by geographic region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
North America (U.S. and Canada)
|
|
$
|
2,736,558
|
*
|
|
$
|
2,185,945
|
**
|
|
$
|
1,334,707
|
***
|
Percentage of total net revenues
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
52
|
%
|
Period over period increase
|
|
$
|
550,613
|
|
|
$
|
851,238
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
64
|
%
|
|
|
|
|
EMEA (Europe, Middle East, and
Africa)
|
|
$
|
1,644,177
|
|
|
$
|
1,321,968
|
|
|
$
|
842,189
|
|
Percentage of total net revenues
|
|
|
31
|
%
|
|
|
32
|
%
|
|
|
33
|
%
|
Period over period increase
|
|
$
|
322,209
|
|
|
$
|
479,779
|
|
|
|
|
|
|
|
|
24
|
%
|
|
|
57
|
%
|
|
|
|
|
Asia Pacific/Japan
|
|
$
|
714,617
|
|
|
$
|
563,487
|
|
|
$
|
360,342
|
|
Percentage of total net revenues
|
|
|
14
|
%
|
|
|
13
|
%
|
|
|
14
|
%
|
Period over period increase
|
|
$
|
151,130
|
|
|
$
|
203,145
|
|
|
|
|
|
|
|
|
27
|
%
|
|
|
56
|
%
|
|
|
|
|
Latin America
|
|
$
|
104,014
|
|
|
$
|
71,992
|
|
|
$
|
45,611
|
|
Percentage of total net revenues
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Period over period increase
|
|
$
|
32,022
|
|
|
$
|
26,381
|
|
|
|
|
|
|
|
|
44
|
%
|
|
|
58
|
%
|
|
|
|
|
Total net revenues
|
|
$
|
5,199,366
|
|
|
$
|
4,143,392
|
|
|
$
|
2,582,849
|
|
|
|
|
* |
|
North America includes net revenues from the United States of
$2.6 billion and Canada of $176 million during fiscal
2007. |
|
** |
|
North America includes net revenues from the United States of
$2.0 billion and Canada of $140 million during fiscal
2006. |
|
*** |
|
North America includes net revenues from the United States of
$1.2 billion and Canada of $99 million during fiscal
2005. |
International revenues increased in fiscal 2007 as compared to
fiscal 2006 primarily due to the inclusion of the storage and
availability products and services obtained through our
acquisition of Veritas for the full twelve months in the 2007
period compared to nine months in the 2006 period. These
products and services contributed $240 million of
international revenues in the June 2006 quarter for which there
was no comparable revenue in the June 2005 quarter. In North
America, these products contributed $277 million in the
June 2006 quarter for which there was no comparable revenue in
the June 2005 quarter. In addition, a portion of the revenue
increase in fiscal 2007 is due to the fact that the amount of
revenue recognized in the comparable 2006 period was lower as a
result of the purchase accounting adjustment discussed under
Total Net Revenues above. The purchase accounting
adjustment increased fiscal 2007 revenues by $186 million
in North America and $85 million in the international
regions compared to fiscal 2006. Growth in our Consumer Products
segment, driven by Norton Internet Security, resulted in a
$137 million increase in the international regions and a
$44 million increase in North America in fiscal 2007
revenues versus fiscal 2006. Both domestic and international
revenue from enterprise offerings were negatively impacted
primarily due to the increased flexibility in our contract terms
and the combination of our buying programs. These changes
resulted in a larger portion of contracts being subject to
deferral and a correspondingly lower amount of revenue
recognized in the current period, as discussed in Total
Net Revenues above. Foreign currencies had a favorable
impact on net revenues of $105 million in fiscal 2007
compared to fiscal 2006.
International revenues increased in fiscal 2006 as compared to
fiscal 2005 primarily due to the inclusion of the storage and
availability products and services obtained through our
acquisition of Veritas. These product and services contributed
$661 million of international revenues for which there was
no comparable revenue in fiscal 2005. Increased sales of our
Norton Internet Security products in our Consumer Products
segment and our antivirus
43
and antispam products in our Security and Data Management
segment also contributed to the increase in net revenue in the
international regions in fiscal 2006, while the change to
ratable revenue recognition with the release of the 2006
consumer products that include content updates partially offset
this increase. Weakness in most major foreign currencies
negatively impacted our international revenue growth by
$48 million in fiscal 2006 as compared to fiscal 2005.
We are unable to predict the extent to which revenues in future
periods will be impacted by changes in foreign currency exchange
rates. If international sales become a greater portion of our
total sales in the future, changes in foreign currency exchange
rates may have a potentially greater impact on our revenues and
operating results.
Cost of
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Cost of revenues
|
|
|
1,215,826
|
|
|
$
|
981,869
|
|
|
$
|
452,109
|
|
Gross margin
|
|
|
77
|
%
|
|
|
76
|
%
|
|
|
82
|
%
|
Period over period increase
|
|
|
233,957
|
|
|
$
|
529,760
|
|
|
|
|
|
|
|
|
24
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
Cost of revenues consists primarily of amortization of acquired
product rights, fee-based technical support costs, costs of
billable services, payments to OEMs under revenue-sharing
arrangements, manufacturing and direct material costs, and
royalties paid to third parties under technology licensing
agreements.
Gross margin increased in fiscal 2007 as compared to fiscal 2006
due primarily to higher revenues more than offsetting year over
year increases in services and technical support costs. We
anticipate that our net revenues from our Services segment may
grow to comprise a higher percentage of our total net revenues,
which would have a negative impact on our gross margin, as our
services typically have a higher cost of revenues than our
software products. Gross margin was also impacted as the terms
of several of our OEM arrangements changed from revenue-sharing
arrangements to placement fee arrangements during fiscal 2007.
Placement fee arrangements are expensed on an estimated average
cost basis, while revenue-sharing arrangements are amortized
ratably over a one-year period.
Gross margin decreased in fiscal 2006 as compared to fiscal 2005
due primarily to increased amortization of acquired product
rights resulting from certain identifiable intangible assets
acquired through the Veritas acquisition. Costs for services and
technical support also increased in fiscal 2006 as compared to
fiscal 2005. These increases were partially offset by ratable
recognition of costs for 2006 consumer products that include
content updates, which are recognized ratably over the term of
the license beginning in the December 2005 quarter.
Cost
of content, subscriptions, and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Cost of content, subscriptions,
and maintenance
|
|
$
|
823,525
|
|
|
$
|
621,636
|
|
|
$
|
351,077
|
|
As a % of related revenue
|
|
|
21
|
%
|
|
|
22
|
%
|
|
|
18
|
%
|
Period over period increase
|
|
$
|
201,889
|
|
|
$
|
270,559
|
|
|
|
|
|
|
|
|
32
|
%
|
|
|
77
|
%
|
|
|
|
|
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 remained
relatively constant as a percentage of the related revenue in
fiscal 2007 as compared to fiscal 2006. The year over year
increase in costs is primarily driven by sales of products
acquired through the Veritas acquisition, which contributed
$98 million of incremental costs in fiscal 2007
44
relative to fiscal 2006 and contributed 28% of the related
Content, subscriptions, and maintenance revenue in fiscal 2007.
In addition, costs related to our security services consulting
and consumer products increased $34 million and
$37 million, respectively.
We expect our gross margin and operating expenses to be affected
in future periods as a result of recent changes in the terms of
some of our key OEM relationships. We have negotiated new
contract terms with some of our OEM partners which will have the
effect of moving our OEM payments from Cost of revenues to
Operating expenses. Our past OEM payments were primarily
revenue-sharing arrangements, which were amortized to Cost of
revenues over a one-year period. Several of the arrangements
negotiated in late fiscal 2007 are placement fee arrangements,
for which the costs are expensed on an estimated average cost
basis.
Cost of content, subscriptions, and maintenance increased as a
percentage of the related revenue in fiscal 2006 as compared to
fiscal 2005 due primarily to sales of products acquired through
the Veritas acquisition, which contributed $228 million of
additional costs and contributed 43% of the related Content,
subscriptions, and maintenance revenue in fiscal 2006. In
addition, costs related to our security services consulting
segment and enterprise security products increased
$21 million and $13 million, respectively.
Cost
of licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Cost of licenses
|
|
$
|
49,968
|
|
|
$
|
45,943
|
|
|
$
|
52,138
|
|
As a % of related revenue
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
8
|
%
|
Period over period increase
(decrease)
|
|
$
|
4,025
|
|
|
$
|
(6,195
|
)
|
|
|
|
|
|
|
|
9
|
%
|
|
|
(12
|
)%
|
|
|
|
|
Cost of licenses consists primarily of royalties paid to third
parties under technology licensing agreements and manufacturing
and direct material costs. Cost of licenses remained constant as
a percentage of the related revenue in fiscal 2007 as compared
to fiscal 2006. The year over year increase in absolute dollars
is primarily due to amortization of stock-based compensation
expense, offset in part by lower costs associated with products
acquired through the Veritas acquisition, which added
$9 million of costs in fiscal 2007 and $13 million in
fiscal 2006.
Cost of licenses decreased as a percentage of the related
revenue in fiscal 2006 as compared to fiscal 2005 due primarily
to lower costs associated with products acquired through the
Veritas acquisition. The Veritas acquisition added
$13 million of costs in fiscal 2006, which was offset by a
$17 million decrease in consumer products license costs as
compared to fiscal 2005. These costs and the associated revenue
are reported as Content, subscriptions, and maintenance
beginning with the release of our 2006 consumer products in the
December 2005 quarter that include content updates, as we now
recognize the revenue and related costs ratably over the content
update period.
Amortization
of acquired product rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Amortization of acquired product
rights
|
|
$
|
342,333
|
|
|
$
|
314,290
|
|
|
$
|
48,894
|
|
Percentage of total net revenues
|
|
|
7
|
%
|
|
|
8
|
%
|
|
|
2
|
%
|
Period over period increase
|
|
$
|
28,043
|
|
|
$
|
265,396
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
Acquired product rights are comprised of developed technologies,
revenue-related order backlog and contracts, and patents from
acquired companies.
The amortization in fiscal 2007 and 2006 is primarily associated
with the Veritas acquisition, for which amortization began in
July 2005. In connection with the Veritas acquisition, we
recorded $1.3 billion in acquired
45
product rights which are being amortized over their expected
useful lives of three months to five years. We amortize the fair
value of all other acquired product rights over their expected
useful lives, generally one to eight years. For further
discussion of acquired product rights and related amortization,
see Notes 3 and 4 of the Notes to Consolidated Financial
Statements.
Operating
Expenses
Sales
and marketing expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Sales and marketing
|
|
$
|
2,007,651
|
|
|
$
|
1,499,904
|
|
|
$
|
845,022
|
|
Percentage of total net revenues
|
|
|
39
|
%
|
|
|
36
|
%
|
|
|
33
|
%
|
Period over period increase
|
|
$
|
507,747
|
|
|
$
|
654,882
|
|
|
|
|
|
|
|
|
34
|
%
|
|
|
77
|
%
|
|
|
|
|
Sales and marketing expense as a percentage of total revenues
increased to 39% in fiscal 2007 as compared to 36% in fiscal
2006. The percentage increase and increase in absolute dollars
in sales and marketing expenses in fiscal 2007 as compared to
fiscal 2006 is primarily due to higher employee compensation
expense of approximately $335 million resulting from an
increase in employee headcount. Higher employee compensation
expense includes the effect of adopting of
SFAS No. 123R, which added $56 million of
stock-based compensation expense in fiscal 2007 for which there
is no comparable expense in fiscal 2006. In addition,
approximately $171 million of the increase is due to an
additional three months of sales and marketing expenses related
to the Veritas acquisition, which is included for the full year
of fiscal 2007 as compared to nine months in fiscal 2006.
Advertising expense increased by approximately $129 million
in fiscal 2007 as compared to fiscal 2006 primarily as a result
of changes in our OEM arrangements discussed below.
Sales and marketing expense as a percentage of total revenues
increased to 36% in fiscal 2006 as compared to 33% in fiscal
2005. The percentage increase and increase in absolute dollars
in sales and marketing expenses in fiscal 2006 as compared to
fiscal 2005 was due primarily to the Veritas acquisition, which
contributed $579 million in additional sales and marketing
expenses for which there were no comparable expenses in fiscal
2005. The remaining increase in sales and marketing expenses was
due primarily to an increase in employee headcount, resulting in
additional employee compensation expense.
We have negotiated new contract terms with some of our OEM
partners which will have the effect of moving our OEM payments
from Cost of revenues to Operating expenses, as discussed above
under Financial Results and Trends. As a result, we
expect our Sales and marketing expenses to increase.
Research
and development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Research and development
|
|
$
|
866,882
|
|
|
$
|
682,125
|
|
|
$
|
334,046
|
|
Percentage of total net revenues
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
13
|
%
|
Period over period increase
|
|
$
|
184,757
|
|
|
$
|
348,079
|
|
|
|
|
|
|
|
|
27
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
Research and development expense as a percentage of total
revenues remained relatively constant in fiscal 2007 and fiscal
2006. The increase in absolute dollars in research and
development expenses in fiscal 2007 as compared to fiscal 2006
was due primarily to higher employee compensation expense of
approximately $108 million resulting from an increase in
employee headcount. Higher employee compensation expense
includes the effect of adopting of SFAS No. 123R,
which added $57 million of stock-based compensation expense
in fiscal
46
2007 for which there is no comparable expense in fiscal 2006. In
addition, approximately $96 million of the increase is due
to an additional three months of research and development
expenses related to the Veritas acquisition, which is included
for the full year of fiscal 2007 as compared to nine months in
fiscal 2006.
Research and development expense as a percentage of total
revenues increased to 16% in fiscal 2006 as compared to 13% in
fiscal 2005. The percentage increase and increase in absolute
dollars in research and development expenses in fiscal 2006 as
compared to fiscal 2005 was due primarily to the Veritas
acquisition, which contributed $320 million in additional
research and development expenses for which there were no
comparable expenses in fiscal 2005.
General
and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
General and administrative
|
|
$
|
316,783
|
|
|
$
|
228,563
|
|
|
$
|
116,865
|
|
Percentage of total net revenues
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
Period over period increase
|
|
$
|
88,220
|
|
|
$
|
111,698
|
|
|
|
|
|
|
|
|
39
|
%
|
|
|
96
|
%
|
|
|
|
|
General and administrative expense as a percentage of total
revenues was relatively constant in fiscal 2007 and fiscal 2006.
The increase in absolute dollars in general and administrative
expenses in fiscal 2007 as compared to fiscal 2006 was due
primarily to higher employee compensation expense of
approximately $73 million resulting from an increase in
employee headcount. Higher employee compensation includes the
effect of adopting SFAS No. 123R, which added
$24 million of stock-based compensation expense in fiscal
2007 for which there is no comparable expense in fiscal 2006. In
addition, approximately $20 million of the increase is due
to an additional three months of general and administrative
expenses related to the Veritas acquisition, which are included
for the full year in fiscal 2007 as compared to nine months in
fiscal 2006.
General and administrative expense as a percentage of total
revenues increased slightly in fiscal 2006 as compared to fiscal
2005. The increase in absolute dollars in general and
administrative expenses in fiscal 2006 as compared to fiscal
2005 was due primarily to the Veritas acquisition, which
contributed $81 million in additional general and
administrative expenses for which there were no comparable
expenses in fiscal 2005. The remaining increase in general and
administrative expenses was due primarily to an increase in
employee headcount, resulting in additional employee
compensation expense.
Amortization
of other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Amortization of other intangible
assets
|
|
$
|
201,502
|
|
|
$
|
148,822
|
|
|
$
|
5,416
|
|
Percentage of total net revenues
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
*
|
|
Period over period increase
|
|
$
|
52,680
|
|
|
$
|
143,406
|
|
|
|
|
|
|
|
|
35
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
Other intangible assets are comprised of customer base, trade
names, partnership agreements, and marketing-related assets. The
increased amortization in fiscal 2007 is primarily associated
with a full year of amortization associated with the Veritas
acquisition which occurred in July 2005 and the acquisitions of
Company-i Limited and 4FrontSecurity, Inc. that occurred during
fiscal 2007. We recorded $9 million of other intangible
assets associated with the Company-i and 4FrontSecurity,
acquisitions which will be amortized over their useful lives of
one to eight years.
47
The increased amortization in fiscal 2006 is primarily
associated with the Veritas acquisition, for which amortization
began in July 2005. In connection with the Veritas acquisition,
we recorded $1.5 billion in other intangible assets which
will be amortized over their useful lives of eight to ten years.
For further discussion of other intangible assets from
acquisitions and related amortization, see Notes 3 and 4 of
the Notes to Consolidated Financial Statements.
Acquired
in-process research and development (IPR&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Acquired in-process research and
development
|
|
$
|
|
|
|
$
|
285,100
|
|
|
$
|
3,480
|
|
During fiscal 2006, we wrote off IPR&D totaling
$285 million, of which $284 million was in connection
with our acquisition of Veritas. The IPR&D was written off
because the acquired technologies had not reached technological
feasibility and had no alternative uses. Technological
feasibility is defined as being equivalent to completion of a
beta-phase working prototype in which there is no remaining risk
relating to the development. At the time of the acquisition in
July 2005, Veritas was developing new products in multiple
product areas that qualify as IPR&D. These efforts included
NetBackup 6.1, Backup Exec 11.0, Server Management 5.0, and
various other projects. At the time of the acquisition, it was
estimated that these IPR&D development efforts would be
completed over the following 12 to 18 months at an
estimated total cost of $120 million. As of March 31,
2007, the majority of all IPR&D projects had been completed
on schedule and within expected costs, except for one small
project which is expected to be completed within the next
six months.
In fiscal 2005, we wrote off $3 million of IPR&D in
connection with our acquisition of Brightmail. The Brightmail
IPR&D related to the third generation of Brightmails
antispam product offering.
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Restructuring
|
|
$
|
70,236
|
|
|
$
|
24,918
|
|
|
$
|
2,776
|
|
In fiscal 2007, we recorded approximately $70 million of
restructuring and employee termination benefit expenses which
consist of $19 million related to severance, associated
benefits, and outplacement services for the termination of
approximately 323 employees located in the Americas, Europe and
Asia Pacific and $51 million dollars related to the 2007
cost savings initiative announced in January 2007. We
implemented the 2007 cost savings initiative to better align our
expenses with our new revenue expectations. The costs included
in our 2007 cost savings initiative reflect $51 million
related to severance, associated benefits, and outplacement
services and an insignificant amount related to excess
facilities. The restructuring and employee termination benefit
costs under the 2007 cost savings initiative reflect the
termination of approximately 988 employees located in the
Americas, Europe, and Asia Pacific and the consolidation of
certain facilities in Europe and Asia Pacific. We paid
$24 million under the restructuring and employee
termination benefit reserves established in fiscal 2007. We
expect the remainder of the costs to be paid by the end of
fiscal 2008. We expect that the 2007 cost savings initiative
will result in an additional restructuring charge in the first
quarter of fiscal 2008 and potentially in other future periods.
In fiscal 2006, we recorded $25 million of restructuring
costs, of which $18 million related to severance,
associated benefits, and outplacement services and
$7 million related to excess facilities. These
restructuring costs reflect the termination of 446 redundant
employees located in the Americas, Europe, and Asia Pacific and
the consolidation of certain facilities in Europe and Asia
Pacific. At March 31, 2006, $9 million remained
related to this reserve. In fiscal 2007, we paid $4 million
related to this restructuring reserve. At March 31, 2007,
$5 million remained related to this reserve, the majority
of which relate to restructured facilities. We expect the
remainder of the costs to be paid by the end of fiscal 2018.
In fiscal 2005, we recorded $3 million of restructuring
charges, of which $2 million was for costs of severance,
related benefits, and outplacement services related to the
termination of 51 employees located in the U.S. and
48
Europe due to the consolidation and relocation of engineering
and development functions. In addition we recorded an increase
to the accrual relating to the fiscal 2002 restructuring plan of
$1 million due to the termination of a sublease agreement
for facilities in Eugene, Oregon. Substantially all of the costs
had been paid by March 31, 2005.
Integration
In fiscal 2007, we recorded $1 million of integration
charges in connection with our April 2007 acquisition of
Altiris. These integration charges consisted of costs incurred
for consulting services and other professional fees. We expect
to incur additional integration costs related to Altiris in
fiscal 2008. In connection with our acquisition of Veritas, we
recorded integration costs of $16 million in fiscal 2006
and $3 million in fiscal 2005, which consisted primarily of
costs incurred for consulting services and other professional
fees.
Patent
settlement
On May 12, 2005, we resolved patent litigation matters with
Altiris, Inc. by entering into a cross-licensing agreement that
resolved all legal claims between the companies. As part of the
settlement, we paid Altiris $10 million for use of the
disputed technology. Under the transaction, we expensed
$2 million of patent settlement costs in the June 2005
quarter that was related to benefits received in and prior to
the June 2005 quarter. The remaining $8 million was
recorded as Acquired product rights in the Consolidated Balance
Sheets and is being amortized to Cost of revenues in the
Consolidated Statements of Income over the remaining life of the
primary patent, which expires in May 2017. In April 2007, we
acquired Altiris. See Note 17 of the Notes to Consolidated
Financial Statements for more information.
Non-operating
Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Interest income
|
|
$
|
122,043
|
|
|
$
|
108,404
|
|
|
$
|
50,195
|
|
Interest expense
|
|
|
(27,233
|
)
|
|
|
(17,996
|
)
|
|
|
(12,323
|
)
|
Other income (expense), net
|
|
|
17,070
|
|
|
|
(1,650
|
)
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
111,880
|
|
|
$
|
88,758
|
|
|
$
|
38,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total net revenues
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Period over period increase
|
|
$
|
23,122
|
|
|
$
|
49,896
|
|
|
|
|
|
|
|
|
26
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
* |
|
Percentage not meaningful |
The increase in Interest income in fiscal 2007 as compared to
fiscal 2006 was due primarily to a higher average investment
balance and higher average interest rates realized on our
invested cash and
available-for-sale
securities. The increase in Interest income in fiscal 2006 as
compared to fiscal 2005 was due primarily to a higher average
investment balance, due to the cash acquired through the Veritas
acquisition, and higher average interest rates.
Interest expense in fiscal 2007 was due primarily to the
interest and amortization of issuance costs related to our 0.75%
and 1.00% Convertible Senior Notes issued in June 2006. In
addition, the period includes interest and accretion related to
the 0.25% Convertible Subordinated Notes that we assumed in
connection with our acquisition of Veritas. The 0.25% Veritas
Convertible Subordinated Notes were paid in full during August
2006. Interest expense in fiscal 2006 was due primarily to the
Veritas 0.25% Convertible Subordinated Notes. Interest
expense in fiscal 2005 was primarily related to our
$600 million 3% convertible subordinated notes issued
in October 2001. In November 2004, substantially all of the
outstanding convertible subordinated notes were converted into
70.3 million shares of our common stock and the remainder
was redeemed for cash.
In fiscal 2007, Other income (expense), net includes a gain of
$20 million on the sale of our buildings in Milpitas,
California, and Maidenhead, United Kingdom.
49
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ in thousands)
|
|
|
Tax provision on earnings
|
|
$
|
227,242
|
|
|
$
|
227,068
|
|
|
$
|
267,720
|
|
Effective tax rate on earnings
|
|
|
36
|
%
|
|
|
63
|
%
|
|
|
31
|
%
|
Tax provision on repatriation
|
|
$
|
|
|
|
$
|
(21,197
|
)
|
|
$
|
54,249
|
|
Total tax provision
|
|
$
|
227,242
|
|
|
$
|
205,871
|
|
|
$
|
321,969
|
|
Total effective tax rate
|
|
|
36
|
%
|
|
|
57
|
%
|
|
|
38
|
%
|
Our effective tax rate on Income before income taxes was
approximately 36%, 57%, and 38% in fiscal 2007, 2006, and 2005,
respectively. The effective tax rate for fiscal 2007 reflects
the impact of non-deductible stock-based compensation and the
fiscal 2003 and 2004 Internal Revenue Service, or IRS, audit
settlement. The effective tax rate for fiscal 2006 reflects the
impact of the IPR&D charges and other acquisition-related
charges that are nondeductible for tax reporting purposes,
partially offset by foreign earnings taxed at a lower rate than
the U.S. tax rate, and the effect of the
true-up of
taxes on repatriated earnings. The effective tax rate in fiscal
2005 reflects the additional tax expense attributable to the
$500 million of foreign earnings that we repatriated under
the American Jobs Creation Act.
We believe realization of substantially all of our deferred tax
assets as of March 31, 2007 of $578 million, after
application of the valuation allowance, is more likely than not
based on the future reversal of temporary tax differences.
Realization of approximately $43 million of our deferred
tax assets as of March 31, 2007 is dependent upon future
taxable earnings exclusive of reversing temporary differences in
certain foreign jurisdictions. Levels of future taxable income
are subject to the various risks and uncertainties discussed in
Item 1A, Risk Factors, set forth in this annual
report. An additional valuation allowance against net deferred
tax assets may be necessary if it is more likely than not that
all or a portion of the net deferred tax assets will not be
realized. We will assess the need for an additional valuation
allowance on a quarterly basis. Of the $60 million total
valuation allowance provided against our deferred tax assets,
approximately $54 million is attributable to
acquisition-related assets, the benefit of which will reduce
goodwill when and if realized. The valuation allowance decreased
by $6 million in fiscal 2007, all of which was attributable
to acquisition-related assets, the benefit of which reduced
goodwill. The valuation allowance increased by $59 million
in fiscal 2006, of which approximately $58 million was
attributable to acquisition-related assets.
American
Jobs Creation Act of 2004 Repatriation of foreign
earnings
In the March 2005 quarter, we repatriated $500 million from
certain of our foreign subsidiaries that qualified for the 85%
dividends received deduction under the provisions of the
American Jobs Creation Act of 2004, or the Jobs Act, enacted in
October 2004. We recorded a tax charge for this repatriation of
$54 million in the March 2005 quarter.
In May 2005, clarifying language was issued by the
U.S. Department of Treasury and the IRS with respect to the
treatment of foreign taxes paid on the earnings repatriated
under the Jobs Act and in September 2005, additional clarifying
language was issued regarding the treatment of certain
deductions attributable to the earnings repatriation. As a
result of this clarifying language, we reduced the tax expense
attributable to the repatriation by approximately
$21 million in fiscal 2006, which reduced the cumulative
tax charge on the repatriation to $33 million.
Other
tax matters
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, which we acquired in July 2005. The incremental tax
liability asserted by the IRS with regard to the Veritas claim
was $867 million, excluding penalties and interest. The
Notice of Deficiency primarily relates to transfer pricing in
connection with a technology license agreement between Veritas
and a foreign subsidiary. We do not agree with the IRS position.
On June 26, 2006, we filed a petition with the
U.S. Tax Court to protest a Notice of Deficiency. On
August 30, 2006, the IRS
50
answered our petition and the case has been docketed for trial
in U.S. Tax Court. In the March 2007 quarter, the IRS
agreed to dismiss any penalty assessment, and we have otherwise
agreed to settle several of the lesser issues (representing
$35 million of the total assessment) for $7 million of
tax. As a result, the outstanding issue represents
$832 million of tax. No payments will be made on the
assessment until the issue is definitively resolved. If, upon
resolution, we are required to pay an amount in excess of our
provision for this matter, the incremental amounts due would be
accounted for principally as additions to the Veritas purchase
price as an increase to goodwill. Any incremental interest
accrued subsequent to the date of the Veritas acquisition would
be recorded as an expense in the period the matter is resolved.
In the fourth quarter of fiscal 2006, we made $90 million
of tax-related adjustments to the purchase accounting for
Veritas, consisting of $120 million of additional
pre-acquisition tax reserve-related adjustments, partially
offset by a $30 million reduction in other pre-acquisition
taxes payable. While we strongly disagree with the IRS over both
its transfer pricing methodologies and the amount of the
assessment, we have established additional tax reserves for all
Veritas pre-acquisition years to account for both contingent tax
and interest risk.
On March 30, 2006, we received notices of proposed
adjustment from the IRS with regard to an unrelated audit of
Symantec for fiscal 2003 and 2004. The IRS claimed that we owed
an incremental tax liability with regard to this audit of
$110 million, excluding penalties and interest. The
incremental tax liability primarily relates to transfer pricing
matters between Symantec and a foreign subsidiary. On
September 5, 2006, we executed a closing agreement with the
IRS with respect to the audit of Symantecs fiscal 2003 and
2004 federal income tax returns. The closing agreement
represents the final assessment by the IRS of additional tax for
these fiscal years of approximately $35 million, including
interest. Based on the final settlement, a tax benefit of
$8 million was recognized.
In the fourth quarter of fiscal 2006, we increased our tax
reserves by an additional $64 million in connection with
all open Symantec tax years (fiscal 2003 to 2006). Since these
reserves relate to licensing arising from acquired technology,
the additional accruals are primarily offset by deferred taxes.
We are as yet unable to confirm our eligibility to claim a lower
tax rate on a distribution made from a Veritas foreign
subsidiary prior to the acquisition. The distribution was
intended to be made pursuant to the Jobs Act, and therefore
eligible for a 5.25% effective U.S. federal rate of tax, in
lieu of the 35% statutory rate. We are seeking a ruling from the
IRS on the matter. Because we were unable to obtain this ruling
prior to filing the Veritas tax return in May 2006, we have paid
$130 million of additional U.S. taxes. Since this
payment relates to the taxability of foreign earnings that are
otherwise the subject of the IRS assessment, this additional
payment reduced the amount of taxes payable accrued as part of
the purchase accounting for pre-acquisition contingent tax
risks. For further information, see Note 13 of the Notes to
Consolidated Financial Statements and Critical Accounting
Estimates Income Taxes above.
In connection with the note hedge transactions discussed in
Note 6 of the Notes to the Consolidated Financial
Statements, we established a deferred tax asset of approximately
$232 million to account for the book-tax basis difference
in the convertible notes resulting from note hedge transactions.
The deferred tax asset has been accounted for as an increase to
Capital in excess of par value.
LIQUIDITY
AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
1,666,235
|
|
|
$
|
1,536,896
|
|
|
$
|
1,207,459
|
|
Investing activities
|
|
|
(222,455
|
)
|
|
|
3,619,605
|
|
|
|
(663,159
|
)
|
Financing activities
|
|
|
(1,309,567
|
)
|
|
|
(3,910,064
|
)
|
|
|
(31,990
|
)
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
|
|
109,199
|
|
|
|
(22,248
|
)
|
|
|
18,261
|
|
Net change in cash and cash
equivalents
|
|
$
|
243,412
|
|
|
$
|
1,224,189
|
|
|
$
|
530,571
|
|
51
As of March 31, 2007, our principal source of liquidity was
our existing cash, cash equivalents, and short-term investments
of $3.0 billion, of which 53% was held domestically and the
remainder was held outside of the U.S. In April 2007, we
completed our acquisition of Altiris, Inc., a leading provider
of IT management software that enables businesses to easily
manage and service network-based endpoints. We used a portion of
our domestic cash balance to fund the aggregate purchase price,
excluding acquisition related costs, of approximately
$815 million in cash, which amount is net of Altiris
cash balance. As a result approximately two-thirds of our cash,
cash equivalents, and short-term investments balance is
currently held outside of the U.S. At the beginning of fiscal
2007, we completed the reorganization of certain international
subsidiaries acquired as part of the Veritas acquisition.
In June 2006, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes due June 15, 2011, and
$1.0 billion principal amount of 1.00% Convertible Senior
Notes due June 15, 2013, to initial purchasers in a private
offering for resale to qualified institutional buyers pursuant
to SEC Rule 144A. We refer to these Notes collectively as
the Senior Notes. Concurrently with the issuance of the Senior
Notes, we entered into note hedge transactions with affiliates
of certain of the initial purchasers whereby we have the option
to purchase up to 110 million shares of our common stock at
a price of $19.12 per share. In addition, concurrently with the
issuance of the Senior Notes, we also sold warrants to
affiliates of certain of the initial purchasers whereby they
have the option to purchase up to 110 million shares of our
common stock at a price of $27.3175 per share. The warrants
expire on various dates from July 2011 through August 2013 and
must be settled in net shares.
For additional information regarding the Senior Notes and
related transactions, see Note 6 of the Notes to
Consolidated Financial Statements, which information is
incorporated herein by reference. For information regarding the
deferred tax asset established in connection with the note hedge
transactions, see Note 6 of the Notes to Consolidated
Financial Statements, which information is incorporated herein
by reference.
The cost incurred in connection with the note hedge
transactions, net of the related tax benefit and the proceeds
from the sale of the warrants, is included as a net reduction in
Capital in excess of par value in the accompanying Consolidated
Balance Sheets as of March 31, 2007, in accordance with the
guidance in Emerging Issues Task Force Issue, or EITF,
No. 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock.
On August 1, 2006, at the option of certain of the holders,
we repurchased for cash $510 million of the Veritas
0.25% Convertible Subordinated Notes, or the
0.25% Notes, that we had assumed in connection with the
acquisition of Veritas at a price equal to the principal amount,
plus accrued and unpaid interest. On August 28, 2006, at
our election, we repurchased the remaining $10 million of
the Veritas 0.25% Notes at a price equal to the principal
amount plus accrued and unpaid interest. For additional
information regarding the 0.25% Notes, see Note 6 of
the Notes to Consolidated Financial Statements, which
information is incorporated herein by reference.
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 will 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 EBITDA (earnings before interest,
taxes, depreciation, and amortization), as well as various other
non-financial covenants. At March 31, 2007, we were in
compliance with all covenants. We have made no borrowings under
the credit facility through the date of filing of this annual
report.
During April 2006, we purchased two office buildings totaling
approximately 236,000 square feet in Cupertino, California
for $81 million. Approximately 64,000 square feet is
leased to a third party. In September 2006, we sold a building
in Milpitas, California for net proceeds of $83 million. In
January 2007, we sold a building in Maidenhead, England for net
proceeds of $35 million.
On January 24, 2007, we announced that the Board of
Directors authorized the repurchase of $1 billion of
Symantec common stock without a scheduled expiration date.
We believe that our cash balances, cash that we generate over
time 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.
52
Operating
Activities
Net cash provided by operating activities during fiscal 2007
resulted largely from net income of $404 million, plus
non-cash depreciation and amortization charges of
$811 million, non-cash stock-based compensation expense of
$154 million, and an increase in deferred revenue of
$400 million. These amounts were partially offset by a
decrease in income taxes payable of $182 million, primarily
due to the timing of tax payments. We expect operating cash flow
to continue to be positive in the future.
Net cash provided by operating activities in fiscal 2006
resulted largely from net income of $157 million, plus an
increase in deferred revenue of $683 million, non-cash
charges, primarily for depreciation and amortization, of
$640 million, and the write off of IPR&D of
$285 million related to the acquisitions of Veritas and
BindView. These factors were partially offset by a decrease in
deferred income taxes of $203 million and by an increase in
trade accounts receivable of $87 million.
Net cash provided by operating activities in fiscal 2005
resulted largely from net income of $536 million, plus
non-cash depreciation and amortization charges of
$127 million, the income tax benefit from employee stock
plans of $109 million, and deferred income taxes of
$61 million. In addition, our deferred revenue increased by
$319 million and income taxes payable increased by
$56 million.
Investing
Activities
Net cash used in investing activities in fiscal 2007 was
primarily the result of capital expenditures of
$420 million, including $81 million for the purchase
of two office buildings in Cupertino, California, and purchases
of
available-for-sale
securities of $227 million. These amounts were partially
offset by proceeds of $349 million from sales of
available-for-sale
securities and net proceeds from the sale of property and
equipment, primarily buildings in Milpitas, California and
Maidenhead, England, of $121 million.
Net cash provided by investing activities in fiscal 2006 was
primarily the result of net sales of
available-for-sale
securities of $3.4 billion and cash of $541 million
acquired through the acquisition of Veritas, net of cash
expenditures for our other acquisitions in fiscal 2006. These
amounts were partially offset by capital expenditures of
$267 million, including $63 million for the purchase
of two buildings in Mountain View, California.
Net cash used for investing activities in fiscal 2005 was
primarily the result of payments for business acquisitions of
$424 million and net purchases of
available-for-sale
securities of $143 million.
Financing
Activities
In the June 2006 quarter, we issued the Senior Notes for net
proceeds of approximately $2.1 billion. We used
$1.5 billion of the proceeds to repurchase shares of our
common stock, as discussed below. We also purchased hedges
related to the Senior Notes for $592 million and received
proceeds of $326 million from the sale of common stock
warrants. In addition, we applied the remainder of the proceeds
from the Senior Notes to the $520 million used to
repurchase the Veritas 0.25% Notes in August 2006.
We have operated stock repurchase programs since 2001. As of
January 2007, we completed the $1 billion share repurchase
program announced in January 2006 as well as the
$1.5 billion share repurchase program announced in June
2006. On January 24, 2007, we announced that our Board of
Directors authorized the repurchase of $1 billion of
Symantec common stock, without a scheduled expiration date.
During fiscal 2007, we repurchased 162 million shares of
our common stock at prices ranging from $15.61 to
$21.66 per share for an aggregate amount of
$2.8 billion. During fiscal 2006, we repurchased
174 million shares at prices ranging from $15.83 to
$23.85 per share for an aggregate amount of
$3.6 billion. During fiscal 2005, we repurchased eight
million shares at prices ranging from $21.05 to $30.77 per
share, for an aggregate amount of $192 million. As of
March 31, 2007, $500 million remained authorized for
future repurchases. For further information regarding our stock
repurchases, see Item 5, Market for Registrants
Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities, of this annual report.
In fiscal 2007, 2006, and 2005, we received net proceeds of
$230 million, $210 million, and $160 million,
respectively, from the issuance of our common stock through
employee stock plans.
53
In fiscal 2007, we repaid the entire balance of
$520 million related to the Veritas 0.25% Convertible
Subordinated Notes and in fiscal 2006, we repaid the entire
balance of a short-term loan with a principal amount of
EURO 411 million that we assumed in connection with
our acquisition of Veritas.
Contractual
Obligations
The contractual obligations presented in the table below
represent our estimates of future payments under fixed
contractual obligations and commitments. Changes in our business
needs, cancellation provisions, interest rates, and other
factors may result in actual payments differing from these
estimates. We cannot provide certainty regarding the timing and
amounts of payments related to the contractual obligations set
forth in the table below. The following table summarizes our
fixed contractual obligations and commitments as of
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
Fiscal 2011
|
|
|
Fiscal 2013
|
|
|
|
Total
|
|
|
Fiscal 2008
|
|
|
and 2010
|
|
|
and 2012
|
|
|
and thereafter
|
|
|
|
(In thousands)
|
|
|
Convertible senior
notes(1)
|
|
$
|
2,100,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,100,000
|
|
|
$
|
1,000,000
|
|
Purchase
obligations(2)
|
|
|
217,691
|
|
|
|
208,337
|
|
|
|
9,327
|
|
|
|
27
|
|
|
|
|
|
Operating
leases(3)
|
|
|
415,234
|
|
|
|
85,481
|
|
|
|
118,085
|
|
|
|
73,097
|
|
|
|
138,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
2,732,925
|
|
|
$
|
293,818
|
|
|
$
|
127,412
|
|
|
$
|
1,173,124
|
|
|
$
|
1,138,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Convertible senior notes, due June 15, 2011 and
June 15, 2013 collectively referred to as the Senior Notes.
Holders of the Senior Notes may convert their Senior Notes prior
to maturity upon the occurrence of certain circumstances. Upon
conversion, we would pay the holder the cash value of the
applicable number of shares of Symantec common stock, up to the
principal amount of the note. Amounts in excess of the principal
amount, if any, may be paid in cash or in stock at our option.
As of March 31, 2007, those circumstances had not occurred. |
|
(2) |
|
Represents amounts associated with agreements that are
enforceable, legally binding, and specify terms. |
|
(3) |
|
Includes $12 million related to facilities included in our
restructuring reserve. |
Purchase
price adjustment
On December 1, 2006, we completed our acquisition of
Company-i Limited for $26 million in cash. The purchase
price may be increased by up to $11 million in cash if
Company-i meets certain billings targets by September 30,
2008. Payments of the additional consideration may be
accelerated if certain billings targets are met by
March 31, 2007 or September 30, 2007. Under the terms
of the purchase agreement, Symantec has 90 days from the
respective dates to determine whether the billings target for
payment of the additional consideration has been met. Any
increase in the purchase consideration would result in a
corresponding increase in goodwill. We believe that it is not
determinable beyond a reasonable doubt that the billing targets
are met as of March 31, 2007 and therefore we have not
booked an adjustment in accordance with SFAS No. 141,
Business Combinations.
Development
agreements
During fiscal 2006, we entered into agreements in connection
with the construction of, or refurbishments to, buildings in
Springfield, Oregon, and Culver City, California. Payment is
contingent upon the achievement of certain
agreed-upon
milestones. The remaining commitment under the Culver City,
California agreement is $91 million as of March 31,
2007. As of March 31, 2007, the Springfield, Oregon project
had been completed and there were no remaining commitments under
that agreement.
Royalties
We have certain royalty commitments associated with the shipment
and licensing of certain products. Royalty expense is generally
based on a dollar amount per unit shipped or a percentage of
underlying revenue. Certain
54
royalty commitments have minimum commitment obligations;
however, as of March 31, 2007 all such obligations are
insignificant.
Indemnification
As permitted under Delaware law, we have agreements whereby we
indemnify our officers and directors for certain events or
occurrences while the officer or director is, or was, serving at
our request in such capacity. The maximum potential amount of
future payments we could be required to make under these
indemnification agreements is not limited; however, we have
directors and officers insurance coverage that reduces our
exposure and may enable us to recover a portion of any future
amounts paid. We believe the estimated fair value of these
indemnification agreements in excess of applicable insurance
coverage is minimal.
We provide limited product warranties and the majority of our
software license agreements contain provisions that indemnify
licensees of our software from damages and costs resulting from
claims alleging that our software infringes the intellectual
property rights of a third party. Historically, payments made
under these provisions have been insignificant. We monitor the
conditions that are subject to indemnification to identify if a
loss has occurred.
Newly
Adopted and Recently Issued Accounting Pronouncements
Recent
accounting pronouncements
In February 2007, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, including an
amendment of SFAS No. 115. SFAS No. 159
permits companies to choose to measure certain financial
instruments and certain other items at fair value and requires
unrealized gains and losses on items for which the fair value
option has been elected to be reported in earnings.
SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently in the process of
evaluating the impact of SFAS No. 159 on our
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
establishes a framework for measuring the fair value of assets
and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some
cases require, estimates of fair market value.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. Earlier application is encouraged, provided that
the reporting entity has not yet issued financial statements for
that fiscal year, including any financial statements for an
interim period within that fiscal year. We are currently in the
process of evaluating the impact of SFAS No. 157 on
our consolidated financial statements.
In September 2006, the FASB issued Emerging Issues Task Force
Issue, or EITF,
No. 06-1,
Accounting for Consideration Given by a Service Provider to a
Manufacturer or Reseller of Equipment Necessary for an
End-Customer to Receive Service from the Service Provider.
EITF
No. 06-1
requires that we provide disclosures regarding the nature of
arrangements in which we provide consideration to manufacturers
or resellers of equipment necessary for an end-customer to
receive service from us, including the amounts recognized in the
Consolidated Statements of Income. EITF
06-1 is
effective for fiscal years beginning after June 15, 2007.
We do not expect the adoption of EITF
No. 06-1
to have a material impact on our consolidated financial
statements.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109. The interpretation contains a
two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with
SFAS No. 109. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates that it is more likely than not
that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon
ultimate settlement. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We are currently in the
process of evaluating the impact of FIN 48 on our
consolidated financial statements.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments,
which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 155
55
simplifies the accounting for certain derivatives embedded in
other financial instruments by allowing them to be accounted for
as a whole if the holder elects to account for the entire
instrument on a fair value basis. SFAS No. 155 also
clarifies and amends certain other provisions of
SFAS No. 133 and SFAS No. 140.
SFAS No. 155 is effective for all financial
instruments acquired, issued, or subject to a re-measurement
event occurring in fiscal years beginning after
September 15, 2006. Earlier adoption is permitted, provided
the company has not yet issued financial statements, including
for interim periods, for that fiscal year. We do not expect the
adoption of SFAS No. 155 to have a material impact on
our consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We are exposed to various market risks related to fluctuations
in interest rates, foreign currency exchange rates, and equity
prices. We may use derivative financial instruments to mitigate
certain risks in accordance with our investment and foreign
exchange policies. We do not use derivatives or other financial
instruments for trading or speculative purposes.
Interest
Rate Risk
Our exposure to interest rate risk relates primarily to our
short-term investment portfolio and the potential losses arising
from changes in interest rates. Our investment objective is to
achieve the maximum return compatible with capital preservation
and liquidity requirements. Our strategy is to invest our cash
in a manner that preserves capital, maintains sufficient
liquidity to meet the cash requirements of the company,
maximizes yields consistent with approved credit risk, and
limits inappropriate concentrations of investment by sector,
credit, or issuer. We classify our cash equivalents and
short-term investments in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. We consider investments in
instruments purchased with an original maturity of 90 days
or less to be cash equivalents. We classify our short-term
investments as
available-for-sale,
and short-term investments consist of marketable debt or equity
securities with original maturities in excess of 90 days.
Our cash equivalents and short-term investment portfolios
consist primarily of money market funds, commercial paper,
corporate debt securities, asset-backed debt securities, and
U.S. government and government-sponsored debt securities.
Our short-term investments do not include equity investments in
privately held companies. Our short-term investments are
reported at fair value with unrealized gains and losses, net of
tax, included in Accumulated other comprehensive income within
Stockholders equity in the Consolidated Balance Sheets.
The amortization of premiums and discounts on the investments,
realized gains and losses, and declines in value judged to be
other-than-temporary
on
available-for-sale
securities are included in Other income (expense), net in the
Consolidated Statements of Income. We use the specific
identification method to determine cost in calculating realized
gains and losses upon sale of short-term investments.
The following table presents the fair value and hypothetical
changes in fair values on short-term investments sensitive to
changes in interest rates (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Securities
|
|
|
|
Value of Securities Given an
|
|
|
|
|
|
Given an Interest
|
|
|
|
Interest Rate Increase of
|
|
|
Fair Value
|
|
|
Rate Decrease of X
|
|
|
|
X Basis Points (bps)
|
|
|
As of
|
|
|
Basis Points (bps)
|
|
|
|
150 bps
|
|
|
100 bps
|
|
|
50 bps
|
|
|
March 31,
|
|
|
(25 bps)
|
|
|
(75 bps)
|
|
|
March 31, 2007
|
|
$
|
1,770
|
|
|
$
|
1,772
|
|
|
$
|
1,775
|
|
|
$
|
1,778
|
|
|
$
|
1,779
|
|
|
$
|
1,782
|
|
March 31, 2006
|
|
$
|
1,506
|
|
|
$
|
1,510
|
|
|
$
|
1,513
|
|
|
$
|
1,517
|
|
|
$
|
1,519
|
|
|
$
|
1,523
|
|
The modeling technique used above measures the change in fair
market value arising from selected potential changes in interest
rates. Market changes reflect immediate hypothetical parallel
shifts in the yield curve of plus 150 bps, plus
100 bps, plus 50 bps, minus 25 bps, and minus
75 bps.
Foreign
Currency Exchange Rate Risk
We conduct business in 38 currencies through our worldwide
operations and, as such, we are exposed to foreign currency
exposure risk. Foreign currency risks are associated with our
cash and cash equivalents, investments, receivables, and
payables denominated in foreign currencies. Fluctuations in
exchange rates will result in foreign exchange gains and losses
on these foreign currency assets and liabilities and are
included in Other
56
income (expense), net. Our objective in managing foreign
exchange activity is to preserve stockholder value by minimizing
the risk of foreign currency exchange rate changes. Our strategy
is to primarily utilize forward contracts to hedge foreign
currency exposures. Under our program, gains and losses in our
foreign currency exposures are offset by losses and gains on our
forward contracts. Our forward contracts generally have terms of
35 days or less. At the end of the reporting period, open
contracts are
marked-to-market
with unrealized gains and losses included in Other income
(expense), net.
The following table presents a sensitivity analysis on our
foreign forward exchange contract portfolio using a statistical
model to estimate the potential gain or loss in fair value that
could arise from hypothetical appreciation or depreciation of
foreign currency (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
Value of
|
|
|
|
Contracts
|
|
|
|
|
|
Contracts
|
|
|
|
Given X%
|
|
|
|
|
|
Given X%
|
|
|
|
Appreciation of
|
|
|
|
|
|
Depreciation of
|
|
|
|
Foreign
|
|
|
|
|
|
Foreign
|
|
|
|
Currency
|
|
|
Notional
|
|
|
Currency
|
|
Foreign Forward Exchange Contracts
|
|
10%
|
|
|
5%
|
|
|
Amount
|
|
|
(5)%
|
|
|
(10)%
|
|
|
Purchased, March 31, 2007
|
|
$
|
176
|
|
|
$
|
169
|
|
|
$
|
161
|
|
|
$
|
153
|
|
|
$
|
143
|
|
Sold, March 31, 2007
|
|
$
|
258
|
|
|
$
|
270
|
|
|
$
|
284
|
|
|
$
|
299
|
|
|
$
|
316
|
|
Purchased, March 31, 2006
|
|
$
|
249
|
|
|
$
|
239
|
|
|
$
|
228
|
|
|
$
|
216
|
|
|
$
|
203
|
|
Sold, March 31, 2006
|
|
$
|
405
|
|
|
$
|
425
|
|
|
$
|
446
|
|
|
$
|
469
|
|
|
$
|
496
|
|
Equity
Price Risk
In June 2006, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes due 2011 and
$1.0 billion of 1.00% Convertible Senior Notes due
2013. Holders may convert their Senior Notes prior to maturity
upon the occurrence of certain circumstances. Upon conversion,
we would pay the holder the cash value of the applicable number
of shares of Symantec common stock, up to the principal amount
of the note. Amounts in excess of the principal amount, if any,
may be paid in cash or in stock at our option. Concurrent with
the issuance of the Senior Notes, we entered into convertible
note hedge transactions and separately, warrant transactions, to
reduce the potential dilution from the conversion of the Senior
Notes and to mitigate any negative effect such conversion may
have on the price of our common stock.
For business and strategic purposes, we also hold equity
interests in several privately held companies, many of which can
be considered to be in the
start-up or
development stages. These investments are inherently risky and
we could lose a substantial part or our entire investment in
these companies. These investments are recorded at cost and
classified as Other long-term assets in the Consolidated Balance
Sheets. As of March 31, 2007, these investments had an
aggregate carrying value of $8 million.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Annual
Financial Statements
The consolidated financial statements and related disclosures
included in Part IV, Item 15 of this annual report are
incorporated by reference into this Item 8.
57
Selected
Quarterly Financial Data
We have a
52/53-week
fiscal accounting year. Accordingly, we have presented quarterly
fiscal periods, each comprised of 13 weeks, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
|
Sep. 30,
|
|
|
Jun. 30,
|
|
|
|
2007
|
|
|
2006(e)
|
|
|
2006(e)
|
|
|
2006(e)
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands, except net income (loss) per share)
|
|
|
Net revenues
|
|
$
|
1,357,217
|
|
|
$
|
1,315,873
|
|
|
$
|
1,260,408
|
|
|
$
|
1,265,868
|
|
|
$
|
1,238,560
|
|
|
$
|
1,149,026
|
|
|
$
|
1,055,864
|
|
|
$
|
699,942
|
|
Gross profit
|
|
|
1,050,954
|
|
|
|
1,005,370
|
|
|
|
960,007
|
|
|
|
967,209
|
|
|
|
955,406
|
|
|
|
880,548
|
|
|
|
742,422
|
|
|
|
583,147
|
|
Acquired in-process research and
development(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
284,000
|
|
|
|
|
|
Restructuring(b)
|
|
|
50,758
|
|
|
|
|
|
|
|
6,220
|
|
|
|
13,258
|
|
|
|
4,426
|
|
|
|
15,566
|
|
|
|
1,452
|
|
|
|
3,474
|
|
Patent
settlement(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
Integration(d)
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
587
|
|
|
|
2,185
|
|
|
|
5,253
|
|
|
|
7,901
|
|
Operating income (loss)
|
|
|
76,241
|
|
|
|
159,038
|
|
|
|
140,391
|
|
|
|
144,072
|
|
|
|
180,333
|
|
|
|
119,661
|
|
|
|
(258,347
|
)
|
|
|
232,318
|
|
Net income (loss)
|
|
|
60,895
|
|
|
|
116,769
|
|
|
|
126,181
|
|
|
|
100,535
|
|
|
|
118,813
|
|
|
|
90,734
|
|
|
|
(251,328
|
)
|
|
|
198,633
|
|
Net income (loss) per
share basic
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
0.13
|
|
|
$
|
0.10
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.28
|
|
Net income (loss) per
share diluted
|
|
$
|
0.07
|
|
|
$
|
0.12
|
|
|
$
|
0.13
|
|
|
$
|
0.10
|
|
|
$
|
0.11
|
|
|
$
|
0.08
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.27
|
|
|
|
|
(a) |
|
In fiscal 2006, we wrote off $284 million and
$1 million of IPR&D in connection with our
acquisitions of Veritas and BindView, respectively. |
|
(b) |
|
In fiscal 2007, we recorded $51 million of restructuring
costs related to our 2007 cost savings initiative in conjunction
with our $200 million annual cost savings plan announced in
January 2007. The remaining $19 million of restructuring
costs in fiscal 2007 are related to executive severance and to
severance, associated benefits, and outplacement services for
the termination of 323 redundant employees. In fiscal 2006, we
recorded $25 million of restructuring costs, of which
$18 million related to severance, associated benefits, and
outplacement services and $7 million related to excess
facilities. See Note 12 of the Notes to Consolidated
Financial Statements. |
|
(c) |
|
During fiscal 2006, we recorded patent settlement costs and
entered into a cross-licensing agreement with Altiris, Inc. For
more information, see Note 4 of the Notes to Consolidated
Financial Statements. |
|
(d) |
|
We recorded integration costs in connection with our acquisition
of Veritas in July 2005 and our pending acquisition of Altiris
in April 2007. For more information, see Notes 3 and 17 of
the Notes to Consolidated Financial Statements. |
|
(e) |
|
The amounts for the first three quarters of fiscal 2007 reflect
adjustments as a result of the adoption of SAB 108 in the
fourth quarter of fiscal 2007. For more information, see
Summary of Significant Accounting Policies included in
the Consolidated Financial Statements. |
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
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
58
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 by our
management, with the participation of our Chief Executive
Officer and our Chief Financial Officer, that our disclosure
controls and procedures were effective for the purpose described
above as of the end of the period covered by this report.
|
|
(b)
|
Managements
Report on Internal Control over Financial
Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rules 13a-15(f)
and
15d-15(f) of
the Securities Exchange Act of 1934, as amended) for Symantec.
Our management, with the participation of our Chief Executive
Officer and our Chief Financial Officer, has conducted an
evaluation of the effectiveness of our internal control over
financial reporting as of March 31, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Our management has concluded that, as of the March 31,
2007, our internal control over financial reporting was
effective based on these criteria. Our independent registered
public accounting firm, KPMG LLP, has issued a report on our
assessment of our internal control over financial reporting,
which is included herein.
|
|
(c)
|
Changes
in Internal Control over Financial Reporting.
|
Our annual report on
Form 10-K
for the fiscal year ended March 31, 2006 disclosed a
material weakness relating to accounting for income taxes. In
order to remediate this material weakness, during the first
three quarters of fiscal 2007, we:
|
|
|
|
|
Completed our restructuring of personnel dedicated to financial
reporting for income taxes;
|
|
|
|
More specifically defined existing key controls, and developed
additional controls, applicable to our interim accounting for
income taxes;
|
|
|
|
Automated certain elements of our processes to enhance the
analysis and calculation of the income tax provision and the
reconciliation of the tax accounts;
|
|
|
|
Enhanced the documentation regarding conclusions reached in the
implementation of generally accepted accounting
principles; and
|
|
|
|
Added additional levels of review by qualified personnel of the
application of each key control.
|
As a result of these actions, management has concluded that
Symantec has remediated the material weakness as of
March 31, 2007. Although certain steps were taken in the
fourth quarter of fiscal 2007 to address the material weakness
relating to accounting for income taxes, there were no changes
in Symantecs internal control over financial reporting
during the quarter ended March 31, 2007 that have
materially affected, or are reasonably likely to materially
affect, Symantecs internal control over financial
reporting.
|
|
(d)
|
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 Symantec have been
detected.
|
|
Item 9B.
|
Other
Information
|
None
59
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item is incorporated by
reference to Symantecs Proxy Statement for its 2007 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 30, 2007.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to Symantecs Proxy Statement for its 2007 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 30, 2007.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference to Symantecs Proxy Statement for its 2007 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 30, 2007.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference to Symantecs Proxy Statement for its 2007 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 30, 2007.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated by
reference to Symantecs Proxy Statement for its 2007 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 30, 2007.
60
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Upon written request, we will provide, without charge, a copy of
this annual report, including the consolidated financial
statements and financial statement schedule. All requests should
be sent to:
Symantec Corporation
Attn: Investor Relations
20330 Stevens Creek Boulevard
Cupertino, California 95014
408-517-8000
a) The following documents are filed as part of this report:
|
|
|
|
|
|
|
Page
|
|
|
|
Number
|
|
|
1. Consolidated Financial
Statements:
|
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
|
|
67
|
|
Consolidated Balance Sheets as of
March 31, 2007 and 2006
|
|
|
69
|
|
Consolidated Statements of Income
for the years ended March 31, 2007, 2006, and 2005
|
|
|
70
|
|
Consolidated Statements of
Stockholders Equity and Comprehensive Income for the years
ended March 31, 2007, 2006, and 2005
|
|
|
71
|
|
Consolidated Statements of Cash
Flows for the years ended March 31, 2007, 2006, and 2005
|
|
|
72
|
|
Summary of Significant Accounting
Policies
|
|
|
73
|
|
Notes to Consolidated Financial
Statements
|
|
|
83
|
|
2. Financial Statement
Schedule: The following financial statement schedule of Symantec
|
|
|
|
|
Corporation for the years ended
March 31, 2007, 2006, and 2005 is filed as part of this
Form 10-K
and should be read in conjunction with the consolidated
financial statements of Symantec Corporation
|
|
|
|
|
Schedule: II Valuation and
Qualifying Accounts
|
|
|
116
|
|
Schedules other than that listed
above have been omitted since they are either not required, not
applicable, or the information is otherwise included.
|
|
|
|
|
61
Exhibits: The following exhibits are filed as
part of or furnished with this annual report as applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
2
|
.01§
|
|
Agreement and Plan of
Reorganization dated as of December 15, 2004 among Symantec
Corporation, Carmel Acquisition Corp., and Veritas Software
Corporation
|
|
8-K
|
|
000-17781
|
|
2.01
|
|
12/20/04
|
|
|
|
2
|
.02§
|
|
Agreement and Plan of Merger among
Symantec Corporation, Atlas Merger Corp. and Altiris, Inc. dated
January 26, 2007
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
01/29/07
|
|
|
|
3
|
.01
|
|
Amended and Restated Certificate
of Incorporation of Symantec Corporation
|
|
S-8
|
|
333-119872
|
|
4.01
|
|
10/21/04
|
|
|
|
3
|
.02
|
|
Certificate of Amendment of
Amended and Restated Certificate of Incorporation of Symantec
Corporation
|
|
S-8
|
|
333-126403
|
|
4.03
|
|
07/06/05
|
|
|
|
3
|
.03
|
|
Certificate of Designations of
Series A Junior Participating Preferred Stock of Symantec
Corporation
|
|
8-K
|
|
000-17781
|
|
3.01
|
|
12/21/04
|
|
|
|
3
|
.04
|
|
Bylaws of Symantec Corporation
|
|
8-K
|
|
000-17781
|
|
3.01
|
|
01/23/06
|
|
|
|
4
|
.01
|
|
Form of Common Stock Certificate
|
|
S-3ASR
|
|
333-139230
|
|
4.07
|
|
12/11/06
|
|
|
|
4
|
.02
|
|
Rights Agreement, dated as of
August 12, 1998, between Symantec Corporation and
BankBoston, N.A., as Rights Agent, which includes as
Exhibit A, the Form of Certificate of Designations of
Series A Junior Participating Preferred Stock, as
Exhibit B, the Form of Right Certificate, and as
Exhibit C, the Summary of Rights to Purchase Preferred
Shares
|
|
8-A
|
|
000-17781
|
|
4.1
|
|
08/19/98
|
|
|
|
4
|
.03
|
|
Indenture related to the
0.75% Convertible Senior Notes, due 2011, dated as of
June 16, 2006, between Symantec Corporation and
U.S. Bank National Association, as trustee (including form
of 0.75% Convertible Senior Notes due 2011)
|
|
8-K
|
|
000-17781
|
|
4.01
|
|
06/16/06
|
|
|
|
4
|
.04
|
|
Indenture related to the
1.00% Convertible Senior Notes, due 2013, dated as of
June 16, 2006, between Symantec Corporation and
U.S. Bank National Association, as trustee (including form
of 1.00% Convertible Senior Notes due 2013)
|
|
8-K
|
|
000-17781
|
|
4.02
|
|
06/16/06
|
|
|
|
4
|
.05
|
|
Registration Rights Agreement,
dated as of June 16, 2006, among Symantec Corporation and
Citigroup Global Markets, Inc., Morgan Stanley & Co.
Incorporated and UBS Securities LLC, for themselves and the
other Initial Purchasers
|
|
8-K
|
|
000-17781
|
|
4.03
|
|
06/16/06
|
|
|
|
4
|
.06
|
|
Form of Master Terms and
Conditions For Convertible Bond Hedging Transactions between
Symantec Corporation and each of Bank of America, N.A. and
Citibank, N.A., respectively, dated June 9, 2006, including
Exhibit and Schedule thereto
|
|
10-Q
|
|
000-17781
|
|
10.04
|
|
08/09/06
|
|
|
|
4
|
.07
|
|
Form of Master Terms and
Conditions For Warrants Issued by Symantec Corporation between
Symantec Corporation and each of Bank of America, N.A. and
Citibank, N.A., respectively, dated June 9, 2006, including
Exhibit and Schedule thereto
|
|
10-Q
|
|
000-17781
|
|
10.05
|
|
08/09/06
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.01*
|
|
Form of Indemnification Agreement
with Officers and Directors, as amended (form for agreements
entered into prior to January 17, 2006)
|
|
S-1
|
|
33-28655
|
|
10.17
|
|
06/21/89
|
|
|
|
10
|
.02*
|
|
Form of Indemnification Agreement
for Officers, Directors and Key Employees
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
01/23/06
|
|
|
|
10
|
.03*
|
|
Veritas Software Corporation 1993
Equity Incentive Plan, including form of Stock Option Agreement
|
|
10-K
|
|
000-17781
|
|
10.03
|
|
06/09/06
|
|
|
|
10
|
.04*
|
|
Veritas Software Corporation
1993 Directors Stock Option Plan, including form of Stock
Option Agreement
|
|
10-K
|
|
000-17781
|
|
10.04
|
|
06/09/06
|
|
|
|
10
|
.05*
|
|
Symantec Corporation 1996 Equity
Incentive Plan, as amended, including form of Stock Option
Agreement and form of Restricted Stock Purchase Agreement
|
|
10-K
|
|
000-17781
|
|
10.05
|
|
06/09/06
|
|
|
|
10
|
.06*
|
|
Symantec Corporation Deferred
Compensation Plan, as adopted November 7, 1996
|
|
10-K
|
|
000-17781
|
|
10.11
|
|
06/24/97
|
|
|
|
10
|
.07*
|
|
Symantec Corporation 1998 Employee
Stock Purchase Plan, as amended
|
|
10-K
|
|
000-17781
|
|
10.07
|
|
06/09/06
|
|
|
|
10
|
.08*
|
|
Brightmail Inc. 1998 Stock Option
Plan, including form of Stock Option Agreement and form of
Notice of Assumption
|
|
10-K
|
|
000-17781
|
|
10.08
|
|
06/09/06
|
|
|
|
10
|
.09*
|
|
Altiris, Inc. 1998 Stock Option
Plan
|
|
S-8
|
|
333-141986
|
|
99.01
|
|
04/10/07
|
|
|
|
10
|
.10*
|
|
Form of Notice of Grant of Stock
Option under the Altiris, Inc. 1998 Stock Option Plan
|
|
S-8
|
|
333-141986
|
|
99.02
|
|
04/10/07
|
|
|
|
10
|
.11*
|
|
Symantec Corporation
2000 Directors Equity Incentive Plan, as amended
|
|
S-8
|
|
333-119872
|
|
99.02
|
|
10/21/04
|
|
|
|
10
|
.12*
|
|
Symantec Corporation 2001 Non-
Qualified Equity Incentive Plan
|
|
10-K
|
|
000-17781
|
|
10.12
|
|
06/09/06
|
|
|
|
10
|
.13*
|
|
Symantec Corporation 2002
Executive Officers Stock Purchase Plan, as amended
|
|
10-K
|
|
000-17781
|
|
10.12
|
|
06/15/05
|
|
|
|
10
|
.14*
|
|
Veritas Software Corporation
2002 Directors Stock Option Plan, including form of Stock
Option Agreement and forms of Notice of Stock Option Grant
|
|
10-K
|
|
000-17781
|
|
10.14
|
|
06/09/06
|
|
|
|
10
|
.15*
|
|
Altiris, Inc. 2002 Stock Plan
|
|
S-8
|
|
333-141986
|
|
99.03
|
|
04/10/07
|
|
|
|
10
|
.16*
|
|
Form of Stock Option Agreement
under the Altiris, Inc. 2002 Stock Plan
|
|
S-8
|
|
333-141986
|
|
99.04
|
|
04/10/07
|
|
|
|
10
|
.17*
|
|
Veritas Software Corporation 2003
Stock Incentive Plan, as amended and restated, including form of
Stock Option Agreement, form of Stock Option Agreement for
Executives and Senior VPs and form of Notice of Stock Option
Assumption
|
|
10-K
|
|
000-17781
|
|
10.15
|
|
06/09/06
|
|
|
|
10
|
.18*
|
|
Symantec Corporation 2004 Equity
Incentive Plan, as amended, including Stock Option
Grant Terms and Conditions, form of RSU Award
Agreement, and form of RSU Award Agreement for Non-Employee
Directors
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.19*
|
|
Altiris, Inc. 2005 Stock Plan
|
|
S-8
|
|
333-141986
|
|
99.05
|
|
04/10/07
|
|
|
|
10
|
.20*
|
|
Form of Incentive Stock Option
Agreement under the Altiris, Inc. 2005 Stock Plan, as amended
|
|
S-8
|
|
333-141986
|
|
99.06
|
|
04/10/07
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.21*
|
|
Offer Letter, dated
February 8, 2006, from Symantec Corporation to James A. Beer
|
|
10-K
|
|
000-17781
|
|
10.17
|
|
06/09/06
|
|
|
|
10
|
.22*
|
|
Employment Agreement, dated
December 15, 2004, between Symantec Corporation and Jeremy
Burton, as amended
|
|
S-4/A
|
|
333-122724
|
|
10.06
|
|
05/18/05
|
|
|
|
10
|
.23*
|
|
Employment Agreement, dated
December 15, 2004, between Symantec Corporation and Kris
Hagerman, as amended
|
|
S-4/A
|
|
333-122724
|
|
10.07
|
|
05/18/05
|
|
|
|
10
|
.24*
|
|
Offer Letter, dated
January 12, 2004, from Symantec Corporation to Thomas W.
Kendra
|
|
10-Q
|
|
000-17781
|
|
10.01
|
|
02/04/05
|
|
|
|
10
|
.25*
|
|
Employment Agreement, dated
April 11, 1999, between Symantec Corporation and John W.
Thompson
|
|
10-K
|
|
000-17781
|
|
10.67
|
|
07/01/99
|
|
|
|
10
|
.26*
|
|
Form of FY07 Executive Annual
Incentive Plan
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
06/15/06
|
|
|
|
10
|
.27*
|
|
Form of FY08 Executive Annual
Incentive Plan Group Presidents responsible for one
of Symantecs business segments
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
05/07/07
|
|
|
|
10
|
.28*
|
|
Form of FY08 Executive Annual
Incentive Plan Executive Officers other than Group
Presidents responsible for one of Symantecs business
segments
|
|
8-K
|
|
000-17781
|
|
10.02
|
|
05/07/07
|
|
|
|
10
|
.29*
|
|
Symantec Senior Executive
Incentive Plan
|
|
10-K
|
|
000-17781
|
|
10.18
|
|
06/14/04
|
|
|
|
10
|
.30*
|
|
Symantec Corporation Executive
Retention Plan, as amended
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
04/27/06
|
|
|
|
10
|
.31
|
|
Second Amended and Restated
Symantec Online Store Agreement, by and among Symantec
Corporation, Symantec Limited, Digital River, Inc. and Digital
River Ireland Limited, entered into on October 19, 2006
|
|
10-Q
|
|
000-17781
|
|
10.02
|
|
02/07/07
|
|
|
|
10
|
.32
|
|
Amended Agreement Respecting
Certain Rights of Publicity, by and between Peter Norton and
Peter Norton Computing, Inc., dated August 31, 1990
|
|
S-4
|
|
33-35385
|
|
10.04
|
|
06/13/90
|
|
|
|
10
|
.33
|
|
Assignment of Copyright and Other
Intellectual Property Rights, by and between Peter Norton and
Peter Norton Computing, Inc., dated August 31, 1990
|
|
S-4
|
|
33-35385
|
|
10.37
|
|
06/13/90
|
|
|
|
10
|
.34
|
|
Environmental Indemnity Agreement,
dated April 23, 1999, between Veritas and Fairchild
Semiconductor Corporation, included as Exhibit C to that
certain Agreement of Purchase and Sale, dated March 29,
1999, between Veritas and Fairchild Semiconductor of California
|
|
S-1/A
|
|
333-83777
|
|
10.27
Exhibit C
|
|
08/06/99
|
|
|
|
21
|
.01
|
|
Subsidiaries of Symantec
Corporation
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.01
|
|
Consent of Independent Registered
Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
|
24
|
.01
|
|
Power of Attorney (see Signature
page to this annual report)
|
|
|
|
|
|
|
|
|
|
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
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
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
|
|
|
|
§ |
|
The exhibits and schedules to this agreement have been omitted
pursuant to Item 601(b)(2) of
Regulation S-K.
We will furnish copies of any of the exhibits and schedules to
the SEC upon request |
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
|
|
Certain portions of this exhibit have been omitted and have been
filed separately with the SEC pursuant to a request for
confidential treatment under
Rule 24b-2
as promulgated under the Securities Exchange Act of 1934. |
|
|
|
Filed by Veritas Software Corporation. |
|
|
|
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. |
(c) Financial Statement Schedules: We hereby file as part
of this annual report the schedule listed in Item 15(a)2,
as set forth above.
65
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
67
|
|
|
|
|
69
|
|
|
|
|
70
|
|
|
|
|
71
|
|
|
|
|
72
|
|
|
|
|
73
|
|
|
|
|
83
|
|
66
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Symantec Corporation:
We have audited the accompanying consolidated balance sheets of
Symantec Corporation and subsidiaries (the Company) as of
March 31, 2007 and 2006, and the related consolidated
statements of income, stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended March 31, 2007. In connection
with our audits of the consolidated financial statements, we
have also audited the related financial statement schedule
listed in Item 15. These consolidated financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Symantec Corporation and subsidiaries as of
March 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended March 31, 2007, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in the Summary of Significant Accounting Policies,
immediately preceding note 1 to the consolidated financial
statements, effective April 1, 2006, the Company adopted
the provisions of Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, and Securities and
Exchange Commission Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in the Current Year Financial
Statements.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of March 31, 2007, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated May 23, 2007 expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.
Mountain View, California
May 23, 2007
67
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Symantec Corporation:
We have audited managements assessment, included in the
Managements Report on Internal Control over Financial
Reporting appearing in Item 9A(b) that Symantec Corporation
and subsidiaries (the Company) maintained effective internal
control over financial reporting as of March 31, 2007,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Symantec
Corporation and subsidiaries maintained effective internal
control over financial reporting as of March 31, 2007, is
fairly stated, in all material respects, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our
opinion, Symantec Corporation and subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of March 31, 2007, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Symantec Corporation and
subsidiaries as of March 31, 2007 and 2006, and the related
consolidated statements of income, stockholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended March 31, 2007, and our report
dated May 23, 2007 expressed an unqualified opinion on
those consolidated financial statements.
Mountain View, California
May 23, 2007
68
SYMANTEC
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except par value)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,559,034
|
|
|
$
|
2,315,622
|
|
Short-term investments
|
|
|
428,619
|
|
|
|
550,180
|
|
Trade accounts receivable, net
|
|
|
666,968
|
|
|
|
670,937
|
|
Inventories
|
|
|
42,183
|
|
|
|
48,687
|
|
Current deferred income taxes
|
|
|
165,323
|
|
|
|
131,833
|
|
Other current assets
|
|
|
208,920
|
|
|
|
190,673
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,071,047
|
|
|
|
3,907,932
|
|
Property and equipment, net
|
|
|
1,092,240
|
|
|
|
946,217
|
|
Acquired product rights, net
|
|
|
909,878
|
|
|
|
1,238,511
|
|
Other intangible assets, net
|
|
|
1,245,638
|
|
|
|
1,440,873
|
|
Goodwill
|
|
|
10,340,348
|
|
|
|
10,331,045
|
|
Other long-term assets
|
|
|
91,719
|
|
|
|
48,605
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,750,870
|
|
|
$
|
17,913,183
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Convertible subordinated notes
|
|
$
|
|
|
|
$
|
512,800
|
|
Accounts payable
|
|
|
149,131
|
|
|
|
167,135
|
|
Accrued compensation and benefits
|
|
|
307,824
|
|
|
|
277,170
|
|
Current deferred revenue
|
|
|
2,387,733
|
|
|
|
1,915,179
|
|
Other accrued expenses
|
|
|
234,915
|
|
|
|
185,882
|
|
Income taxes payable
|
|
|
238,486
|
|
|
|
419,401
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,318,089
|
|
|
|
3,477,567
|
|
Convertible senior notes
|
|
|
2,100,000
|
|
|
|
|
|
Long-term deferred revenue
|
|
|
366,050
|
|
|
|
248,273
|
|
Long-term deferred tax liabilities
|
|
|
343,848
|
|
|
|
493,956
|
|
Other long-term obligations
|
|
|
21,370
|
|
|
|
24,916
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,149,357
|
|
|
|
4,244,712
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock (par value: $0.01,
1,000 shares authorized; none issued and outstanding)
|
|
|
|
|
|
|
|
|
Common stock (par value: $0.01,
3,000,000 shares authorized; 1,283,113 and
1,210,660 shares issued at March 31, 2007 and 2006;
899,417 and 1,040,885 shares outstanding at March 31,
2007 and 2006, respectively)
|
|
|
8,994
|
|
|
|
10,409
|
|
Capital in excess of par value
|
|
|
10,061,144
|
|
|
|
12,426,690
|
|
Accumulated other comprehensive
income
|
|
|
182,933
|
|
|
|
146,810
|
|
Deferred stock-based compensation
|
|
|
|
|
|
|
(43,595
|
)
|
Retained earnings
|
|
|
1,348,442
|
|
|
|
1,128,157
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
11,601,513
|
|
|
|
13,668,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
17,750,870
|
|
|
$
|
17,913,183
|
|
|
|
|
|
|
|
|
|
|
The accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements are an integral part
of these statements.
69
SYMANTEC
CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except net income per share)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Content, subscriptions, and
maintenance, net
|
|
$
|
3,917,572
|
|
|
$
|
2,873,211
|
|
|
$
|
1,945,310
|
|
Licenses, net
|
|
|
1,281,794
|
|
|
|
1,270,181
|
|
|
|
637,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
5,199,366
|
|
|
|
4,143,392
|
|
|
|
2,582,849
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Content, subscriptions, and
maintenance
|
|
|
823,525
|
|
|
|
621,636
|
|
|
|
351,077
|
|
Licenses
|
|
|
49,968
|
|
|
|
45,943
|
|
|
|
52,138
|
|
Amortization of acquired product
rights
|
|
|
342,333
|
|
|
|
314,290
|
|
|
|
48,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
1,215,826
|
|
|
|
981,869
|
|
|
|
452,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,983,540
|
|
|
|
3,161,523
|
|
|
|
2,130,740
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
2,007,651
|
|
|
|
1,499,904
|
|
|
|
845,022
|
|
Research and development
|
|
|
866,882
|
|
|
|
682,125
|
|
|
|
334,046
|
|
General and administrative
|
|
|
316,783
|
|
|
|
228,563
|
|
|
|
116,865
|
|
Amortization of other intangible
assets
|
|
|
201,502
|
|
|
|
148,822
|
|
|
|
5,416
|
|
Acquired in-process research and
development
|
|
|
|
|
|
|
285,100
|
|
|
|
3,480
|
|
Restructuring
|
|
|
70,236
|
|
|
|
24,918
|
|
|
|
2,776
|
|
Integration
|
|
|
744
|
|
|
|
15,926
|
|
|
|
3,494
|
|
Patent settlement
|
|
|
|
|
|
|
2,200
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,463,798
|
|
|
|
2,887,558
|
|
|
|
1,311,474
|
|
Operating income
|
|
|
519,742
|
|
|
|
273,965
|
|
|
|
819,266
|
|
Interest income
|
|
|
122,043
|
|
|
|
108,404
|
|
|
|
50,195
|
|
Interest expense
|
|
|
(27,233
|
)
|
|
|
(17,996
|
)
|
|
|
(12,323
|
)
|
Other income (expense), net
|
|
|
17,070
|
|
|
|
(1,650
|
)
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
631,622
|
|
|
|
362,723
|
|
|
|
858,128
|
|
Provision for income taxes
|
|
|
227,242
|
|
|
|
205,871
|
|
|
|
321,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
404,380
|
|
|
$
|
156,852
|
|
|
$
|
536,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
basic
|
|
$
|
0.42
|
|
|
$
|
0.16
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
diluted
|
|
$
|
0.41
|
|
|
$
|
0.15
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net income
per share basic
|
|
|
960,575
|
|
|
|
998,733
|
|
|
|
660,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net income
per share diluted
|
|
|
983,261
|
|
|
|
1,025,856
|
|
|
|
738,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements are an integral part
of these statements.
70
SYMANTEC
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Other
|
|
|
Deferred
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Stock-Based
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Income
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balances, March 31, 2004
|
|
|
311,854
|
|
|
$
|
3,119
|
|
|
$
|
1,573,466
|
|
|
$
|
125,484
|
|
|
$
|
|
|
|
$
|
724,139
|
|
|
$
|
2,426,208
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536,159
|
|
|
|
536,159
|
|
Change in unrealized loss on
available-for-sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,776
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,776
|
)
|
Translation adjustment, net of tax
of $18,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,230
|
|
|
|
|
|
|
|
|
|
|
|
68,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
employee stock plans
|
|
|
14,951
|
|
|
|
149
|
|
|
|
159,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,927
|
|
Stock dividend
|
|
|
352,623
|
|
|
|
3,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,526
|
)
|
|
|
|
|
Repurchases of common stock
|
|
|
(4,148
|
)
|
|
|
(41
|
)
|
|
|
(49,636
|
)
|
|
|
|
|
|
|
|
|
|
|
(142,239
|
)
|
|
|
(191,916
|
)
|
Conversion of convertible debt
|
|
|
35,142
|
|
|
|
352
|
|
|
|
593,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
593,534
|
|
Restricted stock grant
|
|
|
100
|
|
|
|
|
|
|
|
5,535
|
|
|
|
|
|
|
|
(5,535
|
)
|
|
|
|
|
|
|
|
|
Assumed Brightmail stock options
|
|
|
|
|
|
|
|
|
|
|
21,298
|
|
|
|
|
|
|
|
(20,059
|
)
|
|
|
|
|
|
|
1,239
|
|
Amortization of deferred
stock-based compensation, net of actual forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,524
|
|
|
|
|
|
|
|
4,524
|
|
Income tax benefit from employee
stock transactions
|
|
|
|
|
|
|
|
|
|
|
109,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2005
|
|
|
710,522
|
|
|
|
7,105
|
|
|
|
2,412,947
|
|
|
|
191,938
|
|
|
|
(21,070
|
)
|
|
|
1,114,533
|
|
|
|
3,705,453
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,852
|
|
|
|
156,852
|
|
Change in unrealized loss on
available-for-sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,264
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,264
|
)
|
Translation adjustment, net of tax
of $16,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,864
|
)
|
|
|
|
|
|
|
|
|
|
|
(40,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
employee stock plans
|
|
|
21,010
|
|
|
|
210
|
|
|
|
217,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,458
|
|
Repurchases of common stock
|
|
|
(173,666
|
)
|
|
|
(1,737
|
)
|
|
|
(3,483,200
|
)
|
|
|
|
|
|
|
|
|
|
|
(143,228
|
)
|
|
|
(3,628,165
|
)
|
Grant of restricted stock units
|
|
|
|
|
|
|
|
|
|
|
3,388
|
|
|
|
|
|
|
|
(3,388
|
)
|
|
|
|
|
|
|
|
|
Stock issued for acquisition of
Veritas
|
|
|
483,119
|
|
|
|
4,831
|
|
|
|
12,493,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,498,336
|
|
Fair value of assumed Veritas stock
options and restricted stock units
|
|
|
|
|
|
|
|
|
|
|
698,514
|
|
|
|
|
|
|
|
(63,092
|
)
|
|
|
|
|
|
|
635,422
|
|
Amortization of deferred
stock-based compensation, net of actual forfeitures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,712
|
|
|
|
|
|
|
|
37,712
|
|
Reduction of deferred stock-based
compensation due to stock option and restricted stock unit
cancellations
|
|
|
(100
|
)
|
|
|
|
|
|
|
(6,243
|
)
|
|
|
|
|
|
|
6,243
|
|
|
|
|
|
|
|
|
|
Other stock transactions
|
|
|
|
|
|
|
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386
|
|
Income tax benefit from employee
stock transactions
|
|
|
|
|
|
|
|
|
|
|
90,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2006
|
|
|
1,040,885
|
|
|
|
10,409
|
|
|
|
12,426,690
|
|
|
|
146,810
|
|
|
|
(43,595
|
)
|
|
|
1,128,157
|
|
|
|
13,668,471
|
|
Cumulative effect of adjustments
from the adoption of SAB No. 108, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,788
|
)
|
|
|
(33,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balances, March 31,
2006
|
|
|
1,040,885
|
|
|
|
10,409
|
|
|
|
12,426,690
|
|
|
|
146,810
|
|
|
|
(43,595
|
)
|
|
|
1,094,369
|
|
|
|
13,634,683
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404,380
|
|
|
|
404,380
|
|
Change in unrealized loss on
available-for-sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,093
|
|
|
|
|
|
|
|
|
|
|
|
4,093
|
|
Translation adjustment, net of tax
of $14,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,030
|
|
|
|
|
|
|
|
|
|
|
|
32,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of deferred compensation
due to SFAS No. 123R adoption
|
|
|
|
|
|
|
|
|
|
|
(43,595
|
)
|
|
|
|
|
|
|
43,595
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
employee stock plans
|
|
|
20,172
|
|
|
|
201
|
|
|
|
221,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,091
|
|
Repurchases of common stock
|
|
|
(161,704
|
)
|
|
|
(1,617
|
)
|
|
|
(2,694,388
|
)
|
|
|
|
|
|
|
|
|
|
|
(150,307
|
)
|
|
|
(2,846,312
|
)
|
Restricted stock units released,
net of taxes
|
|
|
64
|
|
|
|
1
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(698
|
)
|
Stock-based compensation, net of
estimated forfeitures
|
|
|
|
|
|
|
|
|
|
|
152,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,272
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
326,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,102
|
|
Purchase of bond hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
(359,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359,546
|
)
|
Income tax benefit from employee
stock transactions
|
|
|
|
|
|
|
|
|
|
|
32,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2007
|
|
|
899,417
|
|
|
$
|
8,994
|
|
|
$
|
10,061,144
|
|
|
$
|
182,933
|
|
|
$
|
|
|
|
$
|
1,348,442
|
|
|
$
|
11,601,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements are an integral part
of these statements.
71
SYMANTEC
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
404,380
|
|
|
$
|
156,852
|
|
|
$
|
536,159
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
255,129
|
|
|
|
191,204
|
|
|
|
90,838
|
|
Amortization
|
|
|
556,314
|
|
|
|
448,612
|
|
|
|
36,596
|
|
Impairment of equity investments
|
|
|
2,841
|
|
|
|
4,273
|
|
|
|
696
|
|
Stock-based compensation expense
|
|
|
153,880
|
|
|
|
38,401
|
|
|
|
4,524
|
|
Write-off of acquired in-process
research and development
|
|
|
|
|
|
|
285,100
|
|
|
|
3,480
|
|
Deferred income taxes
|
|
|
11,173
|
|
|
|
(202,677
|
)
|
|
|
60,861
|
|
Income tax benefit from stock
options
|
|
|
43,118
|
|
|
|
90,145
|
|
|
|
109,324
|
|
Excess income tax benefit from
stock options
|
|
|
(25,539
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
(19,937
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
912
|
|
|
|
120
|
|
|
|
3,748
|
|
Net change in assets and
liabilities, excluding effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable, net
|
|
|
33,714
|
|
|
|
(87,434
|
)
|
|
|
(3,636
|
)
|
Inventories
|
|
|
10,324
|
|
|
|
(29,828
|
)
|
|
|
(3,621
|
)
|
Accounts payable
|
|
|
(25,623
|
)
|
|
|
40,168
|
|
|
|
(960
|
)
|
Accrued compensation and benefits
|
|
|
23,169
|
|
|
|
(22,229
|
)
|
|
|
19,380
|
|
Deferred revenue
|
|
|
399,517
|
|
|
|
683,226
|
|
|
|
318,928
|
|
Income taxes payable
|
|
|
(181,926
|
)
|
|
|
(25,997
|
)
|
|
|
55,526
|
|
Other operating assets and
liabilities
|
|
|
24,789
|
|
|
|
(33,040
|
)
|
|
|
(24,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
1,666,235
|
|
|
|
1,536,896
|
|
|
|
1,207,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(419,749
|
)
|
|
|
(267,217
|
)
|
|
|
(91,536
|
)
|
Proceeds from sale of property and
equipment
|
|
|
121,464
|
|
|
|
|
|
|
|
|
|
Purchased intangible assets
|
|
|
(13,300
|
)
|
|
|
(7,204
|
)
|
|
|
(800
|
)
|
Proceeds from sales of intangible
assets
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
Cash acquired in (payments for)
business acquisitions, net
|
|
|
(33,373
|
)
|
|
|
540,604
|
|
|
|
(424,212
|
)
|
Purchases of equity investments
|
|
|
|
|
|
|
(2,694
|
)
|
|
|
(3,600
|
)
|
Proceeds from sales of equity
investments
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
Purchases of
available-for-sale
securities
|
|
|
(226,905
|
)
|
|
|
(1,729,922
|
)
|
|
|
(3,856,833
|
)
|
Proceeds from sales of
available-for-sale
securities
|
|
|
349,408
|
|
|
|
5,083,538
|
|
|
|
3,713,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(222,455
|
)
|
|
|
3,619,605
|
|
|
|
(663,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of convertible senior notes
|
|
|
2,067,299
|
|
|
|
|
|
|
|
|
|
Purchase of hedge on convertible
senior notes
|
|
|
(592,490
|
)
|
|
|
|
|
|
|
|
|
Sale of common stock warrants
|
|
|
326,102
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(2,846,312
|
)
|
|
|
(3,628,165
|
)
|
|
|
(191,916
|
)
|
Net proceeds from issuance of
common stock under employee stock plans
|
|
|
230,295
|
|
|
|
209,563
|
|
|
|
159,926
|
|
Repayment of debt
|
|
|
(520,000
|
)
|
|
|
(491,462
|
)
|
|
|
|
|
Excess income tax benefit from
stock options
|
|
|
25,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(1,309,567
|
)
|
|
|
(3,910,064
|
)
|
|
|
(31,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
|
|
109,199
|
|
|
|
(22,248
|
)
|
|
|
18,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
|
243,412
|
|
|
|
1,224,189
|
|
|
|
530,571
|
|
Beginning cash and cash equivalents
|
|
|
2,315,622
|
|
|
|
1,091,433
|
|
|
|
560,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
2,559,034
|
|
|
$
|
2,315,622
|
|
|
$
|
1,091,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of
non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and stock
options, and restricted stock units for business acquisitions
|
|
$
|
|
|
|
$
|
13,196,850
|
|
|
$
|
22,578
|
|
Supplemental cash flow
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (net of refunds)
during the year
|
|
$
|
384,771
|
|
|
$
|
339,081
|
|
|
$
|
97,151
|
|
Interest expense paid during the
year
|
|
$
|
10,108
|
|
|
$
|
1,748
|
|
|
$
|
18,000
|
|
The accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements are an integral part
of these statements.
72
SYMANTEC
CORPORATION
Summary
of Significant Accounting Policies
Business
Symantec Corporation (we, us, and
our refer to Symantec Corporation and all of its
subsidiaries) is a global leader in infrastructure software,
enabling businesses and consumers to have confidence in a
connected world. We help our customers protect their
infrastructure, information, and interactions by delivering
software and services that address risks to information
security, availability, compliance, and information technology,
or IT, systems performance. We strive to help our customers
manage compliance, complexity, and cost by protecting their IT
infrastructure as they seek to maximize value from their IT
investments. We deliver a comprehensive and diverse set of
security and availability products and services to a wide range
of customers, including large enterprises, governments, small
and medium-sized businesses, and consumers. Our delivery network
includes direct, inside, and channel sales resources which
support our ecosystem of more than 50,000 partners across the
world, as well as various relationships with original equipment
manufacturers, or OEMs, Internet service providers, or ISPs, and
retail and online stores. Founded in 1982, we have operations in
40 countries.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Symantec Corporation and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Acquisitions
and Divestitures
In fiscal 2007, we acquired two privately-held companies. Each
of these was accounted for as a purchase and, accordingly, each
acquired companys operating results have been included in
our consolidated financial statements since its respective date
of acquisition. During fiscal 2006, we completed our acquisition
of Veritas Software Corporation, or Veritas, a leading provider
of software and services to enable storage and backup. The
results of operations of Veritas have been included in our
results of operations beginning on July 2, 2005, the
acquisition date. In addition, in fiscal 2006, we acquired five
privately-held companies and one public company. In fiscal 2005,
we acquired five privately-held companies. Each of these
acquisitions was accounted for as a purchase and, accordingly,
each acquired companys operating results have been
included in our consolidated financial statements since its
respective date of acquisition.
Fiscal
Years
We have a
52/53-week
fiscal accounting year. Accordingly, all references as of and
for the fiscal years ended March 31, 2007, 2006, and 2005
reflect amounts as of and for the periods ended March 30,
2007, March 31, 2006, and April 1, 2005, respectively,
each of which consisted of 52 weeks. The fiscal accounting
year ending March 28, 2008 will comprise 52 weeks of
operations.
Symantec share and per share amounts in the Consolidated
Statements of Income and the Notes to Consolidated Financial
Statements reflect the
two-for-one
stock split effected as a stock dividend, which occurred on
November 30, 2004.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates. Significant items subject to such
estimates and assumptions include those related to the
allocation of revenues between recognized and deferred amounts,
the carrying values of goodwill and intangible assets, the
valuation of stock-based compensation, and the valuation
allowance for deferred income taxes.
73
Foreign
Currency Translation
The functional currency of our foreign subsidiaries is generally
the local currency. Assets and liabilities denominated in
foreign currencies are translated using the exchange rate on the
balance sheet dates. The translation adjustments resulting from
this process are included as a component of Stockholders
equity in Accumulated other comprehensive income. Revenues and
expenses are translated using monthly average exchange rates
prevailing during the year. Foreign currency transaction gains
and losses are included in Other income (expense), net in the
Consolidated Statements of Income. Deferred tax assets
(liabilities) are established on the cumulative translation
adjustment attributable to unremitted foreign earnings that are
not intended to be indefinitely reinvested.
Revenue
Recognition
We market and distribute our software products both as
stand-alone software products and as integrated product suites.
We recognize revenue when the following conditions have been met:
|
|
|
|
|
Persuasive evidence of an arrangement exists
|
|
|
|
Delivery has occurred or services have been rendered
|
|
|
|
Collection of a fixed or determinable amount is considered
probable
|
If we determine that any one of the three criteria is not met,
we will defer recognition of revenue until all the criteria are
met.
We derive revenue primarily from sales of content,
subscriptions, and maintenance and licenses. We present revenue
net of sales taxes and any similar assessments.
Content, subscriptions, and maintenance revenue includes
arrangements for software maintenance and technical support for
our products, content and subscription services primarily
related to our security products, revenue from arrangements
where vendor-specific objective evidence, or VSOE, of the fair
value of undelivered elements does not exist, and managed
security services. These arrangements are generally offered to
our customers over a specified period of time and we recognize
the related revenue ratably over the maintenance, subscription,
or service period.
Content, subscriptions, and maintenance revenue also includes
professional services revenue, which consists primarily of the
fees we earn related to consulting and educational services. We
generally recognize revenue from professional services as the
services are performed or upon written acceptance from
customers, if applicable, assuming all other conditions for
revenue recognition noted above have been met.
License revenue is derived primarily from the licensing of our
various products and technology. We generally recognize license
revenue upon delivery of the product, assuming all other
conditions for revenue recognition noted above have been met.
We enter into perpetual software license agreements through
direct sales to customers and indirect sales with distributors
and resellers. The license agreements generally include product
maintenance agreements, for which the related revenue is
included with Content, subscriptions, and maintenance and is
deferred and recognized ratably over the period of the
agreements.
In arrangements that include multiple elements, including
perpetual software licenses and maintenance
and/or
services and packaged products with content updates, we allocate
and defer revenue for the undelivered items based on VSOE of
fair value of the undelivered elements, and recognize the
difference between the total arrangement fee and the amount
deferred for the undelivered items as license revenue. VSOE of
each element is based on the price for which the undelivered
element is sold separately. We determine fair value of the
undelivered elements based on historical evidence of our
stand-alone sales of these elements to third parties or from the
stated renewal rate for the undelivered elements. When VSOE does
not exist for undelivered items such as maintenance, the entire
arrangement fee is recognized ratably over the performance
period. Our deferred revenue consists primarily of the
unamortized balance of enterprise product maintenance and
consumer product content update subscriptions and arrangements
where VSOE does not exist.
74
Indirect
channel sales
For our Consumer Products segment, we sell packaged software
products through a multi-tiered distribution channel. We also
sell electronic download and packaged products via the Internet.
We separately sell annual content update subscriptions directly
to end-users primarily via the Internet. As a result of
increases in subscription pricing for our consumer products that
include content updates, we recognize revenue for these products
ratably over the term of the subscription upon sell-through to
end-users. For most other consumer products, we recognize
package product revenue on distributor and reseller channel
inventory that is not in excess of specified inventory levels in
these channels. We offer the right of return of our products
under various policies and programs with our distributors,
resellers, and end-user customers. We estimate and record
reserves for product returns as an offset to revenue. We fully
reserve for obsolete products in the distribution channel as an
offset to deferred revenue.
For our Security and Data Management and Data Center Management
segments, we generally recognize revenue from licensing of
software products through our indirect sales channel upon
sell-through or with evidence of an end-user. For licensing of
our software to OEMs, royalty revenue is recognized when the OEM
reports the sale of the software products to an end-user
customer, generally on a quarterly basis. In addition to license
royalties, some OEMs pay an annual flat fee
and/or
support royalties for the right to sell maintenance and
technical support to the end-user. We recognize revenue from OEM
support royalties and fees ratably over the term of the support
agreement.
We offer channel and end-user rebates for our products. Our
estimated reserves for channel volume incentive rebates are
based on distributors and resellers actual
performance against the terms and conditions of volume incentive
rebate programs, which are typically entered into quarterly. Our
reserves for end-user rebates are estimated based on the terms
and conditions of the promotional program, actual sales during
the promotion, amount of actual redemptions received, historical
redemption trends by product and by type of promotional program,
and the value of the rebate. We estimate and record reserves for
channel and end-user rebates as an offset to revenue. For
consumer products that include content updates, rebates are
recorded as a ratable offset to revenue over the term of the
subscription.
Cash
Equivalents and Short-Term Investments
We classify our cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards, or
SFAS, No. 115, Accounting for Certain Investments in
Debt and Equity Securities. We consider investments in
instruments purchased with an original maturity of 90 days
or less to be cash equivalents. We classify our short-term
investments as
available-for-sale,
and short-term investments consist of marketable debt or equity
securities with original maturities in excess of 90 days.
Our cash equivalents and short-term investment portfolios
consist primarily of money market funds, commercial paper,
corporate debt securities, asset-backed debt securities, and
U.S. government and government-sponsored debt securities.
Our short-term investments do not include equity investments in
privately held companies. Our short-term investments are
reported at fair value with unrealized gains and losses, net of
tax, included in Accumulated other comprehensive income within
Stockholders equity in the Consolidated Balance Sheets.
The amortization of premiums and discounts on the investments,
realized gains and losses, and declines in value judged to be
other-than-temporary
on
available-for-sale
securities are included in Other income (expense), net in the
Consolidated Statements of Income. We use the specific
identification method to determine cost in calculating realized
gains and losses upon sale of short-term investments.
Trade
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount
and are not interest bearing. We maintain an allowance for
doubtful accounts to reserve for potentially uncollectible trade
receivables. Additions to the allowance for doubtful accounts
are recorded as General and administrative expenses. We review
our trade receivables by aging category to identify specific
customers with known disputes or collectibility issues. In
addition, we maintain an allowance for all other receivables not
included in the specific reserve by applying specific
percentages of projected uncollectible receivables to the
various aging categories. In determining these percentages, we
analyze our historical collection experience and current
economic trends. We exercise judgment when determining the
adequacy of these reserves as we evaluate historical bad debt
trends, general economic conditions
75
in the U.S. and internationally, and changes in customer
financial conditions. We also offset deferred revenue against
accounts receivable when channel inventories are in excess of
specified levels and for transactions where collection of a
receivable is not considered probable.
Equity
Investments
We have equity investments in privately held companies for
business and strategic purposes. These investments are included
in Other long-term assets in the Consolidated Balance Sheets and
are accounted for under the cost method as we do not have
significant influence over these investees. Under the cost
method, the investment is recorded at its initial cost and is
periodically evaluated for impairment. During our review for
impairment, we examine the investees actual and forecasted
operating results, financial position, and liquidity, as well as
business/industry factors in assessing whether a decline in
value of an equity investment has occurred that is
other-than-temporary.
When such a decline in value is identified, the fair value of
the equity investment is estimated based on the preceding
factors and an impairment loss is recognized in Other income
(expense), net in the Consolidated Statements of Income. In
fiscal 2007, 2006, and 2005, we recognized impairment losses on
our equity investments of $3 million, $4 million, and
an insignificant amount, respectively.
Each quarter we assess our compliance with accounting guidance,
including the provisions of Financial Accounting Standards Board
Interpretation No., or FIN, 46R, Consolidation of Variable
Interest Entities An Interpretation of ARB
No. 51. Under FIN 46R, we must consolidate a
variable interest entity if we have a variable interest (or
combination of variable interests) in the entity that will
absorb a majority of the entitys expected losses, receive
a majority of the entitys expected residual returns, or
both. Currently, our equity investments are not subject to
consolidation under FIN 46R.
Derivative
Financial Instruments
We utilize some natural hedging to mitigate our foreign currency
exposures and we manage certain residual exposures through the
use of one-month forward foreign exchange contracts. We enter
into forward foreign exchange contracts with high-quality
financial institutions primarily to minimize currency exchange
risks associated with certain balance sheet positions
denominated in foreign currencies. We do not utilize derivative
instruments for trading or speculative purposes. Gains and
losses on the contracts are included in Other income (expense),
net in the Consolidated Statements of Income in the period that
gains and losses on the underlying maturing forward transactions
are recognized. The gains and losses on the contracts generally
offset the gains and losses on the underlying transactions.
Changes in the fair value of forward foreign exchange contracts
are included in earnings. We do not hedge our foreign currency
translation risk.
Inventories
Inventories are valued at the lower of cost or market. Cost is
principally determined using the
first-in,
first-out method. Inventory predominantly consists of finished
goods as well as deferred costs of revenue. Deferred costs of
revenue were $40 million at March 31, 2007 and
$41 million at March 31, 2006, of which
$27 million and $29 million, respectively, are related
to consumer products that include content updates and will be
recognized ratably over the term of the subscription.
Property,
Equipment, and Leasehold Improvements
Property, equipment, and leasehold improvements are stated at
cost, net of accumulated depreciation and amortization.
Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the respective assets
as follows:
|
|
|
|
|
Computer hardware and software two to five years
|
|
|
|
Office furniture and equipment three to five years
|
|
|
|
Leasehold improvements the shorter of the lease term
or seven years
|
|
|
|
Buildings twenty-five to thirty years
|
76
Capitalized
Software Development Costs
Costs incurred in connection with the development of software
products are accounted for in accordance with
SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise
Marketed. Development costs incurred in the
research and development of new software products and
enhancements to existing software products are expensed as
incurred until technological feasibility in the form of a
working model has been established. Our software has been
available for general release concurrent with the establishment
of technological feasibility, and accordingly no software
development costs have been capitalized in fiscal 2007, 2006,
and 2005.
Acquired
Product Rights
Acquired product rights are comprised of purchased product
rights, technologies, databases, patents, and contracts from
acquired companies. Acquired product rights are stated at cost
less accumulated amortization. Amortization of acquired product
rights is provided on a straight-line basis over the estimated
useful lives of the respective assets, generally one to eight
years, and is included in Cost of revenues in the Consolidated
Statements of Income.
Goodwill
and Other Intangible Assets
We account for goodwill and other intangible assets in
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that
goodwill and identifiable intangible assets with indefinite
useful lives be tested for impairment at least annually, or more
frequently if events and circumstances warrant. We evaluate
goodwill for impairment by comparing the fair value of each of
our reporting units, which are the same as our operating
segments, to its carrying value, including the goodwill
allocated to that reporting unit. To determine the reporting
units fair values in the current year evaluation, we used
the income approach under which we calculate the fair value of
each reporting unit based on the estimated discounted future
cash flows of that unit. Our cash flow assumptions are based on
historical and forecasted revenue, operating costs, and other
relevant factors. SFAS No. 142 also requires that
intangible assets with finite useful lives be amortized over
their respective estimated useful lives and reviewed for
impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.
Long-Lived
Assets
We account for long-lived assets in accordance with
SFAS No. 144, which requires that long-lived and
intangible assets, including Property and equipment, net,
Acquired product rights, net, and Other intangible assets, net
be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. We would recognize an impairment loss when
the sum of the undiscounted future net cash flows expected to
result from the use of the asset and its eventual disposition is
less than its carrying amount. Such impairment loss would be
measured as the difference between the carrying amount of the
asset and its fair value, which would be estimated based on the
discounted cash flows expected to be generated by the asset.
Assets to be disposed of would be separately presented in the
Consolidated Balance Sheets and reported at the lower of the
carrying amount or fair value less costs to sell, and no longer
depreciated. The assets and liabilities of a disposal group
classified as held for sale would be presented separately in the
appropriate asset and liability sections of the Consolidated
Balance Sheets.
Income
Taxes
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. The
provision for income taxes is computed using the asset and
liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carryforwards in each jurisdiction
in which we operate. Deferred tax assets and liabilities are
measured using the currently enacted tax rates that apply to
taxable income in effect for the years in which those tax assets
are expected to be realized or settled. We record a valuation
allowance to reduce deferred tax assets to the amount that is
believed more likely than not to be realized.
77
We are required to compute our income taxes in each federal,
state, and international jurisdiction in which we operate. This
process requires that we estimate the current tax exposure as
well as assess temporary differences between the accounting and
tax treatment of assets and liabilities, including items such as
accruals and allowances not currently deductible for tax
purposes. The income tax effects of the differences we identify
are classified as current or long-term deferred tax assets and
liabilities in our Consolidated Balance Sheets. Our judgments,
assumptions, and estimates relative to the current provision for
income tax take into account current tax laws, our
interpretation of current tax laws, and possible outcomes of
current and future audits conducted by foreign and domestic tax
authorities. Changes in tax laws or our interpretation of tax
laws and the resolution of current and future tax audits could
significantly impact the amounts provided for income taxes in
our Consolidated Balance Sheets and Consolidated Statements of
Income. We must also assess the likelihood that deferred tax
assets will be realized from future taxable income and, based on
this assessment, establish a valuation allowance, if required.
Our determination of our valuation allowance is based upon a
number of assumptions, judgments, and estimates, including
forecasted earnings, future taxable income, and the relative
proportions of revenue and income before taxes in the various
domestic and international jurisdictions in which we operate.
The valuation allowance provided significantly relates to
acquired attributes and therefore any future benefit of the
realization of the deferred tax assets subject to this valuation
allowance will be credited to goodwill. To the extent we
establish a valuation allowance or change the valuation
allowance in a future period, we reflect the change with a
corresponding increase or decrease to our tax provision in our
Consolidated Statements of Income, or to goodwill to the extent
that the valuation allowance related to tax attributes of the
acquired entities.
Net
Income Per Share
Net income per share basic and diluted are presented
in conformity with SFAS No. 128, Earnings per
Share, for all periods presented. Net income per
share basic is computed using the weighted-average
number of common shares outstanding during the periods. Net
income per share diluted is computed using the
weighted-average number of common shares outstanding and
potentially dilutive common shares outstanding during the
periods. Potentially dilutive common shares include the assumed
exercise of stock options using the treasury stock method, the
dilutive impact of restricted stock, restricted stock units, and
warrants using the treasury stock method, and conversion of
debt, if dilutive in the period. Potentially dilutive common
shares are excluded in net loss periods, as their effect would
be antidilutive.
Stock-Based
Compensation
Prior to April 1, 2006, we accounted for stock-based
compensation awards to employees using the intrinsic value
method in accordance with Accounting Principles Board Opinion,
or APB, No. 25, Accounting for Stock Issued to
Employees, and to non-employees using the fair value method
in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation. In addition, we applied applicable
provisions of FIN 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation
of APB No. 25.
Effective April 1, 2006, we adopted the provisions of
SFAS No. 123R, Share-Based Payment, which
replaced SFAS No. 123 and superseded APB No. 25
and related interpretations. Under SFAS No. 123R, we
must measure the fair value of all stock-based awards, including
stock options, restricted stock units, and employee stock
purchase plan purchase rights, on the date of grant and amortize
the fair value of the award to compensation expense over the
requisite service period. We elected the modified prospective
application method, under which prior periods are not revised
for comparative purposes. The valuation provisions of
SFAS No. 123R apply to new awards and to awards
outstanding as of the effective date that are subsequently
modified. For stock-based awards granted on or after
April 1, 2006, we recognize stock-based compensation
expense on a straight-line basis over the requisite service
period, which is generally the vesting period. We recognize
estimated compensation expense for stock-based awards that were
outstanding and unvested as of the effective date on a
straight-line basis over the remaining service period under the
pro forma provisions of SFAS No. 123.
As a result of adopting SFAS No. 123R, our Net income
per share basic and Net income per share
diluted are each $0.12 lower in fiscal 2007 than if we had
continued to account for stock-based compensation under APB
No. 25.
78
Prior to the adoption of SFAS No. 123R, we presented
all tax benefits for deductions related to stock options as
operating cash flows in our Consolidated Statements of Cash
Flows. SFAS No. 123R requires cash flows resulting
from the tax benefits for tax deductions in excess of the
compensation expense recorded for exercised options to be
classified as financing cash flows. Accordingly, we classified
$26 million of such excess tax benefits as financing cash
flows rather than operating cash flows in our Consolidated
Statement of Cash Flows for the fiscal year ended March 31,
2007.
Pursuant to the income tax guidance included in
SFAS No. 123R, we have elected the regular method of
computing the pool of excess tax benefits, or APIC pool.
Concentrations
of Credit Risk
A significant portion of our revenues and net income is derived
from international sales and independent agents and
distributors. Fluctuations of the U.S. dollar against
foreign currencies, changes in local regulatory or economic
conditions, piracy, or nonperformance by independent agents or
distributors could adversely affect operating results.
Financial instruments that potentially subject us to
concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments, trade accounts
receivable, and forward foreign exchange contracts. Our
investment portfolio is diversified and consists of investment
grade securities. Our investment policy limits the amount of
credit risk exposure to any one issuer and in any one country.
We are exposed to credit risks in the event of default by the
issuers to the extent of the amount recorded in the Consolidated
Balance Sheets. The credit risk in our trade accounts receivable
is substantially mitigated by our credit evaluation process,
reasonably short collection terms, and the geographical
dispersion of sales transactions. We maintain reserves for
potential credit losses and such losses have been within
managements expectations.
Legal
Expenses
Prior to October 1, 2006, we recognized a liability for
cases where we are the defendant for estimated external legal
costs to be incurred during the next fiscal quarter. Effective
October 1, 2006, we changed our policy related to legal
costs from one generally accepted method of accounting to
another generally accepted method of accounting. Under our new
policy, we will no longer recognize a liability for external
legal costs related to future periods. Instead, we will expense
such amounts in the period incurred. We believe that this new
policy is preferable in the circumstances because the costs and
administrative burden involved in estimating future legal
expenses outweigh the benefits. Further, we believe that this
new method more accurately aligns the expense with the
accounting period in which it is incurred. We will continue to
accrue amounts related to external legal costs that are incurred
during the period and to accrue probable losses in the period in
which the loss is identified. The impact of this change in
accounting method is inconsequential for all prior periods
presented, and, therefore, prior periods have not been revised
to reflect this change.
Accumulated
Other Comprehensive Income
We report comprehensive income or loss in accordance with the
provisions of SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting
comprehensive income and its components in the financial
statements. The components of other comprehensive income consist
of unrealized gains and losses on
available-for-sale
securities, net of tax, and foreign currency translation
adjustments, net of tax. Unrealized losses on our
available-for-sale
securities were $2 million and $6 million as of
March 31, 2007 and 2006 respectively. Comprehensive income
is presented in the accompanying Consolidated Statements of
Stockholders Equity and Comprehensive Income.
79
Adoption
of Staff Accounting Bulletin No. 108
In September 2006, the Securities and Exchange Commission, or
SEC, issued Staff Accounting Bulletin, or SAB, No. 108,
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements. SAB No. 108 provides guidance on how
prior year misstatements should be taken into consideration when
quantifying misstatements in current year financial statements
for purposes of determining whether the current years
financial statements are materially misstated.
SAB No. 108 is effective for fiscal years ending on or
after November 15, 2006. Historically, we have evaluated
uncorrected differences utilizing the rollover
approach. The rollover approach quantifies a misstatement based
on the amount of the error originating in the current year
income statement. Thus, this approach ignores the effects of
correcting the portion of the current year balance sheet
misstatement that originated in prior years (i.e., it ignores
the carryover effects of prior year misstatements).
We believe that our assessment of uncorrected differences in
prior periods and the conclusions reached regarding the
qualitative and quantitative effects of such uncorrected
differences were appropriate. We adopted SAB No. 108
in the fourth quarter of fiscal 2007 and elected to record the
effects of applying SAB No. 108 using the cumulative
effect transition method which resulted in the correction of the
carrying values of assets and liabilities as of April 1,
2006 with an offsetting adjustment recorded to the opening
balance of retained earnings. The following table summarizes the
SAB No. 108 cumulative effect adjustment as of
April 1, 2006.
|
|
|
|
|
|
|
Retained Earnings
|
|
|
Adjustment
|
|
|
Recorded as of
|
|
|
April 1, 2006
|
|
|
(Increase)
Decrease(1)
|
|
|
(In thousands)
|
|
Amortization of deferred
revenue(2)
|
|
$
|
70,671
|
|
Deferred revenue on low-dollar
transactions(3)
|
|
|
23,118
|
|
Amortization of product
returns(4)
|
|
|
18,472
|
|
Fixed assets
capitalization(5)
|
|
|
(57,190
|
)
|
Amortization of capitalized cost
of
revenues(6)
|
|
|
(3,861
|
)
|
Free technical support
accrual(7)
|
|
|
(3,433
|
)
|
Distributed benefits
accrual(8)
|
|
|
(2,789
|
)
|
Allowance for doubtful
accounts(9)
|
|
|
(1,777
|
)
|
Deferred income
taxes(10)
|
|
|
(9,423
|
)
|
|
|
|
|
|
Retained
earnings(11)
|
|
$
|
33,788
|
|
|
|
|
|
|
|
|
|
(1) |
|
We previously evaluated these misstatements utilizing the
rollover approach and concluded that these errors were
insignificant, individually and in the aggregate, to all periods
prior to April 1, 2006. |
|
(2) |
|
Prior to April 1, 2006, we used different amortization
conventions for different product lines. Amortization refers to
the process of recognizing an amount of revenue over a period of
time. For the Veritas acquired product lines, we recognized
revenue on a monthly straight-line basis, commencing with the
month subsequent to the month in which the subscription began.
For all other product lines, we recognized revenue on a monthly
straight-line basis, commencing with the month in which the
subscription began. Effective April 1, 2006, we amortize
and recognize revenue on a daily straight-line basis, commencing
on the day the subscription begins. |
|
(3) |
|
Prior to April 1, 2006, we recorded our low-dollar security
product transactions by allocating revenue to all elements in
the transaction according to the allocation defined in the
contractual arrangement as opposed to an allocation based on
VSOE. Low-dollar transactions are generally those transactions
with standard terms and conditions that are below a specified
transaction value threshold. Effective April 1, 2006, we
allocate revenue based upon VSOE, for all transactions. |
|
(4) |
|
Prior to April 1, 2006, for our Consumer product line, we
recognized returns on a monthly straight-line basis, commencing
with the month of the return over a default twelve-month
subscription term. Effective April 1, 2006, we recognize
returns on a daily straight-line basis, commencing on the day
the original subscription begins and over the original
subscription term. |
80
|
|
|
(5) |
|
Prior to April 1, 2006, computer hardware, office
furniture, and equipment purchases below $5,000 were recognized
as period expenses. Effective April 1, 2006, we capitalize
all qualifying computer hardware, office furniture, and
equipment purchases. |
|
(6) |
|
Prior to April 1, 2006, for our Consumer product line, we
amortized capitalized cost of revenues on a monthly
straight-line basis, commencing with the month in which the
related subscription revenue term began. Effective April 1,
2006, we amortize capitalized cost of revenues on a daily
straight-line basis, commencing on the day the related
subscription revenue term begins. |
|
(7) |
|
Prior to April 1, 2006, we recorded an accrual related to a
promotion that provided 90 days free technical support for
customers purchasing our Consumer products. This program expired
in July 2000. Upon expiration of the program, we erroneously
maintained the accrual. |
|
(8) |
|
Prior to April 1, 2006, we recorded an accrual related to
employee distributed benefits such as costs associated with
bonuses, 401(k) matching, and other fringe benefits, utilizing
an estimated overhead rate. Prior to fiscal 2004, it was
determined that $3 million of our accrued expense was no
longer required; however, we erroneously maintained the accrual. |
|
(9) |
|
Prior to April 1, 2006, we recorded a general reserve
associated with accounts receivable balances. Prior to fiscal
2004, it was determined that this general reserve was not
substantiated and we erroneously maintained the reserve. |
|
(10) |
|
As a result of the misstatements previously described, we
recorded an increase to Deferred income tax in the amount of
$9 million as of April 1, 2006 with a corresponding
increase to Retained earnings to correct these misstatements. |
|
(11) |
|
Represents the net reduction to Retained earnings recorded as of
April 1, 2006 to reflect the initial application of
SAB No. 108. |
Certain of the adjustments ((2) through (6) and (10))
included above also resulted in errors in the first three
quarters of fiscal 2007. In conjunction with our adoption of
SAB No. 108 in the fourth quarter, we noted certain
other misstatements, the correction of which only impacted
fiscal 2007. We previously evaluated these misstatements
utilizing the rollover approach and concluded that these errors
were insignificant, individually and in the aggregate, to each
of the first three quarters of fiscal 2007. Our disclosure of
selected quarterly information included in Item 8.
Financial Statements and Supplementary Data has been
adjusted to reflect our adoption of SAB No. 108 as of
April 1, 2006.
Newly
Adopted and Recently Issued Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, including an
amendment of SFAS No. 115. SFAS No. 159
permits companies to choose to measure certain financial
instruments and certain other items at fair value and requires
unrealized gains and losses on items for which the fair value
option has been elected to be reported in earnings.
SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently in the process of
evaluating the impact of SFAS No. 159 on our
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
establishes a framework for measuring the fair value of assets
and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some
cases require, estimates of fair market value.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. Earlier application is encouraged, provided that
the reporting entity has not yet issued financial statements for
that fiscal year, including any financial statements for an
interim period within that fiscal year. We are currently in the
process of evaluating the impact of SFAS No. 157 on
our consolidated financial statements.
In September 2006, the FASB issued Emerging Issues Task Force
Issue, or EITF,
No. 06-1,
Accounting for Consideration Given by a Service Provider to a
Manufacturer or Reseller of Equipment Necessary for an
End-Customer to Receive Service from the Service Provider.
EITF
No. 06-1
requires that we provide disclosures regarding the nature of
arrangements in which we provide consideration to manufacturers
or resellers of equipment
81
necessary for an end-customer to receive service from us,
including the amounts recognized in the Consolidated Statements
of Income. EITF
06-1 is
effective for fiscal years beginning after June 15, 2007.
We do not expect the adoption of EITF
No. 06-1
to have a material impact on our consolidated financial
statements.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109. The interpretation contains a
two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with
SFAS No. 109. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates that it is more likely than not
that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon
ultimate settlement. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We are currently in the
process of evaluating the impact of FIN 48 on our
consolidated financial statements.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments,
which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 155 simplifies the
accounting for certain derivatives embedded in other financial
instruments by allowing them to be accounted for as a whole if
the holder elects to account for the entire instrument on a fair
value basis. SFAS No. 155 also clarifies and amends
certain other provisions of SFAS No. 133 and
SFAS No. 140. SFAS No. 155 is effective for
all financial instruments acquired, issued, or subject to a
re-measurement event occurring in fiscal years beginning after
September 15, 2006. Earlier adoption is permitted, provided
the company has not yet issued financial statements, including
for interim periods, for that fiscal year. We do not expect the
adoption of SFAS No. 155 to have a material impact on
our consolidated financial statements.
82
SYMANTEC
CORPORATION
|
|
Note 1.
|
Consolidated
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Trade accounts receivable,
net:
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
687,580
|
|
|
$
|
692,571
|
|
Less: allowance for doubtful
accounts
|
|
|
(8,391
|
)
|
|
|
(8,794
|
)
|
Less: reserve for product returns
|
|
|
(12,221
|
)
|
|
|
(12,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
666,968
|
|
|
$
|
670,937
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net:
|
|
|
|
|
|
|
|
|
Computer hardware and software
|
|
$
|
842,691
|
|
|
$
|
654,946
|
|
Office furniture and equipment
|
|
|
282,838
|
|
|
|
149,591
|
|
Buildings
|
|
|
533,319
|
|
|
|
434,548
|
|
Leasehold improvements
|
|
|
237,843
|
|
|
|
190,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,896,691
|
|
|
|
1,429,470
|
|
Less: accumulated depreciation and
amortization
|
|
|
(917,357
|
)
|
|
|
(612,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
979,334
|
|
|
|
817,398
|
|
Land
|
|
|
112,906
|
|
|
|
128,819
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,092,240
|
|
|
$
|
946,217
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 2.
|
Sales and
Marketing Expense
|
Technical
support costs
Technical support costs relate to the cost of providing
self-help online services, chat, and email support. Technical
support costs included in Sales and marketing in the
Consolidated Statements of Income for fiscal 2007, 2006, and
2005 were $18 million, $24 million, and
$21 million, respectively.
Advertising
costs
Advertising costs are charged to operations as incurred and
include electronic and print advertising, trade shows,
collateral production, and all forms of direct marketing.
Certain advertising contracts contain placement fee arrangements
with escalation clauses which are expensed on an estimated
average cost basis over the term of the arrangement. Advertising
costs included in Sales and marketing in the Consolidated
Statements of Income for fiscal 2007, 2006, and 2005 were
$382 million, $253 million, and $172 million,
respectively.
Fiscal
2007 acquisitions
On December 1, 2006, we completed our acquisition of
Company-i Limited, a UK-based professional services firm that
specialized in addressing key challenges associated with
operating and managing a data center in the financial services
industry, for $26 million in cash, including an
insignificant amount for acquisition related expenses. The
aggregate purchase price was allocated as follows, based on the
currency exchange rate on the date of acquisition: goodwill,
$22 million; other intangible assets, $6 million; net
deferred tax liabilities, $2 million; and an insignificant
amount to net tangible assets. Goodwill resulted primarily from
our expectation of synergies from the integration of
Company-is service offerings with our service offerings.
The amount allocated to Other intangible assets is being
amortized to Operating expenses in the Consolidated Statements
of Income over its estimated useful
83
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
life of eight years. The results of operations of Company-i have
been included in our results of operations since its acquisition
date. The financial results of this acquisition are considered
insignificant for purposes of pro forma financial disclosures.
Company-i is included in our Services segment. No goodwill is
deductible for tax purposes.
In addition, the purchase price may be increased by up to
$11 million in cash if Company-i meets certain billings
targets by September 30, 2008. Payments of the additional
consideration may be accelerated if certain billings targets are
met by March 31, 2007 or September 30, 2007. Under the
terms of the purchase agreement, Symantec has 90 days from
the respective dates to determine whether the billings target
for payment of the additional consideration has been met. Any
increase in the purchase consideration would result in a
corresponding increase in goodwill. We believe that it is not
determinable beyond a reasonable doubt that the billing target
are met as of March 31, 2007 and therefore we have not
booked an adjustment in accordance with SFAS No. 141,
Business Combinations.
On February 23, 2007, we completed our acquisition of
4FrontSecurity, Inc, for approximately $7 million in cash.
4FrontSecurity developed and distributed governance, risk
management, and regulatory compliance software that enabled
companies to measure and manage business and security
assessments of organizational information. The aggregate
purchase price was allocated as follows: goodwill,
$6 million; other intangible assets, $3 million; and
insignificant amounts to income tax payable and net deferred tax
liabilities. Goodwill resulted primarily from our expectation of
synergies from the integration of 4FrontSecuritys
technology with our technology. The amount allocated to other
intangible assets is being amortized to Operating expenses in
the Consolidated Statements of Income over their estimated lives
of one to seven years. The results of operations of
4FrontSecurity have been included in our results of operations
since its acquisition date. The financial results of this
acquisition are considered insignificant for purposes of pro
forma financial disclosures. 4FrontSecurity is included in our
Security and Data Management segment. No goodwill is deductible
for tax purposes.
Fiscal
2006 acquisitions
On July 2, 2005, we completed our acquisition of Veritas, a
leading provider of software and services to enable storage and
backup, whereby Veritas became a wholly owned subsidiary of
Symantec in a transaction accounted for using the purchase
method of accounting. The total purchase price of
$13.2 billion includes Symantec common stock valued at
$12.5 billion, assumed stock options and restricted stock
units, or RSUs, with a fair value of $699 million, and
acquisition-related expenses of $39 million. The total
purchase price of the acquisition is as follows (in thousands):
|
|
|
|
|
Value of Symantec stock issued
|
|
$
|
12,498,336
|
|
Estimated fair value of options
assumed and RSUs exchanged
|
|
|
698,514
|
|
Acquisition related expenses
|
|
|
38,791
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
13,235,641
|
|
|
|
|
|
|
The acquisition was structured to qualify as a tax-free
reorganization and we have accounted for the acquisition using
the purchase method of accounting. The results of operations of
Veritas have been included in the Consolidated Statements of
Income beginning on July 2, 2005 and had a significant
impact on our revenues, cost of revenues, and operating expenses.
The Veritas business is included in our Consumer Products,
Security and Data Management, Data Center Management, and
Services segments.
Purchase
price allocation
In accordance with SFAS No. 141, the total purchase
price was allocated to Veritas net tangible and intangible
assets based on their estimated fair values as of July 2,
2005. The excess purchase price over the value of the net
84
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
tangible and identifiable intangible assets was recorded as
goodwill. The following represents the allocation of the
purchase price to the acquired net assets of Veritas and the
associated estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Amount
|
|
|
Useful Life
|
|
|
(In thousands)
|
|
|
|
|
Net tangible assets
|
|
$
|
2,300,199
|
|
|
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
|
Acquired product rights
|
|
|
1,301,600
|
|
|
|
4 to
5 years(1)
|
Customer contracts and
relationships
|
|
|
1,419,400
|
|
|
|
8 years
|
Trade name
|
|
|
96,800
|
|
|
|
10 years
|
Goodwill
|
|
|
8,597,768
|
|
|
|
|
In-process research and development
|
|
|
284,000
|
|
|
|
|
Deferred stock-based compensation
|
|
|
63,092
|
|
|
|
2.8 years(2)
|
Deferred tax liability
|
|
|
(827,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
13,235,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Veritas backlog included in Acquired product rights was
charged to Cost of revenues in the September 2005 quarter. |
|
(2) |
|
Estimated weighted-average remaining vesting period. |
During fiscal 2007, we adjusted goodwill for amounts primarily
related to tax adjustments, which consisted of adjustments to
deferred taxes and income taxes payable related to
pre-acquisition tax contingencies and actual tax benefits
arising from employee exercises of assumed fully-vested stock
options. The purchase price allocation may be further adjusted
in future periods pending resolution of the Veritas
pre-acquisition income tax matters discussed in Note 13.
Net
tangible assets
Veritas tangible assets and liabilities as of July 2,
2005 were reviewed and adjusted to their fair value as
necessary, including a write down in the amount of
$113 million relating to land owned in various locations.
Net tangible assets include net deferred tax assets of
$223 million and income taxes payable of $269 million.
Deferred
revenue
In connection with the acquisition of Veritas, we assumed
Veritas contractual obligations related to its deferred
revenue. Veritas deferred revenue was derived from
licenses, maintenance, consulting, education, and other
services. We estimated our obligation related to the Veritas
deferred revenue using the cost
build-up
approach. The cost
build-up
approach determines fair value by estimating the costs relating
to fulfilling the obligation plus a normal profit margin. The
sum of the costs and operating profit approximates, in theory,
the amount that we would be required to pay a third party to
assume the support obligation. The estimated costs to fulfill
the support obligation were based on the historical direct costs
related to providing the support. As a result, we recorded an
adjustment to reduce the carrying value of deferred revenue by
$359 million to $173 million, which represents our
estimate of the fair value of the contractual obligations
assumed.
Identifiable
intangible assets
Acquired product rights include developed and core technology,
patents, and backlog. Developed technology relates to
Veritas products across all of their product lines that
have reached technological feasibility. Core technology and
patents represent a combination of Veritas processes, patents,
and trade secrets developed through
85
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
years of experience in design and development of their products.
Backlog relates to firm customer orders that generally are
scheduled for delivery within the next quarter, as well as OEM
revenues that are reported in the next quarter. We amortized the
fair value of the backlog to Cost of revenues in the September
2005 quarter. We are amortizing the fair values of all other
Acquired product rights to Cost of revenues on a straight-line
basis over their estimated lives of four to five years.
Customer contracts and relationships represent existing
contracts that relate primarily to underlying customer
relationships. We are amortizing the fair values of these assets
to Operating expenses in the Consolidated Statements of Income
on a straight-line basis over an average estimated life of eight
years.
Trade names relate to the Veritas product names that will
continue in use. We are amortizing the fair values of these
assets to Operating expenses in the Consolidated Statements of
Income on a straight- line basis over an estimated life of ten
years.
Goodwill
Approximately $8.6 billion of the purchase price has been
allocated to goodwill. Goodwill represents the excess of the
purchase price over the fair value of the underlying net
tangible and intangible assets. The goodwill was attributed to
the premium paid for the opportunity to expand and better serve
the addressable market and achieve greater long-term growth
opportunities than either company had operating alone.
Management believes that the combined company will be better
positioned to deliver security and availability solutions across
all platforms, from the desktop to the data center, to customers
ranging from consumers and small businesses to large
organizations and service providers. Goodwill recorded as a
result of this acquisition is not deductible for tax purposes.
In accordance with SFAS No. 142, goodwill will not be
amortized but instead will be tested for impairment at least
annually or more frequently if certain indicators are present.
In the event that management determines that the value of
goodwill has become impaired, we would incur an accounting
charge for the amount of impairment during the fiscal quarter in
which the determination is made.
In-process
research and development (IPR&D)
During fiscal 2006, we wrote off acquired IPR&D totaling
$284 million in connection with our acquisition of Veritas.
The IPR&D was written off because the acquired technologies
had not reached technological feasibility and had no alternative
uses. Technological feasibility is defined as being equivalent
to completion of a beta-phase working prototype in which there
is no remaining risk relating to the development. At the time of
the acquisition, Veritas was developing new products in multiple
product areas that qualified as IPR&D. These efforts
included NetBackup 6.1, Backup Exec 11.0, Server Management 5.0,
and various other projects. At the time of the acquisition, it
was estimated that these IPR&D efforts would be completed
over the following 12 to 18 months at an estimated total
cost of $120 million. As of March 31, 2007, the
majority of all IPR&D projects had been completed on
schedule and within expected costs, except for one small project
which is expected to be completed within the next six months.
The value assigned to IPR&D was determined by estimating
costs to develop the purchased IPR&D into commercially
viable products, estimating the resulting net cash flows from
the projects when completed, and discounting the net cash flows
to their present value. The revenue estimates used in the net
cash flow forecasts were based on estimates of relevant market
sizes and growth factors, expected trends in technology, and the
nature and expected timing of new product introductions by
Veritas and its competitors.
The rate utilized to discount the net cash flows to their
present value was based on Veritas weighted-average cost
of capital. The weighted-average cost of capital was adjusted to
reflect the difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, the
percentage of completion of each project, anticipated market
acceptance and penetration, market growth rates, and risks
related to the impact of
86
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
potential changes in future target markets. Based on these
factors, a discount rate of 13.5% was deemed appropriate for
valuing the IPR&D.
The estimates used in valuing IPR&D were based upon
assumptions believed to be reasonable but which are inherently
uncertain and unpredictable. Assumptions may be incomplete or
inaccurate, and unanticipated events and circumstances may occur.
Other
fiscal 2006 acquisitions
During fiscal 2006, in addition to Veritas, we completed
acquisitions of five privately-held companies and one public
company for an aggregate of $627 million in cash, including
acquisition-related expenses resulting from financial advisory,
legal and accounting services, duplicate sites, and severance
costs of approximately $18 million, of which an
insignificant amount remains as an accrual as of March 31,
2007. We recorded goodwill in connection with each of these
acquisitions. In each acquisition, goodwill resulted primarily
from our expectation of synergies from the integration of the
acquired companys technology with our technology and the
acquired companys access to our global distribution
network. In addition, each acquired company provided a
knowledgeable and experienced workforce. The results of
operations for the acquired companies have been included in our
results of operations since their respective acquisition dates.
XtreamLok Pty. Ltd and substantially all of WholeSecurity, Inc.
are included in our Consumer Products segment, Sygate
Technologies, Inc., the remainder of WholeSecurity, BindView
Development Corporation, and IMlogic, Inc. are included in our
Security and Data Management segment, and Relicore, Inc. is
included in our Data Center Management segment. Details of the
purchase price allocations related to these other fiscal 2006
acquisitions are included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sygate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XtreamLok
|
|
|
WholeSecurity
|
|
|
Technologies
|
|
|
BindView
|
|
|
IMlogic
|
|
|
Relicore
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Acquisition date
|
|
|
May 16, 2005
|
|
|
|
Oct 4, 2005
|
|
|
|
Oct 7, 2005
|
|
|
|
Jan 6, 2006
|
|
|
|
Feb 13, 2006
|
|
|
|
Feb 17, 2006
|
|
|
|
|
|
Net tangible assets (liabilities)
|
|
$
|
(59
|
)
|
|
$
|
632
|
|
|
$
|
10,764
|
|
|
$
|
37,691
|
|
|
$
|
8,019
|
|
|
$
|
(987
|
)
|
|
$
|
56,060
|
|
Acquired product rights
|
|
|
4,000
|
|
|
|
11,600
|
|
|
|
23,712
|
|
|
|
38,100
|
|
|
|
10,300
|
|
|
|
9,600
|
|
|
|
97,312
|
|
Other intangible assets
|
|
|
|
|
|
|
200
|
|
|
|
2,496
|
|
|
|
27,200
|
|
|
|
10,100
|
|
|
|
2,800
|
|
|
|
42,796
|
|
IPR&D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
Goodwill
|
|
|
15,132
|
|
|
|
50,111
|
|
|
|
130,184
|
|
|
|
93,078
|
|
|
|
61,512
|
|
|
|
31,748
|
|
|
|
381,765
|
|
Deferred tax asset (liability), net
|
|
|
(1,200
|
)
|
|
|
5,727
|
|
|
|
9,815
|
|
|
|
23,547
|
|
|
|
769
|
|
|
|
8,910
|
|
|
|
47,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
17,873
|
|
|
$
|
68,270
|
|
|
$
|
176,971
|
|
|
$
|
220,716
|
|
|
$
|
90,700
|
|
|
$
|
52,071
|
|
|
$
|
626,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts allocated to Acquired product rights are being
amortized to Cost of revenues in the Consolidated Statements of
Income over their useful lives of four to five years. The
amounts allocated to Other intangible assets are being amortized
to Operating expenses in the Consolidated Statements of Income
over their useful lives of one to eight years. The IPR&D
was written off on the acquisition date.
87
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Fiscal
2005 acquisitions
During fiscal 2005, we acquired five privately-held companies
for a total purchase price of $461 million, including
acquisition-related expenses resulting from financial advisory,
legal and accounting services, duplicate sites, and severance
costs. The purchase price consisted of $439 million in cash
and assumed stock options valued at $22 million. We
recorded goodwill in connection with each of these acquisitions.
In each acquisition, goodwill resulted primarily from our
expectation of synergies from the integration of the acquired
companys technology with our technology and the acquired
companys access to our global distribution network. In
addition, each acquired company provided a knowledgeable and
experienced workforce. The results of operations of the acquired
companies have been included in our operations from the dates of
acquisition. Brightmail Incorporated, TurnTide, Inc., and
Platform Logic, Inc. are included in our Security and Data
Management segment and @stake, Inc. and LIRIC Associates are
included in our Services segment. Details of the purchase price
allocations related to our fiscal 2005 acquisitions are included
in the table below. Our fiscal 2005 acquisitions were considered
insignificant for pro forma financial disclosure, both
individually and in the aggregate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platform
|
|
|
|
|
|
|
Brightmail
|
|
|
TurnTide
|
|
|
@stake
|
|
|
LIRIC
|
|
|
Logic
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Acquisition date
|
|
|
June 21, 2004
|
|
|
|
July 7, 2004
|
|
|
|
Oct 7, 2004
|
|
|
|
Oct 11, 2004
|
|
|
|
Dec 9, 2004
|
|
|
|
|
|
Net tangible assets (liabilities)
|
|
$
|
23,999
|
|
|
$
|
(305
|
)
|
|
$
|
4,201
|
|
|
$
|
617
|
|
|
$
|
(221
|
)
|
|
$
|
28,291
|
|
Acquired product rights
|
|
|
40,020
|
|
|
|
4,200
|
|
|
|
9,200
|
|
|
|
540
|
|
|
|
3,900
|
|
|
|
57,860
|
|
Other intangible assets
|
|
|
8,439
|
|
|
|
60
|
|
|
|
11,100
|
|
|
|
6,475
|
|
|
|
50
|
|
|
|
26,124
|
|
IPR&D
|
|
|
3,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,480
|
|
Goodwill
|
|
|
226,959
|
|
|
|
25,933
|
|
|
|
21,082
|
|
|
|
9,300
|
|
|
|
27,206
|
|
|
|
310,480
|
|
Deferred tax asset (liability), net
|
|
|
14,805
|
|
|
|
(1,704
|
)
|
|
|
3,454
|
|
|
|
(2,105
|
)
|
|
|
(599
|
)
|
|
|
13,851
|
|
Deferred stock-based compensation
|
|
|
21,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
339,041
|
|
|
$
|
28,184
|
|
|
$
|
49,037
|
|
|
$
|
14,827
|
|
|
$
|
30,336
|
|
|
$
|
461,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts allocated to Acquired product rights are being
amortized to Cost of revenues in the Consolidated Statements of
Income over their estimated lives of one to five years. The
amounts allocated to Other intangible assets are being amortized
to Operating expenses in the Consolidated Statements of Income
over their estimated lives of one to eight years. The IPR&D
was written off on the acquisition date.
88
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 4.
|
Goodwill,
Acquired Product Rights, and Other Intangible Assets
|
Goodwill
In accordance with SFAS No. 142, we allocate goodwill
to our reporting units, which are the same as our operating
segments. Goodwill is allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Data
|
|
|
Data Center
|
|
|
|
|
|
Total
|
|
|
|
Products
|
|
|
Management
|
|
|
Management
|
|
|
Services
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance as of March 31,
2006(a)
|
|
$
|
102,810
|
|
|
$
|
4,597,889
|
|
|
$
|
5,396,985
|
|
|
$
|
233,361
|
|
|
$
|
10,331,045
|
|
Goodwill acquired through business
combinations
|
|
|
|
|
|
|
5,739
|
|
|
|
|
|
|
|
21,820
|
|
|
|
27,559
|
|
Goodwill
adjustments(b)
|
|
|
|
|
|
|
(21,558
|
)
|
|
|
3,733
|
|
|
|
(1,323
|
)
|
|
|
(19,148
|
)
|
Effect of exchange rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
892
|
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2007
|
|
$
|
102,810
|
|
|
$
|
4,582,070
|
|
|
$
|
5,400,718
|
|
|
$
|
254,750
|
|
|
$
|
10,340,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the June 2006 quarter, we consolidated our Enterprise
Security, Data Protection, and Storage and Server Management
segments into two segments the Security and Data
Management segment and the Data Center Management segment. We
changed our reportable segments to the following: Consumer
Products, Security and Data Management, Data Center Management,
Services and Other. As a result, we reallocated goodwill as of
March 31, 2006. In conjunction with the reallocation of our
segments, we determined that there were no indicators of
impairment. |
|
(b) |
|
During fiscal 2007, we adjusted the goodwill related to several
prior acquisitions for individually insignificant amounts
primarily related to purchase consideration adjustments for cash
received and adjustments related to taxes. The tax adjustments
consist of adjustments to increase deferred tax liabilities by
approximately $12 million and decrease income taxes payable
by approximately $12 million related to pre-acquisition tax
contingencies and actual tax benefits arising from employee
exercises of assumed fully-vested stock options. |
Goodwill is tested for impairment on an annual basis, or earlier
if indicators of impairment exist. We completed our annual
goodwill impairment test required by SFAS No. 142
during the March 2007 quarter and determined that there was no
impairment of goodwill.
Acquired
product rights, net
Acquired product rights subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
1,610,199
|
|
|
$
|
(754,328
|
)
|
|
$
|
855,871
|
|
Patents
|
|
|
79,684
|
|
|
|
(25,677
|
)
|
|
|
54,007
|
|
Backlog and other
|
|
|
60, 661
|
|
|
|
(60,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,750,544
|
|
|
$
|
(840,666
|
)
|
|
$
|
909,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Developed technology
|
|
$
|
1,597,567
|
|
|
$
|
(420,887
|
)
|
|
$
|
1,176,680
|
|
Patents
|
|
|
78,713
|
|
|
|
(18,416
|
)
|
|
|
60,297
|
|
Backlog and other
|
|
|
60,661
|
|
|
|
(59,127
|
)
|
|
|
1,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,736,941
|
|
|
$
|
(498,430
|
)
|
|
$
|
1,238,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On May 12, 2005, we resolved patent litigation matters with
Altiris, Inc. by entering into a cross-licensing agreement that
resolved all legal claims between the companies. As part of the
settlement, we paid Altiris $10 million for use of the
disputed technology. Under the transaction, we expensed
$2 million of patent settlement costs in the June 2005
quarter that was related to benefits received by us in and prior
to the June 2005 quarter. The remaining $8 million was
recorded as Acquired product rights and is being amortized to
Cost of revenues in the Consolidated Statements of Income over
the remaining life of the primary patent, which expires in May
2017. In April 2007, we acquired Altiris. See Note 17 for
more information.
In fiscal 2007, 2006, and 2005, amortization expense for
acquired product rights was $342 million,
$314 million, and $49 million, respectively.
Amortization of acquired product rights is included in Cost of
revenues in the Consolidated Statements of Income. The
weighted-average remaining estimated lives of acquired product
rights are approximately three years for developed technology
and approximately four years for patents. The weighted-average
remaining estimated life of acquired product rights in total is
approximately four years. Annual amortization of acquired
product rights, based upon our existing acquired product rights
and their current useful lives, is estimated to be the following
as of March 31, 2007:
|
|
|
|
|
2008
|
|
$
|
338 million
|
|
2009
|
|
|
332 million
|
|
2010
|
|
|
179 million
|
|
2011
|
|
|
43 million
|
|
2012
|
|
|
18 million
|
|
Other
intangible assets, net
Other intangible assets subject to amortization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Customer base
|
|
$
|
1,500,201
|
|
|
$
|
(335,393
|
)
|
|
$
|
1,164,808
|
|
Trade name
|
|
|
107,207
|
|
|
|
(27,335
|
)
|
|
|
79,872
|
|
Marketing-related assets
|
|
|
2,100
|
|
|
|
(2,100
|
)
|
|
|
|
|
Partnership agreements
|
|
|
2,300
|
|
|
|
(1,342
|
)
|
|
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,611,808
|
|
|
$
|
(366,170
|
)
|
|
$
|
1,245,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Customer base
|
|
$
|
1,493,982
|
|
|
$
|
(147,168
|
)
|
|
$
|
1,346,814
|
|
Trade name
|
|
|
107,202
|
|
|
|
(15,426
|
)
|
|
|
91,776
|
|
Marketing-related assets
|
|
|
2,100
|
|
|
|
(1,925
|
)
|
|
|
175
|
|
Partnership agreements
|
|
|
2,300
|
|
|
|
(192
|
)
|
|
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,605,584
|
|
|
$
|
(164,711
|
)
|
|
$
|
1,440,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2007, 2006, and 2005, amortization expense for other
intangible assets was $201 million, $149 million, and
$5 million, respectively. Amortization of other intangible
assets is included in Operating expenses in the Consolidated
Statements of Income. The weighted-average remaining estimated
lives for other intangible assets are approximately six years
for customer base, approximately eight years for trade name, and
approximately one year for partnership agreements. The
weighted-average remaining estimated life of other intangible
assets in total is approximately eight years. Annual
amortization of other intangible assets, based upon our existing
intangible assets and their current estimated lives, is
estimated to be the following as of March 31, 2007:
|
|
|
|
|
2008
|
|
$
|
199 million
|
|
2009
|
|
|
198 million
|
|
2010
|
|
|
197 million
|
|
2011
|
|
|
196 million
|
|
2012
|
|
|
194 million
|
|
Thereafter
|
|
|
262 million
|
|
91
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Cash,
cash equivalents, and short-term investments
Cash, cash equivalents, and short-term investments are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
587,675
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
587,675
|
|
Money market funds
|
|
|
561,240
|
|
|
|
|
|
|
|
|
|
|
|
561,240
|
|
Commercial paper
|
|
|
1,354,302
|
|
|
|
|
|
|
|
|
|
|
|
1,354,302
|
|
Corporate debt securities
|
|
|
10,709
|
|
|
|
|
|
|
|
|
|
|
|
10,709
|
|
Bank debt securities and deposits
|
|
|
45,108
|
|
|
|
|
|
|
|
|
|
|
|
45,108
|
|
Government and
government-sponsored debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
2,559,034
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,559,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed debt securities
|
|
$
|
133,314
|
|
|
$
|
149
|
|
|
$
|
(101
|
)
|
|
$
|
133,362
|
|
Corporate debt securities
|
|
|
121,666
|
|
|
|
119
|
|
|
|
(875
|
)
|
|
|
120,910
|
|
Commercial paper
|
|
|
10,300
|
|
|
|
|
|
|
|
|
|
|
|
10,300
|
|
Government and
government-sponsored debt securities
|
|
|
145,185
|
|
|
|
87
|
|
|
|
(1,137
|
)
|
|
|
144,135
|
|
Other investments
|
|
|
19,912
|
|
|
|
|
|
|
|
|
|
|
|
19,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
430,377
|
|
|
$
|
355
|
|
|
$
|
(2,113
|
)
|
|
$
|
428,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
558,361
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
558,361
|
|
Money market funds
|
|
|
736,174
|
|
|
|
|
|
|
|
|
|
|
|
736,174
|
|
Commercial paper
|
|
|
632,447
|
|
|
|
|
|
|
|
|
|
|
|
632,447
|
|
Corporate debt securities
|
|
|
16,261
|
|
|
|
|
|
|
|
|
|
|
|
16,261
|
|
Bank debt securities and deposits
|
|
|
67,108
|
|
|
|
|
|
|
|
|
|
|
|
67,108
|
|
Government and
government-sponsored debt securities
|
|
|
305,271
|
|
|
|
|
|
|
|
|
|
|
|
305,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
2,315,622
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,315,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed debt securities
|
|
$
|
96,397
|
|
|
$
|
14
|
|
|
$
|
(451
|
)
|
|
$
|
95,960
|
|
Corporate debt securities
|
|
|
221,423
|
|
|
|
|
|
|
|
(2,449
|
)
|
|
|
218,974
|
|
Government and
government-sponsored debt securities
|
|
|
214,703
|
|
|
|
|
|
|
|
(2,973
|
)
|
|
|
211,730
|
|
Other investments
|
|
|
23,516
|
|
|
|
|
|
|
|
|
|
|
|
23,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
556,039
|
|
|
$
|
14
|
|
|
$
|
(5,873
|
)
|
|
$
|
550,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
As of March 31, 2007, the unrealized losses in the above
table relate to short-term investment securities for which the
fair value is less than the cost basis. We expect to receive the
full principal and interest on these securities. When evaluating
our investments for possible impairment, we review factors such
as the length of time and extent to which fair value has been
below cost basis, credit quality, the financial condition of the
investee, and our ability and intent to hold the investment for
a period of time which may be sufficient for anticipated
recovery in market value. The gross unrealized losses related to
investments are primarily due to a decrease in the fair market
value of fixed-rate debt securities as a result of increases in
interest rates. The changes in the values in the above
securities are considered to be temporary in nature and,
accordingly, we do not believe that the values of these
securities are impaired as of March 31, 2007. Unrealized
gains and losses on
available-for-sale
securities are reported as a component of Stockholders
equity in the Consolidated Balance Sheets. We recognized net
realized losses of an insignificant amount in fiscal 2007,
$5 million in fiscal 2006, and an insignificant amount in
fiscal 2005. These net realized losses were included in Interest
income.
The estimated fair value of cash equivalents and short-term
investments by contractual maturity as of March 31, 2007 is
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Due in one year or less
|
|
$
|
2,146,069
|
|
Due after one year and through
5 years
|
|
|
253,909
|
|
|
|
|
|
|
|
|
$
|
2,399,978
|
|
|
|
|
|
|
The following table provides the gross unrealized losses and the
fair market value of our investments with unrealized losses that
are not deemed to be
other-than-temporarily
impaired, aggregated by investment category and length of time
that individual securities have been in a continuous unrealized
loss position as of March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Loss Position for Less Than 12 Months
|
|
|
In Loss Position for 12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
Asset-backed debt securities
|
|
$
|
55,131
|
|
|
$
|
54
|
|
|
$
|
18,823
|
|
|
$
|
47
|
|
|
$
|
73,954
|
|
|
$
|
101
|
|
Corporate debt securities
|
|
|
22,048
|
|
|
|
32
|
|
|
|
75,692
|
|
|
|
843
|
|
|
|
97,740
|
|
|
|
875
|
|
Government and
government-sponsored debt securities
|
|
|
17,374
|
|
|
|
21
|
|
|
|
111,865
|
|
|
|
1,116
|
|
|
|
129,239
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,553
|
|
|
$
|
107
|
|
|
$
|
206,380
|
|
|
$
|
2,006
|
|
|
$
|
300,933
|
|
|
$
|
2,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investments in privately-held companies
As of March 31, 2007 and 2006, we held equity investments
with a carrying value of $8 million and $11 million,
respectively, in several privately-held companies. These
investments are recorded at cost as we do not have significant
influence over the investees and are included in Other long-term
assets in the Consolidated Balance Sheets. We regularly review
our equity investment portfolio according to EITF
No. 03-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments. We
identify and evaluate equity investments that have indications
of possible impairment. Factors considered in determining
whether a loss is temporary include: the length of time and
extent to which the fair market value has been lower than the
cost basis, the financial condition and near-term prospects of
the investee, credit quality, and our ability to hold the
investment for a period of time sufficient to allow for any
anticipated recovery in fair market value. In fiscal 2007, 2006
and 2005, we recognized declines in value of these investments
that were determined to be
other-than-temporary
of
93
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
$3 million, $4 million, and $1 million,
respectively. The
other-than-temporary
declines in fair value were recorded as Other income (expense),
net in the Consolidated Statements of Income.
Convertible
senior notes
In June 2006, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes due June 15, 2011, or
the 0.75% Notes, and $1.0 billion principal amount of
1.00% Convertible Senior Notes due June 15, 2013, or
the 1.00% Notes, to initial purchasers in a private
offering for resale to qualified institutional buyers pursuant
to SEC Rule 144A. We refer to the 0.75% Notes and the
1.00% Notes collectively as the Senior Notes. We received
proceeds of $2.1 billion from the Senior Notes and incurred
net transaction costs of approximately $33 million, which
were allocated proportionately to the 0.75% Notes and the
1.00% Notes. The transaction costs were primarily recorded
in Other long-term assets and are being amortized to interest
expense using the effective interest method over five years for
the 0.75% Notes and seven years for the 1.00% Notes.
The 0.75% Notes and 1.00% Notes were each issued at
par and bear interest at 0.75% and 1.00% per annum,
respectively. Interest is payable semiannually in arrears on
June 15 and December 15, beginning December 15, 2006.
Each $1,000 of principal of the Senior Notes will initially be
convertible into 52.2951 shares of Symantec common stock,
which is the equivalent of $19.12 per share, subject to
adjustment upon the occurrence of specified events. Holders of
the Senior Notes may convert their Senior Notes prior to
maturity during specified periods as follows: (1) during
any calendar quarter beginning after June 30, 2006, if the
closing price of our common stock for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the immediately preceding calendar quarter is more than
130% of the applicable conversion price per share; (2) if
specified corporate transactions, including a change in control,
occur; (3) with respect to the 0.75% Notes, at any
time on or after April 5, 2011, and with respect to the
1.00% Notes, at any time on or after April 5, 2013; or
(4) during the five
business-day
period after any five consecutive
trading-day
period during which the trading price of the Senior Notes falls
below a certain threshold. Upon conversion, we would pay the
holder the cash value of the applicable number of shares of
Symantec common stock, up to the principal amount of the note.
Amounts in excess of the principal amount, if any, may be paid
in cash or in stock at our option. Holders who convert their
Senior Notes in connection with a change in control may be
entitled to a make whole premium in the form of an
increase in the conversion rate. As of March 31, 2007, none
of the conditions allowing holders of the Senior Notes to
convert had been met. In addition, upon a change in control of
Symantec, the holders of the Senior Notes may require us to
repurchase for cash all or any portion of their Senior Notes for
100% of the principal amount.
Under the terms of the Senior Notes, we were required to use
reasonable efforts to file a shelf registration statement
regarding the Senior Notes with the SEC and cause the shelf
registration statement to be declared effective within
180 days of the closing of the offering of the Senior
Notes. In addition, we must maintain the effectiveness of the
shelf registration statement for a period of two years after the
closing of the offering of the Senior Notes. If we fail to meet
these terms, we will be required to pay additional interest on
the Senior Notes in the amount of 0.25% per annum. We have
filed the shelf registration statement with the SEC and it
became effective on December 11, 2006.
Concurrently with the issuance of the Senior Notes, we entered
into note hedge transactions with affiliates of certain of the
initial purchasers whereby we have the option to purchase up to
110 million shares of our common stock at a price of
$19.12 per share. The options as to 58 million shares
expire on June 15, 2011 and the options as to
52 million shares expire on June 15, 2013. The options
must be settled in net shares. The cost of the note hedge
transactions to us was approximately $592 million. In
addition, we sold warrants to affiliates of certain of the
initial purchasers whereby they have the option to purchase up
to 110 million shares of our common stock at a price of
$27.3175 per share. The warrants expire on various dates from
July 2011 through August 2013 and must be settled in net shares.
We received approximately $326 million in cash proceeds
from the sale of these warrants.
94
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The cost incurred in connection with the note hedge
transactions, net of the related tax benefit and the proceeds
from the sale of the warrants, is included as a net reduction in
Capital in excess of par value in the accompanying Consolidated
Balance Sheet as of March 31, 2007, in accordance with the
guidance in EITF
No. 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock.
In accordance with SFAS No. 128, Earnings per
Share, the Senior Notes will have no impact on diluted
earnings per share, or EPS, until the price of our common stock
exceeds the conversion price of $19.12 per share because
the principal amount of the Senior Notes will be settled in cash
upon conversion. Prior to conversion we will include the effect
of the additional shares that may be issued if our common stock
price exceeds $19.12 per share using the treasury stock
method. As a result, for the first $1.00 by which the price of
our common stock exceeds $19.12 per share there would be
dilution of approximately 5.4 million shares. As the share
price continues to increase, additional dilution would occur at
a declining rate such that a price of $27.3175 per share
would yield cumulative dilution of approximately
32.9 million shares. If our common stock exceeds
$27.3175 per share we will also include the effect of the
additional potential shares that may be issued related to the
warrants using the treasury stock method. The Senior Notes along
with the warrants have a combined dilutive effect such that for
the first $1.00 by which the price exceeds $27.3175 per
share there would be cumulative dilution of approximately
39.5 million shares prior to conversion. As the share price
continues to increase, additional dilution would occur but at a
declining rate.
Prior to conversion, the note hedge transactions are not
considered for purposes of the EPS calculation as their effect
would be anti-dilutive. Upon conversion, the note hedge will
automatically serve to neutralize the dilutive effect of the
Senior Notes when the stock price is above $19.12 per
share. For example, if upon conversion the price of our common
stock was $28.3175 per share, the cumulative effect of
approximately 39.5 million shares in the example above
would be reduced to approximately 3.9 million shares.
The preceding calculations assume that the average price of our
common stock exceeds the respective conversion prices during the
period for which EPS is calculated and exclude any potential
adjustments to the conversion ratio provided under the terms of
the Senior Notes. See Note 9 for information regarding the
impact on EPS of the Senior Notes and warrants in the current
period.
Convertible
subordinated notes
In connection with the acquisition of Veritas Software
Corporation on July 2, 2005, we assumed the Veritas
0.25% convertible subordinated notes, or the
0.25% Notes. On August 1, 2006, at the option of
certain of the holders, we repurchased $510 million of the
0.25% Notes at a price equal to the principal amount, plus
accrued and unpaid interest. On August 28, 2006, at our
election, we repurchased the remaining $10 million of the
0.25% Notes at a price equal to the principal amount plus
accrued and unpaid interest and fully paid off our convertible
subordinated notes debt obligation.
Line
of credit
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 will 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 EBITDA (earnings before interest,
taxes, depreciation, and amortization), as well as various other
non-financial covenants. At March 31, 2007, we were in
compliance with all covenants. We have made no borrowings under
the credit facility at March 31, 2007.
95
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Leases
We lease certain of our facilities and equipment under operating
leases that expire at various dates through 2026. We currently
sublease some space under various operating leases that will
expire on various dates through 2018. Some of our leases contain
renewal options, escalation clauses, rent concessions, and
leasehold improvement incentives.
The future fiscal year minimum operating lease commitments and
existing sublease information were as follows as of
March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
Sublease
|
|
|
Net Lease
|
|
|
|
Commitment
|
|
|
Income
|
|
|
Commitment
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
85,481
|
|
|
$
|
(3,811
|
)
|
|
$
|
81,670
|
|
2009
|
|
|
64,781
|
|
|
|
(3,523
|
)
|
|
|
61,258
|
|
2010
|
|
|
53,304
|
|
|
|
(3,084
|
)
|
|
|
50,220
|
|
2011
|
|
|
41,450
|
|
|
|
(2,606
|
)
|
|
|
38,844
|
|
2012
|
|
|
31,647
|
|
|
|
(1,753
|
)
|
|
|
29,894
|
|
Thereafter
|
|
|
138,571
|
|
|
|
(1,727
|
)
|
|
|
136,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
415,234
|
|
|
$
|
(16,504
|
)
|
|
$
|
398,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net lease commitment amount includes $12 million
related to facilities that are included in our restructuring
reserve. For more information, see Note 12.
Rent expense charged to operations totaled $83 million,
$70 million, and $35 million in fiscal 2007, 2006, and
2005, respectively.
Development
agreements
During fiscal 2006, we entered into agreements in connection
with the construction of, or refurbishments to, buildings in
Springfield, Oregon, and Culver City, California. Payment is
contingent upon the achievement of certain
agreed-upon
milestones. The remaining commitment under the Culver City,
California agreement is $91 million as of March 31,
2007. At March 31, 2007, the Springfield, Oregon project
had been completed and there were no remaining commitments under
that agreement.
Royalties
We have certain royalty commitments associated with the shipment
and licensing of certain products. Royalty expense is generally
based on a dollar amount per unit shipped or a percentage of
underlying revenue. Certain royalty commitments have minimum
commitment obligations; however, as of March 31, 2007 all
such obligations are insignificant.
Indemnification
As permitted under Delaware law, we have agreements whereby we
indemnify our officers and directors for certain events or
occurrences while the officer or director is, or was, serving at
our request in such capacity. The maximum potential amount of
future payments we could be required to make under these
indemnification agreements is not limited; however, we have
director and officer insurance coverage that reduces our
exposure and may enable us to recover a portion or all of any
future amounts paid. We believe the estimated fair value of
these indemnification agreements in excess of applicable
insurance coverage is minimal.
96
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
We provide limited product warranties and the majority of our
software license agreements contain provisions that indemnify
licensees of our software from damages and costs resulting from
claims alleging that our software infringes the intellectual
property rights of a third party. Historically, payments made
under these provisions have been insignificant. We monitor the
conditions that are subject to indemnification to identify if a
loss has occurred.
|
|
Note 8.
|
Stock
Transactions
|
Stock
repurchases
We have operated stock repurchase programs since 2001. As of
January 2007, we completed the $1 billion share repurchase
program announced in January 2006 as well as the
$1.5 billion share repurchase program announced in June
2006. On January 24, 2007, we announced that our Board of
Directors authorized the repurchase of $1 billion of
Symantec common stock, without a scheduled expiration date.
During fiscal 2007, we repurchased 162 million shares of
our common stock at prices ranging from $15.61 to
$21.66 per share for an aggregate amount of
$2.8 billion. During fiscal 2006, we repurchased
174 million shares at prices ranging from $15.83 to
$23.85 per share for an aggregate amount of
$3.6 billion. During fiscal 2005, we repurchased eight
million shares at prices ranging from $21.05 to $30.77 per
share, for an aggregate amount of $192 million. As of
March 31, 2007, $500 million remained authorized for
future repurchases.
Stock
dividend
On October 19, 2004, our Board of Directors approved a
two-for-one
stock split to be effected in the form of a stock dividend.
Stockholders of record at the close of business on
November 11, 2004 were issued one additional share of
common stock for each share owned as of that date. An additional
353 million shares resulting from the stock dividend were
issued in book-entry form on November 30, 2004.
Increase
to authorized shares
On June 24, 2005, our stockholders approved the adoption of
our amended and restated certificate of incorporation, which
increased the number of authorized shares of common stock to
3,000,000,000 from 1,600,000,000. The increase was sought in
order to carry out our acquisition of Veritas. On
September 15, 2004, our stockholders approved the adoption
of our amended and restated certificate of incorporation, which
increased the number of authorized shares of common stock to
1,600,000,000 from 900,000,000.
97
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 9.
|
Net
Income Per Share
|
The components of net income per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic net income per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
404,380
|
|
|
$
|
156,852
|
|
|
$
|
536,159
|
|
Weighted-average number of common
shares outstanding during the period
|
|
|
960,575
|
|
|
|
998,733
|
|
|
|
660,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.42
|
|
|
$
|
0.16
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
404,380
|
|
|
$
|
156,852
|
|
|
$
|
536,159
|
|
Interest on convertible
subordinated notes, net of income tax effect
|
|
|
|
|
|
|
|
|
|
|
8,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as adjusted
|
|
$
|
404,380
|
|
|
$
|
156,852
|
|
|
$
|
544,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares outstanding during the period
|
|
|
960,575
|
|
|
|
998,733
|
|
|
|
660,631
|
|
Shares issuable from assumed
exercise of options using the treasury stock method
|
|
|
20,047
|
|
|
|
27,081
|
|
|
|
35,745
|
|
Shares issuable from assumed
conversion of 3% convertible subordinated notes
|
|
|
|
|
|
|
|
|
|
|
41,780
|
|
Dilutive impact of restricted
stock and restricted stock units using the treasury stock method
|
|
|
522
|
|
|
|
42
|
|
|
|
89
|
|
Dilutive impact of assumed
conversion of Senior Notes using the treasury stock method
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for purpose of
calculating diluted net income per share
|
|
|
983,261
|
|
|
|
1,025,856
|
|
|
|
738,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.41
|
|
|
$
|
0.15
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following potential common shares were excluded from the
computation of diluted net income per share as their effect
would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Stock options
|
|
|
69,186
|
|
|
|
56,348
|
|
|
|
4,225
|
|
Restricted stock units
|
|
|
108,862
|
|
|
|
146
|
|
|
|
|
|
Veritas
0.25% Notes(1)
|
|
|
|
|
|
|
12,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,048
|
|
|
|
69,168
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Potential common shares related to 0.25% Notes were
excluded from the computation of diluted net income per share
because the effective conversion price was higher than the
average market price of our common stock during the period, and
therefore the effect was antidilutive. |
For fiscal 2007, the effect of the warrants was excluded
because, as discussed in Note 6, they have no impact on
diluted net income per share until our average stock price for
the applicable period reaches $27.3175 per share.
98
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 10.
|
Adoption
of Stockholder Rights Plan
|
On August 11, 1998, the Board of Directors adopted a
stockholder rights plan designed to ensure orderly consideration
of any future unsolicited acquisition attempt to ensure a fair
value of Symantec for our stockholders. In connection with the
plan, the Board of Directors declared and paid a dividend of one
preferred share purchase right for each share of Symantec common
stock outstanding on the record date, August 21, 1998. The
rights are initially attached to Symantec common stock and will
not trade separately. If a person or a group, an Acquiring
Person, acquires 20% or more of our common stock, or announces
an intention to make a tender offer for 20% or more of our
common stock, the rights will be distributed and will thereafter
trade separately from the common stock.
If the rights become exercisable, each right (other than rights
held by the Acquiring Person) will entitle the holder to
purchase, at a price equal to the exercise price of the right, a
number of shares of our common stock having a then-current value
of twice the exercise price of the right. If, after the rights
become exercisable, we agree to merge into another entity or we
sell more than 50% of our assets, each right will entitle the
holder to purchase, at a price equal to the exercise price of
the right, a number of shares of common stock of such entity
having a then-current value of twice the exercise price.
We may exchange the rights at a ratio of one share of common
stock for each right (other than the Acquiring Person) at any
time after an Acquiring Person acquires 20% or more of our
common stock but before such person acquires 50% or more of our
common stock. We may also redeem the rights at our option at a
price of $0.001 per right at any time before an Acquiring
Person has acquired 20% or more of our common stock. The rights
will expire on August 12, 2008.
|
|
Note 11.
|
Employee
Benefits and Stock-Based Compensation
|
401(k)
plan
We maintain a salary deferral 401(k) plan for all of our
domestic employees. This plan allows employees to contribute up
to 50% of their pretax salary up to the maximum dollar
limitation prescribed by the Internal Revenue Code. We match 50%
of the employees contribution. The maximum match in any
given plan year is the lower of 3% of the employees
eligible compensation or $6,000. Our contributions under the
plan were $24 million, $12 million, and
$9 million, in fiscal 2007, 2006, and 2005, respectively.
Stock
purchase plans
2002
Executive Officers Stock Purchase Plan
In September 2002, our stockholders approved the 2002 Executive
Officers Stock Purchase Plan and reserved
250,000 shares of common stock for issuance thereunder, of
which no shares are subject to adjustment pursuant to changes in
capital. The purpose of the plan is to provide executive
officers with a means to acquire an equity interest in Symantec
at fair market value by applying a portion or all of their
respective bonus payments towards the purchase price. Each
executive officer may purchase up to 10,000 shares in any
fiscal year. As of March 31, 2007, 40,401 shares have
been issued under the plan and 209,599 shares remain
available for future issuance. Shares reserved for issuance
under this plan have not been adjusted for the stock dividends.
1998
Employee Stock Purchase Plan
In September 1998, our stockholders approved the 1998 Employee
Stock Purchase Plan, or ESPP, and reserved 4 million shares
of common stock for issuance thereunder. In September 1999, the
ESPP was amended by our stockholders to increase the shares
available for issuance by 6 million and to add an
evergreen provision whereby the number of shares
available for issuance increased automatically on January 1 of
each year (beginning in 2000) by 1% of our outstanding
shares of common stock on each immediately preceding
December 31 during the term of the
99
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
ESPP. In July 2004, the Board of Directors eliminated this
provision. As of March 31, 2007, 14.2 million shares
remain available for issuance under the ESPP.
Subject to certain limitations, our employees may elect to have
2% to 10% of their compensation withheld through payroll
deductions to purchase shares of common stock under the ESPP.
Employees purchase shares of common stock at a price per share
equal to 85% of the fair market value on the purchase date at
the end of each six-month purchase period. For purchases prior
to July 1, 2005, employees purchased shares at a price
equal to the lesser of 85% of the fair market value as of the
beginning of the two-year offering period or the end of the
six-month purchase period. The Board of Directors eliminated the
two-year offering period in March 2005, effective July 1,
2005. Under the ESPP, 4 million, 4 million, and
3 million shares were issued during fiscal 2007, 2006, and
2005, respectively, representing $65 million,
$59 million, and $32 million in contributions,
respectively. As of March 31, 2007, a total of
24.4 million shares had been issued under this plan.
Stock
award plans
2000 Director
Equity Incentive Plan
In September 2000, our stockholders approved the
2000 Director Equity Incentive Plan and reserved
50,000 shares of common stock for issuance thereunder. In
September 2004, stockholders increased the number of shares of
stock that may be issued by 50,000. The purpose of this plan is
to provide the members of the Board of Directors with an
opportunity to receive common stock for all or a portion of the
retainer payable to each director for serving as a member. Each
director may elect to receive 50% to 100% of the retainer to be
paid in the form of stock. As of March 31, 2007, a total of
78,727 shares had been issued under this plan and
21,273 shares remained available for future issuance.
2004
Equity Incentive Plan
Under the 2004 Equity Incentive Plan, or the 2004 Plan, our
Board of Directors, or a committee of the Board of Directors,
may grant incentive and nonqualified stock options, stock
appreciation rights, restricted stock units, RSUs, or restricted
stock awards to employees, officers, directors, consultants,
independent contractors, and advisors to us, or to any parent,
subsidiary, or affiliate of ours. The purpose of the 2004 Plan
is to attract, retain, and motivate eligible persons whose
present and potential contributions are important to our success
by offering them an opportunity to participate in our future
performance through equity awards of stock options and stock
bonuses. Under the terms of the 2004 Plan, the exercise price of
stock options may not be less than 100% of the fair market value
on the date of grant. Options generally vest over a four-year
period. Options granted prior to October 2005 generally have a
maximum term of ten years and options granted thereafter
generally have a maximum term of seven years.
As of March 31, 2007, we have reserved 73 million
shares for issuance under the 2004 Plan. These shares include
18 million shares originally reserved for issuance under
the 2004 Plan upon its adoption by our stockholders in September
2004, 15 million shares that were transferred to the 2004
Plan from the 1996 Equity Incentive Plan, or 1996 Plan, and
40 million shares that were approved for issuance on the
amendment and restatement of the 2004 Plan at our 2006 annual
meeting of stockholders. In addition to the shares currently
reserved under the 2004 Plan, any shares reacquired by us from
options outstanding under the 1996 Plan upon their expiration
will also be added to the 2004 Plan reserve. As of
March 31, 2007, 52 million shares remain available for
future grant under the 2004 Plan.
At our 2006 annual meeting of stockholders, our stockholders
approved the amendment and restatement of the 2004 Plan, which
included the following key changes: 1) an increase of
40 million in the number of shares reserved for issuance
under the 2004 Plan; 2) modification of the share pool
available under the 2004 Plan to reflect a ratio-based pool,
where the grant of each full-value award, such as a share of
restricted stock or an RSU decreases the pool
100
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
by two shares; and 3) a change in the form of equity grants
to our non-employee directors from stock options to a fixed
dollar amount of RSUs.
Assumed
Veritas stock options
In connection with our acquisition of Veritas, we assumed each
outstanding option to purchase Veritas common stock with an
exercise price equal to or less than $49.00 as well as each
additional option required to be assumed by applicable law. Each
option assumed was converted into an option to purchase Symantec
common stock after applying the exchange ratio of
1.1242 shares of Symantec common stock for each share of
Veritas common stock. In total, we assumed and converted Veritas
options into options to purchase 66 million shares of
Symantec common stock. In addition, we assumed and converted all
outstanding Veritas RSUs into approximately 425,000 Symantec
RSUs based on the exchange ratio.
The assumed options and RSUs retained all applicable terms and
vesting periods. In general, the assumed options vest over a
four-year period from the original date of grant. Options
granted prior to May 2004 generally have a maximum term of
10 years and options granted thereafter generally have a
maximum term of seven years. The assumed RSUs generally vest
over a three or four year period from the original date of grant.
Other
stock option plans
Options remain outstanding under several other stock option
plans, including the 2001 Non-Qualified Equity Incentive Plan,
the 1999 Acquisition Plan, the 1996 Plan, and various plans
assumed in connection with acquisitions. No further options may
be granted under any of these plans.
Acceleration
of stock option vesting
On March 30, 2006, we accelerated the vesting of certain
stock options with exercise prices equal to or greater than
$27.00 per share that were outstanding on that date. We did
not accelerate the vesting of any stock options held by our
executive officers or directors. The vesting of options to
purchase approximately 7 million shares of common stock, or
approximately 14% of our outstanding unvested options, was
accelerated. The weighted-average exercise price of the stock
options for which vesting was accelerated was $28.73. We
accelerated the vesting of the options to reduce future
stock-based compensation expense that we would otherwise be
required to recognize in our results of operations after
adoption of SFAS No. 123R. Because of system
constraints, it is not practicable for us to estimate the amount
by which the acceleration of vesting will reduce our future
stock-based compensation expense. The acceleration of the
vesting of these options did not result in a charge to expense
in fiscal 2006.
Valuation
of stock-based awards
The fair value of each stock option granted under our equity
incentive plans and each ESPP purchase right granted prior to
July 1, 2005 is estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Employee Stock
|
|
|
|
Stock Options
|
|
|
Purchase Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Expected life (years)
|
|
|
3
|
|
|
|
3
|
|
|
|
5
|
|
|
|
0.5
|
|
|
|
1.25
|
|
Expected volatility
|
|
|
0.34
|
|
|
|
0.45
|
|
|
|
0.64
|
|
|
|
0.33
|
|
|
|
0.36
|
|
Risk free interest rate
|
|
|
4.86
|
%
|
|
|
3.55
|
%
|
|
|
3.71
|
%
|
|
|
4.26
|
%
|
|
|
2.33
|
%
|
The expected life of options is based on an analysis of our
historical experience of employee exercise and post-vesting
termination behavior considered in relation to the contractual
life of the option. Expected volatility is based on the average
of the historical volatility for the period commensurate with
the expected life of the option and the
101
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
implied volatility of traded options. The risk free interest
rate is equal to the U.S. Treasury constant maturity rates
for the period equal to the expected life. We do not currently
pay cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. Accordingly, our expected
dividend yield is zero. The fair value of each RSU is equal to
the market value of Symantecs common stock on the date of
grant. The fair value of each ESPP purchase right granted from
July 1, 2005 onwards is equal to the 15% discount on shares
purchased. We estimate forfeitures of options, RSUs, and ESPP
purchase rights at the time of grant based on historical
experience and record compensation expense only for those awards
that are expected to vest.
Stock-based
compensation expense
Stock-based compensation is classified in the Consolidated
Statements of Income in the same expense line items as cash
compensation. The following table sets forth the total
stock-based compensation expense recognized in our Consolidated
Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
Content, subscriptions, and maintenance
|
|
$
|
12,373
|
|
|
$
|
439
|
|
|
$
|
|
|
Cost of revenues
Licenses
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
55,895
|
|
|
|
13,314
|
|
|
|
1,298
|
|
Research and development
|
|
|
57,132
|
|
|
|
17,497
|
|
|
|
1,780
|
|
General and administrative
|
|
|
24,416
|
|
|
|
7,151
|
|
|
|
1,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
153,880
|
|
|
|
38,401
|
|
|
|
4,524
|
|
Tax benefit associated with
stock-based compensation expense
|
|
|
(35,415
|
)
|
|
|
(11,405
|
)
|
|
|
(1,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of stock-based
compensation expense on net income
|
|
$
|
118,465
|
|
|
$
|
26,996
|
|
|
$
|
3,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007, total unrecognized compensation cost
related to unvested stock options and RSUs was $179 million
and $28 million, respectively, which is expected to be
recognized over the remaining weighted-average vesting periods
of 2.66 years for stock options and 2.68 years for
RSUs.
102
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Prior to the adoption of SFAS No. 123R, we provided
the pro forma information regarding net income and net income
per share required by SFAS No. 123. This information
was required to be determined as if we had accounted for our
employee stock options, including shares issued under our ESPP,
granted subsequent to March 31, 1995 under the fair value
method of SFAS No. 123. We generally did not recognize
stock-based compensation expense in our Consolidated Statements
of Income for option grants to our employees for the periods
prior to our adoption of SFAS No. 123R because the
exercise price of options granted was equal to the fair market
value of the underlying common stock on the date of grant. Prior
to April 1, 2006, stock-based compensation expense resulted
primarily from stock options and RSUs assumed in acquisitions
and restricted stock granted to executives. The following table
illustrates the effect on net income and net income per share as
if we had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation
using the Black-Scholes option-pricing model for the fiscal
years ended March 31, 2006, and March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
Net income, as reported
|
|
$
|
156,852
|
|
|
$
|
536,159
|
|
Add: Amortization of deferred
stock-based compensation included in reported net income, net of
tax
|
|
|
26,996
|
|
|
|
3,087
|
|
Less: Stock-based employee
compensation expense excluded from reported net income, net of
tax
|
|
|
(239,071
|
)(1)
|
|
|
(116,957
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
(55,223
|
)
|
|
$
|
422,289
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share basic
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.16
|
|
|
$
|
0.81
|
|
Pro forma
|
|
$
|
(0.06
|
)
|
|
$
|
0.64
|
|
Net income (loss) per
share diluted
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
0.15
|
|
|
$
|
0.74
|
|
Pro forma
|
|
$
|
(0.06
|
)
|
|
$
|
0.59
|
|
|
|
|
(1) |
|
Includes a charge of $18 million resulting from the
inclusion of unamortized expense for ESPP offering periods that
were cancelled as a result of a plan amendment to eliminate the
two-year offering period effective July 1, 2005. |
Prior to the adoption of SFAS No. 123R, we presented
Deferred stock-based compensation as a separate component of
Stockholders Equity. In accordance with the provisions of
SFAS No. 123R, on April 1, 2006, we reversed the
balance in Deferred stock-based compensation to Capital in
excess of par value in the Consolidated Balance Sheet.
103
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Stock
option activity
The following table summarizes our stock option plans as of
March 31, 2006 and 2005 and the activity for the years
ended on those dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Outstanding, beginning of year
|
|
|
68,773
|
|
|
$
|
12.08
|
|
|
|
79,542
|
|
|
$
|
8.36
|
|
Granted and assumed in acquisitions
|
|
|
85,858
|
|
|
|
21.27
|
|
|
|
14,496
|
|
|
|
24.06
|
|
Exercised
|
|
|
(17,152
|
)
|
|
|
9.50
|
|
|
|
(21,132
|
)
|
|
|
6.13
|
|
Cancelled
|
|
|
(14,456
|
)
|
|
|
22.51
|
|
|
|
(4,133
|
)
|
|
|
12.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
123,023
|
|
|
|
17.72
|
|
|
|
68,773
|
|
|
|
12.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
|
83,213
|
|
|
$
|
17.04
|
|
|
|
35,663
|
|
|
$
|
7.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes stock option activity for the
year ended March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value(1)
|
|
|
|
(In thousands)
|
|
|
Outstanding at April 1, 2006
|
|
|
123,023
|
|
|
$
|
17.72
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
17,836
|
|
|
|
17.19
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(15,953
|
)
|
|
|
9.86
|
|
|
|
|
|
|
|
|
|
Forfeited(2)
|
|
|
(7,471
|
)
|
|
|
19.26
|
|
|
|
|
|
|
|
|
|
Expired(3)
|
|
|
(10,117
|
)
|
|
|
26.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
107,318
|
|
|
$
|
17.90
|
|
|
|
5.44
|
|
|
$
|
317,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2007
|
|
|
73,763
|
|
|
$
|
17.50
|
|
|
|
5.14
|
|
|
$
|
292,000
|
|
Vested and expected to vest at
March 31, 2007
|
|
|
101,627
|
|
|
$
|
17.85
|
|
|
|
5.40
|
|
|
$
|
314,011
|
|
|
|
|
(1) |
|
Intrinsic value is calculated as the difference between the
market value of Symantecs common stock as of
March 31, 2007 and the exercise price of the option. The
aggregate intrinsic value of options outstanding and exercisable
includes options with an exercise price below $17.30, the
closing price of our common stock on March 31, 2007, as
reported by the NASDAQ Global Select Market. |
|
(2) |
|
Refers to options cancelled before their vest dates. |
|
(3) |
|
Refers to options cancelled on or after their vest dates. |
The weighted-average fair value per share of options granted
during fiscal 2007, 2006 and 2005 was $5.06, $7.81 and $15.46,
respectively. The total intrinsic value of options exercised
during fiscal 2007, 2006 and 2005 was $142 million,
$175 million and $390 million, respectively.
104
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes RSU activity for the year ended
March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Purchase
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Price
|
|
|
Intrinsic Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at April 1, 2006
|
|
|
346
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
3,143
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
2,946
|
|
|
$
|
|
|
|
$
|
50,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
March 31, 2007
|
|
|
2,371
|
|
|
$
|
|
|
|
$
|
41,015
|
|
The weighted-average grant date fair value per share of RSUs
granted during fiscal 2007 and 2006 was $16.53 and $16.94,
respectively. There were no RSUs granted in fiscal 2005. The
total fair value of RSUs that vested in fiscal 2007 and 2006 was
$2 million and $5 million, respectively.
Shares
reserved
As of March 31, 2007, we had reserved the following shares
of authorized but unissued common stock:
|
|
|
|
|
Stock purchase plans
|
|
|
14,385,370
|
|
Stock award plans
|
|
|
21,273
|
|
Employee stock option plans
|
|
|
162,463,854
|
|
|
|
|
|
|
Total
|
|
|
176,870,497
|
|
|
|
|
|
|
As of March 31, 2007, we had a restructuring and employee
termination benefit reserve of $57 million, of which
$52 million was included in Other accrued expenses in the
Consolidated Balance Sheets and $5 million was included in
Other long-term liabilities in the Consolidated Balance Sheets.
The restructuring reserve consisted of $47 million related
to restructuring reserves established in fiscal 2007,
$4 million related to a restructuring reserve assumed from
Veritas in connection with the acquisition, and $6 million
related to restructuring reserves established in fiscal 2006.
Restructuring
expense
In fiscal 2007, we recorded approximately $70 million of
restructuring and employee termination benefit expenses which
consist of $19 million related to severance, associated
benefits, and outplacement services for the termination of
approximately 323 employees located in the Americas, Europe, and
Asia Pacific and $51 million related to the 2007 cost
savings initiative announced in January 2007. We implemented the
2007 cost savings initiative to better align our expenses with
our new revenue expectations. The costs included in our 2007
cost savings initiative reflect $50 million related to
severance, associated benefits, and outplacement services and an
insignificant amount related to excess facilities. These
restructuring and employee termination benefit costs under the
2007 cost savings initiative reflect the termination of
approximately 988 employees located in the Americas, Europe, and
Asia Pacific and the consolidation of certain facilities in
Europe and Asia Pacific. We paid $24 million under the
restructuring and employee termination benefit reserves
established in fiscal 2007. We expect the remainder of the costs
to be paid by the end of fiscal 2008.
In fiscal 2006, we recorded $25 million of restructuring
costs, of which $18 million related to severance,
associated benefits, and outplacement services and
$7 million related to excess facilities. These
restructuring costs
105
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
reflect the termination of 446 redundant employees located in
the Americas, Europe, and Asia Pacific and the consolidation of
certain facilities in Europe and Asia Pacific. At March 31,
2006, $9 million remained related to this reserve. In
fiscal 2007, we paid $4 million related to this
restructuring reserve and recorded an insignificant amount of
adjustments. At March 31, 2007, $5 million remained
related to this reserve, the majority of which relates to
restructured facilities. We expect the remainder of the costs to
be paid by the end of fiscal 2018.
Amounts related to restructuring expense are included in
Restructuring in the Consolidated Statements of Income.
Acquisition-related
restructuring
In connection with the Veritas acquisition, we assumed a
restructuring reserve of $53 million related to the 2002
Veritas facilities restructuring plan. At March 31, 2006,
$9 million remained related to this reserve. During fiscal
2007, we paid $6 million related to this reserve and
increased this reserve by an insignificant amount as we
determined that the costs related to certain facilities would be
greater than originally accrued. The remaining reserve amount of
$4 million will be paid over the remaining lease terms,
ending at various dates through 2015. The majority of costs are
currently scheduled to be paid by the end of fiscal 2012.
In connection with the Veritas acquisition, we recorded
$7 million of restructuring costs, of which $2 million
related to excess facilities costs and $5 million related
to severance, associated benefits, and outplacement services.
These restructuring costs reflect the termination of redundant
employees and the consolidation of certain facilities as a
result of the Veritas acquisition. At March 31, 2007, an
insignificant amount remained related to this reserve. At
March 31, 2006, $3 million remained related to this
reserve. During fiscal 2007, we paid an insignificant amount
related to this reserve and reduced this reserve by
$2 million as we determined that the costs related to
certain facilities would be less than originally accrued. We
expect the remainder of the costs to be paid by the end of
fiscal 2008.
In connection with our other acquisitions in fiscal 2006, we
recorded $12 million of restructuring costs, of which
$8 million related to severance, associated benefits, and
outplacement services and $4 million related to excess
facilities costs. These restructuring costs reflect the
termination of redundant employees and the consolidation of
certain facilities as a result of our other acquisitions. At
March 31, 2006, $9 million remained related to this
reserve. At March 31, 2007, an insignificant amount
remained related to this reserve. During fiscal 2007, we paid
$5 million related to this reserve and reduced this reserve
by an insignificant amount as we determined that the costs
related to certain facilities would be less than originally
accrued. We expect the remainder of the costs to be paid by the
end of fiscal 2012.
Amounts related to acquisition-related restructuring are
reflected in the purchase price allocation of the applicable
acquisition.
106
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
136,626
|
|
|
$
|
269,825
|
|
|
$
|
128,025
|
|
State
|
|
|
4,133
|
|
|
|
49,656
|
|
|
|
36,460
|
|
International
|
|
|
75,310
|
|
|
|
89,067
|
|
|
|
96,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,069
|
|
|
|
408,548
|
|
|
|
261,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
11,410
|
|
|
|
(152,041
|
)
|
|
|
66,234
|
|
State
|
|
|
7,482
|
|
|
|
(26,799
|
)
|
|
|
(804
|
)
|
International
|
|
|
(7,719
|
)
|
|
|
(23,837
|
)
|
|
|
(4,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,173
|
|
|
|
(202,677
|
)
|
|
|
60,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
227,242
|
|
|
$
|
205,871
|
|
|
$
|
321,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from international operations was
$362 million, $324 million, and $499 million for
fiscal 2007, 2006, and 2005, respectively.
The difference between our effective income tax rate and the
federal statutory income tax rate as a percentage of income
before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
1.2
|
|
|
|
2.1
|
|
|
|
2.0
|
|
Foreign earnings taxed at less
than the federal rate
|
|
|
(2.3
|
)
|
|
|
(3.5
|
)
|
|
|
(6.5
|
)
|
Non-deductible stock-based
compensation
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
American Jobs Creation
Act tax expense on repatriation of foreign earnings
|
|
|
|
|
|
|
(5.8
|
)
|
|
|
6.3
|
|
Non-deductible IPR&D
|
|
|
|
|
|
|
27.5
|
|
|
|
|
|
Domestic production activities
deduction
|
|
|
(0.3
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
Contingent penalty accrual
|
|
|
1.0
|
|
|
|
1.9
|
|
|
|
|
|
IRS audit settlement
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
0.6
|
|
|
|
1.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.0
|
%
|
|
|
56.8
|
%
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The principal components of deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax credit carryforwards
|
|
$
|
50,929
|
|
|
$
|
45,911
|
|
Net operating loss carryforwards
of acquired companies
|
|
|
211,888
|
|
|
|
274,103
|
|
Other accruals and reserves not
currently tax deductible
|
|
|
61,192
|
|
|
|
75,905
|
|
Deferred revenue
|
|
|
50,499
|
|
|
|
18,503
|
|
Loss on investments not currently
tax deductible
|
|
|
16,177
|
|
|
|
18,313
|
|
Book over tax depreciation
|
|
|
1,331
|
|
|
|
48,021
|
|
State income taxes
|
|
|
523
|
|
|
|
13,738
|
|
Convertible Debt
|
|
|
201,730
|
|
|
|
|
|
Other
|
|
|
44,052
|
|
|
|
38,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
638,321
|
|
|
|
532,982
|
|
Valuation allowance
|
|
|
(60,117
|
)
|
|
|
(66,324
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
578,204
|
|
|
|
466,658
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
|
(565,893
|
)
|
|
|
(688,857
|
)
|
Unremitted earnings of foreign
subsidiaries
|
|
|
(163,103
|
)
|
|
|
(125,996
|
)
|
Other
|
|
|
|
|
|
|
(2,376
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities)
assets
|
|
$
|
(150,792
|
)
|
|
$
|
(350,571
|
)
|
|
|
|
|
|
|
|
|
|
Of the $60 million total valuation allowance provided
against our deferred tax assets, approximately $54 million
is attributable to acquisition-related assets, the benefit of
which will reduce goodwill when and if realized. The valuation
allowance decreased by $6 million in fiscal 2007, all of
which was attributable to acquisition-related assets, the
benefit of which reduced goodwill. The valuation allowance
increased by $59 million in fiscal 2006, of which
approximately $58 million was attributable to
acquisition-related assets.
As of March 31, 2007, we have net operating loss and credit
carryforwards attributable to various acquired companies of
approximately $302 million and $14 million,
respectively, which, if not used, will expire between fiscal
2012 and 2025. These net operating loss carryforwards are
subject to an annual limitation under Internal Revenue Code
§382, but are expected to be fully realized. Furthermore,
we have state net loss and credit carryforwards attributable to
various acquired companies of approximately $500 million
and $34 million, respectively, which will expire in various
fiscal years. In addition, we have foreign net operating loss
carryforwards attributable to various acquired foreign companies
of approximately $659 million, which, under current
applicable foreign tax law, can be carried forward indefinitely.
As of March 31, 2007, no provision has been made for
federal or state income taxes on $1 billion of cumulative
unremitted earnings of certain of our foreign subsidiaries,
since we plan to indefinitely reinvest these earnings. As of
March 31, 2007, the unrecognized deferred tax liability for
these earnings was $290 million.
In the March 2005 quarter, we repatriated $500 million from
certain of our foreign subsidiaries under provisions of the
American Jobs Creation Act of 2004, or the Jobs Act, enacted in
October 2004. We recorded a tax charge for this repatriation of
$54 million in the March 2005 quarter.
In May 2005, clarifying language was issued by the
U.S. Department of Treasury and the Internal Revenue
Service, or IRS, with respect to the treatment of foreign taxes
paid on the earnings repatriated under the Jobs Act and
108
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
in September 2005, additional clarifying language was issued
regarding the treatment of certain deductions attributable to
the earnings repatriation. As a result of this clarifying
language, we reduced the tax expense attributable to the
repatriation by approximately $21 million in fiscal 2006,
which reduced the cumulative tax charge on the repatriation to
$33 million.
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, which we acquired in July 2005. The incremental tax
liability asserted by the IRS with regard to the Veritas claim
was $867 million, excluding penalties and interest. The
Notice of Deficiency primarily relates to transfer pricing in
connection with a technology license agreement between Veritas
and a foreign subsidiary. We do not agree with the IRS position
and we have petitioned the Tax Court to protest the assessment.
In the March 2007 quarter, the IRS agreed to dismiss any penalty
assessment, and we have otherwise agreed to settle several of
the lesser issues (representing $35 million of the total
assessment) for $7 million of tax. As a result, the
outstanding issue represents $832 million of tax. No
payments will be made on the assessment until the issue is
definitively resolved. If, upon resolution, we are required to
pay an amount in excess of our provision for this matter, the
incremental amounts due would be accounted for principally as
additions to the 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 the fourth quarter of fiscal 2006, we made $90 million
of tax-related adjustments to the purchase accounting for
Veritas, consisting of $120 million of additional
pre-acquisition tax reserve-related adjustments, partially
offset by a $30 million reduction in other pre-acquisition
taxes payable. While we strongly disagree with the IRS over both
its transfer pricing methodologies and the amount of the
assessment, we have established additional tax reserves for all
Veritas pre-acquisition years to account for both contingent tax
and interest risk.
On March 30, 2006, we received notices of proposed
adjustment from the IRS with regard to an unrelated audit of
Symantec for fiscal 2003 and 2004. The IRS claimed that we owed
an incremental tax liability with regard to this audit of
$110 million, excluding penalties and interest. The
incremental tax liability primarily related to transfer pricing
matters between Symantec and a foreign subsidiary. On
September 5, 2006, we executed a closing agreement with the
IRS with respect to the audit of Symantecs fiscal 2003 and
2004 federal income tax returns. The closing agreement
represents the final assessment by the IRS of additional tax for
these fiscal years of approximately $35 million, including
interest. Based on the final settlement, a tax benefit of
$8 million is reflected in the September 2006 quarter.
In the fourth quarter of fiscal 2006, we increased our tax
reserves by an additional $64 million in connection with
all open Symantec tax years (fiscal 2003 to 2006). Since these
reserves relate to licensing arising from acquired technology,
the additional accruals are primarily offset by deferred taxes.
We are as yet unable to confirm our eligibility to claim a lower
tax rate on a distribution made from a Veritas foreign
subsidiary prior to the acquisition. The distribution was
intended to be made pursuant to the Jobs Act, and therefore
eligible for a 5.25% effective U.S. federal rate of tax, in
lieu of the 35% statutory rate. We are seeking a ruling from the
IRS on the matter. Because we were unable to obtain this ruling
prior to filing the Veritas tax return in May 2006, we paid
$130 million of additional U.S. taxes. Since this
payment relates to the taxability of foreign earnings that are
otherwise the subject of the IRS assessment, this additional
payment reduced the amount of taxes payable accrued as part of
the purchase accounting for pre-acquisition contingent tax risks.
On March 29, 2006, we received a Notice of Deficiency from
the IRS claiming that we owe additional taxes, plus interest and
penalties, for the 2000 and 2001 tax years based on an audit of
Veritas. The incremental tax liability asserted by the IRS was
$867 million, excluding penalties and interest. On
June 26, 2006, we filed a petition with the U.S. Tax
Court protesting the IRS claim for such additional taxes. On
August 30, 2006, the IRS answered our petition and this
matter has been docketed for trial in U.S. Tax Court. We
have subsequently agreed to pay $7 million
109
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
out of $35 million originally assessed by the IRS in
connection with one of the issues covered in the assessment. The
IRS has also agreed to waive the assessment of penalties. We do
not agree with IRS on the $832 million remaining at issue.
We strongly believe the IRS position with regard to this
matter is inconsistent with applicable tax laws and existing
Treasury regulations, and that our previously reported income
tax provision for the years in question is appropriate. See
Note 13 for additional information on this matter.
On July 7, 2004, a purported class action complaint
entitled Paul Kuck, et al. v. Veritas Software Corporation,
et al. was filed in the United States District Court for
the District of Delaware. The lawsuit alleges violations of
federal securities laws in connection with Veritas
announcement on July 6, 2004 that it expected results of
operations for the fiscal quarter ended June 30, 2004 to
fall below earlier estimates. The complaint generally seeks an
unspecified amount of damages. Subsequently, additional
purported class action complaints have been filed in Delaware
federal court, and, on March 3, 2005, the Court entered an
order consolidating these actions and appointing lead plaintiffs
and counsel. A consolidated amended complaint, or CAC, was filed
on May 27, 2005, expanding the class period from
April 23, 2004 through July 6, 2004. The CAC also
named another officer as a defendant and added allegations that
Veritas and the named officers made false or misleading
statements in the companys 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. The defendants to this matter intend to defend this
case vigorously. Because our liability, if any, cannot be
reasonably estimated, no amounts have been accrued for this
matter. An adverse outcome in this matter could have a material
adverse affect on our financial position and results of
operations.
We are also involved in a number of other judicial and
administrative proceedings that are incidental to our business.
Although adverse decisions (or settlements) may occur in one or
more of the cases, it is not possible to estimate the possible
loss or losses from each of these cases. The final resolution of
these lawsuits, individually or in the aggregate, is not
expected to have a material adverse affect on our financial
condition or results of operations.
|
|
Note 15.
|
Segment
Information
|
In the June 2006 quarter, we consolidated our Enterprise
Security, Data Protection, and Storage and Server Management
segments into two segments: the Security and Data Management
segment and the Data Center Management segment. Amounts for
fiscal 2006 and 2005 have been reclassified to conform to our
current presentation.
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. As of March 31, 2007, we operated in five
operating segments:
|
|
|
|
|
Consumer Products. Our Consumer Products
segment focuses on delivering our Internet security, PC tuneup,
and backup products to individual users and home offices.
|
|
|
|
Security and Data Management. Our Security and
Data Management segment focuses on providing large to small and
medium-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.
|
|
|
|
Data Center Management. Our Data Center
Management segment focuses on providing enterprise and large
enterprise customers with storage and server management, data
protection, and application performance management solutions
across heterogeneous storage and server platforms.
|
|
|
|
Services. Our Services segment consists of
consultants with extensive technical knowledge, business
expertise, and global insight across multi-vendor environments
who assist organizations in managing IT risk on an ongoing
basis. We provide customers with maintenance and technical
support, consulting, education, and business critical services.
|
110
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
Other. Our Other segment is comprised of
sunset products and products nearing the end of their life
cycle. It also includes general and administrative expenses;
amortization of acquired product rights, other intangible
assets, and other assets; charges, such as acquired in-process
research and development, patent settlement, stock-based
compensation, and restructuring; and certain indirect costs that
are not charged to the other operating segments.
|
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies,
with the exception of the amortization of acquired product
rights, which is included entirely in our Other segment. 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 4, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Data
|
|
|
Data Center
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Products
|
|
|
Management
|
|
|
Management
|
|
|
Services
|
|
|
Other
|
|
|
Company
|
|
|
|
(In thousands)
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,590,529
|
|
|
$
|
2,004,690
|
|
|
$
|
1,369,287
|
|
|
$
|
234,738
|
|
|
$
|
122
|
|
|
$
|
5,199,366
|
|
Operating income (loss)
|
|
|
892,670
|
|
|
|
732,303
|
|
|
|
411,821
|
|
|
|
(52,864
|
)
|
|
|
(1,464,188
|
)
|
|
|
519,742
|
|
Depreciation and amortization
expense
|
|
|
5,547
|
|
|
|
41,527
|
|
|
|
49,928
|
|
|
|
4,685
|
|
|
|
709,756
|
|
|
|
811,443
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,409,582
|
|
|
$
|
1,720,646
|
|
|
$
|
861,046
|
|
|
$
|
152,091
|
|
|
$
|
27
|
|
|
$
|
4,143,392
|
|
Operating income
(loss)(1)
|
|
|
911,924
|
|
|
|
701,052
|
|
|
|
74,942
|
|
|
|
(29,221
|
)
|
|
|
(1,384,732
|
)
|
|
|
273,965
|
|
Depreciation and amortization
expense
|
|
|
1,670
|
|
|
|
25,473
|
|
|
|
37,805
|
|
|
|
3,463
|
|
|
|
571,405
|
|
|
|
639,816
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,343,059
|
|
|
$
|
1,199,406
|
|
|
$
|
|
|
|
$
|
40,261
|
|
|
$
|
123
|
|
|
$
|
2,582,849
|
|
Operating income (loss)
|
|
|
864,115
|
|
|
|
307,974
|
|
|
|
|
|
|
|
(12,429
|
)
|
|
|
(340,394
|
)
|
|
|
819,266
|
|
Depreciation and amortization
expense
|
|
|
3,540
|
|
|
|
23,787
|
|
|
|
|
|
|
|
509
|
|
|
|
99,598
|
|
|
|
127,434
|
|
|
|
|
(1) |
|
Amounts have been updated from those presented in our
Form 8-K
filed on December 11, 2006, to reflect an accurate recast
of Operating income (loss) among the segments established in the
June 2006 quarter as a result of an inconsistent allocation
methodology used in fiscal 2006 as compared to fiscal 2007. |
Product
revenue information
Net revenues from sales of our antivirus products within our
Consumer Products and Security and Data Management segments
represented 24%, 32%, and 52% of our total net revenues for
fiscal 2007, 2006, and 2005, respectively. Net revenues from
sales of our Norton Internet Security product within our
Consumer Products segment represented 18%, 15%, and 18% of our
total net revenues during fiscal 2007, 2006, and 2005,
respectively. Net revenues from sales of our storage and server
management products within our Data Center Management segment
represented 15% and 12% of our total revenues during fiscal 2007
and 2006.
111
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Geographical
information
The following table represents revenue amounts reported for
products shipped to customers in the corresponding regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net revenues from external
customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,560,342
|
|
|
$
|
2,046,226
|
|
|
$
|
1,235,536
|
|
United Kingdom
|
|
|
542,244
|
|
|
|
425,717
|
|
|
|
184,295
|
|
Other foreign
countries*
|
|
|
2,096,780
|
|
|
|
1,671,449
|
|
|
|
1,163,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,199,366
|
|
|
$
|
4,143,392
|
|
|
$
|
2,582,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
No individual country represented more than 10% of the
respective totals. |
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006*
|
|
|
|
(In thousands)
|
|
|
Long-lived
assets:**
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
13,365,036
|
|
|
$
|
13,680,210
|
|
Foreign countries***
|
|
|
314,787
|
|
|
|
325,041
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,679,823
|
|
|
$
|
14,005,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amounts at March 31, 2006 have been corrected to reflect an
accurate allocation of long-lived assets to geographic locations. |
|
** |
|
Amounts include goodwill and intangible assets. |
|
*** |
|
No individual country represented more than 10% of the
respective totals. |
Significant
customers
In fiscal 2007, one distributor, Ingram Micro, accounted for
more than 10% of our total net revenues. In fiscal 2006 and
2005, two distributors, Ingram Micro and Tech Data Product
Management, each accounted for more than 10% of our total net
revenues. In fiscal 2007, 2006, and 2005, one reseller, Digital
River, Inc., accounted for more than 10% of our total net
revenues.
|
|
Note 16.
|
Cumulative
Adjustment to Net Revenues and Deferred Revenue
|
In August 2004, during a review of our revenue maintenance
application used to calculate the amount of deferred revenue for
our consumer products, we discovered an error in the unit
renewal prices manually entered into the application. The unit
renewal prices used to calculate the deferred revenue did not
reflect the correct subscription renewal prices for foreign
currency sales, which serves as the basis for our deferral. As a
result, the deferred revenue from these consumer products was
understated and the portion of revenue from these products that
was recognized at the time of sale was overstated. The
cumulative overstatement of revenue for periods prior to the
three months ended June 30, 2004 totaled approximately
$20 million. The effect of the error was not material to
any prior period. To correct this error, we recorded the
cumulative $20 million as a reduction in Net revenues in
the Consolidated Statements of Income and a corresponding
$20 million increase in Current deferred revenue in the
Consolidated Balance Sheets during the three-month period ended
June 2004. Substantially all of the $20 million of current
deferred revenue was recognized as revenue during fiscal 2005.
112
SYMANTEC
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 17.
|
Subsequent
Events
|
On April 6, 2007, we completed the acquisition of Altiris,
Inc., a leading provider of information technology management
software that enables businesses to easily manage and service
network-based endpoints. The aggregate purchase price, excluding
acquisition related costs, was approximately $815 million
in cash, which amount is net of Altiris cash balance. We
believe this acquisition will enable us to help customers better
manage and enforce security policies at the endpoint, identify
and protect against threats, and repair and service assets. As
of the date of the filing of this annual report, it is not
practicable to disclose the condensed balance sheet and
preliminary purchase price allocation for Altiris as of the date
of acquisition.
From April 1 through May 23, 2007, we repurchased
14 million shares at prices ranging from $19.53 to
$19.88 per share for an aggregate amount of
$275 million. As of May 23, 2007, $225 million
remained authorized for future repurchases.
In May 2007 we signed an agreement to form a joint venture with
Huawei Technologies Co., LDT. The joint venture will develop,
manufacture, market and support security and storage appliances
to global telecommunications carriers and enterprise customers.
We will contribute storage and security software and
$150 million in cash and will receive a 49% interest in the
joint venture. The joint venture is expected to close late in
calendar year 2007, pending required regulatory and governmental
approvals.
113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Cupertino, State of
California, on the 23rd day of May, 2007.
SYMANTEC CORPORATION
John W. Thompson,
Chairman and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints John W.
Thompson, James A. Beer and Arthur F. Courville, and each or any
of them, his
attorneys-in-fact,
each with the power of substitution, for him in any and all
capacities to sign any and all amendments to this report on
Form 10-K
and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact,
and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and
confirming all that such
attorneys-in-fact,
or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof. This Power of Attorney may be
signed in several counterparts.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated below.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ John
W. Thompson
John
W. Thompson
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
|
May 23, 2007
|
|
|
|
|
|
/s/ James
A. Beer
James
A. Beer
|
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
May 23, 2007
|
|
|
|
|
|
/s/ George
W. Harrington
George
W. Harrington
|
|
Senior Vice President, Finance and
Chief Accounting Officer
(Principal Accounting Officer)
|
|
May 23, 2007
|
|
|
|
|
|
/s/ Michael
A. Brown
Michael
A. Brown
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ William
T. Coleman III
William
T. Coleman III
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ Frank
E. Dangeard
Frank
E. Dangeard
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ David
L. Mahoney
David
L. Mahoney
|
|
Director
|
|
May 23, 2007
|
114
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Robert
S. Miller
Robert
S. Miller
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ George
Reyes
George
Reyes
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ David
J. Roux
David
J. Roux
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ Daniel
H. Schulman
Daniel
H. Schulman
|
|
Director
|
|
May 23, 2007
|
|
|
|
|
|
/s/ V.
Paul Unruh
V.
Paul Unruh
|
|
Director
|
|
May 23, 2007
|
115
Schedule II
SYMANTEC
CORPORATION
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
Amount
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other
|
|
|
Written Off
|
|
|
End of
|
|
|
|
of Period
|
|
|
Expenses(4)
|
|
|
Accounts
|
|
|
or Used
|
|
|
Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2007
|
|
$
|
8,794
|
|
|
$
|
4,644
|
|
|
$
|
(1,777
|
)(1)
|
|
$
|
(3,270
|
)
|
|
$
|
8,391
|
|
Year ended March 31, 2006
|
|
|
4,668
|
|
|
|
6,786
|
(2)
|
|
|
|
|
|
|
(2,660
|
)
|
|
|
8,794
|
|
Year ended March 31, 2005
|
|
|
5,674
|
|
|
|
(687
|
)
|
|
|
|
|
|
|
(319
|
)
|
|
|
4,668
|
|
Reserve for product returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2007
|
|
$
|
12,840
|
|
|
$
|
72,789
|
|
|
|
|
|
|
$
|
(73,408
|
)
|
|
$
|
12,221
|
|
Year ended March 31, 2006
|
|
|
4,755
|
|
|
|
98,282
|
|
|
|
|
|
|
|
(90,197
|
)
|
|
|
12,840
|
|
Year ended March 31, 2005
|
|
|
6,613
|
|
|
|
67,604
|
|
|
|
|
|
|
|
(69,462
|
)
|
|
|
4,755
|
|
Reserve for rebates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2007
|
|
$
|
64,590
|
|
|
$
|
196,775
|
|
|
$
|
105,993
|
(3)
|
|
$
|
(267,501
|
)
|
|
$
|
99,857
|
|
Year ended March 31, 2006
|
|
|
50,804
|
|
|
|
177,897
|
|
|
|
67,129
|
(3)
|
|
|
(231,240
|
)
|
|
|
64,590
|
|
Year ended March 31, 2005
|
|
|
46,232
|
|
|
|
208,461
|
|
|
|
|
|
|
|
(203,889
|
)
|
|
|
50,804
|
|
|
|
|
(1) |
|
SAB 108 adjustment to fiscal 2007 beginning balance,
charged to Retained earnings. |
|
(2) |
|
Includes balances assumed in connection with out acquisition of
Veritas. |
|
(3) |
|
Balances represent unrecognized customer rebates that will be
amortized within 12 months and are charged to Deferred
revenue. |
|
(4) |
|
Reserve for product returns and Reserve for rebates are charged
against Revenue. |
116
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
2
|
.01§
|
|
Agreement and Plan of
Reorganization dated as of December 15, 2004 among Symantec
Corporation, Carmel Acquisition Corp., and Veritas Software
Corporation
|
|
8-K
|
|
000-17781
|
|
2.01
|
|
12/20/04
|
|
|
|
2
|
.02§
|
|
Agreement and Plan of Merger among
Symantec Corporation, Atlas Merger Corp. and Altiris, Inc. dated
January 26, 2007
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
01/29/07
|
|
|
|
3
|
.01
|
|
Amended and Restated Certificate
of Incorporation of Symantec Corporation
|
|
S-8
|
|
333-119872
|
|
4.01
|
|
10/21/04
|
|
|
|
3
|
.02
|
|
Certificate of Amendment of
Amended and Restated Certificate of Incorporation of Symantec
Corporation
|
|
S-8
|
|
333-126403
|
|
4.03
|
|
07/06/05
|
|
|
|
3
|
.03
|
|
Certificate of Designations of
Series A Junior Participating Preferred Stock of Symantec
Corporation
|
|
8-K
|
|
000-17781
|
|
3.01
|
|
12/21/04
|
|
|
|
3
|
.04
|
|
Bylaws of Symantec Corporation
|
|
8-K
|
|
000-17781
|
|
3.01
|
|
01/23/06
|
|
|
|
4
|
.01
|
|
Form of Common Stock Certificate
|
|
S-3ASR
|
|
333-139230
|
|
4.07
|
|
12/11/06
|
|
|
|
4
|
.02
|
|
Rights Agreement, dated as of
August 12, 1998, between Symantec Corporation and
BankBoston, N.A., as Rights Agent, which includes as
Exhibit A, the Form of Certificate of Designations of
Series A Junior Participating Preferred Stock, as
Exhibit B, the Form of Right Certificate, and as
Exhibit C, the Summary of Rights to Purchase Preferred
Shares
|
|
8-A
|
|
000-17781
|
|
4.1
|
|
08/19/98
|
|
|
|
4
|
.03
|
|
Indenture related to the
0.75% Convertible Senior Notes, due 2011, dated as of
June 16, 2006, between Symantec Corporation and
U.S. Bank National Association, as trustee (including form
of 0.75% Convertible Senior Notes due 2011)
|
|
8-K
|
|
000-17781
|
|
4.01
|
|
06/16/06
|
|
|
|
4
|
.04
|
|
Indenture related to the
1.00% Convertible Senior Notes, due 2013, dated as of
June 16, 2006, between Symantec Corporation and
U.S. Bank National Association, as trustee (including form
of 1.00% Convertible Senior Notes due 2013)
|
|
8-K
|
|
000-17781
|
|
4.02
|
|
06/16/06
|
|
|
|
4
|
.05
|
|
Registration Rights Agreement,
dated as of June 16, 2006, among Symantec Corporation and
Citigroup Global Markets, Inc., Morgan Stanley & Co.
Incorporated and UBS Securities LLC, for themselves and the
other Initial Purchasers
|
|
8-K
|
|
000-17781
|
|
4.03
|
|
06/16/06
|
|
|
|
4
|
.06
|
|
Form of Master Terms and
Conditions For Convertible Bond Hedging Transactions between
Symantec Corporation and each of Bank of America, N.A. and
Citibank, N.A., respectively, dated June 9, 2006, including
Exhibit and Schedule thereto
|
|
10-Q
|
|
000-17781
|
|
10.04
|
|
08/09/06
|
|
|
|
4
|
.07
|
|
Form of Master Terms and
Conditions For Warrants Issued by Symantec Corporation between
Symantec Corporation and each of Bank of America, N.A. and
Citibank, N.A., respectively, dated June 9, 2006, including
Exhibit and Schedule thereto
|
|
10-Q
|
|
000-17781
|
|
10.05
|
|
08/09/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.01*
|
|
Form of Indemnification Agreement
with Officers and Directors, as amended (form for agreements
entered into prior to January 17, 2006)
|
|
S-1
|
|
33-28655
|
|
10.17
|
|
06/21/89
|
|
|
|
10
|
.02*
|
|
Form of Indemnification Agreement
for Officers, Directors and Key Employees
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
01/23/06
|
|
|
|
10
|
.03*
|
|
Veritas Software Corporation 1993
Equity Incentive Plan, including form of Stock Option Agreement
|
|
10-K
|
|
000-17781
|
|
10.03
|
|
06/09/06
|
|
|
|
10
|
.04*
|
|
Veritas Software Corporation
1993 Directors Stock Option Plan, including form of Stock
Option Agreement
|
|
10-K
|
|
000-17781
|
|
10.04
|
|
06/09/06
|
|
|
|
10
|
.05*
|
|
Symantec Corporation 1996 Equity
Incentive Plan, as amended, including form of Stock Option
Agreement and form of Restricted Stock Purchase Agreement
|
|
10-K
|
|
000-17781
|
|
10.05
|
|
06/09/06
|
|
|
|
10
|
.06*
|
|
Symantec Corporation Deferred
Compensation Plan, as adopted November 7, 1996
|
|
10-K
|
|
000-17781
|
|
10.11
|
|
06/24/97
|
|
|
|
10
|
.07*
|
|
Symantec Corporation 1998 Employee
Stock Purchase Plan, as amended
|
|
10-K
|
|
000-17781
|
|
10.07
|
|
06/09/06
|
|
|
|
10
|
.08*
|
|
Brightmail Inc. 1998 Stock Option
Plan, including form of Stock Option Agreement and form of
Notice of Assumption
|
|
10-K
|
|
000-17781
|
|
10.08
|
|
06/09/06
|
|
|
|
10
|
.09*
|
|
Altiris, Inc. 1998 Stock Option
Plan
|
|
S-8
|
|
333-141986
|
|
99.01
|
|
04/10/07
|
|
|
|
10
|
.10*
|
|
Form of Notice of Grant of Stock
Option under the Altiris, Inc. 1998 Stock Option Plan
|
|
S-8
|
|
333-141986
|
|
99.02
|
|
04/10/07
|
|
|
|
10
|
.11*
|
|
Symantec Corporation
2000 Directors Equity Incentive Plan, as amended
|
|
S-8
|
|
333-119872
|
|
99.02
|
|
10/21/04
|
|
|
|
10
|
.12*
|
|
Symantec Corporation 2001 Non-
Qualified Equity Incentive Plan
|
|
10-K
|
|
000-17781
|
|
10.12
|
|
06/09/06
|
|
|
|
10
|
.13*
|
|
Symantec Corporation 2002
Executive Officers Stock Purchase Plan, as amended
|
|
10-K
|
|
000-17781
|
|
10.12
|
|
06/15/05
|
|
|
|
10
|
.14*
|
|
Veritas Software Corporation
2002 Directors Stock Option Plan, including form of Stock
Option Agreement and forms of Notice of Stock Option Grant
|
|
10-K
|
|
000-17781
|
|
10.14
|
|
06/09/06
|
|
|
|
10
|
.15*
|
|
Altiris, Inc. 2002 Stock Plan
|
|
S-8
|
|
333-141986
|
|
99.03
|
|
04/10/07
|
|
|
|
10
|
.16*
|
|
Form of Stock Option Agreement
under the Altiris, Inc. 2002 Stock Plan
|
|
S-8
|
|
333-141986
|
|
99.04
|
|
04/10/07
|
|
|
|
10
|
.17*
|
|
Veritas Software Corporation 2003
Stock Incentive Plan, as amended and restated, including form of
Stock Option Agreement, form of Stock Option Agreement for
Executives and Senior VPs and form of Notice of Stock Option
Assumption
|
|
10-K
|
|
000-17781
|
|
10.15
|
|
06/09/06
|
|
|
|
10
|
.18*
|
|
Symantec Corporation 2004 Equity
Incentive Plan, as amended, including Stock Option
Grant Terms and Conditions, form of RSU Award
Agreement, and form of RSU Award Agreement for Non-Employee
Directors
|
|
|
|
|
|
|
|
|
|
X
|
|
10
|
.19*
|
|
Altiris, Inc. 2005 Stock Plan
|
|
S-8
|
|
333-141986
|
|
99.05
|
|
04/10/07
|
|
|
|
10
|
.20*
|
|
Form of Incentive Stock Option
Agreement under the Altiris, Inc. 2005 Stock Plan, as amended
|
|
S-8
|
|
333-141986
|
|
99.06
|
|
04/10/07
|
|
|
|
10
|
.21*
|
|
Offer Letter, dated
February 8, 2006, from Symantec Corporation to James A. Beer
|
|
10-K
|
|
000-17781
|
|
10.17
|
|
06/09/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Incorporated by Reference
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
Herewith
|
|
|
10
|
.22*
|
|
Employment Agreement, dated
December 15, 2004, between Symantec Corporation and Jeremy
Burton, as amended
|
|
S-4/A
|
|
333-122724
|
|
10.06
|
|
05/18/05
|
|
|
|
10
|
.23*
|
|
Employment Agreement, dated
December 15, 2004, between Symantec Corporation and Kris
Hagerman, as amended
|
|
S-4/A
|
|
333-122724
|
|
10.07
|
|
05/18/05
|
|
|
|
10
|
.24*
|
|
Offer Letter, dated
January 12, 2004, from Symantec Corporation to Thomas W.
Kendra
|
|
10-Q
|
|
000-17781
|
|
10.01
|
|
02/04/05
|
|
|
|
10
|
.25*
|
|
Employment Agreement, dated
April 11, 1999, between Symantec Corporation and John W.
Thompson
|
|
10-K
|
|
000-17781
|
|
10.67
|
|
07/01/99
|
|
|
|
10
|
.26*
|
|
Form of FY07 Executive Annual
Incentive Plan
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
06/15/06
|
|
|
|
10
|
.27*
|
|
Form of FY08 Executive Annual
Incentive Plan Group Presidents responsible for one
of Symantecs business segments
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
05/07/07
|
|
|
|
10
|
.28*
|
|
Form of FY08 Executive Annual
Incentive Plan Executive Officers other than Group
Presidents responsible for one of Symantecs business
segments
|
|
8-K
|
|
000-17781
|
|
10.02
|
|
05/07/07
|
|
|
|
10
|
.29*
|
|
Symantec Senior Executive
Incentive Plan
|
|
10-K
|
|
000-17781
|
|
10.18
|
|
06/14/04
|
|
|
|
10
|
.30*
|
|
Symantec Corporation Executive
Retention Plan, as amended
|
|
8-K
|
|
000-17781
|
|
10.01
|
|
04/27/06
|
|
|
|
10
|
.31
|
|
Second Amended and Restated
Symantec Online Store Agreement, by and among Symantec
Corporation, Symantec Limited, Digital River, Inc. and Digital
River Ireland Limited, entered into on October 19, 2006
|
|
10-Q
|
|
000-17781
|
|
10.02
|
|
02/07/07
|
|
|
|
10
|
.32
|
|
Amended Agreement Respecting
Certain Rights of Publicity, by and between Peter Norton and
Peter Norton Computing, Inc., dated August 31, 1990
|
|
S-4
|
|
33-35385
|
|
10.04
|
|
06/13/90
|
|
|
|
10
|
.33
|
|
Assignment of Copyright and Other
Intellectual Property Rights, by and between Peter Norton and
Peter Norton Computing, Inc., dated August 31, 1990
|
|
S-4
|
|
33-35385
|
|
10.37
|
|
06/13/90
|
|
|
|
10
|
.34
|
|
Environmental Indemnity Agreement,
dated April 23, 1999, between Veritas and Fairchild
Semiconductor Corporation, included as Exhibit C to that
certain Agreement of Purchase and Sale, dated March 29,
1999, between Veritas and Fairchild Semiconductor of California
|
|
S-1/A
|
|
333-83777
|
|
10.27
Exhibit C
|
|
08/06/99
|
|
|
|
21
|
.01
|
|
Subsidiaries of Symantec
Corporation
|
|
|
|
|
|
|
|
|
|
X
|
|
23
|
.01
|
|
Consent of Independent Registered
Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
X
|
|
24
|
.01
|
|
Power of Attorney (see Signature
page to this annual report)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
§ |
|
The exhibits and schedules to this agreement have been omitted
pursuant to Item 601(b)(2) of
Regulation S-K.
We will furnish copies of any of the exhibits and schedules to
the SEC upon request. |
|
* |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
|
|
Certain portions of this exhibit have been omitted and have been
filed separately with the SEC pursuant to a request for
confidential treatment under
Rule 24b-2
as promulgated under the Securities Exchange Act of 1934. |
|
|
|
Filed by Veritas Software Corporation. |
|
|
|
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. |
(c) Financial Statement Schedules: We hereby file as part
of this annual report the schedule listed in Item 15(a)2,
as set forth above.