<PAGE>
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PROSPECTUS
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2,198,295 SHARES
SYMANTEC CORPORATION
COMMON STOCK
----------------
ALL OF THE SHARES OF COMMON STOCK OF SYMANTEC CORPORATION ("SYMANTEC" OR
THE "COMPANY") OFFERED HEREBY ARE BEING SOLD BY THREE PURCHASERS OF THE
COMPANY'S SUBORDINATED NOTES CONVERTIBLE INTO SHARES OF THE COMPANY'S COMMON
STOCK (COLLECTIVELY, THE "NOTEHOLDERS") AND BY TWO PURCHASERS OF WARRANTS TO
PURCHASE THE COMPANY'S COMMON STOCK (COLLECTIVELY, THE "WARRANT HOLDERS," AND
TOGETHER WITH THE NOTEHOLDERS, THE "SECURITY HOLDERS"). SEE "SELLING SECURITY
HOLDERS." SUCH SHARES ARE BEING OFFERED ON A CONTINUOUS BASIS PURSUANT TO RULE
415 UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), DURING
THE PERIOD OF TIME THAT THE REGISTRATION STATEMENT TO WHICH THIS PROSPECTUS
RELATES IS KEPT EFFECTIVE. IT IS ANTICIPATED THAT THE SECURITY HOLDERS WILL
OFFER SHARES FOR SALE FROM TIME TO TIME IN ONE OR MORE TRANSACTIONS FOR THEIR
OWN ACCOUNTS THROUGH THE NASDAQ NATIONAL MARKET OR ON ANY EXCHANGE ON WHICH THE
COMPANY'S COMMON STOCK MAY THEN BE LISTED IN NEGOTIATED TRANSACTIONS, THROUGH
THE WRITING OF OPTIONS ON SHARES, OR A COMBINATION OF SUCH METHODS OF SALE, AT
FIXED PRICES WHICH MAY BE CHANGED, AT MARKET PRICES PREVAILING AT THE TIME OF
SALE, AT PRICES RELATED TO SUCH PREVAILING MARKET PRICES OR AT NEGOTIATED
PRICES. SEE "PLAN OF DISTRIBUTION." ALL EXPENSES OF REGISTRATION INCURRED IN
CONNECTION WITH THIS OFFERING ARE BEING BORNE BY THE COMPANY, BUT ALL SELLING
AND OTHER EXPENSES INCURRED BY THE SECURITY HOLDERS WILL BE BORNE BY THE
SECURITY HOLDERS. THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE
SALE OF THE SHARES OF COMMON STOCK OFFERED HEREBY. THE COMPANY'S COMMON STOCK
IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "SYMC". ON FEBRUARY 3,
1995, THE CLOSING PRICE OF THE COMPANY'S COMMON STOCK WAS $19.875. AS OF THE
DATE OF THIS PROSPECTUS, THE NOTEHOLDERS' SUBORDINATED NOTES WERE CONVERTIBLE
INTO SHARES OF THE COMPANY'S COMMON STOCK AT A PRICE EQUAL TO $12.00 PRINCIPAL
AMOUNT FOR EACH SHARE OF COMMON STOCK (SUBJECT TO ADJUSTMENT) AND THE WARRANT
HOLDERS' WARRANTS TO PURCHASE THE COMPANY'S COMMON STOCK HAD AN EXERCISE PRICE
OF $7.07 PER SHARE (SUBJECT TO ADJUSTMENT).
----------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- ----------------------------------------------------------------------------------------------------------------
PROCEEDS
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO TO THE
PUBLIC AND COMMISSIONS(1) COMPANY(2) SECURITY HOLDERS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE SEE TEXT ABOVE NONE NONE SEE TEXT ABOVE
- ----------------------------------------------------------------------------------------------------------------
TOTAL SEE TEXT ABOVE NONE NONE SEE TEXT ABOVE
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE SECURITY HOLDERS AND ANY BROKER EXECUTING SELLING ORDERS ON BEHALF OF
THE SECURITY HOLDERS MAY BE DEEMED TO BE "UNDERWRITERS" WITHIN THE MEANING
OF THE SECURITIES ACT, IN WHICH EVENT COMMISSIONS RECEIVED BY THE SECURITY
HOLDERS AND ANY SUCH BROKERS MAY BE DEEMED TO BE UNDERWRITING COMMISSIONS
UNDER THE SECURITIES ACT.
(2) THE COMPANY WILL PAY THE EXPENSES OF THE REGISTRATION ESTIMATED AT
$115,000.
The date of this Prospectus is February 3, 1995.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain of its
regional offices located as follows: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be
obtained at prescribed rates by writing to the Commission, Public Reference
Section, Washington, D.C. 20549.
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-3, as amended, under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the offices of the Commission in Washington, D.C.
20549, and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission, upon the payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Except to the extent modified or superseded by information contained
herein, the Company's Annual Report on Form 10-K for the year ended April 1,
1994, as amended on July 29, 1994 and October 17, 1994, the Company's Quarterly
Report on Form 10-Q for the quarter ended July 1, 1994, as amended on September
16, 1994 and October 14, 1994, the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, the Company's Current Report on Form 8-K
filed with the Commission on June 16, 1994, as amended on June 24, 1994, the
Company's Form 8-A filed with the Commission on May 24, 1989, and the Company's
definitive proxy statement for the annual stockholders' meeting held on November
21, 1994 are hereby incorporated by reference in this Prospectus. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
All documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
this offering shall be deemed incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the information
that has been incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Requests should be directed to Ronald Kisling,
Director of Finance, Symantec Corporation, 10201 Torre Avenue, Cupertino, CA
95014; telephone number (408) 253-9600.
-------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or any underwriter. This Prospectus does
not constitute an offer to sell or solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date hereof or that there has been no change in
the affairs of the Company since such date.
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<PAGE>
THE COMPANY
The principal executive offices of the Company are located at 10201 Torre
Avenue, Cupertino, California 95014 and its telephone number is (408) 253-9600.
RISK FACTORS
Investors should consider carefully the following factors, in addition to
the other information contained in this Prospectus, before purchasing the shares
of Common Stock offered hereby.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating expenses are
partially based on its expectations of future revenue. The Company's results of
operations may be adversely affected if revenue does not materialize in a
quarter as expected. While the Company's diverse product line has tended to
lessen fluctuations in quarterly net revenues caused by the timing of
announcements and release of new or enhanced versions of its products and
product upgrades, the introduction of competitive products by existing or new
competitors, reduced demand for any given product, the market's transition
between operating systems, and the transition from a desktop PC environment to
an enterprise-wide environment, these fluctuations have occurred recently and
are likely to occur in the future and may cause significant fluctuations in
sales revenues and, accordingly, operating results. The Company's net revenues
have decreased over each of the last three fiscal years from $365.7 million in
fiscal 1992 to $344.6 million in fiscal 1993 and to $328.3 million in fiscal
1994. The Company had net income of $26.3 million in fiscal 1992 and a net loss
of $39.1 million and $57.0 million in fiscal 1993 and fiscal 1994, respectively.
Net revenues decreased from $168.5 million for the six months ended September
30, 1993 to $162.2 million for the six months ended September 30, 1994. The
Company had a net loss of $24.8 million for the six months ended September 30,
1993 compared to net income of $9.0 million for the six months ended September
30, 1994.
Enhanced product releases typically result in net revenue increases during
the first three to six months following their introduction due to upgrade
purchases by existing users, usually at discounted prices, and initial inventory
purchases by the Company's distributors. In addition, between the date the
Company announces a new version or new product and the date of release,
distributors, dealers and end users often delay purchases, cancel orders or
return products in anticipation of the availability of the new version or new
product. As a result of such factors, significant fluctuations in sales
revenues and operating results have occurred recently and are likely to occur in
the future. The seasonality of the retail software market also results in
fluctuations in revenues. Since expense levels are usually committed in advance
of revenues and because only a small portion of expenses vary with revenue, the
Company's operating results are impacted significantly by lower revenue. These
factors also have an adverse effect on the Company's ability to accurately
forecast revenues. Based on the Company's operating history, acquisitions and
other factors that may cause fluctuations in the quarterly results, quarter to
quarter comparisons should not be relied upon as indicators of future
performance.
In addition to developments in the computer software industry, trends in
computer hardware may also contribute to fluctuations in the Company's operating
results. In fiscal 1993, Symantec believes revenues were adversely affected by
an unexpected substantial price reduction in 486-based personal computers that
caused a shift in customer spending from software to personal computer hardware.
Symantec also believes that the shift was caused by the introduction of Windows
3.1, which requires more computing capacity. If the next class of personal
computers, including those based on Intel's Pentium microprocessor and/or
Motorola's Power-PC, are also rapidly reduced in price, there may be another
unexpected shift in customer buying away from software and Symantec's products,
which could result in significantly reduced revenues and a material adverse
effect on the Company's operating results. Symantec has noted that Pentium
processors are being marketed aggressively by Intel.
The Company's pattern of revenues and earnings may also be affected by a
phenomenon known as "channel fill." Channel fill occurs following the
introduction of a new product or a new version of a product as distributors buy
significant quantities of the new product or version in anticipation of sales of
such product or version. Following such purchases, the rate of distributors'
purchases often declines in a material amount, depending on the rates of
purchases by end users or "sell-through." The phenomenon of "channel fill" may
also occur in anticipation
-3-
<PAGE>
of price increases or in response to sales promotions or incentives, some of
which may be designed to encourage customers to accelerate purchases that might
otherwise occur in later periods. Channels may also become filled simply
because the distributors are unable to, or do not, sell their inventories to
retail distribution or end users as anticipated. If sell-through does not occur
at a sufficient rate, distributors will delay purchases or cancel orders in
later periods or return prior purchases in order to reduce their inventories.
Such order delays or cancellations can cause material fluctuations in revenues
from one quarter to the next. The impact is somewhat mitigated by the Company's
deferral of revenue associated with inventories estimated to be in excess of
levels deemed appropriate in the domestic distribution channel; however, net
revenues may still be materially affected favorably or adversely by the effects
of channel fill. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock
has been and may continue to be subject to significant volatility, particularly
on a quarterly basis. This volatility may result from a number of factors,
including fluctuations in the Company's quarterly revenues and net income,
announcements of technical innovations or new commercial products by the Company
or its competitors, announcements of product or company acquisitions, general
market conditions in the computer hardware and software industries, divergence
in financial results from analysts' expectations, and the timing of notification
to analysts of financial results. Symantec has previously experienced
shortfalls in revenue and earnings from levels expected by securities analysts,
which had an immediate and significant adverse effect on the trading price of
the Company's Common Stock. This may occur again in the future. Additionally,
as a growing percentage of the Company's revenues are generated from enterprise
software products which are frequently sold through site licenses which often
occur late in the quarter, the Company may not learn of revenue shortfalls until
late in the fiscal quarter, which could result in an even more immediate and
adverse effect on the trading price of the Company's Common Stock. Further, the
Company participates in a highly dynamic industry, which often results in
significant volatility of the Company's Common Stock price. In addition, the
stock market has experienced and continues to experience extreme price and
volume fluctuations which have affected the market prices of securities,
particularly those of technology companies, and which have often been unrelated
to the operating performance of the companies. These broad market fluctuations,
as well as general economic and political conditions, may adversely affect the
market price of the Company's Common Stock.
TECHNOLOGICAL CHANGE. Because of rapid technological changes in the
microcomputer software industry, the Company's future revenues will depend on
its ability to develop or acquire new products and enhance its existing products
on a timely basis to accommodate the latest technological advances in computer
software and hardware. The Company is devoting substantial efforts to the
development of software products that are designed to operate on Microsoft
Corporation's ("Microsoft") new operating system (Windows 95), which is
currently under development. Microsoft may incorporate advanced utilities in
Windows 95 that may decrease the demand for certain of the Company's products,
including those currently under development. Further, should Microsoft incur
further delays in the development or release of Windows 95, which is scheduled
by Microsoft to be released as late as August 1995, should Windows 95 not
achieve market acceptance, or should Symantec be unable to successfully or
timely develop products that operate under Windows 95, Symantec's future
revenues would be adversely affected. In addition, the Company's and securities
analysts' ability to forecast the Company's revenues is being adversely impacted
due to the unpredictability of the timing of delivery of many products which are
dependent on Microsoft's delivery of beta and final versions of Windows 95 and
the adoption rate of Windows 95. Also, the Company expects that demand for
certain of its existing utility products will decline in advance of the Windows
95 release. It is difficult for securities analysts or the Company to forecast
the extent of this decline. For all of these reasons, there is a heightened
risk that revenues and profits will not be in line with analysts' expectations
in the periods preceding and following the introduction of Windows 95. It may
also be the case that other operating systems gain market acceptance, which
would require the Company to develop new products to function under such
operating systems. The Company's ability to develop such new products and their
success in the marketplace cannot be assured.
There is an increasing trend by operating systems vendors such as Microsoft
to add features to new versions of their products that provide some of the same
functionality traditionally offered in the Company's utilities products. The
Company believes this trend will continue. While the Company plans to continue
to improve its utilities products with a view toward providing enhanced
functionality over what may be provided in operating systems, there is no
assurance that these efforts will be successful or that such new products will
be accepted by software users. The Company will also attempt to work with
operating systems vendors in an effort to make its utilities products
-4-
<PAGE>
compatible with those operating systems. However, the Company attempts to
differentiate those utilities products from features included in the operating
systems. There can be no assurance that these efforts will be successful.
The Company is also devoting substantial efforts to the development of
products for networked operating environments and network management. Due to
the inherent uncertainties of software development projects, there can be no
assurance that any products currently being developed by the Company, including
products being developed for Windows 95 and networked operating environments,
will be technologically successful, that any resulting products will achieve
market acceptance or that the Company will be effective in competing with
products currently in the market or introduced in the future. There can also be
no assurance that the Company will elect to develop software products for the
operating environments that ultimately are accepted by the marketplace.
Development for networked operating environments is more complex than
development for the desktop environment and requires a higher level of research
and development expenditures. Due in large part to the complexity of developing
products for networked operating environments and operating systems using
graphical user interfaces, the Company has experienced delays in the development
and delivery of its products and is likely to experience such delays in the
future. The risk of delay may be increased due to fact that the Company often
uses third party software developers over whom it has a limited amount of
control. Any delays could result in a loss of competitiveness of the Company's
products and could adversely affect the Company, its revenue and financial
results, and its ability to forecast its revenue.
With its expansion into enterprise-wide computing systems markets, Symantec
believes that it must develop relationships with systems integrators and other
third-party vendors that provide consulting and integration services to
customers and deliver products developed for this market segment. Furthermore,
the length of the sales cycle for enterprise products is longer. In addition,
customers of enterprise products may take delivery of a product subject to
integration and acceptance by the customer and a very high proportion of
enterprise product sales are completed in the last few days of each quarter.
These factors increase the risk that forecasts of quarterly financial results
will not be achieved.
COMPETITION. The microcomputer software market is intensely competitive
and is subject to rapid changes in technology and in the strategic direction of
major microcomputer hardware manufacturers. The Company's competitiveness
depends on its ability to enhance its existing products and to offer new
products on a timely basis. The Company has more limited financial, marketing
and technological resources than certain of its competitors, and must restrict
its product development efforts to a relatively small number of projects.
Further, the Company has less experience in the enterprise/network market than
many of its competitors and fewer relationships and less experience with systems
integrators and other third-party vendors that provide consulting and
implementation services necessary to sell many of these products. Because of
the breadth of its product line, the Company competes with at least one product
from each of the major independent software vendors, including Aldus
Corporation, Borland International, Inc. ("Borland"), Claris Corporation,
Novell, Computer Associates International, Inc., Lotus Development Corporation,
Microsoft and Software Publishing Corporation. The Company also competes with
microcomputer hardware manufacturers that develop their own software products.
Further, the Company competes with other microcomputer software companies for
access to the channels of retail distribution and for the attention of customers
at the retail level and in corporate accounts. Finally, the Company competes
with other software companies in its efforts to acquire products or companies
and to publish software developed by third parties. The Company believes that,
in the next few years, competition in the industry will intensify as most major
software companies expand their product lines into additional product
categories. Price competition is significant in the microcomputer business
software market and may continue to increase and become even more significant in
the future, resulting in reduced profit margins. Additionally, should
competitive pressures in the industry increase, the Company may have to increase
its spending on sales, marketing and research and development as a percentage of
net revenues, resulting in lower profit margins. In addition, aggressive
pricing strategies of competitors in other software markets, some of whom have
significantly more financial resources than Symantec, may further cause the
Company to reduce software prices and/or increase sales and marketing expenses
on a number of the Company's products. There can be no assurance that the
Company will be able to compete successfully or that competition will not have a
material adverse effect on the Company and its financial condition.
BUSINESS AND FINANCIAL RISKS OF STRATEGIC ACQUISITIONS. The Company uses
strategic acquisitions, as necessary, to provide certain technology for its
overall product strategy. The Company has completed a number of
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<PAGE>
company and product acquisitions and expects to acquire other companies and
products in the future; however, as of the date of this Prospectus, there are no
understandings, agreements or arrangements with respect to any material
acquisition. In addition to the significant business risks associated with
acquisitions, which include the successful combination of the companies in an
efficient and timely manner, the coordination of research and development and
sales efforts, the retention of key personnel and the integration of the
acquired products, the Company may incur significant acquisition expenses for
legal, accounting and financial advisory services and other costs related to the
combination of the companies. These costs may have a significant adverse impact
on the Company's profitability and financial resources. In addition, there can
be no assurance that any of the Company's acquisitions will be successfully
assimilated into the Company's operations. The Company completed the
acquisition of Central Point Software, Inc. ("Central Point") on June 1, 1994.
Because many of the products marketed by Central Point compete directly with
products of the Company, the combined revenues of Central Point and Symantec may
be adversely impacted and significantly less than anticipated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
KEY PERSONNEL. The Company is dependent upon the efforts and abilities of
its senior management, its research and development staff and a number of other
key management, sales, support and technical personnel. The success of the
Company will depend to a large extent upon its ability to retain and continue to
attract qualified technical and other employees. Competition for qualified
personnel in the software industry is intense, and there can be no assurance
that the Company will be able to attract, assimilate or retain such personnel.
The loss of key employees, or the inability of the Company to attract additional
qualified employees, could have a material adverse effect on the Company's
business, operating results and financial condition, particularly if key
personnel are subsequently employed by a competitor.
INTELLECTUAL PROPERTY RIGHTS. The Company regards its software as
proprietary and relies on a combination of copyright, trade secret, patent and
trademark laws and license agreements in attempting to protect its rights.
Despite these precautions, it may be possible for unauthorized third parties to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary technology will be adequate to prevent
misappropriation of its technology or to provide an adequate remedy in the event
of a breach by others. While the Company has several patents and patent
applications pending, existing patent and copyright laws afford limited
practical protection. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights in its products to the same extent as
do the laws of the United States. The Company's products are not copy
protected. As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software developers will become increasingly subject to infringement claims.
This risk is potentially greater for vendors, such as the Company, that obtain
certain of their products through publishing agreements or acquisitions, since
they have less direct control over the development of those products. Although
such claims may ultimately prove to be without merit, they can be time consuming
and expensive to defend. The Company is currently involved in a lawsuit
involving trade secret disputes with Borland and may be involved in other trade
secret litigation in the future. See Note 10 of Notes to Consolidated Financial
Statements.
PRODUCT RETURNS. The Company's return policy allows its distributors,
subject to certain limitations, to return purchased products in exchange for new
products or for credit towards future purchases. Individual end users may
return products through dealers and distributors within a reasonable period from
the date of purchase for a full refund, and retailers may return older versions
of products. Various distributors and resellers may have more liberal return
policies that may negatively impact the level of products which are returned to
the Company. Product returns often occur when the Company introduces upgrades
and new versions. In addition, competitive factors often require the Company to
offer rights of return for products that distributors or retail stores are
unable to sell. The Company has experienced and may experience in the future
significant increases in product returns above historical levels from customers
of acquired companies after the acquisition is completed. The Company estimates
and maintains reserves for product returns. The Company has set its reserves
for returns in accordance with historical experience. Setting reserves involves
making judgments about future competitive conditions and product life cycles.
Those judgments involve evaluating information that often is unclear and in
conflict. There can be no assurance that historical experience will be an
accurate guide for the future because the rate of returns is primarily a
function of the competitive state of the market in the future and thus, in large
part, is a function of the actions of the Company's competitors, which the
Company cannot anticipate.
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CUSTOMER CONCENTRATION. Approximately 17% and 13%, or a total of 30%, of
the Company's revenues in fiscal 1994 were from sales to two large distributors,
Ingram Micro D and Merisel, Inc., respectively. Ingram Micro D and Merisel,
Inc. accounted for approximately 15% and 13%, respectively, of the Company's
revenues in fiscal 1993. During fiscal 1992, Ingram Micro D and Merisel, Inc.
accounted for approximately 19%, and 13%, respectively, of the Company's
revenues. These customers tend to make the great majority of their purchases at
the end of the fiscal quarter, in part because they are able or believe that
they are able to negotiate lower prices and more favorable terms. This end-of-
quarter buying pattern means that forecasts of quarterly financial results are
particularly vulnerable to the risk that they will not be achieved, either
because expected sales do not occur or because they occur at lower prices or on
less favorable terms to the Company. The Company's distribution and superstore
customers also carry the products of the Company's competitors, many of whom
have greater financial resources than the Company. The distributors and
superstores have limited capital to invest in inventory and their decisions to
purchase the Company's products and, in the case of superstores, to give them
critical shelf space, is partly a function of pricing, terms and special
promotions offered by the Company's competitors, over which the Company has no
control and which it cannot predict.
INTERNATIONAL REVENUES. A substantial percentage of the total revenues of
the Company has been derived from international sources. International sales
have constituted approximately thirty percent of the Company's total revenues
since 1991, and it is anticipated that international revenues will continue to
constitute a significant portion of total revenues for the Company.
International revenues are subject to certain increased risks normally
associated with international operations, including, among others, adoption and
expansion of government trade restrictions, currency conversion risks,
limitations on repatriation of earnings, reduced protection of intellectual
property rights, longer payment cycles, greater difficulties in accounts
receivable collection and the difficulty of complying with a wide variety of
foreign laws.
PENDING AND POTENTIAL FUTURE LITIGATION. The Company and certain of its
executive officers are currently parties to several lawsuits seeking monetary
damages and certain other forms of relief. These lawsuits are described in
Note 10 of Notes to Consolidated Financial Statements. The Company intends to
defend all of the pending lawsuits vigorously and although an unfavorable
outcome could occur in one or more of the cases, the final resolution of these
lawsuits, individually or in the aggregate, is not expected to have a material
adverse effect on the financial position of the Company. However, depending on
the amount and timing of an unfavorable resolution of these lawsuits, it is
possible that the Company's future results of operations or cash flows could be
materially adversely affected in a particular period. In addition, litigation
against the Company may result in significant expense to the Company and may
divert the efforts of the Company's technical and management personnel, whether
or not such litigation results in an unfavorable determination against the
Company.
RECENT DEVELOPMENTS
RECENT FINANCIAL RESULTS
The following summary of interim consolidated financial data is qualified in its
entirety by the documents described under "Incorporation of Certain Documents by
Reference" in the Prospectus and by "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto contained elsewhere in this Prospectus. The
interim financial data as of December 31, 1994 and for the three and nine months
ended December 31, 1994 and 1993 are unaudited and, in the opinion of
management, contain all adjustments, consisting of only normal recurring items
necessary for the fair presentation of the financial position and results of
operations for the interim periods. The results of operations for the quarter
ended December 31, 1994 are not necessarily indicative of the results to be
expected for the entire year.
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SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, March 31,
(In thousands) 1994 1994
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 87,046 $ 60,534
Trade accounts receivable 44,513 48,342
Inventories 5,572 7,842
Deferred income taxes 12,705 17,975
Other 6,243 13,660
------------ ------------
Total current assets 156,079 148,353
Equipment and leasehold improvements 25,276 25,369
Purchased intangibles 9,870 11,228
Other 4,742 3,842
------------ ------------
$ 195,967 $ 188,792
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,305 $ 27,556
Accrued compensation and benefits 10,839 12,257
Accrued other expenses 50,887 57,745
Income taxes payable 707 367
Current portion of long-term obligations 574 847
------------ ------------
Total current liabilities 77,312 98,772
Long-term obligations 25,543 25,966
Stockholders' equity:
Preferred stock -- --
Common stock 365 350
Capital in excess of par value 169,039 157,637
Notes receivable from stockholders (144) (149)
Translation adjustment (2,265) (2,183)
Accumulated deficit (73,883) (91,601)
------------ ------------
Total stockholders' equity 93,112 64,054
------------ ------------
$ 195,967 $ 188,792
------------ ------------
------------ ------------
</TABLE>
-8-
<PAGE>
SYMANTEC CORPORATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
DECEMBER 31, December 31, DECEMBER 31, December 31,
(In thousands, except per share data: unaudited) 1994 1993 1994 1993
- --------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 84,128 $ 82,661 $ 246,319 $ 251,169
Cost of revenues 14,935 18,612 46,147 62,085
------------ ------------ ------------ ------------
Gross margin 69,193 64,049 200,172 189,084
Operating expenses:
Research and development 15,410 15,031 44,906 48,129
Sales and marketing 38,060 37,044 109,110 124,864
General and administrative 3,958 5,464 12,295 19,223
Acquisition, restructuring and
other expenses -- 21,500 9,545 40,558
------------ ------------ ------------ ------------
Total operating expenses 57,428 79,039 175,856 232,774
Operating income (loss) 11,765 (14,990) 24,316 (43,690)
Interest income 864 327 1,980 1,055
Interest expense (639) (566) (1,842) (1,873)
Other income (expense), net 88 (186) 26 (342)
------------ ------------ ------------ ------------
Income (loss) before income taxes 12,078 (15,415) 24,480 (44,850)
Provision (benefit) for income taxes 3,020 (4,342) 6,399 (8,986)
------------ ------------ ------------ ------------
Net income (loss) $ 9,058 $ (11,073) $ 18,081 $ (35,864)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per share $ 0.25 $ (0.33) $ 0.50 $ (1.07)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used to compute net income (loss) per share 36,865 33,960 36,527 33,479
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
-9-
<PAGE>
Net revenues for the nine months ended December 31, 1994 decreased 2%, from
$251.2 million for the nine months ended December 31, 1993 to $246.3 million for
the nine months ended December 31, 1994, due to a decrease in Central Point and
Fifth Generation product revenues which were partially offset by increased sales
of the Company's network/communication utility and security utility products.
The Company believes that the decline in net revenues attributable to Central
Point and Fifth Generation products may continue. The following table sets
forth the Company's net revenues by quarter for Central Point products and all
other products during fiscal 1994 and the first three quarters of fiscal 1995
(in thousands):
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1993 1993 1993 1994 1994 1994 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Central Point products . . . . . . . . $21,625 $16,107 $15,607 $ 7,259 $17,370 $15,987 $13,857
All other products . . . . . . . . . . 67,195 63,580 67,054 69,871 65,743 63,091 70,271
------- ------- ------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . . $88,820 $79,687 $82,661 $77,130 $83,113 $79,078 $84,128
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
Net revenues increased 2% from $82.7 million in the quarter ended December 31,
1993 to $84.1 million in the current year's comparable quarter principally due
to an increase in network/communication utility and security utility revenues
which was partially offset by a decrease in advanced utility and development
tools revenues. This reflects, in part, what Symantec believes is the market's
transition to enterprise-wide computing oriented environments which use
network/communication and security utility products. Revenues from enterprise
products increased from 20% of total net revenues in the quarter ended
December 31, 1993 to 33% in the quarter ended December 31, 1994.
Net revenues from international sales decreased from approximately $31.9 million
to $31.1 million and represented 39% and 37% of total net revenues for the
quarters ended December 31, 1993 and 1994, respectively.
Gross margin increased to 82% of net revenues in the quarter ended December 31,
1994 from 77% of net revenues in the quarter ended December 31, 1993. The
increase in gross margin percentage is primarily due to improvements in the
gross margin percentage of Central Point's products and the gradual shift in
Symantec's product mix from desktop products toward higher margin enterprise
products. The Company's enterprise products are typically high dollar license
transactions compared to desktop product transactions. Enterprise products are
frequently sold through site licenses where a license for multiple workstations
is sold to a customer at a negotiated price resulting in higher gross margins.
Total operating expenses decreased slightly to $57.4 million or 68% of net
revenues in the quarter ended December 31, 1994 from $57.5 million or 70% of net
revenues in the prior year's comparable quarter. Research and development
expenses increased 3% from $15.0 million or 18% of net revenues in the quarter
ended December 31, 1993 to $15.4 million or 18% of net revenues in the quarter
ended December 31, 1994. The increase in research and development expenses is
due to increased development efforts relating to the Company's
network/communication utility, client server and security utility products which
was partially offset by a reduction in research and development expenses due to
the consolidation of certain product development efforts in connection with the
acquisition of Central Point. Sales and marketing expenses increased 3% to
$38.1 million or 45% of net revenues in the quarter ended December 31, 1994 from
$37.0 million or 45% of net revenues in the prior year's comparable quarter.
General and administrative expenses decreased 28% from $5.5 million or 7% of net
revenues in the quarter ended December 31, 1993 to $4.0 million or 5% of net
revenues in the quarter ended December 31, 1994. The decrease was principally
due to benefits resulting from the consolidation of the general and
administrative functions of acquired companies at Symantec's corporate
headquarters and the decrease in legal expenses as a result of the settlement of
two class action complaints in the December 1993 quarter.
Cash and short-term investments were $87.0 million at December 31, 1994 and
$60.5 million at March 31, 1994. The increase in cash and short-term
investments is primarily due to cahs generated from operations, improved
accounts receivable collections, tax refunds received, and proceeds from the
exercise of stock options and the sale of common stock under the Company's
employee stock purchase plans. These factors were patially offset by
acquisition costs during this period.
RECENT LITIGATION
On December 30, 1994, Software Engineering Carmel ("Carmel") filed a lawsuit
in the U.S District Court for the District of Oregon against Central Point, a
wholly owned subsidiary of the Company. Carmel developed and maintains the
anti-virus program distributed by Central Point. The complaint alleges that
Central Point breached its contract with Carmel by not fullfilling its implied
obligation under the contract to use its best efforts or, alternatively, its
reasonable efforts to market the anti-virus program developed by Carmel. The
complaint also alleges that Central Point violated the noncompetition provision
in its agreement, by selling a competing anti-virus program, apparently based on
Symantec's sale of its own anti-virus product. The complaint seeks damages in
the amount of $6.75 million and a release of Carmel from its obligation not to
sell competing products. Symantec believes the charges have no merit.
-10-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company is qualified in its
entirety by reference to, and should be read in conjunction with, the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. The statement of operations data for the years ended March 31,
1994, 1993 and 1992 and the balance sheet data at March 31, 1994 and 1993 are
derived from the audited consolidated financial statements of the Company and
are included elsewhere in this Prospectus. The statement of operations data for
the years ended March 31, 1991 and 1990 and the balance sheet data at March 31,
1992, 1991 and 1990 are derived from unaudited financial statements of the
Company not included herein. In the opinion of management, the unaudited
financial information of the Company has been prepared on the same basis as the
audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the financial
data for such periods.
During fiscal 1994, Symantec acquired Fifth Generation Systems, Inc.
("Fifth Generation") and Contact Software International, Inc. ("Contract") in
transactions accounted for as poolings of interest. Since April 1, 1994,
Symantec acquired Intec Systems Corporation ("Intec"), Central Point Software,
Inc. ("Central Point") and SLR Systems, Inc. ("SLR") in transactions accounted
for as poolings of interest. All financial information has been restated to
reflect the combined operations of Symantec, Central Point, Fifth Generation and
Contact. The results of operations of Intec and SLR were not material to
Symantec's consolidated financial statements and, therefore, prior year amounts
have not been restated. The Company has never paid cash dividends on its stock
with the exception of distributions to stockholders of acquired companies.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------------
(In thousands, except net income (loss) per share) 1994 1993 1992 1991 1990
- -------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $328,299 $344,626 $365,711 $236,604 $144,693
Acquisition, restructuring and
other expenses 56,094 12,773 9,822 6,500 --
Operating income (loss) (62,519) (53,996) 40,429 35,454 27,469
Net income (loss) (56,967) (39,095) 26,261 24,642 23,578
Distributions to stockholders
of acquired companies -- 162 1,986 3,622 8,884
Net income (loss) per share $ (1.69) $ (1.22) $ 0.79 $ 0.80 $ 0.81
Shares used to compute net
income (loss) per share 33,790 32,131 33,371 30,980 29,195
<CAPTION>
March 31,
--------------------------------------------------------------------
(In thousands) 1994 1993 1992 1991 1990
- -------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 49,581 $ 85,139 $ 74,370 $ 41,448 $ 50,842
Total assets 188,792 230,894 213,493 137,783 95,961
Long-term obligations, less
current portion 25,966 27,148 4,866 5,824 9,069
Stockholders' equity 64,054 116,643 131,050 78,490 58,692
</TABLE>
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Symantec develops, markets and supports a diversified line of application and
system software products designed to enhance individual and workgroup
productivity as well as manage networked computing environments. Founded in
1982, the Company has offices in the United States, Canada, Australia and
Europe.
Due to a number of factors and risks, including the rapid change in hardware and
software technology, market conditions, seasonality in the retail software
market, the timing of product announcements, the release of new or enhanced
products, the introduction of competitive products by existing or new
competitors and the significant risks associated with acquisitions of companies,
technology and software product rights, historical results and percentage
relationships will not necessarily be indicative of the operating results of any
future period. The pending release of Windows 95 by Microsoft is a particularly
important event that increases the uncertainty and will likely increase the
volatility of Symantec's results over the next twelve months.
The Company's earnings and stock price have been and may continue to be subject
to significant volatility, particularly on a quarterly basis. Symantec has
previously experienced shortfalls in revenue and earnings from levels expected
by securities analysts, which had an immediate and significant adverse effect on
the trading price of the Company's common stock. This may occur again in the
future. Additionally, as a growing percentage of the Company's revenues are
generated from enterprise software products which are frequently sold through
site licenses which often occur late in the quarter, the Company may not learn
of revenue shortfalls until late in the fiscal quarter, which could result in an
even more immediate and adverse effect on the trading price of the Company's
common stock. Finally, the Company participates in a highly dynamic industry,
which often results in significant volatility of the Company's common stock
price.
Net income (loss) per share is calculated using the treasury stock method (see
Summary of Significant Accounting Policies). Increases in the price of the
Company's common stock can have an adverse impact on the calculation of net
income per share in that period.
Since Symantec's initial public offering on June 23, 1989, Symantec has acquired
the following companies:
<TABLE>
<CAPTION>
Shares of Acquired
Symantec Company
Common Stock
Stock Options
Companies Acquired Date Acquired Issued Assumed
- --------------------------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc. ("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 2,769,010 --
Contact Software International, Inc. ("Contact") June 2, 1993 2,404,019 232,589
Certus International Corporation ("Certus") November 30, 1992 368,141 32,619
MultiScope, Inc. ("MultiScope") September 2, 1992 253,0751 25,089
The Whitewater Group, Inc. ("Whitewater") September 2, 1992 69,740 9,644
Symantec (UK) Ltd. ("Symantec UK") April 3, 1992 603,032 26,934
Zortech Ltd. ("Zortech") August 31, 1991 476,184 --
Dynamic Microprocessor Associates, Inc. ("DMA") August 30, 1991 744,552 102,964
Leonard Development Group ("Leonard") August 30, 1991 154,000 --
Peter Norton Computing, Incorporated ("Norton") August 31, 1990 5,862,614 1,587,110
</TABLE>
All of these acquisitions were accounted for as poolings of interest and with
the exception of Intec, SLR, MultiScope and Whitewater, which had results of
operations which were immaterial to Symantec, all financial information has been
restated to reflect the combined operations of these companies and Symantec.
-12-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth each item from the consolidated statements of
operations as a percentage of net revenues and the percentage change in the
total amount of each item for the periods indicated.
<TABLE>
<CAPTION>
Period-to-Period
Percentage
Increase (Decrease)
------------------------
Year Ended March 31, 1994 1993
------------------------- Compared Compared
1994 1993 1992 to 1993 to 1992
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues 100% 100% 100% (5)% (6)%
Cost of revenues 24 30 27 (23) 6
----- ----- -----
Gross margin 76 70 73 3 (10)
Operating expenses:
Research and development 20 21 14 (10) 36
Sales and marketing 50 52 38 (8) 30
General and administrative 8 9 7 (19) 15
Acquisition, restructuring and
other non-recurring expenses 17 4 3 339 30
----- ----- -----
Total operating expenses 95 86 62 6 30
----- ----- -----
Operating income (loss) (19) (16) 11 16 *
Interest income 1 -- 1 (13) (17)
Interest expense (1) -- (1) 81 (8)
Other income (expense), net -- -- 1 (75) *
----- ----- -----
Income (loss) before income taxes (19) (16) 12 16 *
Provision (benefit) for income taxes (2) (5) 5 (57) *
----- ----- -----
Net income (loss) (17)% (11)% 7% 46 *
----- ----- -----
----- ----- -----
- ---------------------------------
<FN>
* percentage change is not meaningful.
</TABLE>
-13-
<PAGE>
NET REVENUES. Net revenues decreased 5% from $344.6 million in fiscal 1993 to
$328.3 million in fiscal 1994. The decrease in fiscal 1994 net revenues from
the prior year is principally due to the decrease in Central Point product
revenues and lower distribution and OEM revenues which were partially offset by
increased revenues from new product introductions, increased international
revenues and increased upgrade and site license revenues.
Central Point product revenues declined by $26.5 million from $87.1 million in
fiscal 1993 to $60.6 million in fiscal 1994 principally due to reduced demand
for Central Point's products and an increase in its deferred revenue. During
fiscal 1994, due to significant changes in the software market's perception of
Central Point's long-term viability and the announced merger between Central
Point and Symantec, Central Point was no longer able to reasonably estimate
future product returns from its distributors and resellers. In accordance with
Statement of Financial Accounting Standards No. 48, Central Point revenue and
the related cost of revenue for fiscal 1994 for software shipments to their
distributors and resellers was deferred until sold by the distributors or
resellers to the end user. This revenue and cost of revenue deferral resulted
in a decrease in net revenues by approximately $15.0 million and an increase in
the fiscal 1994 loss before provision for income taxes by approximately $12.3
million.
The decrease in the Company's revenues during fiscal 1994 compared to fiscal
1993 was principally due to a decrease in units sold. The Company's products
include of enterprise products which are frequently sold through site licenses
where a license for multiple workstations is sold to a customer at a negotiated
price and desktop software products which are generally sold through the
distribution channel or directly to end-users. Enterprise product revenues are
typically comprised of lower volume, high dollar site license transactions
compared to desktop product revenues which are typically comprised of higher
volume, low dollar pre-packaged product transactions. The prices of site
licenses tend to vary based upon the individual products purchased, the number
of units licensed and the number of workstations at the customer's site. There
was no material impact to net revenues resulting from changes in desktop product
pricing. Due to the inherent uncertainties in software development and in the
microcomputer software industry, the Company is unable to predict whether these
net revenue trends will continue.
Net revenues decreased 6% from $365.7 million in fiscal 1992 to $344.6 million
in fiscal 1993. The decrease in fiscal 1993 net revenues from the prior year
was due to reduced demand in the retail channel reflecting the market's rapid
transition from DOS to Windows products and fewer new, major product
introductions in fiscal 1993. During fiscal 1993, Symantec released The Norton
pcANYWHERE for Windows, The Norton Desktop for DOS and The Norton Essentials for
PowerBook and new versions of The Norton Utilities and Symantec AntiVirus for
Macintosh, among others. While most of Symantec's principal DOS products were
also available for Windows, Symantec believes revenues from DOS products were
negatively impacted while customers considered the adoption of Windows and
Windows-based products. In addition, the Company believes a larger portion of
corporate MIS spending was allocated to 486 based system hardware upgrades as
their prices sharply declined.
Net revenues from international sales grew from approximately $102.6 million in
fiscal 1992 to $106.8 million in fiscal 1993 and to $109.3 million in fiscal
1994 and represented 28%, 31% and 33% of net revenues, respectively. This
growth resulted from increased revenues in the Asia-Pacific market, the
introduction of new and enhanced products and the introduction of translated or
localized versions of the Company's products into international markets.
During fiscal 1994, Symantec released several new enterprise products including
The Norton Administrator for Networks version 1.0 and The Norton AntiVirus for
NetWare version 1.0 which are generally licensed through site licenses. The
Company also released a number of new desktop products during fiscal 1994,
including Q&A for Windows, Fastback Plus for OS/2 and new versions of The Norton
Desktop for Windows, ACT! for Windows, Symantec C++ for Macintosh, The Norton
Utilities, The Norton pcANYWHERE, PC Tools for Windows and DOS and Central Point
Anti-Virus for Windows and DOS.
Symantec believes that many of its customers are moving toward an enterprise-
wide computing oriented environment where more desktop personal computers will
be interconnected into large local-area and wide-area networks administered by
corporate MIS departments.
While the acquisitions of Central Point and Fifth Generation have enabled
further development of software products for enterprise-wide computing, these
products are expected to result in Symantec's competing with companies with
which it has not previously competed. As a result, there is uncertainty
regarding customer acceptance of the Company's products as Symantec has not been
a major supplier in the enterprise market. These factors increase the
-14-
<PAGE>
uncertainty of forecasting financial results. While the Company expects the
shift toward enterprise products to continue, there can be no assurance that the
Company's enterprise products will be successful.
With the expansion to enterprise-wide computing systems markets, Symantec
believes that it must develop relationships with systems integrators and other
third-party vendors that provide consulting and integration services to
customers and deliver products developed for this market segment. Furthermore,
the length of the sales cycle with respect to enterprise products is longer and
customers of enterprise products may take delivery of a product subject to
integration and acceptance by the customer. In addition, a very high proportion
of enterprise product sales are completed in the last few days of each quarter,
in part because customers are able, or believe that they are able, to negotiate
lower prices and more favorable terms. Each of these factors increase the risk
that forecasts of quarterly financial results will not be achieved.
Enhanced product releases typically result in net revenue increases during the
first three to six months following their introduction due to upgrade purchases
by existing users, usually at discounted prices, and initial inventory purchases
by the Company's distributors. In addition, between the date the Company
announces a new version or new product and the date of release, distributors,
dealers and end users often delay purchases, cancel orders or return products in
anticipation of the availability of the new version or new product.
The Company's pattern of revenues and earnings may also be affected by a
phenomenon known as "channel fill." Channel fill occurs following the
introduction of a new product or a new version of a product as distributors buy
significant quantities of the new product or version in anticipation of sales of
such product or version. Following such purchases, the rate of distributors'
purchases often declines in a material amount, depending on the rates of
purchases by end users or "sell-through." The phenomenon of "channel fill" may
also occur in anticipation of price increases or in response to sales promotions
or incentives, some of which may be designed to encourage customers to
accelerate purchases that might otherwise occur in later periods. Channels may
also become filled simply because the distributors are unable to, or do not,
sell their inventories to retail distribution or end users as anticipated. If
sell-through does not occur at a sufficient rate, distributors will delay
purchases or cancel orders in later periods or return prior purchases in order
to reduce their inventories. Such order delays or cancellations can cause
material fluctuations in revenues from one quarter to the next. The impact is
somewhat mitigated by the Company's deferral of revenue associated with
inventories estimated to be in excess of levels deemed appropriate in the
domestic distribution channel; however, net revenues may still be materially
affected favorably or adversely by the effects of channel fill. Channel fill
did not have a material impact on the Company's revenues in fiscal 1994, 1993 or
1992.
While Symantec's diverse product line has tended to lessen fluctuations in
quarterly net revenues caused by the timing of announcements and releases of new
or enhanced versions of its products and product upgrades, the introduction of
competitive products by existing or new competitors, reduced demand for any
given product, the market's transition between operating systems, and the
transition from a desktop PC environment to an enterprise-wide environment,
these fluctuations have occurred recently and are likely to occur in the future
and may cause significant fluctuations in sales revenues and, accordingly,
operating results.
The Company is devoting substantial efforts to the development of software
products that are designed to operate on Microsoft Corporation's new operating
system ("Windows 95"), which is currently under development. Microsoft may
incorporate advanced utilities in Windows 95 that may decrease the demand for
certain of the Company's products, including those currently under development.
Further, should Microsoft incur further delays in the development or release of
Windows 95, which is scheduled by Microsoft to be released as late as August
1995, should Windows 95 not achieve market acceptance, or should Symantec be
unable to successfully or timely develop products that operate under Windows 95,
Symantec's future revenues would be adversely affected. In addition, as the
timing of delivery and adoption of many products is dependent on Microsoft's
delivery of beta and final versions of Windows 95 and the adoption rate of
Windows 95, which the Company is unable to predict, the Company's and securities
analysts' ability to forecast the Company's revenues is being adversely
impacted. Also, the Company expects that demand for certain of its existing
utility products will decline in advance of the Windows 95 release. It is
difficult for security analysts or the Company to forecast the extent of this
decline. For all of the preceding reasons, there is a heightened risk that
revenues and profits will not be in line with analysts' expectations in the
periods preceding and following the introduction of Windows 95.
The length of Symantec's product development cycle has generally been greater
than Symantec originally expected. Although such delays have undoubtedly had a
material adverse effect on Symantec's business, Symantec is not able
-15-
<PAGE>
to quantify the magnitude of revenues that were deferred or lost as a result of
any particular delay because Symantec is not able to predict the amount of
revenues that would have been obtained had the original development expectations
been met. Delays in product development are likely to occur in the future and
could have a material adverse effect on the amount and timing of future
revenues. Due to the inherent uncertainties of software development projects,
Symantec does not generally disclose or announce the specific expected shipment
date of the Company's product introductions.
In addition, there can be no assurance that any products currently being
developed by Symantec, including products being developed for Windows 95, will
be technologically successful, that any resulting products will achieve market
acceptance or that the Company's products will be effective in competing with
products either currently in the market or introduced in the future.
During fiscal 1993, Symantec believes revenues were adversely affected by an
unexpected substantial price reduction in 486-based personal computers that
caused a shift in customer spending from software to personal computer hardware.
Symantec also believes that the shift was caused by the introduction of Windows
3.1, which requires more computing capability. If the next class of personal
computers, including those based on Intel's Pentium microprocessor and/or
Motorola's Power-PC, are also rapidly reduced in price, there may be another
unexpected shift in customer buying away from software and Symantec's products,
which could result in significantly reduced revenues and a material adverse
effect on operating results. Symantec has noted that Pentium processors are
being marketed aggressively by Intel.
Price competition is significant in the microcomputer business software market
and may continue to increase and become even more significant in the future,
resulting in reduced profit margins. Should competitive pressures in the
industry increase, Symantec may be required to increase its spending on sales,
marketing and research and development as a percentage of net revenues,
resulting in lower profit margins. In addition, aggressive pricing strategies
of competitors in other software markets, some of whom have significantly more
financial resources than Symantec, may further cause the Company to reduce
software prices and/or increase sales and marketing expenses on a number of the
Company's products.
The Company estimates and maintains reserves for product returns. Product
returns occur when the Company introduces upgrades and new versions and
discontinues products. In addition, competitive factors require the Company to
offer rights of return for products that distributors or retail stores are
unable to sell. The Company has set its reserves for returns in accordance with
historical experience. Setting reserves involves making judgments about future
competitive conditions and product life cycles. Those judgments involve
evaluating information that often is unclear and in conflict. Symantec prepares
detailed analyses of historical return rate experiences in its estimation of
reserves for product returns. In addition to detailed historical return rates,
the Company's estimation of return reserves takes into consideration upcoming
product upgrades, current market conditions, distributor and "superstore"
inventory balances and any other known factors that could impact anticipated
product returns. Based upon returns experienced, the Company's estimates have
been materially accurate. However, there can be no assurance that historical
experience will be an accurate guide for the future because the rate of returns
is primarily a function of the competitive state of the market in the future and
thus, in large part, is a function of the actions of the Company's competitors,
which the Company cannot anticipate. The Company's product return reserve
balances typically fluctuate from period to period based upon the level and
timing of product upgrade releases. Product return reserve balances at March
31, 1994 were higher than reserve balances at March 31, 1993 and March 31, 1992
due to an increased level of major product upgrades near the end of fiscal 1994
compared with levels at the end of fiscal 1993 and 1992. The level of actual
product returns and related product return reserves is largely a factor of the
level of product sell-in (gross revenue) from normal sales activity and the
replacement of obsolete quantities with the current version of the Company's
product. As a result, gross revenues generally move in the same direction as
product returns. Changes in the levels of product returns and related product
return reserves are generally offset by changing levels of gross revenue and,
therefore, do not typically have a material impact on reported net revenues.
Approximately 17%, 13% and 6% or a total of 36% of the Company's net revenues in
fiscal 1994 were from sales to two large distributors and a large superstore.
These customers tend to make the great majority of their purchases at the end of
the fiscal quarter, in part because they are able, or believe that they are
able, to negotiate lower prices and more favorable terms. This end-of-quarter
buying pattern means that forecasts of quarterly financial results are
particularly vulnerable to the risk that they will not be achieved, either
because expected sales do not occur or because they occur at lower prices or on
less favorable terms to the Company. The Company's distribution and
-16-
<PAGE>
superstore customers also carry the products of the Company's competitors, some
of which have greater financial resources than the Company. The distributors
and superstores have limited capital to invest in inventory and their decisions
to purchase the Company's products and, in the case of superstores, to give them
critical shelf space, is partly a function of pricing, terms and special
promotions offered by the Company and its competitors, over which the Company
has no control and which it cannot predict.
The Company operates with relatively little backlog; therefore, if near-term
demand for the Company's products weakens in a given quarter, there could be a
material adverse effect on revenues and on the Company's operating results.
Symantec maintains a research and development facility in Santa Monica,
California that was damaged during the January 1994 earthquake in Southern
California. Much of the Company's administration, sales and marketing,
manufacturing facilities and research and development efforts are located on the
west coast of the United States. Future earthquakes or other natural disasters
could cause a significant disruption to the Company's operations and may cause
delays in product development that could adversely impact future revenues of the
Company.
During the March 1994 quarter, Symantec introduced a new product support program
that provides a wide variety of free and fee-based technical support services to
its customers. Symantec provides its customers with free support via electronic
and automated services as well as 90 days complimentary free telephone support
for certain of the Company's products. In addition, Symantec offers both
individual users and corporate customers a variety of fee-based support options
for certain of the Company's products, designed to meet their individual
technical support requirements. Fee-based technical support services did not
generate significant revenues in the year ended March 31, 1994 and are not
expected to generate significant revenues in the near future.
On June 1, 1994, Symantec completed the acquisition of Central Point. Many of
the products marketed by Central Point are duplicative of products marketed by
Symantec. In addition to the significant business risks associated with an
acquisition (see "Acquisition, Restructuring and Other Expenses" below), the
combined revenues of Symantec and Central Point may be adversely impacted by the
combination of the two companies. See "Risk Factors - Business and Financial
Risks of Strategic Acquisitions."
GROSS MARGIN. Gross margin represents net revenues less cost of revenues.
Cost of revenues consists primarily of manufacturing expenses, manuals,
packaging, royalties paid to third parties under publishing contracts and
amortization and write-off of capitalized software. Amortization of capitalized
software, including amortization and the write-off of both purchased product
rights and capitalized software development expenses, totaled $17.8 million,
$17.5 million and $13.6 million for fiscal 1994, 1993 and 1992, respectively.
The increase in amortization and write-off of capitalized software costs in
fiscal 1994 and 1993 over fiscal 1992 is largely due to the write-off of certain
previously capitalized software costs of Fifth Generation and Central Point.
Gross margins increased to 76% of net revenues in fiscal 1994 from 70% and 73%
in fiscal 1993 and 1992, respectively. The increase in the gross margin
percentage in fiscal 1994 compared to fiscal 1993 was due to improvements in the
gross margin percentage of Fifth Generation's products and the gradual shift in
Symantec's product mix from desktop products toward higher margin enterprise
products in fiscal 1994 which was partially offset by the decline in Central
Point's gross margin percentage. This improvement in the gross margin
percentage of Fifth Generation's products was largely due to the absence of
significant software amortization and write-off of capitalized software by Fifth
Generation during fiscal 1993. Additionally, Symantec was able to produce the
Fifth Generation products with a lower cost structure than Fifth Generation was
able to prior to the merger. The decrease in gross margin percentage in fiscal
1993 compared to fiscal 1992 was largely due to the decline in Fifth
Generation's gross margin percentage in fiscal 1993 over fiscal 1992 which was
partially offset by the increase in Central Point's gross margin percentage.
Fifth Generation's gross margin was negatively impacted by the increased costs
associated with increasing amortization and write-offs of capitalized software
in fiscal 1993 and by declining revenues.
The microcomputer business software market has been subject to rapid changes
that can be expected to continue. Future technology or market changes,
including the release of Windows 95, may cause certain products to become
obsolete more quickly than expected and thus may result in capitalized software
write-offs and an increase in required inventory reserves and, therefore,
reduced gross margins and net income.
-17-
<PAGE>
On December 31, 1993, Symantec acquired certain technology for developing an
architecture and tools to build client/server applications from DataEase
International, Inc. in exchange for 391,456 shares of Symantec common stock and
cancellation of the principal and accrued interest on a $1.0 million outstanding
note receivable. The Company capitalized approximately $7.7 million of
purchased product rights as a result of this transaction.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
10% to $64.1 million or 20% of net revenues in fiscal 1994 from $71.1 million or
21% of net revenues in fiscal 1993, and was $52.4 million or 14% of net revenues
in fiscal 1992. The decrease in research and development expenses in fiscal
1994 was primarily due to lower spending on the Company's security utility
product development efforts resulting from the consolidation of the development
efforts of Symantec and Fifth Generation and a $2.0 million decrease in spending
relating to Central Point products. The increase in research and development
expenses as a percentage of net revenues in fiscal 1993 over fiscal 1992 was due
to the decrease in net revenues during fiscal 1993, increased staffing and
related expenditures to support the development of new and enhanced products,
increased spending on Central Point products, and the increased translation and
localization efforts to enhance the Company's penetration of international
markets. Much of the increase in staffing in 1993 occurred in Symantec's
Development Tools group.
Symantec believes increased research and development expenditures will be
necessary in order to remain competitive and to increase future revenues and
expects research and development expenses to increase in dollar amount.
Research and development expenditures are charged to operations as incurred.
Financial accounting rules requiring capitalization of certain internal software
development costs did not materially affect the Company in the periods
presented.
SALES AND MARKETING EXPENSES. Sales and marketing expenses decreased 8% to
$165.1 million or 50% of net revenues in fiscal 1994 from $178.9 million or 52%
of net revenues in fiscal 1993. The decrease in fiscal 1994 was principally due
to the elimination of duplicative sales organizations as a result of the
acquisitions of Fifth Generation and Contact and the reduction of sales and
marketing expenses incurred by Central Point. Subsequent to the acquisition of
Central Point by Symantec in fiscal 1995, various duplicative sales
organizations were eliminated as a result of the combination of the companies.
Any benefits resulting from the elimination of these duplicative organizations
may be offset by increased sales and marketing spending. Sales and marketing
expenses for fiscal 1993 increased 30% over fiscal 1992 due to expansion of the
Company's international operations, including increased international market
development activities, increased marketing expenditures associated with new
product promotions in the distribution and direct channels, marketing expenses
associated with the introduction of new and enhanced products and increased
sales and marketing expenses incurred by Central Point.
Symantec believes substantial sales and marketing efforts are essential to
achieve revenue growth and to maintain and enhance Symantec's competitive
position. Accordingly, with the continued expansion of its international
operations, as well as the introduction of new and upgraded products, Symantec
expects the expenses associated with these efforts to increase in dollar amount
and to continue to constitute its most significant operating expense. There can
be no assurance these increased efforts will be successful.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 19% from $31.1 million or 9% of net revenues in fiscal 1993 to $25.2
million or 8% of net revenues in fiscal 1994. This decrease was principally due
to benefits resulting from the consolidation of the general and administrative
functions of the acquired companies, except for Central Point which was acquired
subsequent to fiscal 1994, at Symantec's corporate headquarters, which was
partially offset by increases in legal expenses associated with the class action
lawsuits (see Note 10 of Notes to Consolidated Financial Statements).
Subsequent to the acquisition of Central Point by Symantec in fiscal 1995,
various duplicative general and administrative functions were eliminated as a
result of the combination of the companies. Any benefits resulting from the
elimination of these duplicative general and administrative functions may be
offset by increased general and administrative spending. General and
administrative expenses for fiscal 1993 increased 15% over fiscal 1992
principally due to increases in international general and administrative
expenses, legal expenses associated with the class action lawsuits, pre-merger
general and administrative expense for acquired companies, including Central
Point. Future growth of the Company is expected to result in an increase in the
dollar amount of general and administrative spending from current levels.
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<PAGE>
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
ACQUISITION EXPENSES. In connection with the various acquisitions completed in
fiscal 1994, 1993 and 1992 and the acquisitions of Central Point, SLR and Intec
in fiscal 1995 (see Summary of Significant Accounting Policies and Note 9 of
Notes to Consolidated Financial Statements), significant acquisition expenses
were incurred. These acquisition expenses principally included fees for legal,
accounting and financial advisory services, the write-off of duplicative
capitalized technology, the modification of certain development contracts and
expenses related to the combination of the companies, including the elimination
of duplicative and excess facilities and personnel. These charges approximated
$25.9 million, $5.1 million and $6.8 million in fiscal 1994, 1993 and 1992,
respectively. The Company has not experienced any material change in estimated
acquisition expenses to date. As of March 31, 1994, the Company had
approximately $4.8 million of these expenditures still to be incurred. These
remaining cash related expenditures are comprised of $1.1 million for the
modification of certain development contracts, $1.3 million for the elimination
of duplicative and excess facilities and $2.4 million for the consolidation and
discontinuance of certain operational activities and other acquisition related
expenses.
In connection with the acquisitions of Central Point, SLR and Intec during
fiscal 1995, Symantec recorded total acquisition charges of $9.5 million. The
charges included $3.2 million for legal, accounting and financial advisory
services, $1.0 million for the write-off of duplicative product-related expenses
and modification of certain development contracts, $0.9 million for the
elimination of duplicative and excess facilities, $3.1 million for personnel
severance and outplacement expenses, and $1.3 million for the consolidation and
discontinuance of certain operational activities and other acquisition related
expenses.
Symantec has completed a number of acquisitions and expects to acquire other
companies in the future. In addition to the significant business risks
associated with acquisitions, including the successful combination of the
companies in an efficient and timely manner, the coordination of research and
development and sales efforts, the retention of key personnel and the
integration of the acquired products, Symantec typically incurs significant
acquisition expenses for legal, accounting and financial advisory services, the
write-off of duplicative technology and other expenses related to the
combination of the companies. These expenses may have a significant adverse
impact on the Company's future profitability and financial resources.
RESTRUCTURING EXPENSES. During fiscal 1994, Symantec implemented a plan to
consolidate and centralize certain operational activities (see Note 9 of Notes
to Consolidated Financial Statements). The plan was designed to reduce
operating expenses and enhance operational efficiencies by centralizing certain
order administration, technical support and customer service activities in
Eugene, Oregon. The Company expects this centralization to save approximately
$2 million annually. The Company recorded a charge of $4.7 million, which
included $1.1 million for the elimination of duplicative and excess facility
expenses, $1.5 million for the relocation of the Company's existing operations
and equipment, $1.1 million for employee relocation expenses and $1.0 million
for employee severance payments. The Company's centralization of these support
functions has been substantially completed.
During fiscal 1994, Central Point incurred $16.0 million of expenses related to
the restructuring of its operations in order to reduce its overall cost
structure and to redirect its software development and marketing efforts away
from the personal desktop computer market toward personal computer network
markets. The charge included $6.2 million for employee severance, outplacement
and relocation expenses, $5.6 million for the write-off of certain excess fixed
and intangible assets, $1.8 million for lease abandonments and facility
relocation and $2.4 million for the consolidation and discontinuance of certain
operational activities and other related expenses. Of the total charges, $5.9
million resulted from the write-off of assets and $10.1 million involved cash
outflows of which $8.7 million are expected future cash outflows as of March 31,
1994.
During fiscal 1993, Symantec recorded a $4.4 million charge for expenses related
to the restructuring of certain operational functions within the Company. The
plan was designed to reduce operating expenses and reallocate resources from DOS
products to Windows and Development Tools products. This charge included $1.0
million for the elimination of excess facilities, $0.4 million for the
relocation of certain employees and $3.0 million for outplacement expenses and
severance payments associated with the reduction in staffing. This
restructuring has been completed.
During fiscal 1993, Central Point incurred $0.7 million of charges related to
the restructuring of its operations, including the sale of its manufacturing
operations, personnel relocation and severance, and the write-off of certain
property and equipment. This restructuring has been completed.
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<PAGE>
OTHER EXPENSES. Symantec reached an agreement with the plaintiffs and
Symantec's insurance carriers to settle two securities class actions and a
related derivative lawsuit brought by stockholders of Symantec (see Notes 9 and
10 of Notes to Consolidated Financial Statements). The combined settlement
amount of the cases was $19.0 million, approximately $12.5 million of which was
paid by Symantec's insurance carriers. Symantec recorded a charge in fiscal
1994 of $6.5 million, representing Symantec's portion of the settlement. The
settlement was approved by the court on June 6, 1994.
In fiscal 1993, the Company recorded a $2.6 million charge for estimated total
legal fees expected to be incurred in connection with the Borland civil lawsuit
and the related criminal prosecution (see Notes 9 and 10 of Notes to
Consolidated Financial Statements).
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business (see Note 10 of Notes to Consolidated
Financial Statements). The Company intends to defend all of these lawsuits
vigorously and although an unfavorable outcome could occur in one or more of the
cases, the final resolution of these lawsuits, individually or in the aggregate,
is not expected to have a material adverse effect on the financial position of
the Company. However, depending on the amount and timing of an unfavorable
resolution of these lawsuits, it is possible that the Company's future results
of operations or cash flows could be materially adversely effected in a
particular period.
In fiscal 1994, Central Point purchased from unrelated parties certain in-
process software technologies for $3.0 million which was immediately expensed.
(see Note 9 of Notes to Consolidated Financial Statements).
In connection with the acquisition of Eikon by Central Point during fiscal 1992,
the Company acquired certain in-process software technologies for $3.0 million
which was immediately expensed. (see Note 9 of Notes to Consolidated Financial
Statements).
INTEREST INCOME AND OTHER INCOME (EXPENSE). Interest income decreased from
$2.0 million in fiscal 1992 to $1.7 million in fiscal 1993 and $1.5 million in
fiscal 1994. The decreases are largely due to lower average interest rates on
invested cash, which was partially offset by higher average invested cash
balances. Interest expense increased from $1.4 million in fiscal 1993 to $2.5
million in fiscal 1994. This increase is principally due to interest expense on
convertible subordinated debentures which were issued on April 2, 1993, which
was partially offset by the retirement of acquired company debt. As the
convertible subordinated debentures bear interest at 7.75% and, in certain
instances, 8.75%, which is higher than the rate that will likely be earned on
the debenture proceeds, interest expense is expected to continue to be higher
than interest income. Other expense is primarily comprised of foreign currency
exchange losses from fluctuations in currency exchange rates and a loss on the
sale of certain assets of $0.6 million in fiscal 1993 and a gain on the sale of
certain assets of $2.2 million in fiscal 1992. Both of these asset transactions
were made by Fifth Generation prior to being acquired by Symantec.
The Company conducts business in various foreign currencies and is therefore
subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are recorded and
the date that they are consummated. Symantec utilizes some natural hedging to
mitigate the Company's transaction exposures and, effective December 31, 1993,
the Company commenced hedging some residual transaction exposures through the
use of 30-day forward contracts. At March 31, 1994, there was a total of
approximately $29.3 million of outstanding forward exchange contracts. The net
liability of forward contracts was approximately $10.3 million at March 31,
1994. There have been no significant gains or losses to date with respect to
these activities. Gains or losses would occur on 30-day forward contracts held
by the Company when changes in foreign currency exchange rates occur. These
gains and losses should be largely offset by the transaction gains and losses
resulting from foreign currency denominated cash, accounts receivable,
intercompany balances and trade payables. There can be no assurance that these
strategies will continue to be effective or that transaction losses can be
minimized or forecasted accurately. The Company does not hedge either its
translation risk or its economic risk.
INCOME TAXES. The effective income tax benefit rate for fiscal 1994 was 11%,
which compared to an effective income tax benefit rate of 29% in fiscal 1993 and
an effective income tax provision rate of 39% in fiscal 1992. The 1994 income
tax benefit represents future benefits for past domestic operating losses, which
was primarily offset by a valuation allowance for Central Point's deferred tax
assets and certain acquisition expenses that were not deductible for income tax
purposes.
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<PAGE>
A net deferred tax asset of approximately $18.0 million is reflected in the
financial statements. Approximately $45 million of future taxable income will
be necessary to realize this net deferred tax asset. While there can be no
assurance that future income will be sufficient to realize this benefit,
management anticipates that this benefit will be realized based on projected
income from new and existing products. A valuation allowance of $29.3 million
was provided in the financial statements. The valuation allowance consists
primarily of $19.4 million for Central Point temporary differences and $7.0
million for stock option deductions, the benefit of which will be credited to
equity when realized. The remaining portion of the valuation allowance
primarily represents net operating loss carryforwards of various acquired
companies that are limited under the "change of ownership" rules of Internal
Revenue Code Section 382.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments decreased $8.5 million from $69.0 million at
March 31, 1993 to $60.5 million at March 31, 1994, largely due to capital
expenditures, purchased intangibles acquired, cash payments for acquisition,
restructuring and other expenses (see Note 9 of Notes to Consolidated Financial
Statements) and principal payments on long-term obligations which were partially
offset by net proceeds from sales of common stock and other. Net cash provided
by operating activities was $1.5 million and was primarily due to the change in
net assets and liabilities and non-cash related expenses which was offset by
operating losses of acquired companies and expenditures for acquisition related
costs and expenses.
Trade accounts receivable decreased $4.5 million primarily due to the
significant decline in Central Point's product revenues which was partially
offset by the increase in Symantec's product revenues and the release of several
new or enhanced products near the end of fiscal 1994. The large decline in
other assets was principally due to the write-off and elimination of other
assets of acquired companies.
Cash and short-term investments increased $15.2 million during fiscal 1993
principally due to borrowings of $59.7 million. Symantec issued $25.0 million
of convertible debentures in fiscal 1993 (see Note 3 of Notes to Consolidated
Financial Statements). The additional $34.7 million of borrowings were notes
obtained by acquired companies prior to their acquisition by Symantec. These
borrowings largely offset cash payments for acquisition, restructuring and other
expenses (see Note 9 of Notes to Consolidated Financial Statements), capital
expenditures, purchased intangibles and principal payments on long-term
obligations. Net cash used in operations was $2.6 million as a significant
portion of the net loss of $39.1 million was non-cash related depreciation and
amortization of equipment and leasehold improvements and amortization of
capitalized software costs.
Most of the increase in cash and short-term investments of $12.6 million during
fiscal 1992 was due to cash provided by operations resulting from net income of
$26.2 million.
The Company had an $8.0 million bank line of credit which originally expired on
July 31, 1994 and was extended to September 30, 1994. Subsequent to September
30, 1994, the Company negotiated a $10.0 million line of credit that expires in
October 1995. The line of credit is available for general corporate purposes
and bears interest at the banks' reference (prime) interest rate (7.75% at
September 30, 1994), the U.S. offshore rate plus 1.5%, a CD rate plus 1.5% or
LIBOR plus 1.5%, at the Company's discretion. The line of credit requires bank
approval for the payment of cash dividends. Borrowings under this line are
unsecured and are subject to the Company maintaining certain financial ratios
and profits. At September 30, 1994, there was approximately $ 0.5 million of
outstanding standby letters of credit under this line of credit. There were no
borrowings outstanding under this line at September 30, 1994.
During the quarter ended September 30, 1994, the Company was not in compliance
with several covenants contained in the line of credit relating to Symantec's
net worth and financial ratios as a result of the acquisition of Central Point.
In conjunction with the $10.0 million line of credit, covenants under the
Company's existing line of credit at September 30, 1994 were revised. The
Company was in compliance with these revised covenants at September 30, 1994.
In addition to cash and short-term investments of $60.5 million at March 31,
1994, Symantec has $9.5 million available under the Company's bank line of
credit. Company acquisitions in the future may cause the Company to be in
violation of the line of credit covenants; however, Symantec believes that if
the line of credit were canceled or amounts were not available under the line,
there would not be a material adverse impact on the financial results, liquidity
or capital resources of the Company.
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<PAGE>
Due to cash payments expected to be made during fiscal 1995 related to costs
associated with acquisitions and restructurings (see Note 9 of Notes to
Consolidated Financial Statements), the Company anticipates that aggregate cash
and short-term investments may decline. Further, the Company may utilize
additional cash in connection with the potential acquisition of additional
companies and software product rights in the future. The Company believes
existing cash and short-term investments will be sufficient to fund operations
for the next year. However, if the Company were to sustain further losses,
there can be no assurances that the bank line of credit, which is available
through October 1995, would remain available. Additionally, the Company could
be required to reduce operating expenses, which could result in further product
delays; reassess acquisition opportunities, which could negatively impact the
Company's growth objectives; and/or pursue further financing options. The
Company believes existing cash and short-term investments will be sufficient to
fund operations for the next year.
SELLING SECURITY HOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
January 19, 1995 by the Noteholders and the Warrant Holders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING (1)(2)
------------------------------ ------------------------------
SHARES BEING
NAME NUMBER PERCENT OFFERED (1) NUMBER PERCENT
- ---- ------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Investment 874,433 (3) 2.33% 208,333 666,100 1.78%
Management Inc., as Investment
Manager for various institutional
investors
Morgan Guaranty 1,041,666 (4) 2.76% 1,041,666 -- --
Trust Company of New York, as
Trustee for the Multi-Market
Special Investment Fund, a
commingled pension trust fund
Northwestern Mutual Life
Insurance Company 833,333 (5) 2.22% 833,333 -- --
Edison Venture
Fund II, L.P. 96,420 (6) * 96,420 -- --
Edison Venture
Fund II-PA, L.P. 18,542 (7) * 18,542 -- --
<FN>
_______________________________________________________
* Less than one percent
(1) No assurance can be given that the Noteholders or the Warrant Holders will
sell any shares. See "Plan of Distribution."
(2) Assumes the sale of all shares being offered hereby. Also assumes no sale
of other shares, if any, beneficially owned by the respective Security
Holder.
(3) Represents (a) subordinated notes issued by the Company and convertible
into 208,333 shares of Common Stock and 18,300 shares of Common Stock, both
held on behalf of the Alfred P. Sloan Foundation and over which the
Security Holder has investment power, and (b) 647,800 shares of Common
Stock held on behalf of various other institutional investors and over
which the Security Holder has investment power.
(4) Represents subordinated notes issued by the Company and convertible into
1,041,666 shares of Common Stock.
(5) Represents subordinated notes issued by the Company and convertible into
833,333 shares of Common Stock.
(6) Represents warrants issued by the Company and convertible into 96,420
shares of Common Stock.
(7) Represents warrants issued by the Company and convertible into 18,542
shares of Common Stock.
</TABLE>
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<PAGE>
PLAN OF DISTRIBUTION
In connection with the Company's sale of subordinated notes convertible
into the Company's Common Stock (the "Notes") to Morgan Guaranty Trust Company,
as Trustee for the Multi-Market Special Investment Fund, a commingled pension
trust fund, J.P. Morgan Investment Management Inc., as Investment Manager for
the Alfred P. Sloan Foundation, an institutional investor, and The Northwestern
Mutual Life Insurance Company (collectively, the "Noteholders"), the Noteholders
entered into a Note Purchase Agreement (the "Note Agreement") with the Company
pursuant to which the Noteholders were granted certain registration rights with
respect to the shares of the Company's Common Stock issuable upon conversion of
the Notes (the "Conversion Shares"). The Noteholders have elected to exercise
such registration rights. The Registration Statement of which this Prospectus
forms a part has been filed pursuant to the Note Agreement. No assurance can be
given that the Noteholders will sell any of the Conversion Shares that are
subject to this Prospectus or that the Noteholders will not sell such Conversion
Shares in a private transaction or other transaction that is exempt from the
registration requirements of the Securities Act.
In connection with a merger transaction in which Contact Software
International Inc. ("Contact") became a wholly-owned subsidiary of the Company,
the Company converted outstanding warrants to purchase the Common Stock of
Contact into warrants to purchase the Common Stock of the Company (the
"Warrants"). The Company also entered into a Registration Rights Agreement (the
"Registration Rights Agreement") with Edison Venture Fund II, L.P. and Edison
Venture Fund II-PA, L.P., as the holders of the Warrants (the "Warrant
Holders"), granting such Warrant Holders certain registration rights with
respect to the shares of the Company's Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares"). Under the terms of the Registration Rights
Agreement, if the Noteholders request the Company to file a registration
statement pursuant to Rule 415 of the Securities Act (a "Shelf Registration
Statement") and elect to sell Conversion Shares under the Shelf Registration
Statement, the Warrant Holders are entitled to sell the Warrant Shares under the
Shelf Registration Statement. No assurance can be given that the Warrant
Holders will sell any of the Warrant Shares that are subject to this Prospectus
or that the Warrant Holders will not sell such Warrant Shares in a private
transaction or other transaction that is exempt from the registration
requirements of the Securities Act.
Pursuant to the Note Agreement, the Noteholders may not distribute the
Conversion Shares offered hereby without first providing at least five business
days' prior notice to the Company of their intent to distribute the Conversion
Shares (the "Distribution Notice"). The Company must, promptly following the
receipt of the Distribution Notice, file such amendments and prepare such
supplements to the Registration Statement and the Prospectus, file such
documents as may be required to be incorporated by reference in any of such
documents and take all other actions as may be necessary to ensure the ability
of the Noteholders to effect a public resale of their Conversion Shares for a
period of at least 90 days following the date set forth in such Distribution
Notice (including without limitation taking any actions necessary to ensure the
availability of a Prospectus meeting the requirements of Section 10(a) of the
Securities Act). After the Company has complied with the foregoing obligations,
it will simultaneously give notice of such compliance to the Noteholders and the
Warrant Holders (the "Compliance Notice"). The Warrant Holders may only
distribute Warrant Shares offered hereby during the period that the Noteholders
may offer and sell Conversion Shares, which is after the Company has delivered
the Compliance Notice to the Noteholders and the Warrant Holders.
If the Company gives notice to each holder of Notes, Conversion Shares,
Warrants or Warrant Shares that the Company has been advised by counsel that the
offering of such Conversion Shares or Warrant Shares covered by the Registration
Statement of which this Prospectus is a part would adversely affect, or would be
improper in view of (or improper without disclosure in the Prospectus), a public
offering, financing, reorganization, recapitalization, merger, consolidation,
acquisition, or other similar transaction, or negotiations, discussions, or
pending proposals with respect thereto, then each holder of Notes, Conversion
Shares, Warrants or Warrant Shares has agreed that upon the receipt of such
notice, such holder will forthwith discontinue to dispose of Conversion Shares
or Warrant Shares and will cease to use this Prospectus; PROVIDED, HOWEVER, that
within 90 days of the date on which such notice is given, the Company must
perform the obligations set forth above and, upon the completion of the
performance of such obligations, must give same-day written notice to such
holders, as applicable, that they may commence the use of this Prospectus for
the public sale of Conversion Shares or Warrant Shares and must take all actions
as may be necessary to ensure to the holders of Notes, Conversion Shares,
Warrants or Warrant Shares the ability to effect the public resale of their
Conversion Shares or Warrant Shares for a period of at least 90 days following
the date of such notice. The total number of days during which the holders of
Conversion Shares or Warrant Shares are not permitted to
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<PAGE>
distribute such Conversion Shares and Warrant Shares pursuant to this provision
of the Note Agreement and the Registration Rights Agreement may not exceed 145
days during any consecutive 365 day period.
The purpose of this offering is to fulfill contractual commitments made by
the Company to certain beneficial holders of the Common Stock offered hereby.
No soliciting agent has been retained by the Company, and no agreement,
arrangement or understanding has been entered into between the Company and any
underwriter, broker-dealer or other agent with respect to the Common Stock
offered hereby. Furthermore, the Noteholders and the Warrant Holders
(collectively, the "Security Holders") have represented to the Company that the
Security Holders have not entered into any agreement, arrangement or
understanding with any particular broker or market maker with respect to the
Common Stock offered hereby. The Company does not know the identity of the
brokers or market makers that may participate in the offering.
The distribution of the Common Stock by the Security Holders may be
effected from time to time in one or more transactions for their own accounts
(which may include block transactions) through the Nasdaq National Market or on
any exchange on which the Common Stock may then be listed in negotiated
transactions, through the writing of options on shares (whether such options are
listed on an options exchange or otherwise), or a combination of such methods of
sale, at fixed prices which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Security Holders may effect such transactions by selling
Common Stock to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Security Holders or the purchasers of Common Stock for whom such broker-dealers
may act as agent or to whom they sell as principal, or both (which compensation
as to a particular broker-dealer might be in excess of customary commissions).
The Security Holders may also pledge Common Stock as collateral for margin
accounts and such Common stock could be resold pursuant to the terms of such
accounts. The Security Holders and any participating broker and dealers may be
deemed to be "underwriters" as defined in the Securities Act.
In order to comply with certain state securities laws, if applicable, the
Common Stock will not be sold in a particular state unless such securities have
been registered or qualified for sale in such state or any exemption from
registration or qualification is available and complied with.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West, Two Palo Alto Square,
Palo Alto, California 94306.
EXPERTS
The consolidated financial statements of Symantec Corporation ("Symantec"
or the "Company") included herein as of March 31, 1994 and 1993 and for each of
the three years in the period ended March 31, 1994, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
herein which, as to fiscal 1993 and 1992, is based in part on the report of KPMG
Peat Marwick LLP, independent accountants, as it relates to Fifth Generation
Systems, Inc.'s consolidated financial statements for the years ended December
31, 1992 and 1991, which are included in the Company's Annual Report on Form
10-K for the year ended April 1, 1994. Such consolidated financial statements
referred to above are included herein or incorporated herein by reference in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing. The report of Ernst & Young LLP insofar as it relates
to amounts included for Fifth Generation is based solely upon the report of KPMG
Peat Marwick LLP. The report of KPMG Peat Marwick LLP referred to above
contains an explanatory paragraph that states that Fifth Generation's recurring
losses and maturity of long term debt raise substantial doubt about Fifth
Generation's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
The consolidated financial statements of Central Point for the year ended
March 31, 1992 included in Symantec's Current Report on Form 8-K filed with the
Commission on June 16, 1994, as amended on June 24, 1994, have been audited by
Ernst & Young LLP as to combination only. Ernst & Young LLP's report for the
year ended March 31, 1992 is based entirely upon the report of Price Waterhouse
LLP, independent accountants, as they relate to Central Point's financial
statements for the year ended March 31, 1992, which such financial statements
are not included in the Current Report on the Form 8-K filed with the Commission
on June 16, 1994, as amended June 24,
-24-
<PAGE>
1994. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report from Price Waterhouse LLP, given upon the
authority of such firm as experts in accounting and auditing. The report of
Ernst & Young LLP insofar as it relates to amounts included for Central Point is
based solely upon the report of Price Waterhouse LLP.
-25-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Ernst & Young LLP, Independent Auditors. . . . . . . . . . . . . F-2
Report of Price Waterhouse LLP, Independent Accountants. . . . . . . . . . F-3
Report of KPMG Peat Marwick LLP, Independent Auditors. . . . . . . . . . . F-4
Consolidated Balance Sheets as of March 31, 1994 and 1993. . . . . . . . . F-5
Consolidated Statements of Operations for the years ended
March 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flow for the years ended
March 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . F-8
Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . F-9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-12
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Symantec Corporation
We have audited the accompanying consolidated balance sheets of Symantec
Corporation as of March 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Fifth Generation Systems, Inc., which statements reflect total assets
constituting 15% of the related 1993 consolidated financial statement totals,
and which statements reflect a net loss and a net income constituting
approximately 39% and 25% of the related 1993 and 1992 consolidated financial
statement totals, respectively. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
data included for Fifth Generations Systems, Inc., is based solely on the report
of the other auditors. We also did not audit the financial statements of
Central Point Software, Inc. for the year ended March 31, 1992, which statements
reflect a net income constituting approximately 8% of the related 1992
consolidated financial statement total. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Central Point Software, Inc. for this period is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Symantec Corporation
at March 31, 1994 and 1993, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended March 31, 1994,
after giving retroactive effect to the acquisition of Central Point Software,
Inc. as described in the notes to the consolidated financial statements in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
May 13, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Central Point Software, Inc.
In our opinion, the consolidated statements of operations, of stockholders'
equity and of cash flows of Central Point Software, Inc., before restatement to
give effect to the pooling of interests transaction with Executive Systems,
Inc., (not presented herein) present fairly, in all material respects, the
results of operations and cash flows of Central Point Software, Inc. and its
subsidiaries for the year ended March 31, 1992, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which required 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
April 17, 1992
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Fifth Generation Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Fifth Generation
Systems, Inc. (the Company) and subsidiaries as of December 31, 1992 and 1991
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the three years ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Fifth Generation
Systems, Inc. and subsidiaries at December 31, 1992 and 1991, and the results of
their operations and their cash flows for the three years ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Fifth Generation Systems, Inc. and subsidiaries will continue as a going
concern. As discussed in note 1 to the accompanying consolidated financial
statements, substantially all of the Company's debt matured May 15, 1993 and
redemption of one half of the redeemable preferred stock is redeemable June 30,
1993. In addition, the Company suffered substantial losses from operations for
the year ended December 31, 1992. These situations raise substantial doubt
about the entity's ability to continue as a going concern. Management's plans
in regard to these matters are also described in note 1. The accompanying
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
KPMG PEAT MARWICK LLP
August 6, 1993
Baton Rouge, Louisiana
F-4
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
(In thousands) 1994 1993
- ------------------------------ ------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 60,534 $ 69,012
Trade accounts receivable 48,342 52,816
Inventories 7,842 6,369
Deferred income taxes 17,975 19,384
Other 13,660 24,661
-------- --------
Total current assets 148,353 172,242
Equipment and leasehold improvements 25,369 36,178
Purchased intangibles 11,228 18,309
Other 3,842 4,165
-------- --------
$188,792 $230,894
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,556 $ 30,483
Accrued compensation and benefits 12,257 10,739
Other accrued expenses 57,745 30,170
Income taxes payable 367 3,586
Current portion of long-term obligations 847 12,125
-------- --------
Total current liabilities 98,772 87,103
Convertible subordinated debentures 25,000 25,000
Long-term obligations 966 2,148
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 50,000; issued and outstanding: 34,990
and 32,729 shares) 350 327
Capital in excess of par value 157,637 134,375
Notes receivable from stockholders (149) (217)
Translation adjustment (2,183) (638)
Accumulated deficit (91,601) (17,204)
-------- --------
Total stockholders' equity 64,054 116,643
-------- --------
$188,792 $230,894
-------- --------
-------- --------
</TABLE>
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
F-5
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands, except net income (loss) per share) 1994 1993 1992
- -------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net revenues $328,299 $344,626 $365,711
Cost of revenues 80,388 104,706 98,429
-------- -------- --------
Gross margin 247,911 239,920 267,282
Operating expenses:
Research and development 64,088 71,106 52,432
Sales and marketing 165,052 178,903 137,577
General and administrative 25,196 31,134 27,022
Acquisition, restructuring and
other expenses 56,094 12,773 9,822
-------- -------- --------
Total operating expenses 310,430 293,916 226,853
-------- -------- --------
Operating income (loss) (62,519) (53,996) 40,429
Interest income 1,478 1,693 2,045
Interest expense (2,517) (1,389) (1,507)
Other income (expense), net (419) (1,659) 1,887
-------- -------- --------
Income (loss) before income taxes (63,977) (55,351) 42,854
Provision (benefit) for income taxes (7,010) (16,256) 16,593
-------- -------- --------
Net income (loss) $(56,967) $(39,095) $26,261
-------- -------- --------
-------- -------- --------
Net income (loss) per share $(1.69) $(1.22) $0.79
-------- -------- --------
-------- -------- --------
Shares used to compute net income (loss) per share 33,790 32,131 33,371
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
F-6
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Capital in Receivable Retained Total
Common Excess of from Translation Earnings Stockholders'
(In thousands) Stock Par Value Stockholders Adjustment (Deficit) Equity
- ------------------------------------------- ------- ---------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1991 $ 295 $ 72,967 $ (294) $ (131) $ 5,652 $ 78,489
Net income -- -- -- -- 26,261 26,261
Issued common stock:
1,612 shares under stock plans 16 9,815 -- -- -- 9,830
73 shares for acquisition of
product rights 1 3,067 -- -- -- 3,068
Repayments on notes -- -- 19 -- -- 19
Other equity transactions
of acquired companies -- 6,780 -- -- -- 6,781
Distributions to stockholders of
acquired companies -- -- -- -- (1,986) (1,986)
Translation adjustment -- -- -- 287 -- 287
Income tax benefit related to
stock options -- 8,300 -- -- -- 8,300
------- -------- -------- -------- -------- --------
Balances, March 31, 1992 312 100,929 (275) 156 29,927 131,049
Acquisition of MultiScope and Whitewater:
Issued 323 shares of
common stock 3 5,004 -- -- -- 5,007
Accumulated deficit as of
March 31, 1992 -- -- -- -- (6,951) (6,951)
Net loss -- -- -- -- (39,095) (39,095)
Certus net loss for the quarter
ended March 31, 1992 -- -- -- -- (1,015) (1,015)
Contact net loss for the quarter
ended June 30, 1992 -- -- -- -- 92 92
Issued common stock:
1,197 shares under stock plans 12 6,478 -- -- -- 6,487
Repayments on notes -- -- 58 -- -- 58
Other equity transactions
of acquired companies -- 18,194 -- -- -- 18,197
Distributions to stockholders of
acquired companies -- -- -- -- (162) (162)
Translation adjustment -- -- -- (794) -- (794)
Income tax benefit related to
stock options -- 3,770 -- -- -- 3,770
------- -------- -------- -------- -------- --------
Balances, March 31, 1993 327 134,375 (217) (638) (17,204) 116,643
Net loss -- -- -- -- (56,967) (56,967)
Fifth Generation net loss for the
quarter ended March 31, 1993 -- -- -- -- (16,390) (16,390)
XTree net loss for the six months
ended March 31, 1993 -- -- -- -- (1,040) (1,040)
Issued common stock:
1,870 shares under stock plans 19 13,725 -- -- -- 13,744
391 shares for acquisition of
product rights 4 6,496 -- -- -- 6,500
Repayments on notes -- -- 68 -- -- 68
Other equity transactions of
acquired companies -- 3,041 -- -- -- 3,041
Translation adjustment -- -- -- (1,545) -- (1,545)
------- -------- -------- -------- -------- --------
Balances, March 31, 1994 $350 $157,637 $(149) $(2,183) $(91,601) $64,054
------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- --------
</TABLE>
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
F-7
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------
(In thousands) 1994 1993 1992
- ----------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(56,967) $(39,095) $ 26,261
Fifth Generation net loss for the quarter ended March 31, 1993 (16,390) -- --
XTree net loss for the six months ended March 31, 1993 (1,040) -- --
Contact net loss for the quarter ended June 30, 1992 -- 92 --
Certus net loss for the quarter ended March 31, 1992 -- (1,015) --
Acquired companies' net assets as of March 31, 1992 -- (1,944) --
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Acquired in-process research and development -- -- 3,022
Depreciation and amortization of equipment and
leasehold improvements 15,122 17,113 10,089
Amortization and write-off of capitalized software costs 17,793 17,503 13,592
Write-off of equipment and leasehold improvements 4,403 (337) 44
Deferred income taxes 1,409 (7,608) (9,678)
Net change in assets and liabilities:
Trade accounts receivable 3,799 7,799 (28,968)
Inventories (1,596) 3,926 1,367
Other current assets 10,796 (11,227) (7,671)
Other assets 446 (392) (1,254)
Accounts payable (2,602) 3,406 8,553
Accrued compensation and benefits 1,608 1,328 4,592
Accrued other expenses 27,864 8,375 9,588
Income tax benefit related to stock options -- 3,770 8,300
Income taxes payable (3,170) (4,321) 5,959
-------- -------- -------
Net cash provided by (used in) operating activities 1,475 (2,627) 43,796
-------- -------- -------
INVESTING ACTIVITIES:
Capital expenditures (9,103) (21,123) (18,151)
Purchased intangibles (4,632) (12,863) (16,134)
Purchases of short-term investments (72,043) (17,187) (16,914)
Sales of short-term investments 46,732 22,728 20,934
Sales of fixed assets and other 149 2,941 1,895
-------- -------- -------
Net cash used in investing activities (38,897) (25,504) (28,370)
-------- -------- -------
FINANCING ACTIVITIES:
Principal payments on long-term obligations (12,459) (34,726) (14,493)
Borrowings under long-term obligations -- 59,673 5,638
Distributions to stockholders of acquired companies -- (162) (1,986)
Net proceeds from sales of common stock and other 16,853 24,742 11,955
-------- -------- -------
Net cash provided by financing activities 4,394 49,527 1,114
-------- -------- -------
Effect of exchange rate fluctuations on cash and cash equivalents (761) (632) 65
Increase (decrease) in cash and cash equivalents (33,789) 20,764 16,605
Beginning cash and cash equivalents 66,700 45,936 29,331
-------- -------- -------
Ending cash and cash equivalents $ 32,911 $ 66,700 $ 45,936
-------- -------- -------
-------- -------- -------
Supplemental cash flow disclosures:
Income taxes paid (net of refunds) during the year $ (8,777) $ 2,589 $ 12,068
Interest paid on long-term obligations 1,891 1,293 1,667
Acquisition of Eikon Systems, Inc. for common stock -- -- 4,675
Acquisition of equipment under capital lease obligations -- 1,000 2,049
</TABLE>
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
F-8
<PAGE>
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Symantec Corporation and Central Point Software, Inc. ("Central Point") and
their wholly-owned subsidiaries ("Symantec" or the "Company"). Information in
these Consolidated Financial Statements and Notes to Consolidated Financial
Statements refers to the combined entity which includes Symantec and Central
Point. All significant intercompany accounts and transactions have been
eliminated.
BASIS OF PRESENTATION
During fiscal 1994, 1993 and 1992, Symantec acquired various companies in
transactions accounted for as poolings of interest. Accordingly, all financial
information has been restated to reflect the combined operations of Symantec and
the acquired companies with the exception of MultiScope and Whitewater. The
results of operations of these companies were not material to Symantec's
consolidated financial statements and, therefore, prior year amounts have not
been restated.
On May 31, 1994, June 1, 1994 and August 31, 1994, Symantec completed the
acquisitions of SLR Systems, Inc. ("SLR"), Central Point and Intec Systems
Corporation ("Intec"), respectively, in transactions accounted for as poolings
of interest. These consolidated financial statements have been restated for the
acquisition of Central Point and were prepared as if the acquisition occurred as
of the beginning of the periods presented. The results of operations of SLR and
Intec were not material to Symantec's consolidated financial statements and,
therefore, prior year amounts have not been restated.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references
as of and for the periods ended March 31, 1994, 1993 and 1992 reflect amounts as
of and for the periods ended April 1, 1994, April 2, 1993 and April 3, 1992,
respectively.
BUSINESS
Symantec develops, markets and supports a diversified line of application and
system software products designed to enhance individual and workgroup
productivity as well as manage networked computing environments.
FOREIGN CURRENCY TRANSLATION
In general, the local currency is the functional currency of the Company's
foreign subsidiaries. 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 is shown separately as a
component of stockholders' equity. Revenues and expenses are translated using
average exchange rates prevailing during the year. Foreign currency transaction
gains and losses are not material and are included in the determination of net
income (loss).
Symantec utilizes some natural hedging to mitigate the Company's transaction
exposures and effective December 31, 1993, the Company commenced hedging some
residual transaction exposures through the use of 30-day forward contracts. At
March 31, 1994 there was a total of approximately $29.3 million of outstanding
forward exchange contracts. The net liability of forward contracts was
approximately $10.3 million at March 31, 1994. The Company does not hedge
either its translation risk or its economic risk.
F-9
<PAGE>
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Symantec recognizes revenue upon shipment when no significant vendor obligations
remain and collection of the receivable, net of provisions for estimated future
returns, is probable. Prior to fiscal 1994, Central Point generally recognized
revenue upon shipment, along with a provision for estimated returns. Due to
significant changes in the marketplace's perception of Central Point's long-term
viability and the Agreement and Plan of Reorganization signed by Symantec and
Central Point in fiscal 1994, Central Point was no longer able to reasonably
estimate future returns from distributors and resellers. In accordance with
Statement of Financial Accounting Standards No. 48, revenue and the related cost
of revenue for 1994 for software shipments to these distributors and resellers
was deferred until sold by the distributor or reseller to the end user. The
effect of this revenue and cost of revenue deferral was to increase the 1994
loss before provision for income taxes. Amounts related to significant post-
contract support agreements (generally product maintenance agreements) are
deferred and recognized over the period of the agreements. The estimated cost
of providing insignificant post-contract support (generally telephone support)
is accrued at the time of the sale.
CASH AND SHORT-TERM INVESTMENTS
Symantec considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents. The carrying
amount for cash and cash equivalents approximated their fair value. Short-term
investments consist principally of taxable certificates of deposit and money
market instruments and are stated at cost, which approximates fair value.
In May 1993, the Financial Accounting Standards Board issued Statement No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity Securities."
The Company is required to adopt FAS 115 no later than the first quarter of
fiscal 1995. FAS 115, when adopted, is not expected to have a material impact
on the Company's financial statements.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is principally
determined using currently adjusted standards, which approximate actual cost on
a first-in, first-out basis.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
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,
generally the shorter of the lease term or three to seven years.
PURCHASED INTANGIBLES
Purchased intangibles are comprised of acquired software ("product rights") and
are stated at cost less accumulated amortization. The cost of product rights
represents the fair value of various software products acquired by Symantec.
Amortization is provided on the greater of the straight-line basis over the
estimated useful lives of the respective assets, generally three to five years,
or on the basis of the ratio of current revenues to current revenues plus
anticipated future revenues. Certain purchased intangibles acquired by Central
Point were assigned estimated economic lives of twelve to twenty-eight months.
All Central Point purchased intangibles were fully amortized as of March 31,
1994.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to operations as incurred.
Financial accounting rules requiring capitalization of certain software
development costs do not materially affect the Company.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
F-10
<PAGE>
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated using the treasury stock method.
Under the treasury stock method, net income (loss) per share is calculated using
the weighted average number of common and dilutive common equivalent shares
outstanding during each period. Common stock equivalents consist principally of
the assumed exercises of stock options net of the assumed repurchase of shares
with any related proceeds.
The difference between primary and fully diluted net income (loss) per share is
either not significant or anti-dilutive in all periods presented.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of short-term investments and trade accounts
receivable. The Company's investment portfolio is diversified and consists of
investment grade securities. The credit risk in the Company's trade accounts
receivable is substantially mitigated by the Company's credit evaluation
process, reasonably short collection terms and the geographical dispersion of
sales transactions.
F-11
<PAGE>
NOTE 1. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
March 31,
-----------------
(In thousands) 1994 1993
- ----------------------------------------------------- -------- --------
<S> <C> <C>
CASH AND SHORT-TERM INVESTMENTS:
Cash and cash equivalents $ 32,911 $ 66,700
Short-term investments 27,623 2,312
-------- --------
$ 60,534 $ 69,012
-------- --------
-------- --------
TRADE ACCOUNTS RECEIVABLE:
Receivables $ 52,676 $ 56,757
Less: allowance for doubtful accounts (4,334) (3,941)
-------- --------
$ 48,342 $ 52,816
-------- --------
-------- --------
INVENTORIES:
Raw materials $ 1,189 $ 3,124
Finished goods 6,653 3,245
-------- --------
$ 7,842 $ 6,369
-------- --------
-------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Computer equipment $ 39,113 $ 35,711
Computer equipment under capital lease 691 1,104
Office furniture and equipment 18,952 20,418
Office furniture and equipment under capital leases 1,771 2,391
Leasehold improvements 7,201 8,894
-------- --------
67,728 68,518
Less: accumulated depreciation and amortization (40,546) (30,446)
accumulated amortization under capital leases (1,813) (1,894)
-------- --------
$ 25,369 $ 36,178
-------- --------
-------- --------
PURCHASED INTANGIBLES:
Product rights $ 29,998 $ 47,464
Less: accumulated amortization (18,770) (29,155)
-------- --------
$ 11,228 $ 18,309
-------- --------
-------- --------
OTHER ACCRUED EXPENSES:
Acquisition expenses $ 4,817 $ 2,765
Restructuring and other expenses 9,259 1,282
Deferred revenue 23,612 7,196
Marketing development funds 6,438 3,319
Other 13,619 15,608
-------- --------
$ 57,745 $ 30,170
-------- --------
-------- --------
LONG-TERM OBLIGATIONS:
Long-term obligations $ 1,813 $ 14,273
Less: current portion (847) (12,125)
-------- --------
$ 966 $ 2,148
-------- --------
-------- --------
</TABLE>
F-12
<PAGE>
NOTE 2. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS
Since April 1, 1991, Symantec completed acquisitions of the following companies:
<TABLE>
<CAPTION>
Issued Acquired
Shares of Company
Symantec Stock
Common Options
Companies Acquired Date Acquired Stock Assumed
- --------------------------------------------------- ----------------- --------- --------
<S> <C> <C> <C>
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc. ("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 2,769,010 --
Contact Software International, Inc. ("Contact") June 2, 1993 2,404,019 232,589
Certus International Corporation ("Certus") November 30, 1992 368,141 32,619
MultiScope, Inc. ("MultiScope") September 2, 1992 253,075 125,089
The Whitewater Group, Inc. ("Whitewater") September 2, 1992 69,740 9,644
Symantec (UK) Ltd. ("Symantec UK") April 3, 1992 603,032 26,934
Zortech Ltd. ("Zortech") August 31, 1991 476,184 --
Dynamic Microprocessor Associates, Inc. ("DMA") August 30, 1991 744,552 102,964
Leonard Development Group ("Leonard") August 30, 1991 154,000 --
</TABLE>
All of these acquisitions were accounted for as poolings of interest. In
connection with the acquisitions of the companies listed above, Symantec
incurred significant acquisition expenses (see Note 9). Due to differing year
ends of Symantec, Fifth Generation, Contact and Certus, financial information
for dissimilar fiscal year ends was combined. Fifth Generation's fiscal years
ended December 31, 1992 and 1991 were combined with Symantec's fiscal years
ended March 31, 1993 and 1992, respectively. Accordingly, Fifth Generation's
results of operations for the quarter ended March 31, 1993 were charged to
stockholders' equity. Fifth Generation's net loss of $16.4 million for the
quarter ended March 31, 1993 was largely due to the decline in net revenues to
$1.9 million and the write-off of previously capitalized software costs.
Contact's fiscal years ended June 30, 1993 and 1992 were combined with
Symantec's fiscal years ended March 31, 1993 and 1992, respectively.
Accordingly, Contact's results for the quarter ended June 30, 1992 were
duplicated in the combined statements of operations for fiscal 1993 and 1992 and
Contact's net loss for the quarter ended June 30, 1992, was credited to
stockholders' equity. Contact's net revenues for the quarter ended June 30,
1992 were $3.4 million. Certus' fiscal year ended December 31, 1991 was
combined with Symantec's fiscal year ended March 31, 1992. Accordingly, Certus'
results of operations for the quarter ended March 31, 1992 were charged to
stockholders' equity. Certus' net revenues for the quarter ended March 31, 1992
were $0.8 million.
In addition, during the year ended March 31, 1994, Central Point acquired
Executive Systems, Inc. ("XTree"), which was accounted for as a pooling of
interest. Due to differing fiscal year ends of Central Point and XTree,
financial information related to XTree's fiscal year ended September 30, 1992,
has been combined with financial information related to Central Point's year
ended March 31, 1993. Accordingly, XTree's results of operations for the six
months ended March 31, 1993, were charged to stockholders' equity. XTree
reported net revenues of $6.9 million and a net loss of $1.0 million for the six
months ended March 31, 1993.
On March 10, 1992, Central Point purchased all of the common stock of Eikon
Systems, Inc. ("Eikon') in exchange for Central Point common stock valued at
$4.7 million. Central Point accounted for the acquisition using the purchase
method of accounting. Accordingly, the results of operations of Eikon
subsequent to the acquisition date are included in the accompanying consolidated
financial statements. The total purchase price was allocated to the assets
acquired and liabilities assumed on the basis of their estimated fair values at
the date of acquisition, resulting in a purchase price allocation of $1.4
million to capitalized software costs, $0.3 million to net tangible assets and
$3.0 million to acquired in-process research and development. Such research and
development allocation was charged directly to operations in fiscal 1992. The
results of operations of Eikon were not material to Symantec and therefore pro
forma financial information is not included herein.
F-13
<PAGE>
The table below sets forth the composition of combined net revenues and net
income (loss) for the pre-acquisition periods indicated. Information for the
year ended March 31, 1994 with respect to Fifth Generation and Contact reflects
the six months ended October 4, 1993 and the two months ended June 2, 1993,
respectively, the dates the companies were acquired.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
Symantec $250,360 $205,999 $219,238
Central Point 60,599 87,085 95,734
Fifth Generation 13,622 35,293 40,297
Contact 3,718 16,249 10,442
-------- -------- -------
$328,299 $344,626 $365,711
-------- -------- -------
-------- -------- -------
Net income (loss):
Symantec $(6,696) $(11,505) $17,632
Central Point (45,855) (10,492) 2,147
Fifth Generation (4,458) (15,168) 6,645
Contact 42 (1,930) (163)
-------- -------- -------
$(56,967) $(39,095) $26,261
-------- -------- -------
-------- -------- -------
</TABLE>
On December 31, 1993, Symantec acquired certain technology for developing an
architecture and tools to build client/server applications from DataEase
International, Inc. in exchange for 391,456 shares of Symantec common stock and
cancellation of the principal and accrued interest on a $1.0 million outstanding
note receivable. The Company capitalized approximately $7.7 million of
purchased product rights as a result of this transaction.
NOTE 3. CONVERTIBLE SUBORDINATED DEBENTURES
On April 2, 1993, the Company issued convertible subordinated debentures
totaling $25.0 million. The debentures bear interest at 7.75% payable
semiannually and are convertible into Symantec common stock at $12 per share at
the option of the investor. The debentures are due in three equal annual
installments beginning in 1999 and are redeemable at the option of the investors
in the event of a change in control of Symantec or the sale of all or
substantially all assets of the Company or at the option of the Company after
1995 at the face amount plus interest should the Company's then current stock
price meet or exceed $16.80 per share. The holders are entitled to certain
registration rights relating to the shares of common stock resulting from the
conversion of the notes. The Company has reserved 2,083,333 shares of common
stock to be issued upon conversion of these debentures. The debentures limit
the payment of cash dividends and the repurchase of capital stock to a total of
$10.0 million plus 25% of cumulative net income subsequent to April 2, 1993.
Total Company interest expense was $2.5 million, $1.4 million and $1.5 million
for fiscal 1994, 1993 and 1992, respectively.
NOTE 4. LINE OF CREDIT
The Company has an $8.0 million bank line of credit that expires on July 31,
1994. The line of credit is available for general corporate purposes and bears
interest at the U.S. offshore rate, the banks' reference (prime) interest rate
(6.25% at March 31, 1994), a CD rate or LIBOR, at the Company's discretion.
Borrowings under this line are unsecured and are subject to the Company
maintaining certain financial ratios and profits. During fiscal 1994, the
Company was not in compliance with several covenants relating to Symantec's net
worth and financial ratios as a result of the acquisition of Fifth Generation.
The Company has obtained a waiver and has re-negotiated various of the net worth
and financial ratio covenants of the line of credit. The Company was in
compliance with all covenants at March 31, 1994. The line of credit requires
bank approval for the payment of cash dividends. At March 31, 1994, there was
approximately $0.4 million of outstanding standby letters of credit under this
line of credit. There were no borrowings outstanding under this line at
March 31, 1994.
F-14
<PAGE>
NOTE 5. COMMITMENTS
Symantec leases all of its facilities and certain equipment under operating
leases that expire at various dates through 2026. Amounts outstanding under
capital lease commitments are not material.
The future fiscal year minimum operating lease commitments were as follows at
March 31, 1994:
<TABLE>
<CAPTION>
Year Ended March 31,
(In thousands)
- --------------------------------------
<S> <C>
1995 $ 8,871
1996 6,876
1997 5,629
1998 3,831
1999 1,645
Thereafter 7,214
-------
$34,066
-------
-------
</TABLE>
Rent expense charged to operations totaled $8.6 million, $8.8 million and $7.2
million for the years ended March 31, 1994, 1993 and 1992, respectively.
NOTE 6. INCOME TAXES
The components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands) 1994 1993 1992
- -------------------------- ------- -------- --------
<S> <C> <C> <C>
Current:
Federal $(9,371) $ (8,900) $15,576
State 60 (554) 5,163
Foreign 818 935 5,572
------- -------- -------
(8,493) (8,519) 26,311
Deferred:
Federal 1,925 (6,641) (8,346)
State (450) (1,072) (1,388)
Foreign 8 (24) 16
------- -------- -------
1,483 (7,737) (9,718)
------- -------- -------
$(7,010) $(16,256) $16,593
------- -------- -------
------- -------- -------
</TABLE>
F-15
<PAGE>
The difference between the Company's effective income tax rate and the federal
statutory income tax rate as a percentage of income (loss) before income taxes
was as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit (2.3) (2.0) 5.3
Non-deductible acquisition expenses 2.0 0.8 1.0
Non-deductible acquired in-process
research and development -- -- 2.7
Establishment of deferred tax assets
for acquired companies -- -- (0.8)
Impact of preacquisition earnings/loss of
acquired companies 0.5 (0.7) (0.8)
Impact of foreign operations 0.4 3.3 (1.2)
Limitation on valuation of deferred tax assets 21.9 1.1 --
Other, net 0.5 2.1 (1.5)
----- ----- -----
(11.0)% (29.4)% 38.7%
----- ----- -----
----- ----- -----
</TABLE>
The principal components of deferred tax assets were as follows:
<TABLE>
<CAPTION>
March 31,
----------------------------
(In thousands) 1994 1993 1992
- -------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Tax credit carryforwards $3,485 $1,200 $2,300
Net operating loss carryforwards 13,726 5,270 811
Inventory valuation accounts 1,920 1,416 2,238
Other reserves and accruals not
currently tax deductible 3,866 3,835 1,619
Accrued compensation and benefits 2,541 2,408 1,396
Deferred revenue 6,176 1,445 1,977
Sales incentive programs 3,187 1,139 869
Allowance for doubtful account 1,037 692 608
Acquired software 3,621 3,748 596
Accrued acquisition, restructuring and
other expenses 5,337 -- --
Other 2,392 181 173
-------- ------- -------
47,288 21,334 12,587
Valuation allowance (29,313) (1,950) (811)
-------- ------- -------
$ 17,975 $19,384 $11,776
-------- ------- -------
-------- ------- -------
</TABLE>
Approximately $7.0 million of the valuation allowance for deferred tax assets is
attributable to stock option deductions, the benefit of which will be credited
to equity when realized. The remaining portion of the valuation allowance is
composed primarily of $19.4 million for Central Point temporary differences and
$2.0 million for net operating loss carryforwards of acquired companies that are
limited under the "change of ownership" rules of Internal Revenue Code
Section 382.
Pretax income (loss) from foreign operations was approximately $10.0 million,
$(4.6) million and $5.6 million for the years ended March 31, 1994, 1993 and
1992, respectively.
At March 31, 1994, the Company had tax credit carryforwards of $3.4 million that
expire in fiscal 1997 through 2009 and net operating loss carryforwards of $33.5
million that expire in fiscal 1999 through 2009.
F-16
<PAGE>
NOTE 7. EMPLOYEE BENEFITS
401(K) PLAN
Symantec maintains a salary deferral 401(k) plan for all of its domestic
employees. The plan allows employees to contribute up to 15% of their pretax
salary up to the maximum dollar limitation prescribed by the Internal Revenue
Code. Symantec matches the employees' contributions up to 6% of their
compensation at a rate of 50% of the employees' contribution. Company
contributions under the plan were $1.1 million, $0.8 million and $0.6 million
for the years ended March 31, 1994, 1993 and 1992, respectively.
STOCK PURCHASE PLAN
In October 1989, the Company established the 1989 Employee Stock Purchase Plan
and reserved 700,000 shares of common stock for issuance under the plan. During
fiscal 1994, Symantec shareholders approved an increase in the number of shares
reserved for issuance under the Stock Purchase Plan from 700,000 to 1,100,000.
Subject to certain limitations, Symantec employees may purchase, through payroll
deductions of 2 to 10% of compensation, shares of common stock at a price per
share that is the lesser of 85% of the fair market value as of the beginning of
the offering period or the end of the purchase period. As of March 31, 1994,
672,280 shares had been issued under the plan.
STOCK OPTION PLANS
The Company has reserved 9.9 million shares of its common stock for issuance as
incentive and nonqualified stock options to employees, officers, directors,
consultants and independent contractors including an increase of 600,000 shares
approved in fiscal 1994 by Symantec's stockholders for issuance under the Board
of Directors Plan. Options under these plans may be granted at prices not less
than 100% of fair market value on the date of grant, have a maximum term of ten
years and generally vest over a four-year period. In addition, the Company has
reserved an additional 1,230,837 shares of its common stock for issuance under
acquired company option plans and acquired company warrants.
During September 1992 the Board of Directors authorized the Company to offer to
each employee with stock options having an exercise price greater than $11 (the
"Old Options") the opportunity to amend the terms of the Old Options and reduce
the exercise price to $11 per share (the fair market value of the Company's
stock as of the offer date). Under the terms of this stock option repricing, no
portion of any repriced option (the "Repriced Options") could be exercised until
September 23, 1993 and each Repriced Option was converted to a nonqualified
stock option. Options representing 3,128,290 shares of common stock were
repriced. The President and Chief Executive Officer, the Executive Vice
President, Worldwide Operations, and Chief Financial Officer and the members of
the Board of Directors elected to exclude themselves from this stock option
repricing. During fiscal 1994, the Company granted options representing 466,000
shares in excess of the total number of shares authorized under the Employee
Stock Option Plan. These options are subject to stockholder approval.
F-17
<PAGE>
Stock option and warrant activity was as follows:
<TABLE>
<CAPTION>
Number Exercise
(In thousands, except exercise price per share) of Shares Price Per Share
- ----------------------------------------------- --------- ---------------
<S> <C> <C>
Outstanding at March 31, 1991 4,702 $ 0.50 - $23.50
Granted 2,778 0.05 - 54.95
Exercised (840) 0.50 - 24.00
Cancelled (544) 0.50 - 42.75
------
Outstanding at March 31, 1992 6,096 0.05 - 54.95
Granted 2,691 3.14 - 64.65
Exercised (658) 0.07 - 54.95
Cancelled (1,456) 1.00 - 64.65
------
Outstanding at March 31, 1993 6,673 0.05 - 64.65
Granted 3,362 0.07 - 21.01
Exercised (1,347) 0.05 - 21.01
Cancelled (1,125) 0.05 - 64.65
------
Outstanding at March 31, 1994 7,563 0.05 - 64.65
------
------
</TABLE>
<TABLE>
<CAPTION>
(In thousands) March 31,
- -------------- -----------------------
1994 1993
----- -----
<S> <C> <C>
Balances are as follows:
Reserved for issuance 7,752 9,121
Available for future grants 189 2,448
Exercisable and vested 3,120 2,826
Exercised, subject to repurchase 1 1
</TABLE>
NOTE 8. RELATED PARTY TRANSACTIONS
As part of the acquisition of Peter Norton Computing, Incorporated ("Norton") in
fiscal 1991, Symantec assumed Norton's perpetual exclusive license agreement
with Mr. Norton, a member of Symantec's Board of Directors, to use his name and
image for computer software products. Under the terms of the license, Mr.
Norton is entitled to receive a royalty equal to the greater of 1% of net sales
or 0.4% of the suggested retail price of products bearing Mr. Norton's name.
Mr. Norton may terminate the agreement if Symantec fails to pay Mr. Norton an
average of at least $30,000 of royalties in any three consecutive years.
Royalty expense under the agreement was $1.6 million, $1.4 million and $1.1
million for the years ended March 31, 1994, 1993 and 1992, respectively.
Additionally, in connection with certain indemnification agreements entered into
as part of the acquisition of Norton, Mr. Norton agreed to reimburse Symantec
for certain litigation and acquisition costs in excess of specified amounts.
The net amount payable to Mr. Norton pursuant to these agreements at March 31,
1994 and 1993 was $0.9 million and $0.7 million, respectively.
F-18
<PAGE>
NOTE 9. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expense consists of the following:
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------
(In thousands) 1994 1993 1992
- -------------------------------------------------- ------- ------- ------
<S> <C> <C> <C>
Fifth Generation acquisition $15,000 -- --
Contact acquisition 7,400 -- --
XTree acquisition 3,514 -- --
Certus acquisition -- $ 3,000 --
Whitewater acquisition -- 1,648 --
MultiScope acquisition -- 452 --
Symantec (UK) acquisition -- -- $2,300
Zortech acquisition -- -- 2,167
DMA acquisition -- -- 2,201
Leonard acquisition -- -- 132
Centralization and restructuring expense 4,700 4,400 --
Central Point restructuring charges 16,025 673 --
Purchased in-process research and development 2,955 -- 3,022
Class action lawsuit settlement 6,500 -- --
Civil lawsuit and related criminal legal fees -- 2,600 --
------- ------- ------
Total acquisition, restructuring and other expenses $56,094 $12,773 $9,822
------- ------- ------
------- ------- ------
</TABLE>
In connection with the acquisitions of Fifth Generation and Contact by Symantec
(see Note 2) and the acquisition of XTree by Central Point (see Note 2), the
Company recorded total charges of $25.9 million in fiscal 1994. The charges
included $4.3 million for legal, accounting and financial advisory services,
$7.6 million for the write-off of duplicative product related expenses and
modification of certain development contracts, $3.6 million for the elimination
of duplicative and excess facilities, $5.3 million for personnel severance and
outplacement expenses, and $5.1 million for the consolidation and discontinuance
of certain operational activities and other acquisition related expenses.
In connection with the acquisitions of Certus, Whitewater and MultiScope in
fiscal 1993 and Symantec (UK), Zortech, DMA and Leonard in fiscal 1992 (see
Note 2), Symantec incurred significant acquisition expenses for legal,
accounting and financial advisory services and expenses related to the
combination of the companies, including the elimination of duplicative and
excess facilities and personnel. These expenses approximated $5.1 million and
$6.8 million in fiscal years 1993 and 1992, respectively.
As of March 31, 1994, total accrued acquisition expenses for previously acquired
companies were $4.8 million and included $1.1 million for the modification of
certain development contracts, $1.3 million for the elimination of duplicative
and excess facilities and $2.4 million for the consolidation and discontinuance
of certain operational activities and other acquisition related expenses.
During fiscal 1994, Symantec announced a plan to consolidate and centralize
certain operational activities. The plan is designed to reduce operating
expenses and enhance operational efficiencies by centralizing certain order
administration, technical support and customer service activities in Eugene,
Oregon. The Company recorded a charge of $4.7 million which included $1.1
million for the elimination of duplicative and excess facility expenses, $1.5
million for the relocation of the Company's existing operations and equipment,
$1.1 million for employee relocation expenses and $1.0 million for employee
severance payments. The Company's centralization has been substantially
completed.
F-19
<PAGE>
During fiscal 1994, Central Point incurred $16.0 million of expenses related to
the restructuring of its operations in order to reduce its overall cost
structure and to redirect its software development and marketing efforts away
from the personal desktop computer market toward personal computer network
markets. The charge included $6.2 million for employee severance, outplacement
and relocation expenses, $5.6 million for the write-off of certain excess fixed
and intangible assets, $1.8 million for lease abandonments and facility
relocation and $2.4 million for the consolidation and discontinuance of certain
operational activities and other related expenses. Of the total charges, $5.9
million resulted from the write-off of assets and $10.1 million involved cash
outflows of which $8.7 million are expected future cash outflows as of March 31,
1994.
During fiscal 1994, Central Point purchased from unrelated parties certain in-
process software technologies for approximately $3.0 million which was
immediately expensed.
During fiscal 1994, Symantec reached an agreement with the plaintiffs and
Symantec's insurance carriers to settle two securities class actions and a
related derivative lawsuit brought by stockholders of Symantec (see Note 10).
The combined settlement amount of the cases is $19.0 million, approximately
$12.5 million of which will be paid by Symantec's insurance carriers. Symantec
recorded a charge of $6.5 million representing Symantec's portion of the class
action settlement (see Note 10).
During fiscal 1993, Symantec recorded a $4.4 million charge for expenses
relating to the restructuring of certain operational functions within the
Company. The plan was designed to reduce operating expenses and reallocate
resources from DOS products to Windows and Development Tools products. This
charge included $1.0 million for the elimination of excess facilities, $0.4
million for the relocation of certain employees and $3.0 million for
outplacement expenses and severance payments associated with the reduction in
staffing. The Company's restructuring has been completed.
During fiscal 1993, Central Point incurred $0.7 million of charges related to
the restructuring of its operations, including the sale of its manufacturing
operation, personnel relocation and severance, and the write-off of certain
property and equipment. This restructuring has been completed.
During fiscal 1993, the Company recorded a $2.6 million charge for estimated
total legal fees expected to be incurred in connection with the Borland civil
lawsuit and the related criminal prosecution (see Note 10).
In connection with the acquisition of Eikon by Central Point during fiscal 1992,
the Company allocated the total purchase price of $4.7 million to the assets
acquired and liabilities assumed on the basis of their estimated fair values at
the date of acquisition, resulting in a purchase price allocation of $1.4
million to capitalized software costs, $0.3 million to net tangible assets and
$3.0 million to acquired in-process research and development. Such research and
development allocation was charged directly to operations in fiscal 1992.
NOTE 10. LITIGATION
On September 3, 1992, Borland International, Inc. ("Borland") filed a lawsuit in
the Superior Court for Santa Cruz County, California against Symantec, Gordon E.
Eubanks, Jr. (Symantec's President and Chief Executive Officer) and Eugene Wang
(an Executive Vice President of Symantec who is a former employee of Borland).
The complaint as amended alleges misappropriation of trade secrets, unfair
competition, inducing breach of contract, interference with prospective economic
advantage and unjust enrichment. Borland alleged that prior to joining
Symantec, Mr. Wang transmitted to Mr. Eubanks confidential information
concerning Borland's product and marketing plans. Borland claims damages in an
unspecified amount. Symantec has denied the allegations of Borland's complaint
and contends that Borland has suffered no damages from the alleged actions.
Borland obtained a temporary restraining order and a preliminary injunction
prohibiting the defendants from using, disseminating or destroying any Borland
proprietary information or trade secrets. Symantec filed a cross complaint
against Borland alleging that Borland had committed abuse of process and
defamation in publishing statements that Symantec had acted in contempt of a
temporary restraining order. The case is not being actively prosecuted at this
time pending the outcome of the criminal proceedings, discussed below. Symantec
believes the charges have no merit.
F-20
<PAGE>
On September 2, 1992, the Scotts Valley, California police department, operating
with search warrants for Borland proprietary and trade secret information,
searched Symantec's offices and the homes of Messrs. Eubanks and Wang and
removed documents and other materials. On February 26, 1993, criminal
indictments were filed against Messrs. Eubanks and Wang for allegedly violating
various California Penal Code Sections relating to the misappropriation of trade
secrets and unauthorized access to a computer system. On August 23, 1993, the
Court recused the District Attorney's Office from prosecution of the action. On
October 5, 1993, the State Attorney General and the District Attorney's Office
filed a Notice of Appeal of the Order. Symantec believes the charges have no
merit.
On December 11, 1992 and April 19, 1993, class action complaints were filed in
U.S. District Court for the Northern District of California against the Company,
all of its directors and certain of its officers. The complaints as amended
allege violations of federal securities laws and claim that during the period
from June 3, 1991 through October 8, 1992, the defendants disseminated and
allowed to be disseminated, misleading statements and concealed adverse material
information. The December 11, 1992 complaint also contains two claims for
relief asserted derivatively on behalf of the Company against the individual
defendants for breach of fiduciary duty, including permitting or engaging in
alleged illegal insider trading. Symantec has reached an agreement with the
plaintiffs and Symantec's insurance carriers to settle these two securities
class actions and the related derivative lawsuit. The settlement has been
preliminarily approved by the Court and a hearing on the settlement has been
scheduled for June 6, 1994. The settlement will conclude all outstanding
securities class actions and derivative claims that are pending against
Symantec. The combined settlement amount of the cases will be $19.0 million,
approximately $12.5 million of which will be paid by Symantec's insurance
carriers. Symantec recorded a charge of $6.5 million representing Symantec's
portion of the settlement.
On June 11, 1992, Dynamic Microprocessor Associates, Inc. ("DMA"), a wholly-
owned subsidiary of Symantec, commenced an action against EKD Computer Sales &
Supplies Corporation ("EKD"), a former licensee of DMA and Thomas Green, a
principal of EKD, for copyright infringement, violations of the Lanham Act,
trademark infringement, misappropriation, deceptive acts and practices and
unfair competition and breach of contract. On July 14, 1992, the Suffolk County
sheriff's department conducted a search of EKD's premises and seized and
impounded thousands of infringing articles. On July 21, 1992, the Court issued
a preliminary injunction against EKD and Mr. Green, enjoining them from
manufacturing, marketing, distributing, copying or purporting to license DMA's
pcANYWHERE III or using DMA's marks. On February 19, 1993, EKD moved to vacate
the preliminary injunction. The Court denied the motion orally in April 1993
and issued a written opinion in September 1993, and EKD appealed this denial.
EKD's appeal was denied in March 1994, leaving the preliminary injunction in
place.
On July 20, 1992 and in a subsequent amendment, EKD and Mr. Green answered
Symantec's complaint denying all liability and asserting counterclaims against
Symantec and Lee Rautenberg, a former principal of DMA. In May 1993, EKD and
Mr. Green were granted permission to file a Second Amended Answer and
counterclaims that dropped every previously raised claim and now alleges that
DMA obtained the temporary restraining order and preliminary injunction in bad
faith and that DMA, Symantec and Mr. Rautenberg breached certain license
agreements and violated certain federal and New York State antitrust laws. In
March 1994, Symantec moved for judgment on certain of EKD's claims including
that Symantec, DMA and Mr. Rautenberg had violated the antitrust laws. This
motion is currently pending. Symantec believes the charges have no merit.
As a result of the acquisition of DMA by Symantec, two individuals formerly
associated with DMA have filed separate lawsuits in the Supreme Court of the
State of New York against DMA, Symantec and Lee Rautenberg. The plaintiff in
the first lawsuit, Howard Radin, alleges that DMA and Lee Rautenberg defrauded
Mr. Radin into selling his shares of DMA stock to DMA and Bradley Farkas and
that DMA and Mr. Rautenberg were unjustly enriched by such conduct. The lawsuit
seeks damages of at least $8 million. The second lawsuit alleges that Peter
Byer was promised 8% of the outstanding DMA common stock in connection with his
performance of services for DMA. The suit also alleges that Mr. Byer was to be
paid additional compensation based upon sales made by DMA. Mr. Byer has further
amended his complaint to claim the DMA was unjustly enriched because it paid Mr.
Byer less than the fair value of his services. The lawsuit seeks damages of at
least $5.3 million. Symantec believes the charges have no merit. Furthermore,
Mr. Rautenberg and the other stockholders of DMA have an obligation to indemnify
Symantec for liabilities resulting from these actions.
F-21
<PAGE>
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business. Although occasional adverse decisions
(or settlements) may occur, the final disposition of such matters is not
expected to be material.
The Company intends to defend all of the aforementioned lawsuits vigorously and
although an unfavorable outcome could occur in one or more of the cases, the
final resolution of these lawsuits, individually or in the aggregate, is not
expected to have a material adverse effect on the financial position of the
Company.
NOTE 11. SEGMENT INFORMATION
Symantec operates in the microcomputer software industry business segment. The
Company markets its products in the United States and in foreign countries
primarily through retail and distribution channels.
INFORMATION BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands) 1994 1993 1992
- -------------------------- -------- -------- --------
<S> <C> <C> <C>
NET REVENUES:
Domestic operations:
Domestic customers $219,032 $237,822 $263,062
Export customers 33,504 40,382 45,331
Intercompany 496 180 911
-------- -------- --------
253,032 278,384 309,304
European operations:
Customers 75,763 66,422 57,318
Intercompany 58 101 4,627
-------- -------- --------
75,821 66,523 61,945
Eliminations (554) (281) (5,538)
-------- -------- --------
$328,299 $344,626 $365,711
-------- -------- --------
-------- -------- --------
OPERATING INCOME (LOSS):
Domestic operations $(72,198) $(49,528) $34,775
European operations 9,984 (4,447) 5,686
Eliminations (305) (21) (32)
-------- -------- --------
$(62,519) $(53,996) $40,429
-------- -------- --------
-------- -------- --------
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands) 1994 1993 1992
- -------------------------- -------- -------- --------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Domestic operations $152,880 $194,196 $180,931
European operations 35,912 36,698 32,562
-------- -------- --------
$188,792 $230,894 $213,493
-------- -------- --------
-------- -------- --------
</TABLE>
Intercompany sales between geographic areas are accounted for at prices
representative of unaffiliated party transactions.
SIGNIFICANT CUSTOMERS
The following customers accounted for more than 10% of net revenues during
fiscal 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
(In thousands) 1994 1993 1992
- -------------------------- ------- -------- --------
<S> <C> <C> <C>
Ingram Micro D 17% 15% 19%
Merisel 13 13 13
</TABLE>
F-22
<PAGE>
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SYMANTEC CORPORATION
2,198,295 Shares of
Common Stock
-------------------
PROSPECTUS
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