<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995.
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
COMMISSION FILE NUMBER 0-17781
--------
SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 253-9600
--------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of November 7, 1995:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 39,360,906 SHARES
===============================================================================
<PAGE>
SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 1995 and March 31, 1995 . . . . . . . . . . . 3
Consolidated Statements of Operations
for the three and six months ended September 30, 1995 and 1994 . . 4
Consolidated Statements of Cash Flow
for the six months ended September 30, 1995 and 1994 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
(IN THOUSANDS) 1995 1995
- -------------- ------------ ----------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and short-term investments $120,511 $105,188
Trade accounts receivable 67,209 53,986
Inventories 7,845 4,177
Deferred income taxes 5,775 9,939
Other 8,295 6,339
-------- --------
Total current assets 209,635 179,629
Equipment and leasehold improvements 38,273 28,880
Purchased intangibles 7,302 8,274
Other 5,123 4,532
-------- --------
$260,333 $221,315
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,690 $ 17,919
Accrued compensation and benefits 12,978 12,347
Other accrued expenses 49,914 51,789
Income taxes payable 1,901 2,006
Current portion of long-term obligations 402 524
-------- --------
Total current liabilities 84,885 84,585
Convertible subordinated debentures 15,000 25,000
Long-term obligations 408 408
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000 shares;
issued and outstanding: none) -- --
Common stock (authorized: 70,000;
issued and outstanding: 39,315 and
37,175 shares) 393 372
Capital in excess of par value 202,081 177,418
Notes receivable from stockholders (144) (144)
Cumulative translation adjustment (3,399) (2,860)
Accumulated deficit (38,891) (63,464)
-------- --------
Total stockholders' equity 160,040 111,322
-------- --------
$260,333 $221,315
======== ========
</TABLE>
The accompanying Notes Notes to Consolidated Financial
are an integral part of these statements.
3
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED) 1995 1994 1995 1994
- ------------------------------------------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 102,847 $ 79,078 $ 192,956 $ 162,191
Cost of revenues 16,012 14,559 30,927 31,212
---------- --------- ---------- ----------
Gross margin 86,835 64,519 162,029 130,979
Operating expenses:
Research and development 19,355 14,613 37,931 29,496
Sales and marketing 48,418 35,060 86,784 71,050
General and administrative 4,438 3,900 9,287 8,337
Acquisition, restructuring and other expenses -- -- (71) 9,545
---------- --------- ---------- ----------
Total operating expenses 72,211 53,573 133,931 118,428
---------- --------- ---------- ----------
Operating income 14,624 10,946 28,098 12,551
Interest income 1,631 563 3,256 1,116
Interest expense (344) (645) (783) (1,203)
Other income (expense), net 167 63 131 (62)
---------- --------- ---------- ----------
Income before income taxes 16,078 10,927 30,702 12,402
Provision for income taxes 3,205 2,951 6,129 3,379
---------- --------- ---------- ----------
Net income $ 12,873 $ 7,976 $ 24,573 $ 9,023
========== ========= ========== ==========
Net income per share - primary $ 0.31 $ 0.22 $ 0.60 $ 0.25
========== ========= ========== ==========
Net income per share - fully diluted $ 0.30 $ 0.22 $ 0.58 $ 0.24
========== ========= ========== ==========
Shares used to compute net income
per share - primary 41,876 37,031 41,267 36,784
========== ========= ========== ==========
Shares used to compute net income
per share - fully diluted 43,251 39,114 43,038 38,867
========== ========= ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
(IN THOUSANDS; UNAUDITED) 1995 1994
- ------------------------- ---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $24,573 $9,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 7,954 6,438
Amortization and write-off of capitalized software costs 1,662 5,615
Deferred income taxes 4,164 3,149
Net change in assets and liabilities:
Trade accounts receivable (13,477) 1,097
Inventories (3,695) 2,997
Other current assets (2,033) (2,745)
Other assets (112) (293)
Accounts payable 1,886 (10,439)
Accrued compensation and benefits 683 (1,993)
Accrued other expenses (1,748) (6,032)
Income taxes payable (66) (343)
------- -------
Net cash provided by operating activities 19,791 6,474
------- -------
INVESTING ACTIVITIES:
Capital expenditures (17,470) (5,940)
Purchased intangibles (1,213) (4,701)
Purchases of short-term investments (51,000) (40,022)
Proceeds from sales of short-term investments 48,346 26,623
------- -------
Net cash used in investing activities (21,337) (24,040)
------- -------
FINANCING ACTIVITIES:
Principal payments on long-term obligations (124) (474)
Net proceeds from sales of common stock and other 14,684 4,989
------- -------
Net cash provided by financing activities 14,560 4,515
Effect of exchange rate fluctuations on
cash and cash equivalents (345) (518)
------- -------
Increase (decrease) in cash and cash equivalents 12,669 (13,569)
Beginning cash and cash equivalents 22,772 32,911
------- -------
Ending cash and cash equivalents $35,441 $19,342
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
5
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Symantec Corporation ("Symantec" or
the "Company") as of September 30, 1995 and for the three and six months
ended September 30, 1995 and 1994 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. These consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in Symantec's Annual Report on Form
10-K, as amended, for the year ended March 31, 1995. The results of
operations for the three and six months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the entire year.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all
references as of and for the periods ended September 30, 1995 and 1994
reflect amounts as of and for the periods ended September 29, 1995 and
September 30, 1994, respectively.
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
(IN THOUSANDS) 1995 1995
- -------------- ------------- ---------
(UNAUDITED)
<S> <C> <C>
Cash and short-term investments:
Cash $ 27,756 $ 12,325
Cash equivalents 7,685 10,447
Short-term investments 85,070 82,416
-------- --------
$120,511 $105,188
======== ========
Trade accounts receivable:
Receivables $ 71,481 $ 58,188
Less: allowance for doubtful accounts (4,272) (4,202)
-------- --------
$ 67,209 $ 53,986
======== ========
Inventories:
Raw materials $ 1,615 $ 904
Finished goods 6,230 3,273
-------- --------
$ 7,845 $ 4,177
======== ========
Equipment and leasehold improvements:
Computer equipment $ 63,761 $ 49,983
Office furniture and equipment 21,495 19,659
Leasehold improvements 9,828 8,236
-------- --------
95,084 77,878
Less: accumulated depreciation and amortization (56,811) (48,998)
-------- --------
$ 38,273 $ 28,880
======== ========
Purchased intangibles:
Product rights $ 30,795 $ 29,583
Less: accumulated amortization (23,493) (21,309)
-------- --------
$ 7,302 $ 8,274
======== ========
Other accrued expenses:
Acquisition, restructuring and other expenses $ 3,816 $ 8,614
Deferred revenue 25,403 22,556
Marketing development funds 10,652 7,706
Other 10,043 12,913
-------- --------
$ 49,914 $ 51,789
======== ========
</TABLE>
6
<PAGE>
NOTE 3. LINE OF CREDIT
Symantec has a $10.0 million bank line of credit that originally expired in
October 1995 and was extended until February 28, 1996. The line of credit is
available for general corporate purposes and bears interest at the bank's
reference (prime) interest rate (8.75% at September 30, 1995), 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. The
Company was in compliance with the line of credit covenants as of September
30, 1995. At September 30, 1995, there was approximately $0.4 million of
standby letters of credit outstanding under this line of credit. There were
no borrowings outstanding under this line at September 30, 1995.
NOTE 4. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expenses consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -------------------
(IN THOUSANDS) 1995 1994 1995 1994
- -------------- ----------- --------- --------- --------
<S> <C> <C> <C> <C>
Relocation of certain research
and development activities $ -- $ -- $ 2,229 $ --
Central Point acquisition -- -- (2,300) 9,000
SLR acquisition -- -- -- 545
--------- --------- -------- ------
Total acquisition, restructuring and
other expenses $ -- $ -- $ (71) $9,545
========= ========= ======== ======
</TABLE>
On July 6, 1995, Symantec announced a definitive agreement to acquire Delrina
Corporation ("Delrina") for approximately 15 million shares of Symantec
common stock. Symantec expects to complete the acquisition in the quarter
ending December 31, 1995 and expects to incur acquisition expenses related to
the combination of the companies of approximately $25 to $30 million in the
quarter the acquisition is consummated. The acquisition is expected to be
accounted for as a pooling of interests.
During February 1995, Symantec announced a plan to consolidate certain
research and development activities. This plan is designed to gain greater
synergy between the Company's Third Generation Language and Fourth Generation
Language development groups. During the quarter ended June 30, 1995, the
Company incurred $2.2 million for the relocation costs of moving equipment
and personnel. The Company expects to incur remaining costs of $0.2 million
for the relocation of the Company's existing research and development
activities, equipment and personnel from Shelton, Connecticut to Cupertino,
California. The Company expects to complete this relocation by December 1995.
In connection with the acquisitions of Central Point Software, Inc. ("Central
Point") and SLR Systems, Inc. ("SLR"), Symantec recorded total acquisition
charges of $9.5 million in the quarter ended June 30, 1994. 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.
7
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
During fiscal 1994, Central Point incurred $16.0 million of expenses related
to the restructuring of its operations. In the quarter ended June 30, 1994,
Symantec incurred $9.0 million of expenses related to the acquisition of
Central Point. In the quarter ended June 30, 1995, the Company recognized a
reduction in accrued acquisition, restructuring and other expenses of $2.3
million as actual costs incurred were less than costs previously accrued by
the companies.
As of September 30, 1995, total remaining accrued acquisition, restructuring
and other expenses were $3.8 million and included $0.8 million for the
modification of certain development contracts, $1.3 million for the
elimination of duplicative and excess facilities and $1.7 million for the
consolidation and discontinuance of certain operational activities and other
acquisition related expenses.
NOTE 5. INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Symantec
provides for income taxes during interim reporting periods based upon an
estimate of its annual effective tax rate. This estimate reflects U.S.
federal, state and foreign income taxes.
NOTE 6. NET INCOME PER SHARE
Net income per share is calculated using the treasury stock or the modified
treasury stock method, as applicable. Common stock equivalents are
attributable to outstanding stock options. Fully diluted earnings per share
includes the assumed conversion of all of the outstanding convertible
subordinated debentures.
NOTE 7. LITIGATION
On May 19, 1995, Personal Computer Peripherals Corporation ("PCPC") filed a
lawsuit in the U.S. District Court for the District of Delaware against
Symantec and five other companies, alleging that the defendants' products for
backing up data on a computer network infringe a patent held by PCPC. The
complaint seeks unspecified damages and an injunction preventing the sale of
infringing products. Symantec believes that the complaint has no merit.
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 fulfilling an 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 non-competition
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 complaint has no merit.
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 that Borland's claims have no
merit.
8
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, and that appeal was argued on July 11, 1995. On September 8, 1995,
the Court of Appeals reversed the recusal order. A petition for review of
this decision by the California Supreme Court was filed on October 18, 1995.
Symantec believes the criminal charges against Messrs. Eubanks and Wang have
no merit.
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 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 allege 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 February 1995, DMA was granted leave to file an Amended Complaint, which
EKD subsequently responded to by a Third Amended Answer and Counterclaims
virtually identical to EKD's Second Amended pleading. Symantec believes that
the claims asserted by EKD and Mr. Green have no merit.
Subsequent to the acquisition of DMA by Symantec, Peter Byer, a former sales
and marketing employee of DMA, filed a lawsuit in the Supreme Court of the
State of New York against DMA, Symantec and Lee Rautenberg (who was formerly
President of DMA). The lawsuit alleges that Peter Byer was orally promised
an 8% equity interest in DMA in connection with his performance of services,
that he was underpaid commissions under DMA's commission plan, and that 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. The Court
has issued an order to dismiss the material claims included in this action.
Furthermore, Mr. Rautenberg and the other stockholders of DMA have an
obligation to indemnify Symantec for any liabilities resulting from this
action.
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business. The Company intends to defend all of
the aforementioned pending lawsuits vigorously and although adverse decisions
(or settlements) may 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the unaudited
consolidated financial statements included elsewhere herein. 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, including the pending acquisition of Delrina
Corporation ("Delrina"), historical results and percentage relationships will
not necessarily be indicative of the operating results of any future period.
The recent release of the new operating system ("Windows 95") by Microsoft
has been a particularly important event that increases the uncertainty and
will likely increase the volatility of Symantec's operating results over the
next year.
Symantec'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 Symantec's common stock. This may
occur again in the future. Additionally, as a significant percentage of
Symantec's revenues are generated from enterprise software products which are
frequently sold through site licenses and which often occur late in the
quarter, Symantec 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 Symantec's common stock.
Furthermore, Symantec participates in a highly dynamic industry, which often
results in significant volatility of Symantec's common stock price. In
particular, investors' assessment of the impact of Microsoft's new Windows 95
operating system on Symantec's business may result in a significant increase
in the volatility of Symantec's stock price during the first year after the
introduction of Windows 95.
Net income per share is calculated using the treasury stock or the modified
treasury stock method (see Note 6 of Notes to Consolidated Financial
Statements), as applicable. Increases in the price of the Symantec's common
stock can have an adverse impact on the calculation of net income per share
in that period.
During the six months ended September 30, 1995 and 1994, Symantec completed
acquisitions of the following companies which were accounted for as poolings
of interest:
<TABLE>
<CAPTION>
Acquired
Shares of Company
Symantec Stock
Common Options
Companies Acquired Date Acquired Stock Issued Assumed
- ------------------- ----------------- -------------- ----------
<S> <C> <C> <C>
Intec Software 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 --
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
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>
THREE MONTHS SIX MONTHS
ENDED PERCENT ENDED PERCENT
SEPTEMBER 30, CHANGE SEPTEMBER 30, CHANGE
----------------- IN DOLLAR ---------------- IN DOLLAR
1995 1994 AMOUNTS 1995 1994 AMOUNTS
------- ------- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues 100% 100% 30% 100% 100% 19%
Cost of revenues 16 18 10 16 19 (1)
---- ---- ---- ----
Gross margin 84 82 35 84 81 24
Operating expenses:
Research and development 19 19 32 19 18 29
Sales and marketing 47 44 38 45 44 22
General and administrative 4 5 14 5 5 11
Acquisition, restructuring and
other expenses 0 0 0 0 6 *
---- ---- ---- ----
Total operating expenses 70 68 35 69 73 13
---- ---- ---- ----
Operating income 14 14 34 15 8 124
Interest income 2 1 190 2 1 192
Interest expense -- (1) (47) (1) (1) (35)
Other income (expense), net -- -- 165 -- -- *
---- ---- ---- ----
Income before income taxes 16 14 47 16 8 148
Provision for income taxes 3 4 9 3 2 81
---- ---- ---- ----
Net income 13% 10% 61 13% 6% 172
==== ==== ==== ====
</TABLE>
* percentage change is not meaningful.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
NET REVENUES.
Net revenues increased 30% from $79.1 million in the quarter ended September
30, 1994 to $102.8 million in the quarter ended September 30, 1995
principally due to domestic and international trade-up revenues associated
with the shipment of Symantec's Windows 95 products. Revenues for the six
months ended September 30, 1995 increased 19% from $162.2 million for the six
months ended September 30, 1994 to $193.0 million for the six months ended
September 30, 1995 due to domestic and international trade-up revenues.
During the September 1995 quarter, Symantec released The Norton Utilities for
Windows 95, The Norton Navigator for Windows 95, The Norton AntiVirus for
Windows 95, The Norton Administrator for Networks v. 2.0, Time Line v. 6.5,
Symantec Enterprise Developer v. 2.5, Symantec C++ v. 7.2 for Windows, ACT!
PhoneLink and ACT! v. 2.5 for Macintosh.
Revenues for the six months ended September 30, 1995 include $7.2 million of
international net revenue previously deferred by Central Point. In March
1994, due to the market's concerns regarding Central Point's long-term
viability and the announced acquisition of Central Point by Symantec, Central
Point was unable to reasonably estimate future product returns from its
distributors and resellers. In addition, there were high levels of inventory
in the distribution channel which had been shipped into the channel prior to
the acquisition. Central Point believed that there was a high risk of this
inventory being returned. 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 Central Point's
distributors and resellers was deferred until sold by the distributors or
resellers to the end user. Since the acquisition, Symantec has analyzed
sell-through and product return information related to the Central Point
products to determine when such products were being sold through and Symantec
believes its marketing and sales programs were successful in moving the
remaining deferred channel inventory through to end users. Accordingly, in
the quarter ended June 30, 1995, Symantec was able to estimate the remaining
Central Point product returns in the international distribution channel and
as a result recognized approximately $7.2 million of international net
revenue and $1.7 million of international cost of revenues previously
deferred by Central Point.
Net revenues from international sales increased from approximately $23.4
million to $35.1 million and represented 30% and 34% of total net revenues in
the quarters ended September 30, 1994 and 1995, respectively. The increase in
international sales is due primarily to growth in the Asia/Pacific region and
trade-up sales of foreign versions of Symantec's Windows 95 products.
Enhanced product releases and product trade-ups typically result in net
revenue increases during the first three to six months following their
introduction due to purchases by existing users, usually at discounted
prices, and initial inventory purchases by Symantec's distributors. In
addition, between the date Symantec 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.
Symantec'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 new 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." During the quarter ended
September 30, 1995, Symantec released three new Windows 95 trade-up products
into the distribution channel and accordingly, increased the allowance for
sales returns. In addition, Symantec deferred revenue associated with
estimated excess inventories in the distribution channel. As a result, the
effect of channel fill relating to these three new Windows 95 products was
somewhat mitigated during the quarter ended September 30, 1995.
The phenomenon of channel fill also may 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 also may 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,
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
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 Symantec's deferral of revenue
associated with inventories estimated to be in excess of levels deemed
appropriate in the distribution channel; however, net revenues may still be
materially affected favorably or adversely by the effects of channel fill.
Channel fill may have a material impact in future periods, especially in
periods where a large number of new products are introduced. Symantec
expects to release a number of new products in the December 1995 quarter in
connection with the pending acquisition of Delrina.
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. Symantec's entry into the
enterprise software market is relatively new and as a result, Symantec is
beginning to compete with companies with which it has not previously
competed. As a result, there is uncertainty regarding customer acceptance of
Symantec's products as Symantec has not been a major supplier in the
enterprise market. These factors increase the uncertainty of forecasting
financial results. While Symantec expects the market's shift toward
enterprise products to continue, there can be no assurance that Symantec's
enterprise products will be successful or will gain customer acceptance.
With the expansion to enterprise-wide computing systems markets, Symantec
believes that it must continue to develop relationships with and rely on
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 increases the risk that forecasts of quarterly
financial results will not be achieved.
Symantec's products include enterprise products, which are frequently offered
through site licenses where a license for multiple workstations is provided
to a customer at a negotiated price, and desktop software products, which are
generally offered 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
sales. The prices of site licenses tend to vary based upon the individual
products licensed, the number of units licensed and the number of
workstations at the customer's site.
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 continue to increase, Symantec may be required to reduce
software prices and/or 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 significant financial resources, may
further cause the Symantec to reduce software prices and/or increase sales
and marketing expenses on a number of Symantec's products. There was no
material impact to net revenues resulting from changes in product pricing in
the three and six months ended September 30, 1995 as compared to the three
and six months ended September 30, 1994.
A significant portion of Symantec's revenues are from sales to two large
distributors. 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-period buying pattern means that forecasts of quarterly
and annual 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 Symantec.
Symantec's distribution customers also carry the products of Symantec's
competitors, some of which have significant financial resources. The
distributors have limited capital to invest in inventory and their decisions
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
to purchase Symantec's products is partly a function of pricing, terms and
special promotions offered by Symantec as well as by its competitors over
which the Symantec has no control and which it cannot predict.
While Symantec's diverse product line has tended to lessen fluctuations in
quarterly net revenues, these fluctuations have occurred recently and are
likely to occur in the future. A number of factors, including the timing of
announcements and releases of new or enhanced versions of its products,
product upgrades, product trade-ups, 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 may cause
significant fluctuations in revenues and, accordingly, operating results.
Symantec is devoting substantial efforts to the development of software
products that are designed to operate on Microsoft's new Windows 95 operating
system. Microsoft has incorporated advanced utilities, including
telecommunications, facsimile and data recovery utilities, in Windows 95, and
may include additional product features in future releases of Windows 95,
that may decrease the demand for certain of the Company's products, including
those currently under development. Further, 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
and, accordingly, profitability would be immediately and significantly
adversely affected. In addition, as the timing of delivery and adoption of
many of Symantec's products is dependent on the adoption rate of Windows 95,
which Symantec and securities analysts are unable to predict, the ability of
Symantec and securities analysts to forecast Symantec's revenues is being
adversely impacted. As a result, there is a heightened risk that revenues
and profits will not be in line with analysts' expectations in the periods
following the introduction of Windows 95 which was shipped by Microsoft in
August 1995.
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 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, including products
being developed for Windows 95, are likely to occur in the future and could
have a material adverse effect on the amount and timing of future revenues.
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 Symantec's products will be effective in competing
with products either currently in the market or introduced in the future.
During fiscal 1993, Symantec believes that its 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 required more computing capability and
computer memory. If the next class of personal computers, including those
based on Intel's Pentium or P6/Pentium Pro microprocessor 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. In
addition, Windows 95 requires significantly more computer memory and hard
disk space than Windows 3.1 and if there is a shift from software to hardware
spending and/or a shortage of computer memory components, there could be an
adverse effect on the sales of computer hardware and software. Either of
these events could result in significantly reduced revenues and a material
adverse effect on Symantec's operating results. Symantec has noted that
Pentium processors are being marketed aggressively by Intel.
Symantec estimates and maintains reserves for product returns. Increased
product returns occur when Symantec introduces product upgrades and new
products and discontinues certain software products. In addition,
competitive factors require Symantec to offer increased rights of return for
products that distributors or retail stores are unable to sell. Symantec has
set its reserves for returns in accordance with historical product return
experience. Setting
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
reserves involves making significant judgments about future competitive
conditions and product life cycles. Those judgments involve evaluating
information that often is incomplete, 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, Symantec's estimation of return reserves takes into
consideration upcoming product upgrades, current market conditions,
distributor and "superstore" inventory balances and sell-through volume and
any other known factors that may impact anticipated product returns. Based
upon returns experienced, Symantec'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 Symantec's competitors, which
Symantec cannot accurately anticipate.
Symantec'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 September 30, 1995 were substantially higher than
reserve balances at September 30, 1994. The increase in the product return
reserve balance is primarily related to the introduction of Symantec's
Windows 95 products during the quarter ending September 30, 1995. 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.
Symantec operates with relatively little backlog; therefore, if near-term
demand for Symantec's products weakens in a given quarter, there could be a
material adverse effect on revenues and on Symantec'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 Symantec'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 Symantec's operations and
may cause delays in product development that could adversely impact future
revenues of Symantec.
Also, Symantec's order entry department is located in Oregon, with shipments
being made from a warehouse in California. Order entry and shipping is
similarly physically separated in Europe. A disruption in communications
between these facilities, particularly at the end of a fiscal quarter, would
likely result in an unexpected shortfall in revenues and could result in
unexpected losses.
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 free telephone
start-up support for certain of Symantec's products. In addition, Symantec
offers both individual users and corporate customers a variety of fee-based
support options for certain of Symantec's products, designed to meet their
individual technical support requirements. Fee-based technical support
services did not generate significant revenues in the three and six months
ended September 30, 1995 and 1994 and are not expected to generate material
revenues in the near future.
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 $0.7 million and $3.4
million for the quarters ended September 30, 1995 and 1994 and $1.7 million
and $5.6 million for the six months ended September 30, 1995 and 1994,
respectively.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Gross margins increased to 84% of net revenues in the quarter ended September
30, 1995 from 82% in the quarter ended September 30, 1994. Gross margin
increased to 84% of net revenues in the six months ended September 30, 1995
from 81% of net revenues in the six months ended September 30, 1994. The
increase in the gross margin percentage was largely due to Symantec's ability
to manufacture Central Point products with a lower cost structure than Central
Point was able to prior to the merger and is also due to the growth in higher
margin enterprise products which are typically offered through site licenses.
Symantec believes that the gross margin percentage will remain near the current
level unless there is a significant change in Symantec's net revenues or
Symantec incurs significant capitalized software write-offs and/or a
significant increase in required inventory reserves.
The microcomputer business software market has been subject to rapid changes
that can be expected to continue. The release of Windows 95 and future
technology or market changes 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. In addition, the modifications to
computer software, including the correction of software bugs, may result in
significant inventory rework costs, including the cost of replacing inventory
in the distribution channel.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses increased 32% to $19.4 million or 19% of net
revenues in the quarter ended September 30, 1995 from $14.6 million or 19% of
net revenues in the quarter ended September 30, 1994. Research and development
expenses for the six months ended September 30, 1995 increased 29% to $37.9
million or 19% of net revenues from $29.5 million or 18% of net revenues for
the comparable 1994 period. The increase in research and development expenses
is principally due to increased product development efforts in the
network/communication utility, security utility and contact management product
groups largely on various software products designed to operate on the Windows
95 operating system. Symantec believes increased research and development
expenditures will be necessary in order to remain competitive and expects
future 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 Symantec in the periods
presented.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses increased 38% to $48.4 million or 47% of net
revenues in the quarter ended September 30, 1995 from $35.1 million or 44% of
net revenues in the prior year's comparable quarter. Sales and marketing
expenses were $86.8 million and $71.1 million and represented 45% and 44% of
net revenues for the six months ended September 30, 1995 and 1994,
respectively. The increase in sales and marketing expenses was principally due
to an increase in marketing development expenses associated with higher
revenues and also an increase in sales and marketing expenses primarily
associated with the release of Symantec's Windows 95 products.
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 introduction of new and upgraded products, and
trade-ups currently being developed for Windows 95, Symantec expects the
expenses associated with these efforts may increase in dollar amount and to
continue to constitute its most significant operating expense. There can be no
assurance that these increased sales and marketing efforts will be successful.
Symantec believes that the Company's sales and marketing expenses may remain at
current levels in the upcoming quarters to support the introduction of future
Symantec Windows 95 products.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses increased 14% from $3.9 million or 5% of
net revenues in the quarter ended September 30, 1994 to $4.4 million or 4% of
net revenues in the quarter ended September 30, 1995. General and
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
administrative expenses increased 11% from $8.3 million or 5% of net revenues
for the six months ended September 30, 1994 to $9.3 million or 5% of net
revenues for the six months ended September 30, 1995. The increase in general
and administrative expenses was principally due to growth of Symantec's
business and increased headcount. Future growth of Symantec is expected to
result in an increase in the dollar amount of general and administrative
spending from current levels.
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
ACQUISITION EXPENSES. On July 6, 1995, Symantec announced a definitive
agreement to acquire Delrina Corporation for approximately 15 million shares
of Symantec common stock. The Company expects to complete the acquisition in
the quarter ending December 31, 1995 and expects to incur acquisition expenses
related to the combination of the companies of approximately $25 to $30
million in the quarter the acquisition is consummated. The acquisition is
expected to be accounted for as a pooling of interests.
In connection with the acquisitions of Central Point and SLR, Symantec recorded
total acquisition charges of $9.5 million in fiscal 1995. 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.
During fiscal 1994, Central Point incurred $16.0 million of expenses related to
the restructuring of its operations. In the quarter ended June 30, 1994,
Symantec incurred $9.0 million of expenses related to the acquisition of
Central Point. In the quarter ended June 30, 1995, the Company recognized a
reduction in accrued acquisition and restructuring expenses of $2.3 million as
actual costs incurred were less than costs previously accrued by the companies.
Symantec has acquired a number of companies in the past and may make additional
acquisitions in the future, including the planned acquisition of Delrina.
Company acquisitions involve a number of special risks, 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, the integration of the acquired products, the diversion of
management's attention to assimilation of the operations and personnel of the
acquired companies, the loss of key employees and the difficulty of presenting
a unified corporate image. Symantec has lost certain employees of acquired
companies whom it desired to retain, and, in some cases, the assimilation of
the operations of acquired companies took longer than initially anticipated by
Symantec. In addition, because the employees of acquired companies have
frequently remained in their existing, geographically diverse facilities,
Symantec has not realized certain economies of scale that might otherwise have
been achieved. There can be no assurance that these same problems will not
occur in the planned acquisition of Delrina and in connection with any future
acquisitions undertaken by Symantec.
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 Symantec and an
acquired company. These expenses may have a significant adverse impact on
Symantec's future profitability and financial resources.
RESTRUCTURING AND OTHER EXPENSES. During February 1995, Symantec announced a
plan to consolidate certain research and development activities. This plan
is designed to gain greater synergy between Symantec's Third Generation
Language and Fourth Generation Language development groups. As of the end of
the June 1995 quarter the Company incurred $2.2 million of the relocation costs
for moving equipment and personnel. The Company expects to complete this
relocation by December 1995.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
As of September 30, 1995, total accrued acquisition and restructuring expenses
were $3.8 million and included $0.8 million for the modification of certain
development contracts, $1.3 million for the elimination of duplicative and
excess facilities and $1.7 million for the consolidation and discontinuance of
certain operational activities and other acquisition related expenses.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE).
Interest income was $1.6 million and $0.6 million for the three months ended
September 30, 1995 and 1994, respectively. Interest income was $3.3 million
and $1.1 million for the six months ended September 30, 1995 and 1994,
respectively. The increase in interest income is due to higher average
invested cash balances and higher average interest rates on invested cash.
Interest expense was $0.8 million and $1.2 million for the six months ended
September 30, 1995 and 1994, respectively. The decrease in interest expenses
is principally due to the conversion of $10.0 million of convertible
subordinated debentures into 833,333 shares of Symantec common stock on April
26, 1995. Other income (expense) is primarily comprised of foreign currency
exchange gains and losses from fluctuations in foreign currency exchange rates.
Symantec 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 settled. Symantec utilizes some natural hedging to
mitigate Symantec's transaction exposures and, effective December 31, 1993,
Symantec commenced hedging some residual transaction exposures through the use
of 30-day forward contracts. At September 30, 1995, there was a total of
approximately $35.8 million of outstanding forward exchange contracts. The net
liability of forward contracts was approximately $26.3 million at September 30,
1995. 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 Symantec when changes in foreign currency exchange rates occur and are
purchased in the expectation that they will offset 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 gains or losses
can be minimized or forecasted accurately. Symantec does not hedge its
translation risk.
INCOME TAX PROVISION.
The effective income tax rate for the six months ended September 30, 1995 was
20% which compared to an effective income tax rate of 27% in the prior year's
comparable period. The lower provision rate for the six months ended
September 30, 1995 was primarily attributable to unbenefitted pre-acquisition
losses from Central Point and certain foreign earnings taxed at lower rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased $15.3 million from $105.2 million at
March 31, 1995 to $120.5 million at September 30, 1995, largely due to cash
provided by operating activities, net proceeds from the exercise of stock
options and the sales of common stock which was partially offset by cash
expenditures for capital equipment. Net cash provided by operating activities
was $19.8 million and was comprised of the Company's net income of $24.6
million and non-cash related expenses of $13.8 million which was partially
offset by a net decrease in current assets and current liabilities.
Trade accounts receivable increased $13.2 million from $54.0 million at March
31, 1995 to $67.2 million at September 30, 1995 primarily due to increased
sales. Net inventories increased $3.6 million from $4.2 million at March 31,
1995 to $7.8 million at September 30, 1995 due to the increase of product
inventory related to Symantec's Windows 95 products which were released during
the quarter ending September 30, 1995.
Symantec has a $10.0 million bank line of credit that originally expired in
October 1995 and was extended until February 28, 1996. The line of credit is
available for general corporate purposes and bears interest at
the banks'
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
reference (prime) interest rate (8.75% at September 30, 1995), the U.S.
offshore rate plus 1.5%, a CD rate plus 1.5% or LIBOR plus 1.5%, at Symantec'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
Symantec maintaining certain financial ratios and profits. Symantec was in
compliance with the line of credit covenants as of September 30, 1995. At
September 30, 1995, there was approximately $0.4 million of standby letters of
credit outstanding under this line of credit. There were no borrowings
outstanding under this line at September 30, 1995. Company acquisitions in the
future, including the pending acquisition of Delrina, will likely cause
Symantec 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 Symantec.
Symantec may utilize significant amounts of cash in connection with the
potential acquisition of additional companies, including the pending
acquisition of Delrina, and software product rights in the future. Should
Symantec sustain significant losses, there can be no assurances that the bank
line of credit, which is available through February 1996, would remain
available. Additionally, Symantec could be required to reduce operating
expenses, which could result in further product delays; reassess acquisition
opportunities, which could negatively impact Symantec's growth objectives;
and/or pursue further financing options. Symantec believes existing cash and
short-term investments will be sufficient to fund operations for the next year.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to
Note 7 of Notes to Consolidated Financial Statements included herein on
page 8 of this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of, or incorporated
by reference into, this Form 10-Q:
11.01 Computation of Net Income Per Share.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
None
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 9, 1995 SYMANTEC CORPORATION
By /s/ ROBERT R. B. DYKES
--------------------------------------
Robert R. B. Dykes
Executive Vice President/Worldwide
Operations and Chief Financial Officer
(duly authorized officer)
/s/ HOWARD A. BAIN III
--------------------------------------
Howard A. Bain III
Vice President Finance and
Chief Accounting Officer
21
<PAGE>
EXHIBIT 11.01
SYMANTEC CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1995 1994
- ------------------------------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income $12,873 $ 7,976 $24,573 $ 9,023
Interest on short-term and long-term
borrowings and U.S. government
securities, net of income tax effect -- 326 -- 285
------- ------- ------- -------
Net income, as adjusted $12,873 $ 8,302 $24,573 $ 9,308
======= ======= ======= =======
Weighted average number of common
shares outstanding during
the period 38,859 35,611 38,413 35,364
Shares issuable from assumed exercise
of options 3,017 8,594 2,854 8,594
Shares assumed repurchased with proceeds,
not to exceed 20% of total shares
outstanding -- (7,174) -- (7,174)
------- ------- ------- -------
Common and common stock equivalent
shares outstanding for purpose of
calculating primary net income
per share 41,876 37,031 41,267 36,784
======= ======= ======= =======
Primary net income per share $ 0.31 $ 0.22 $ 0.60 $ 0.25
======= ======= ======= =======
FULLY DILUTED NET INCOME PER SHARE
Net income $12,873 $ 7,976 $24,573 $ 9,023
Interest on short-term and long-term
borrowings and U.S. government
securities, net of income tax effect 177 448 355 449
------- ------- ------- -------
Net income, as adjusted $13,050 $ 8,424 $24,928 $ 9,472
======= ======= ======= =======
Weighted average number of common
shares outstanding during the period 38,859 35,611 38,413 35,364
Shares issuable from assumed exercise
of options 3,142 8,594 3,261 8,594
Shares issuable from assumed conversion
of convertible subordinated debentures 1,250 2,083 1,364 2,083
Shares assumed repurchased with proceeds,
not to exceed 20% of total shares
outstanding -- (7,174) -- (7,174)
------- ------- ------- -------
Total shares for purpose of calculating
fully diluted net income per share 43,251 39,114 43,038 38,867
======= ======= ======= =======
Fully diluted net income per share $ 0.30 $ 0.22 $ 0.58 $ 0.24
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SYMANTEC CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD
ENDED SEPTEMBER 29, 1995.
</LEGEND>
<CIK> 0000849399
<NAME> SYMANTEC CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-29-1995
<CASH> 35,441
<SECURITIES> 85,070
<RECEIVABLES> 71,481
<ALLOWANCES> (4,272)
<INVENTORY> 7,845
<CURRENT-ASSETS> 209,635
<PP&E> 95,084
<DEPRECIATION> (56,811)
<TOTAL-ASSETS> 260,333
<CURRENT-LIABILITIES> 84,885
<BONDS> 15,408
<COMMON> 393
0
0
<OTHER-SE> 159,647
<TOTAL-LIABILITY-AND-EQUITY> 260,333
<SALES> 192,956
<TOTAL-REVENUES> 192,956
<CGS> 30,927
<TOTAL-COSTS> 30,927
<OTHER-EXPENSES> 133,931
<LOSS-PROVISION> 442
<INTEREST-EXPENSE> 783
<INCOME-PRETAX> 30,702
<INCOME-TAX> 6,129
<INCOME-CONTINUING> 24,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,573
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.58
</TABLE>
