<PAGE>
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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 June 30, 1996.
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
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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
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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, including 5,079,148 shares of Delrina exchangeable stock, as
of August 1, 1996:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 54,730,637 SHARES
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<PAGE>
SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1996 and March 31, 1996 . . . . . . . . 3
Consolidated Statements of Income
for the three months ended June 30, 1996 and 1995 . . . 4
Consolidated Statements of Cash Flow
for the three months ended June 30, 1996 and 1995 . . . 5
Notes to Consolidated Financial Statements . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security Holders . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
(In thousands) 1996 1996
- -------------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
ASSETS (unaudited)
- ------
Current assets:
Cash and short-term investments $ 139,096 $ 129,199
Trade accounts receivable 60,674 72,256
Inventories 5,972 7,893
Deferred income taxes 12,864 12,875
Other 10,804 14,639
----------- ----------
Total current assets 229,410 236,862
Equipment and leasehold improvements 53,416 51,698
Purchased intangibles 327 518
Other 12,251 8,851
----------- ----------
$ 295,404 $ 297,929
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 22,285 $ 23,368
Accrued compensation and benefits 14,255 14,888
Other accrued expenses 52,456 60,566
Income taxes payable 3,314 3,329
Current portion of long-term obligations 28 68
----------- ----------
Total current liabilities 92,338 102,219
Convertible subordinated debentures 15,000 15,000
Long-term obligations 348 393
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000 shares; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 54,703
and 53,636 shares) 547 536
Capital in excess of par value 284,072 279,508
Notes receivable from stockholders (144) (144)
Cumulative translation adjustment (7,356) (7,591)
Accumulated deficit (89,401) (91,992)
----------- ----------
Total stockholders' equity 187,718 180,317
----------- ----------
$ 295,404 $ 297,929
----------- ----------
----------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
<PAGE>
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
(In thousands, except per share data; unaudited) 1996 1995
- -------------------------------------------------- ---------- ----------
<S> <C> <C>
Net revenues $ 109,218 $ 109,865
Cost of revenues 21,484 22,218
---------- ----------
Gross margin 87,734 87,647
Operating expenses:
Research and development 23,006 20,073
Sales and marketing 53,779 52,211
General and administrative 7,267 9,077
Acquisition, restructuring and other expenses 1,295 (71)
---------- ----------
Total operating expenses 85,347 81,290
---------- ----------
Operating income 2,387 6,357
Interest income 1,684 2,263
Interest expense (331) (439)
Other income (expense), net (368) (1,465)
---------- ----------
Income before income taxes 3,372 6,716
Provision (benefit) for income taxes 337 (150)
---------- ----------
Net income $ 3,035 $ 6,866
---------- ----------
---------- ----------
Net income per share - primary $ 0.06 $ 0.13
---------- ----------
---------- ----------
Net income per share - fully diluted $ 0.06 $ 0.12
---------- ----------
---------- ----------
Shares used to compute net income per share - primary 55,132 54,487
---------- ----------
---------- ----------
Shares used to compute net income per share - fully diluted 55,132 56,296
---------- ----------
---------- ----------
</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>
Three Months Ended
June 30,
---------------------------
(In thousands; unaudited) 1996 1995
- ---------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,035 $ 6,866
Delrina net loss for the quarter ended June 30, 1995 -- 4,834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 5,782 3,914
Amortization and write-off of capitalized software costs 786 935
Write-off of equipment and leasehold improvements 276 --
Deferred income taxes 10 1,767
Net change in assets and liabilities:
Trade accounts receivable 11,805 4,463
Inventories 1,950 868
Other current assets 3,804 449
Other assets (3,824) (452)
Accounts payable (1,084) (1,645)
Accrued compensation and benefits (605) (1,485)
Accrued other expenses (8,222) (11,566)
Income taxes payable (53) 908
--------- ----------
Net cash provided by operating activities 13,660 9,856
--------- ----------
INVESTING ACTIVITIES:
Capital expenditures (7,838) (6,809)
Purchased intangibles (195) (151)
Purchases of short-term, available-for-sale investments (55,000) (31,000)
Maturities of short-term, available-for-sale investments 38,869 25,158
--------- ----------
Net cash used in investing activities (24,164) (12,802)
--------- ----------
FINANCING ACTIVITIES:
Principal payments on long-term obligations (85) (173)
Net proceeds from sales of common stock and other 4,131 6,368
--------- ----------
Net cash provided by financing activities 4,046 6,195
--------- ----------
Effect of exchange rate fluctuations on cash and cash equivalents 224 (554)
--------- ----------
Increase (decrease) in cash and cash equivalents (6,234) 2,695
Beginning cash and cash equivalents 41,777 30,192
--------- ----------
Ending cash and cash equivalents $ 35,543 $ 32,887
--------- ----------
--------- ----------
</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 June 30, 1996 and for the three months ended June 30,
1996 and 1995 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 for the year ended March
31, 1996. The results of operations for the three months ended June 30, 1996
are not necessarily indicative of the results to be expected for the entire
year. Certain previously reported amounts have been reclassified to conform
to the current presentation format.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all
references as of and for the periods ended June 30, 1996 and 1995 reflect
amounts as of and for the periods ended June 28, 1996 and June 30, 1995,
respectively.
Research and development expenditures are charged to operations as incurred.
During the June 1996 quarter, the Company capitalized approximately $2.8
million of costs principally associated with the development of certain
networking software products in accordance with Statement of Financial
Accounting Standard No. 86. To the extent the Company capitalizes its product
development costs, the effect is to defer such costs to future periods and
match them to the revenue generated by the developed products. Amounts
capitalized may fluctuate depending in part on the number and status of
internal software development. Capitalized software development costs were
not material as of June 30, 1995.
On May 28, 1996, Symantec completed the acquisition of Fast Track, Inc.
("Fast Track") in exchange for 600,000 shares of Symantec common stock. The
acquisition was accounted for as a pooling of interests. The results of
operations of Fast Track were not material to Symantec's consolidated
financial statements, and therefore, amounts prior to the date of acquisition
were not restated to reflect the combined operations of the companies.
6
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30, March 31,
(In thousands; unaudited) 1996 1996
- ------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Cash and short-term investments:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,659 $ 20,176
Cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,884 21,601
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . 103,553 87,422
---------- ----------
$ 139,096 $ 129,199
---------- ----------
---------- ----------
Trade accounts receivable:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,151 $ 77,272
Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . . . (5,477) (5,016)
---------- ----------
$ 60,674 $ 72,256
---------- ----------
---------- ----------
Inventories:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,979 $ 1,969
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,993 5,924
---------- ----------
$ 5,972 $ 7,893
---------- ----------
---------- ----------
Equipment and leasehold improvements:
Computer equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,311 $ 79,153
Office furniture and equipment. . . . . . . . . . . . . . . . . . . . . . 26,649 25,753
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . 15,314 12,603
---------- ----------
124,274 117,509
Less: accumulated depreciation and amortization . . . . . . . . . . . . . (70,858) (65,811)
---------- ----------
$ 53,416 $ 51,698
---------- ----------
---------- ----------
Purchased intangibles:
Product rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,869 $ 8,680
Less: accumulated amortization . . . . . . . . . . . . . . . . . . . . . (8,542) (8,162)
---------- ----------
$ 327 $ 518
---------- ----------
---------- ----------
Other accrued expenses:
Acquisition, restructuring and other expenses . . . . . . . . . . . . . . $ 6,552 $ 7,833
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,755 26,266
Marketing development funds . . . . . . . . . . . . . . . . . . . . . . . 11,291 11,412
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,858 15,055
---------- ----------
$ 52,456 $ 60,566
---------- ----------
---------- ----------
</TABLE>
NOTE 3. LINE OF CREDIT
The Company has a $10.0 million bank line of credit that expires in March
1998. The line of credit is available for general corporate purposes and
bears interest at the bank's reference (prime) interest rate (8.25% at June
30, 1996), the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or LIBOR
plus 1.25%, 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 June 30, 1996. At June 30, 1996, 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 June 30, 1996.
7
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expenses consist of the following:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
(In thousands) 1996 1995
- -------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Fast Track acquisition $ 600 $ --
Relocation of certain research and development activities -- 2,229
Central Point acquisition -- (2,300)
Other 695 --
---------- ----------
Total acquisition, restructuring and other expenses $ 1,295 $ (71)
---------- ----------
---------- ----------
</TABLE>
In connection with the acquisition of Fast Track, Symantec recorded total
acquisition charges of $0.6 million in the quarter ended June 30, 1996. The
charges included $0.4 million for legal, accounting and financial advisory
services and $0.2 million for the consolidation and discontinuance of certain
operational activities and other acquisition related expenses.
During the quarter ended June 30, 1996, Symantec also recorded $0.7 million
for costs related to the centralization of certain research and development
activities, litigation settlement costs and other non-recurring expenses.
In February 1995, Symantec announced a plan to consolidate certain research
and development activities. This plan was designed to gain greater
efficiencies 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. This relocation has been completed.
During fiscal 1994, Central Point Software, Inc. ("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.
As of June 30, 1996, total remaining accrued acquisition, restructuring and
other expenses were $6.6 million and included $2.1 million for estimated
legal fees and expenses, $3.3 million for the elimination of duplicative and
excess facilities and $1.2 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, if dilutive. 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, if dilutive.
8
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7. LITIGATION
On March 18, 1996, a class action complaint was filed by the law firm of
Milberg Weiss Bershad Hynes & Lerach in Superior Court of the State of
California, County of Santa Clara against the Company and several of its
current and former officers and directors. The complaint alleges that
Symantec insiders inflated the stock price and then sold stock based on
inside information that sales were not going to meet analysts' expectations.
The complaint seeks damages in an unspecified amount. Symantec believes the
complaint has no merit and will vigorously defend itself. The Company has
accrued certain estimated legal fees and expenses related to this matter;
however, actual amounts may differ materially from those estimated amounts.
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. This lawsuit has been settled and
the terms are not material to Symantec.
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 (a former Executive Vice President of Symantec who is a former
employee of Borland). The complaint, as amended, alleges misappropriation of
trade secrets, unfair competition, including 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.
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 granted on December 14,
1995. Symantec believes the criminal charges against Messrs. Eubanks and
Wang have no merit.
On June 11, 1992, Dynamic Microprocessor Associates, Inc. ("DMA"), a former
wholly-owned subsidiary of Symantec which has since been merged into
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, unfair
competition and breach of contract. On July 14, 1992, the Suffolk County,
New York 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.
9
<PAGE>
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 instead alleged
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 the charges made by EKD and Mr. Green have no merit.
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.
NOTE 8. SUBSEQUENT EVENT
On July 9, 1996, Symantec announced a plan to consolidate certain operational
and research and development activities. This plan is designed to reduce
operating expenses and centralize certain research and development
activities. The Company expects to incur costs of approximately $3.0 million
to $7.0 million in the September 1996 quarter related to this plan.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The following discussion contains forward-looking statements that are subject
to significant risks and uncertainties. These forward-looking statements
within this Form 10-Q are identified by words such as "believes,"
"anticipates," "expects," "intends," "may" and similar expressions, but these
words are not the exclusive means of identifying such statements. In
addition, any statements which refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements.
There are several important factors that could cause actual results to differ
materially from historical results and percentages and results anticipated by
the forward-looking statements contained in the following discussion. Such
factors and risks include, but are not limited to, competition in the
application, enterprise and network computer software industry, including
price and product feature competition, the introduction of new or upgraded
products by existing or new competitors, the economic environment, including
government and corporate spending patterns, dependence on distributors and
the emergence of new distribution channels, including the Internet, consumer
acceptance of new operating systems and the successful development of the
Company's products for these operating systems, the timing and consumer
acceptance of the Company's new or upgraded products, the ability to
successfully develop, market, support and acquire new products in an
environment of rapidly changing technology and operating systems and the cost
of such activities, acquisition risks, including increased costs and
uncertain benefits and the ability to effectively integrate operations of
acquired companies and manage growth, seasonality in the retail software
market in Europe and risks associated with international operations,
including currency conversion, taxes and other legal restrictions.
The release and subsequent customer acceptance of current or upgraded
operating systems, including versions of Windows 95 and Windows NT, are
particularly important events that increase the uncertainty and will likely
increase the volatility of Symantec's results over the next twelve months.
In addition, the Company operates in a complex legal environment where, for
example, an increasing number of patents are being issued that are
potentially applicable to software, and allegations of patent infringement
are becoming increasingly common in the software industry. Additional
information on these and other risk factors which could affect the Company's
financial results is included in the Annual Report on Form 10-K as filed by
the Company on June 26, 1996, with the Securities and Exchange Commission.
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, Asia, Australia,
Europe and Latin America.
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 has 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 network software
products, which are frequently sold through site licenses that 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Furthermore, the Company participates in a highly dynamic industry, which
often results in significant volatility of the Company's common stock price.
In particular, the impact of, and investors' assessment of the impact of, the
market's acceptance and adoption rate of Microsoft's operating systems,
Windows 95 and Windows NT, on Symantec's business may result in significant
increases in the volatility of Symantec's stock price. In addition, the
trend towards server-based applications in networks and over the Internet
could have a material adverse effect on sales of the Company's desktop-based
products which may not be offset by sales of the Company's network-based
products.
On May 28, 1996, Symantec completed the acquisition of Fast Track in exchange
for 600,000 shares of Symantec common stock. The acquisition was accounted
for as a pooling of interests. The results of operations of Fast Track were
not material to Symantec's consolidated financial statements, and therefore,
amounts prior to the date of acquisition were not restated to reflect the
combined operations of the companies.
Symantec has completed a number of acquisitions and expects to acquire other
companies in the future. While the Company believes that previous
acquisitions were in the best interest of the Company and its stockholders,
acquisitions involve a number of special risks, including the diversion of
management's attention to assimilation of the operations and personnel of the
acquired companies in an efficient and timely manner, the retention of key
employees, the difficulty of presenting a unified corporate image, the
coordination of research and development and sales efforts and the successful
integration of the acquired products.
The Company 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 had been anticipated by the Company. In
addition, because the employees of acquired companies have frequently
remained in their existing, geographically diverse facilities, the Company
has not realized certain economies of scale or cost reductions that might
otherwise have been achieved.
Symantec typically incurs significant acquisition expenses for legal,
accounting and financial advisory services, the write-off of duplicative
technology, the consolidation and discontinuance of certain operational
activities 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.
12
<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
income 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
Ended Percent
June 30, Change
--------------- in Dollar
1996 1995 Amounts
---- ---- -------
<S> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 0%
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 20 (3)
---- ----
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 80 0
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . . . . . . . 21 18 15
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . 49 48 3
General and administrative. . . . . . . . . . . . . . . . . . . . . . . 7 8 (20)
Acquisition, restructuring and other expenses . . . . . . . . . . . . . 1 0 *
---- ----
Total operating expenses. . . . . . . . . . . . . . . . . . . . . 78 74 5
---- ----
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 (63)
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 (26)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 (1) (25)
Other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . . . 0 (1) (75)
---- ----
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 (50)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . 0 0 *
---- ----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 6% (56)
---- ----
---- ----
</TABLE>
- --------------------------------------
* percentage change is not meaningful.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
NET REVENUES.
Net revenues were $109.2 million in the quarter ended June 30, 1996 compared
to $109.9 million in the June 30, 1995 quarter. The decrease in net revenues
is due to a reduction in distribution and international net revenues which
was partially offset by an increase in site license and consulting net
revenues.
The decline in international revenues from June 1995 was largely due to the
recognition in the June 1995 quarter of approximately $7.2 million of
international net revenues previously deferred by Central Point in March
1994, as Central Point was unable to reasonably estimate future product
returns from its distributors and resellers. This was the result of concerns
regarding Central Point's long-term viability and the announced acquisition
of Central Point by Symantec as well as high levels of inventory in the
distribution channel that had been shipped into the channel prior to the
acquisition. As a result, net revenues from international sales decreased
from approximately $42.8 million to $35.1 million and represented 39% and 32%
of total net revenues in the quarters ended June 30, 1995 and 1996,
respectively.
Enhanced product releases typically result in an increase in net revenues
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 the 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.
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 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 the three months ended June 30, 1996 and 1995 but may have a material
impact in future periods, especially in periods where a large number of new
products are introduced.
Symantec believes that many of its customers are moving toward an
enterprise-wide computing environment where more desktop personal computers
will be interconnected into large local-area and wide-area networks
administered by corporate MIS departments as well as through the Internet.
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 the Company's products as Symantec has not been a
major supplier in the enterprise market. These factors increase the
uncertainty of forecasting financial results. While the Company expects the
market's shift toward enterprise and Internet products to continue, there can
be no assurance that the Company's enterprise products will be successful or
will gain customer acceptance.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
With the expansion to enterprise-wide computing systems markets, Symantec
believes that it must continue to 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 sales cycle with respect to enterprise
products is lengthy and may be subject to integration and acceptance by the
customer. In addition, a very high proportion of enterprise product sales
may be 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.
Enterprise products are frequently sold through site licenses where a license
for multiple workstations is sold to a customer at a negotiated price.
Desktop software products 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.
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. This could have a material adverse effect on the Company's results
of operations. In addition, aggressive pricing strategies of competitors in
other software markets, some of whom have significant financial resources,
may cause the Company to further reduce software prices and/or increase sales
and marketing expenses on a number of the Company's products. There was no
material impact to net revenues resulting from changes in product pricing in
the quarter ended June 30, 1996 as compared to the quarter ended June 30,
1995.
The Company's customers, including two large distributors, tend to make the
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 the
Company. The Company'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 to purchase the Company's products is partly a function of pricing,
terms and special promotions offered by Symantec as well as by its
competitors over which the Company 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. These fluctuations may be caused by a number
of factors, including 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, seasonality in the retail software market in Europe, the
market's transition between operating systems and the transition from a
desktop PC environment to an enterprise-wide environment. These factors may
cause significant fluctuations in net revenues and, accordingly, operating
results.
The Company is devoting substantial efforts to the development of software
products that are designed to operate on Microsoft's Windows 95 and/or
Windows NT operating systems. 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 or Windows NT that may decrease the demand for certain of the
Company's products, including those currently under development. Should
Windows 95 or Windows NT not achieve timely market acceptance, or should the
Company be unable to successfully or timely develop products that operate
under these operating systems, the Company's future net revenues and
operating results would be immediately and significantly adversely affected.
In addition, as the timing of delivery and adoption of many of
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Symantec's products is dependent on the adoption rate of these operating
systems, which the Company and securities analysts are unable to predict, the
ability of Symantec and securities analysts to forecast the Company's net
revenues has been and will continue to be adversely impacted. As a result,
there is a heightened risk that net revenues and profits will not be in line
with analysts' expectations in the periods following the introduction of or
upgrades to Windows 95 and Windows NT.
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 net revenues that were deferred or lost as a result
of any particular delay because Symantec is not able to predict the amount of
net revenues that would have been obtained had the original development
expectations been met. Delays in product development, including products
being developed for Windows 95 or Windows NT, 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 or Windows NT,
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 net 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. The
next class of personal computers, including those based on Intel's P6/Pentium
Pro microprocessor or Motorola, Inc.'s Power-PC, have started to reduce in
price, and there may be another 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. In addition, Windows 95
and Windows NT require significantly more computer memory and hard disk space
than Windows 3.1, and if there is a shift from software to hardware spending,
there could be an adverse effect on the sales of computer hardware and
software. Either of these events could result in significantly reduced net
revenues and have a material adverse effect on Symantec's operating results.
Symantec has noted that P6/Pentium Pro microprocessors are being marketed
aggressively by Intel.
The Company estimates and maintains reserves for product returns. Symantec'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. 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 different return policies that may
negatively impact the level of products which are returned to Symantec.
Product returns occur when the Company introduces upgrades and new versions
of products or when distributors order too much product. In addition,
competitive factors often require the Company to offer rights of return for
products that distributors or retail stores are unable to sell. Symantec has
experienced, and may experience in the future, significant increases in
product returns above historical levels from customers of acquired companies
after an acquisition is completed. Symantec prepares detailed analyses of
historical return rates when estimating anticipated returns and maintains
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, customer inventory
balances and any other known factors that could impact anticipated returns.
Based upon returns experienced, the Company's estimates have been materially
accurate. The impact of actual returns on net revenues, net of such
provisions, has not had a material effect on the Company's liquidity as the
returns typically result in the issuance of credit towards future purchases
as opposed to cash payments to the distributors. However, there can be no
assurance that future returns will not exceed the reserves established by the
Company or that future returns will not have a material adverse effect on the
operating results of the Company.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
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 June 30, 1996 were higher than reserve
balances at June 30, 1995. The lower product return reserve balance in the
June 1995 quarter is primarily due to a reduction in upgrade revenues as a
result of the Company's decision not to upgrade software products prior to
the release of the Windows 95 operating systems. The reserve balance has
since increased with the release of Windows 95 products. 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.
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
an immediate, material adverse effect on net 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 and research and development facilities 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.
Also, Symantec's domestic order entry department is located in Oregon, with
shipments being made from a warehouse in California. Order entry and
shipping is similarly 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 net revenues and could result in
an adverse impact on operating results.
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 three months
ended June 30, 1996 and 1995 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, costs for producing manuals,
packaging costs, 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 $0.8 million and $0.9 million for the quarters ended June 30, 1996
and 1995, respectively.
Gross margins were 80% in the quarter ended June 30, 1996 and 1995. Symantec
believes that the gross margin percentage will remain at approximately 80% to
83% in Fiscal 1997 unless there is a significant change in Symantec's net
revenues.
The microcomputer business software market has been subject to rapid changes
that can be expected to continue. 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.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses increased 15% to $23.0 million or 21% of
net revenues in the quarter ended June 30, 1996 from $20.1 million or 18% of
net revenues in the quarter ended June 30, 1995. The increase in research
and development expenses is principally due to increased product development
efforts associated with the Company's development of various desktop and
enterprise software products.
Symantec believes increased research and development expenditures will be
necessary in order to remain competitive. While the Company believes its
research and development expenditures will result in successful product
introductions, including products being developed for Windows 95 and
Windows NT, the uncertain outcome of software development projects means
that increased research and development efforts will not necessarily result
in successful product introductions due to technical difficulties, market
conditions, competitive products and other factors, such as customer
acceptance of products and new operating systems.
Research and development expenditures are charged to operations as incurred.
During the June 1996 quarter, the Company capitalized approximately $2.8
million of costs principally associated with the development of certain
networking software products in accordance with Statement of Financial
Accounting Standard No. 86. To the extent the Company capitalizes its product
development costs, the effect is to defer such costs to future periods and
match them to the revenue generated by the developed products. Amounts
capitalized may fluctuate depending in part on the number and status of
internal software development. Capitalized software development costs were
not material as of June 30, 1995.
The Company has capitalized significant development costs during the June
1996 quarter and expects to capitalize significant development costs during
the next several quarters related to the development of certain networking
software products. Should the Company be unable to successfully or timely
develop these products or should these products not achieve timely market
acceptance, the Company may incur significant expenses associated with the
write-off of these previously capitalized costs.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses increased 3% to $53.8 million or 49% of net
revenues in the quarter ended June 30, 1996 from $52.2 million or 48% of net
revenues in the prior year's comparable quarter. The increase in sales and
marketing expenses was principally due to an increase in expenses associated
with increased sales and marketing personnel.
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,
including products currently being developed for Windows 95 and Windows NT,
Symantec expects the expenses associated with these efforts 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
decrease as a percentage of net revenues in the near term following the high
expenses associated with the launch of Windows 95 products but may increase
as a percentage of net revenues should net revenues not increase.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses decreased 20% from $9.1 million or 8% of
net revenues in the quarter ended June 30, 1995 to $7.3 million or 7% of net
revenues in the quarter ended June 30, 1996. The decrease in expenses was
principally due to the elimination of duplicative general and administrative
functions subsequent to the acquisition of Delrina Corporation ("Delrina").
Symantec believes that the Company's general and administrative expenses may
decrease as a percentage of net revenues in the near term.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
ACQUISITION EXPENSES. In connection with the acquisition of Fast Track,
Symantec recorded total acquisition charges of $0.6 million in the quarter
ended June 30, 1996. The charges included $0.4 million for legal, accounting
and financial advisory services and $0.2 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 completed a number of acquisitions and expects to acquire other
companies in the future. While the Company believes that previous
acquisitions were in the best interest of the Company and its stockholders,
acquisitions involve a number of special risks, including the diversion of
management's attention to assimilation of the operations and personnel of the
acquired companies in an efficient and timely manner, the retention of key
employees, the difficulty of presenting a unified corporate image, the
coordination of research and development and sales efforts and the
integration of the acquired products.
The Company 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 had been anticipated by the Company. In
addition, because the employees of acquired companies have frequently
remained in their existing, geographically diverse facilities, the Company
has not realized certain economies of scale that might otherwise have been
achieved.
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. In February 1995, Symantec announced a plan to
consolidate certain research and development activities. This plan was
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. This relocation has been
completed.
On July 9, 1996, Symantec announced a plan to consolidate certain operational
and research and development activities. This plan is designed to reduce
operating expenses and centralize certain research and development
activities. The Company expects to incur costs of approximately $3.0 million
to $7.0 million in the September 1996 quarter related to this plan.
OTHER EXPENSES. During the quarter ended June 30, 1996, Symantec recorded
$0.7 million for costs related to the centralization of certain research and
development activities, litigation settlement costs and other non-recurring
expenses.
As of June 30, 1996, total remaining accrued acquisition, restructuring and
other expenses were $6.6 million and included $2.1 million for estimated
legal fees and expenses, $3.3 million for the elimination of duplicative and
excess facilities and $1.2 million for the consolidation and discontinuance
of certain operational activities and other acquisition related expenses.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE).
Interest income was $1.7 million and $2.3 million in the quarters ended June
30, 1996 and 1995, respectively. The decrease in interest income is due to
lower average interest rates on invested cash. Interest expense was $0.3
million and $0.4 million in the quarters ended June 30, 1996 and 1995,
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 expense is
primarily comprised of foreign currency exchange losses from fluctuations in
foreign currency exchange rates.
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 settled. 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 one-month forward contracts. At June 30, 1996, there was
a total of approximately $67.3 million of outstanding forward exchange
contracts. The net liability of forward contracts was approximately $64.6
million at June 30, 1996. There have been no significant gains or losses to
date with respect to these activities. Gains or losses would occur on
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 gains or losses can be minimized or forecasted accurately.
The Company does not hedge its translation risk.
INCOME TAX PROVISION.
The effective income tax provision for the three months ended June 30, 1996
was 10% which compared to an effective income tax benefit of 2% in the prior
year's comparable period. The effective tax rates of 10% and 2% for the
three months ended June 30, 1996 and 1995, respectively, are lower than the
federal statutory rate of 35% due primarily to the realization of previously
unbenefitted losses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased $9.9 million from $129.2 million at
March 31, 1996 to $139.1 million at June 30, 1996, largely due to cash
provided by operating activities, net proceeds from the sales of common stock
and the exercise of stock options which was partially offset by cash
expenditures for capital equipment. Net cash provided by operating
activities was $13.7 million and was comprised of the Company's net income of
$3.0 million and non-cash related expenses of $6.9 million and a decrease in
net assets and liabilities of $3.8 million.
Trade accounts receivable decreased $11.6 million from $72.3 million at March
31, 1996 to $60.7 million at June 30, 1996 primarily due to improved cash
collections.
The Company has a $10.0 million bank line of credit that expires in March
1998. The line of credit is available for general corporate purposes and
bears interest at the bank's reference (prime) interest rate (8.25% at June
30, 1996), the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or LIBOR
plus 1.25%, 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 June 30, 1996, 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 June 30, 1996. The Company was
in compliance with the line of credit covenants at June 30, 1996. Future
acquisitions by the Company may cause the Company to be in violation of the
line of credit covenants; however, the Company 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.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The Company may utilize significant amounts of cash in connection with the
potential acquisition of additional companies, capital equipment and software
product rights in the future. However, if the Company were to sustain
significant losses, there can be no assurances that the bank line of credit,
which is available through March 1998, 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.
21
<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 9 of this Form 10-Q.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On approximately March 26, 1996, the Company's stockholders were
sent a proxy statement requesting a vote on approval of the 1996
Equity Incentive Plan (the "Plan"). The Plan was approved by the
stockholders at a special meeting held at Symantec's headquarters
on May 14, 1996. 20,950,968 shares were voted for approval of the
Plan, 17,117,901 shares were voted against approval of the Plan,
and 167,155 shares abstained from voting.
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 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
22
<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: August 9, 1996 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
23
<PAGE>
EXHIBIT 11.01
SYMANTEC CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
(In thousands, except per share data) 1996 1995
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income $ 3,035 $ 6,866
---------- ----------
---------- ----------
Weighted average number of common
shares outstanding during the period 53,962 51,569
Shares issuable from assumed exercise
of options 1,170 2,918
---------- ----------
Common and common stock equivalent shares
outstanding for purpose of calculating
primary net income per share 55,132 54,487
---------- ----------
---------- ----------
Primary net income per share $ 0.06 $ 0.13
---------- ----------
---------- ----------
FULLY DILUTED NET INCOME PER SHARE
Net income $ 3,035 $ 6,866
Interest on assumed conversion of convertible
subordinated debentures, and assumed
repayment of short-term and long-term
borrowings and investment in U.S.
government securities, net of income
tax effect -- 170
---------- ----------
Net income, as adjusted $ 3,035 $ 7,036
---------- ----------
---------- ----------
Weighted average number of common
shares outstanding during the period 53,962 51,569
Shares issuable from assumed exercise
of options 1,170 3,477
Shares issuable from assumed conversion
of convertible subordinated debentures -- 1,250
---------- ----------
Total shares for purpose of calculating
fully diluted net income per share 55,132 56,296
---------- ----------
---------- ----------
Fully diluted net income per share $ 0.06 $ 0.12
---------- ----------
---------- ----------
</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 JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 35,543
<SECURITIES> 103,553
<RECEIVABLES> 66,151
<ALLOWANCES> (5,477)
<INVENTORY> 5,972
<CURRENT-ASSETS> 229,410
<PP&E> 124,274
<DEPRECIATION> (70,858)
<TOTAL-ASSETS> 295,404
<CURRENT-LIABILITIES> 92,338
<BONDS> 15,348
0
0
<COMMON> 547
<OTHER-SE> 187,171
<TOTAL-LIABILITY-AND-EQUITY> 295,404
<SALES> 109,218
<TOTAL-REVENUES> 109,218
<CGS> 21,484
<TOTAL-COSTS> 21,484
<OTHER-EXPENSES> 85,347
<LOSS-PROVISION> 540
<INTEREST-EXPENSE> 331
<INCOME-PRETAX> 3,372
<INCOME-TAX> 337
<INCOME-CONTINUING> 3,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,035
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
