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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JULY 3, 1998.
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, including 2,383,686 shares of Delrina exchangeable stock, as of
July 31, 1998:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 57,418,197 SHARES
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<PAGE> 2
SYMANTEC CORPORATION
FORM 10-Q/A
QUARTERLY PERIOD ENDED JULY 3, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 1998 and March 31, 1998............................... 3
Consolidated Statements of Operations
for the three months ended June 30, 1998 and 1997.................... 4
Consolidated Statements of Cash Flow
for the three months ended June 30, 1998 and 1997.................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............. 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 28
Item 6. Exhibits and Reports on Form 8-K........................................ 28
Signatures...................................................................... 29
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS RESTATED March 31,
(In thousands) June 30,1998 1998
- ----------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and short-term investments $ 211,742 $ 225,883
Trade accounts receivable 62,072 65,158
Inventories 3,586 3,175
Deferred income taxes 21,324 19,677
Other 11,682 14,646
------------ ------------
Total current assets 310,406 328,539
Long-term investments 38,739 34,258
Restricted investments 63,186 59,370
Equipment and leasehold improvements 50,721 50,030
Capitalized software 17,901 1,470
Goodwill 15,325 --
Other 2,842 2,793
------------ ------------
$ 499,120 $ 476,460
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,227 $ 34,171
Accrued compensation and benefits 18,819 21,332
Other accrued expenses 73,368 64,532
Income taxes payable 18,427 24,634
Current portion of convertible subordinated debentures 8,333 8,333
------------ ------------
Total current liabilities 154,174 153,002
Convertible subordinated debentures and other 5,951 5,951
Long-term obligations 8,000 --
------------ ------------
Total long-term liabilities 13,951 5,951
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 57,864
and 57,109 shares) 579 571
Capital in excess of par value 320,811 310,949
Notes receivable from stockholders (144) (144)
Retained earnings 26,305 18,690
Accumulated other comprehensive loss (16,556) (12,559)
------------ ------------
Total stockholders' equity 330,995 317,507
------------ ------------
$ 499,120 $ 476,460
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
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SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
RESTATED
--------------------------------
Three Months Ended
June 30,
--------------------------------
(In thousands, except per share data; unaudited) 1998 1997
- ------------------------------------------------ ------------ ------------
<S> <C> <C>
Net revenues $ 137,770 $ 123,059
Cost of revenues 20,283 20,920
------------ ------------
Gross margin 117,487 102,139
Operating expenses:
Research and development 24,979 21,581
Sales and marketing 69,841 61,655
General and administrative 9,132 9,034
Intangible amortization from acquisitions 277 --
Acquired in-process research and development 14,148 --
Litigation judgment 5,825 --
------------ ------------
Total operating expenses 124,202 92,270
------------ ------------
Operating (loss) income (6,715) 9,869
Interest income 4,489 2,907
Interest expense (331) (257)
Income, net of expense, from sale of technologies
and product lines 15,321 11,957
Other income (expense), net 2,602 (404)
------------ ------------
Income before income taxes 15,366 24,072
Provision for income taxes 7,751 5,537
------------ ------------
Net income $ 7,615 $ 18,535
============ ============
Net income per share - basic $ 0.13 $ 0.33
============ ============
Net income per share - diluted $ 0.13 $ 0.32
============ ============
Shares used to compute net income per share - basic 57,422 55,458
============ ============
Shares used to compute net income per share - diluted 60,160 58,375
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
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SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------------
RESTATED
------------
(In thousands; unaudited) 1998 1997
- --------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Operating Activities:
Net income $ 7,615 $ 18,535
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 6,427 6,057
Amortization and write-off of capitalized software costs 643 316
Amortization of goodwill 275 --
Write-off of acquired in-process research and development 14,148 --
Write-off of equipment and leasehold improvements 6 1,069
Deferred income taxes (1,693) 41
Net change in assets and liabilities, excluding effects of
acquisitions:
Trade accounts receivable 3,570 6,788
Inventories (385) 1,139
Other current assets 4,175 (1,408)
Capitalized software costs -- (6)
Other assets 13 (522)
Accounts payable 1,047 561
Accrued compensation and benefits (2,467) 1,089
Other accrued expenses 4,611 997
Income taxes payable (6,104) 2,501
------------ ------------
Net cash provided by operating activities 31,881 37,157
------------ ------------
Investing Activities:
Capital expenditures (7,206) (6,996)
Purchased intangibles (376) (258)
Purchase of IBM's anti-virus business (8,000) --
Purchase of Binary Research Limited's operations (27,500) --
Purchases of marketable securities (84,225) (51,500)
Proceeds from sales of marketable securities 79,942 40,264
Purchases of long-term, restricted investments (3,816) (2,843)
------------ ------------
Net cash used in investing activities (51,181) (21,333)
------------ ------------
Financing Activities:
Repurchase of common stock -- (8,373)
Net proceeds from sales of common stock and other 9,821 8,658
------------ ------------
Net cash provided by financing activities 9,821 285
------------ ------------
Effect of exchange rate fluctuations on cash and cash equivalents (4,464) (155)
Increase (decrease) in cash and cash equivalents (13,943) 15,954
Beginning cash and cash equivalents 139,013 95,758
------------ ------------
Ending cash and cash equivalents $ 125,070 $ 111,712
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Symantec Corporation ("Symantec" or the
"Company") as of June 30, 1998 and for the three months ended June 30, 1998 and
1997 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, 1998. The results of
operations for the three months ended June 30, 1998 are not necessarily
indicative of the results to be expected for the entire year. All significant
intercompany accounts and transactions have been eliminated. Certain previously
reported amounts have been reclassified to conform to the current presentation
format.
During the June 1998 quarter, the Company acquired International Business
Machine's ("IBM") anti-virus business and Binary Research Limited's ("Binary")
operations (See Notes 7 and 8 of Notes to Consolidated Financial Statements in
this Form 10-Q/A.) The results of operations from the date of the acquisition of
Binary have been included in Symantec's results of operations for the June 1998
quarter.
This report on Form 10-Q/A is being filed to restate the Consolidated Financial
Statements of the Company which were included in the Company's report on Form
10-Q for the three-month period ended June 30, 1998 which was filed on August
11, 1998. Subsequent to the filing of that report, the Company received a
comment letter from the Securities and Exchange Commission with respect to our
Form 10-K for the fiscal year ended March 31, 1998 and Form 10-Q for the quarter
ended September 30, 1998. The comment letter contained questions related to
accounting for certain acquisitions, including questions related to the
write-off of associated in-process research and development costs. We
re-evaluated the Binary and IBM transactions and the related in-process research
and development costs as well as the other questions raised in the comment
letter. As a result, final operating results for the quarter ended June 30, 1998
are restated for the adjustments made to our acquisitions of Binary and IBM's
anti-virus business. Also as a result of the comment letter, we have
reclassified our financial results related to the sales of our electronic forms
product line to JetForm Corporation and our network administration technologies
to Hewlett-Packard Corporation from revenue to income, net of expense, from sale
of technologies and product lines.
As a result of the restatement contained in this Form 10-Q/A, the Company is
reporting net income for the three-months ended June 30, 1998 of $7.6 million or
$0.13 per share, rather than a net loss of $5.3 million, or ($0.09) per share,
which was reported in the Company's originally filed report on Form 10-Q.
In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statements of Position ("SOP") 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," respectively, which provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and was effective for Symantec's transactions beginning
with the June 30, 1998 quarter. AcSEC is currently deliberating the potential
permanent deferral of certain provisions of SOP 97-2.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended June 30, 1998, March 31, 1998 and June 30, 1997
reflect amounts as of and for the periods ended July 3, 1998, April 3, 1998 and
July 4, 1997, respectively. The June 30, 1998 quarter comprised 13 weeks of
activity, while the comparable prior year period comprised 14 weeks.
6
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
RESTATED
June 30, March 31,
(In thousands) 1998 1998
- ------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
(unaudited)
Cash, cash equivalents and short-term investments:
Cash $ 40,355 $ 28,236
Cash equivalents 84,715 110,777
Short-term investments 86,672 86,870
------------ ------------
$ 211,742 $ 225,883
============ ============
Trade accounts receivable:
Receivables $ 66,489 $ 69,574
Less: allowance for doubtful accounts (4,417) (4,416)
------------ ------------
$ 62,072 $ 65,158
============ ============
Inventories:
Raw materials $ 1,654 $ 1,091
Finished goods 1,932 2,084
------------ ------------
$ 3,586 $ 3,175
============ ============
Equipment and leasehold improvements:
Computer hardware and software $ 113,312 $ 107,724
Office furniture and equipment 30,114 29,407
Leasehold improvements 21,541 21,038
------------ ------------
164,967 158,169
Less: accumulated depreciation and amortization (114,246) (108,139)
------------ ------------
$ 50,721 $ 50,030
============ ============
Capitalized software:
Purchased product rights and technologies $ 18,432 $ 1,358
Capitalized software costs 2,391 2,414
Less: accumulated amortization of purchased product rights (1,017) (563)
Less: accumulated amortization of capitalized software costs (1,905) (1,739)
------------ ------------
$ 17,901 $ 1,470
============ ============
Other accrued expenses:
Deferred revenue $ 27,800 $ 25,537
Marketing development funds 13,150 12,815
Other 32,418 26,180
------------ ------------
$ 73,368 $ 64,532
============ ============
Accumulated other comprehensive loss:
Unrealized gain on available-for-sale investments $ 108 $ 157
Cumulative translation adjustment (16,664) (12,716)
------------ ------------
$ (16,556) $ (12,559)
============ ============
</TABLE>
7
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. NET INCOME PER SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," which was required to be adopted by Symantec for the
fiscal period ending December 31, 1997. As a result, the Company has changed the
method used to compute earnings per share and has restated all prior periods.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------
RESTATED
------------
(In thousands, except per share data; unaudited) 1998 1997
- ------------------------------------------------ ------------ ------------
<S> <C> <C>
BASIC NET INCOME PER SHARE
Net income $ 7,615 $ 18,535
============ ============
Weighted average number of common
shares outstanding during the period 57,422 55,458
============ ============
Basic net income per share $ 0.13 $ 0.33
============ ============
DILUTED NET INCOME PER SHARE
Net income $ 7,615 $ 18,535
Interest on convertible subordinated
debentures, net of income tax effect -- 177
------------ ------------
Net income, as adjusted $ 7,615 $ 18,712
============ ============
Weighted average number of common
shares outstanding during the period 57,422 55,458
Shares issuable from assumed exercise
of options 2,738 1,667
Shares issuable from assumed conversion
of convertible subordinated debentures -- 1,250
------------ ------------
Total shares for purpose of calculating
diluted net income per share 60,160 58,375
============ ============
Diluted net income per share $ 0.13 $ 0.32
============ ============
</TABLE>
For the three months ended June 30, 1998, 1,190,000 shares of convertible
subordinated debentures and $169,000 of interest expense were excluded from the
computation of diluted net loss per share because the effect would have been
anti-dilutive.
8
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," for the
quarter ended June 30, 1998. SFAS No. 130 establishes new rules for the
reporting and disclosure of comprehensive income and its components; however, it
has no impact on the Company's net income or stockholders' equity. The
components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------
RESTATED
----------
(In thousands; unaudited) 1998 1997
- ------------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Net income $ 7,615 $ 18,535
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale investments,
net of a tax provision of $60 and $4 128 13
Less: reclassification adjustment for gains (losses) included in net income (loss),
net of a tax provision of $84 and $0 (177) --
Cumulative translation adjustment (CTA),
net of a tax benefit of ($1,254) and ($12.) (2,664) (41)
Less: reclassification adjustment for CTA included in net income (loss),
net of a tax provision of $604 and $0 (1,284) --
---------- ----------
Total other comprehensive loss (3,997) (28)
---------- ----------
Comprehensive income (loss) $ 3,618 $ 18,507
========== ==========
</TABLE>
NOTE 5. LITIGATION AND CONTINGENCIES
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. The complaint has been refiled
twice in state court, most recently on January 13, 1997, following Symantec's
demurrers directed to previous complaints. The parties are currently conducting
discovery. On January 7, 1997, the same plaintiffs filed a complaint in the
United States District Court, Northern District of California, based on the same
facts as the state court complaint, for violation of the Securities Exchange Act
of 1934. The district court dismissed that complaint, and plaintiffs served an
amended complaint in April 1998. Symantec's motion to dismiss the new federal
complaint is currently pending. Symantec believes that neither the state court
complaint nor the federal court complaint has any merit and will vigorously
defend itself against both complaints.
On April 23, 1997, Symantec filed a lawsuit against McAfee Associates, Inc.,
which pursuant to a merger has become Network Associates, Inc. ("Network
Associates,") in the United States District Court, Northern District of
California, for copyright infringement and unfair competition. On October 6,
1997, the court found that Symantec had demonstrated a likelihood of success on
the merits of certain copyright claims, and issued a preliminary injunction (i)
prohibiting Network Associates from infringing Symantec's rights in specified
materials by marketing, selling, transferring or directly or indirectly copying
into any new Network Associates product or new version of an existing product
that has Symantec code, (ii) requiring Network Associates to notify distributors
who are still selling versions of PC Medic 97 that have Symantec's code to tell
customers that they should upgrade to versions that do not contain Symantec
code, and (iii) requiring Network Associates to provide Symantec and the court
with a sample of the notice to be used. On October 17, 1997, Symantec amended
its complaint to include additional claims for
9
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
copyright infringement and misappropriation of trade secrets, based on
additional evidence found in the discovery process. On April 1, 1998, Symantec
amended its complaint to add claims for misappropriation of trade secrets, RICO
(Racketeer Influenced and Corrupt Organizations Act) and related claims based on
additional evidence uncovered in the litigation. Following motions by Network
Associates, the court dismissed Symantec's unfair competition claims regarding
the copyrighted code and its RICO claims. Symantec continues to investigate the
extent to which Network Associates may have misappropriated Symantec's
intellectual property, and plans to aggressively pursue its remedies under this
lawsuit, which include both injunctive relief and monetary damages.
On May 13, 1997, Trend Micro Incorporated ("Trend") filed a lawsuit in the
United States District Court, Northern District of California, against Symantec
and Network Associates, alleging patent infringement. Trend claimed that Norton
AntiVirus for Internet E-mail Gateways and Norton AntiVirus for Firewalls
infringe a patent owned by Trend. Symantec settled with Trend on April 6, 1998,
on terms that were not material to Symantec.
On August 22, 1997, Network Associates filed a lawsuit against Symantec in the
Superior Court of the State of California, County of Santa Clara, alleging
defamation, trade libel, unfair competition and unjust enrichment. The complaint
alleged that damages to Network Associates could approximate $1 billion. Network
Associates dismissed the lawsuit on or about December 30, 1997. The court
awarded Symantec costs and attorneys' fees in connection with this matter on
April 10, 1998.
On September 15, 1997, Hilgraeve Corporation ("Hilgraeve") filed a lawsuit in
the United States District Court, Eastern District of Michigan, against
Symantec, alleging that unspecified Symantec products infringe a patent owned by
Hilgraeve. The lawsuit requests damages, injunctive relief and costs and
attorney fees. Symantec believes this claim has no merit and intends to defend
the action vigorously.
On February 4, 1998, CyberMedia, Inc. ("CyberMedia,") filed a lawsuit in the
United States District Court, Northern District of California, against Symantec,
ZebraSoft Inc., and others, alleging that Symantec Norton Uninstall Deluxe
infringes CyberMedia's copyright, and asserting related state law claims. The
suit requests damages, injunctive relief, costs and attorneys fees. In May 1998,
CyberMedia filed a motion seeking an order prohibiting sale or development of
the challenged code. Following a hearing in mid-July, the Court requested
additional briefing, and a further hearing is set for late August 1998.
Subsequently, in late July 1998, Network Associates announced it had entered
into an agreement to acquire CyberMedia. Symantec believes it has meritorious
defenses to this claim and intends to defend the action vigorously.
On February 19, 1998, a class action complaint was filed by the Milberg, Weiss,
Bershad, Hynes & Lerach law firm in Santa Clara County Superior Court, on behalf
of a class of purchasers of pre-version 4.0 Norton AntiVirus products. A similar
complaint was filed in the same court on March 6, 1998 by an Oregon law firm.
The complaints purport to assert claims for breach of implied warranty, fraud,
unfair business practices and violation of California's Consumer Legal Remedies
Act arising from the alleged inability of earlier versions of Norton
AntiVirus(R) to function properly after the year 2000. The complaints seek
unspecified damages and injunctive relief. Symantec believes that these actions
have no merit and intends to defend itself vigorously.
In connection with the May 1998 asset purchase agreement with IBM (see Note 7 of
Notes to Consolidated Financial Statements in this Form 10-Q/A,) previously
asserted claims of patent infringement asserted by IBM with respect to certain
of the Company's products were resolved. The terms of resolution were not
material to Symantec.
In July 1998, the Ontario Court of Justice (General Division) ruled that
Symantec should pay $5.8 million plus costs to Triolet Systems, Inc. and Brian
Duncombe in a decade-old copyright action, for damages arising from the grant of
a preliminary injunction against the defendant. The damages were awarded
following the court's ruling that evidence presented later in the case showed
the injunction was not warranted. Symantec inherited the case through its 1995
acquisition of Delrina Corporation, which was the plaintiff in this lawsuit.
Symantec will appeal the decision. Symantec recorded a charge of $5.8 million in
June 1998 representing the unaccrued portion of the judgment plus costs.
10
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Over the past few years, it has become common for software companies, including
Symantec, to receive claims of patent infringement. Symantec is currently
evaluating claims of patent infringement asserted by several parties, with
respect to certain of the Company's products. While the Company believes that it
has valid defenses to these claims, the outcome of any related litigation or
negotiation could have a material adverse impact on the Company's future results
of operations or cash flows.
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 affect on the financial condition of the Company, although it
is not possible to estimate the possible loss or losses from each of these
cases. Depending, however, 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. The Company has accrued certain estimated legal fees and expenses
related to certain of these matters; however, actual amounts may differ
materially from those estimated amounts.
NOTE 6. STOCK REPURCHASE
FOn June 9, 1998, the Board of Directors of Symantec authorized the repurchase
of up to 5% of Symantec's outstanding common stock before December 31, 1998.
Among other purposes, the shares will be used primarily for employee stock
purchase programs and option grants. The Company did not repurchase any shares
during the June 1998 quarter. Subsequent to June 30, 1998 and through July 31,
1998, the Company had repurchased approximately 610,000 shares at prices ranging
from $24.38 to $27.56 for an aggregate amount of approximately $16.0 million.
NOTE 7. PURCHASE OF CERTAIN IBM ASSETS
Effective May 18, 1998, the Company entered into a Master Agreement with IBM to
acquire rights to IBM's digital immune technology. In addition, the Company
assumed the majority of IBM's license arrangements with customers of IBM
anti-virus products. In return for the various rights acquired from IBM, the
Company agreed to pay $16 million in installments over a specified period as
well as pay royalties on revenues received from the distribution of
immune-enabled Symantec products and immune services provided by the Company
using the digital immune technology. The royalties are subject to specified
maximums and vary by time periods with ultimate termination of royalties as of a
specified date. In addition, the Company entered into a patent cross-licensing
agreement under which the parties licensed to each other their respective patent
portfolios. The transaction was accounted for as a purchase. As of June 30,
1998, Symantec paid IBM $8 million in cash with the remaining $8 million payable
in two equal installments in August 1999 and November 1999. In addition, the
Company assumed liabilities of $3 million and incurred additional expenses of
approximately $1 million as part of the transaction. Under the transaction, the
Company recorded approximately $7 million for in-process research and
development, $12 million for goodwill and $1 million for certain prepaid
research and development and other assets. A valuation specialist used
management's estimates to establish the amount of in-process research and
development. The goodwill will be amortized over a 5-year period. As of June 30,
1998, the Company incurred approximately $0.2 million of amortization expense
related to this asset.
NOTE 8. PURCHASE OF BINARY OPERATIONS
On June 24, 1998, Symantec purchased the operations of Binary, an Auckland, New
Zealand based company, for approximately $28 million, which included
approximately $1 million of acquisition related costs. The transaction was
accounted for as a purchase. Under the transaction, Symantec recorded
approximately $7 million for in-process research and development and $17 million
for capitalized software technology, with the remaining $4 million of the
purchase price allocated to goodwill, net tangible and intangible assets. A
valuation specialist used management's
11
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
estimates to establish the amount of in-process research and development. The
capitalized software, goodwill and intangibles are being amortized over a 4-year
period. As of June 30, 1998, the Company incurred approximately $0.4 million of
amortization expense related to these assets.
The following unaudited pro forma results of operations for the periods ended
June 30, 1998 and 1997 are as if the acquisition of Binary had occurred at the
beginning of each quarter. The pro forma information excludes the one-time
write-off of $7 million of in-process research and development and the tax
effect of the charge and $0.3 million of capitalized software amortization and
its tax effect. The pro forma information has been prepared for comparative
purposes only and is not indicative of what operating results would have been if
the acquisition had taken place at the beginning of the June 1998 quarter or of
future operating results.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------------
RESTATED
-----------
(In thousands, except per share data; unaudited) 1998 1997
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
Net revenues $ 140,858 $ 124,539
=========== ===========
Net income $ 15,440 $ 19,399
=========== ===========
Basic net income per share $ 0.27 $ 0.35
=========== ===========
Diluted net income per share $ 0.25 $ 0.34
=========== ===========
</TABLE>
NOTE 9. SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
June 30,
(In thousands; unaudited) 1998
- ------------------------------------------------ ---------
<S> <C>
Binary Research Limited
Fair value of assets acquired $ 27,500
=========
Cash paid $ 27,500
=========
IBM Immune System Technology and Other Assets
Fair value of assets acquired $ 20,250
=========
Expenses incurred $ 1,250
Liabilities assumed $ 3,000
Long-term obligation $ 8,000
Cash paid $ 8,000
---------
Total $ 20,250
=========
</TABLE>
NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS 133 will be effective for Symantec
at the beginning of the June 2000 quarter for both annual and interim reporting
periods. Symantec is evaluating the potential impact of this accounting
pronouncement on required disclosures and accounting practices.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. These forward-looking statements
are subject to significant risks and uncertainties, including those identified
in the section "Factors That May Affect Future Results" and in the Company's
annual report on Form 10-K for the year ended March 31, 1998, and may cause
actual results to differ materially from those discussed in such forward-looking
statements. The forward-looking statements within this Form 10-Q/A are
identified by words such as "believes," "anticipates," "expects," "intends,"
"may" and other similar expressions. However, 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. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q/A with the Securities and
Exchange Commission. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission, including its
Form 10-K, that attempt to advise interested parties of the risks and factors
that may affect the Company's business.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND STOCK PRICE. Due to the factors
noted below, 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 and investors, which has had an immediate
and significant adverse affect on the trading price of the Company's common
stock. This may occur again in the future.
RAPID TECHNOLOGICAL CHANGE AND DEVELOPMENT RISKS. The Company participates in a
highly dynamic industry characterized by rapid change and uncertainty related to
new and emerging technologies and markets. The recent trend toward server-based
applications in networks and applications distributed over the Internet could
have a material adverse affect on sales of the Company's products. Future
technology or market changes may cause certain of Symantec's products to become
obsolete more quickly than expected.
The use of a Web browser (running on either a PC or network computer) to access
client/server systems is emerging as an alternative to the traditional desktop
access through operating systems which are resident on personal computers.
Should the functionality associated with such system access reduce the need for
Symantec's products, the Company's future net revenues and operating results may
be adversely affected.
PERSONAL COMPUTER AND HARDWARE GROWTH RATES. Fluctuations in customer spending
from software to hardware as the result of technological advancements in
hardware or price reductions of hardware have in the past, and may in the
future, result in reduced revenues which would have a material adverse affect on
operating results.
OPERATING SYSTEM. The release and subsequent customer acceptance of current or
enhanced operating systems are particularly important events that increase the
uncertainty and increase the volatility of Symantec's results. Should the
Company be unable to successfully develop products in a timely manner that
operate under existing or new operating systems, or should the new operating
systems delay the purchase of Symantec's products, the Company's future net
revenues and operating results would be materially adversely affected.
Microsoft has incorporated advanced utilities including telecommunications,
facsimile and data recovery utilities in Windows 95 and has included additional
product features in Windows 98, including enhanced disk repair, defragmentation,
system file maintenance, ISDN support and PPTP virtual private networking, that
may decrease the demand for certain of the Company's products, including those
currently under development. Fax capabilities were dropped from Windows 98.
Microsoft may also include additional features in new versions of Windows NT
that could decrease demand for certain of the Company's products intended for
Windows NT, including those currently under development.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Additionally, as hardware vendors incorporate additional server-based network
management and security tools into network operating systems, the demand may
decrease for certain of the Company's products, including those currently under
development. Also, Symantec's competitors may license certain of their products
to Microsoft and OEMs for inclusion with their operating systems, add-on
products or hardware, which may also reduce the demand for certain of the
Company's products.
MICROSOFT WINDOWS 98. With the introduction of Microsoft's Windows 98 operating
system during the June 1998 quarter, the Company's ability to generate revenue
from many of its current products, and products currently under development,
could be less than anticipated in future periods due to reported
incompatibilities by end-users, and people delaying the purchase of Windows 98,
prior to purchasing Symantec's products. The Company believes that weak retail
software sales during the June 1998 quarter compared to the March 1998 quarter
were due, in part, to the release of Windows 98 at the end of the June 1998
quarter. This weakness could continue.
Symantec's stock price declined significantly within approximately 6 months
after the releases of Windows 3.1 and Windows 95. While there were a variety of
reasons for these declines in the stock price, there can be no assurance that a
similar decline will not occur following the release of Windows 98.
CONSOLIDATION IN THE INDUSTRY. Consolidation in the software industry continues
to occur, with competing companies merging or acquiring other companies, in
order to capture market share or expand product lines. As this consolidation
occurs, the nature of the market may change by having fewer but more dominant
players in the market or by providing consumers with fewer choices. Also,
certain of these companies offer a broader range of products, ranging from
desktop to enterprise solutions, whereas Symantec may not have the same breadth
of product and may not be able to compete effectively against certain
competitors. Any or all of these changes may have a significant adverse affect
on Symantec's future revenues and operating results.
DEPENDENCE ON THE INTERNET. Critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of use, accessibility,
quality of service, potential tax or other government regulation, remain
unresolved and may affect the use of the Internet as a medium to support the
functionality of certain of the Company's products, or to distribute software.
Should the Company be unable to incorporate changes in the Internet environment
into its business operations and product development successfully or in a timely
manner, the Company's future net revenues and operating results could be
adversely affected.
PRICE COMPETITION. Price competition is often intense in the microcomputer
software market and is expected to 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. These actions may not be sufficient to offset
the impact of price competition in the Company's business and net revenues,
resulting in adverse impacts on revenue, income and cash flow.
Many of the Company's competitors have significantly reduced the price of their
products, especially in the anti-virus market. These practices may have a
material adverse impact on revenue in future periods.
INTEGRATED SUITES. In the future, Symantec and/or its competitors may provide
integrated suites of products. The price of integrated suites will likely be
significantly less than the total price of individual products included in these
suites when such products are sold separately. As a result, there may be a
negative impact to Symantec's revenue and operating income from selling
integrated product suites rather than individual products, as the lower price of
integrated product suites may not be offset by increases in the total volume of
suites sold. Additionally, integrated suites may not achieve market acceptance
and the Company's products may not be effective in competing with products or
integrated suites either currently in the market or introduced in the future.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
QUARTERLY BUYING PATTERNS; ABSENCE OF BACKLOG. Most customers 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 is particularly true of large corporate customers that
negotiate large site licenses near the end of each quarter. 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.
In recent quarters, a greater portion of the Company's revenues have been
generated by relatively large transactions, sometimes occurring at or near the
end of the quarter. Reliance on large transactions and an increase in the dollar
value of transactions that occur at the end of the quarter, results in increased
uncertainty relating to quarterly revenues, and increases the chances that the
Company's results could diverge from the expectations of investors and analysts.
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, which would likely result in a significant and precipitous
drop in the Company's stock price.
RETAIL DISTRIBUTION CHANNEL. A majority of the Company's sales, are made through
the retail distribution channel, which is subject to unpredictable fluctuations
in consumer demand, which declined unexpectedly during the first quarter of
fiscal 1999 and had an adverse effect on the Company's results of operations for
that quarter. The Company's retail distribution customers also carry the
products of Symantec's competitors. These retail distributors may 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.
Agreements with distributors are generally nonexclusive and may be terminated by
either party without cause. Certain distributors and resellers have experienced
financial difficulties in the past. Two of Symantec's distributors each
accounted for more than ten percent of the Company's revenues during the June
1998 quarter. Distributors that account for significant sales of the Company may
experience financial difficulties in the future, which could lead to reduced
sales or write-offs and could adversely affect operating results of the Company.
NEW DISTRIBUTION CHANNELS. Symantec may not be able to develop an effective
method of distributing its software products utilizing each of the rapidly
evolving software distribution channels, including the Internet. The presence of
new channels could adversely impact existing channels and/or product pricing,
which could have a material adverse impact on the Company's future revenues and
profitability.
SITE LICENSES. Symantec sells volume license programs (corporate site licenses)
through the distribution channel and through corporate resellers. Average site
license revenue per unit is typically lower than the average revenue per unit
from retail versions shipped through the retail distribution channel. Due to a
possible change in channel mix, Symantec may increase unit sales under volume
licensing programs in the future, which could have a material adverse impact on
the operating results of the Company.
RELIANCE ON JOINT BUSINESS ARRANGEMENTS. Symantec has entered into various
development or joint business arrangements for the purpose of developing new
software products and enhancements to existing software products as well as for
gaining presence in new markets and may continue to do so in the future.
Depending on the nature of each such arrangement, the development, distribution,
sale or marketing of the resulting product may be controlled either by Symantec
or its business partner. Products resulting from joint business arrangements may
not be technologically successful, may not achieve market acceptance and may not
be able to compete with products either currently in the market or introduced in
the future.
Symantec distributes certain of its products through value-added resellers
("VAR") and independent software vendors ("ISV") whereby Symantec's products are
included with hardware products prior to sale through retail channels. These
licensing agreements are generally non-exclusive and do not require the VAR or
ISV to make minimum purchases. If the Company is not successful in maintaining
its current relationships and securing license
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
agreements with additional VARs and ISVs, or if the Company's VAR and ISV
customers are not successful in selling their products, the Company's future net
revenues and operating results may be adversely affected.
ACQUISITIONS. Symantec has completed a number of acquisitions and may acquire
other companies and technology in the future. Acquisitions involve a number of
special risks, including the diversion of management's attention to integrate
the operations and personnel of the acquired companies in an efficient and
timely manner, the retention of key employees, the burden of presenting a
unified corporate image, the integration of acquired products and of research
and development and sales efforts. In addition, because the employees of
acquired companies have frequently remained in their existing, geographically
diverse locations, the Company has not achieved certain economies of scale that
might otherwise have been realized.
Symantec typically incurs significant expenses in connection with its
acquisitions, which have a significant adverse impact on the Company's
profitability and financial resources. Future acquisitions may have a
significant adverse impact on the Company's future profitability and financial
resources.
CHANNEL FILL. The Company's pattern of net revenues and earnings may be affected
by "channel fill." Distributors may fill their distribution channels in
anticipation of price increases, sales promotions or incentives. Distributor
inventories may be decreased between the date Symantec announces a new version
or new product and the date of release, because 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 impact of channel fill
is somewhat mitigated by the Company's deferral of revenue associated with
distributor and reseller inventories estimated to be in excess of appropriate
levels; however, net revenues may still be materially affected favorably or
adversely by the effects of channel fill, particularly in periods where a large
number of new products are simultaneously introduced.
Channels may also become filled simply because the distributors 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. While such order delays or cancellations can cause
fluctuations in net revenues from one quarter to the next, the impact is
substantially mitigated by the Company's deferral of revenue associated with
inventories estimated to be in excess of appropriate levels in the distribution
and retail channels. A material adverse impact on revenue, however, can occur.
PRODUCT RETURNS. Product returns can occur when the Company introduces upgrades
and new versions of products or when distributors or retailers have excess
inventories. 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 the Company's
products. The Company estimates and maintains reserves for product returns.
However, future returns could exceed the reserves established by the Company,
which could have a material adverse affect on the operating results of the
Company.
FOREIGN OPERATIONS. A significant portion of Symantec's revenues, manufacturing
costs and operating expenses are transacted in foreign currencies. As a result,
the Company's results may be materially and adversely affected by fluctuations
in currency exchange rates, as well as increases in duty rates, exchange or
price controls or other restrictions on foreign currencies. The Company expects
that its non-U.S. dollar denominated sales activities may increase in the
future. Continued weakness in the Asian currency markets could materially and
adversely impact Symantec's revenue.
The Company's international operations are subject to certain risks common to
international operations, such as government regulations, import restrictions,
currency fluctuations, economic volatility, repatriation restrictions and, in
certain jurisdictions, reduced protection for the Company's copyrights and
trademarks. Symantec utilizes natural hedging to mitigate Symantec's foreign
currency transaction exposure and hedges certain residual balance sheet
positions through the use of one-month forward contracts. These strategies may
not continue to be effective, and the Company may not be successful in
accurately forecasting transaction gains or losses.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
SALES AND MARKETING. Symantec believes substantial sales and marketing efforts
are essential to achieve revenue growth and to maintain and enhance Symantec's
competitive position. There can be no assurance that these sales and marketing
efforts will be successful.
TECHNICAL SUPPORT. Consistent with many companies in the software industry,
technical support costs comprise a significant portion of the Company's
operating costs and expenses. The Company's technical support levels are based,
in a large part, on projections of future sales levels. Over the short term, the
Company may not be able to respond to fluctuations in customer demand for
support services or modify the format of the Company's support services to
compete with changes in support services provided by competitors. While the
Company performs extensive quality control review over its technical support
services provided by corporate personnel and, to a lesser extent, over support
services outsourced to third-party vendors, customer satisfaction with the
services rendered may not be favorable. In the event of customer
dissatisfaction, future product and upgrade sales to that customer base may be
negatively impacted. Fee-based technical support services did not generate
material revenues in any fiscal period presented and are not expected to
generate material revenues in the near future.
UNCERTAINTY OF RESEARCH AND DEVELOPMENT EFFORTS. Symantec believes significant
research and development expenditures will be necessary in order to remain
competitive. While the Company performs extensive usability and beta testing of
new products, any products currently being developed by Symantec may not be
technologically successful, resulting products may not achieve market
acceptance, and the Company's products may not be effective in competing with
competitors' products either currently in the market or introduced in the
future.
LENGTH OF PRODUCT DEVELOPMENT CYCLE. 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 affect 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 future
product development are likely to occur and could have a material adverse affect
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 dates of the Company's product
introductions.
OPERATING LEVERAGE. Consistent with many companies in the software industry,
employee and facility related expenditures comprise a significant portion of the
Company's operating expenses. The Company's expense levels are based, in a large
part, on projections of future revenue levels. Given the fixed nature of these
expenses over the short term, if revenue levels fall below expectations,
Symantec's operating results are likely to be significantly and adversely
affected.
MANAGEMENT OF EXPANDING OPERATIONS. Symantec continually evaluates its product
and corporate strategy and has in the past and will in the future undertake
organizational changes, product and marketing strategy modifications which are
designed to maximize market penetration, maximize use of limited corporate
resources and develop new products and product channels. These organizational
changes increase the risk that objectives will not be met due to the allocation
of valuable limited resources to implement changes. Further, due to the
uncertain nature of any of these undertakings, these efforts may not be
successful, and that the Company may not realize any benefit from these efforts.
EMPLOYEE RISK. Competition in recruiting personnel in the software industry is
intense. Symantec believes that its future success will depend in part on its
ability to recruit and retain highly skilled management, marketing and technical
personnel. Symantec believes that it must provide personnel with a competitive
compensation package, which necessitates the continued availability of stock
options which requires ongoing stockholder approval.
BUSINESS DISRUPTION. A disruption in communications between the Company's
geographically dispersed order entry and product shipping centers, 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.
Disruptions in communications and Internet connectivity may also cause delays in
customer access to Symantec's Internet-based services or product sales. A
business disruption could occur as a result of natural disasters or the
interruption in service by
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
communications carriers, and may cause delays in product development that could
adversely impact future net revenues of the Company.
LITIGATION. Symantec is involved in a number of judicial and administrative
proceedings incidental to its business. The Company intends to defend and/or
pursue all of these lawsuits vigorously and, although an unfavorable outcome
could occur in one or more of the cases, the final resolution of these lawsuits,
individually or in the aggregate, is not expected to have a material adverse
affect 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 (See Note 5 of Notes to
Consolidated Financial Statements in this Form 10-Q/A.)
INTELLECTUAL PROPERTY RIGHTS. Symantec regards its software as proprietary and
relies on a combination of copyright, patent and trademark laws and license
agreements in an attempt to protect its rights. Despite these precautions, it
may be possible for unauthorized third parties to copy aspects of Symantec's
products or to obtain and use information that Symantec regards as proprietary.
All of Symantec's products are protected by copyright, and Symantec has a number
of patents and patent applications pending. However, existing patent and
copyright laws afford limited practical protection. In addition, the laws of
some foreign countries do not protect Symantec's proprietary rights in its
products to the same extent as do the laws of the United States. Symantec's
products are not copy protected.
As the number of software products in the industry increases and the
functionality of these products further overlap, Symantec believes that software
developers will become increasingly subject to infringement claims. This risk is
potentially greater for companies, such as Symantec, that obtain certain of
their products through publishing agreements or acquisitions, since they have
less direct control over the development of those products.
In addition, 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. It is impossible to
ascertain all possible patent infringement claims because new patents are being
issued continually, the subject of patent applications is confidential until a
patent is issued, and it may not be apparent even from a patent that has already
been issued whether it is potentially applicable to a particular software
product. This increases the risk that Symantec's products may be subject to
claims of patent infringement. Although such claims may ultimately prove to be
without merit, they are time consuming and expensive to defend. Symantec has
been involved in disputes claiming patent infringement in the past, is currently
involved in a number of such disputes and litigation, and may be involved in the
future in such disputes and/or litigation. If Symantec is alleged to infringe
one or more patents, it may choose to litigate the claim and/or seek an
appropriate license. If litigation were to commence and a license were not
available on reasonable terms or if another party were found to have a valid
patent claim against Symantec, such a result could have a material adverse
affect on Symantec's business, operating results and financial condition (See
Note 5 of Notes to Consolidated Financial Statements in this Form 10-Q/A.)
SOFTWARE DEFECTS AND PRODUCT LIABILITY. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. In the past, for example, Symantec's anti-virus
software products have incorrectly detected viruses which do not exist. Although
the Company has not experienced any material adverse effects resulting from any
such defects or errors to date, defects and errors could be found in current
versions, future upgrades to current products or newly developed and released
products, despite testing prior to release. Software defects could result in
delays in market acceptance or unexpected reprogramming costs, which could have
a material adverse affect on the Company's operating results. While Symantec has
not been the target of software viruses specifically designed to impede the
performance of the Company's products, there can be no assurance that such
viruses will not be created in the future.
Most of the Company's license agreements with its customers contain provisions
designed to limit the exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in such
license agreements may not be valid as a result of federal, state, local or
foreign laws or ordinances or unfavorable judicial decisions. A successful
product liability claim could have a material adverse affect on the Company's
business, operating results and financial condition.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
EUROCURRENCY CONVERSION. Symantec conducts business and maintains operations in
Europe. Symantec will most likely be affected by the introduction of a single
currency, the euro. Symantec has a taskforce in place that is reviewing the
impact of this event on its systems, business and operations and expects to
implement the system and business modifications necessary to be euro compliant
by January 1, 1999.
It is not possible to fully assess the impact of the single currency on our
European sales or whether changes being made by Symantec will be successful. As
a result, changes in the European market as a result of the euro and/or
Symantec's response to the euro may have an adverse impact on revenues and
results from operations.
YEAR 2000 - PRODUCT LIABILITY. While the Company believes that most of its
currently developed and actively marketed products are Year 2000 compliant for
significantly all functionality, these software products could contain errors or
defects related to the Year 2000. Versions of the Company's products that are
not the most currently released or that are not currently being developed may
not be Year 2000 compliant. The Company sells some of its older product lines,
which are not being actively developed and updated, and such products are also
not necessarily Year 2000 compliant. Symantec is currently party to a lawsuit
related to the alleged inability of pre-version 4.0 Norton AntiVirus products to
function properly in respect to Year 2000. Symantec believes that this lawsuit
has no merit and intends to defend itself vigorously. The final resolution of
this lawsuit is not expected to have a material adverse affect on the results of
operations and financial condition of the Company, although it is not possible
to estimate the possible loss. Depending, however, on the amount and timing of
an unfavorable resolution of this lawsuit, it is possible that the Company's
future results of operations or cash flows could be materially adversely
affected in a particular period (See Note 5 of Notes to Consolidated Financial
Statements in this Form 10-Q/A.)
YEAR 2000 - CORPORATE SYSTEMS. The Company has recently completed a major
evaluation of its applications systems and databases and is modifying or
replacing portions of its hardware and associated software to enable its
operational systems and networks to function properly with respect to dates
leading up to January 1, 2000 and thereafter. The Company continues to evaluate
system interfaces with third-party systems, such as those of key suppliers,
distributors and financial institutions, for Year 2000 functionality. The
Company expects the process of evaluating third-party Year 2000 compliance to be
an ongoing process through the Year 2000. The Year 2000 project cost is expected
to be less than $0.5 million. The process to ensure the Company's systems are
Year 2000 compliant is expected to be significantly completed during the 1998
calendar year, with extensive testing to be conducted during 1999. The Company
believes that, with its conversions to new software and modifications to
existing computer hardware and software, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if remaining
modifications and conversions are not made, or are not completed in a timely
manner, the Year 2000 issue could have a material adverse impact on the
operations of the Company. Additionally, the systems of other companies with
which Symantec does business may not address Year 2000 problems on a timely
basis, which could have an adverse effect on Symantec's systems or business
transactions. As testing of Year 2000 functionality of the Company's systems
must occur in a simulated environment, the Company will not be able to test
fully all Year 2000 interfaces and capabilities prior to Year 2000. The Company
believes that its exposure on Year 2000 issues is not material to its business
as a whole and has not deferred any other information systems projects as a
result of its focus on Year 2000 compliance issues.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
OVERVIEW
Symantec develops utility software for business and personal computing.
Symantec's business strategy is to satisfy customer needs by developing and
marketing products across multiple operating platforms that make customers
productive and keep their computers safe and reliable - anywhere, anytime.
Founded in 1982, the Company has offices in the United States, Canada, Mexico,
Asia, Australia, New Zealand, Europe, Africa and South America.
Symantec has a 52/53-week fiscal accounting year. The June 30, 1998 quarter
closed on July 3, 1998 and comprised 13 weeks of revenue and expense activity,
while the comparable prior year period comprised 14 weeks.
RESULTS OF OPERATIONS
During the June 1998 quarter, the Company acquired International Business
Machine's ("IBM") anti-virus business and Binary Research Limited's ("Binary")
operations (See Notes 7 and 8 of Notes to Consolidated Financial Statements in
this Form 10-Q/A.) The results of operations from the date of the acquisition of
Binary have been included in Symantec's results of operations for the June 1998
quarter.
This report on Form 10-Q/A is being filed to restate the Consolidated Financial
Statements of the Company which were included in the Company's report on Form
10-Q for the three-month period ended June 30, 1998 which was filed on August
11, 1998. Subsequent to the filing of that report, the Company received a
comment letter from the Securities and Exchange Commission with respect to our
Form 10-K for the fiscal year ended March 31, 1998 and Form 10-Q for the quarter
ended September 30, 1998. The comment letter contained questions related to
accounting for certain acquisitions, including questions related to the
write-off of associated in-process research and development costs. We
re-evaluated the Binary and IBM transactions and the related in-process research
and development costs as well as the other questions raised in the comment
letter. As a result, final operating results for the quarter ended June 30, 1998
are restated for the adjustments made to our acquisitions of Binary's operations
and IBM's anti-virus business. Also as a result of the comment letter, we have
reclassified our financial results related to the sales of our electronic forms
product line to JetForm Corporation and our network administration technologies
to Hewlett-Packard Corporation from revenue to income, net of expense, from sale
of technologies and product lines.
As a result of the restatement contained in this Form 10-Q/A, the Company is
reporting net income for the three-months ended June 30, 1998 of $7.6 million or
$0.13 per share, rather than a net loss of $5.3 million, or ($0.09) per share,
which was reported in the Company's originally filed report on Form 10-Q.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
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
Ended Percent
June 30, Change
------------------------- in Dollar
1998 1997 Amounts
---------- ---------- ----------
<S> <C> <C> <C>
(Unaudited)
Net revenues ................................ 100% 100% 12%
Cost of revenues ............................ 15 17 (3)
---------- -----------
Gross margin .......................... 85 83 15
Operating expenses:
Research and development ................ 18 18 16
Sales and marketing ..................... 51 50 13
Intangible amortization from acquisitions -- -- *
General and administrative .............. 7 7 1
Acquired in-process research and
development ........................... 10 -- *
Litigation judgment ..................... 4 -- *
---------- -----------
Total operating expenses .............. 90 75 35
---------- -----------
Operating (loss) income ..................... (5) 8 (168)
Interest income ............................. 4 2 54
Interest expense ............................ -- -- 29
Income, net of expense, from sale of
technologies and product lines .......... 11 10 28
Other income (expense), net ................. 2 -- *
---------- -----------
Income before income taxes .................. 12 20 (36)
Provision for income taxes .................. 6 5 40
---------- -----------
Net income .................................. 6% 15% (59)
========== ===========
</TABLE>
* percentage change is not meaningful.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
NET REVENUES.
Net revenues increased 12% from approximately $123 million in the June 1997
quarter to $138 million in the June 1998 quarter. Revenue growth in the June
1998 quarter compared to the June 1997 quarter occurred in each of Symantec's
three business units: Security and Assistance; Remote Productivity Solutions;
and Internet Tools and Other. The increase in total revenues between the June
1998 and 1997 quarters was due primarily to increases in site license and OEM
revenues from transactions that closed at the end of the quarter (See further
discussion in Item 2: Factors That May Affect Future Results: Quarterly Buying
Patterns.)
Revenues from retail sales were somewhat lower in the June 1998 quarter compared
to the June 1997 quarter and also less than in the March 1998 quarter, primarily
due to a general softness in the retail markets in the United States and Japan,
which the Company attributes to the anticipated release of Windows 98, and due
to intense price competition in the anti-virus market. (See further discussion
in Item 2: Factors That May Affect Future Results: Microsoft Windows 98 and
Price Competition.)
BUSINESS UNITS.
The Security and Assistance business unit is dedicated to being indispensable to
customers' daily use of computers by increasing productivity and keeping
computers safe and reliable. The Security and Assistance business unit comprised
approximately 52% of net revenues in both the quarters ended June 30, 1998 and
1997. Although on a percentage basis, net revenues were flat, absolute dollars
in net revenues increased for the business unit in the quarter ended June 30,
1998 compared to the quarter ended June 30, 1997 due primarily to the Ghost
product (disk-cloning technology) acquired as part of the Binary agreement. In
addition, Norton Antivirus revenues increased as a result of the IBM agreement.
The Remote Productivity Solutions business unit helps remote professionals
remain productive and work reliably, anywhere, anytime. The Remote Productivity
Solutions business unit comprised approximately 40% and 41% of the Company's net
revenues for the quarters ended June 30, 1998 and 1997, respectively. Increased
net revenues for the business unit in the quarter ended June 30, 1998 were
primarily related to sales of Windows 95 versions of pcANYWHERE and ACT!,
partially offset by a decrease in sales of WinFax Pro for Windows 95.
Internet Tools and Other, which includes products providing an easy to use Java
development environment and revenues from products nearing the end of their life
cycles, comprised approximately 8% and 7% of the Company's net revenues in the
quarters ended June 30, 1998 and 1997, respectively. The business unit's net
revenues increased in the quarter ended June 30, 1998 over the quarter ended
June 30, 1997 primarily due to increased product sales in Internet Tools, which
included $6 million of revenue from a contract with a single customer.
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
INTERNATIONAL. Net revenues from international sales outside of North America
were $47 million and $40 million and represented 35% and 33% of total net
revenues in the quarters ended June 30, 1998 and 1997, respectively. The
increase in net revenues was the result of sales growth in Europe, Middle East
and Africa ("EMEA"); Japan and Latin America.
Foreign exchange rate fluctuations during the quarter ended June 30, 1998
compared to the quarter ended June 30, 1997 did not materially affect quarterly
revenue.
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.
Gross margins increased to 85% of net revenues in the June 1998 quarter from 83%
in the June 1997 quarter.
Factors contributing to an increase in gross margin percentage during the June
1998 quarter compared to the June 1997 quarter include a change in product mix
favoring the Company's higher margin site license and OEM business. Gross margin
was also favorably impacted by reductions in royalty expense as a result of
reduced reliance on third party developers and the reversal of royalties
previously accrued as a result of the purchase agreement reached with IBM in the
June 1998 quarter (See Note 7 of Notes to Consolidated Financial Statements in
this Form 10-Q/A.) These reductions in cost of sales were partially offset by
increases in obsolescence expense, due to a large number of upgrades expected in
the September and December 1998 quarters.
CAPITALIZED SOFTWARE. During the June 1998 quarter, Symantec capitalized
approximately $17 million of software technology acquired as part of the
Company's acquisition of the operations of Binary (See Note 8 of Notes to
Consolidated Financial Statements in this Form 10-Q/A.)
Amortization of capitalized software, including amortization and write-off of
both purchased product rights and capitalized software development expenses,
totaled $0.7 million and $0.3 million for the June 1998 and 1997 quarters,
respectively. Symantec expects capitalized software amortization to increase in
future periods. Symantec is expected to record approximately $1 million of
capitalized software amortization per quarter, over the next 16 quarters,
related to amounts capitalized as part of the acquisition of Binary.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses remained flat as a percentage of revenue at
18% for both the June 1998 and 1997 quarters. Research and development expenses
are charged to operations as incurred.
Research and development expenses increased 16% to $25 million in the June 1998
quarter from $22 million in the June 1997 quarter primarily due to growth in
salaries and wages, third-party consulting fees and legal expenses related to
product and copyright infringement claims. The growth in salaries and wages is
partially due to the acquisition of the operations of Binary (See Note 8 of
Notes to Consolidated Financial Statements in this Form 10-Q/A.)
SALES AND MARKETING EXPENSES.
Sales and marketing expenses increased 13% from $62 million in the June 1997
quarter to $70 million in the June 1998 quarter. As a percentage of revenue,
these expenses increased from 50% in the June 1997 quarter to 51% in the June
1998 quarter primarily due to growth in salaries and wages and increased
advertising expenditures for the Company's Norton Antivirus products.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses totaled approximately $9 million in the June
1998 and June 1997 quarters. General and administrative expenses were 7% of net
revenues for both the June 1998 and 1997 quarters.
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
INTANGIBLE AMORTIZATION FROM ACQUISITIONS.
Intangible amortization from acquisitions totaled approximately $0.3 million in
the June 1998 quarter and none in the June 1997 quarter, in connection with the
acquisitions of IBM's anti-virus business and Binary's operations in the June
1998 quarter. (See Notes 7 and 8 of Notes to Consolidated Financial Statements
in this Form 10-Q/A.)
IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES.
In-process research and development expenses were approximately $14 million in
the June 1998 quarter. In connection with the acquisitions of IBM's anti-virus
business and Binary's operations in the June 1998 quarter, Symantec recognized
in-process research and development expenses of $7 million in each acquisition
(See Notes 7 and 8 of Notes to Consolidated Financial Statements in this Form
10-Q/A.)
The nature of the efforts required to develop the purchased in-process
technology principally relate to the completion of all planning, designing,
development and testing activities that are necessary to establish that the
product or service can be produced to meet its design specifications including
features, functions and performance. The Company expects the acquired in-process
technology to be developed into commercially feasible products, however, there
are no assurances that this will occur. Failure to complete these products in
their entirety, or in a timely manner could have a material adverse impact on
the Company's operating results, financial condition and results of operations.
Additionally, the value of the other intangible assets may become impaired.
We determined the fair value of the in-process technology for each of the
purchases by estimating the projected cash flows related to these projects,
including the cost to complete the in-process technologies and future revenues
to be earned upon commercialization of the products. We discounted the resulting
cash flows back to their net present values. We based the net cash flows from
such projects on our analysis of the respective markets and estimates of
revenues and operating profits related to these projects.
IBM. The in-process technology acquired in the IBM purchase primarily consisted
of the IBM immune system technology and related anti-virus patents. This
technology is designed to detect previously unknown viruses, analyze them and
distribute a cure, all automatically and faster than existing methods. We intend
to integrate this technology into our suite of anti-virus products and engage in
considerable amount of infrastructure enhancement required for its deployment
throughout 1999. The Company assumed that revenue attributable to this
in-process technology would increase substantially during the first year and
then decrease at rates of 35% to 14% during the remaining three years of the
four year projection. The Company projected annual revenues to range from
approximately $17 million to $8 million over the term of the projection. The
Company based these projections on: penetration into IBM's and the Company's
existing installed base of customers; anticipated growth rates of the anti-virus
markets; an accelerated growth of new customers during the first year of
delivering immune system technology; and the estimated life of the underlying
technologies.
Based on historical experience with similar products, the Company estimated
marketing and sales expenses for the in-process technology to be 40% as a
percentage of revenue throughout the valuation period. Based on historical
general and administrative expenses, the Company estimated general and
administrative expenses to be 7% throughout the period of analysis.
Symantec assumed operating profit before acquisition related amortization
charges would be approximately $4 million during the first year. The Company
assumed that it would decrease at annual rates ranging from 35% to 14% during
the remaining periods, resulting in annual operating profits ranging between
approximately $4 million and $2 million. The Company estimated costs to be
incurred to reach technological feasibility of in-process technologies from IBM
as of the date of the agreement to total approximately $2 million. The Company
estimated the in-process technology to be approximately 78% complete at that
time. The Company projects the introduction of acquired in-process technologies
in early/mid 1999.
The Company used a discount rate of 30% for valuing the in-process technology
from IBM, which the Company believes to reflect the risk associated with the
completion of these research and development projects and the estimated future
economic benefits to be generated subsequent to their completion. This discount
rate is higher than the weighted average cost of capital of 17% due to the fact
that the technology had not reached technological feasibility as of the date of
the valuation.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
The assumptions and projections discussed for the immune system and related
anti-virus technology acquired from IBM were made based on information available
at the time and should not be taken as indications of actual results, which
could vary materially based on the risks and uncertainties identified in the
risk factors set forth in this Form 10-Q/A.
BINARY. The in-process technology acquired in the Binary acquisition primarily
consisted of disk cloning technologies associated with Ghost, the flagship
product of Binary. Ghost software is designed to create a complete image of a
hard drive in the form of a single file that can be copied to another computer
connected via a network.
The Company assumed that revenue attributable to Binary's in-process technology
will increase in the first three years of the five year projection period at
annual rates ranging from 1108% to 88% and then decrease at rates of 3% to 74%
over the remaining periods as other technologies enter the marketplace. The
Company projected annual revenues to range from approximately $1 million to $14
million over the projected period. The Company based these estimates on:
aggregate growth rates for the business as a whole; individual product revenues;
anticipated product development cycles; and the life of the underlying
technology.
Symantec estimated marketing and sales expenses for the in-process technology to
be 31% as a percentage of revenue throughout the valuation period. Based on
historical general and administrative expenses, the Company estimated general
and administrative expenses to be 7% throughout the period of analysis.
The Company projected operating profit before acquisition related amortization
charges to increase from less than $1 million during the first year to
approximately $7 million during the third year. The Company projected that
operating profits would then decrease from 4% to 74% during the remaining two
years, resulting in profits of approximately $7 million and $2 million. Because
the Company assumed that most product development costs would be incurred in the
first year, reducing operating expenses as a percentage of revenue in later
years, the Company anticipates operating profit to increase faster than revenue
in the early years.
Symantec estimated costs to be incurred to reach technological feasibility of
in-process technologies from Binary as of the date of the acquisition to total
approximately $2 million. The Company estimated the in-process technology to be
approximately 50% complete at that time. The Company projects the introduction
of acquired in-process technologies in early/mid 1999.
The Company used a discount rate of 30% for valuing the in-process technologies
from Binary, which the Company believes to reflect the risk associated with the
completion of these research and development projects and the estimated future
economic benefits to be generated subsequent to their completion. This discount
rate is higher than the Company's weighted average cost of capital of 17% due to
the fact that the technology had not reached technological feasibility as of the
date of the valuation.
The assumptions and projections discussed for the disk cloning technologies
acquired from Binary were made based on information available at the time and
should not be taken as indications of actual results, which could vary
materially based on the risks and uncertainties identified in the risk factors
set forth in this Form 10-Q/A.
LITIGATION JUDGMENT.
Litigation judgment expenses totaled approximately $6 million in the June 1998
quarter. These expenses related to a judgment by a Canadian court on a
decade-old copyright action assumed by Symantec when it purchased Delrina
Corporation (See Note 5 of Notes to Consolidated Financial Statements in this
Form 10-Q/A.)
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE), NET.
Interest income was approximately $4 million and $3 million in the quarters
ended June 30, 1998 and 1997, respectively. Interest income increased 54% in the
quarter ended June 30, 1998 over the quarter ended June 30, 1997 primarily due
to higher average invested cash and investment balances and due to interest
income received from the Internal Revenue Service, partially offset by lower
interest rates on invested cash and investments during the June 1998 quarter.
25
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Interest expense was approximately $0.3 million in each of the quarters ended
June 30, 1998 and 1997. Interest expense principally relates to Symantec's
convertible subordinated debentures.
Other income (expense) was approximately $3 million and ($0.4) million in the
quarters ended June 30, 1998 and 1997, respectively. Other income (expense)
primarily increased due to a foreign exchange gain realized during the June 1998
quarter, as a result of the paydown of an intercompany loan and also comprised
other foreign currency exchange gains and losses from fluctuations in currency
exchange rates.
INCOME, NET OF EXPENSE, FROM SALE OF TECHNOLOGIES AND PRODUCT LINES
Income, net of expense, from sale of technologies and product lines was
approximately $15 million and $12 million for the three month period ended June
30, 1998 and 1997, respectively. This income is related to the sale of certain
software products, technologies and tangible assets to JetForm Corporation and
the Hewlett-Packard Company during fiscal 1997. Payments from JetForm were
higher in the quarter ended June 30, 1998 over the quarter ended June 30, 1997,
primarily due to an amendment to the JetForm agreement revising the payment
schedule. This increase in JetForm payments was partially offset by a decrease
in royalties from Hewlett-Packard during the June 1998 quarter compared to the
June 1997 quarter.
INCOME TAX PROVISION.
Excluding the $14 million charge for in-process research and development
expenses, the effective tax rate on income before income taxes for the three
months ended June 30, 1998 was 32%. This rate is lower than the U.S. federal
statutory tax rate primarily due to a lower statutory tax rate on the Company's
Irish operations. The effective tax rate for the three months ended June 30,
1997 was 23%.
The tax provision for the three months ended June 30, 1998 consists of two
items: a $9.5 million (or 32% effective tax rate) provision on income before
income taxes of $30 million, which excludes a $14 million charge for in-process
research and development expenses. In addition, the tax provision includes a
$1.7 million tax benefit on the $14 million charge for in-process research and
development. A valuation allowance has been established for the portion of the
deferred tax asset attributable to the in-process research and development
charge that is not expected to be realized within five years.
LIQUIDITY AND CAPITAL RESOURCES.
Cash, short-term investments and long-term investments decreased $10 million to
$250 million at June 30, 1998 from $260 million at March 31, 1998. This decrease
was largely due to the acquisition of the operations of Binary for approximately
$28 million and an $8 million payment to IBM during the quarter ended June 30,
1998 related to the acquisition of its anti-virus business (See Notes 7 and 8 of
Notes to Consolidated Financial Statements in this Form 10-Q/A.)
In addition to cash, short-term investments and long-term investments of $250
million, the Company has $63 million of restricted investments related to
collateral requirements under certain lease agreements entered into during
fiscal 1997. Symantec is obligated under these lease agreements for two existing
office buildings, one parcel of land and one office building under construction
in Cupertino, California to maintain a restricted cash balance invested in U.S.
treasury securities with maturities not to exceed three years. In accordance
with the lease terms, these funds are not available to meet operating cash
requirements.
Net cash provided by operating activities was $32 million and was comprised of
the Company's net income of $8 million, offset by non-cash related expenses of
$20 million and a net decrease in net assets and liabilities, excluding effects
of acquisitions, of $4 million.
Net trade accounts receivable decreased $3 million to $62 million at June 30,
1998 from $65 million at March 31, 1998 primarily due to improvements in
collections in each of the Company's international regions.
On June 9, 1998, the Board of Directors of Symantec authorized the repurchase of
up to 5% of Symantec's outstanding common stock before December 31, 1998. Among
other purposes, the shares will be used primarily for employee stock purchase
programs and option grants. The Company did not repurchase any shares during the
June
26
<PAGE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
1998 quarter. Subsequent to June 30, 1998 and through July 31, 1998, the Company
had repurchased approximately 610,000 shares at prices ranging from $24.38 to
$27.56 for an aggregate amount of approximately $16.0 million.
The Company recently renewed its $10 million line of credit which expires in May
2000. The Company was in compliance with the debt covenants for this line of
credit as of June 30, 1998. At June 30, 1998, there were no borrowings and less
than $1 million of standby letters of credit outstanding under this line. 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.
If Symantec were to sustain significant losses, the Company could be required to
reduce operating expenses, which could result in 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 and cash generated from operating
results will be sufficient to fund operations for the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
27
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Note 5 of
Notes to Consolidated Financial Statements included herein on page 9 of this
Form 10-Q/A.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of this Form 10-Q/A:
10.01 Office building lease, as amended, dated as of September 1,
1997, by and between Colorado Place Partners, LLC and Symantec
Corporation regarding property located in Santa Monica,
California. (Incorporated by reference to Exhibit 10.01 filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.)
10.02 Office building lease, as amended, dated as of December 17,
1996, by and between Delrina (Canada) Corporation, Delrina
Corporation, and Sherway Centre Limited regarding property
located in Toronto, Canada. (Incorporated by reference to
Exhibit 10.02 filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.)
10.03 Office building lease, dated as of April 9, 1998 by and
between Hill Samuel Bank Limited and Symantec (UK) Limited and
Symantec Corporation regarding property located in Maidenhead,
United Kingdom. (Incorporated by reference to Exhibit 10.03
filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.)
10.04 Asset purchase agreement, dated as of June 24, 1998, among
Symantec Corporation and its wholly owned subsidiary, Symantec
Limited and Binary Research Ltd. and its wholly-owned
subsidiary, Binary Research International, Inc. (Incorporated
by reference to Exhibit 10.04 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
10.05 Asset purchase agreement, as amended, dated as of June 29,
1998, by and between Delrina and JetForm. (Incorporated by
reference to Exhibit 10.05 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
27.01 Financial Data Schedule for the Three Months Ended June 30,
1998 (restated.)
27.02 Financial Data Schedule for the Three Months Ended June 30,
1997 (restated.)
(b) Reports on Form 8-K
None
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
28
<PAGE> 29
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 20, 1999 SYMANTEC CORPORATION
By /s/ John W. Thompson
-----------------------------------------
John W. Thompson
Chairman, President and
Chief Executive Officer
By /s/ Gregory Myers
-----------------------------------------
Gregory Myers
Chief Financial Officer and
Chief Accounting Officer
29
<PAGE> 30
APPENDIX TO EXHIBITS
Exhibits. The following exhibits are filed as part of this Form 10-Q/A:
10.01 Office building lease, as amended, dated as of September 1,
1997, by and between Colorado Place Partners, LLC and Symantec
Corporation regarding property located in Santa Monica,
California. (Incorporated by reference to Exhibit 10.01 filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.)
10.02 Office building lease, as amended, dated as of December 17,
1996, by and between Delrina (Canada) Corporation, Delrina
Corporation and Sherway Centre Limited regarding property
located in Toronto, Canada. (Incorporated by reference to
Exhibit 10.02 filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.)
10.03 Office building lease, dated as of April 9, 1998 by and
between Hill Samuel Bank Limited and Symantec (UK) Limited and
Symantec Corporation regarding property located in Maidenhead,
United Kingdom. (Incorporated by reference to Exhibit 10.03
filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.)
10.04 Asset purchase agreement, dated as of June 24, 1998, among
Symantec Corporation and its wholly owned subsidiary, Symantec
Limited and Binary Research Ltd. and its wholly-owned
subsidiary, Binary Research International, Inc. (Incorporated
by reference to Exhibit 10.04 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
10.05 Asset purchase agreement, as amended, dated as of June 29,
1998, by and between Delrina and JetForm. (Incorporated by
reference to Exhibit 10.05 filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.)
27.01 Financial Data Schedule for the Three Months Ended June 30,
1998 (restated.)
27.02 Financial Data Schedule for the Three Months Ended June 30,
1997 (restated.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q/A FOR THE THREE MONTH PERIOD ENDED
JUNE 30, 1998 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> APR-02-1999
<PERIOD-START> APR-04-1998
<PERIOD-END> JUL-03-1998
<CASH> 125,070
<SECURITIES> 86,672
<RECEIVABLES> 66,489
<ALLOWANCES> (4,417)
<INVENTORY> 3,586
<CURRENT-ASSETS> 310,406
<PP&E> 164,967
<DEPRECIATION> (114,246)
<TOTAL-ASSETS> 499,120
<CURRENT-LIABILITIES> 154,173
<BONDS> 14,284
0
0
<COMMON> 579
<OTHER-SE> 330,416
<TOTAL-LIABILITY-AND-EQUITY> 499,120
<SALES> 137,770
<TOTAL-REVENUES> 137,770
<CGS> 20,283
<TOTAL-COSTS> 20,283
<OTHER-EXPENSES> 124,202
<LOSS-PROVISION> 131
<INTEREST-EXPENSE> 331
<INCOME-PRETAX> 15,366
<INCOME-TAX> 7,751
<INCOME-CONTINUING> 7,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,615
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SYMANTEC CORPORATION'S QUARTERLY REPORT ON FORM 10-Q/A FOR THE THREE MONTH
PERIOD ENDED JUNE 30, 1997 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> APR-03-1998
<PERIOD-START> MAR-29-1997
<PERIOD-END> JUL-04-1997
<CASH> 111,712
<SECURITIES> 75,560
<RECEIVABLES> 42,582
<ALLOWANCES> (4,333)
<INVENTORY> 3,293
<CURRENT-ASSETS> 256,153
<PP&E> 142,111
<DEPRECIATION> (90,657)
<TOTAL-ASSETS> 362,842
<CURRENT-LIABILITIES> 111,031
<BONDS> 15,059
0
0
<COMMON> 557
<OTHER-SE> 236,195
<TOTAL-LIABILITY-AND-EQUITY> 362,842
<SALES> 123,059
<TOTAL-REVENUES> 123,059
<CGS> 20,920
<TOTAL-COSTS> 20,920
<OTHER-EXPENSES> 92,270
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 24,072
<INCOME-TAX> 5,537
<INCOME-CONTINUING> 18,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,535
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.32
</TABLE>
