<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31,
1999.
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.)
20330 STEVENS CREEK BLVD.
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 1,460,910 shares of Delrina exchangeable stock, as
of January 28, 2000:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 59,393,072 SHARES
- --------------------------------------------------------------------------------
<PAGE> 2
SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of December 31, 1999 and March 31, 1999........................... 3
Condensed Consolidated Statements of Income
for the three and nine months ended December 31, 1999 and 1998....... 4
Condensed Consolidated Statements of Cash Flow
for the three and nine months ended December 31, 1999 and 1998....... 5
Notes to Condensed Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............. 36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 37
Item 6. Exhibits and Reports on Form 8-K........................................ 37
Signatures...................................................................... 38
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1999 1999
- ------------------------------------------------------------------ ------------ ---------
ASSETS (unaudited)
- ------
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments $ 404,461 $ 192,755
Trade accounts receivable 45,708 76,386
Inventories 7,728 6,377
Deferred income taxes 41,972 22,636
Other 11,780 12,790
--------- ---------
Total current assets 511,649 310,944
Long-term investments -- 4,270
Restricted investments 80,951 71,405
Equipment and leasehold improvements, net 54,941 52,887
Deferred income taxes 34,913 5,519
Purchased product rights and capitalized software, net 30,324 36,209
Goodwill, net 69,558 75,224
Other 10,033 7,018
--------- ---------
$ 792,369 $ 563,476
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,101 $ 45,862
Accrued compensation and benefits 22,683 20,788
Deferred revenue 85,935 55,965
Other accrued expenses 56,572 75,954
Income taxes payable 23,065 18,339
--------- ---------
Total current liabilities 230,356 216,908
Long-term obligations 975 1,455
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 59,116
and 56,872 shares, respectively) 591 569
Capital in excess of par value 399,147 315,698
Notes receivable from stockholders (24) (144)
Unearned compensation (839) --
Retained earnings 178,523 48,100
Accumulated other comprehensive loss (16,360) (19,110)
--------- ---------
Total stockholders' equity 561,038 345,113
--------- ---------
$ 792,369 $ 563,476
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE> 4
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -----------------------
(In thousands, except per share
data; unaudited) 1999 1998 1999 1998
- -------------------------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 200,847 $ 155,206 $ 558,520 $ 423,010
Cost of revenues 30,799 26,488 92,064 68,108
----------- ----------- --------- ---------
Gross margin 170,048 128,718 466,456 354,902
Operating expenses:
Research and development 28,674 24,407 83,583 75,143
Sales and marketing 80,603 71,815 230,030 212,212
General and administrative 12,673 8,436 31,427 27,692
Amortization of goodwill 4,287 1,966 13,391 3,068
Amortization of intangibles from
acquisitions 250 90 657 97
Acquired in-process research
and development -- 7,560 1,200 26,725
Restructuring and other expenses 2,246 -- 5,059 5,105
Litigation judgment -- -- -- 5,825
----------- ----------- --------- ---------
Total operating expenses 128,733 114,274 365,347 355,867
----------- ----------- --------- ---------
Operating income (loss) 41,315 14,444 101,109 (965)
Interest income 3,116 2,676 7,829 11,157
Interest expense -- (475) (22) (1,126)
Income, net of expense, from sale of
technologies and product lines 89,967 9,850 99,867 35,198
Other income 771 420 982 2,500
----------- ----------- --------- ---------
Income before income taxes 135,169 26,915 209,765 46,764
Provision for income taxes 46,156 11,032 71,193 21,321
----------- ----------- --------- ---------
Net income $ 89,013 $ 15,883 $ 138,572 $ 25,443
=========== =========== ========= =========
Net income per share - basic $ 1.52 $ 0.29 $ 2.42 $ 0.45
=========== =========== ========= =========
Net income per share - diluted $ 1.41 $ 0.28 $ 2.27 $ 0.44
=========== =========== ========= =========
Shares used to compute net income
per share - basic 58,400 55,531 57,265 56,675
=========== =========== ============= =========
Shares used to compute net income
per share - diluted 63,020 57,633 61,058 59,652
=========== =========== ========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE> 5
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
-----------------------
(In thousands; unaudited) 1999 1998
- --------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 138,572 $ 25,443
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment and leasehold
improvements 18,133 19,145
Amortization and write-off of capitalized software
development costs 7,792 3,952
Amortization of goodwill 13,391 3,068
Write-off of acquired in-process research and development 1,200 26,725
Write-off of equipment and leasehold improvements 2,097 294
Deferred income taxes (26,273) (2,237)
Gain on divestiture of ACT! product line (18,285) --
Gain on divestiture of Visual Cafe product line (68,523) --
Net change in assets and liabilities, excluding effects
of acquisitions:
Trade accounts receivable 28,744 11,095
Inventories (2,045) (3,328)
Other current assets 967 2,317
Other assets (370) 490
Accounts payable (3,186) 1,951
Accrued compensation and benefits 2,931 (2,771)
Deferred revenue 29,970 20,553
Other accrued expenses 3,881 (6,969)
Income taxes payable 5,243 (13,869)
Income tax benefit from stock options 40,547 --
--------- ---------
Net cash provided by operating activities 174,786 85,859
--------- ---------
Investing Activities:
Capital expenditures (23,215) (19,177)
Purchased product rights (1,000) (3,901)
Proceeds from divestiture of Visual Cafe product line 75,000 --
Purchase of URLabs (42,100) --
Payment of debt related to purchase of IBM's anti-virus business (8,000) (8,000)
Purchase of remaining minority interest in Quarterdeck (16,394) --
Purchase of majority interest in Quarterdeck -- (30,278)
Purchase of Intel's anti-virus business -- (11,889)
Purchase of Binary Research Limited's operations -- (27,500)
Purchases of marketable securities (180,044) (128,633)
Proceeds from sales of marketable securities 52,551 212,018
Purchases of long-term, restricted investments (9,546) (9,507)
Proceeds from sales of long-term investments 4,270 --
--------- ---------
Net cash used in investing activities (148,478) (26,867)
---------- ---------
Financing Activities:
Repurchases of common stock (18,722) (56,341)
Net proceeds from sales of common stock and other 51,364 16,739
Principal payments on long-term obligations (480) --
--------- ---------
Net cash provided by (used in) financing activities 32,162 (39,602)
--------- ---------
Effect of exchange rate fluctuations on cash and cash equivalents 1,245 (8,252)
--------- ---------
Increase in cash and cash equivalents 59,715 11,138
Beginning cash and cash equivalents 153,873 139,013
--------- ---------
Ending cash and cash equivalents $ 213,588 $ 150,151
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
5
<PAGE> 6
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Symantec Corporation
("Symantec" or the "Company") as of December 31, 1999, and for the three and
nine months ended December 31, 1999 and 1998, 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 condensed 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, 1999. The results of operations for the three and
nine months ended December 31, 1999 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.
Symantec has a 52-week fiscal accounting year. Accordingly, all references as of
and for the periods ended December 31, 1999, March 31, 1999 and December 31,
1998 reflect amounts as of and for the periods ended December 31, 1999, April 2,
1999 and January 1, 1999, respectively. The three months ended December 31, 1999
and 1998 comprised 13 weeks of activity. The nine months ended December 31, 1999
and 1998 comprised 39 weeks of activity.
On December 31, 1999, the Company divested its ACT! and Visual Cafe product
lines. Because the divestitures of the ACT! and Visual Cafe product lines were
effective at the close of business on December 31, 1999, these product lines are
included in the results of operations for the quarters and nine months ended
December 31, 1999 and 1998.
During the September 1999 quarter, the Company acquired Unified Research
Laboratories, Inc. (URLabs), an internet access control and email scanning
company. During the December 1998 quarter, the Company completed its tender
offer for 63% interest in Quarterdeck Corporation (Quarterdeck). In the March
1999 quarter, the Company acquired the remaining 37% interest in Quarterdeck.
During the December 1998 quarter, the Company acquired Intel Corporation's
(Intel) anti-virus business. During the June 1998 quarter, the Company acquired
International Business Machine's (IBM) anti-virus business and the operations of
Binary Research Limited (Binary) (See Note 9 of Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). Each of these acquisitions was
accounted for as a purchase. The results of operations from these acquisitions
have been included in Symantec's results of operations from their respective
dates of acquisition.
6
<PAGE> 7
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1999 1999
- --------------------------------------------------------------- ------------ ---------
<S> <C> <C>
(unaudited)
Cash, cash equivalents and short-term investments:
Cash $ 81,715 $ 41,031
Cash equivalents 131,873 112,842
Short-term investments 190,873 38,882
--------- ---------
$ 404,461 $ 192,755
========= =========
Trade accounts receivable:
Receivables $ 52,512 $ 81,332
Less: allowance for doubtful accounts (6,804) (4,946)
--------- ---------
$ 45,708 $ 76,386
========= =========
Inventories:
Raw materials $ 2,179 $ 1,887
Finished goods 5,549 4,490
--------- ---------
$ 7,728 $ 6,377
========= =========
Equipment and leasehold improvements, net:
Computer hardware and software $ 143,592 $ 134,745
Office furniture and equipment 35,338 33,705
Leasehold improvements 20,057 22,516
--------- ---------
198,987 190,966
Less: accumulated depreciation and amortization (144,046) (138,079)
--------- ---------
$ 54,941 $ 52,887
========= =========
Purchased product rights and capitalized software, net:
Purchased product rights and technologies $ 48,346 $ 47,181
Capitalized software development costs 2,397 2,377
Less: accumulated amortization of purchased product rights (18,037) (11,112)
Less: accumulated amortization of capitalized software costs (2,382) (2,237)
--------- ---------
$ 30,324 $ 36,209
========= =========
Goodwill, net:
Goodwill $ 89,125 $ 81,400
Less: accumulated amortization (19,567) (6,176)
--------- ---------
$ 69,558 $ 75,224
========= =========
Accumulated other comprehensive loss:
Unrealized gain (loss) on available-for-sale investments $ 3,178 $ (304)
Cumulative translation adjustment (19,538) (18,806)
--------- ---------
$ (16,360) $ (19,110)
========= =========
</TABLE>
7
<PAGE> 8
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. NET INCOME PER SHARE
The components of net income per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
(In thousands, except per share
data; unaudited) 1999 1998 1999 1998
- ------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Net income $ 89,013 $ 15,833 $ 138,572 $ 25,443
========= ========= ========= =========
Weighted average number of common
shares outstanding during the period 58,400 55,531 57,265 56,675
========= ========= ========= =========
Basic net income per share $ 1.52 $ 0.29 $ 2.42 $ 0.45
========= ========= ========= =========
DILUTED NET INCOME PER SHARE
Net income $ 89,013 $ 15,833 $ 138,572 $ 25,443
Interest on convertible subordinated
debentures, net of income tax effect -- 169 -- 507
--------- --------- --------- ---------
Net income, as adjusted $ 89,013 $ 16,052 $ 138,572 $ 25,950
========= ========= ========= =========
Weighted average number of common
shares outstanding during the period 58,400 55,531 57,265 56,675
Shares issuable from assumed exercise
of options 4,620 912 3,793 1,787
Shares issuable from assumed conversion
of convertible subordinated debentures -- 1,190 -- 1,190
--------- --------- -------- ----------
Total shares for purpose of calculating
diluted net income per share 63,020 57,633 61,058 59,652
========= ========= ========= =========
Diluted net income per share $ 1.41 $ 0.28 $ 2.27 $ 0.44
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
(In thousands; unaudited) 1999 1998 1999 1998
- -------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Personnel severance $ 2,246 $ -- $ 5,059 3,800
Planned abandonment of manufacturing
facility lease -- -- -- 1,305
--------- --------- --------- ---------
Total restructuring and other expenses $ 2,246 $ -- $ 5,059 $ 5,105
========= ========= ========= =========
</TABLE>
In October 1999, the Company reduced a portion of its Internet Tools business
unit's workforce, and, in December 1999, the Company reduced a portion of its
Sales workforce. There were 48 employees affected in the Internet Tools business
unit resulting in approximately $1.4 million of severance, related benefits and
outplacement services which was accrued during the December 1999 quarter. There
were 10 employees in the Sales workforce affected, resulting in approximately
$0.8 million of severance, related benefits and outplacement services which was
accrued in the December 1999 quarter.
During the quarter ended September 30, 1999, the Company provided approximately
$0.7 million for costs of severance, related benefits and outplacement services
for 2 members of senior management due to the realignment of its business units
and their resulting departures.
In the June 1999 quarter, the Company provided approximately $2.7 million for
certain costs related to an agreement reached with its former CEO.
During the quarter ended September 30, 1998, the Company made a decision to
restructure its operations and outsource its domestic manufacturing operations.
As a result, it recorded a $3.8 million charge for personnel severance to reduce
the workforce by approximately 5% in both domestic and international operations
and a $1.3 million charge for the planned abandonment of a manufacturing
facility lease. As of September 30, 1999, the Company revised its original
estimates which identified $0.6 million was no longer considered necessary. As a
result, the Company reduced the personnel severance accrual by $0.6 million.
9
<PAGE> 10
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. COMPREHENSIVE INCOME
The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
(In thousands; unaudited) 1999 1998 1999 1998
- ------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 89,013 $ 15,883 $ 138,572 $ 25,443
Other comprehensive (loss) income:
Change in unrealized gain (loss) on
available-for-sale investments,
net of a tax provision (benefit)
of $1,562, ($184), $1,630,
and ($222) 3,319 (392) 3,464 (472)
Reclassification adjustment for
(gains) losses included in net
income, net of a tax provision
(benefit) of ($8) and $146 -- -- 18 (310)
Change in cumulative translation
adjustment, net of a tax benefit
of ($1,933), ($62), ($344), and
($1,330) (4,108) (131) (732) (5,394)
--------- --------- --------- ---------
Total other comprehensive (loss) income (789) (523) 2,750 (6,176)
--------- --------- --------- ---------
Comprehensive income $ 82,224 $ 15,360 $ 141,322 $ 19,267
========= ========= ========= =========
</TABLE>
NOTE 6. RESTRICTED STOCK
In April 1999, the Company issued 100,000 shares of restricted common stock to
its new CEO at $0.01 per share. Unearned compensation of approximately $1.3
million, equivalent to the market value of the common stock on the date of grant
was charged to stockholders' equity and will subsequently be amortized over 2
years, the vesting period of the restricted common stock. For the three and nine
months ended December 31, 1999, the Company recorded approximately $0.2 million
and $0.5 million, respectively, of expense, relating to the restricted common
stock.
NOTE 7. LITIGATION AND CONTINGENCIES
On March 18, 1996, a class action complaint was filed by the law firm of
Milberg, Weiss, Bershad, Hynes & Lerach in the 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 Company's stock price and then sold stock based on inside
information that the Company's sales were not going to meet analysts'
expectations. The complaint seeks damages of 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. 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
was granted in part, substantially narrowing the complaint. In July 1999, the
parties reached an agreement in principle to settle these cases on terms that
would have no material financial impact on the Company. In October 1999, the
Federal Court approved the settlement, and in December
10
<PAGE> 11
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1999, the state court action was also dismissed.
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 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, Racketeer Influenced and Corrupt
Organizations Act (RICO) and related claims based on additional evidence
uncovered in the litigation. Following motions by Network Associates, the court
dismissed Symantec's unfair competition and trade secret claims regarding the
copyrighted code and its RICO and interference claims. On October 22, 1998, the
court consolidated this case with the case against Network Associates and the
case brought by CyberMedia, both of which are described below. In December 1999,
the parties agreed to a settlement resolving this and the consolidated cases
discussed below. During the December 1999 quarter, the Company accrued
approximately $3 million related to fees and settlement costs. As of December
31, 1999, the Company believes it has adequately accrued for the settlement and
related legal costs.
On December 4, 1998, Symantec filed a lawsuit against Network Associates in the
United States District Court, Northern District of California, for copyright
infringement, trade secret misappropriation and unfair competition. This case
was also settled as part of the above mentioned case.
On February 4, 1998, CyberMedia, Inc. (CyberMedia), which in December 1998 was
acquired by Network Associates, filed a lawsuit in the United States District
Court, Northern District of California, against Symantec, ZebraSoft Inc. and
others, alleging that Symantec's Norton Uninstall Deluxe infringes CyberMedia's
copyright and asserting related state law claims. This case was resolved as part
of the settlement with Network Associates described above.
On December 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, costs and attorney
fees. Symantec believes this claim has no merit and intends to defend the action
vigorously.
On February 19, 1998, a class action complaint was filed by the law firm of
Milberg, Weiss, Bershad, Hynes & Lerach 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. Those actions were consolidated and a consolidated amended complaint was
filed in late October 1998. The complaint originally purported to assert claims
for breach of implied warranty, fraud, unfair business practices and violation
of California's Consumer Legal Remedies Act, among others, arising from the
alleged inability of earlier versions of Norton AntiVirus to function properly
after the year 2000. All but the unfair business practice claims have been
dismissed following Symantec's demurrer. The complaint seeks unspecified damages
and injunctive relief. Symantec believes that these claims have no merit and
intends to defend the actions vigorously.
In July 1998, the Ontario Court of Justice (General Division) ruled that
Symantec should pay a total of approximately $6.8 million for damages and legal
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
11
<PAGE> 12
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 has appealed the decision. Symantec recorded a charge of
$5.8 million in June 1998, representing the unaccrued portion of the judgment
plus costs. As of December 31, 1999, the Company believes that it has adequately
accrued for both the judgment and all legal costs.
In March 1997, a class action complaint was filed against Quarterdeck in San
Diego County Superior Court. The case was later transferred to Los Angeles
County Superior Court. The complaint, purportedly on behalf of a class of
purchasers of Quarterdeck's MagnaRAM2 product, sought damages and injunctive
relief under the Consumers Legal Remedies Act and Business and Professions Code
sections beginning with 17200 and 17500. In November 1999, the parties resolved
this case with no material financial impact on the Company.
In October 1997, a complaint was filed in the United States District Court for
the District of Utah on behalf of PowerQuest Corporation (PowerQuest) against
Quarterdeck. The complaint alleges that Quarterdeck's partitioning software
(included in Partition-It and Partition-It Extra Strength) violates a patent
held by PowerQuest. In January 1998, PowerQuest obtained a second patent
relating to partitioning and has amended its complaint to allege infringement of
that patent as well. The plaintiff seeks an injunction against distribution of
Partition-It and Partition-It Extra Strength and monetary damages. Symantec
believes this claim has no merit and intends to defend the action vigorously.
On July 30, 1998, a class action complaint was filed against Quarterdeck in the
Supreme Court of the State of New York, County of New York, on behalf of a
purported class of purchasers of Procomm Plus version 4.0 for Windows product
(Product). The complaint purported to assert claims for breach of warranty and
violation of New York's Consumer Protection From Deceptive Acts and Practices
Act arising from the Product's inability to process dates containing the year
2000. The complaint was dismissed and the court entered judgment in
Quarterdeck's favor in April 1999. This judgment was affirmed on appeal in
December 1999.
On December 23, 1999, Altiris Inc. (Altiris) filed a lawsuit in the United
States District Court, District of Utah, against Symantec, alleging that
unspecified Symantec products including Norton Ghost Enterprise Edition,
infringed a patent owned by Altiris. The lawsuit requests damages, injunctive
relief, costs and attorney fees. Symantec believes this claim has no merit and
intends to defend the action vigorously.
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 also 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 8. STOCK REPURCHASES
On March 22, 1999, the Board of Directors (the "Board") of Symantec authorized
the repurchase of up to $75 million of Symantec's outstanding common stock. As
of December 31, 1999, the Company has repurchased
12
<PAGE> 13
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1 million shares at prices ranging from $17.90 to $19.90, for an aggregate
amount of $18.7 million. As of December 31, 1998, the Company completed a
previous stock repurchase totaling approximately 2.9 million shares for
approximately $56.3 million.
NOTE 9. DIVESTITURES AND ACQUISITIONS
Divestiture of the Visual Cafe product line
On December 31, 1999, pursuant to an Asset Purchase Agreement, the Company sold
the principal assets and liabilities of the Visual Cafe product line to BEA
Systems, Inc. and WB Information Corporation (collectively "Buyer"). The assets
primarily consisted of fixed assets and intangible assets. The liabilities
related to certain revenue deferrals recorded on the Company's balance sheet as
of December 31, 1999. In exchange for the assets and liabilities sold to Buyer,
Symantec received $75 million in a lump-sum cash payment on December 31, 1999.
The Company wrote off or transferred approximately $4.7 million in capitalized
software, fixed assets and inventory related to the Visual Cafe product line. In
addition, the Company accrued approximately $1.4 million in transaction costs
and approximately $0.4 million in retention packages for the affected employees.
As a result, the Company recorded a pre-tax gain of approximately $68.5 million
on the sale, which is recorded in Income, net of expenses, from sale of
technologies and product lines on the Condensed Consolidated Statements of
Income.
For a period up to June 30, 2000, the Company and Buyer will work together in
accordance with a transition agreement. Under this transition agreement, Buyer
will pay Symantec a fee for invoicing, collecting receivables, shipping and
other operational and support activities, until such time as the Buyer has the
ability to take over these activities, but no later than June 30, 2000. The
Company believes these fees will approximate the costs incurred during the
transition period to provide these services.
Divestiture of the ACT! product line
On December 31, 1999, pursuant to an exclusive Software License Agreement (SLA)
the Company licensed, on an exclusive basis, to SalesLogix Corporation
(SalesLogix) substantially all of the ACT! product line technology for a period
of four years. In addition, the Company sold to SalesLogix the inventory and
fixed assets related to the ACT! product line. In consideration for the license
and assets, SalesLogix transferred to Symantec 623,247 shares of its
unregistered Common Stock. The shares were valued at approximately $20 million
as of December 6, 1999, the date the SLA was signed and the date the number of
shares was determined. In addition to the shares received from SalesLogix,
Symantec will receive quarterly royalty payments for four years, beginning on or
about March 31, 2000. SalesLogix will pay royalties based on a formula set forth
in the SLA, up to an aggregate maximum of $57 million. Because the royalties are
not guaranteed and the quarterly amounts to be received are not determinable at
December 31, 1999, the Company will recognize the royalties as earned. At the
end of the four year period, SalesLogix has the exclusive option, for a period
of 30 days, to purchase the licensed technology for $60 million less all
royalties paid to the Company to date. As a result of the SLA, the Company
recognized approximately $20 million from the shares received and wrote off or
transferred to SalesLogix approximately $0.4 million of inventory and fixed
assets attributed to the ACT! product line. In addition, the Company accrued
approximately $1.3 million for transaction related costs incurred at December
31, 1999. After recognizing the above amounts, the Company recorded a pre-tax
gain of approximately $18.3 million on this transaction, which is recorded in
Income, net of expenses, from sale of technologies and product lines on the
Condensed Consolidated Statements of Income.
From December 31, 1999 to March 31, 2000, Symantec and SalesLogix will work
together in accordance with a transition agreement. Under the transition
agreement, SalesLogix will pay Symantec a fee for invoicing, collecting
receivables, shipping, and other operational and support activities until such
time as SalesLogix takes over these activities, but no later than March 31,
2000. The Company believes these fees will approximate the costs incurred during
the transition period to provide these services.
13
<PAGE> 14
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Acquisition of URLabs
On July 21, 1999, the Company purchased 100% of the outstanding common stock of
URLabs for $41.5 million plus $0.6 million of acquisition related costs. The
transaction was accounted for as a purchase. In connection with the transaction,
Symantec recorded approximately $1.2 million for in-process research and
development, $37 million for goodwill, $5 million for capitalized software
technology and $1.6 million for other intangible assets, offset by approximately
$2.7 million in related income tax liabilities. A valuation specialist used
management's estimates to establish the amount of in-process research and
development. The goodwill and other intangibles are being amortized over a
5-year period. For the quarter ended December 31, 1999, the Company recorded
approximately $1.9 million for goodwill amortization and approximately $0.3
million for the amortization of other acquisition related intangible assets. For
the nine months ended December 31, 1999, the Company recorded approximately $3.0
million for goodwill amortization and approximately $0.6 million for the
amortization of other acquisition related intangible assets.
Acquisition of Quarterdeck
On October 15, 1998, Symantec signed a definitive merger agreement to acquire
Quarterdeck. On November 17, 1998, the Company completed its tender offer for
the common stock of Quarterdeck acquiring an approximately 63% interest. On
March 29, 1999, Symantec acquired Quarterdeck's remaining shares through a cash
merger at the tender offer price of $0.52 per share in accordance with the
definitive merger agreement. The transaction was accounted for as a purchase. In
connection with the transaction, the Company recorded approximately $8 million
of acquired in-process research and development, $8 million of capitalized
software technology, $66 million of goodwill and $3 million of other
intangibles. A valuation specialist used management's estimates to establish the
amount of in-process research and development. The amounts related to workforce
in place is being amortized over 2 years. The capitalized software, goodwill and
other intangibles will be amortized over a 5-year period. In addition,
Quarterdeck had issued $25 million of 6% convertible senior subordinated notes,
due in 2001, to an institutional investor in a private placement pursuant to the
terms of a Note Agreement dated March 1, 1996. The Notes were paid in full
without any premium on March 30, 1999. During the December 1999 quarter, the
Company reduced the purchase price and the amount allocated to goodwill by $1.5
million due to certain changes in estimates related to acquisition related
liabilities. In addition, the Company reduced the amount allocated to goodwill
by $26 million due to a change in the characterization of the purchase for tax
purposes. As a result of this change the amount of deferred tax assets were
increased by $26 million. For the quarter ended December 31, 1999, the Company
recorded approximately $2.7 million in amortization expense related to these
assets. For the nine month period ended December 31, 1999, the Company recorded
approximately $10.4 million in amortization expense related to these assets.
Acquisition of Intel's anti-virus business
On September 28, 1998, Symantec entered into an agreement whereby it purchased
Intel Corporation's anti-virus business for approximately $16.5 million.
Symantec also licensed Intel's systems management technology which combined with
its own anti-virus technology to create improved anti-virus management solutions
for corporate organizations. As part of the agreement, Intel continued to
support its anti-virus customers and transitioned support to Symantec at the end
of June 1999. The transaction was accounted for as a purchase. Under the
transaction, Symantec recorded approximately $5.0 million for in-process
research and development acquired from Intel, $10.7 million for capitalized
software technology and $0.8 million for certain intangible assets. A valuation
specialist used management's estimates to establish the amount of in-process
research and development. The capitalized software is being amortized over a
5-year period. For both the quarters ended December 31, 1999 and 1998, the
Company recorded approximately $0.6 million in amortization expense related to
capitalized software and other acquired intangibles. For the nine month periods
ended December 31, 1999 and 1998, the Company recorded
14
<PAGE> 15
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
approximately $1.7 million and $0.6 million in amortization expense related to
capitalized software and other acquired intangibles, respectively.
Acquisition of Binary operations
On June 24, 1998, Symantec entered into an agreement whereby Symantec purchased
the operations of Binary, an Auckland, New Zealand based company, for $27.8
million plus $0.7 million of acquisition related costs. The transaction was
accounted for as a purchase. Under the transaction, Symantec originally recorded
approximately $7.1 million for acquired in-process research and development,
$16.9 million for capitalized software technology, with the remaining $3.8
million of the purchase price allocated to goodwill, net tangible and intangible
assets. A valuation specialist used management's estimates to establish the
amount of in-process research and development. During the June 1999 quarter, the
Company reduced the amount allocated to goodwill by $2.3 million due to certain
changes in estimates in acquisition related liabilities. The remaining
capitalized software, goodwill and intangibles are being amortized over a 4-year
period. For the quarters ended December 31, 1999 and 1998, the Company incurred
approximately $1.1 million and $1.3 million, respectively, of amortization
expense related to these assets. For the nine months ended December 31, 1999 and
1998, the Company incurred approximately $3.3 million and $3.0 million,
respectively, of amortization expense related to these assets.
Acquisition of IBM's anti-virus business
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. 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. Goodwill is being amortized over 5 years. During the December 1999
quarter, Symantec made the final payment under the Master Agreement of $4
million. For each of the quarters ended December 31, 1999 and 1998, the Company
incurred approximately $0.9 million of amortization expense related to these
assets. For the nine months ended December 31, 1999 and 1998, the Company
incurred approximately $2.7 million and $1.7 million, respectively, of
amortization expense related to these assets.
15
<PAGE> 16
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PRO FORMA. The following unaudited pro forma results of operations for the three
and nine month periods ended December 31, 1998 are as if the acquisitions of
Binary and Quarterdeck had occurred at the beginning of each period. 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 each period presented or of future operating
results.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, 1998 December 31, 1998
----------------- -----------------
(In thousands, except per share data;
unaudited)
- --------------------------------------
<S> <C> <C>
Net revenues $ 155,481 $ 442,961
========= =========
Net income $ 17,811 $ 36,073
========= =========
Basic net income per share $ 0.32 $ 0.64
========= =========
Diluted net income per share $ 0.31 $ 0.61
========= =========
</TABLE>
NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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. In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, which defers the adoption of SFAS No. 133 for one
year. SFAS 133 will be effective for Symantec at the beginning of the June 2001
quarter for both annual and interim reporting periods. Symantec is evaluating
the potential impact of this accounting pronouncement on its required
disclosures and accounting practices.
NOTE 11. SEGMENT INFORMATION
Symantec markets its products in North America and international countries
primarily through retail and distribution channels. Symantec's operating
segments are significant strategic business units that offer different products
and services, distinguished by customer needs. The Company has four operating
and reportable segments: Remote Productivity Solutions, Security and Assistance,
Internet Tools and Corporate Sunset. There are no intersegment sales. Symantec's
Chief Executive Officer evaluates performance based on profit or loss from
operations before income taxes, excluding nonrecurring gains and losses, foreign
exchange gains and losses and miscellaneous other income and expenses.
Non-segment items include all general and administrative expenses and charges
that are one-time in nature, such as acquired in-process research and
development, legal judgments/settlements and restructuring and other expenses,
and are not allocated to the business units. Assets and liabilities are not
discretely reviewed by segment, and except as discussed in Note 9 related to the
divestiture of the ACT! and Visual Cafe product lines, which are included in
Remote Productivity Solutions, and represent substantially all of the Internet
Tools segment, respectively, they have not significantly changed since the
Company's previously filed Form 10-K for the year ended March 31, 1999.
16
<PAGE> 17
SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following tables summarize each segment's net revenues from external
customers, operating income (loss) and geographical information:
<TABLE>
<CAPTION>
Remote Security Non-
Productivity and Internet Corporate Total Segment Total
(In thousands; unaudited) Solutions Assistance Tools Sunset Segments Items Company
- -------------------------- ------------ ---------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
December 31, 1999:
Net revenues from
external customers $ 66,400 $ 130,163 $ 4,175 $ 109 $ 200,847 $ -- $ 200,847
Operating income (loss) 28,685 44,842 (2,627) (2,706) 68,194 (26,879) 41,315
Three Months Ended
December 31, 1998:
Net revenues from
external customers 57,244 94,606 3,373 (17) 155,206 -- 155,206
Operating income (loss) 23,159 37,520 (5,347) (3,738) 51,594 (37,150) 14,444
Nine Months Ended
December 31, 1999:
Net revenues from
external customers 190,014 355,698 12,118 690 558,520 -- 558,520
Operating income (loss) 75,383 117,790 (10,104) (7,537) 175,532 (74,423) 101,109
Nine Months Ended
December 31, 1998:
Net revenues from
external customers 166,339 238,691 17,419 561 423,010 -- 423,010
Operating income (loss) 64,502 80,703 (9,736) (21,268) 114,201 (115,166) (965)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ------------------------
(In thousands; unaudited) 1999 1998 1999 1998
- ------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues from external customers:
United States $ 109,728 $ 85,432 $ 309,875 $ 251,967
Other foreign countries 91,119 69,774 248,645 171,043
--------- ---------- ---------- ----------
$ 200,847 $ 155,206 $ 558,520 $ 423,010
========= ========== ========== ==========
</TABLE>
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS RISK FACTORS
The following discussion contains forward-looking statements that involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others things, those risk factors set forth in this
section and elsewhere in this report. We identify forward-looking statements by
words such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or similar terms that refer to the future. We cannot guarantee future results,
levels of activity, performance or achievements.
THE MARKET FOR OUR PRODUCTS IS INTENSELY COMPETITIVE AND WE EXPECT THAT
COMPETITION WILL CONTINUE AND MAY INCREASE. Our intensely competitive market is
influenced by the strategic direction of major microcomputer hardware
manufacturers and operating system providers. Our competitiveness depends on our
ability to enhance existing products and to offer successful new products on a
timely basis. We have limited resources and must restrict product development
efforts to a relatively small number of projects.
WE FACE INTENSE PRICE-BASED COMPETITION FOR SALES OF OUR PRODUCTS. Price
competition is often intense in the microcomputer software market, especially
for utility and anti-virus products. Many of our competitors have significantly
reduced the price of utility and anti-virus products. Price competition may
continue to increase and become even more significant in the future, which could
result in reducing our profit margins.
INTRODUCTION OF NEW OPERATING SYSTEMS MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR
FINANCIAL RESULTS AND STOCK PRICE. If we are unable to successfully and timely
develop products that operate under existing or new operating systems, or if
pending or actual releases of the new operating systems delay the purchase of
our products, our future net revenues and operating results could be materially
adversely affected.
Inclusions of features by Microsoft in new versions of Windows, such as Windows
2000 and Windows 98 Second Edition, which directly compete with our products,
may decrease or delay the demand for certain of our products, including those
currently under development and products specifically intended for Windows 2000.
Additionally, as hardware vendors incorporate additional server-based network
management and security tools into network operating systems, the demand may
decrease for some of our products, including those currently under development.
Our financial results and our stock price declined significantly within
approximately 6 months after the releases of Windows 3.1, Windows 95 and Windows
98, which in some cases also caused the additional requirement for hardware
upgrades, resulting in shifts in customer spending from software to hardware.
Windows 2000 is expected to be released beginning in mid February 2000, and, as
a result, we could face adverse financial results and additional stock price
declines.
With the rise of Linux-based operating systems being introduced into the market,
we may lose market share if we are unable to capture the Linux-based market
timely and effectively.
OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Due to the
factors noted throughout this section, our earnings and stock price have been
and may continue to be subject to significant volatility. There have been
previous quarters in which we have experienced shortfalls in revenue and
earnings from levels expected by securities analysts and investors, which have
had an immediate and significant adverse effect on the trading price of our
common stock. This may occur again in the future.
WE MUST MANAGE AND RESTRUCTURE OUR EXPANDING OPERATIONS EFFECTIVELY. We
continually evaluate our product and corporate strategy. We have recently
undertaken organizational changes, particularly related to our focus on the
enterprise market. We also have divested the Visual Cafe product line and
substantially all of the ACT! product line in order to effectively direct our
focus. It is likely that we will undertake additional organizational changes
and/or product and marketing strategy modifications in the future. As a result
of these changes, we have experienced
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
several changes in our management. These organizational changes increase the
risk that objectives will not be met due to the allocation of valuable limited
resources to implement changes and we may not be able to replace lost net
revenues and earnings from our recent divestitures. Further, due to the
uncertain nature of any of these undertakings, these efforts may not be
successful and we may not realize any benefit from these efforts.
OUR SOFTWARE PRODUCTS AND WEB SITE MAY BE SUBJECT TO INTENTIONAL DISRUPTION.
Although we believe we have sufficient controls in place to prevent intentional
disruptions, we expect to be an ongoing target of such disruptions, such as
software viruses specifically designed to impede the performance of our
products. To date, we have not been significantly affected by any such attempts.
Such viruses could be created and deployed against our products in the future.
Similarly, experienced computer programmers, or hackers, may attempt to
penetrate our network security or the security of our web site. A hacker who
penetrates our network or web site could misappropriate proprietary information
or cause interruptions of our services. We might be required to expend
significant capital and other resources to protect against, or to alleviate,
problems caused by virus creators and hackers.
WE MAY EXPERIENCE REDUCED DEMAND FOR OUR PRODUCTS DUE TO CHANGES IN CUSTOMER
BEHAVIOR RESULTING FROM YEAR 2000 PREPARATION. With the significant focus on
Year 2000 compliance and functionality, many enterprise customers used their
Information Technology budgets in 1999 to focus on Year 2000 issues. As a
result, budgets for calendar 2000 may be deployed in areas outside of our
customers' Informational Technology departments. This may result in reduced
sales of our products and services in the first half of calendar 2000. Now that
the Year 2000 rollover has occurred, the demand for our Norton 2000 product will
likely decrease significantly, which may have an adverse affect on our future
operating results.
WE MUST EFFECTIVELY ADAPT TO CHANGES IN THE DYNAMIC TECHNOLOGICAL ENVIRONMENT.
The following critical issues concerning the commercial use of the Internet
remain unresolved and may affect the use of the Internet as a medium to
distribute or support our software products and the functionality of some of our
products:
o security;
o reliability;
o cost;
o ease of use;
o accessibility;
o quality of service; or
o potential tax or other government regulations.
In addition, new technologies, such as non PC-based internet access devices and
handheld organizers are gaining acceptance. We must adapt to these changing
technological demands. If we are unable to timely assimilate changes brought
about by the Internet and non PC-based environments, our future net revenues and
operating results could be adversely affected.
THE RESULTS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE UNCERTAIN. We believe
that we will need to incur significant research and development expenditures to
remain competitive. While we perform extensive usability and beta testing of new
products, the products we are currently developing or may develop in the future
may not be technologically successful. In addition, the length of our product
development cycle has generally been greater than we originally expected. We are
likely to experience delays in future product development. If they are not
technologically successful, our resulting products may not achieve market
acceptance or compete effectively with products of our competitors.
WE ARE DEPENDENT UPON CERTAIN DISTRIBUTION CHANNELS. A large portion of our
sales are made through the retail distribution channel, which is subject to
events that create unpredictable fluctuations in consumer demand. Our
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
retail distribution customers also carry our competitors' products. These
retail distributors may have limited capital to invest in inventory. Their
decisions to purchase our products are partly a function of pricing, terms and
special promotions offered by us and our competitors, over that we have no
control and which we cannot predict. Our agreements with retail distributors are
generally nonexclusive and may be terminated by them or by us without cause.
Some distributors and resellers have experienced financial difficulties in the
past. Distributors that account for a significant portion of our sales may
experience financial difficulties in the future. If these distributors do
experience financial difficulties and we are unable to move their inventories to
other distributors, we may experience reduced sales or increased write-offs,
which would adversely affect our operating results.
WE MAY BE UNSUCCESSFUL IN UTILIZING NEW DISTRIBUTION CHANNELS. We currently
offer a broad range of products and services over the Internet, which is a
relatively new distribution channel for our business. We may not be able to
effectively adapt our existing, or adopt new, methods of distributing our
software products utilizing the rapidly evolving Internet and related
technologies. The adoption of new channels may adversely impact existing
channels and/or product pricing, which may reduce our future revenues and
profitability.
WE DEPEND ON DISTRIBUTION BY VALUE-ADDED RESELLERS AND INDEPENDENT SOFTWARE
VENDORS FOR A SIGNIFICANT PORTION OF OUR REVENUES. We distribute some of our
products through value-added resellers and independent software vendors under
arrangements through which our products are included with these resellers' and
vendors' hardware and software products and services prior to sale by them
through retail channels. If we are unsuccessful in maintaining our current
relationships and securing license agreements with additional value-added
resellers and independent software vendors, or if these resellers and vendors
are unsuccessful in selling their products and services, our future net revenues
and operating results may be adversely affected.
CHANNEL FILL AND PRODUCT RETURNS MAY AFFECT OUR NET REVENUES. Our 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. Distributors, dealers and end users often delay purchases, cancel
orders or return products in anticipation of the availability of the new version
or new product. As a result, distributor inventories may decrease between the
date we announce a new version or new product and the date of release. Channels
may also become filled simply because the distributors do not sell their
inventories to retail distribution or from retailers to end users as
anticipated. If sales to retailers or end-users do 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.
Product returns can occur when we introduce upgrades and new versions of
products or when distributors or retailers have excess inventories. Our return
policy allows distributors, subject to various limitations, to return purchased
products in exchange for new products or for credit towards future purchases.
End users may return our products through dealers and distributors within a
reasonable period from the date of purchase for a full refund. In addition,
retailers may return older versions of our products. We estimate and maintain
reserves for product returns. Future returns could, however, exceed the reserves
we have established, which could have a material adverse affect on our operating
results.
OUR INCREASED SALES OF ENTERPRISE-WIDE SITE LICENSES MAY INCREASE FLUCTUATIONS
IN OUR FINANCIAL RESULTS. We sell enterprise-wide site licenses through the
distribution channel and through corporate resellers. These licensing
arrangements tend to involve a longer sales cycle than sales through other
distribution channels, require greater investment of resources in establishing
the enterprise relationship and can sometimes result in lower operating margins.
The timing of the execution of volume licenses, or their nonrenewal or
renegotiation by large customers, could cause our results of operations to vary
significantly from quarter to quarter and could have a material adverse impact
on our results of operations.
This enterprise market has significantly different characteristics and will
require different skills and resources to penetrate than the retail desktop
application market on which we have concentrated in the past. Since this area is
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
becoming a more significant part of our net revenues, we may experience material
adverse effect on our operating results if we are unsuccessful in capturing or
maintaining a certain level of the enterprise market.
THE TRANSITION TO INTEGRATED SUITES OF UTILITIES MAY RESULT IN REDUCED REVENUES.
Integrated suites of utility products are provided by us and our competitors.
The price of integrated utility suites is significantly less than the aggregate
price of stand-alone products that are included in these utility suites when
sold separately. As a result of the shift to integrated utility suites, price
competition is intense and we have experienced cannibalization of our
stand-alone products that are included within the suite. This may have had an
impact on our net revenues and operating results from selling integrated utility
suites rather than individual products. Additionally, our products may not
compete effectively with competitors' products or integrated utility suites
introduced in the future.
WE DEPEND ON OUR INTERNAL COMMUNICATIONS SYSTEMS THAT MAY BE DISRUPTED. Our
order entry and product shipping centers are geographically dispersed. A
business disruption could occur as a result of natural disasters or the
interruption in service by communications carriers. If our communications
between these centers are disrupted, particularly at the end of a fiscal
quarter, we may suffer an unexpected shortfall in net revenues and a resulting
adverse impact on our operating results. Communications and Internet
connectivity disruptions may also cause delays in customer access to our
Internet-based services or product sales.
WE ARE INVOLVED IN LITIGATION WHICH COULD, AND ANY FUTURE LITIGATION MAY, AFFECT
OUR FINANCIAL RESULTS. From time to time, we may be subject to claims that we
have infringed the intellectual property rights of others, that our products are
not Year 2000 compliant or other product liability claims, or other claims
incidental to our business. We are currently involved in a number of judicial
and administrative proceedings. For a discussion of our current litigation, see
Note 7 of Notes to Condensed Consolidated Financial Statements in this Form
10-Q. We intend to defend and/or pursue all of these lawsuits vigorously. We may
suffer an unfavorable outcome in one or more of these cases. We do not expect
the final resolution of these lawsuits to have a material adverse effect on our
financial position, individually or in the aggregate. However, depending on the
amount and timing of unfavorable resolutions of these lawsuits, our future
results of operations or cash flows could be materially adversely affected in a
particular period.
Intellectual Property Litigation
We have been involved in disputes claiming patent infringement in the past and
are currently involved in a number of patent disputes and litigation. Although
infringement claims may ultimately prove to be without merit, they are expensive
to defend and may consume our resources or divert our attention from day-to-day
operations. If a third party alleges that we have infringed their intellectual
property rights, we may choose to litigate the claim and/or seek an appropriate
license from the third party. If we engage in litigation and the third party is
found to have a valid patent claim against us and a license is not available on
reasonable terms, our business, operating results and financial condition may be
materially adversely affected.
Year 2000 - Product Liability Litigation
We believe the software products that we currently develop and actively market
are Year 2000 compliant for significantly all functionality. However, these
products could contain errors or defects related to the Year 2000. In addition,
earlier versions of our products, those that are not the most currently released
or are not currently being developed, may not be Year 2000 compliant.
Software Defects and Product Liability
Software products frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. We have not
experienced any material adverse effects resulting from any of these defects or
errors to date and we test our products prior to release. Nonetheless, defects
and errors could be found in current versions of our products, future upgrades
to current products or newly developed and released products. Software defects
could result in delays in market acceptance or unexpected reprogramming costs,
which could materially adversely affect our operating results. Most of our
license agreements with customers contain provisions
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
designed to limit our exposure to potential product liability claims. It is
possible, however, that these provisions limiting our liability 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 our business, operating results and financial
condition.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO
ADAPT OUR DEVELOPMENT TO THESE CHANGES. We participate in a highly dynamic
industry characterized by rapid change and uncertainty relating to new and
emerging technologies and markets. Future technology or market changes may cause
certain of our products to become obsolete more quickly than expected.
THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE
EFFECTIVELY. As consolidation in the software industry continues, fewer
companies compete in certain markets, changing the nature of the market and
potentially providing consumers with fewer choices. Also, some of these
companies offer a broader range of products than we do, ranging from desktop to
enterprise solutions. We may not be able to compete effectively against these
competitors. The trend toward consolidation in our industry may result in
increased competition in acquiring these technologies, companies or products,
resulting in increased acquisition costs or the inability to acquire the desired
technologies, companies or products. Any of these changes may have a significant
adverse effect on our future net revenues and operating results. Furthermore, we
use strategic acquisitions, as necessary, to acquire technology, people and
products for our overall product strategy. We have completed a number of
acquisitions and dispositions of technologies, companies and products in the
past 18 months. We may acquire and dispose of other technologies, companies and
products in the future. We may encounter difficulties in integrating the
operations and employees of, and realizing certain economies of scale from, past
and future acquisitions. In addition, we may need to secure financing to pay for
future acquisitions. Acquisition financing may not be available on favorable
terms or at all. We typically incur significant expenses in connection with our
acquisitions. Future acquisitions may have a significant adverse impact on our
future profitability and financial resources.
WE MUST ATTRACT AND RETAIN PERSONNEL WHILE COMPETITION FOR PERSONNEL IN OUR
INDUSTRY IS INTENSE. We believe that our future success will depend in part on
our ability to recruit and retain highly skilled management, marketing and
technical personnel, particularly as we focus on enterprise-wide applications.
Competition in recruiting personnel in the software industry is intense. To
accomplish this, we believe that we must provide personnel with a competitive
compensation package, including stock options which requires ongoing stockholder
approval.
WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. We regard our software
as proprietary and underlying technology as proprietary. We seek to protect our
proprietary rights through a combination of confidentiality agreements and
copyright, patent, trademark and trade secret laws. However, we do not employ
technology to prevent copying of our products. Third parties may copy aspects of
our products or otherwise obtain and use our proprietary information without
authorization or develop similar technology independently. All of our products
are protected by copyright and we have a number of patents and patent
applications pending. We may not achieve the desired protection from, and third
parties may design around, our patents. In addition, existing copyright laws
afford limited practical protection. Furthermore, the laws of some foreign
countries do not offer the same level of protection of our proprietary rights as
the laws of the United States. Any legal action that we may bring to protect
proprietary information could be expensive and may distract management from
day-to-day operations.
WE MAY EXPERIENCE DISRUPTION OF OUR INTERNAL SYSTEMS AS A RESULT OF THE YEAR
2000. In order to prepare for the Year 2000, we completed a major evaluation of
our internal applications, systems and databases. We modified or replaced
portions of our hardware and associated software to enable our operational
systems and networks to function properly with respect to dates January 1, 2000
and thereafter. We will continue to evaluate interfaces between our systems and
third-party systems, such as those of key suppliers, distributors and financial
institutions, for Year 2000 functionality. Although the Year 2000 rollover did
not cause any significant problems, as discussed below, we may still encounter
problems as operations uncover processes not yet utilized. In addition, the
systems of
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
other companies with which we do business may not have completely
addressed Year 2000 problems. Based on this, we expect the process of evaluating
third-party Year 2000 compliance to be ongoing.
Each sub-project has been successfully completed. As a result of the rollover,
we did not experience any significant Year 2000 problems nor any destructive
viruses, either to our organization or to our products in place with customers.
The cost to complete the Year 2000 project was approximately $1.5 million and
has been expensed as incurred.
Following the rollover, we should not suffer significant operational problems
with our computer systems due to the Year 2000. However, we will continue to
monitor any Year 2000 problems, including the any issues related to February
2000, as it is a leap year.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. While
our diverse product line has tended to lessen fluctuations in quarterly net
revenues, these fluctuations have occurred in the past, and may occur in the
future. Fluctuations may be caused by a number of factors, including:
o the timing of announcements and releases of new or enhanced versions
of our products and product upgrades;
o the introduction of competitive products by existing or new
competitors;
o reduced demand for any given product;
o seasonality in the end-of-period buying patterns of foreign and
domestic software markets; and
o the market's transition between operating systems.
A significant proportion of our net revenues are generated during the last month
of a fiscal quarter. Most resellers tend to make a majority of their purchases
at the end of a fiscal quarter. In addition, many enterprise customers negotiate
site licenses near the end of each quarter. In part, this is because these two
groups are able, or believe that they are able, to negotiate lower prices and
more favorable terms. Our reliance on a large proportion of revenue occurring at
the end of the quarter and the increase in the dollar value of transactions that
occur at the end of a quarter can result in increased uncertainty relating to
quarterly revenues. Due to this end-of-period buying pattern, forecasts may not
be achieved, either because expected sales do not occur or because they occur at
lower prices or on terms that are less favorable to us. In addition, these
factors increase the chances that our results could diverge from the
expectations of investors and analysts.
WE FACE RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. A significant portion of
our net revenues, manufacturing costs and operating expenses result from
transactions outside of the United States, often in foreign currencies. As a
result, our operating results may be materially and adversely affected by
fluctuations in currency exchange rates and general uncertainty with each
country's political and economic structure.
INCREASED UTILIZATION AND COSTS OF OUR TECHNICAL SUPPORT SERVICES MAY ADVERSELY
AFFECT OUR FINANCIAL RESULTS. Like many companies in the software industry,
technical support costs comprise a significant portion of our operating costs
and expenses. Over the short term, we may be unable to respond to fluctuations
in customer demand for support services. We also may be unable to modify the
format of our support services to compete with changes in support services
provided by competitors.
THE CONVERSION OF THE EUROPEAN CURRENCIES TO THE EURO MAY IMPACT OUR FOREIGN
EXCHANGE HEDGING PROGRAM. On January 1, 1999, the euro became the common
currency of 11 of the 15 member countries of the European Union. The national
currencies of these 11 countries will coexist with the euro at fixed exchange
rates through December 31, 2001. Euro denominated bills and coins will be
introduced on January 1, 2002 and, by July 1, 2002, the national currencies will
no longer be legal tender. We expect that the euro will dictate changes in our
foreign exchange hedging program. These changes may lead to increased
fluctuations in foreign currency hedging results.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Based on current information, we do not believe that the euro will have a
material adverse impact on our results of operations or financial condition.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
OVERVIEW
Symantec is a world leader in Internet security technology that provides content
security solutions to enterprise organizations and helps companies manage and
support workforces that use computers and other mobile devices. Symantec is also
a leading provider of software products for the consumer market. Symantec has a
52-week fiscal accounting year. The December 31, 1999 and 1998 quarters closed
on December 31, 1999 and January 1, 1999, respectively, and each comprised 13
weeks of revenue and expense activity. Each of the nine month periods ended
December 31, 1999 and 1998, comprised 39 weeks of revenue and expense activity.
RESULTS OF OPERATIONS
On December 31, 1999, we divested our ACT! and Visual Cafe product lines.
Because the divestitures of the ACT! and Visual Cafe product lines were
effective at the close of business on December 31, 1999, these product lines are
included in our results of operations for the quarters and nine months ended
December 31, 1999 and 1998. The resulting gains from these divestitures have
been included in Income, net of expense, from sale of technologies and product
lines, in the Condensed Consolidated Statements of Income.
During the September 1999 quarter, we acquired Unified Research Labs, Inc.
(URLabs). During the December 1998 quarter, we completed our tender offer for a
63% interest in Quarterdeck Corporation (Quarterdeck). In the March 1999
quarter, we acquired the remaining 37% interest in Quarterdeck. During the
December 1998 quarter, we acquired Intel Corporation's (Intel) anti-virus
business. During the June 1998 quarter, we acquired International Business
Machine's (IBM) anti-virus business and Binary Research Limited's (Binary)
operations (see Note 9 of Notes to Condensed Consolidated Financial Statements
in this Form 10-Q). The results of operations from these acquisitions have been
included in our results of operations from their respective dates of
acquisition.
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<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
The following table sets forth each item from our condensed consolidated
statements of income as a percentage of net revenues and the percentage change
in the total amount of each item for the periods indicated:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Percent Ended Percent
December 31, Change December 31, Change
-------------- in Dollar -------------- in Dollar
1999 1998 Amounts 1999 1998 Amounts
----- ----- --------- ----- ----- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.......................... 100% 100% 29% 100% 100% 32%
Cost of revenues...................... 15 17 16 16 16 35
----- ----- ----- -----
Gross margin.................... 85 83 32 84 84 31
Operating expenses:
Research and development.......... 14 16 17 15 18 11
Sales and marketing............... 40 46 12 41 50 8
General and administrative........ 6 5 50 6 7 13
Amortization of goodwill ......... 2 1 118 2 1 336
Amortization of intangibles from
acquisitions.................. -- -- * -- -- *
Acquired in-process research and
development..................... -- 5 (100) -- 6 (96)
Restructuring and other expenses.. 1 -- * 1 1 (1)
Litigation judgment............... -- -- -- -- 2 (100)
----- ----- ----- -----
Total operating expenses........ 63 73 13 65 85 3
----- ----- ----- -----
Operating income (loss)............... 22 10 186 19 (1) *
Interest income....................... 2 2 16 1 3 (30)
Interest expense...................... -- -- * -- -- (102)
Income, net of expense, from
sale of technologies and
product lines 44 6 813 18 8 184
Other income.......................... -- -- 84 -- 1 (61)
----- ----- ----- -----
Income before income taxes........... 68 18 402 38 11 349
Provision for income taxes ........... 24 8 318 13 5 234
----- ----- ----- -----
Net income............................ 44% 10% 460 25% 6% 445
===== ===== ===== =====
</TABLE>
* percentage change is not meaningful.
NET REVENUES
Net revenues increased 29% to $201 million in the December 1999 quarter from
$155 million in the December 1998 quarter. Net revenues increased 32% to $559
million in the nine month period ended December 31, 1999 from $423 million in
the comparable period ended December 31, 1998. The increase in net revenues was
due to strong growth in our consumer, or retail, revenues, strong international
results and solid performance in our enterprise, or corporate, revenues. As a
result we experienced strong growth in our three principal business units,
Security and Assistance, Remote Productivity Solutions and Internet Tools, with
the largest increase in both dollars and percentage in our Security and
Assistance business unit. This growth in all our business units is attributed to
an increase in the anti-virus market, preparation for the Year 2000 rollover and
several new product version releases in late September 1999, resulting in strong
sales in the December 1999 quarter over the December 1998 quarter, which is
typically a strong quarter seasonally in the consumer market. In addition, we
experienced a significant increase in
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
our enterprise revenues.
BUSINESS UNITS
The Security and Assistance business unit (SABU) is dedicated to being the
leader in Internet security technology and being indispensable to customers'
daily use of computers by increasing productivity and keeping computers safe and
reliable. SABU comprised approximately 65% and 61% of net revenues in the
quarters ended December 31, 1999 and 1998, respectively. SABU comprised
approximately 64% and 57% of net revenues in the nine months ended December 31,
1999 and 1998, respectively. Increased net revenues for this business unit in
both the three and nine month periods ended December 31, 1999, compared to the
three and nine month periods ended December 31, 1998, were primarily related to
outbreaks of significant viruses, new releases of existing products and our
customers preparing for the Year 2000 rollover. These factors resulted in
increases in sales of Norton AntiVirus, Norton 2000 and Norton SystemWorks. In
the quarter ended December 31, 1999, we experienced increased sales of 174%,
143% and 39% of our Norton 2000, Norton SystemWorks and Norton AntiVirus,
respectively, over the quarter ended December 31, 1998. In the nine months ended
December 31, 1999, we experienced increased sales of 918%, 248% and 66% of our
Norton 2000, Norton SystemWorks and Norton AntiVirus, respectively, over the
nine months ended December 31, 1998. In addition, the Norton Ghost product
(disk-cloning technology), has contributed to this growth with increases of 45%
and 72% in the three and nine month periods ended December 31, 1999,
respectively, over the comparable periods in the prior year. The growth by the
above products in SABU were partially offset by decreases in sales of Norton
Utilities and MAC products, in both comparative periods.
The Remote Productivity Solutions business unit (RPS) helps remote professionals
remain productive and work reliably, anywhere and anytime. RPS comprised
approximately 33% and 37% of net revenues for the quarters ended December 31,
1999 and 1998, respectively. RPS comprised approximately 34% and 39% of net
revenues for the nine months ended December 31, 1999 and 1998, respectively.
Although revenues decreased as a percentage of total revenues, absolute dollar
revenue for this business unit increased 16% and 14% for the three and nine
month periods ended December 31, 1999, respectively, as compared to their
comparable periods in the prior year. The increase in sales for the nine month
periods primarily relate to significant growth in sales of pcANYWHERE, as a new
release was introduced in June 1999, and strong sales of ACT! in the December
1999 quarter. ACT! revenues for the nine months ended December 31, 1999,
however, were flat compared to the comparable nine months in 1998. The Winfax
product continues to experience reduced sales for the quarter and nine month
periods ended December 31, 1999. The ACT! product line was exclusively licensed
to SalesLogix in the December 1999 quarter, and as part of that agreement, we
will not continue selling or marketing the ACT! product. We expect, however, to
receive royalty payments on a quarterly basis from SalesLogix, beginning with
the March 2000 quarter through the December 2003 quarter, however, there are no
guaranteed minimum amounts associated with these royalties. The maximum
payments, although contingent on certain sales levels, will not exceed an
aggregate maximum of $57 million through December 2003.
Internet Tools, which are primarily Visual Cafe products, which provide an easy
to use Java development environment, comprised approximately 2% of net revenues
in the quarters ended December 31, 1999 and 1998, respectively, and 2% and 4%
for the nine month periods ended December 31, 1999 and 1998, respectively.
Although the net revenues were flat as a percentage of revenue, net revenues
increased in absolute dollars by 24% for the quarter ended December 31, 1999
compared to the quarter ended December 31, 1998. This business unit's net
revenues were lower in the nine month period ended December 31, 1999 than in the
nine month period ended December 31, 1998, primarily due to a $6 million license
contract with a single customer, which occurred in the June 1998 quarter. The
Visual Cafe product line was divested at the close of business on December 31,
1999, and due to the restructuring of the remaining business unit, we expect
nominal revenues in the future from this business unit.
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<PAGE> 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
PRO FORMA REVENUE
For comparative purposes, the following table displays on a pro forma basis our
net revenues excluding the ACT! and Visual Cafe product lines:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -----------------------
(In thousands) 1999 1998 1999 1998
- -------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Pro Forma net revenues $ 185,652 $ 142,564 $ 517,002 $ 376,666
</TABLE>
INTERNATIONAL
Net revenues from international sales outside of North America were $85 million
and $65 million which represented 42% of total net revenues in each of the
quarters ended December 31, 1999 and 1998, respectively. Net revenues from
international sales outside of North America were $228 million and $158 million
and represented 41% and 37% of total net revenues in the nine month periods
ended December 31, 1999 and 1998, respectively. These increases in net revenues
were the result of strong sales growth in Japan, the Asia/Pacific and the
Europe, Middle East and Africa (EMEA) regions. The Japan, Asia/Pacific and EMEA
regions had growth in net revenues of 57%, 49% and 18%, respectively, for the
quarter ended December 31, 1999 compared to the quarter ended December 31, 1998,
with increases in revenues of 54%, 75%, 36%, respectively, for the nine month
periods ended December 31, 1999 compared to the comparable periods ended
December 31, 1998. These increases in revenues were driven primarily by growth
in sales of pcANYWHERE, Norton SystemWorks and Norton AntiVirus products.
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 and purchased product rights
and technologies, including those acquired in business combinations.
Gross margin increased to 84.7% of net revenues in the December 1999 quarter
from 82.9% in the December 1998 quarter. Gross margin slightly decreased to
83.5% for the nine month period ended December 31, 1999 from 83.9% for the nine
month period ended December 31, 1998. The improved gross margin percentage in
the December 1999 quarter is primarily related to reduced costs in manufacturing
of packaged products. Factors contributing to the decrease in gross margin
percentage for the nine month periods include a change in product mix and
increased price competition. Gross margin was also adversely impacted by
increased royalty expense from products sold with higher royalty rates than
those sold in the quarter and nine months ended December 1998, primarily from
increased sales of the Norton 2000 product and increased amortization of
developed technology from our acquisitions. In addition, technical support costs
related to enterprise sales increased as the mix of enterprise sales increased.
During the September 1999 quarter, we capitalized approximately $6.6 million of
software technology as part of our acquisition of URLabs. During the December
1998 and March 1999 quarters, we capitalized $11.2 million of software
technology as part of our acquisition of Quarterdeck. During the September 1998
quarter, we capitalized $10.7 million of software technology acquired as part of
our acquisition of Intel's anti-virus business. During the June 1998 quarter, we
capitalized $16.9 million of software technology acquired as part of our
acquisition of certain assets of Binary. Amortization of capitalized software,
including amortization and write-off of both purchased product rights,
technologies and capitalized software development costs totaled approximately
$2.3 and $1.7 million for the December 1999 and 1998 quarters, respectively, and
approximately $6.5 and $3.1 million for the nine month
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
periods ended December 1999 and 1998, respectively. Prior to consideration of
any future acquisitions, we expect to expense approximately $2.3 million of
capitalized software amortization per quarter for the next nine quarters, and
then declining over each of the remaining ten quarters.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were 14% and 16% of net revenues for the three
months ended December 31, 1999 and 1998, respectively, and 15% and 18% of net
revenues for the nine months ended December 31, 1999 and 1998, respectively. The
decrease as a percentage of net revenues resulted primarily from the increases
in net revenues in the most recent periods.
Although, as a percentage of net revenues research and development expenses
decreased, absolute dollars increased 17% to $29 million in the December 1999
quarter from $24 million in the December 1998 quarter. Absolute dollars
increased 11% to $84 million in the nine months ended December 1999 from $75
million in the comparable December 1998 period. The increases in both the three
and nine month periods were primarily due to increases in software development
costs paid to additional contractors and employee related expenses during the
December 1999 quarter. We also incurred additional costs for patent claim
settlements in the December 1999 quarter.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were 40% and 46% of net revenues for the three
months ended December 31, 1999 and 1998, respectively, and 41% and 50% of net
revenues for the nine months ended December 31, 1999 and 1998, respectively. The
decrease as a percentage of net revenues resulted primarily from the increases
in net revenues in the most recent periods.
Sales and marketing expenses, in absolute dollars, increased 12% from $72
million in the December 1998 quarter to $81 million in the December 1999
quarter. Sales and marketing expenses increased 8% to $230 million in the nine
month period ended December 1999 from $212 million in the nine month period
ended December 1998. The increases in sales and marketing expenses for both the
three and nine month periods were primarily due to growth in overall headcount
and increased profit dependent expenses such as salaries, commissions and other
performance based incentives. These increases were partially offset by a
reduction in certain marketing and promotional activities.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were 6% and 5% of net revenues in the three
month periods ended December 1999 and 1998, respectively, and 6% and 7% of net
revenues in the nine month periods ended December 1999 and 1998, respectively.
General and administrative expenses, in absolute dollars, increased 50% to $13
million for the quarter ended December 1999, from $8 million in the quarter
ended December 1998. General and administrative expenses increased 13% to $31
million in the nine months ended December 1999, from $28 million for the nine
months ended December 1998. Increases in the December 1999 quarter over the
December 1998 quarter primarily relate to increases in salaries and benefits,
accruals for legal fees and write-offs of certain uncollectible receivables.
Increases in the nine months ended December 1999 over the comparable period
ended December 1998 are due to these same factors, however, they are offset by a
reduction in consulting expenses incurred in the nine months ended December
1998.
AMORTIZATION OF GOODWILL AND INTANGIBLES FROM ACQUISITIONS
Amortization of goodwill and intangibles from acquisitions increased
approximately $2.5 million from $2.0 million in the December 1998 quarter to
$4.5 million in the December 1999 quarter. Amortization of goodwill and
intangibles from acquisitions increased approximately $10.9 million from $3.1
million for the nine month period ended December 31, 1998 to $14.0 million in
the nine month period ended December 31, 1999. The increases in
29
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
both the three and nine month periods were due to capitalization of additional
goodwill and other intangibles from the acquisitions we made during fiscal 1999
and the URLabs acquisition we completed in the September 1999 quarter. As a
result of an election we made in the December 1999 quarter in the accounting of
the Quarterdeck transaction for tax purposes, goodwill was reduced by
approximately $26 million, thereby reducing the amortization for the December
1999 and future quarters. The reduction of goodwill was the result of recording
an additional $26 million of deferred tax assets attributable to net operating
losses and other tax deductions of Quarterdeck. Prior to consideration of any
future acquisitions, we expect continued amortization of goodwill and other
intangibles related to these acquisitions to be approximately $4.3 million over
the following nine quarters and then declining over each of the remaining ten
quarters (see Note 9 of Notes to Condensed Consolidated Financial Statements in
this Form 10-Q).
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES
Acquired in-process research and development expenses were approximately $7.6
million for the three months ended December 31, 1998, in connection with our
acquisition of Quarterdeck in December 1998. There were no expenses for acquired
in-process research and development in the three months ended December 31, 1999.
Acquired in-process research and development expenses were approximately $1.2
million and $26.7 million for the nine month periods ended December 31, 1999,
and 1998, respectively. We recognized acquired in-process research and
development expenses of $1.2 million in connection with our acquisition of
URLabs in the September 1999 quarter. In the December 1998 quarter we recognized
acquired in-process research and development expenses of $7.6 million in
connection with our acquisition of Quarterdeck and $5.0 million in connection
with our acquisition of Intel's anti-virus business in the September 1998
quarter. In the June 1998 quarter, we recognized acquired in-process research
and development expenses of $7.1 million in connection with our acquisition of
certain assets and technologies of IBM, and a similar amount in connection with
our acquisition of the assets and technologies of Binary (see Note 9 of Notes to
Condensed Consolidated Financial Statements in this Form 10-Q). The assumptions
and projections made in connection with the determination of the acquired
in-process research and development for each of these acquisitions have not
significantly changed.
The in-process technology acquired in the URLabs acquisition primarily consisted
of research and development related to the next generation of URLabs' two main
products, I-Gear 3.5 and Mail Gear 1.2. The I-Gear and Mail Gear product lines
are designed for content management use in URL filtering and E-mail filtering,
respectively. URLabs' research and development was focused on providing more
robust features in its development of the next generation products of I-Gear 3.5
and Mail Gear 1.2.
We determined the fair value of the in-process technology for each of the
acquisitions 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 then discounted the
resulting cash flows back to their net present values and 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.
We assumed that revenue attributable to URLabs' in-process technology will be
approximately $4 million in the first year and increase in the second and third
years of the 5-year projection period at annual rates of 77% and 40%,
respectively, and then decrease at rates of 2% and 38% over the remaining two
years. We projected annual revenues to range from approximately $4 million to
$11 million over the projected period. These projections were based on:
o aggregate growth rates for the business as a whole;
o individual product revenues;
o anticipated product development cycles; and
o the life of the underlying technology.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
We estimated selling, general and administrative expenses for the in-process
technology to be approximately 69%, as a percentage of revenue in the first
year, reducing to approximately 50% in each of the remaining 4 years of the
5-year projection period.
We projected operating profit before acquisition related amortization charges to
increase from less than $1 million during the first year to approximately $2.5
million during the third year. We projected that operating profits would then
decrease from 7% to 35% during the remaining two years, resulting in profits of
approximately $2.4 million and $1.5 million, respectively. Because we assumed
that most product development costs would be incurred in the first year,
reducing operating expenses as a percentage of revenue in later years, we
anticipate operating profit to increase faster than revenue in the early years.
We estimated costs to be incurred to reach technological feasibility of the
in-process technologies from URLabs as of the date of the acquisition to total
approximately $0.2 million. We estimated the in-process technology to be between
30%-40% complete at that time. We projected the introduction of acquired
in-process technologies in the marketplace during calendar year 2000, and it was
actually introduced late in the December 1999 quarter.
We used a discount rate of 30% for valuing the in-process technologies from
URLabs, which we believe reflects 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 our weighted average cost of capital of 25%, 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 technologies acquired from
URLabs were 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.
The nature of the efforts required to develop the acquired 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. We expect 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 our financial condition and
results of operations. Additionally, the value of the other intangible assets
may become impaired.
31
<PAGE> 32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
(In thousands; unaudited) 1999 1998 1999 1998
- -------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Personnel severance $ 2,246 $ -- $ 5,059 3,800
Planned abandonment of manufacturing
facility lease -- -- -- 1,305
--------- --------- --------- ---------
Total restructuring and other expenses $ 2,246 $ -- $ 5,059 $ 5,105
========= ========= ========= =========
</TABLE>
In October 1999, we reduced a portion of our Internet Tools business unit's
workforce and, in December 1999 we reduced a portion of our Sales workforce.
There were 48 employees in the Internet Tools business unit affected, resulting
in approximately $1.4 million of severance, related benefits and outplacement
services which was accrued during the December 1999 quarter. There were 10
employees in the Sales workforce affected, resulting in approximately $0.8
million of severance, related benefits and outplacement services which was
accrued in the December 1999 quarter.
During the September 1999 quarter, we provided approximately $0.7 million for
costs of severance, related benefits and outplacement services for 2 members of
senior management due to the realignment of our business units and their
resulting departures.
In the June 1999 quarter, we accrued approximately $2.7 million for certain
costs related to an agreement reached with our former CEO.
During the quarter ended September 30, 1998, we made a decision to restructure
our operations and outsource domestic manufacturing operations. As a result, we
recorded a $3.8 million charge for personnel severance to reduce the workforce
by approximately 5% in both domestic and international operations and a $1.3
million charge for the planned abandonment of a manufacturing facility lease. We
revised our original estimates which identified $0.6 million was no longer
considered necessary. As a result, we reduced the personnel severance accrual by
$0.6 million.
LITIGATION JUDGMENT
Litigation judgment expenses totaled $5.8 million in the June 1998 quarter.
These expenses related to a judgment by a Canadian court on a decade-old
copyright action assumed by us when we acquired Delrina Corporation (see Note 7
of Notes to Condensed Consolidated Financial Statements in this Form 10-Q).
INTEREST INCOME AND INTEREST EXPENSE
Interest income was approximately $3.1 million and $2.7 million for the three
months ended December 31, 1999 and 1998, respectively. Interest income increased
16% in the quarter ended December 31, 1999, over the quarter ended December 31,
1998. The increase in the December 1999 quarter is primarily due to increased
average cash balances from higher cash flows from operations.
Interest income was approximately $7.8 million and $11.2 million for the nine
month periods ended December 31, 1999 and 1998, respectively. Interest income
decreased 30% for the nine months ended December 31, 1999, over the nine months
ended December 31, 1998. The decrease in the nine month period ended December
31, 1999 over December 31, 1998 was primarily due to higher average invested
cash balances and realized gains on the sale of investments in the nine month
period ended December 1998.
32
<PAGE> 33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
Interest expense was zero and $0.5 million for the three month periods ended
December 31, 1999 and 1998, respectively. Interest expense was less than $0.1
million and $1.1 million for the nine month periods ended December 31, 1999 and
1998, respectively. The decreases in interest expense in both the three and nine
month periods ended December 31, 1999, were primarily due to conversion of our
convertible subordinated debentures at the end of fiscal 1999.
INCOME, NET OF EXPENSE, FROM SALE OF TECHNOLOGIES AND PRODUCT LINES
Income, net of expense, from sale of technologies and product lines consists of
the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -----------------------
(In thousands, except per share data; unaudited) 1998 1999 1998 1999
- ------------------------------------------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Gain on divestiture of:
Visual Cafe product line $ 68,523 $ -- $ 68,523 $ --
ACT! product line 18,285 -- 18,285 --
Payments from HP and JetForm 3,159 9,850 13,059 35,198
----------- ----------- --------- ---------
Income, net of expense, from sale of
technologies and product lines $ 89,967 $ 9,850 $ 99,867 $ 35,198
=========== =========== ========= =========
</TABLE>
On December 31, 1999, pursuant to an Asset Purchase Agreement, we sold the
principal assets and liabilities of the Visual Cafe product line to BEA Systems,
Inc. and WB Information Corporation (collectively "Buyer"). The assets primarily
consisted of fixed assets and intangible assets. The liabilities related to
certain revenue deferrals recorded on our balance sheet as of December 31, 1999.
In exchange for the assets and liabilities sold to Buyer, we received $75
million in a lump-sum cash payment on December 31, 1999. We wrote off or
transferred approximately $4.7 million in capitalized software, fixed assets and
inventory related to the Visual Cafe product line. In addition, we accrued
approximately $1.4 million in transaction costs and approximately $0.4 million
in retention packages for the affected employees. As a result we recorded a
pre-tax gain of approximately $68.5 million on the sale.
On December 31, 1999, pursuant to an exclusive Software License Agreement (SLA),
we licensed, on an exclusive basis, to SalesLogix Corporation (SalesLogix)
substantially all of the ACT! product line technology for a period of four
years. In addition, we sold the inventory and fixed assets related to the ACT!
product line to SalesLogix. In consideration for the license and assets,
SalesLogix transferred to us 623,247 shares of its unregistered Common Stock.
The shares were valued at approximately $20 million as of December 6, 1999, the
date the SLA was signed and the date the number of shares was determined. In
addition to the shares received from SalesLogix, Symantec will receive quarterly
royalty payments for four years, beginning on or about March 31, 2000.
SalesLogix will pay royalties based on a formula set forth in the SLA, up to an
aggregate maximum of $57 million. Because the royalties are not guaranteed and
the quarterly amounts to be received are not determinable at December 31, 1999,
we will recognize the royalties as earned. At the end of the four year period,
SalesLogix has the exclusive option, for a period of 30 days, to purchase the
licensed technology for $60 million less all royalties paid to us to date. As a
result of the SLA, we recognized approximately $20 million from the shares
received and wrote off or transferred to SalesLogix approximately $0.4 million
of inventory and fixed assets attributed to the ACT! product line. In addition,
we accrued approximately $1.3 million for transaction related costs incurred at
December 31, 1999. After recognizing the above amounts, we recorded a gain of
approximately $18.3 million.
Payments from HP and JetForm are associated with our sale of certain software
products, technologies and tangible assets to JetForm Corporation (JetForm) and
the Hewlett-Packard Company (HP) during fiscal 1997. The payments decreased from
$10 million in the three month period ended December 31, 1998 to $3 million in
the three month period ended December 31, 1999. These payments decreased from
$35 million to $13 million in the nine month periods ended December 31, 1999 and
1998, respectively. These payments were lower in the quarter and
33
<PAGE> 34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
nine months ended December 31, 1999, compared to the same periods ended December
31, 1998, as the HP payments ended in the December 1998 quarter, and the
payments from JetForm have declined in accordance with the payment terms.
OTHER INCOME
Other income remained flat at less than $1 million for the quarters ended
December 31, 1999 and 1998. Other income decreased from $2.5 million for the
nine months ended December 31, 1998 to $1.0 million for the nine month period
ended December 31, 1999. Other income decreased primarily due to a foreign
exchange gain realized as a result of the paydown of an intercompany loan and
other foreign currency exchange gains (losses) from fluctuations in currency
exchange rates during the June 1998 quarter.
INCOME TAX PROVISION
The effective tax rate on income before one-time charges (acquired in-process
research and development, restructuring and other expenses), goodwill
amortization expense and gain on sale of product lines was 32% for the three and
nine months ended December 31, 1999 and 1998. This rate is lower than the U.S.
federal statutory tax rate primarily due to a lower tax rate on our Irish
operations. The effective tax rate on income after goodwill amortization, but
before one-time charges was 34% and 33% for the three and nine months ended
December 31, 1999, respectively, and 32% for the similar 1998 periods,
reflecting the partial non-deductibility of goodwill in the current year. In
addition, tax has been provided on the gain on sale of product lines at an
effective tax rate of 34%. This rate is lower than the U.S. federal statutory
tax rate because a portion of the gain is attributable to our Irish operations
and accordingly subject to a lower tax rate.
The total tax provision for all periods includes the tax benefits attributable
to one time charges of $0.7 million and $1.2 million, for the three and nine
months ended December 31, 1999, respectively, and zero and $6.0 million for the
comparable periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, short-term investments and long-term investments
increased $207 million to $405 million at December 31, 1999 from $197 million at
March 31, 1999. This increase is largely due to cash provided from operating
activities and net proceeds from the exercise of stock options under the Stock
Option Plans, sales of common stock under the Employee Stock Purchase Plan and
the receipt of restricted stock and cash from the ACT! and Visual Cafe
divestitures, respectively, offset by cash paid to the remaining Quarterdeck
shareholders to complete the acquisition of Quarterdeck, capital expenditures,
repurchases of our common stock, and the acquisition of URLabs.
In addition to cash and short-term investments, we have $81 million of
restricted investments related to collateral requirements under certain lease
agreements. Subsequent to the transfer of one of our World Headquarters office
buildings and the move to a new office building, we are now obligated under
these lease agreements for two office buildings 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 our operating cash requirements. As of September
30, 1999, we amended certain financial covenants of the lease agreements as a
result of our acquisition of URLabs. We were in compliance with the covenants of
the lease agreements as of December 31, 1999. Future acquisitions may cause us
to be in violation of these financial covenants.
As of September 23, 1999, we amended our $10 million line of credit which
expires in May 2000, amending certain financial covenants as a result of our
acquisition of URLabs. We were in compliance with the debt covenants for
34
<PAGE> 35
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
this line of credit as of December 31, 1999. As of December 31, 1999, there were
no borrowings and less than $1 million of standby letters of credit outstanding
under this line. Future acquisitions may cause us to be in violation of
the line of credit covenants. However, we believe that if the line of credit is
canceled or amounts are not available under the line, there would not be a
material adverse impact on our financial results, liquidity or capital
resources.
Net cash provided by operating activities was approximately $175 million and was
comprised of net income of $139 million, non-cash related expenses of $16
million and a net change in net assets and liabilities of $107 million, offset
by gains on divestitures of $87 million.
Net trade accounts receivable decreased $31 million to $46 million at December
31, 1999, from $77 million at March 31, 1999, primarily due to an increase in
cash collection efforts.
On March 22, 1999, the Board authorized the repurchase of up to $75 million of
our outstanding common stock. As of December 31, 1999, we have purchased 1
million shares at prices ranging from $17.90 to $19.90, for an aggregate amount
of $18.7 million.
On June 9, 1998, the Board authorized the repurchase of up to 5% of our
outstanding common stock before December 31, 1998. No shares were repurchased
under this plan during the June 1998 quarter. During the September 1998 quarter,
we purchased 1.7 million shares at prices ranging from $17.13 to $27.21 for an
aggregate amount of approximately $40 million. We completed the repurchase as of
October 30, 1998, repurchasing a total of 2.9 million shares at prices ranging
from $13.10-$27.21 for an aggregate amount of approximately $56 million.
If we were to sustain significant losses, we could be required to reduce
operating expenses, which could result in product delays and a reassessment of
acquisition opportunities, which could negatively impact our growth objectives
and/or pursuit of further financing options. We believe existing cash and
short-term investments and cash generated from operating activities will be
sufficient to fund operations for the next year.
35
<PAGE> 36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have significant exposure to changing interest rates because of the
low levels of interest sensitive marketable securities with maturities more than
90 days on our balance sheet. We do not undertake any specific actions to cover
our exposure to interest rate risk and we are not a party to any interest rate
risk management transactions. We do not purchase or hold any derivative
financial instruments for trading purposes.
We conduct business in 31 international currencies through our worldwide
operations. We have established a foreign currency hedging program, utilizing
foreign currency forward exchange contracts, or forward contracts, of one fiscal
month in duration to hedge various foreign currency transaction exposures. Under
this program, increases or decreases in our foreign currency transactions are
offset by gains and losses on the forward contracts to mitigate the risk of
material foreign currency transaction gains and losses. We do not use forward
contracts for trading purposes. At the end of each fiscal month, all foreign
currency denominated assets and liabilities are revalued using the month end
spot rate and the realized and unrealized gains and losses are recorded and
included in net income as a component of other income, net.
During the December 1999 quarter, we acquired restricted shares of SalesLogix, a
publicly traded company, as a result of our divestiture of the ACT! product
line. These shares are subject to equity market fluctuations. As of December 31,
1999, these shares were valued at approximately $25 million.
We believe that the use of foreign currency financial instruments should reduce
the risks that arise from conducting business in international markets. We
employ established policies and procedures governing the use of financial
instruments to manage our exposure to such risks.
We believe there has been no significant change, except as discussed above, in
our market risk exposures as what was previously disclosed in our Form 10-K for
the year ended March 31, 1999.
36
<PAGE> 37
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Note 7 of
Notes to Condensed Consolidated Financial Statements included herein on page 10
of this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of this Form 10-Q:
10.01 Asset Purchase Agreement dated December 10, 1999, among the
Registrant, Symantec Limited, BEA Systems, Inc., and WB
Information Corporation (Incorporated by reference to
Exhibit 99.01 filed with the Registrant's Form 8-K, filed
January 14, 2000).
10.02 Software License Agreement, dated December 6, 1999, by and among
SalesLogix Corporation, Symantec Corporation, and Symantec
Limited (Incorporated by reference to Exhibit 99.01 filed
with the Registrant's Form 8-K, filed January 14, 2000).
27.1 Financial Data Schedule for the Nine Months Ended December 31,
1999.
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on January 14, 2000,
reporting that the Company completed the transfer of the principal assets
and intangible assets associated with the Visual Cafe product line. This
announcement was pursuant to an Asset Purchase Agreement dated December 10,
1999, by and between Symantec Corporation, Symantec Limited, BEA Systems,
Inc., and WB Information Corporation.
A report on Form 8-K was filed by the Company on January 14, 2000,
reporting that the Company had licensed certain technology and completed
the transfer of certain assets and liabilities of the ACT! product line to
SalesLogix Corporation. This announcement was pursuant to an exclusive
Software License Agreement dated December 6, 1999, by and among Symantec
Corporation, Symantec Limited and SalesLogix Corporation.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
37
<PAGE> 38
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: February 11, 2000 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
38
<PAGE> 39
Exhibit Index
Exhibit Number Description
10.01 Asset Purchase Agreement dated December 10, 1999, among
the Registrant, Symantec Limited, BEA Systems, Inc., and
WB Information Corporation (Incorporated by reference to
Exhibit 99.01 filed with the Registrant's Form 8-K, filed
January 14, 2000).
10.02 Software License Agreement, dated December 6, 1999, by
and among SalesLogix Corporation, Symantec Corporation,
and Symantec Limited (Incorporated by reference to
Exhibit 99.01 filed with the Registrant's Form 8-K, filed
January 14, 2000).
27.1 Financial Data Schedule for the Nine Months Ended
December 31, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-03-1999
<PERIOD-END> DEC-31-1999
<CASH> 213,588
<SECURITIES> 190,873
<RECEIVABLES> 52,512
<ALLOWANCES> (6,804)
<INVENTORY> 7,728
<CURRENT-ASSETS> 511,649
<PP&E> 198,987
<DEPRECIATION> (144,046)
<TOTAL-ASSETS> 792,369
<CURRENT-LIABILITIES> 230,356
<BONDS> 0
0
0
<COMMON> 591
<OTHER-SE> 560,447
<TOTAL-LIABILITY-AND-EQUITY> 792,369
<SALES> 558,520
<TOTAL-REVENUES> 558,520
<CGS> 92,064
<TOTAL-COSTS> 92,064
<OTHER-EXPENSES> 365,347
<LOSS-PROVISION> 3,060
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 209,765
<INCOME-TAX> 71,193
<INCOME-CONTINUING> 138,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,572
<EPS-BASIC> 2.42
<EPS-DILUTED> 2.27
</TABLE>
