<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
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)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
</TABLE>
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, including 1,356,661 shares of Delrina exchangeable stock, as of
July 28, 2000:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 61,003,559 SHARES
================================================================================
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SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2000 and March 31, 2000......................... 3
Condensed Consolidated Statements of Income
for the three months ended June 30, 2000 and 1999.............. 4
Condensed Consolidated Statements of Cash Flow
for the three months ended June 30, 2000 and 1999.............. 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 21
Item 6. Exhibits and Reports on Form 8-K.................................... 21
Signatures................................................................... 22
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
(In thousands) 2000 2000
------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
ASSETS (unaudited)
------
Current assets:
Cash, cash equivalents and short-term investments $ 522,922 $ 431,550
Trade accounts receivable 52,285 47,266
Inventories 2,532 5,675
Deferred income taxes 45,195 40,189
Other 24,255 20,857
----------- -----------
Total current assets 647,189 545,537
Restricted investments 71,070 81,956
Equipment and leasehold improvements, net 52,566 51,905
Deferred income taxes 38,827 38,827
Acquired product rights, net 31,498 34,070
Goodwill, net 77,797 82,972
Other 10,372 10,760
----------- -----------
$ 929,319 $ 846,027
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,271 $ 43,030
Accrued compensation and benefits 22,669 25,714
Deferred revenue 114,561 90,813
Other accrued expenses 53,359 61,594
Income taxes payable 28,192 5,366
----------- -----------
Total current liabilities 267,052 226,517
Long-term obligations 2,104 1,553
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 60,905
and 60,309 shares) 609 603
Capital in excess of par value 447,249 435,663
Notes receivable from stockholders (24) (24)
Unearned compensation (514) (677)
Retained earnings 248,496 210,099
Accumulated other comprehensive loss (35,653) (27,707)
----------- -----------
Total stockholders' equity 660,163 617,957
----------- -----------
$ 929,319 $ 846,027
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
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SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------
(In thousands, except per share data; unaudited) 2000 1999
------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Net revenues $ 191,358 $ 175,138
Cost of revenues 27,837 30,623
----------- -----------
Gross margin 163,521 144,515
Operating expenses:
Research and development 25,769 27,572
Sales and marketing 76,975 73,523
General and administrative 10,001 8,786
Amortization of goodwill 5,175 3,935
Amortization of other intangibles from acquisitions 280 180
Restructuring and other expenses --- 2,773
----------- -----------
Total operating expenses 118,200 116,769
----------- -----------
Operating income 45,321 27,746
Interest income 6,752 2,247
Income, net of expense, from sale of technologies
and product lines 5,914 4,890
Other income, net 319 581
----------- -----------
Income before income taxes 58,306 35,464
Provision for income taxes 19,909 11,737
----------- -----------
Net income $ 38,397 $ 23,727
=========== ===========
Net income per share - basic $ 0.63 $ 0.42
=========== ===========
Net income per share - diluted $ 0.60 $ 0.41
=========== ===========
Shares used to compute net income per share - basic 60,498 56,360
=========== ===========
Shares used to compute net income per share - diluted 64,248 58,284
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
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SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------
(In thousands; unaudited) 2000 1999
------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Operating Activities:
Net income $ 38,397 $ 23,727
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment and leasehold improvements 7,422 5,735
Amortization of goodwill and other acquisition related intangibles 8,600 6,248
Deferred income taxes (1,151) 227
Net change in assets and liabilities, excluding effects of
acquisitions:
Trade accounts receivable (4,962) 14,068
Inventories 3,085 (84)
Other current assets (3,418) 1,725
Other assets 317 (1,493)
Accounts payable 5,292 (5,472)
Accrued compensation and benefits (2,946) 562
Other accrued expenses (3,599) 235
Deferred revenue 23,748 13,167
Income taxes payable 22,618 (2,357)
----------- -----------
Net cash provided by operating activities 93,403 56,288
----------- -----------
Investing Activities:
Capital expenditures (8,300) (7,149)
Purchased intangibles (200) (400)
Cash paid to 20/20 Software shareholders (4,000) --
Cash paid to Quarterdeck shareholders -- (16,394)
Purchases of marketable securities (140,807) (60,000)
Proceeds from sales of marketable securities 100,156 74,593
Proceeds from (purchases of) restricted investments 10,886 (1,883)
Proceeds from sales of long-term investments -- 4,270
----------- -----------
Net cash used in investing activities (42,265) (6,963)
------------ -----------
Financing Activities:
Net proceeds from sales of common stock and other 11,755 9,814
Principal payments on long-term obligations (181) (364)
Repurchase of common stock -- (18,724)
----------- -----------
Net cash provided by (used in) financing activities 11,574 (9,274)
----------- -----------
Effect of exchange rate fluctuations on cash and cash equivalents (1,652) 592
------------ -----------
Increase in cash and cash equivalents 61,060 40,643
Beginning cash and cash equivalents 87,973 143,863
----------- -----------
Ending cash and cash equivalents $ 149,033 $ 184,506
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
5
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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 June 30, 2000, and for the three months
ended June 30, 2000 and 1999, 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,
2000. The results of operations for the three months ended June 30, 2000 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 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended June 30, 2000, March 31, 2000 and June 30, 1999
reflect amounts as of and for the periods ended June 30, 2000, March 31, 2000
and July 2, 1999, respectively. The June 30, 2000 and 1999 quarters each
comprised 13 weeks of activity.
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30, March 31,
(In thousands) 2000 2000
------------------------------------------------------------------------ ------------- -----------
(unaudited)
<S> <C> <C>
Cash, cash equivalents and short-term investments:
Cash $ 59,990 $ 60,103
Cash equivalents 89,043 27,870
Short-term investments 373,889 343,577
----------- -----------
$ 522,922 $ 431,550
=========== ===========
Trade accounts receivable:
Receivables $ 58,729 $ 53,710
Less: allowance for doubtful accounts (6,444) (6,444)
----------- -----------
$ 52,285 $ 47,266
=========== ===========
Inventories:
Raw materials $ 420 $ 2,483
Finished goods 2,112 3,192
----------- -----------
$ 2,532 $ 5,675
=========== ===========
Equipment and leasehold improvements:
Computer hardware and software $ 145,847 $ 142,290
Office furniture and equipment 39,684 39,330
Leasehold improvements 21,259 19,585
----------- -----------
206,790 201,205
Less: accumulated depreciation and amortization (154,224) (149,300)
----------- -----------
$ 52,566 $ 51,905
=========== ===========
Acquired product rights:
Acquired product rights $ 48,809 $ 54,592
Less: accumulated amortization of acquired product rights (17,311) (20,522)
----------- -----------
$ 31,498 $ 34,070
=========== ===========
Goodwill:
Goodwill $ 107,032 $ 107,032
Less: accumulated amortization (29,235) (24,060)
----------- -----------
$ 77,797 $ 82,972
=========== ===========
Accumulated other comprehensive loss:
Unrealized loss on available-for-sale investments $ (8,257) $ (2,373)
Cumulative translation adjustment (27,396) (25,334)
----------- -----------
$ (35,653) $ (27,707)
=========== ===========
</TABLE>
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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
June 30,
(In thousands, except per share data; unaudited) 2000 1999
-------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
BASIC NET INCOME PER SHARE
Net income $ 38,397 $ 23,727
=========== ===========
Weighted average number of common shares outstanding during the period 60,498 56,360
=========== ===========
Basic net income per share $ 0.63 $ 0.42
=========== ===========
DILUTED NET INCOME PER SHARE
Net income $ 38,397 $ 23,727
=========== ===========
Weighted average number of common shares outstanding during the period 60,498 56,360
Shares issuable from assumed exercise of options 3,750 1,924
----------- -----------
Total shares for purpose of calculating diluted net income per share 64,248 58,284
=========== ===========
Diluted net income per share $ 0.60 $ 0.41
=========== ===========
</TABLE>
For the three months ended June 30, 2000, shares issuable from assumed exercise
of options exclude approximately 1,752,000 options, as their effect on diluted
net income per share would have been anti-dilutive. There were no anti-dilutive
shares for the three months ended June 30, 1999.
NOTE 4. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
(In thousands, except per share data; unaudited) 2000 1999
-------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Net income $ 38,397 $ 23,727
Other comprehensive (loss) income:
Change in unrealized (loss) gain on available-for-sale investments,
net of a tax (benefit) provision of ($2,769) and $72 (5,884) 170
Change in cumulative translation adjustment,
net of a tax (benefit) of ($970) and ($56) (2,062) (118)
------------ -----------
Total other comprehensive (loss) income (7,946) 52
------------ -----------
Comprehensive income $ 30,451 $23,779
============ =======
</TABLE>
NOTE 5. LITIGATION AND CONTINGENCIES
Over the past few years, it has become common for software companies, including
Symantec, to receive claims of patent infringement. Symantec is currently
evaluating claims of patent infringement asserted by several parties, with
respect to certain of the Company's products. While the Company believes that it
has valid defenses to these claims, the outcome of any related litigation or
negotiation could have a material adverse impact on the Company's future results
of operations or cash flows.
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business. The
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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. For further information on
these cases refer to the Company's previously filed Annual Report on Form 10-K
for the year ended March 31, 2000.
NOTE 6. RESTRUCTURING AND OTHER EXPENSES
During the March 2000 quarter, Symantec reduced operations in its Melville and
Toronto sites, thereby reducing its workforce by 96 employees. Each of these
employees either received a separation package or accepted offers to move to
other Symantec offices. As a result, the facility in Melville was vacated and
the Company is reducing the space occupied in Toronto. The Company recorded
approximately $3.4 million for employee severance, outplacement and abandonment
of certain facilities and equipment during the March 2000 quarter. In addition,
approximately $0.7 million was provided for costs of severance, related benefits
and outplacement services for two members of senior management due to the
realignment of Symantec's business units and their resulting departures during
the March 2000 quarter.
During the December 1999 quarter, management reduced its Internet Tools business
unit's workforce and reduced its Sales workforce. There were 48 employees in the
Internet Tools business unit affected, resulting in approximately $1.8 million
of severance, related benefits and outplacement services being accrued during
the December 1999 quarter. The Sales workforce reduction affected 10 employees,
resulting in approximately $0.4 million of severance, related benefits and
outplacement services being accrued in the December 1999 quarter.
During the September 1999 quarter, Symantec provided approximately $0.7 million
for costs of severance, related benefits and outplacement services for two
members of senior management due to the realignment of its business units and
their resulting departures. The Company also accrued approximately $2.7 million
for certain costs related to an agreement reached with its former CEO in the
June 1999 quarter. These costs were comprised of severance and acceleration of
unvested stock options.
Details of the fiscal 2000 restructuring charges are as follows:
<TABLE>
<CAPTION>
Cash/ Restructuring Amount Amount Balance
(In thousands) Non-cash Charge Paid Adjusted at 6/30/00
--------------------------------------- -------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Employee severance and outplacement Cash $ 8,733 $ (7,956) $ -- $ 777
Excess facilities and equipment Cash & Non-cash 953 (388) -- 565
----------- -------- --------- ----------
Total restructuring and other expenses $ 9,686 $ (8,344) $ -- $ 1,342
=========== ======== ========= ==========
</TABLE>
During the September 1998 quarter, Symantec made a decision to restructure its
operations and outsource domestic manufacturing operations. As a result,
management originally 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. These estimates were subsequently revised in the
September 1999 quarter, resulting in a reduction in the personnel severance and
outplacement accruals by approximately $0.7 million.
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Details of the fiscal 1999 restructuring charges are as follows:
<TABLE>
<CAPTION>
Cash/ Restructuring Amount Amount Balance
(In thousands) Non-cash Charge Paid Adjusted at 6/30/00
--------------------------------------- -------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Employee severance and outplacement Cash $ 3,800 $ (3,800) $ -- $ --
Excess facilities and equipment Cash & Non-cash 1,305 (507) (668) 130
---------- --------- --------- ----------
Total restructuring and other expenses $ 5,105 $ (4,307) $ (668) $ 130
========== ========= ========= ==========
</TABLE>
NOTE 7. STOCK REPURCHASE
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 for
up to $20.00 per share. As of June 30, 2000, the Company has repurchased
1,000,000 shares at prices ranging from $17.90 to $19.90, for an aggregate
amount of $18.7 million. All of these shares were purchased in the June 1999
quarter.
NOTE 8. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. In June 2000, the SEC released SAB
No. 101B, which defers reporting the effects of the adoption of SAB No. 101
until our fourth fiscal quarter of fiscal 2001. We are currently evaluating the
potential impact of SAB No. 101 on our required disclosures and accounting
practices.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25. This Interpretation clarifies the
application of Opinion No. 25 for certain issues including: (a) the definition
of an employee for purposes of applying Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. In general, this Interpretation
is effective July 1, 2000. Management does not expect the adoption of
Interpretation No. 44 to have a material effect on the Company's consolidated
financial position or results of operations.
NOTE 9. SEGMENT INFORMATION
Symantec's operating segments are significant strategic business units that
offer different products and services, distinguished by customer needs. The
Company has five operating segments: Consumer and Small Business, Enterprise
Solutions, e-Support, Professional Services and Other.
The Consumer and Small Business segment focuses on delivering security and
problem-solving products to individual users and small companies. The Enterprise
Solutions segment focuses on delivering more complex and specialized products to
meet the needs of organizations' networks and support for their large workforce
throughout the organization. The e-Support segment focuses on helping IT
departments be more effective and efficient through remote management solutions.
The Professional Services segment is focused on providing technical support to
our customers and assisting organizations to understand and implement Internet
security infrastructure and policy management. The Other segment is comprised of
sunset products, products nearing the end of their life cycle, and operations
from our divested product lines ACT! and Visual Cafe. Also included in the Other
segment are all
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indirect costs, general and administrative expenses and charges that are
one-time in nature, such as acquired in-process research and development and
restructuring and other expenses which are not charged to the other operating
segments.
The following table summarizes each segment's net revenues from external
customers and operating income (loss):
<TABLE>
<CAPTION>
Consumer
and Small Enterprise Professional Total
(In thousands) Business Solutions e-Support Services Other Company
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
JUNE 30, 2000
Revenue from
external customers $ 75,871 $ 48,274 $ 58,555 $ 7,966 $ 692 $ 191,358
Operating income (loss) 41,748 24,339 51,598 485 (72,849) 45,321
Depreciation &
amortization expense 2,943 1,872 2,271 309 27 7,422
THREE MONTHS ENDED
JUNE 30, 1999
Revenue from
external customers 75,313 35,865 48,193 3,201 12,566 175,138
Operating income (loss) 36,150 17,611 39,037 (1,460) (63,592) 27,746
Depreciation &
amortization expense 2,466 1,174 1,578 105 412 5,735
</TABLE>
GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
(In thousands) 2000 1999
--------------------------------------- -------- ---------
<S> <C> <C>
Net revenues from external customers:
United States $ 101,421 $ 99,769
Other foreign countries 89,937 75,369
--------- ---------
$ 191,358 $ 175,138
========= =========
</TABLE>
NOTE 10. SUBSEQUENT EVENT
On July 27, 2000, the Company signed an agreement to acquire 100% of the
outstanding shares of AXENT Technologies, Inc. Upon obtaining necessary
regulatory and stockholder approvals, the Company plans to exchange one share of
Symantec common stock for every two shares of AXENT Technologies, Inc. common
stock outstanding. The Company expects to issue approximately 15.3 million
shares in the transaction.
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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.
OUR INCREASED SALES OF ENTERPRISE-WIDE SITE LICENSES MAY INCREASE FLUCTUATIONS
IN OUR FINANCIAL RESULTS. Sales of enterprise-wide site licenses through our
Enterprise Solutions segment are a major and expanding portion of our business.
This enterprise market has significantly different characteristics than the
consumer market and requires different skills and resources to penetrate.
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.
WE RECENTLY RESTRUCTURED OUR INTERNAL FOCUS AND OPERATIONS AND WE COULD INCUR
ADVERSE OPERATING CONSEQUENCES AS A RESULT OF THESE CHANGES. In fiscal 2000, we
restructured our operations on the basis of a customer segment orientation
rather than a product structure. We also divested two product lines that did not
fit with our future focus. Changes of this nature inevitably cause disruptions
within an organization that may adversely affect results as the changes are
being absorbed, and these changes may not achieve their desired long-term
benefits. Overseeing these changes requires significant attention from our
senior management and may detract from management's ability to focus on other
important opportunities or problems that might confront us. We have lost
personnel, including management, and we may continue to do so as a consequence
of these types of changes. In addition, we may not be able to introduce new
products that are as beneficial to us as those that we divested.
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, such as software viruses specifically designed to impede the
performance of our products, we expect to be an ongoing target of such
disruptions. Similarly, experienced computer programmers, or hackers, may
attempt to penetrate our network security or the security of our web site and
misappropriate proprietary information or cause interruptions of our services.
Our activities could be substantially disrupted and our reputation, and future
sales, harmed if these efforts are successful.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR OPERATING RESULTS AND FINANCIAL
CONDITION COULD BE ADVERSELY AFFECTED BY THIS COMPETITION. Our markets are
intensely competitive. This competition could adversely affect our operating
results by reducing our sales or the prices we can charge for our products. In
the past, many of our competitors have significantly reduced the price of
utility and anti-virus products and future price reductions could occur for
these or other of our products, which would likely have a negative affect on our
margins and could reduce our sales. Our ability to remain competitive depends on
our ability to enhance our products or produce new products that are compatible
with new products introduced by the major hardware and operating system
providers. We have no control, and sometimes limited visibility, into the
development efforts of these third parties and we may not be able to respond
effectively or timely to their new products and enhancements. In addition, we
have limited resources and we must make strategic decisions as to how to best
allocate our resources to position ourselves for changes in our markets. We may
from time to time allocate resources to projects or markets that do not develop
as rapidly or fully as we expect. We may fail to allocate resources to third
party products or to markets that are more successful than we anticipate.
INTRODUCTION OF NEW OPERATING SYSTEMS MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS
AND STOCK PRICE. The inclusion of security or anti-virus tools in new operating
systems and hardware packages could adversely affect our sales. For example, the
inclusion of features by Microsoft in the upcoming release of Windows 2000
Millennium Edition, which directly compete with our products,
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
may decrease or delay the demand for certain of our products, including those
currently under development and products specifically intended for Windows 2000
ME. 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 six months after the releases of Windows 3.1, Windows 95 and
Windows 98, which in some cases caused hardware upgrades that resulted in shifts
in customer spending from software to hardware. The consumer/desktop oriented
Millennium Edition of Windows 2000 is expected to be released in the September
2000 quarter, and, as a result, we could face adverse financial results and
additional stock price declines.
With the rise of Linux-based operating systems, we may lose market share if we
are unable to significantly penetrate 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.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. While
our diverse product lines have 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 portion of our net revenues have historically been 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 at that time. Our reliance on
a large portion 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. In addition, the laws of some other
countries do not protect intellectual property rights as effectively as is the
case in the United States and we may be subject to a greater risk of
unauthorized use of our products.
WE MUST EFFECTIVELY ADAPT TO CHANGES IN THE DYNAMIC TECHNOLOGICAL ENVIRONMENT.
We are increasingly focused on the Internet security market, which in turn is
dependent on further acceptance of the Internet. The following critical issues
concerning the use of the Internet remain unresolved and may affect the market
for our products and the use of the Internet as a medium to distribute or
support our software products and the functionality of some of our products:
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
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. 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 is made through the retail distribution channel, which is subject to
events that create unpredictability in consumer demand. This increases the risk
that we may not plan effectively for the future, which could result in adverse
operating results in future periods. Our 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 our
competitors and other factors that we do not control nor can we predict. Our
agreements with retail distributors are generally nonexclusive and may be
terminated by them or by us without cause. We would be adversely affected if
companies in our chain of distributors chose to increase purchases from our
competition relative to the amount they buy from us.
Some distributors and resellers have experienced financial difficulties in the
past and some are currently experiencing financial difficulties. 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.
CHANNEL FILL AND PRODUCT RETURNS MAY NEGATIVELY 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. Channels may also become filled
simply because the distributors do not sell their inventories to retailers 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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
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,
subject to limitations, 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.
THE TRANSITION TO INTEGRATED SUITES OF UTILITIES MAY RESULT IN REDUCED CONSUMER
REVENUES. We and our competitors sell integrated suites of utility products for
prices significantly less than the aggregate price of the stand-alone products
that are included in these suites when sold separately. As a result of the shift
to integrated utility suites, price competition is intense in the consumer
market and we have experienced cannibalization of our stand-alone products that
are included within the suite. Additionally, our products may not compete
effectively with competitors' integrated 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, AND MAY IN THE FUTURE BE INVOLVED IN LITIGATION,
WHICH COULD ADVERSELY 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 were 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 5 of Notes to Condensed
Consolidated Financial Statements of this Form 10-Q and our previously filed
Form 10-K for the year ended March 31, 2000. We intend to defend all of these
lawsuits vigorously. We may suffer an unfavorable outcome in one or more of
these cases. Depending on the amount and timing of any unfavorable resolutions
of these lawsuits, our future results of operations or cash flows could be
materially adversely affected in a particular period.
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 claim against us and a license is not
available on reasonable terms, our business, operating results and financial
condition may be materially adversely affected.
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 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.
THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE
EFFECTIVELY. Consolidation is underway among companies in the software industry
as firms seek to offer more extensive suites of software products and broader
arrays of software solutions. Changes resulting from this consolidation may
negatively impact our competitive condition. In addition, to the extent that we
seek to expand our product lines, and skills and
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
capacity through acquisitions, the trend toward consolidation may result in our
encountering competition, and paying higher prices, for acquired businesses.
WE HAVE GROWN, AND MAY CONTINUE TO GROW THROUGH ACQUISITIONS, WHICH GIVE RISE TO
A NUMBER OF RISKS THAT COULD HAVE ADVERSE CONSEQUENCES FOR OUR FUTURE OPERATING
RESULTS. We have made seven acquisitions within the last two fiscal years and
have recently announced our agreement to acquire AXENT Technologies, Inc. We
may also complete material acquisitions in the future. Integrating acquired
businesses into our existing business may distract our management focus from
other opportunities and challenges. Our past acquisitions have given rise to,
and future acquisitions may result in, substantial levels of goodwill and other
intangible assets that will be amortized in future years and our future
operating results will be adversely affected if we do not achieve benefits from
these acquisitions commensurate with these charges. In addition, a number of our
recent acquisitions have resulted in our incurring substantial write-offs of
acquired in-process research and development costs and this also may occur as a
result of future acquisitions. We may issue equity, or incur debt financing, for
future acquisitions that are dilutive to our existing stockholders.
In July 2000, we entered into an agreement to acquire AXENT Technologies, Inc.
We expect this transaction to be consummated during our third quarter of fiscal
2001. This agreement is subject to typical closing conditions. If these
conditions are not satisfied, the acquisition may not be consummated.
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. Such approval may not be forthcoming and, as a result, we
may be impaired in our efforts to attract necessary personnel.
OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS MAY NOT BE ADEQUATELY PROTECTED
FROM ALL UNAUTHORIZED USES. 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. 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, as new technologies are making piracy easier to achieve. 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.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
OVERVIEW
Symantec, a world leader in Internet security technology, provides a broad range
of content and network security solutions to individuals and enterprises. As a
leader in Internet security, we offer a breadth of solutions including virus
protection, risk management, Internet content and e-mail filtering, remote
management and mobile code detection technologies to enterprises and individual
customers. Founded in 1982, we have offices in 33 countries worldwide. The June
30, 2000 and 1999 quarters closed on June 30, 2000 and July 2, 1999,
respectively and each comprised 13 weeks of revenue and expense activity.
RESULTS OF OPERATIONS
The following table sets forth each item from our consolidated statements of
income as a percentage of net revenues and the percentage change in the total
amount of each item for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Ended Percent
June 30, Change
------------------ in Dollar
(Unaudited) 2000 1999 Amounts
----------------------------------------------- ------- ------- ---------
<S> <C> <C> <C>
Net revenues................................... 100% 100% 9%
Cost of revenues............................... 15 17 (9)
------- -------
Gross margin............................ 85 83 13
Operating expenses:
Research and development.................. 13 16 (7)
Sales and marketing....................... 40 42 5
General and administrative................ 5 5 14
Amortization of goodwill ................. 3 2 32
Amortization of other intangibles......... -- -- *
Restructuring and other expenses.......... -- 2 *
------- -------
Total operating expenses................ 61 67 1
------- -------
Operating income............................... 24 16 63
Interest income................................ 3 2 200
Income, net of expense, from sale of
technologies and product lines............ 3 3 21
Other income, net.............................. -- -- *
------- -------
Income before income taxes..................... 30 21 64
Provision for income taxes..................... 10 7 70
------- -------
Net income .................................... 20% 14% 62
======= =======
</TABLE>
* percentage change is not meaningful.
NET REVENUES
Net revenues increased 9% from approximately $175 million in the June 1999
quarter to $191 million in the June 2000 quarter. Revenue growth in the June
2000 quarter compared to the June 1999 quarter was attributable to growth in our
Enterprise and e-Support segments, offset by a decline in our Other segment's
revenues. The revenue increase in the Enterprise and e-Support segments was due
to strong corporate growth. The revenue decline in our Other segment was due
primarily to our divestiture of the ACT! and Visual Cafe product lines in the
December 1999 quarter, which revenues had been included in the June 1999
quarter.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
SEGMENTS
The Consumer and Small Business segment provides solutions to individual
consumers, home offices and small businesses. The segment's charter is to ensure
that consumers and their information are secure and protected in a connected
world. The Consumer and Small Business segment comprised approximately 40% and
43% of net revenues in the quarters ended June 30, 2000 and 1999, respectively.
Absolute revenues did not change significantly during the quarter ended June 30,
2000, compared to the quarter ended June 30, 1999.
The Enterprise Solutions segment provides a broad range of security solutions
for our enterprise customers. Our corporate customers need to protect their
businesses from the threats associated with the use of the Internet. The
Enterprise Solutions segment comprised approximately 25% and 20% of net revenues
in the quarters ended June 30, 2000 and 1999, respectively. Revenues increased
primarily due to strong demand for our Norton AntiVirus solutions.
The e-Support segment offers products that enable companies to be more effective
and efficient within their IT departments. Remote management solutions help
remote professionals to remain productive while providing companies access to
information, applications and data from any location. The e-Support segment
comprised approximately 31% and 28% of total net revenues in the quarters ended
June 30, 2000 and 1999, respectively. The growth in e-Support was driven by
strong growth of its two primary products, pcANYWHERE and Ghost.
The Professional Services segment provides fee-based technical support and
consulting services to enterprise customers to assist them with the planning,
design and implementation of enterprise security solutions in the anti-virus and
Internet content filtering technologies. The Professional Services segment
comprised approximately 4% and 2% of total net revenues for the quarters ended
June 30, 2000 and 1999, respectively. The growth in Professional Services is
attributable to our increased efforts in providing additional technical support
to our customers.
The Other segment is comprised of sunset products, products nearing the end of
their life cycle, and operations of the ACT! and Visual Cafe product lines that
we divested in the December 1999 quarter. The Other segment comprised
approximately 0% and 7% of net revenues in the quarters ended June 30, 2000 and
1999, respectively. The segment's net revenues are lower in the quarter ended
June 30, 2000 over the quarter ended June 30, 1999, due to our divestiture of
the ACT! and Visual Cafe product lines in the December 1999 quarter, which
revenues had been included in the June 1999 quarter.
INTERNATIONAL
Net revenues from sales outside of North America were approximately $83 million
and $68 million and represented 44% and 39% of total net revenues in the
quarters ended June 30, 2000 and 1999, respectively. The increase in
international net revenues was the result of sales growth in our Europe, Middle
East and Africa and Japan regions. Foreign exchange rate fluctuations during the
quarter ended June 30, 2000 compared to the quarter ended June 30, 1999 did not
materially affect quarterly revenue.
GROSS MARGIN
Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing expenses, costs for producing manuals,
packaging costs, royalties paid to third parties under publishing contracts and
amortization and write-off of capitalized software, or acquired product rights.
Gross margins increased to 85% of net revenues in the June 2000 quarter from 83%
in the June 1999 quarter. Factors contributing to the increase in gross margin
percentage include a change in product mix from consumer products to our
corporate business. Gross margin was also improved by decreased royalty expense
as a result of a shift in sales in the June 2000 quarter to products with lower
royalty rates than those sold in the June 1999 quarter. In addition, technical
support costs related to corporate sales increased as the mix of corporate sales
increased.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
These factors were partially offset by increases in obsolescence expense, as we
prepare for the release of Windows 2000 Millennium Edition in the September 2000
quarter. Amortization and write-off of acquired product rights totaled
approximately $2.7 million and $2.3 million for the June 2000 and 1999 quarters,
respectively. The increase is due to our acquisitions in fiscal 2000.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 7% from approximately $28 million in
the June 1999 quarter to $26 million in the June 2000 quarter primarily due to a
drop in headcount following our divestitures of ACT! and Visual Cafe.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 5% from approximately $74 million in the
June 1999 quarter to $77 million in the June 2000 quarter. The increase in sales
and marketing expenses primarily relates to growth in headcount in our
Professional Services segment, and related expenses. This increase was offset by
reduced marketing costs associated with our divested ACT! product line.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses remained relatively flat as a percentage of
total revenues, while absolute dollars increased approximately 14% from $9
million in the June 1999 quarter to $10 million in the June 2000 quarter. This
increase in absolute dollars was due to increased headcount and related
expenses.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles increased approximately $1.3
million from $4.1 million in June 1999 to $5.4 million in the June 2000 quarter.
The increase is due to amortization of additional goodwill and other intangibles
from the acquisitions we made during fiscal 2000.
RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses amounted to approximately $2.8 million for the
quarter ended June 1999, for certain costs related to an agreement reached with
our former CEO. These costs were comprised of severance and acceleration of
unvested stock options. There were no restructuring and other expenses in the
June 2000 quarter. See Note 6 of Notes to Condensed Consolidated Financial
Statements in this Form 10-Q.
INTEREST AND OTHER INCOME
Interest income was approximately $6.8 million and $2.2 million in the quarters
ended June 30, 2000 and 1999, respectively. Interest income increased 200% in
the quarter ended June 30, 2000 over the quarter ended June 30, 1999, primarily
due to higher average invested cash balances of approximately $534 million for
the June 2000 quarter compared to $228 million for the June 1999 quarter.
Other income was relatively flat at approximately $0.3 million and $0.6 million
in the quarters ended June 30, 2000 and 1999, respectively.
INCOME, NET OF EXPENSE, FROM SALE OF TECHNOLOGIES AND PRODUCT LINES
Income, net of expense, from sale of technologies and product lines increased
from approximately $4.9 million in June 1999 quarter to $5.9 million in the June
2000 quarter. This increase is due to approximately $5.5 million in royalties
and other transition fees received in the June 2000 quarter as a result of our
sale of the ACT! and Visual Cafe product lines. The payment from JetForm in the
June 2000 quarter of approximately $0.4 million was lower than the $4.9 million
payment in the June 1999 quarter as we received the last JetForm payment in
accordance with our agreement in the June 2000 quarter.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
INCOME TAX PROVISION
Excluding the impact of amortization of goodwill and restructuring charges, the
effective tax rate on income before income taxes for the quarters ended June
2000 and 1999 was 32%. This rate is lower than the U.S. federal statutory tax
rate primarily due to a lower statutory tax rate on our Irish operations.
The tax provision for the quarter ended June 2000 consists of a 32% tax rate
applied to income before amortization of goodwill of $63.5 million and a $0.4
million tax benefit on the $5.2 million charge for amortization of goodwill.
Similarly, the tax provision for the quarter ended June 1999 consists of two
items: a $13.5 million (or 32% effective tax rate) provision on income before
income taxes and restructuring charges of $42.2 million, a $1.3 million tax
benefit from amortization of goodwill of $3.9 million and a $0.5 million tax
benefit on the $2.8 million of restructuring charges. The benefit of the
restructuring charges is less than the U.S. federal statutory tax rate due to
uncertainty of the realization of a tax benefit from certain severance benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments increased approximately $91
million to $523 million at June 30, 2000 from $432 million at March 31, 2000.
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 and the
sales of common stock under the Employee Stock Purchase Plan, offset by cash
paid for capital expenditures and for our acquisition of 20/20 Software.
In addition to cash and short-term investments, we have $71 million of
restricted investments related to collateral requirements under certain lease
agreements. We are obligated under these lease agreements for two existing
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. In addition, we are obligated to comply with
certain financial covenants. Future acquisitions may cause us to be in violation
of these financial covenants.
Net cash provided by operating activities was $93 million and was comprised of
net income of $38 million, non-cash related expenses of $15 million and a net
decrease in net assets and liabilities of $40 million.
Net trade accounts receivable increased $5 million to $52 million at June 30,
2000 from $47 million at March 31, 2000, primarily due to growth in our net
revenues.
On March 22, 1999, our Board of Directors authorized the repurchase of up to $75
million of our outstanding common stock, with no expiration date for up to
$20.00 per share. As of June 30, 2000, we purchased 1,000,000 shares at prices
ranging from $17.90 to $19.90, for an aggregate amount of $18.7 million. All of
these shares were purchased in the June 1999 quarter.
We have a $10 million line of credit, which expires in May 2001. We were in
compliance with the debt covenants for this line of credit as of June 30, 2000.
As of June 30, 2000, 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.
If we were to sustain significant losses, we could be required to reduce
operating expenses, which could result in product delays and could cause us to
reassess acquisition opportunities, which could negatively impact our growth
objectives and/or pursue 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.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to equity price risk on the marketable portion of our portfolio
of equity securities. We typically do not attempt to reduce or eliminate the
market exposure on our securities. As of March 31, 2000, these securities
consisted of approximately 600,000 shares of Interact Commerce Corporation, a
publicly traded company (Nasdaq symbol "IACT"), with a market value of
approximately $16.9 million. Since April 2000, many high-technology stocks
experienced increased volatility and a significant decrease in value, including
these shares. If these securities had been valued using prices as of August 1,
2000, the value of these securities would have decreased by approximately $9.9
million as compared to the March 31, 2000 value. The value of these securities
may vary over time and the value as of August 1, 2000 of approximately $7.0
million is not necessarily indicative of future performance.
We believe there has been no other significant change in our market risk
exposures as what was previously disclosed in our Form 10-K for the year ended
March 31, 2000.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Note 5 of
Notes to Condensed Consolidated Financial Statements included herein on page 7
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:
<TABLE>
<S> <C>
3.01 The Registrant's Restated Certificate of Incorporation.
(Incorporated by reference to Annex G filed with the Registrant's
Joint Management Information Circular and Proxy Statement (No.
000-17781) dated October 17, 1995.)
3.02 The Registrant's Bylaws, as amended and restated effective August
11, 1998. (Incorporated by reference to Exhibit 3.1 filed with
the Registrant's Current Report 8-K filed August 19, 1998.)
10.01 Symantec Corporation 1999 Acquisition Plan Stock Option
Agreement with Acceleration by and between Symantec Corporation
and Gary P. Warren.
10.02 Employment offer by and between Symantec Corporation and
Ron Moritz.
10.03 Employment offer by and between Symatec Corporation and Gail
Hamilton.
27.1 Financial Data Schedule for the Three Months Ended June 30, 2000.
</TABLE>
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on July 28, 2000,
reporting that the Company entered into an Agreement and Plan of
Merger with Apache Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Symantec and AXENT Technologies, Inc., a
Delaware corporation.
None.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 10, 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
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.01 The Registrant's Restated Certificate of Incorporation. (Incorporated
by reference to Annex G filed with the Registrant's Joint Management
Information Circular and Proxy Statement (No. 000-17781) dated October
17, 1995.)
3.02 The Registrant's Bylaws, as amended and restated effective August 11,
1998. (Incorporated by reference to Exhibit 3.1 filed with the
Registrant's Current Report 8-K filed August 19, 1998.)
10.01 Symantec Corporation 1999 Acquisition Plan Stock Option Agreement with
Acceleration by and between Symantec Corporation and Gary P. Warren.
10.02 Employment offer by and between Symantec Corporation and Ron Moritz.
10.03 Employment offer by and between Symatec Corporation and Gail Hamilton.
27.1 Financial Data Schedule for the Three Months Ended June 30, 2000.
</TABLE>
