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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number 0-17781

Symantec Corporation

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     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 þ          No o

      Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Symantec common stock on June 7, 2002 as reported on the Nasdaq National Market and with respect to the Delrina exchangeable stock on the Toronto Stock Exchange:     $4,572,558,473

      Number of shares outstanding of each of the registrant’s classes of common stock, including 2,382,084 shares of Delrina exchangeable stock, as of June 7, 2002:     114,153,798

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held September 12, 2002, are incorporated by reference into Part III.

Table of Contents

SYMANTEC CORPORATION

FORM 10-K

For the Fiscal Year Ended March 29, 2002

TABLE OF CONTENTS

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      “Symantec,” “we,” “us,” and “our” refer to Symantec Corporation and all of its subsidiaries. This document contains references to trademarks and trade names of other companies.

      All Symantec share and per share amounts in this Form 10-K have been adjusted to reflect the two-for-one stock split effected as a stock dividend, which became effective January 31, 2002.

PART I

Item 1.     Business

Forward-Looking Statements

      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 under Management’s Discussion and Analysis of Financial Information and Results of Operations — Business Risk Factors and elsewhere in this Form 10-K. 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.

Introduction

      Symantec provides a broad range of content and network security software and appliance solutions to enterprises, individuals and service providers. We are a leading provider of client, gateway and server security solutions for virus protection, firewall and virtual private network, vulnerability management, intrusion detection, Internet content and e-mail filtering, remote management technologies and security services to enterprises and service providers around the world. Founded in 1982, we have offices in 38 countries worldwide.

Business Overview

      We currently view our business in five operating segments: Enterprise Security, Enterprise Administration, Consumer Products, Services and Other. For financial information related to our operating segments, see Note 17 of Notes to Consolidated Financial Statements of this Form 10-K.

     Enterprise Security

      Our Enterprise Security segment focuses on providing Internet security technology, global response and services necessary for organizations to manage their information security needs. Our comprehensive solutions offer products to protect gateways, servers, and clients (desktop PCs, laptops, mobile devices and PDAs) with virus protection and filtering, intrusion detection, vulnerability management, firewall security and virtual private networking, or VPN. In addition, we have expanded our technology offerings to include an integrated solution at the gateway level combining several of our individual technology solutions. At the gateway level, our products run on Windows NT ®, Solaris®, and Linux® platforms. Our products at the server level operate on Windows NT, UNIX, Linux and other key server platforms. At the client level, our products run on the Windows® platform.

     Integrated Solution

      Symantec^TM Gateway Security combines firewall, antivirus, Internet content filtering, intrusion detection, and VPN technologies into one appliance. This integrated solution provides a second level of protection against multi-faceted security threats that antivirus and firewall protection alone cannot provide. It is a flexible solution for small and medium-sized offices for securing the gateway between the Internet and corporate networks or between network segments.

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      Our virus protection and filtering technologies are core elements of Internet security that combine multi-tier protection against viruses with the management of Internet communications for sensitive content or misuse of data. Users of our virus protection and filtering products are able to take action to protect their enterprise from risks associated with using Internet resources. This includes scanning or monitoring data that enters, leaves or travels inside the organization, as well as detecting and eliminating malicious code that may be introduced into a company’s network. Our virus protection and e-mail and Internet content filtering technologies protect gateways, servers and clients at multiple entry points from known and unknown threats. Protection from virus attacks is the most well-known and largest market component of the enterprise security area.

      Symantec AntiVirus^TM offers the flexibility of a bundled, multi-tiered antivirus solution to protect the enterprise’s network, including Internet gateways, desktops, file and print servers, mail servers and firewalls. Symantec AntiVirus also enables corporations to keep their virus definitions up to date via LiveUpdate.

      Symantec CarrierScan^TM Server provides advanced, high-performance virus scanning and repair services for the NetApp® filer and NetCache® devices from Network Appliance. Symantec CarrierScan server employs Symantec antivirus technologies to detect viruses, worms, and Trojan horses in all major file types, including mobile code and compressed file formats. Virus definitions and engines are updated automatically with no interruption in virus scanning. Symantec CarrierScan accommodates growing scan volumes and additional servers, and provides automatic load balancing across multiple servers.

      We offer firewall and VPN solutions that protect throughout the network, including at Internet gateways, gateways to sensitive internal networks and at client devices.

      Symantec^TM Enterprise Firewall, a gateway software firewall product, protects enterprise assets and business transactions. As a comprehensive full inspection firewall, Symantec Enterprise Firewall enables fast, but controlled connectivity, providing protection against unwanted intrusion while enabling the flow of approved traffic for offices with 25 to 25,000 nodes. Through its optional VPN, it can also provide high-speed and cost effective remote connectivity between mobile workers and the office.

      Symantec^TM Desktop Firewall enables administrators to quickly roll out an effective solution that works intelligently in the background, monitoring both inbound and outbound communications. Since Symantec Desktop Firewall is optimized for always-on broadband connections such as DSL and cable modems, it is a highly effective solution for securing remote communications.

      Symantec^TM Enterprise VPN is a full inspection VPN gateway, enabling high speed, cost-effective and secure connectivity between offices and with partners and mobile users. With its integrated, full inspection ProxySecured VPN technology and integrated client-side personal firewall, companies can securely extend networks beyond their physical perimeter.

      Symantec^TM Firewall/ VPN Appliance is an integrated security and networking device that provides Internet connectivity and secure VPN connections between locations. Symantec Firewall/ VPN Appliance provides high-speed access, reliable connectivity, substantial bandwidth and remote management and monitoring ideal for remote locations and small offices with up to 40 users.

      Symantec VelociRaptor^TM firewall appliance is an integrated hardware and software firewall and VPN appliance that employs our full-inspection technology to provide fast and secure Internet connectivity. Symantec VelociRaptor delivers enterprise-class network security for offices with 30 to 5,000 users.

      Organizations must protect information from unwanted users and hackers and control access to information to maintain business integrity. At the gateway and server level, our intrusion detection products

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      Symantec Intruder Alert^TM is a host-based, real-time intrusion detection system that detects security breaches and automatically responds according to pre-established security policies. By alerting administrators of potential problems, it enables enterprises to develop precautionary security policies that prevent hackers or authorized users with malicious intent from misusing systems, applications, and data.

      Symantec NetProwler^TM complements existing security countermeasures and fortifies a company’s e-business initiatives by offering dynamic network intrusion detection that transparently examines network traffic. It is designed to instantly identify, log, and terminate unauthorized use, misuse and abuse of computer systems by internal saboteurs and external hackers.

      At the gateway and server level, our vulnerability management products find system vulnerabilities and help to ensure security policy compliance to proactively reduce business risk. The initial step to reduce corporate risk is to effectively measure compliance to a business security policy and detect vulnerabilities where critical information resides. It is important to understand the effectiveness of a security policy in order to properly define, manage and enforce business policies and assess possible threats.

      Symantec Enterprise Security Manager^TM gives enterprises the ability to automate the discovery of security vulnerabilities and deviations of the security policy in mission critical e-business applications and servers across the enterprise from a single location. Symantec Enterprise Security Manager provides intelligent tools that allow administrators to create a pre-defined security baseline for every system on the network and measure performance against that baseline.

      Symantec NetRecon^TM provides network vulnerability assessment with progressive scanning technology. Its root-cause analysis engine illustrates the exact sequence of steps taken to uncover vulnerabilities. Symantec NetRecon displays vulnerability data as it scans, then provides the appropriate reports so administrators do not have to search through volumes of data.

      Our Enterprise Administration segment offers products that enable companies to be more effective and efficient within their information technology departments. Remote management solutions help professionals remain productive while away from the office, while also providing companies access to information, applications and data from any location.

      Symantec pcAnywhere^TM offers secure, reliable, fast and flexible point-to-point remote computing via a multitude of communications media including Internet, serial, LAN, ISDN, DSL, cable modems and infrared. Symantec pcAnywhere enables a remote PC user to control and transfer data to and from a host PC. In addition, the remote PC, laptop or PC terminal controls the operation of the often-distant host PC and allows users at the host machine to view the operations being conducted from the remote site.

      Symantec Ghost^TM Corporate Edition is a tool for PC deployment, recovery, cloning and migration. It reduces information technology costs by streamlining the configuration of networked workstations. Administrators can deploy or restore an operating system image or application onto a PC in minutes and migrate user settings and profiles to customize the PC.

      Our Consumer Products segment focuses on delivering our security and problem-solving products to individual users, 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. Most of the products that we are currently marketing or developing feature LiveUpdate^TM. This feature enables users to subscribe to easily downloadable content updates including virus definitions, firewall rules, URL databases and uninstall scripts. Our consumer

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      Norton AntiVirus^TM provides antivirus protection with automatic repair of many virus infections without interrupting work. It scans and cleans both incoming and outgoing mail and defends against new script-based viruses even between virus definition updates. For those customers that subscribe to them, the latest virus definitions are downloaded automatically through LiveUpdate, created by Symantec Security Response, when the PC is connected to the Internet. Symantec Security Response provides 24 hours a day, 7 days a week research and analysis capability to ensure that customers have the highest level of protection available.

      Norton Internet Security^TM is a fully integrated suite that is designed to provide total Internet protection for the home computer. The suite includes Norton AntiVirus, Norton^TM Personal Firewall and Norton^TM Privacy Control. Norton AntiVirus repairs many virus infections automatically, without interrupting work. Norton Personal Firewall prevents hackers from accessing the computer’s files or using the computer in other Internet-based attacks. Norton Privacy Control helps keep email addresses, credit-card numbers and other personal information private. Norton^TM Parental Control helps keep children safe on the Internet through website blocking and individual access privileges.

      Norton SystemWorks^TM is a fully integrated suite of problem-solving utilities that protects PC users from virus threats, optimizes performance, cleans out Internet clutter, and provides quick and easy system recovery. Included in this suite are the latest complete versions of our products: Norton AntiVirus, Norton Utilities^TM and Norton CleanSweep^TM.

      Symantec^TM Security Services provides information security solutions that incorporate best-of-breed technology, security expertise and global resources to help enable e-business success. Through its comprehensive offerings, Symantec Security Services offers industry best practices, solutions for security management and response, and knowledge transfer to develop internal security skills.

      Consulting Services enables organizations to implement best-practices security measures across the enterprise through comprehensive security assessments and holistic planning and design. Consulting Services develops strategies for managing and reducing risks to help organizations protect business-critical information assets.

      Managed Security Services provides comprehensive outsourced security management, monitoring and response services that help organizations solve security problems cost effectively. Managed Security Services allows organizations to leverage the knowledge of Internet security experts in order to protect the value of their networked assets and infrastructure. The around-the-clock delivery of managed services is provided remotely from our global Security Operation Centers located in San Antonio, Texas and Epsom, United Kingdom. Among the services offered are the ongoing management of vulnerability, policy compliance, antivirus, intrusion detection and response, and firewall and VPN systems.

      Education Services provides a full range of training, skills development and certifications that enable organizations to optimize the selection, implementation, operation and administration of their security systems. By developing, enhancing and maintaining internal staff knowledge, organizations can maximize the return on their security investments and improve the efficiency of their security solutions.

      Our Other segment is comprised of sunset products, products nearing the end of their life cycle, and operations from our web access management, Visual Café^TM and ACT!^TM divested product lines.

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Recent Acquisitions and Divestitures

      Since our initial public offering on June 23, 1989, we have completed acquisitions of 25 businesses.

      Our recent acquisitions were as follows:

	•	Lindner & Pelc Consult GmbH in the September 2001 quarter;
	•	Foster-Melliar Limited’s enterprise security management division also in the September 2001 quarter;
	•	AXENT Technologies, Inc. in the December 2000 quarter;
	•	20/20 Software, Inc. in the March 2000 quarter;
	•	L-3 Network Security’s operations, also in the March 2000 quarter; and
	•	URLabs in the September 1999 quarter.

      We accounted for each of these acquisitions as a purchase and, accordingly, we have included the operating results of these businesses in our consolidated financial statements since their respective dates of acquisition. We have acquired several businesses in the past, including Peter Norton Computing, Inc. on August 31, 1990. We continue to use the Norton brand name for certain consumer products developed and marketed by us.

      We divested our web access management product line on August 24, 2001 and the Visual Café and substantially all of the ACT! product lines on December 31, 1999. We have included the operating results of these product lines prior to disposition in our Other segment. The divestiture of the Visual Café and ACT! product lines enabled us to focus our efforts and resources on our Internet security business. The Visual Café and ACT! product lines comprised a significant part of our business prior to their disposition.

      For further discussion on our recent acquisitions and divestitures, see Note 3 of Notes to Consolidated Financial Statements of this Form 10-K.

      We license our corporate and enterprise products through our distributors, corporate resellers, value-added resellers and system integrator channels, in addition to our direct sales force.

      We sell our consumer products to individuals and small offices/ home offices around the world through a multi-tiered distribution network. Our products are available to customers through channels that include: distributors, retailers, mail order resellers, Internet-based resellers or “e-tailers,” original equipment manufacturers, educational institutions and Internet service providers. We also sell some of our products and product upgrades through direct mail and over the Internet, in conjunction with channel partners.

      We maintain distribution relationships with major independent distributors. Our indirect sales force works closely with our major distributor and reseller accounts to manage the flow of orders, inventory levels and sales to customers. We also work closely with them to execute channel promotions and other marketing activities associated with these promotions.

      Our agreements with distributors are generally nonexclusive and may be terminated by either party without cause. These distributors are not within our control and are not obligated to purchase products from us. They also distribute other vendors’ product lines. For information with respect to distributors that represent more than 10% of our net revenues, see Note 17 of Notes to Consolidated Financial Statements of this Form 10-K.

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      Our marketing activities include:

	•	advertising in trade, technical and business publications;
	•	on-line advertising;
	•	radio broadcast advertising (consumer only);
	•	public relations;
	•	cooperative marketing with distributors, resellers and industry partners;
	•	direct mailings and e-mailings to existing end-users;
	•	the use of tools such as trialware and Symantec Security Check, a web-based tool for users to assess the security vulnerabilities on their computers (consumer only);
	•	participation in focused trade and computer shows; and
	•	primary market research to understand evolving customer need and buying behaviors (consumer only).

      For our consumer products, we typically offer two types of rebate programs within most countries: volume incentive rebates to channel partners and promotional rebates to end-users. The distributor or reseller earns a volume incentive rebate based upon the volume of their purchases and their sale of products to end-users. From time to time, we also make rebates available to individual users of various products acquired through major retailers. We regularly offer upgrade rebates to existing customers purchasing a new version of a product. Both volume incentive rebates and end-user rebates are accrued as an offset to revenue when revenue is originally recorded.

      Product returns occur when we introduce upgrades and new versions of products or when distributors or retailers have excess inventories, subject to various contractual limitations. Our return policy allows distributors, subject to these contractual 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 for a full refund within a reasonably short period from the date of purchase. We estimate and record reserves for such product returns. For further discussion, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Critical Accounting Policies” and the Summary of Significant Accounting Policies in the Consolidated Financial Statements of this Form 10-K.

International Sales

      Revenues outside of the United States represented approximately 47%, 48% and 45% of our net revenues during fiscal 2002, 2001 and 2000, respectively.

      The majority of our net revenues from Europe are derived from sales by affiliates of our major United States distributors. Additionally, we sell our products through authorized distributors, which may be restricted to specified territories. For most of our consumer products, we translate the documentation, software and packaging into the local language and prepare marketing programs for each local market.

      We have marketing offices in Australia, Austria, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, India, Israel, Italy, Japan, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, United Arab Emirates and the United Kingdom. These local offices

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	•	government regulations;
	•	import restrictions;
	•	currency fluctuations;
	•	repatriation restrictions; and
	•	in some jurisdictions, reduced protection for our copyrights and trademarks.

Symantec^TM Security Response

      Symantec Security Response is a team of dedicated intrusion experts, security engineers, virus hunters and global technical support teams that work in tandem to provide extensive coverage for enterprise businesses and consumers. Symantec Security Response provides customers with comprehensive, global, 24x7 Internet security expertise to guard against today’s blended Internet threats, threats that are multi-faceted in their operating methods and effects.

      Symantec Security Response addresses blended threats by providing a thorough analysis of Internet security threats, evaluating how threats work together, then offering recommendations on protection. This allows us to respond to complex security threats in a more holistic, preventive manner. A Symantec Security Response analysis can show how multiple threats work together, how this could impact a customer, and how to protect against these threats.

      Symantec Security Response delivers knowledgeable, proactive security protection through product security policies and best practice guidelines that can be updated and distributed through automated processes. Additionally, Symantec Security Response provides rapid reactive security protection through its incident response program, including emergency antivirus signatures, definitions and policies, as well as outbound communications such as alerting services.

      The research centers of Symantec Security Response are focused on collecting and analyzing the latest malware threats from network security threats and vulnerabilities to viruses and worms. When a new threat or vulnerability is discovered, Symantec Security Response experts provide rapid emergency response, focusing on communication with customers and delivery of security updates for our security products.

      Symantec Security Response researchers represent a cross-section of many of the most highly regarded security experts in the industry. Research centers are located around the world, including North America, Asia, Australia and Europe.

      To ensure that customers are utilizing the most recent technologies available for addressing security issues, Symantec Security Response experts leverage our sophisticated back-end product architecture. This architecture allows users to receive the latest security updates — including virus definitions and intrusion detection signatures — automatically in the event of a new security threat or outbreak. LiveUpdate technology simplifies and speeds the process of receiving and implementing security updates for our security product offerings at the server, gateway and desktop levels.

      Symantec Security Response not only provides time-sensitive security advisories using web updates, but also provides alerting services, technical support and media alerts. Symantec Security Response is committed to educating the general public about key security threats and trends through published white papers and speaking engagements worldwide.

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      With more than 300 experts in Internet security and desktop and network management, as well as our complete product solutions, our global technical support team is available around the clock. Our technical support experts provide customers with information on product implementation and usage, as well as countermeasures and identification tools for new threats.

      We maintain centralized support facilities throughout the world to drive rapid response to complex queries. Support is available in multiple languages, including Dutch, English, French, German, Italian, Japanese, Korean, Mandarin, Portuguese and Spanish.

      Our enterprise security support program offers annual support contracts to all enterprise customers worldwide. Our standard annual support contracts provide 1) hot-line service delivered by telephone, fax, e-mail and over the Internet; 2) immediate patches for severe problems; 3) periodic software updates; 4) access to our technical knowledge base and FAQ facility; and 5) an invitation to the annual user group meeting. Inclusive in these standard annual support contracts are virus definitions and intrusion detection signatures created by Symantec Security Response. Customers may augment their standard annual support contract with services such as 24x7x365 hour telephone and web support, advanced alerting services, additional designated callers (contacts) and additional language support, as well as a Technical Account Manager, assigned to work closely with an organization and act as a focal point for all issues.

     Consumer Product Support

      Our product support program provides free self-help online services to all consumer customers worldwide. In some countries, access to free telephone support is provided for a limited period of 30 to 90 days, depending upon the country. After the initial period, telephone support is provided for a fee throughout North America, as well as portions of Asia Pacific and Europe. For some of our international customers, we continue to transition our product support to be entirely fee based telephone support, along with free self-help online support. For customers that subscribe to them, the latest virus definitions and application bug fixes and/or patches for most of our currently marketed and developed products are downloaded automatically through LiveUpdate, created by Symantec Security Response.

      We revise these fee-based support programs from time to time as customer requirements change and as market trends dictate.

Product Development, Partnerships, Investments and Acquisitions

      We use a multiple product sourcing strategy that includes, as necessary:

	•	internal development;
	•	licensing from third parties;
	•	investment in companies; and
	•	acquisitions of technologies, product lines or companies.

      We develop software products that are designed to operate on a variety of operating systems. We typically develop new products and enhancements of existing products through focused product development groups with support from our core technology group. Each segment is responsible for its own design, development, documentation and quality assurance.

      Independent contractors are used for aspects of the product development process. In addition, elements of some of our products are licensed from third-party developers.

      We invest in companies with emerging technologies and companies that promote the sale and use of our products. These investments are made in lieu of an acquisition when timing is inappropriate or when the

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      We use strategic acquisitions as necessary to provide certain technology, people and products for our overall product strategy. We consider both timeliness to market and potential market share growth when evaluating acquisitions of technologies, product lines or companies. We have completed a number of acquisitions of technologies, companies and products, in the past, and have also disposed of technologies and products. We may acquire and/or dispose of other technologies, companies and products in the future. For further discussion on our acquisitions and divestitures, see Note 3 of Notes to Consolidated Financial Statements of this Form 10-K.

Competition

      Our markets are intensely competitive and are subject to rapid changes in technology. They are influenced by the rapid change in Internet security threats and the strategic direction of major computer hardware manufacturers, Internet service providers, application service providers, key application software vendors and operating system providers. Our competitiveness depends on our ability to deliver products that meet our customers’ needs by enhancing our existing solutions and offering reliable, scalable and standardized new solutions on a timely basis. We have limited resources, and as a result, we must deploy our available resources thoughtfully. The principal competitive factors in our Enterprise Security and Administration and Consumer Products segments are quality, employment of the most advanced technology, time to market, price, reputation, breadth of product offerings, customer support, brand recognition, and sales and marketing teams. In our Services segment, the principal competitive factors include technical capability, customer responsiveness, price, ability to attract and retain talented and experienced personnel, and reputation within the industry.

      In the enterprise security and administration market, we compete against several companies who offer competing products to our technology solutions and to our Symantec Ghost and pcAnywhere products and competing services to our response and support. Some of the companies that we compete against are Altiris, BindView, Checkpoint, Cisco, Computer Associates, Internet Security Services, Netopia, NetScreen, Network Associates, Okena, PentaSafe, PowerQuest, Stac Software, SonicWALL, Sophos, Traveling Software, Trend Micro, Watchguard and WebSense. Some of the companies that offer competing products to our Consumer Products offerings include Internet Security Services, McAfee.com, Network Associates, Norman, OnTrack (now owned by Kroll), Panda, Trend Micro and ZoneLabs. With the recent outbreaks of viruses and other Internet-based security threats, several other companies have entered the market and may become significant competitors in the future.

      Our Symantec Security Services competes with companies such as Counterpane, Internet Security Services, Network Associates and Riptech.

      Price competition is intense with most of our products and services. We expect price competition to continue to increase and become even more significant in the future, which may reduce our profit margins.

      We also face competition from a number of other products that offer levels of functionality different from those offered by our products, or that were designed for a somewhat different group of end-users than those targeted by us. Operating system vendors such as Microsoft have added security features to new versions of their products that provide some of the same functions offered in our products. In addition, several other operating systems are gaining market acceptance, such as Red Hat® Linux, Solaris and Unix-based operating systems, and they may also incorporate some of the advanced utilities or other functionality offered in our products. While we plan to continue to improve our products with a view toward providing enhanced functionality over that provided in current and future operating systems, these efforts may be unsuccessful and any improved products may not be commercially accepted by users. We will also continue to attempt to cooperate with operating system vendors to make our products compatible with those operating systems, while at the same time, differentiating our utility products from features included in those operating systems. Our efforts in this regard may be unsuccessful.

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      The demand for some of our products, including those currently under development, may decrease if, among other reasons:

	•	Microsoft includes additional product features in future releases of Windows;
	•	hardware vendors, including Cisco, incorporate additional server-based network management and security tools into network operating systems; or
	•	competitors license certain of their products to Microsoft or original equipment manufacturers for inclusion in their operating systems or products.

      In addition, we compete with other computer software companies for access to retail distribution channels and for the attention of customers at the retail level and in corporate accounts. We also compete with other software companies to acquire products or companies and to publish software developed by third parties.

      Many of our existing and potential competitors may have greater financial, marketing or technological resources than we do. We believe that competition in the industry will continue to intensify as other major software companies expand their product lines into additional product categories.

Manufacturing

      Our product development groups produce a set of master CD-ROMs or diskettes and documentation for each product that are then duplicated or replicated and packaged into products by our logistics organization. Purchasing of all raw materials is done by Symantec personnel in our Cupertino, California and Dublin, Ireland facilities for products manufactured in those countries. All of our domestic manufacturing and order fulfillment is performed by an outside contractor under the supervision of our domestic logistics organization. These manufacturing steps that are subcontracted to outside organizations include the replication of CD-ROMs, printing of documentation materials and retail boxes, and assembly of the final packages. For most products distributed outside of North and South America, our Dublin, Ireland manufacturing facility performs diskette duplication, assembly of the final packages, and order fulfillment. Our Dublin, Ireland manufacturing facility also subcontracts to outside organizations for the replication of CD-ROMs and printing of documentation materials and retail boxes.

Intellectual Property

      We regard our software as proprietary. We attempt to protect our software technology by relying on a combination of copyright, patent, trade secret and trademark laws, restrictions on disclosure and other methods. Litigation may be necessary to enforce our intellectual property rights, to protect trade secrets or trademarks or to determine the validity and scope of the proprietary rights of others. Furthermore, other parties have asserted and may, in the future, assert infringement claims against us. For further discussion on our current litigation, see Note 16 of Notes to Consolidated Financial Statements of this Form 10-K. These claims and any litigation may result in invalidation of our proprietary rights. Litigation, even if not meritorious, could result in substantial costs and diversion of resources and management attention.

Employees

      As of March 31, 2002, we employed approximately 3,900 people worldwide, including approximately 2,100 in sales, marketing and related staff activities, 890 in product development, 150 in consulting services, and 760 in management, manufacturing, administration and finance. In connection with the relocation of our Leiden, Netherlands operations to Dublin, Ireland in early fiscal year 2003, a group of employees in the Leiden facility have joined a union to negotiate the proposed terms of the transfer of operations to our Dublin facility, focusing primarily on severance benefits for employees that do not relocate to Dublin. Except for these employees in our Leiden facility, no other employees are represented by a labor union. We believe that relations with our employees are good.

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Item 2.     Properties

      Our principal locations are as follows:

      Our principal administrative, sales and marketing facilities are located in Cupertino, California. We lease a number of additional facilities for administrative, marketing, localization and technical support in the United States, China, Ireland, Japan, the Netherlands, New Zealand and Taiwan; for administration, marketing and technical support in Australia, Brazil, India, Malaysia, Singapore and South Korea; and for administration and marketing in Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, Israel, Italy, Mexico, Norway, Poland, Russia, South Africa, Spain, Sweden, Switzerland, Turkey, United Arab Emirates and the United Kingdom.

      We believe that our facilities are adequate for current needs and that additional or substitute space will be available as needed to accommodate any future expansion of our operations.

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Item 3.     Legal Proceedings

      Information with respect to this Item may be found in Note 16 of Notes to Consolidated Financial Statements of this Form 10-K, which information is incorporated into this Item 3 by reference.

Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of the security holders during the quarter ended March 31, 2002.

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PART II

Item 5.     Market for Registrant’s Common Equity and Related Stockholder Matters

      Our common stock is traded on the Nasdaq National Market under the Nasdaq symbol “SYMC.” The high and low closing sales prices set forth below are as reported on the Nasdaq National Market. All closing sales prices have been adjusted to reflect the two-for-one stock dividend, which became effective January 31, 2002.

      Delrina exchangeable stock has been traded on the Toronto Stock Exchange under the symbol “DE.TO” since the acquisition of Delrina by Symantec on November 22, 1995. The high and low closing sales prices set forth below are in Canadian dollars as reported on the Toronto Stock Exchange. Delrina exchangeable stock is exchangeable at the option of the stockholders on a one-for-one basis into Symantec common stock until November 2002, at which point the Delrina exchangeable shares will be required to be exchanged for Symantec common stock and, accordingly, the Delrina exchangeable shares will cease to exist.

      As of March 31, 2002, there were approximately 862 stockholders of record, including approximately 20 holders of record of Delrina exchangeable shares.

      We have not paid cash dividends in the last two fiscal years. We presently intend to retain future earnings, if any, for use in our business, and therefore we do not anticipate paying any cash dividends on our capital stock in the foreseeable future.

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Item 6.     Selected Financial Data

      The following selected financial data is qualified in its entirety by and should be read in conjunction with the more detailed consolidated financial statements and related notes included elsewhere herein.

      During fiscal 2002, we acquired Lindner & Pelc and Foster-Melliar. During fiscal 2001, we acquired AXENT. During fiscal 2000, we acquired 20/20 Software, L-3 Network Security’s operations and URLabs. Each of these acquisitions was accounted for as a purchase and, accordingly, the operating results of these businesses have been included in our consolidated financial statements since their respective dates of acquisition.

      On August 24, 2001, we divested our web access management product line. On December 31, 1999, we divested our Visual Café and ACT! product lines. These product lines are included in the results of operations prior to disposition and are included in our Other segment.

Five-Year Summary

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Factors That May Affect Future Results

      The following discussion contains forward-looking statements that 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.

Overview

      Symantec provides a broad range of content and network security software and appliance solutions to enterprises, individuals and service providers. We are a leading provider of client, gateway and server security solutions for virus protection, firewall and virtual private network, vulnerability management, intrusion detection, Internet content and e-mail filtering, remote management technologies and security services to enterprises and service providers around the world. Founded in 1982, we have offices in 38 countries worldwide.

      We have a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended March 31, 2002, 2001 and 2000 reflect amounts as of and for the periods ended March 29, 2002, March 30, 2001 and March 31, 2000, respectively. The fiscal accounting years ended March 29, 2002, March 30, 2001 and March 31, 2000 each comprised 52 weeks of operations.

      We derive revenue primarily from sales of packaged software products, perpetual software license agreements, product maintenance and professional services, and recognize this revenue in accordance with Statement of Position, or SOP, 97-2, Software Revenue Recognition, as modified by SOP 98-9, and Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, when the following conditions have been met:

	•	persuasive evidence of an arrangement exists;
	•	passage of title occurs;
	•	delivery has occurred or services have been rendered;
	•	if applicable, customer acceptance has been received;
	•	collection of a fixed or determinable license fee is considered reasonably assured; and
	•	if appropriate, reasonable estimates of future product returns have been made.

      We sell packaged products through a multi-tiered distribution channel. We defer revenue on all distribution and reseller channel inventory in excess of specified inventory levels in these channels. We offer the right of return of our products under various policies and programs with our distributors, resellers and end-user customers. We estimate and record reserves for end-user product returns and channel and end-user rebates, and we account for these reserves as an offset to revenue.

      We enter into perpetual software license agreements through direct sales to customers and indirect sales with distributors and resellers. The license agreements generally include product maintenance agreements, for which the related revenue is deferred and recognized ratably over the period of the agreements.

      Our professional services include consulting, education, and managed security services. We recognize consulting services revenue as services are performed or upon written acceptance from customers, if

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      In arrangements that include software licenses and maintenance and/or professional services, and packaged products with content updates (“multiple elements”), we allocate and defer revenue for the undelivered items based on vendor-specific objective evidence, or VSOE, of fair value of the undelivered elements, and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. VSOE of each element is based on the price for which the undelivered element is sold separately. If VSOE does not exist for undelivered items such as maintenance or professional services, then the entire arrangement fee is recognized over the performance period.

      In preparing our consolidated financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income and net income (loss), as well as on the value of certain assets on our consolidated balance sheet. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. See “Summary of Significant Accounting Policies” beginning on page 50 in the consolidated financial statements for more information about these critical accounting policies, as well as descriptions of other significant accounting policies. We have engaged in discussions with our audit committee of the Board of Directors regarding the development, selection and disclosure of our critical accounting policies.

      We defer revenue relating to products, primarily in our Consumer and Enterprise Administration segments, that we have shipped into our distribution and reseller channels to the extent that such shipments result in there being inventory in excess of certain specified inventory levels for these channels. We defer this revenue as an offset to accounts receivable. We estimate the excess of inventory levels in these channels by analyzing channel inventory level and distribution sell-through trends obtained from our channel partners, as well as various historical trends on a product basis. In addition, we consider other factors in assessing these specified inventory levels, such as product seasonality, current market conditions, economic trends, existing security threats and timing of new product releases. On the same basis, we estimate the associated cost of revenues related to the channel revenue deferral. If we made different judgments or utilized different estimates, material differences may result in the amount and timing of our net revenues and cost of revenues for any period presented.

      End-users may return our products, primarily within our Enterprise Administration and Consumer segments, through distributors and resellers or to us directly for a full refund within a reasonably short period from the date of purchase. Our estimated reserves for such end-user product returns are based primarily on historical trends. Product returns by distributors and resellers principally relate to stock balancing and the replacement of obsolete products. Our return policy allows distributors and resellers, subject to certain contractual limitations, to return purchased products in exchange for new products or for credit towards future purchases. Channel revenue deferrals, as discussed above, are designed to take into account any distributor and reseller stock balancing returns. In addition, we fully reserve for obsolete products in the distribution channels. We also consider other factors such as the timing of upgrades and new versions of products, current market conditions, economic trends and changes in technology. If we made different judgments or utilized different estimates, material differences may result in the amount and timing of our net revenues for any period presented.

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      We estimate and record reserves for channel and end-user rebates, related primarily to products within our Enterprise Security, Enterprise Administration and Consumer segments. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ actual performance against the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for end-user rebates are estimated on the terms and conditions of the promotional program, actual sales during the promotion, amount of actual redemptions received, historical redemption trends by product and by type of promotional program and the value of the rebate. We also consider current market conditions and economic trends when estimating our reserve for rebates. If we made different judgments or utilized different estimates, material differences may result in the amount and timing of our net revenues for any period presented.

      We maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables. We review our trade receivables by aging category to identify specific customers with known disputes or collectibility issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S. and internationally, and changes in customer financial conditions. If we made different judgments or utilized different estimates, material differences may result in additional reserves for trade receivables, which would be reflected by charges in general and administrative expenses for any period presented.

      We evaluate long-lived assets, including property, equipment, leasehold improvements, acquired product rights and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than the assets carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value based on the present value of estimated future cash flows. Significant judgment is required in the forecasting of future operating results, which are used in the preparation of projected cash flows. If we made different judgments or utilized different estimates, material differences may result in write-downs of net long-lived assets, which would be reflected by charges to our operating results for any period presented.

      Effective April 1, 2002, impairment of goodwill and other long-lived assets will be assessed according to new accounting guidelines (see Recent Accounting Pronouncements below).

      During fiscal 2002, we incurred expenses related to consolidating, moving and relocating various groups or sites. In determining the charge related to our excess facilities, certain estimates were used, such as potential ability to sublease and sublease terms upon the negotiation of future subleases, broker commissions, costs of tenant improvements and related exit costs. In developing our estimates, we obtained information from third party leasing agents to calculate anticipated third party sublease income and the vacancy period prior to finding a sub-leasee. Market conditions will affect our ability to sublease facilities on terms consistent with our estimates. Our ability to sublease facilities ahead of schedule or the negotiation of lease terms resulting in higher or lower sublease income than estimated will affect our accrual and the related charge for restructuring, site closures and other expenses. Difference between estimates of related broker commissions, tenant improvements and related exit costs may increase or decrease our accrual upon final negotiation. If we employed different assumptions regarding these various components of our exit costs, the costs recorded for any period presented could vary materially from those actually recorded.

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      On a quarterly basis we evaluate our deferred tax asset balance for realizability. To the extent we believe it is more likely than not that some portion or all of our deferred tax assets will not be realized, we will establish a valuation allowance against the deferred tax assets. Realization of our deferred tax assets is dependent upon future U.S. taxable income and future taxable income in certain foreign jurisdictions, as well as our implementation of prudent and feasible tax planning strategies. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are made.

      In August 2001, we divested our web access management product line, which we acquired in our acquisition of AXENT, to PassGo Technologies Ltd. for approximately $1.1 million. We also entered into an exclusive license and option agreement with PassGo whereby they will license our web access management technology products. In consideration for the license, PassGo is required to pay us quarterly royalties based on their net revenue over a four-year period. PassGo also has an option to purchase this technology at a price starting at $18.8 million and declining to $3.3 million over a four-year period.

      In December 2000, we acquired 100% of the outstanding common stock of AXENT, an enterprise security software company, in exchange for Symantec common stock. We also assumed all of the outstanding AXENT employee stock options. The transaction was accounted for as a purchase and was initially recorded for approximately $924.7 million, which included goodwill of $699.7 million, tangible and intangible assets of $220.8 million, in-process research and development of $22.3 million, deferred compensation of $992,000, offset by $19.1 million in deferred income taxes. During the December 2001 quarter, we recorded additional deferred tax assets of $5.0 million attributable to carryforward tax benefits, with a corresponding offset to goodwill. During the June 2001 quarter, we increased the purchase price and goodwill by $4.5 million, as we resolved certain pre-acquisition contingencies.

      Effective April 1, 2002, the related net balance of goodwill and workforce-in-place for the AXENT acquisitions and other acquisitions completed prior to July 1, 2001 will no longer be amortized, but will be subject to an annual impairment test. See Recent Accounting Pronouncements. For further discussion on our recent significant acquisitions and divestitures, see Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K.

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Results of Operations

      The following table sets forth each item from our consolidated statements of operations as a percentage of net revenues and the percentage change in the total amount of each item for the periods indicated. Please note that these results reflect our acquisition of AXENT commencing on December 18, 2000, the date of that acquisition.

*	Percentage change is not meaningful.

      Net revenues increased 26% to approximately $1.1 billion during fiscal 2002 from $853.6 million during fiscal 2001. Net revenues increased 14% to approximately $853.6 million during fiscal 2001 from $745.7 million during fiscal 2000. The increase during fiscal 2002 as compared to fiscal 2001 was due primarily to increased sales of our enterprise security products and a significant increase in sales of our consumer products during the second half of fiscal 2002. The increase in enterprise security products during fiscal 2002 was attributable to a full year of sales related to AXENT solutions as compared to approximately three months during fiscal 2001. From a regional standpoint, this increase was primarily due to growth in net revenues in the United States and to a lesser extent in Europe.

      The increase during fiscal 2001 as compared to fiscal 2000 was largely due to sales of our enterprise security products, including introductions of new products and increased sales outside of the United States.

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          Enterprise Security

      Our Enterprise Security segment revenue comprised approximately 42%, 33% and 22% of total net revenues during fiscal 2002, 2001 and 2000, respectively. Net revenues increased $172.1 million, or 61%, to approximately $454.9 million during fiscal 2002 from $282.8 million during fiscal 2001 and increased $116.0 million, or 70%, to $282.8 million during fiscal 2001 from $166.8 million during fiscal 2000. The increase during fiscal 2002 over fiscal 2001 was primarily due to our first full year of sales of intrusion detection, vulnerability management and firewall product solutions, as a result of our acquisition of AXENT in December 2000, and in particular, significant growth in sales of virus protection product solutions.

          Enterprise Administration

      Our Enterprise Administration segment represented approximately 21%, 27% and 29% of total net revenues during fiscal 2002, 2001 and 2000, respectively. Net revenues decreased by approximately $8.1 million, or 4%, during fiscal 2002 as compared to fiscal 2001 due to a decline in sales of our pcAnywhere product, partially offset by growth in sales of our Ghost Corporate Edition product. The decline in our pcAnywhere product was the result of a decrease in small business and home office sales, which was partially offset by an increase in corporate sales.

      Net revenues increased by approximately $13.9 million, or 6%, during fiscal 2001 as compared to fiscal 2000 primarily due to the release of our Ghost Corporate Edition product.

          Consumer Products

      Our Consumer Products segment represented approximately 35%, 39% and 43% of total net revenues during fiscal 2002, 2001 and 2000, respectively. Net revenues increased by approximately $45.8 million, or 14%, during fiscal 2002 as compared to fiscal 2001. This increase was primarily related to an increase in sales of our Norton AntiVirus and Norton Internet Security products, mostly as a result of strong consumer and small business spending, and an increase in the renewal subscription pricing of our antivirus products. This increase was offset by a decline in sales of our Winfax and Macintosh products. In particular, we experienced a significant increase in sales of consumer products over the second half of fiscal 2002, and we do not expect sales to continue to grow at the same rate going forward. Over the last six years, our sales to individual consumers, home offices and small businesses have been seasonal, with higher sales generally in our December and March quarters.

      Net revenues increased by approximately $11.3 million, or 4%, during fiscal 2001 as compared to fiscal 2000. This increase was primarily due to the increase in customer focus on protecting their home computers from Internet related attacks. This factor contributed to growth in sales of our Norton Internet Security product, which was introduced in the March 2000 quarter.

          Services and Other

      Our Services and Other segments represented approximately 2%, 1% and 6% of total net revenues during fiscal 2002, 2001 and 2000, respectively. Net revenues increased in absolute dollars during fiscal 2002 as compared to fiscal 2001, due primarily to our services segment as the demand for our consulting services increased. Net revenues decreased in absolute dollars during fiscal 2001 as compared to fiscal 2000, due to our divestiture of the Visual Café and ACT! product lines in December 1999, which is included in the Other segment.

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     International

      Net revenues outside of the United States represented approximately 47%, 48% and 45% of total net revenues during fiscal 2002, 2001 and 2000, respectively. International net revenues increased by $91.6 million, or 22%, to approximately $504.6 million during fiscal 2002 as compared to fiscal 2001. This increase in net revenues was the result of increased sales in Europe and Asia, primarily from increased sales of our enterprise security and consumer products. International revenues increased by $77.3 million, or 23%, to approximately $413.0 million during fiscal 2001 as compared to fiscal 2000. This increase was largely due to stronger sales in Europe and Japan.

      Weakness in international currencies during fiscal 2002 negatively impacted our international revenue growth by approximately $14.0 million as compared to the impact of average international currency rates during fiscal 2001. The negative impact during fiscal 2001 as compared to the impact of average international currency rates during fiscal 2000 was approximately $43.8 million.

     Product Returns

      We estimate and record channel deferrals and obsolescence reserves to cover exposures related to product returns. Product returns principally relate to stock balancing and the replacement of obsolete products, which are offset by orders of equal or greater value for the current versions of the products. The mix of products returned from our distributors/resellers as compared to products sold to our distributors/resellers does not impact our gross margin, as our gross margin is materially consistent across our various product families. Changes in the level of product returns and related product returns provision are generally offset by a change in the level of gross revenue. As a result, the product returns provision did not have a material impact on reported net revenues in any period presented.

      Gross margin represents net revenues less cost of revenues. Cost of revenues consists primarily of manufacturing expenses, costs for producing manuals and CDs, packaging costs, royalties paid to third parties under publishing contracts, costs of consulting services, technical support costs and amortization and write-off of acquired product rights.

      Gross margin was approximately 82%, 85% and 84% of net revenues during fiscal 2002, 2001 and 2000, respectively. The decline in gross margin during fiscal 2002 as compared to fiscal 2001 was mostly driven by increased amortization of acquired product rights from our acquisition of AXENT and technical support costs as a result of an increase in related enterprise sales. In addition, consulting service costs included in costs of revenue increased along with the related increase in consulting service revenues. This contributed to the decline in gross margin during fiscal 2002, as consulting services typically have lower margins than our products.

      Gross margin improved slightly during fiscal 2001 as compared to fiscal 2000 due primarily to higher margins associated with the increase in enterprise related sales and cost savings achieved in reduced packaging costs.

      Acquired product rights are comprised of purchased product rights, technologies and workforce-in-place. During fiscal 2001, we recorded approximately $86.2 million in acquired product rights in connection with our acquisition of AXENT, and during fiscal 2000, we recorded approximately $11.3 million in acquired product rights in connection with other acquisitions.

      During fiscal 2002, amortization of acquired product rights totaled approximately $32.2 million, of which $31.1 million and $1.1 million was recorded in cost of revenues and income (net of expense) from sale of technologies and product lines, respectively. During fiscal 2001 and 2000, amortization of acquired product rights totaled $17.3 million and $9.7 million, respectively, and was recorded in cost of revenues. Acquired product rights, with the exception of workforce-in-place, will be amortized over the next four years. Effective

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      For further discussion on acquired product rights and related amortization, see Notes 3 and 4 of Notes to Consolidated Financial Statements of this Form 10-K.

      We charge research and development expenditures to operations as incurred. As a percentage of net revenues, research and development expenses remained flat at 15% during fiscal 2002, 2001 and 2000.

      Although research and development expenses remained flat as a percentage of net revenues, absolute dollars increased 29% to approximately $164.0 million during fiscal 2002 from $126.7 million during fiscal 2001. The increase was primarily a result of salary increases and other employee related expenses, infrastructure related expenditures and a full year of AXENT related research and development expenses as compared to approximately three months during fiscal 2001.

      Research and development expenses increased 17% to approximately $126.7 million during fiscal 2001 from $108.4 million during fiscal 2000. The increase was a result of Enterprise Security segment hiring, salary increases and other employee related expenses and AXENT related research and development expenses that were included from the date of acquisition. This increase was partially offset by the lack of expenses during fiscal 2001 associated with the divested Visual Café and ACT! product lines and the patent claim settlements in the Consumer Products segment.

      Sales and marketing expenses as a percentage of net revenues were 40% during fiscal 2002 and were flat at 41% during fiscal 2001 and 2000. Sales and marketing expenses were approximately $428.5 million, $350.0 million and $306.8 million during fiscal 2002, 2001 and 2000, respectively. The absolute dollar increase in sales and marketing expenses during fiscal 2002 as compared to fiscal 2001 was primarily related to Enterprise Security segment hiring, salary and commission increases, outside services for consultants and contractors, infrastructure related expenditures, and a full year of AXENT related sales and marketing expenses as compared to approximately three months during fiscal 2001.

      The absolute dollar increase in sales and marketing expenses during fiscal 2001 as compared to fiscal 2000 was also due to increased Enterprise Security segment hiring, increase in salaries, commissions and other performance based compensation, and AXENT related sales and marketing expenses which were included from the date of acquisition.

      General and administrative expenses as a percentage of net revenues remained flat at 5% during fiscal 2002 and 2001 and were 6% during fiscal 2000.

      General and administrative expenses were approximately $53.9 million, $44.8 million and $42.2 million during fiscal 2002, 2001 and 2000, respectively. The absolute dollar increase in general and administrative expenses during fiscal 2002 as compared to fiscal 2001 was primarily due to a full year of AXENT related general and administrative expenses as compared to approximately three months during fiscal 2001, salary increases, legal fees, infrastructure related expenditures and bad debt expense, offset by a reduction of other general and administrative expenses.

      General and administrative expenses in absolute dollars increased during fiscal 2001 as compared to fiscal 2000, primarily due to an increase in salary related expenses and other general and administrative expenses, offset by a reduction in bad debt expenses.

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      Amortization of goodwill and other intangibles from acquisitions increased 176% to approximately $196.8 million during fiscal 2002 from $71.3 million during fiscal 2001, and increased 299% to approximately $71.3 million during fiscal 2001 from $17.9 million during fiscal 2000. These increases were related primarily to the amortization of goodwill and other intangibles associated with the acquisition of AXENT in December 2000.

      Effective April 1, 2002, the net balance of goodwill of approximately $521.9 million will no longer be amortized but will be subject to an annual impairment test. As a result, amortization charges will decrease significantly going forward; however, our operating results may be subject to increased volatility as a result of periodic goodwill impairment charges. Other intangibles from acquisitions will continue to be amortized over their useful lives.

      We recorded no acquired in-process research and development charges during fiscal 2002. During fiscal 2001, we acquired AXENT and during fiscal 2000, we acquired URLabs and L-3 Network Security’s operations. We wrote off approximately $22.3 million and $4.3 million of acquired in-process research and development associated with these acquisitions during fiscal 2001 and 2000, respectively. These write-offs were necessary because the acquired technologies had not yet reached technological feasibility and there were no alternative uses.

      The efforts required to develop the acquired in-process technology principally related to the completion of all planning, design, 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. If we fail to complete these products in their entirety, or in a timely manner, we may not continue to attract new users, we may be unable to retain our existing users and the value of the other intangible assets may become impaired.

      We determined the fair value of the acquired in-process technology for each of the purchases by estimating the projected cash flows related to these projects, including the cost to complete the acquired in-process technologies and future revenues to be earned upon commercialization of the products. We discounted the resulting cash flows back to their net present values. We based the net cash flows from such projects on our analysis of the respective markets and estimates of revenues and operating profits related to these projects.

      A valuation specialist used our estimates to establish the amount of acquired in-process research and development to be written off for these acquisitions during fiscal 2001 and 2000. Actual spending on these product development projects since our acquisition of the companies discussed below did not differ materially from the original assumptions and projections discussed in prior filings.

      The in-process technology acquired in the AXENT acquisition consisted primarily of research and development related to the next generation of ESM, Intruder Alert, Raptor Firewall, Webthority and other projects. AXENT’s research and development was focused on providing more robust features in its development of these next generation products. We have added these projects to our product offerings, with the exception of Webthority, which was divested with our web access management product line in August 2001.

      The in-process technology acquired in the L-3 Network Security purchase consisted primarily of research and development related to the next generation of Retriever and Expert. We have integrated this technology into our vulnerability management products.

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      The in-process technology acquired in the URLabs purchase consisted primarily of research and development related to the next generation of URLabs’ two main products, I-Gear and Mail-Gear, which have been added to our product offerings.

      Restructuring, site closures and other expenses were approximately $20.4 million, $3.7 million and $9.0 million during fiscal 2002, 2001 and 2000, respectively. During fiscal 2002, we incurred expenses related to consolidating smaller sites into a larger facility in Newport News, Virginia, consolidating most of our United Kingdom facilities to Maidenhead, UK, consolidating our European support functions by moving our Leiden, Netherlands facility to Dublin, Ireland and relocating our North American support group to Springfield, Oregon. As a result, we recorded approximately $17.8 million for exit costs, including $12.8 million in rent and related exit costs remaining on the abandoned facilities and $5.0 million in related abandoned fixed asset and leasehold improvement write-offs. In addition, we recorded approximately $2.6 million for costs of severance, related benefits and outplacement services, as we reorganized various operating functions, including former AXENT operations, and reduced our workforce by 87 employees. During the June 2002 quarter, we will record costs of severance, related benefits and outplacement services, as a result of the relocation of our Leiden, Netherlands operations to Dublin, Ireland.

      During fiscal 2001, we reorganized various operating functions, including a portion of our operations in Toronto. We reduced our workforce by 60 employees and ten members of our senior management, and as a result, we recorded approximately $3.7 million for costs of severance, related benefits, outplacement services and abandonment of certain equipment.

      During fiscal 2000, we reduced our operations and realigned our business units, including operations in Melville and Toronto and our Internet Tools business unit. We reduced our workforce by 154 employees and five members of our senior management, and as a result, we recorded approximately $9.7 million for severance, related benefits, outplacement services and abandonment of certain facilities and equipment.

      For further discussion on restructuring, site closures and other expenses, see Note 13 of Notes to Consolidated Financial Statements of this Form 10-K.

      During the March 2002 quarter, we accrued litigation expenses of approximately $3.1 million for post-judgment interest and other costs related to a judgment by a Canadian court on a decade-old copyright action assumed by us as a result of our acquisition of Delrina Corporation. For further discussion on our current litigation, see Note 16 of Notes to Consolidated Financial Statements of this Form 10-K.

      Interest income was approximately $31.7 million, $33.3 million and $13.4 million during fiscal 2002, 2001 and 2000, respectively. Although interest income was relatively flat during fiscal 2002 and fiscal 2001, average cash balances were higher during fiscal 2002 as compared to fiscal 2001, which was offset by a decrease in average interest rates. Interest income increased significantly during fiscal 2001 as compared to fiscal 2000 due to higher average cash balances during fiscal 2001.

      Interest expense was approximately $9.2 million during fiscal 2002, nearly all of which was related to the issuance of $600.0 million of 3% convertible subordinated debentures in October 2001. Interest expense was not significant during fiscal 2001 and 2000.

      Other expense, net of approximately $627,000 during fiscal 2002 was primarily comprised of net losses from non-functional currency transactions. Other expense, net was approximately $22.5 million during fiscal 2001 and consisted primarily of impairment charges on our equity investments. Other income, net was

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      Income, net of expense, from sale of technologies and product lines was approximately $15.5 million, $20.4 million, and $107.4 million during fiscal 2002, 2001 and 2000, respectively. During fiscal 2002 and 2001, income, net of expense, from sale of technologies and product lines was related primarily to royalties from Interact Commerce Corporation, who subsequently merged with The Sage Group plc, as a result of the divestiture of our ACT! product line in December 1999.

      Income, net of expense, from sale of technologies and product lines during fiscal 2000 related primarily to gains of $68.5 million and $18.3 million on the divestiture of our Visual Café and ACT! product lines, respectively, in December 1999. In addition, income, net of expense, from sale of technologies and product lines during fiscal 2000 included $14.7 million related to payments from JetForm Corporation, associated with our sale of certain software products, technologies and tangible assets to JetForm during fiscal 1997, and $5.0 million related to royalties from Interact.

      Our effective tax rate on income before one-time charges (acquired in-process research and development, restructuring, site closures and other expenses), goodwill amortization expense and gain on sale of product lines was 32% during fiscal 2002, 2001 and 2000. Our fiscal 2002, 2001 and 2000 effective rates were lower than the U.S. federal and state combined statutory rate primarily due to a lower statutory tax rate on income generated by our Irish operations.

      Our effective tax rate on income before taxes was 162%, 55% and 34% during fiscal 2002, 2001 and 2000, respectively. The higher effective tax rate during fiscal 2002 and 2001 reflects the non-deductibility of acquired in-process research and development and substantially all of the goodwill amortization. In addition, during fiscal 2000, tax was 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 and state combined statutory rate because a portion of the gain is attributable to our Irish operations and accordingly subject to a lower Irish tax rate.

      Realization of approximately $46.0 million of our net deferred tax asset as of March 31, 2002 is dependent primarily upon future U.S. taxable income of $131.0 million. Realization of the remaining $12.0 million of our net deferred tax asset as of March 31, 2002 is dependent in part on future taxable income in certain foreign jurisdictions and on our implementation of tax planning strategies. We believe it is more likely than not that the net deferred tax assets will be realized based on historical earnings and expected levels of future taxable income as well as the implementation of tax planning strategies.

      Levels of future taxable income are subject to the various risks and uncertainties discussed in the Business Risk Factors set forth in this Item 7. Additional valuation allowance against net deferred tax assets may be necessary if it is more likely than not that all or a portion of the net deferred tax assets will not be realized. We will assess the need for additional valuation allowance on a quarterly basis.

      We project our effective tax rate to be 32% for fiscal 2003 as a result of the discontinuation of goodwill amortization (see Recent Accounting Pronouncements for further discussion). This projection, however, is subject to change due to potential tax law changes and fluctuations in the geographic allocation of earnings.

      For comparative purposes, the following table displays, on a pro forma basis, our results of operations as if the acquisition of AXENT had occurred at the beginning of fiscal 2000 and excluding all acquisition related amortization and one-time charges and the operating results of the divested Visual Café and ACT! product

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      The following items represent the difference between the pro forma financial data and the related GAAP financial data in the Consolidated Statements of Operations:

	•	During fiscal 2001 and 2000, pro forma net revenues include AXENT net revenues of approximately $90.6 million and $80.9 million, respectively, as if the acquisition had occurred at the beginning of fiscal 2000.
	•	During fiscal 2002, the pro forma net income excludes all acquisition related amortization and one-time charges of approximately $249.7 million (tax benefit of $20.8 million). During fiscal 2001, the pro forma net income includes AXENT’s net loss of approximately $6.2 million and excludes all acquisition related amortization and one-time charges of $139.3 million (tax benefit of $12.8 million). During fiscal 2000, the pro forma net income includes AXENT’s net income of approximately $5.0 million and excludes all acquisition related amortization and one-time charges of $40.9 million (tax benefit of $10.0 million) and the operating results of the divested Visual Café and ACT! product lines of $63.5 million.
	•	During fiscal 2002, shares used to compute pro forma net income per share (diluted) include approximately 7.6 million shares issuable from assumed exercise of options and 7.6 million shares issuable upon conversion of the 3% convertible subordinated debentures issued in October 2001. Correspondingly, the numerator used to compute pro forma net income (diluted) during fiscal 2002 excludes the interest expense of approximately $6.2 million from the 3% convertible subordinated debentures, net of income tax. During fiscal 2001 and 2000, shares used to compute pro forma net income per share (diluted) include approximately 20.6 million and 27.6 million shares, respectively, which represents the number of Symantec shares that would have been exchanged for AXENT’s weighted number of common shares outstanding for the respective periods.

Liquidity and Capital Resources

      Our principal source of liquidity is our cash, cash equivalents and short-term investments. Cash, cash equivalents and short-term investments increased $818.0 million to approximately $1.4 billion at the end of fiscal 2002 from $557.0 million at the end of fiscal 2001. This increase was largely due to the net proceeds from the issuance of convertible subordinated debentures of approximately $584.6 million and from cash provided from operations of $511.2 million, as well as net proceeds from the exercise of stock options and sales of common stock through our employee stock purchase plan. The cash provided by these factors was partially offset by cash paid to purchase marketable securities and investments, net of proceeds, of approximately $721.7 million, and to a lesser extent cash paid to repurchase common stock and capital expenditures.

      Net cash provided by operating activities was approximately $511.2 million and was comprised of net non-cash related expenses of $293.2 million and a net increase of $246.2 million in liabilities, net of a decrease in assets, offset by a net loss of approximately $28.2 million.

      Net trade accounts receivable decreased $27.5 million to approximately $89.2 million as of March 31, 2002 from $116.7 million as of March 31, 2001. The decrease in accounts receivable was primarily due to net

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      Net cash used in investing activities was approximately $869.3 million and was comprised primarily of $721.7 million in net purchases of marketable securities and investments, and $140.9 million of capital expenditures, including $62.0 million for the implementation of Oracle 11i and a CRM system and $25 million in January 2002 and $18 million in November 2001 for land and a building in Maidenhead, United Kingdom and Dublin, Ireland, respectively.

      On January 16, 2001, the Board of Directors replaced an earlier stock repurchase program with a new authorization to repurchase up to $700.0 million, not to exceed 30.0 million shares, of Symantec’s common stock with no expiration date. During the September 2001 quarter, we repurchased 9.6 million shares at prices ranging from $17.78 to $24.50 per share, for an aggregate amount of approximately $204.4 million. During the March 2001 quarter, we repurchased 10.0 million shares at prices ranging from $23.04 to $25.58 per share, for an aggregate amount of approximately $244.4 million.

      On October 24, 2001, we completed a private offering of $600.0 million of 3% convertible subordinated debentures due November 1, 2006, the net proceeds of which were approximately $584.6 million. The debentures are convertible into shares of Symantec’s common stock by the holders at any time before maturity at a conversion price of $34.14 per share, subject to certain adjustments. We may redeem the notes on or after November 5, 2004, at a redemption price of 100.75% of stated principal during the period November 5, 2004 through October 31, 2005 and 100% thereafter. Interest will be paid semi-annually, commencing May 1, 2002. We intend to use the net proceeds of the offering for general corporate purposes, including working capital, potential acquisitions, stock repurchases and investments in our infrastructure.

      The following table displays our contractual obligations as of March 31, 2002:

      The above table assumes that the convertible subordinated debentures will be paid in cash upon maturity and excludes the balance of our current liabilities.

      We believe that existing cash and short-term investments, cash generated from operating results and cash from the subordinated convertible debenture offering will be sufficient to fund operations for at least the next year.

Synthetic Leases

      We currently have two real estate leasing arrangements that we have classified as operating leases.

      One of the lease arrangements is for two existing office buildings in Cupertino, California. Lease payments for these facilities are based on the three-month LIBOR in effect at the beginning of each fiscal quarter plus a specified margin. We have the right to acquire the related properties at any time during the seven-year lease period ending February 1, 2006. If, at the end of the lease term we do not renew the lease, purchase the properties or arrange for a third party to purchase the properties, we may be obligated to the lessor for all or some portion of an amount up to the guaranteed residual amount of approximately $66.0 million, representing approximately 84% of the lessor’s purchase price of the property.

      On March 30, 2001, we entered into a master lease agreement for land and the construction of two office buildings, one in Newport News, Virginia, effective June 6, 2001, and another in Springfield, Oregon, effective

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      As security for each of these arrangements, we are required to maintain a cash collateral balance, which was approximately $124.3 million as of March 31, 2002. We are required to invest the cash collateral in U.S. Treasury securities or certificates of deposit with specified lenders and maturities not to exceed two to three years. In accordance with the lease terms, these funds are not available to meet operating cash requirements. As of March 31, 2002, the investments related to the California lease totaled approximately $77.4 million and the investments related to the Oregon and Virginia leases totaled $46.9 million. These amounts were classified as non-current restricted investments within the consolidated financial statements.

      In addition, we are obligated to maintain certain financial covenants including a minimum cash balance, tangible net worth and quarterly earnings before income tax, depreciation and amortization, or EBITDA, and maximum debt and senior debt to EBITDA ratios. Future acquisitions, financing activities or operating losses may cause us to be in violation of these financial covenants. In the event of default, we may be required to release the cash collateral and take possession of the buildings. As of March 31, 2002, we were in compliance with all of the above financial covenants.

Recent Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to an annual impairment test. Other intangibles will continue to be amortized over their useful lives. We will adopt SFAS No. 142 in our first quarter of fiscal 2003. Upon adoption of SFAS No. 142, we will stop the amortization of goodwill and intangible assets deemed to have indefinite lives with a net carrying value of approximately $525.9 million, net of a deferred tax liability, as of March 31, 2002. As a result of the discontinuance of the amortization of goodwill existing as of March 31, 2002 and excluding the impact of potential impairment charges, the application of SFAS No. 142 is expected to result in an increase in our results of operations of approximately $198.4 million during fiscal 2003. During the first six months of fiscal 2003, we will perform the first of the required impairment tests of goodwill and intangible assets deemed to have indefinite lives as of April 1, 2002, using the two-step process required under SFAS 142. We have not yet determined what effect these tests will have on our earnings and financial position.

      In October 2001, the FASB issued SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and addresses financial accounting and reporting for the impairment and disposal of long-lived assets. We will adopt this statement on April 1, 2002. Adoption of this statement is not expected to have a material impact on our financial position or results of operations.

      The lessors associated with lease agreements relating to certain of our facilities, described under Synthetic Leases above, are special purpose entities or equivalent structures. Presently, we account for these leases as operating leases, while the special purpose entities or equivalent structures own and account for the leased assets and related liabilities in their records. The FASB has indicated that it will, prior to June 30, 2002, issue proposed new rules on accounting for “Entities That Lack Sufficient Independent Economic Substance”, including special purpose entities, in the form of an Interpretation to SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries, and Accounting Research Bulletin No. 51, Consolidated Financial Statements.

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Business Risk Factors

      There is uncertainty as to whether or not we will be able to sustain the growth rates in sales of our products, particularly in consumer antivirus protection products. During the second half of fiscal 2002, we experienced a higher than expected rate of growth in sales of our consumer antivirus protection products, and we may not be able to sustain this high growth rate on a consistent basis going forward. We believe that consumer antivirus sales were spurred by a number of factors, including outbreaks of the well-publicized Code Red and Nimda viruses and a reaction from the September 11 terrorist attacks. In addition, although the release of new operating systems incorporating security and virus protection features, particularly past releases of Microsoft Windows, have increased competition in our market and had a harmful effect on demand, the recent release of Windows XP may have actually spurred additional sales. These positive factors are likely to weaken over time, and it is possible that growth rates in sales of antivirus protection products may decline. These factors may have also had a short-term effect on growth in enterprise security products, and we note that sales of our enterprise security products decreased from the third to the fourth quarter of fiscal 2002. If sales of these products decline faster than expected, our stock price may be harmed.

      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 six acquisitions since March 1999, with our acquisition of AXENT Technologies, Inc. in December 2000 being the largest. Although we cannot assure you that we will be successful in completing them, we will likely pursue future acquisitions. Integrating acquired businesses has been and will continue to be a complex, time consuming and expensive process. To integrate acquired businesses, we must implement our technology systems in the acquired operations and assimilate and manage the personnel of the acquired operations. Our past acquisitions have given rise to substantial amounts of goodwill and other intangible assets that have been amortized or written off in subsequent years. Future acquisitions may result in substantial amounts of goodwill that will be subject to an annual impairment test and other intangible assets that will be amortized, subject to an annual impairment test or written off. In addition, a number of our acquisitions have resulted in substantial restructuring and other related expenses and write-offs of acquired in-process research and development costs, and this also may occur as a result of future acquisitions. Further, we may need to issue equity or incur additional debt to finance future acquisitions, which could be dilutive to our existing stockholders or could increase our leverage. Any of these and other factors could harm our ability to achieve anticipated levels of profitability from acquired operations or to realize other anticipated benefits of an acquisition. Further, the difficulties of integrating acquired businesses could disrupt our ongoing business, distract our management focus from other opportunities and challenges, and increase our expenses and working capital requirements.

      Demand for our products is subject to seasonal trends. Although there is no assurance this trend will continue, our sales of consumer products over the last six years have been seasonal, with higher sales generally in our December and March quarters. In addition, we anticipate that sales of enterprise security products may be higher in the March quarter in the future, as our sales force attempts to close transactions before the end of our fiscal year. To the extent seasonality makes it more difficult to predict our revenues and value our business, our stock price may suffer and the volatility of our stock may increase.

      Our increased sales of enterprise-wide site licenses may increase fluctuations in our financial results. Sales of enterprise-wide site licenses through our Enterprise Security segment have been increasing and now represent a major portion of our business. This enterprise market has significantly different characteristics than the consumer market and different skills and resources are needed to penetrate this market. As our enterprise

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      Economic and political conditions and conditions affecting the network security market in particular may have a negative impact on our revenues and margins. The market for our products depends on economic conditions affecting the broader network security, Internet infrastructure and related markets. More generally, the slowdown in the U.S. economy may hurt consumer demand for our services. On the enterprise side, the continued slowdown in corporate earnings and tightening of corporate budgets may cause potential customers to delay or cancel security projects, reduce their overall or security-specific information technology budgets, or reduce or cancel orders for our products. Further, in this environment, customers may experience financial difficulty, cease operations or fail to budget for the purchase of our products. This, in turn, may lead to longer sales cycles, delays in payment and collection, and price pressures, causing us to realize lower revenues and margins. In addition, the terrorist acts of September 11, 2001 created an uncertain economic and political environment in many parts of the world, and we cannot predict the impact of these events, or of any related military action, on our customers or business.

      Piracy of our software may have a significant impact on our net revenues. While we are unable to determine the exact extent of piracy of our software products, software piracy may depress our net revenues. While this would adversely affect domestic revenue, revenue loss is believed to be even more significant outside of the United States, particularly in countries where laws are less protective of intellectual property rights. We engage in efforts to educate consumers on the benefits of licensing genuine products and to educate lawmakers on the advantages of a business climate where intellectual property rights are protected and we cooperate with the Business Software Alliance in their efforts to combat piracy. However, such continued efforts may not be successful in preventing piracy of our products from occurring.

      We are in the process of making substantial changes to our information systems that could disrupt our business. The information systems that supported our accounting, finance, order management and manufacturing systems were based on Oracle 10.7, and many of the business applications used in other aspects of our business have been tightly coupled with Oracle 10.7. Oracle has released a new version, 11i, and has announced that support for Oracle 10.7 will be discontinued after June 2002. In addition, as our business has grown, we have developed needs for an increasingly robust customer relationship management, or CRM, system. During fiscal 2002, we began implementing Oracle 11i and a new CRM system. Oracle 11i implementation occurred in the December 2001 quarter for the United States operations and should be completed by the June 2002 quarter for the Europe, Middle East and Africa operations. The first two phases of the CRM implementation occurred in June 2001 and February 2002, with the remaining implementation phases scheduled for the first and third quarters of fiscal 2003. These types of transitions frequently prove disruptive to the underlying business of an enterprise and may cause us to incur higher costs than we anticipate. Failure to manage a smooth transition to the new systems and the ongoing operations and support of the new systems could materially harm our business operations.

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      Our markets are competitive and our operating results and financial condition could be adversely affected if we are unable to anticipate or react to this competition. Our markets are competitive. If we are unable to anticipate or react to this competition, our operating results could be adversely affected by reducing our sales or the prices we can charge for our products. In the recent past, many of our competitors have significantly lowered the price of their products and we may have to do the same to remain competitive. Our ability to remain competitive depends, in part, on our ability to enhance our products or develop new products that are compatible with new hardware and operating systems. We have no control over, and limited insight into, development efforts by third parties with respect to new hardware and operating systems and we may not respond effectively or timely to such changes in the market. In addition, we have limited resources and we must make strategic decisions as to the best allocation of 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, to markets or to business models that are more successful than we anticipate.

      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.

      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 future operating results could be negatively affected by fluctuations in currency exchange rates and general uncertainty with each country’s political and economic structure. In addition, governmental regulation of imports or exports or our failure to obtain any required export approval of our technologies, particularly our encryption technologies, could impede our international sales. In light of recent terrorist activity, governments could enact additional regulation or restrictions on the use, import or export of encryption technologies. Additional regulation of encryption technology could delay or prevent the acceptance and use of encryption products and public networks for secure communications. This might decrease demand for our products and services.

      Introduction of new operating systems may adversely affect our financial results and stock price. The inclusion of security, remote access or virus protection tools in new operating systems and hardware packages could adversely affect our sales. For example, the inclusion of features by Microsoft in future editions of Windows which directly compete with our products may decrease or delay the demand for certain of our products, including those currently under development. 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 earnings and stock price are subject to significant fluctuations. Due to many factors, including those noted in 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. Any such volatility may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our common stock or securities convertible or exercisable into our common stock.

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      Fluctuations in our quarterly operating results have affected our stock price in the past and could affect our stock price in the future. If our quarterly operating results fail to meet the expectations of analysts and investors, the trading price of shares of our common stock and of the debentures could be negatively affected. Our quarterly operating results have varied substantially in the past and may vary substantially in the future depending upon a number of factors, including:

	•	the timing of announcements and releases of new or enhanced versions of our products and product upgrades;
	•	the introduction of competitive products;
	•	uncertainty about and customer confidence in the current economic conditions and outlook;
	•	reduced demand for any given product;
	•	seasonality in the end-of-period buying patterns of foreign and domestic software customers; and
	•	the market’s transition between new releases of operating systems.

      In addition to the foregoing factors, the risk of quarterly fluctuations is increased by the fact that a significant portion of our net revenues has historically been generated during the last month of each 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 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 and increased use 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:

	•	security;
	•	reliability;
	•	cost;
	•	ease of use;
	•	accessibility;
	•	quality of service; and
	•	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 will need to incur significant research and development expenditures in future periods as we strive to remain competitive. The length of our product development cycle has generally been greater than we originally expected and we are likely to experience delays in future product development. In addition, a portion of our development efforts have not been technologically successful and certain products have not achieved market acceptance. As a result, the

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      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 cause 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 and cannot 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 purchase from us.

      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.

      Product returns may negatively affect our net revenues. Product returns can occur when we introduce upgrades and new versions of products or when distributors or retailers have excess inventories, subject to various contractual limitations. Our return policy allows distributors, subject to these contractual 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 or to us directly for a full refund within a reasonably short period from the date of purchase. Future returns could exceed the reserves we have established for product returns, which could have a material adverse effect on our operating results.

      We depend on internal communications systems that may be disrupted. Our order management 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 subject to litigation that 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, or other product liability claims, or other claims incidental to our business. We are currently involved in a number of lawsuits. We intend to defend all of these lawsuits vigorously. However, it is possible that we could 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 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.

      The trend toward consolidation in the software industry could 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 capacity through acquisitions, the trend toward consolidation may result in our encountering competition, and paying higher prices, for acquired businesses.

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      We must attract and retain personnel in a competitive marketplace. We believe that our future success will depend in part on our ability to recruit and retain highly skilled management, marketing and technical personnel. To accomplish this, we believe that we must provide personnel with a competitive compensation package, including stock options. Increases in shares available for issuance under our stock options plans require stockholder approval in many cases, and institutional stockholders, or stockholders generally, may not approve future increases. Additionally, there are several proposals in the Congress and in the accounting industry to require corporations to include a compensation expense in their statement of operations relating to the issuance of employee stock options. If such a measure is approved, we may decide to issue fewer stock options. As a result, we may be impaired in our efforts to attract and retain necessary personnel.

      Our intellectual property and proprietary rights may not be adequately protected from all unauthorized uses. We regard our software 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 laws, 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, and we may be subject to unauthorized use of our products. Any legal action that we may bring to protect proprietary information could be expensive and may distract management from day-to-day operations.

      Our products are complex and are operated in a wide variety of computer configurations, which could result in errors or product failures. Because we offer very complex products, undetected errors, failures or bugs may occur when they are first introduced or when new versions are released. Our products often are installed and used in large-scale computing environments with different operating systems, system management software and equipment and networking configurations, which may cause errors or failures in our products or may expose undetected errors, failures or bugs in our products. In the past, we have discovered software errors, failures and bugs in certain of our product offerings after their introduction and have experienced delays or lost revenues during the period required to correct these errors. Our customers’ computer environments are often characterized by a wide variety of standard and non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time-consuming. Despite testing by us and by others, errors, failures or bugs may not be found in new products or releases after commencement of commercial shipments. Errors, failures or bugs in products released by us could result in negative publicity, product returns, loss of or delay in market acceptance of our products or claims by customers or others. In addition, if an actual or perceived breach of network security occurs in one of our end customer’s security systems, regardless of whether the breach is attributable to our products, the market perception of the effectiveness of our products could be harmed. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. Alleviating any of these problems could require significant expenditures of our capital and resources and could cause interruptions, delays or cessation of our product licensing, which could cause us to lose existing or potential customers and would adversely affect results of operations.

      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 may not prove effective in limiting our liability.

      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, including periods of high customer usage in which delays may be experienced. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. Further, customer demand for these services could cause increases in the costs of providing such services and adversely affect our operating results.

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Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

      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.

Interest Rate Sensitivity

      As of March 31, 2002, the fair market value of our financial instruments with exposure to interest risk was approximately USD 1.2 billion, Euro 388.0 million, and CAD 12.5 million. Sensitivity analysis for a six-month horizon was performed on our floating rate and fixed rate financial investments and floating rate liabilities. Parallel shifts in the yield curve of both +/-50 basis points would result in changes in fair market values for these investments and floating rate liabilities of less than USD 1.0 million, less than Euro 1.0 million and less than CAD 1.0 million.

Exchange Rate Sensitivity

      We conduct business in 30 international currencies through our worldwide operations. We have established a foreign exchange risk management program, utilizing forward exchange contracts with one fiscal-month duration to offset various non-functional currency exposures. Under this program, increases or decreases in the value of our non-functional currency assets and liabilities are offset by gains and losses on the forward exchange contracts to mitigate the risk associated with foreign exchange market fluctuations. We do not use forward exchange contracts for trading purposes. At the end of each fiscal month, all non-functional currency assets and liabilities are revalued using the spot rate of the maturing forward exchange contracts and the realized and unrealized gains and losses are included in net income (loss) as a component of other income (expense).

      We believe that the use of forward exchange contracts 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. However, significant changes in exchange rates may still result in adverse effects on our operating results.

      We use sensitivity analyses to quantify the impact that market risk exposures may have on the fair market values of our financial instruments. The financial instruments included in the sensitivity analyses consist of all of our foreign currency assets and liabilities and all derivative instruments, principally forward exchange contracts. The sensitivity analyses assesses the risk of loss in fair market values from the impact of hypothetical changes of instantaneous, parallel shifts in exchange rates and interest rates yield curves on market sensitive instruments over a six-month horizon.

      As of March 31, 2002, the notional amount of our forward contracts was approximately USD 239.6 million. A 10% appreciation or devaluation in foreign currencies would result in a decrease in the fair value of our forward exchange contracts by approximately USD 12.5 million and an increase in the fair value of our forward exchange contracts by USD 11.0 million, respectively.

      As of March 31, 2002, the fair value of our investments in marketable securities denominated in foreign currencies was approximately USD 345.4 million. A 10% appreciation or devaluation would result in an increase in the fair value of our investments by approximately USD 37.1 million and a decrease in the fair value of our investments by USD 32.8 million, respectively.

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Item 8.     Financial Statements and Supplementary Data

Annual Financial Statements

      See Part IV, Item 14 of this Form 10-K.

Selected Quarterly Data

      We have a 52/53-week fiscal accounting year. Accordingly, we have presented quarterly fiscal periods comprised of 13 weeks as follows:

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

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PART III

Item 10.     Directors and Executive Officers of the Registrant

      Information with respect to this Item may be found in the section captioned “Directors and Management — Directors and Executive Officers” appearing in the definitive Proxy Statement that we will deliver to stockholders in connection with the Annual Meeting of Stockholders to be held on September 12, 2002. Such information is incorporated herein by reference.

      Information with respect to this Item may be found in the section captioned “Directors and Management — Compensation of Executive Officers” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 12, 2002. Such information is incorporated herein by reference.

      Information with respect to this Item may be found in the sections captioned “Directors and Management — Security Ownership of Certain Beneficial Owners and Management” appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 12, 2002. Such information is incorporated herein by reference.

Equity Compensation Plans

      A summary of our stockholder approved and non-approved equity compensation plans as of March 31, 2002 was as follows (in thousands, except exercise price):