SYMANTEC CORP - 10-Q Quarterly Report

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Shares of Symantec common stock, $0.01 par value per share, outstanding as of October 31, 2003: 154,031,672 shares

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

The condensed consolidated financial statements of Symantec Corporation as of September 30, 2003 and for the three and six months ended September 30, 2003 and 2002 are unaudited and, in the opinion of management, contain all adjustments, consisting of only normal recurring items necessary for the fair presentation of the financial position and results of operations for the interim periods. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2003. The results of operations for the three and six months ended September 30, 2003 are not necessarily indicative of the results to be expected for the entire year. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current presentation format.

We have a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended September 30, 2003, March 31, 2003 and September 30, 2002 reflect amounts as of and for the periods ended October 4, 2003, March 28, 2003 and September 27, 2002, respectively. The three months ended September 30, 2003 and 2002 comprised 13 weeks of activity. The six months ended September 30, 2003 and 2002 comprised 27 weeks and 26 weeks of activity, respectively.

All Symantec share and per share amounts in this Form 10-Q do not reflect the two-for-one stock split to be effected as a stock dividend, which is scheduled to occur on November 19, 2003. See Note 12 below.

In August 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, Accounting for Asset Retirement Obligations. Under SFAS No. 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The adoption of SFAS No. 143 on April 1, 2003 did not have a material impact on our financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Under this Interpretation, a liability shall be recognized for the fair value of the obligation undertaken in issuing or modifying guarantees and indemnification agreements after December 31, 2002. Certain of the software licenses that we have granted contain provisions that indemnify licensees of the software from damages and costs resulting from claims alleging that our software infringes the intellectual property rights of a third party. In the past, we have not been required to make material payments pursuant to these provisions. Accordingly, we have not recorded a liability related to these indemnification provisions. As of September 30, 2003, we had no liability associated with any of our indemnification agreements on our balance sheet.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, that provides guidance for determining when a primary beneficiary should consolidate a variable interest entity that functions to support the activities of the primary beneficiary. In October 2003 the FASB deferred the effective date of Interpretation No. 46 to the first interim period beginning after December 15, 2003 for variable interest entities acquired before February 1, 2003 and immediately for variable interest entities created after January 31, 2003. In the March 2003 quarter, we purchased four of our facilities that were classified as operating leases under synthetic lease transactions by purchasing the land and buildings for approximately $17.9 million and $106.0 million, respectively. As such, we had no interest in any variable interest entities as of September 30, 2003.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which provides guidance for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement did not have a material impact on our financial position or results of operations.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

We account for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to Employees, and to nonemployees using the fair value method in accordance with SFAS No. 123, Accounting for Stock-Based Compensation. In addition, we apply applicable provisions of FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB No. 25. No employee stock-based compensation cost is reflected in net income related to options granted under those plans for which the exercise price was equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net income and net income per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation for each of the three and six months ended September 30, 2003 and 2002:

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

Acquired product rights, goodwill and other intangible assets subject to amortization were as follows:

On August 6, 2003, we purchased a security technology patent as part of a settlement in Hilgraeve, Inc. v. Symantec Corporation. The total cost of purchasing the patent and licensing additional patents was $62.5 million, which was paid in cash in August 2003. Under the transaction, we recorded approximately $13.9 million of patent settlement costs in the June 2003 quarter, as it was deemed, through an independent third party valuation, that these costs related to benefits received by us in and prior to the June 2003 quarter. In addition, we recorded approximately $48.6 million for acquired product rights in the September 2003 quarter, which will be amortized to cost of goods sold over the remaining life of the primary patent, which expires in June 2011.

On April 17, 2003, we purchased certain assets related to Roxio Inc.’s GoBack computer recovery software business for approximately $13.0 million in cash. As a result of this transaction, we recorded approximately $12.7 million in acquired product rights and $0.3 million for tangible assets, net of liabilities. The amount allocated to acquired product rights will be amortized to cost of revenues over their estimated useful life of three years.

Amortization expense for acquired product rights was approximately $10.6 million of which $10.4 million and $0.2 million was recorded in cost of revenues and income, net of expense, from sale of technologies and product lines, respectively, during the September 2003 quarter. Amortization expense for acquired product rights was approximately $19.7 million of which $19.3 million and $0.4 million was recorded in cost of revenues and income, net of expense, from sale of technologies and product lines, respectively, during the six months ended September 30, 2003. Amortization expense for acquired product rights was approximately $7.4 million of which $6.9 million and $0.5 million was recorded in cost of revenues and income, net of expense, from sale of technologies and product lines, respectively, during the September 2002 quarter. Amortization expense for acquired product rights was approximately $14.5 million of which $13.5 million and $1.0 million was recorded in cost of revenues and income, net of expense, from sale of technologies and product lines, respectively, during the six months ended September 30, 2002.

Amortization expense for other intangible assets (customer base, tradenames and marketing-related assets) was $0.8 million and $0.7 million, respectively, during the September 2003 and 2002 quarters and $1.5 million and $1.2 million, respectively, during the six months ended September 30, 2003 and 2002.

The estimated annual amortization expense for acquired product rights is $40.3 million, $34.6 million, $20.6 million, $12.7 million, $7.5 million and $19.8 for fiscal year 2004, 2005, 2006, 2007, 2008, and thereafter, respectively, based upon our existing acquired product rights and their current useful lives. The estimated annual amortization expense for other intangible assets is $2.7 million, $1.5 million, $0.5 million, and $0.2 million for fiscal year 2004, 2005, 2006, and 2007, respectively, based upon our existing other intangible assets and their current useful lives.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

For the three and six months ended September 30, 2003, approximately 0.6 million and 0.3 million shares, respectively, issuable upon exercise of options were excluded from the computation of diluted net income per share, as their effect would have been anti-dilutive. For the three and six months ended September 30, 2002, approximately 8.6 million and 3.7 million shares, respectively, issuable upon exercise of options were excluded from the computation of diluted net income per share, as their effect would have been anti-dilutive.

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 of Symantec common stock, not to exceed 30.0 million shares, with no expiration date. As of September 30, 2003, we had repurchased a total of 21.9 million shares under this program at prices ranging from $17.78 to $29.97 per share, for an aggregate amount of approximately $513.2 million. No shares were repurchased during the September 2003 quarter. During the September 2002 quarter, we repurchased 2.2 million shares at prices ranging from $27.93 to $29.97 per share, for an aggregate amount of approximately $64.3 million. No shares were repurchased during the June 2003 and 2002 quarters.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

On October 24, 2001, we completed a private offering of $600.0 million of 3% convertible subordinated notes due November 1, 2006, the net proceeds of which were approximately $584.6 million. The notes are convertible into shares of our common stock by the holders at any time before maturity at a conversion price of $34.14 per share, subject to certain adjustments. During the September 2003 and June 2003 quarters, an insignificant principal amount of our notes were converted into shares of our common stock. No shares were converted during the September 2002 or June 2002 quarters. We may redeem the remaining 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 is paid semi-annually, and we commenced making payments on May 1, 2002. Debt issuance costs of approximately $15.8 million, related to the notes, is amortized on a straight-line basis through November 1, 2006. We have reserved approximately 17.6 million shares of common stock for issuance upon conversion of the notes.

During the September 2003 quarter, we acquired Nexland Inc., an Internet security company whose Internet Protocol based networking appliances are installed at enterprise branches and telecommuter offices worldwide, for approximately $19.6 million in cash. We expect the acquisition will strengthen our competitive position in the Enterprise Security solutions market. The results of operations of the acquired company have been included in our operations as of the date of acquisition. Under the transaction, we recorded approximately $1.0 million for acquired in-process research and development, $1.0 million for developed technology, $20.8 million for goodwill, an insignificant amount related to other intangibles, $0.5 million for deferred tax assets, net of deferred tax liabilities, and $2.5 million for liabilities, net of tangible assets. We also accrued approximately $1.3 million in acquisition related expenses, which included financial advisory, legal and accounting fees, duplicative sites and severance costs, of which $0.4 million remains as an accrual as of September 30, 2003.

The following table summarizes the allocation of the purchase price for the Nexland, Inc. acquisition (in thousands):

The amount allocated to developed technology is amortized to cost of revenues over its useful life of five years. The amount allocated to other intangibles is amortized to operating expenses over its estimated useful life of one year.

In connection with this acquisition, we wrote off a total of $1.0 million of acquired in-process research and development, because the acquired technology had not reached technological feasibility and had no alternative uses. The efforts required to develop the acquired in-process technology and to complete the projects; were principally related to the completion of planning, design, development and test activities necessary to establish that a product or service could 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 this purchase by estimating the projected cash flows related to the project and future revenues to be earned upon commercialization of the product. 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 this project.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

Pro forma information for Nexland, Inc. is not presented as the acquisition was deemed not significant.

During the September 2002 quarter, we acquired four privately-held companies for a total of approximately $375.2 million in cash. The results of operations of the acquired companies have been included in our operations as of the dates of acquisition. These acquired companies are included in our Enterprise Security segment, with the exception of Riptech, which is included in our Services segment.

On August 19, 2002, we acquired Riptech, Inc., a provider of scalable, real-time managed security services that protect clients through advanced outsourced security monitoring and professional services, for $145.0 million. Under the transaction, we recorded approximately $2.1 million for acquired in-process research and development, $12.2 million for developed technology, $0.5 million for acquired product rights, including revenue related order backlog and contracts, $117.8 million for goodwill, $8.0 million for net deferred tax assets and $7.6 million for tangible assets, net of liabilities. We also accrued approximately $3.2 million in acquisition related expenses, which included financial advisory, legal and accounting fees, duplicative sites and severance costs, of which $0.3 million remains as an accrual as of September 30, 2003.

The amounts allocated to developed technology are being amortized to cost of revenues over their useful lives of five years and acquired product rights were amortized to cost of revenues over their useful life of one year.

During the December 2002 quarter, we revised estimates related to certain liabilities, and as a result, we decreased the purchase price and goodwill by $0.9 million. During the June 2003 and September 2003 quarters, we revised estimates related to certain liabilities, and as a result, we decreased the purchase price and goodwill by insignificant amounts.

On August 19, 2002, we acquired Recourse Technologies, Inc., a provider of security threat management solutions that detect, analyze and respond to both known and novel threats, including intrusions, internal attacks and denial of service attacks, for approximately $135.3 million. Under the transaction, we recorded approximately $1.0 million for acquired in-process research and development, $19.0 million for developed technology, $109.3 million for goodwill, $2.2 million for other intangibles, $9.1 million for net deferred tax assets and $1.9 million for liabilities, net of tangible assets. We also accrued approximately $3.3 million in acquisition related expenses, which included financial advisory, legal, tax and accounting fees, duplicative sites and severance costs, of which $0.7 million remains as an accrual as of September 30, 2003.

The amount allocated to developed technology is being amortized to cost of revenues over the useful life of four years. The amount allocated to other intangibles was amortized to operating expenses over its useful life of one year.

During the June 2003 and December 2002 quarters, we revised estimates related to certain liabilities, and as a result, we decreased the purchase price and goodwill by insignificant amounts. During the September 2003 quarter, we revised estimates related to certain liabilities, and as a result, we decreased the purchase price and goodwill by $0.3 million.

On August 5, 2002, we acquired SecurityFocus, Inc., a provider of enterprise security threat management systems, providing global early warning of cyber attacks, customized and comprehensive threat alerts, and countermeasures to prevent attacks before they occur, for approximately $74.9 million. Under the transaction, we recorded approximately $1.6 million for acquired in-process research and development, $3.5 million for developed technology, $3.3 million for acquired product rights, including database and revenue related order backlog and contracts, $64.3 million for goodwill, $2.1 million for other marketing related intangibles, $0.5 million for net deferred tax assets and $1.2 million for tangible assets, net of liabilities. We also accrued approximately $1.7 million in acquisition related expenses, which included legal, tax and accounting fees, duplicative site and fixed asset expenses, and severance costs, of which $0.6 million remains as an accrual as of September 30, 2003.

The amounts allocated to developed technology and acquired product rights are being amortized to cost of revenues over their useful lives of one to four years. The amount allocated to other intangibles is being amortized to operating expenses over its useful life of four years.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

During the December 2002 quarter, we revised estimates related to certain liabilities, and as a result, we decreased the purchase price and goodwill by an insignificant amount.

On July 2, 2002, we acquired Mountain Wave, Inc., a provider of automated attack sensing and warning software and services for real-time enterprise security operations management, for $20.0 million. Under the transaction, we recorded approximately $2.0 million for developed technology, $17.3 million for goodwill, $1.7 million for net deferred tax assets and $0.4 million for liabilities, net of tangible assets. We also accrued approximately $0.7 million in acquisition related expenses, which included legal and accounting fees, as well as duplicative site and severance costs. As of March 31, 2003, all costs had been paid with the exception of an insignificant amount for outplacement services and duplicative site costs.

The amount allocated to developed technology is being amortized to cost of revenues over its useful life of five years.

The following table summarizes the allocation of the purchase price, adjusted for revised estimates related to certain liabilities, for each of the acquisitions during the September 2002 quarter (in thousands):

In connection with these four acquisitions, we wrote off a total of $4.7 million of acquired in-process research and development, because the acquired technologies had not reached technological feasibility and had no alternative uses. The efforts required to develop the acquired in-process technology principally related to the completion of all planning, design, development and test activities that were necessary to establish that the product or service could be produced to meet its design specifications, including features, functions and performance.

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 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.

Restructuring, site closures and other were an insignificant amount during the September 2003 quarter, and approximately $(1.2) million during the September 2002 quarter.

During the September 2003 quarter, we recorded no costs of severance, related benefits or outplacement services.

During the June 2003 quarter, we recorded approximately $0.5 million for costs of severance, related benefits and outplacement services for a member of our senior management team. As of September 30, 2003, we had an accrual of approximately $0.5 million outstanding related to this individual’s severance, benefits or outplacement services.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

Details of the fiscal 2004 restructuring, site closures and other were as follows:

During the March 2003 quarter, we recorded approximately $3.4 million for the costs of severance, related benefits and outplacement services primarily associated with the relocation of certain development, sales and finance activities and the realignment of certain worldwide marketing efforts. As a result of this relocation, we terminated 122 employees. In addition, we recorded approximately $3.0 million for exit costs associated with the consolidation of certain facilities in the United States. This estimate was revised in the September 2003 and June 2003 quarters, resulting in a reduction in the severance, related benefits and outplacement services accrual of an insignificant amount and $0.4 million, respectively. As of September 30, 2003, we had an accrual of approximately $0.4 million outstanding related to severance, benefits and outplacement services, and $0.8 million related to rent and related exit costs of the facilities.

During the September 2002 quarter, we recorded approximately $0.7 million for the costs of severance, related benefits and outplacement services associated with the termination of 51 employees at our San Antonio, Texas site. At March 31, 2003, all costs had been paid with the exception of an insignificant amount related to outplacement service charges.

During the June 2002 quarter, we recorded approximately $6.1 million for costs of severance, related benefits, outplacement services and abandonment of certain fixed assets primarily associated with the restructuring and relocation of our Leiden, Netherlands operations to Dublin, Ireland and the outsourcing of our North American and European consumer support functions. As a result of these actions, we terminated 251 employees. This estimate was subsequently revised in the September 2003 and September 2002 quarters, resulting in a reduction in the severance, related benefits and outplacement services accrual by approximately $0.11 million and $0.9 million, respectively. As of September 30, 2003, we had an insignificant accrual outstanding related to severance, related benefits and outplacement service charges.

Details of the fiscal 2003 restructuring, site closures and other were as follows:

During the March 2002 quarter, we recorded approximately $8.1 million for exit costs associated with the expansion of our Newport News, Virginia site to a larger facility in Newport News, consolidation of most of our United Kingdom facilities to Maidenhead, UK, and relocation of our Leiden, Netherlands operations to Dublin, Ireland, in efforts to consolidate our European support functions. These costs included approximately $5.8 million in rent remaining on the abandoned facilities and related exit costs, and $2.3 million in related abandoned fixed asset and leasehold improvement write-offs. These estimates were subsequently revised in the September 2003, June 2003, March 2003, December 2002 and September 2002 quarters, resulting in increases/(decreases) in the facility related accrual by an insignificant amount, $0.5 million, $0.3 million, ($0.4) million and ($1.2) million, respectively. As of September 30, 2003, we had an accrual of approximately $1.6 million outstanding related to rent and exit costs of the facilities.

Also during the March 2002 quarter, we recorded approximately $1.0 million for the costs of severance, related benefits and outplacement services, as we reorganized various operating functions. As a result, we terminated 29 employees. As of March 31, 2003, all costs had been paid.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

During the December 2001 quarter, we recorded approximately $9.4 million for exit costs associated with the relocation of our North American support group from Eugene, Oregon to an expanded facility in Springfield, Oregon. These costs included approximately $6.7 million in rent remaining on the abandoned facilities in Eugene, Oregon and related exit costs, and $2.7 million in related abandoned leasehold improvement write-offs. These estimates were subsequently revised in the September 2003 and September 2002 quarters, resulting in an increase in the facility related accrual by approximately $0.08 million and $0.2 million, respectively. As of September 30, 2003, we had an accrual of approximately $1.2 million outstanding related to rent and related exit costs of the facilities.

During the June 2001 quarter, we recorded approximately $2.0 million for the costs of employee severance, related benefits, outplacement services and abandonment of certain facilities primarily related to various restructurings as we continued the integration of AXENT into our operations. As a result, we terminated 58 employees. These severance, related benefits, and outplacement costs were paid by the end of the September 2001 quarter. As of December 31, 2002, all costs had been paid with the exception of an insignificant amount related to the abandoned facilities.

On October 20, 2003, Marilyn Johnston filed a lawsuit on behalf of herself and purportedly on behalf of the general public and an undefined class in the California Superior Court, San Diego County. The complaint alleges violations of California Civil Code section 1787.8 and Business and Professions Code 17200 arising from the collection of telephone number information in connection with online credit card transactions. The complaint seeks damages and injunctive and other equitable relief, as well as costs and attorneys fees. We intend to defend the action vigorously.

On March 28, 2003, Ronald Pearce filed a lawsuit on behalf of himself and purportedly on behalf of the general public of the United States and Canada in the California Superior Court, Santa Clara County, alleging violations of California Business and Professions Code section 17200 and false advertising in connection with our WinFax Pro product. The complaint seeks damages and injunctive and other equitable relief, as well as costs and attorney fees. We intend to defend the action vigorously.

On February 27, 2003, PowerQuest Corporation filed a lawsuit against us in the United States District Court, District of Utah, alleging that our Ghost product infringes a patent owned by them. The complaint seeks damages and injunctive relief. We intend to defend the action vigorously. See Note 12 below.

On February 7, 2003, Cathy Baker filed a lawsuit against us, Microsoft and two retailers in the California Superior Court, Marin County, purportedly on behalf of the general public of California and of a class of certain purchasers of software products. An amended complaint filed in May 2003 adds Greg Johnson as plaintiff and Adobe Systems and another retailer as defendants. The complaint alleges that our refund policies violate consumer warranty and unfair business practice laws. The lawsuit seeks damages, rescission and injunctive relief, as well as costs and attorney fees. We intend to defend the action vigorously

On November 29, 2002, William Pereira filed a purported class action lawsuit against a local retailer and us in the Supreme Court of New York, New York County, alleging breach of contract and deceptive business practices in connection with rebates offered by us. The complaint was served March 26, 2003. The complaint sought damages, costs and attorney fees. The parties stipulated to dismiss the case in June 2003.

On June 14, 2002, Hark Chan and Techsearch LLC filed a lawsuit against us in the United States District Court for the Northern District of California, alleging that unspecified products sold on CD-ROM with Internet hyperlinks and/or with the LiveUpdate feature infringe a patent owned by Techsearch. Subsequently, IP Innovation LLC was added as a plaintiff. The lawsuit requested damages, injunctive relief, costs and attorney fees. In September 2003, the parties settled the matter.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

On December 23, 1999, Altiris Inc. filed a lawsuit against us in the United States District Court, District of Utah, alleging that unspecified Symantec products including Norton Ghost Enterprise Edition, infringed a patent owned by Altiris. The lawsuit requests damages, injunctive relief, costs and attorney fees. In October 2001, a stipulated judgment of non-infringement was entered following the court’s ruling construing the claims of the Altiris patent, and in February 2003, the Court of Appeals for the Federal Circuit reversed the judgment and remanded the case. We intend to defend the action vigorously.

In July 1998, the Ontario Court of Justice (General Division) awarded a total of approximately $4.7 million for damages, plus interest, to Triolet Systems, Inc. and Brian Duncombe in a decade-old copyright action, for damages arising from the grant of a preliminary injunction against them. The damages were awarded following the court’s ruling that evidence presented later in the case showed the injunction was not warranted. We inherited this case through our acquisition of Delrina Corporation, which was the plaintiff in this lawsuit. Our appeal of the decision was denied, and our request for further review of that decision was also denied. We recorded a charge of approximately $5.8 million during the June 1998 quarter, representing the unaccrued portion of the judgment plus costs, and an additional charge of approximately $3.1 million for post-judgment interest and other costs during the March 2002 quarter. In January 2003, we paid the judgment, interest and costs of approximately $7.4 million. We expect to pay the remaining accrued balance of costs upon further determination by the court. As of September 30, 2003, we believe that we have adequately accrued for both the damages and costs.

In October 1997, a complaint was filed in the United States District Court for the District of Utah on behalf of PowerQuest Corporation, against Quarterdeck, which we acquired in March 1999. The complaint alleges that Quarterdeck’s partitioning software, included in Partition-It and Partition-It Extra Strength, violated a patent held by PowerQuest. In January 1998, PowerQuest obtained a second patent relating to partitioning and has amended its complaint to allege infringement of that patent as well. The plaintiff has added us as a defendant and seeks an injunction against distribution of the Partition-It and Partition-It Extra Strength products and monetary damages. We intend to defend the action vigorously.

On September 15, 1997, Hilgraeve Corporation filed a lawsuit in the United States District Court, Eastern District of Michigan, against us, alleging that unspecified Symantec products infringe a patent owned by Hilgraeve. The lawsuit requests damages, injunctive relief, costs and attorney fees. In March 2000, the court granted our summary judgment motions and dismissed the case. In September 2001, the Court of Appeals for the Federal Circuit reversed the summary judgment and ordered the case returned to the District Court. On August 6, 2003, Symantec acquired the asserted patent, and the parties settled the litigation. The total cost of purchasing the patent and licensing additional patents was $62.5 million, which was paid in cash in August 2003.

Over the past few years, it has become common for software companies, including us, to receive claims of patent infringement. At any given time, we are evaluating claims of patent infringement asserted by several parties, with respect to certain of our products. The outcome of any related litigation or negotiation could have a material adverse impact on our future results of operations or cash flows.

We are also involved in a number of other judicial and administrative proceedings that are incidental to our business. We intend to defend all of the aforementioned pending lawsuits vigorously. Although adverse decisions (or settlements) may occur in one or more of the cases, and it is not possible to estimate the possible loss or losses from each of these cases, the final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse affect on our financial condition. Depending, however, on the amount and timing of an unfavorable resolution of these lawsuits, it is possible that our future results of operations or cash flows could be materially adversely affected in a particular period. We have accrued certain estimated legal fees and expenses related to certain of these matters; however, actual amounts may differ materially from those estimated amounts.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

Our operating segments are significant strategic business units that offer different products and services, distinguished by customer needs. We have five operating segments: Enterprise Security, Enterprise Administration, Consumer Products, Services and Other.

The Enterprise Security segment focuses on providing Internet security technology, global response and services necessary for organizations to manage their information security needs. The Enterprise Administration segment offers products that enable companies to be more effective and efficient within their information technology departments. The Consumer Products segment focuses on delivering our security and problem-solving products to individual users, home offices and small businesses. The Services segment is focused on providing information security solutions that incorporate best-of-breed technology, security expertise and global resources. The Other segment is comprised of sunset products and products nearing the end of their life cycle. Also included in the Other segment are non-allocable sales, marketing and research and development costs; general and administrative expenses; amortization of other intangible assets, debt issuance costs and other assets; and charges such as acquired in-process research and development, legal judgments and settlements and restructuring and site closures which are not charged to the other operating segments.

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

The following table summarizes each segment’s net revenues from external customers, operating income (loss), and depreciation and amortization expense:

SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements, continued

On September 23, 2003, we entered into an agreement to acquire PowerQuest Corp., a global provider of automated deployment and recovery solutions for corporations and individual users, for approximately $150.0 million in cash. The acquisition is expected to close during the third quarter of fiscal 2004, subject to the satisfaction of closing conditions. We expect to integrate this technology into our Enterprise Administration segment.

On October 20, 2003, we acquired SafeWeb, Inc., a provider of SSL VPN appliances, for $26 million in cash. We will integrate this technology into our Enterprise Security segment.

On October 22, 2003, our Board of Directors approved a two-for-one stock split of Symantec’s common stock. Shareowners of record at the close of business on November 5, 2003 will be issued one additional share of common stock for each share owned as of that date. The stock split will increase the number of total shares outstanding from approximately 154 million shares to approximately 308 million shares. We anticipate the additional shares resulting from the stock dividend will be issued in book-entry form on or about November 19, 2003. All Symantec share and per share amounts in this Form 10-Q do not give effect to this stock split.

On October 27, 2003, we entered into an agreement to acquire ON Technology, a provider of solutions which enable organizations and service providers to manage the full lifecycle of their computing systems over corporate networks, for approximately $100.0 million in cash. The acquisition is expected to close in the fourth quarter of fiscal 2004, subject to the satisfaction of closing conditions. We expect to integrate this technology into our Enterprise Administration segment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933 and the Securities Exchange Act of 1934. The words “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “continue” and similar expressions identify forward-looking statements. In addition, statements which refer to projections of our future financial performance, anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions, based on our current expectations about future events. We cannot guarantee future results, performance or achievements or that predictions or current expectations will be accurate. We do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. These forward-looking statements involve risks and uncertainties, and our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors, including those that we discuss under Business Risk Factors beginning on page 29. We encourage you to read that section carefully.

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, security management, intrusion detection, Internet content and e-mail filtering, and remote management technologies and security services to enterprises and service providers around the world. Founded in 1982, we have offices in 36 countries worldwide.

We have a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended September 30, 2003, March 31, 2003 and September 30, 2002 reflect amounts as of and for the periods ended October 3, 2003, March 28, 2003 and September 27, 2002, respectively. The three months ended September 30, 2003 and 2002 each comprised 13 weeks of activity. The six months ended September 30, 2003 and 2002 comprised 27 weeks and 26 weeks of activity, respectively.

We believe there have been no significant changes in our critical accounting policies during the six months ended September 30, 2003 as compared to what was previously disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended March 31, 2003.

On October 20, 2003 we acquired SafeWeb, Inc., a provider of SSL VPN appliances, for approximately $26.0 million in cash. We expect to integrate this technology into our Enterprise Security segment.

On October 22, 2003, our Board of Directors approved a two-for-one stock split of Symantec’s common stock. Shareowners of record at the close of business on November 5, 2003 will be issued one additional share of common stock for each share owned as of that date. The stock split will increase the number of total shares outstanding from approximately 154 million shares to approximately 308 million shares. We anticipate the additional shares resulting from the stock dividend to be issued in book-entry form on or about November 19, 2003. All Symantec share and per share amounts in this Form 10-Q do not give effect to this stock split.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

The following table sets forth each item from our condensed consolidated statements of income as a percentage of net revenues and the percentage change in the total amount of each item for the periods indicated:

Net revenues increased approximately $103.4 million, or 32% during the September 2003 quarter as compared to the September 2002 quarter, and $178.5 million, or 28% during the six months ended September 30, 2003. This increase was due primarily to increased sales of our consumer and enterprise security products. The increased sales of these products was largely attributable to continuing growth in demand for our consumer security protection products. In addition, we believe that a significant portion of the growth in revenue was attributable to numerous security threats in August and may not be sustainable. From a regional standpoint, sales outside of the United States contributed strongly to revenue growth. Strength in major foreign currencies during the September 2003 quarter and six months ended September 30, 2003 also positively impacted our international revenue growth.

A significant portion of our deferred revenue balance of $612.2 million as of June 30, 2003 contributed to our total net revenues during the September 2003 quarter. We anticipate that a significant portion of our deferred revenue balance of $719.4 million as of September 30, 2003, will similarly contribute to our net revenues during the December 2003 quarter.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

Our Enterprise Security segment provides organizations with Internet security technology, global response and services to manage their information security needs. Our Enterprise Security segment represented approximately 41% and 44% of net revenues during the September 2003 and 2002 quarters, respectively, and 42% and 43% of net revenues during the six months ended September 30, 2003 and 2002, respectively. Net revenues increased approximately $35.1 million, or 25%, during the September 2003 quarter as compared to the September 2002 quarter and $68.4 million, or 25% during the six months ended September 30, 2003 as compared to the six months ended September 30, 2002. These increases were primarily due to strong growth in sales of our security protection solutions.

Our Enterprise Administration segment offers products that enable companies to be more effective and efficient within their information technology departments. Our Enterprise Administration segment represented approximately 11% and 16% of net revenues during the September 2003 and 2002 quarters, respectively, and 12% and 17% of net revenues during the six months ended September 30, 2003 and 2002, respectively. Net revenues decreased by approximately $4.1 million, or 8%, during the September 2003 quarter as compared to the September 2002 quarter and $10.5 million, or 10%, during the six months ended September 2003 as compared to the six months ended September 2002. This decrease was primarily due to a decrease in sales of our pcAnywhere and Norton Ghost products. We anticipate a further decline in sales of our pcAnywhere product and that net revenues from this segment to comprise a smaller percentage of our overall revenues going forward.

Our Consumer Products segment provides security and problem-solving products to individual users. Our Consumer Products segment represented approximately 45% and 38% of net revenues during the September 2003 and 2002 quarters, respectively, and 44% and 39% of net revenues during the six months ended September 30, 2003 and 2002, respectively. Net revenues increased by approximately $69.6 million, or 56%, during the September 2003 quarter as compared to the September 2002 quarter, and $112.7 million, or 45%, during the six months ended September 30, 2003 and 2002, respectively. This increase was primarily related to increased sales of our Norton AntiVirus and Norton Internet Security products. In addition, we believe that a significant portion of the growth in consumer revenue was attributable to the numerous security threat outbreaks that occurred in August and may not be sustainable. Our electronic distribution channel, including original equipment manufacturer subscription renewals, also contributed to the increase in sales.

Our Services segment provides information security solutions that incorporate best-of-breed technology, security expertise and global resources. Our Services segment represented approximately 2% of net revenues during the September 2003 and 2002 quarters, respectively, and during the six months ended September 30, 2003 and 2002. Net revenues increased $3.2 million, or 53%, during the September 2003 quarter as compared to the September 2002 quarter, and $9.1 million, or 93%, during the six months ended September 30, 2003 and 2002. This increase was primarily related to sales of our Managed Security Services, which represented $3.2 million and $8.4 million of net revenues during the three months and six months ended September 30, 2003, respectively.

Our Other segment is comprised of sunset products and products nearing the end of their life cycle and represented less than 1% of net revenues during each of the September 2003 and 2002 quarters, respectively, and during the six months ended September 30, 2003 and 2002, respectively.

Net revenues outside of the United States represented approximately 50% and 47% of net revenues during the September 2003 and 2002 quarters, respectively, and during the six months ended September 30, 2003 and 2002, respectively. International net revenues increased by approximately $59.5 million, or 39%, during the September 2003 quarter as compared to the September 2002 quarter and $108.3 million, or 36%, during the six months ended September 30, 2003 and 2002. This increase in net revenues was primarily the result of sales growth in Europe, the Middle East and Africa regions primarily from increased sales of our enterprise security and consumer products.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

Strength in major foreign currencies during the September 2003 quarter as compared to the major foreign currency rates during the September 2002 quarter positively impacted our international revenue growth by approximately $21.8 million when comparing revenues at comparable exchange rates. In addition, strength in major foreign currencies during the six months ended September 30, 2003, as compared to the average major foreign currency rate changes during the six months ended September 30, 2002, positively impacted our international revenue growth by approximately $53.7 million. We are unable to predict the extent to which revenues in future periods will be impacted by changes in foreign currency rates. If international sales become a greater proportion of our total sales in the future, changes in foreign exchange rates may have a potentially greater impact on our revenues and operating results.

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 technology licensing agreements, costs of services, fee-based technical support costs and amortization of acquired product rights.

Gross margin was approximately 83% and 81% of net revenues during the September 2003 and 2002 quarters, respectively, and 83% and 82% during the six months ended September 30, 2003 and 2002, respectively. This slight increase was primarily due to growth in electronic software distribution revenue. We anticipate that our services revenues may grow and comprise a higher percentage of our total revenues in future periods, in which case our gross margin would likely decrease, as our services typically have higher cost of revenues than our software products.

Research and development expenses as a percentage of net revenues were approximately 14% and 15% during the September 2003 and September 2002 quarters, respectively, and 15% and 14% during the six months ended September 30, 2003 and 2002, respectively. In absolute dollars, research and development expenses increased 26% to approximately $59.6 million during the September 2003 quarter from $47.3 million during the September 2002 quarter and 29% to approximately $120.2 million during the six months ended September 30, 2003 from $92.8 million during the six months ended September 30, 2002. This increase was primarily a result of increased headcount and related compensation, increased overhead costs, increased use of outside services and increased research and development expenses associated with the companies that we acquired during the September 2002 quarter.

Sales and marketing expenses as a percentage of net revenues were approximately 37% and 38% during the September 2003 and 2002 quarters, respectively, and 36% and 37% during the six months ended September 30, 2003 and 2002, respectively. In absolute dollars, sales and marketing expenses increased 25% to approximately $155.7 million during the September 2003 quarter from $124.9 million during the September 2002 quarter and 24% to approximately $297.5 million during the six months ended September 30, 2003 from $240.1 million during the six months ended September 30, 2002. This increase was primarily a result of increased headcount and related compensation, increased overhead costs, increased use of outside services and increased advertising and promotion expenses and other marketing activities.

General and administrative expenses as a percentage of net revenues remained flat at approximately 5% during each of the September 2003 and 2002 quarters, and 6% and 5% during the six months ended September 30, 2003 and 2002, respectively. In absolute dollars, general and administrative expenses increased 23% to approximately $21.2 million during the September 2003 quarter from $17.3 million during the September 2002 quarter and 46% to approximately $47.5 million during the six months ended September 30, 2003 from $32.6 million during the six months ended September 30, 2002. This increase was primarily a result of increased headcount and related compensation, increased use of outside services and increased general and administrative expenses associated with the companies that we acquired during the September 2002 quarter.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

Amortization of other intangibles from acquisitions increased 14% to approximately $0.8 million during the September 2003 quarter from $0.7 million during the September 2002 quarter and to $1.5 million during the six months ended September 30, 2003 from $1.2 million during the six months ended September 30, 2002. These increases were related primarily to the amortization of other intangibles acquired with the purchase of Nexland in the September 2003 quarter and of Recourse and Security Focus in the September 2002 quarter.

Acquired in-process research and development was $1 million during the three and six months ended September 30, 2003, related to the Nexland acquisition. Acquired in-process research and development was $4.7 million during the three and six months ended September 30, 2002, related to the Riptech, SecurityFocus and Recourse acquisitions.

The purchase prices of the Nexland transaction in the September 2003 quarter and the Riptech, SecurityFocus and Recourse acquisitions in the September 2002 quarter, were allocated to the acquired assets and liabilities based on the estimated fair values as of the date of the acquisition. We wrote off $1 million of acquired in-process research and development related to the Nexland transaction and $4.7 million of acquired in-process research and development related to the three September 2002 transactions, because the acquired technologies had not reached technological feasibility and had no alternative uses.

The efforts required to develop the acquired in-process technology principally relate to the completion of all planning, design, development and test 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.

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 the September 2003 and September 2002 quarters. As a result, we wrote off $1.0 million in connection with our acquisition of Nexland during the September 2003 quarter. In addition, we wrote off $2.1 million, $1.6 million and $1.0 million in connection with our acquisitions of Riptech, SecurityFocus and Recourse, respectively, during the September 2002 quarter.

The in-process technology acquired in the Nexland acquisition consisted primarily of research and development related to a next generation firewall/VPN product. We will integrate this technology into our Firewall/VPN Appliance series products.

The in-process technology acquired in the Riptech acquisition consisted primarily of research and development related to the fourth generation of its Caltarian technology, which provides real-time information protection through around-the-clock monitoring, analysis and response. We integrated this technology into our managed security services.

The in-process technology acquired in the SecurityFocus acquisition consisted primarily of research and development related to new versions of DeepSight Threat Management System (TMS) and DeepSight Analyzer (Analyzer) products, which are threat management systems that provide early warnings of attack, as well as countermeasures to defend these attacks. We integrated this technology into our vulnerability management products.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

The in-process technology acquired in the Recourse acquisition consisted primarily of research and development related to new versions of ManHunt, a network intrusion detection system. We integrated this technology into our intrusion detection products.

Restructuring, site closures and other were insignificant during the September 2003 quarter, and approximately ($1.2) million during the September 2002 quarter. During the September 2003 quarter, we revised our estimates by ($0.13) million for costs of severance, related benefits and outplacement services originally recorded in the March 2003 and June 2003 quarters. In addition, we recorded an increase in expenses of approximately $0.13 million, due primarily to revised estimates of facility related expenses related to our United Kingdom facilities consolidation.

During the September 2002 quarter, restructuring, site closures and other resulted in a net reduction of expenses of approximately $1.2 million. We recorded a reduction of approximately $2.2 million in costs previously recognized in connection with severance and facility related estimates associated primarily with the restructuring and consolidation of most of our United Kingdom facilities to Maidenhead, UK. This reduction of expenses was offset by approximately $0.3 million in estimated expenses for certain fiscal 2002 restructuring and site closures and $0.7 million for costs of severance, related benefits and outplacement services associated with the reduction in operations of our San Antonio, Texas site. As a result of our San Antonio restructuring, our workforce was reduced by 51 employees.

Restructuring, site closures and other were approximately $0.6 million and $4.8 million for the six months ended September 30, 2003 and 2002, respectively. For the six months ended September 30, 2003, we recorded approximately $0.6 million for severance, related benefits, and outplacement as well as revisions to facility exit cost estimates.

During the six months ended September 30, 2002, we recorded approximately $5.8 million for costs of severance, related benefits, outplacement services and abandonment of certain fixed assets primarily associated with the Leiden, Netherlands, relocation to Dublin, Ireland, the outsourcing of our North American and European consumer support functions and the reduction in operations in San Antonio, Texas. As a result, our workforce was reduced by 302 employees. This expense was offset by a net reduction in expenses of $0.9 million, due to revised estimates of certain fiscal 2002 facility related expenses.

In August 2003, we purchased a security technology patent as part of a settlement in Hilgraeve, Inc. v Symantec Corporation. As part of the settlement, we also received licenses to the remaining patents in Hilgraeve’s portfolio. The total cost of purchasing the patent and licensing additional patents was $62.5 million, which was paid in cash in August 2003. Under the transaction, we recorded approximately $13.9 million of patent settlement costs in the June 2003 quarter, as it was deemed, through an independent third party valuation, that these costs related to benefits received by us in and prior to the June 2003 quarter. During the September 2003 quarter, we recorded acquired product rights of approximately $48.6 million, which will be amortized to cost of goods sold over the remaining life of the primary patent, which expires in June 2011.

Operating income was approximately $115.6 million and $70.4 million during the September 2003 and 2002 quarters, respectively, and $195.1 million and $148.4 million during the six months ended September 30, 2003 and 2002, respectively. The increase was primary a result of increased revenue growth of 32% and 28% during the September 2003 quarter and six months ended September 30, 2003, offset by increased headcount related costs and related operating expenses.

Interest income was approximately $8.8 million and $9.7 million during the September 2003 and 2002 quarters, respectively, and $18.9 million and $19.4 million during the six months ended September 30, 2003 and 2002,

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

respectively. The decrease was due to lower average interest rates during the September 2003 quarter and six months ended September 30, 2003 as compared with the same periods during fiscal 2003.

Interest expense of approximately $5.3 million during each of the September 2003 and 2002 quarters and $10.6 million during the six months ended September 30, 2003 and 2002, was related to the 3% convertible subordinated notes issued in October 2001.

Other expense, net was insignificant during the September 2003 and 2002 quarters and six months ended September 30, 2003 and 2002.

Income, net, from sale of technologies and product lines was approximately $2.2 million and $2.4 million during the September 2003 and 2002 quarters, respectively, and $4.3 million and $4.7 million during the six months ended September 30, 2003 and 2002, respectively. This income was related primarily to royalty payments received in connection with the divestiture of our ACT! product line in December 1999, from Interact Commerce Corporation, which subsequently merged with The Sage Group plc.

Our overall effective tax rate was 32% on pre-tax income for the six months ended September 30, 2003 and 2002. The effective tax rate for the six months ended September 30, 2003 and 2002 is 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.

Symantec believes its effective tax rate for the remainder of fiscal year 2004 will be approximately 32%. However, the Company’s future tax rate could differ because of several factors, including the impact of acquisitions, the mix of income from domestic and international operations, or any changes to applicable tax rules and regulations.

Our principal source of liquidity is our existing cash, cash equivalents and short-term investments, as well as cash that we generate over time from our operations. Cash, cash equivalents and short-term investments increased approximately $320.9 million to $2.0 billion at September 30, 2003 from $1.7 billion at March 31, 2003. This increase was primarily due to cash provided by operations, the effect of the strength in foreign currencies, and 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 for capital expenditures, acquired intangibles, including the purchase of Roxio’s GoBack computer recovery software business and the Hilgraeve patent litigation, and the acquisition of Nexland.

Net cash provided by operating activities during the six months ended September 30, 2003 was approximately $271.4 million compared with $192.3 million during the six months ended September 30, 2002. During the six months ended September 30, 2003, net cash provided by operating activities was comprised primarily of net income of approximately $142.2 million, net non-cash expenses of $102.3 million, and an increase in liabilities, net of assets of $26.9 million. Net cash provided by operating activities during the six months ended September 30, 2002 was comprised of net income of $108.6 million, net non-cash expenses of $62.1 million and an increase in liabilities net of assets of $21.6 million.

Net trade accounts receivable increased $75.3 million to approximately $225.0 million at September 30, 2003 from $149.7 million at March 31, 2003. The increase in net trade accounts receivable is primarily due to higher sales in the month of September 2003 as compared to the month of March 2003.

Net cash used in investing activities during the six months ended September 30, 2003 was approximately $222.0 million compared with $276.5 million during the six months ended September 30, 2002. During the six months ended September 30, 2003, net cash used in investing activities was comprised primarily of $63.6 million of capital expenditures, $61.3 million for the purchase of intangibles, $76.3 million in net purchases of marketable securities and other investments and $20.8 million for the acquisition of Nexland. Net cash used in investing activities during the six months ended September 30, 2002 was comprised primarily of $367.5 million for the cost of acquisitions completed in that period and related costs and $42.6 million of capital expenditures, offset by $133.6 million in net proceeds from marketable securities and other investments.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

Net cash provided by financing activities during the six months ended September 30, 2003 was approximately $115.9 million. During the six months ended September 30, 2003, net cash provided by financing activities was comprised of net proceeds from the exercise of stock options and sales of common stock through our employee stock purchase plan. Net cash used in financing activities during the six months ended September 30, 2002 was approximately $(32.5) million. During the six months ended September 30, 2002, net cash used in financing activities was primarily comprised of repurchases of our common stock, offset by net proceeds from the exercise of stock options and sales of common stock through our employee stock purchase plan.

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 of Symantec common stock, not to exceed 30.0 million shares, with no expiration date. As of the end of the September 2003 quarter, we had repurchased a total of 21.9 million shares under this program at prices ranging from $17.78 to $29.97 per share, for an aggregate amount of approximately $513.2 million. During the September 2002 quarter, we repurchased 2.2 million shares at prices ranging from $27.93 to $29.97 per share, for an aggregate amount of approximately $64.3 million. No shares were repurchased during the June 2003 or 2002 quarters.

On October 24, 2001, we completed a private offering of $600 million of 3% convertible subordinated notes due November 1, 2006, the net proceeds of which were approximately $584.6 million. The notes are convertible into shares of our 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 remaining 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 is paid semi-annually and we commenced making these payments on May 1, 2002.

On July 17, 2003, we completed the acquisition of Nexland, Inc., a technology driven Internet security company whose Internet Protocol based networking appliances are installed at enterprise branches and telecommuter offices worldwide, for approximately $19.6 million in cash.

On August 6, 2003, we purchased a security technology patent as part of a settlement in Hilgraeve, Inc. v. Symantec Corporation, for approximately $62.5 million. Under the transaction, we recorded approximately $13.9 million of patent settlement costs in the June 2003 quarter, as it was deemed, through an independent third party valuation, that these costs related to benefits received by us in and prior to the June 2003 quarter. In addition, we recorded approximately $48.6 million for acquired product rights in the September 2003 quarter, which will be amortized to cost of revenues over the remaining life of the primary patent, which expires in June 2011.

On October 20, 2003, we completed the acquisition of SafeWeb, Inc. a provider of SSL VPN appliances, for approximately $26.0 million in cash.

On September 23, 2003 and on October 27, 2003, we agreed to purchase PowerQuest and ON Technology, respectively, for an aggregate cash purchase price of approximately $250.0 million. The completion of these acquisitions is subject to customary closing conditions.

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

In August 2001, the FASB issued SFAS, No. 143, Accounting for Asset Retirement Obligations. Under SFAS No. 143, the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on our financial position or results of operations.

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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which provides guidance for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement is not expected to have an impact on our financial position or results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

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 security products. Over the last seven quarters, we experienced a higher than expected rate of growth in sales of our consumer security protection products, and we expect that we will not be able to sustain this high growth rate on a consistent basis. We believe that consumer security protection sales have been spurred by a number of factors over this period of time, including increased broadband usage, increased awareness of security threats to consumer systems, including the recently well-publicized Swen, Welchia, Blaster and Sobig. The impact of these factors is likely to diminish over time, and it is possible that our growth rates in sales of security protection products may decline.

We have grown, and may continue to grow, through acquisitions that give rise to risks that could adversely affect our future operating results. We have completed three acquisitions during fiscal 2004 and have two previously announced acquisitions pending. Additionally, we completed four acquisitions during fiscal 2003, and 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 success in completing the integration of acquired businesses may impact the market acceptance of such acquisitions, and our willingness to acquire additional businesses in the future. 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. We may face difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions. Our acquisitions may cause us to recognize substantial amounts of goodwill and other intangible assets that will be subject to impairment testing and amortization, and we may assume liabilities. In addition, acquisitions may result in substantial restructuring and other related expenses and write-offs of acquired in-process research and development costs. 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. Mergers and acquisitions of high technology companies are inherently risky, and no assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results or financial condition.

Introduction and integration of new products and technologies may adversely affect our financial results. We have recently introduced new products, including newly acquired products and products incorporating newly acquired technology. On July 17, 2003, we completed the acquisition of Nexland, Inc., a technology driven Internet security company whose Internet Protocol based networking appliances are installed at enterprise branches and telecommuter offices worldwide. On September 23, 2003, we announced the acquisition of PowerQuest Corp., a global provider of automated deployment and recovery solutions for corporations and individual users, and on October 27, 2003, we announced an agreement to acquire ON Technology, a provider of solutions which enable organizations and service providers to manage the full lifecycle of their computing systems over corporate networks. Additionally, on October 20, 2003 we acquired SafeWeb, Inc., a provider of SSL VPN appliances. Symantec also released Symantec Enterprise Security Architecture, or SESA, which was developed internally. These technologies may not achieve market acceptance and/or may not be able to compete with products either currently in the market or introduced in the future. If these technologies do not achieve market success, our financial results, and the trading price of our common stock could be 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 products, as well as integrated software and hardware solutions. Changes resulting from this consolidation may negatively impact our competitive position. In addition, to the extent that we seek to expand our product lines, managerial and technical personnel 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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Our efforts to develop and sell appliances and integrated solutions involve risk. We have been in the appliance business for a short period of time. Because of our limited experience with the manufacturing of appliances, and because our appliances generate lower gross margins than our software products, our efforts to develop and sell appliances may not be as successful as we anticipate. In addition, our strategy for future growth includes integrating our various security technologies, management, customer service and support into a single enterprise security solution. We have begun implementing this strategy by selling integrated solutions, such as Symantec Gateway Security and Symantec Client Security. Our integrated solutions may not achieve market acceptance and may not be able to compete with solutions either currently in the market or introduced in the future. If we are unable to achieve market acceptance or compete effectively with solutions of our competitors, our future net revenues and operating results could be adversely affected.

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 various economic conditions including those affecting the network security, Internet infrastructure and other related markets. For example, the slowdown in the U.S. economy may hurt consumer demand for our products. 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, price pressures and collection issues, causing us to realize lower revenues and margins. In addition, many parts of the world are experiencing economic and political instability, and we cannot predict how these conditions may affect our customers or business.

Operating system providers and network equipment and computer hardware manufacturers are becoming substantial competitors in the market for security solutions. These competitors generally have significantly greater financial, marketing or technological resources than we do, and may leverage their strengths at the computing platform, security layer and network tier levels to compete more aggressively in the market for security solutions. Continued development, acquisition, or licensing of security solutions technology or product rights by one or more of these competitors could negatively impact our competitive position in the market for security solutions.

For example, the continued inclusion of security, remote access or virus protection tools in new operating systems and hardware packages could adversely affect our sales. In particular, Microsoft has added security features to new versions of its operating system products that provide some of the same functions offered in our products. This competition may decrease or delay the demand for certain of our products, including those currently under development. Microsoft has recently announced the acquisition of antivirus technology. This could lead to the development of antivirus products that may compete with our products. Furthermore, as hardware vendors incorporate security functions in their network equipment or integrate security within their network and system management products, the demand for some of our products may decrease, including those currently under development.

We face risks associated with our foreign operations. A significant portion of our manufacturing costs and operating expenses result from transactions outside of the United States, often in foreign currencies. International sales comprised approximately 50% or more of our total sales for the last four quarters. So far, our operating results for fiscal 2004 have been positively affected by changes in foreign currency rates. Our future operating results will continue to be subject to fluctuations in foreign currency rates, and we may be negatively impacted by fluctuations in foreign currency rates in the future, especially if international sales continue to grow as a percentage of our total sales. Our operating results could also be adversely affected by 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 political and military instability internationally and terrorist activity, governments could enact additional regulations or restrictions on the use, import or export of encryption technologies. The additional regulation of encryption technologies 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

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 seven 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.

Increased reliance on sales of enterprise licenses may result in greater fluctuations in, or otherwise adversely affect, our financial results. Sales of enterprise licenses through our Enterprise Security segment represent a major portion of our business. Enterprise licensing arrangements involve a longer sales cycle than sales through other distribution channels, require greater investment of resources in establishing the enterprise relationship, may involve greater pricing pressure and sometimes result in lower operating margins. In general, the number of higher dollar-value enterprise license contracts has increased and our reliance on such contracts in the future may result in increased uncertainty relating to quarterly revenues. In addition, the timing of the execution of volume licenses, or their nonrenewal by large customers, could cause our results of operations to vary significantly from quarter to quarter and could have a material adverse impact on our results of operations.

We are dependent upon certain partners to distribute our products and we would be adversely affected if these relationships terminate or diminish. A large portion of our enterprise sales are made through value-added and other resellers, and a large portion of our consumer sales are made through the retail distribution channel. Reliance on these channels subjects us to events that cause unpredictability in 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 distribution partners may also offer our competitors’ products. Their decisions to sell 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 partners are generally nonexclusive and may be terminated by them or by us without cause. We would be adversely affected if companies in our partner program chose to sell greater amounts of competitive offerings relative to the amount they sell of our offerings.

In addition, we sell our consumer products through original equipment manufacturers, or OEMs, who bundle our antivirus and other products with their PCs. We continuously seek to establish new OEM relationships and, conversely, may encounter OEMs that decide either to replace third party security software with their own or switch to a competitor’s product. When we lose an OEM relationship, our consumer sales could be adversely affected unless and until we are able to establish new relationships of similar significance.

Some distribution partners have experienced financial difficulties in the past. Distribution partners may experience financial difficulties in the future. If these partners do experience financial difficulties, we may experience reduced sales or increased write-offs, which would adversely affect our operating results.

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. Many of our competitors have significantly lowered, and may continue to lower, 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 also fail to allocate resources to third party products, to markets or to business models that are ultimately more successful than we anticipate.

Piracy of our software may have a significant impact on our net revenues. Although we are unable to quantify the extent of piracy of our software products, software piracy may depress our net revenues. While this would adversely affect revenue domestically, lost revenue 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, these efforts may not affect the piracy of our products.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

Our software products and web site may be subject to intentional disruption. Although we believe we have sufficient controls in place to prevent intentional disruptions, we expect to be an ongoing target of attacks specifically designed to impede the performance of our products. 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. Uninterrupted online availability of our web site is becoming increasingly important as online subscription renewals comprise a larger portion of our revenues. Our activities could be adversely affected, and our reputation and future sales harmed, if these intentionally disruptive efforts are successful.

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 or our predictions of future operating results fail to meet the expectations of analysts and investors, our stock price 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;

	•		unfavorable fluctuations in foreign currency exchange rates;

	•		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.

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.

In addition to the foregoing factors, the risk of quarterly fluctuations is increased by the fact that a significant portion of our quarterly net revenues has historically been generated during the last month of each fiscal quarter. Most resellers have tended 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. Due to these end-of-period buying patterns, 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, increasing the chances that our results could diverge from the expectations of investors and analysts, which could make our stock price more volatile.

We continue to make substantial changes to our information systems that could disrupt our business. We plan to continuously improve our Enterprise Resource Planning, Customer Relationship Management and Data Warehouse Information systems to support the form, functionality and scale of the business. 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.

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 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 wireless based environments, our future net revenues and operating results could be adversely affected.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

The results of our research and development efforts are uncertain. We will need to continue to incur significant research and development expenditures in future periods as we strive to remain competitive. The length of our product development cycle for new products and product enhancements has frequently 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 has not been technologically successful and certain products have not achieved market acceptance. As a result, the products we are currently developing or may develop in the future may not be technologically successful, achieve market acceptance or compete effectively with products of our competitors.

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 credit towards future purchases. End-users may return our products 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 are subject to litigation that could adversely affect our financial results. From time to time, we are subjected to product liability claims, including claims that we have infringed the intellectual property rights of others, as well as other legal claims incidental to our business. We are currently involved in a number of lawsuits, all of which we intend to defend 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.

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.

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. Communication outages, Internet connectivity disruptions, and/or increased volumes of electronic distribution transactions may also cause delays in customer access to our Internet-based services or product sales.

Our inability to timely distribute our products and services over the Internet, including security patches and updated virus definitions via our LiveUpdate feature, could adversely affect our business. Our ability to maintain and increase the speed with which we provide services to consumers and to increase the scope of these services is limited by and dependent upon the speed and reliability of the Internet. As we incorporate the LiveUpdate technology into more of our products, we are increasingly reliant on the Internet as a means to distribute our security patches and updated virus definitions to our customers. Accordingly, if we, or our customers, are unable to utilize the Internet due to a failure of technology, infrastructure or other reasons, our ability to provide services may suffer, which could lead to a decrease in revenues.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

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, sales, 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, the accounting industry has recently determined that corporations will include a compensation expense in their statement of operations relating to the issuance of employee stock options. This will most likely become effective in April 2005. As a result, we may decide to issue fewer stock options and may be impaired in our efforts to attract and retain necessary personnel. Conversely, issuing a comparable number of stock options could adversely impact our results of operations.

Our products are complex and operate 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 may not be 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 customer demands on our technical support services may adversely affect our financial results. We may be unable to respond quickly enough to short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. Further customer demand for these services, without corresponding revenue could increase costs and adversely affect our operating results.

We have outsourced the majority of our worldwide consumer support functions. As such, we are highly dependent on the on-going business success of the companies with whom we have contracted to provide these services. If these companies experience financial difficulties, do not maintain sufficiently skilled workers and resources to satisfy our contracts or otherwise fail to perform at a sufficient level under these contracts, the level of support services to our customers may be significantly disrupted, which could materially harm our relationships with these customers.

We believe there have been no significant changes in our market risk exposures during the six months ended September 30, 2003 as compared to what was previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2003.

(a)		Evaluation of Disclosure Controls and Procedures. The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Our chief executive officer and our chief financial officer have concluded, based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our chief executive officer and our chief financial officer, as of the end of the period covered by this report, that our disclosure controls and procedures were effective for this purpose.

(b)		Changes in Internal Controls Over Financial Reporting. There was no change in our internal control over financial reporting during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Information with respect to this Item may be found in Note 10 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q, which information is incorporated into this Item 1 by reference.

31.01 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.02 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*These furnished 8-Ks are not to be deemed filed or incorporated by reference into any filing.

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Part I. Financial Information
	Item 1. Financial Statements (unaudited)
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
Part II. Other Information
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02


			Page

		PART I. Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2003 and March 31, 2003			3
	Condensed Consolidated Statements of Income for the three and six months ended September 30, 2003 and 2002			4
	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2003 and 2002			5
	Notes to Condensed Consolidated Financial Statements			6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			36
Item 4.	Controls and Procedures			36
		PART II. Other Information
Item 1.	Legal Proceedings			37
Item 6.	Exhibits and Reports on Form 8-K			37
Signatures				38


			September 30,		March 31,
(In thousands, except par value)			2003		2003

			(unaudited)
ASSETS
Current assets:
	Cash, cash equivalents and short-term investments		$	2,026,570	$	1,705,658
	Trade accounts receivable, net			224,954		149,664
	Inventories			11,587		5,912
	Deferred income taxes			94,081		92,284
	Other			50,803		34,628

		Total current assets		2,407,995		1,988,146
Property, equipment and leasehold improvements, net				364,657		333,275
Deferred income taxes				7,600		7,986
Acquired product rights, net				115,635		73,125
Goodwill, net				853,629		833,449
Other, net				28,285		29,749

			$	3,777,801	$	3,265,730

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	80,052	$	67,720
	Accrued compensation and benefits			85,135		90,947
	Deferred revenue			719,411		589,629
	Other accrued expenses			76,937		69,363
	Income taxes payable			86,251		76,965

		Total current liabilities		1,047,786		894,624
Convertible subordinated notes				599,993		599,998
Other long-term obligations				5,903		6,729
Commitments and contingencies
Stockholders’ equity:
	Preferred stock (par value: $0.01, authorized: 1,000; issued and outstanding: none)			—		—
	Common stock (par value: $0.01, authorized: 900,000; issued and outstanding: 153,722 and 148,785 shares, respectively)			1,537		1,488
	Capital in excess of par value			1,485,907		1,335,028
	Accumulated other comprehensive income			96,719		30,121
	Retained earnings			539,956		397,742

		Total stockholders’ equity		2,124,119		1,764,379

			$	3,777,801	$	3,265,730


			Three Months Ended						Six Months Ended
			September 30,						September 30,

(In thousands, except net income
per share; unaudited)			2003			2002			2003			2002

Net revenues			$	428,665		$	325,231		$	819,789		$	641,272
Cost of revenues				74,810			61,159			142,388			116,611

	Gross margin			353,855			264,072			677,401			524,661
Operating expenses:
	Research and development			59,596			47,344			120,201			92,832
	Sales and marketing			155,705			124,896			297,542			240,064
	General and administrative			21,174			17,254			47,546			32,608
	Amortization of other intangibles from acquisitions			756			665			1,547			1,201
	Acquired in-process research and development			1,000			4,700			1,000			4,700
	Restructuring, site closures and other			2			(1,179	)		570			4,874
	Patent settlement			—			—			13,917			—

		Total operating expenses		238,233			193,680			482,323			376,279

Operating income				115,622			70,392			195,078			148,382
	Interest income			8,807			9,723			18,904			19,369
	Interest expense			(5,291	)		(5,292	)		(10,582	)		(10,583	)
	Income, net of expense, from sale of technologies and product lines			2,158			2,444			4,326			4,680
	Other income (expense), net			673			(134	)		(38	)		(1,125	)

Income before income taxes				121,969			77,133			207,688			160,723
	Provision for income taxes			38,536			25,139			65,474			52,160

Net income			$	83,433		$	51,994		$	142,214		$	108,563

Net income per share - basic			$	0.55		$	0.36		$	0.94		$	0.75

Net income per share - diluted			$	0.49		$	0.33		$	0.85		$	0.69

Shares used to compute net income per share - basic				152,425			144,537			151,085			144,225

Shares used to compute net income per share - diluted				178,415			168,489			176,786			168,743


				Six Months Ended
				September 30,

(In thousands; unaudited)				2003			2002

Operating Activities:
	Net income			$	142,214		$	108,563
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of property, equipment and leasehold improvements			36,670			25,858
		Amortization of debt issuance costs and other assets			5,582			3,115
		Amortization of acquired product rights			19,745			14,505
		Amortization of other intangibles from acquisitions			1,547			1,201
		Write-off of equipment and leasehold improvements			625			3,304
		Acquired in-process research and development			1,000			4,700
		Deferred income taxes			(392	)		564
		Net loss on equity investments			2,530			750
		Income tax benefit from stock options			35,000			8,065
		Net change in assets and liabilities, excluding effects of acquisitions:
			Trade accounts receivable, net		(68,654	)		(56,785	)
			Inventories		(5,165	)		(362	)
			Other current assets		(14,590	)		(439	)
			Other assets		(1,941	)		645
			Accounts payable		8,099			(868	)
			Accrued compensation and benefits		(8,824	)		3,120
			Other accrued expenses		4,847			(8,276	)
			Deferred revenue		106,574			83,168
			Income taxes payable		7,386			1,478
			Other long-term obligations		(826	)		(28	)

Net cash provided by operating activities					271,427			192,278

Investing Activities:
	Capital expenditures				(63,621	)		(42,578	)
	Purchased intangibles				(61,255	)		—
	Purchase of Lindner & Pelc				—			(59	)
	Purchase of Riptech				—			(139,552	)
	Purchase of Recourse				—			(135,172	)
	Purchase of SecurityFocus				—			(72,786	)
	Purchase of Mountain Wave				—			(19,919	)
	Purchase of Nexland				(20,826	)		—
	Purchase of equity investments				(3,173	)		(2,500	)
	Purchases of marketable securities				(3,323,290	)		(975,785	)
	Proceeds from sales of marketable securities				3,250,129			1,106,082
	Proceeds from long-term, restricted investments				—			5,807

Net cash used in investing activities					(222,036	)		(276,462	)

Financing Activities:
	Repurchases of common stock				—			(64,332	)
	Net proceeds from sales of common stock and other				115,923			31,810

Net cash provided by/used in financing activities					115,923			(32,522	)

Effect of exchange rate fluctuations on cash and cash equivalents					86,816			6,397

Increase (decrease) in cash and cash equivalents					252,130			(110,309	)
Beginning cash and cash equivalents					294,606			379,237

Ending cash and cash equivalents				$	546,736		$	268,928

Supplemental cash flow disclosures (in thousands):
Income taxes paid (net of refunds)				$	27,984		$	43,020
Interest expense paid				$	9,000		$	9,350

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(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended October 3, 2003.


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from __________ to ________.


Delaware (State or other jurisdiction of incorporation or organization)		77-0181864 (I.R.S. employer identification no.)


20330 Stevens Creek Blvd., Cupertino, California (Address of principal executive offices) Registrant’s telephone number, including area code:		95014-2132 (zip code) (408) 517-8000


		September 30,			March 31,
(In thousands)		2003			2003

		(unaudited)
Cash, cash equivalents and short-term investments:
	Cash	$	138,529		$	111,687
	Cash equivalents		408,207			182,919
	Short-term investments		1,479,834			1,411,052

		$	2,026,570		$	1,705,658

Trade accounts receivable, net:
	Receivables	$	228,838		$	159,417
	Less: allowance for doubtful accounts		(3,884	)		(9,753	)

		$	224,954		$	149,664

Property, equipment and leasehold improvements, net:
	Computer hardware and software	$	364,194		$	307,623
	Office furniture and equipment		70,355			65,240
	Buildings and land		175,545			172,228
	Leasehold improvements		62,442			53,883

			672,536			598,974
	Less: accumulated depreciation and amortization		(307,879	)		(265,699	)

		$	364,657		$	333,275

Accumulated other comprehensive income:
	Unrealized gain on available-for-sale securities	$	965		$	1,741
	Cumulative translation adjustment		95,754			28,380

		$	96,719		$	30,121


		Allocated Purchase Price Components

						Acquired						Deferred		Other assets
		Purchase		Acquired		product				Other		tax		(liabilities),
		Price		IPR&D		rights		Goodwill		intangibles		assets, net		net

Nexland		$	20,891	$	1,000	$	1,000	$	20,791	$	60	$	547	$	(2,507	)

	Total	$	20,891	$	1,000	$	1,000	$	20,791	$	60	$	547	$	(2,507	)


	Cash/	Original		Amount		Amount		Balance
(In thousands)	Non-cash	Charge		Paid/Used		Adjusted		09/30/03

Employee severance and outplacement	Cash	$	465	$	—	$	—	$	465
Excess fixed assets	Cash/non-cash		—		—		—		—

Total restructuring, site closures and other		$	465	$	—	$	—	$	465


	Enterprise		Enterprise		Consumer								Total
(In thousands; unaudited)	Security		Administration		Products		Services			Other			Company

Three Months Ended
September 30, 2003
Revenue from external customers	$	177,079	$	48,532	$	193,583	$	9,339		$	132		$	428,665
Operating income (loss)		36,339		35,750		112,007		(4,099	)		(64,375	)		115,622
Depreciation & amortization expense		3,824		86		944		1,472			28,590			34,916
Three Months Ended
September 30, 2002
Revenue from external customers		141,940		52,602		123,945		6,112			632			325,231
Operating income (loss)		26,646		38,723		57,911		(4,988	)		(47,900	)		70,392
Depreciation & amortization expense		3,089		93		775		759			19,238			23,954
Six Months Ended
September 30, 2003
Revenue from external customers		342,176		97,980		360,549		18,886			198			819,789
Operating income (loss)		65,208		72,361		208,000		(5,526	)		(144,965	)		195,078
Depreciation & amortization expense		6,950		168		1,778		2,742			51,906			63,544
Six Months Ended
September 30, 2002
Revenue from external customers		273,824		108,441		247,847		9,787			1,373			641,272
Operating income (loss)		54,179		79,800		118,862		(9,880	)		(94,579	)		148,382
Depreciation & amortization expense		5,631		194		1,715		980			36,159			44,679


			Three Months									Six Months
			Ended						Percent			Ended						Percent
			September 30,						Change			September 30,						Change
									in Dollar									in Dollar
(Unaudited)			2003			2002			Amounts			2003			2002			Amounts

Net revenues				100	%		100	%		32	%		100	%		100	%		28	%
Cost of revenues				17			19			22			17			18			22

		Gross margin		83			81			34			83			82			29
Operating expenses:
	Research and development			14			15			26			15			15			29
	Sales and marketing			37			38			25			36			37			24
	General and administrative			5			5			23			6			5			46
	Amortization of other intangibles from acquisitions			—			—			14			—			—			29
	Acquired in-process research and development			—			1			—			—			1			*
	Restructuring, site closures, and other			—			—			—			—
	Patent Settlement			—			—			—			2			1			*

		Total operating expenses		56			59			23			59			59			28

Operating income				27			22			64			24			23			31
	Interest income			2			3			(9	)		2			3			(2	)
	Interest expense			(1	)		(2	)		—			(1	)		(2	)		—
	Income, net of expense, from sale of technologies and product lines			—			1			(12	)		—			1			(8	)
	Other income (expense), net			—			—			*			—			—			(97	)

Income before income taxes				28			24			58			25			25			29
	Provision for income taxes			9			8			53			8			8			26

Net income				19	%		16	%		60			17	%		17	%		31


Date filed or furnished	Item No.	Description
July 23, 2003	Items 7 and 12	Announcement of results of operations for our fiscal first quarter ended June 30, 2003.*

August 18, 2003	Items 7 and 12	Announcement of revised results of operations of our fiscal first quarter ended June 30, 2003 to reflect a subsequent event.*


Date: November 7, 2003	SYMANTEC CORPORATION
		(Registrant)

	By	/s/ John W. Thompson

		John W. Thompson,
		Chairman and Chief
		Executive Officer

	By	/s/ Gregory Myers

		Gregory Myers,
		Chief Financial Officer and
		Senior Vice President of Finance


31.01		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.02		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002