SYMANTEC CORP - 10-Q Quarterly Report

Date Filed or Furnished

Item No.

Description

October 22, 2003

Items 5, 7 and 12

Announcement of a two-for-one stock split of the company’s common stock and results of operations for our fiscal quarter ended September 30, 2003.*

December 15, 2003

Announcement that certain of the company’s officers have adopted a Rule 10b5-1 plan.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Shares of Symantec common stock, $0.01 par value per share, outstanding as of January 30, 2004: 311,232,906 shares

The condensed consolidated financial statements of Symantec Corporation as of December 31, 2003 and for the three and nine months ended December 31, 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 nine months ended December 31, 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 December 31, 2003, March 31, 2003 and December 31, 2002 reflect amounts as of and for the periods ended January 2, 2004, March 28, 2003 and December 27, 2002, respectively. The three months ended December 31, 2003 and 2002 comprised 13 weeks of activity. The nine months ended December 31, 2003 and 2002 comprised 40 weeks and 39 weeks of activity, respectively.

All Symantec share and per share amounts in this Form 10-Q retroactively reflect the two-for-one stock split effected as a stock dividend, which occurred on November 19, 2003.

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 December 31, 2003, we had no liability associated with any of our indemnification agreements.

In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 (FIN 46), which was issued in January 2003. Before concluding that it is appropriate to apply ARB 51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity (VIE). As of the effective date of FIN 46R, an enterprise must evaluate its involvement with all entities or legal structures created before February 1, 2003, to determine whether consolidation requirements of FIN 46R apply to those entities — there is no grandfathering of existing entities. Public companies must apply either FIN 46 or FIN 46R immediately to entities created after January 31, 2003, no later than the end of the first reporting period that ends after December 15, 2003 to entities considered to be special purpose

entities and no later than the first reporting period that ends after March 15, 2004 for all other entities. In the March 2003 quarter, the Company 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, the Company had no interest in any variable interest entities as of December 31, 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.

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 nine months ended December 31, 2003 and 2002:

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. 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, that was deemed 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 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.

We have recorded acquired product rights, goodwill and other intangible assets in connection with several other acquisitions, including our recent acquisitions of PowerQuest, Inc. and SafeWeb, Inc. as described in Note 8. Amortization expense for acquired product rights was approximately $10.9 million, of which $10.7 million and $0.2 million was recorded in cost of revenues and income, (expense), net, from sale of technologies and product lines, respectively, during the December 2003 quarter. Amortization expense for acquired product rights was approximately $30.7 million, of which $30.1 million and $0.6 million was recorded in cost of revenues and income, net of expense, from sale of technologies and product lines, respectively, during the nine months ended December 31, 2003. Amortization expense for acquired product rights was approximately $8.8 million, of which $8.3 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 December 2002 quarter. Amortization expense for acquired product rights was approximately $23.4 million, of which $21.8 and $1.6 million was recorded in cost of revenues and income, net of expense, from sale of technologies and product lines, respectively, during the nine months ended December 31, 2002. In addition, $2.7 million of

developed technology was written off related to the web access management products that were divested in the September 2001 quarter, in income, net of expense from the sale of technology and product lines, during the December 2002 quarter.

Amortization expense for other intangible assets (customer base, tradenames and marketing-related assets) was $0.6 million and $0.8 million, respectively, during the December 2003 and 2002 quarters and $2.2 million and $2.0 million, respectively, during the nine months ended December 31, 2003 and 2002.

The estimated annual amortization expense for acquired product rights is $42.4 million, $39.6 million, $25.6 million, $17.7 million, and $10.9 million for fiscal year 2004, 2005, 2006, 2007, and 2008, respectively, based upon our existing acquired product rights and their current useful lives. The estimated annual amortization expense for other intangible assets is $2.8 million, $2.1 million, $1.1 million, $0.6 million, and $0.4 million for fiscal year 2004, 2005, 2006, 2007, and 2008, respectively, based upon our existing other intangible assets and their current useful lives.

For the three and nine months ended December 31, 2003, approximately 0.3 million and 1.7 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. For the three and nine months ended December 31, 2002, approximately 0.4 million and 2.2 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 60.0 million shares, with no expiration date. As of December 31, 2003, we had repurchased a total of 43.8 million shares under this program at prices ranging from $8.89 to $14.99 per share, for an aggregate amount of approximately $513.2 million. During the September 2002 quarter, we repurchased 4.4 million shares at prices ranging from $13.97 to $14.99 per share, for an aggregate amount of approximately $64.3 million. No shares were repurchased during the nine months ended December 31, 2003 or during the June 2002 or December 2002 quarters.

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 $17.07 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 December 2003 quarter. 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. 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 35.1 million shares of common stock for issuance upon conversion of the notes.

On December 5, 2003, we acquired PowerQuest Inc., a global provider of automated deployment and recovery solutions for corporations and individual users, for approximately $150.0 million in cash. We expect the acquisition to strengthen our competitive position in the Enterprise Administration 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 $1.6 million for acquired in-process research and development, $19.2 million for developed technology, $0.4 million for revenue related order backlog and contracts, $119.9 million for goodwill, $2.4 million related to other intangibles, $5.3 million for deferred tax liabilities, net of deferred tax assets, and $16.1 million for tangible assets, net of liabilities. We also accrued approximately $4.3 million in acquisition related expenses, which included financial advisory, legal and accounting fees, duplicative sites and severance costs, of which $2.8 million remains as an accrual as of December 31, 2003.

The amounts allocated to developed technology and backlog are being amortized to cost of revenues over their useful lives of four years and two months, respectively. The amounts allocated to other intangibles are being amortized to operating expenses over their useful lives of two to five years.

On October 15, 2003, we acquired SafeWeb, Inc., a provider of SSL VPN appliances, for approximately $26.1 million in cash. We expect the acquisition to 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 developed technology, $21.6 million for goodwill, $3.6 million for deferred tax assets, and $0.4 million for tangible assets, net of liabilities. We also accrued approximately $0.5 million in acquisition related expenses, which included financial advisory, legal and accounting fees, duplicative sites and severance costs, of which an immaterial amount remains as an accrual as of December 31, 2003.

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

On July 17, 2003, 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 to 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 December 31, 2003.

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.

The following table summarizes the allocation of the purchase price, adjusted for revised estimates related to certain liabilities, for the PowerQuest, Inc., SafeWeb, Inc. and Nexland, Inc. acquisitions (in thousands):

The purchase price allocation is preliminary and a final determination of required purchase accounting adjustments will be made upon the completion of a final analysis of the total purchase cost primarily related to estimating involuntary termination and facility related costs.

In connection with the PowerQuest, Inc. and Nexland, Inc. acquisitions, we wrote off $1.6 million and $1.0 million of acquired in-process research and development, respectively, 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 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 these purchases by estimating the projected cash flows related to the 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.

Pro forma information for PowerQuest, Inc., SafeWeb, Inc. and Nexland, Inc. is not presented as the acquisitions were 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 December 31, 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 December 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 $0.4 million remains as an accrual as of December 31, 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 December 2003, September 2003, 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 $0.2 million, $0.3 million, an insignificant amount and $0.2 million, respectively.

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 $0.2 million remains as an accrual as of December 31, 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.

During the December 2003 and 2002 quarters, we revised estimates related to certain liabilities, and as a result, we decreased the purchase price and goodwill by $0.2 million and 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.

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.

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 December 31, 2003,

we had an accrual of approximately $0.5 million outstanding related to this individual’s severance, benefits or outplacement services.

Details of the fiscal 2004 restructuring, site closures and other were as follows. The amount included in the paid/ used column includes any foreign exchange impact on the restructuring accrual.

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. This estimate was revised in the December 2003 quarter, resulting in a reduction in the severance, related benefits and outplacement services accrual of an insignificant amount. 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 December 31, 2003, we had an accrual outstanding of an immaterial amount related to severance, benefits and outplacement services, and $0.3 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 December 31, 2003, all costs had been paid.

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 $0.1 million and $0.9 million, respectively. At September 30, 2003, all costs had been paid.

Details of the fiscal 2003 restructuring, site closures and other were as follows. The amount included in the paid/used column includes any foreign exchange impact on the restructuring accrual.

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 December 2003, 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 December 31, 2003, we had an accrual of approximately $1.3 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.

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 an insignificant amount and approximately $0.2 million, respectively. As of December 31, 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.

Details of the fiscal 2002 restructuring and other were as follows. The amount included in the paid/ used column includes any foreign exchange impact on the restructuring accrual.

Amounts accrued are included in other accrued expenses within the Condensed Consolidated Balance Sheets.

On November 17, 2003, Health & Sport LLC filed a lawsuit on behalf of itself and purportedly on behalf of the general public and a class including purchasers of Norton AntiVirus 2004 and/or Norton Internet Security 2004 in the California Superior Court, San Francisco County. The complaint alleges violations of California Business and Professions Code 17200 and 17500 and breach of express and implied warranties in connection with the specified products. 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 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 sought damages and injunctive relief. A dismissal was filed following Symantec’s December 5, 2003 acquisition of PowerQuest.

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 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.

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 December 31, 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, Inc., 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 added us as a defendant and sought an injunction against distribution of the Partition-It and Partition-It Extra Strength products and monetary damages. A dismissal was filed following Symantec’s December 5, 2003 acquisition of PowerQuest.

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.

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.

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

On January 20, 2004, the Board of Directors increased the dollar amount of the company’s authorized stock repurchase program from $700.0 million to $940.0 million, without any specific limit on the number of shares to be repurchased. We adopted a repurchase plan under Rule 10b5-1 to facilitate such purchases. We may or may not make additional purchases outside of the Rule 10b5-1 plan. As of February 6, 2004, we have repurchased a total of 0.8 million shares under this program at prices ranging from $39.03 to $39.86 per share, for an aggregate amount of approximately $30.0 million.

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 an estimated $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.

The discussion following below and throughout this report contain 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, the anticipated impacts of acquisitions 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 31. We encourage you to read that section carefully.

Symantec, the world leader in Internet security technology, provides a broad range of content and network security software and appliance solutions to enterprises, individuals and service providers. We are a leading provider of client, gateway and server security solutions for virus protection, firewall and virtual private network, vulnerability management, intrusion detection, Internet content and e-mail filtering, remote management technologies and security services to enterprises and service providers around the world. Symantec’s Norton brand of consumer security products is a leader in worldwide retail sales and industry awards. Founded in 1982, we have offices in 37 countries worldwide.

We have a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended December 31, 2003, March 31, 2003 and December 31, 2002 reflect amounts as of and for the periods ended January 2, 2004, March 28, 2003 and December 27, 2002, respectively. The three months ended December 31, 2003 and 2002 each comprised 13 weeks of activity. The nine months ended December 31, 2003 and 2002 comprised 40 weeks and 39 weeks of activity, respectively.

We believe there have been no significant changes in our critical accounting policies during the nine months ended December 31, 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 January 20, 2004, our Board of Directors replaced an earlier stock repurchase program with a new authorization to repurchase up to $940.0 million of Symantec common stock. We adopted a repurchase plan under Rule 10b5-1 to facilitate up to $240.0 million of such purchases, and expect to purchase approximately $60.0 million of shares per quarter over the next year under this plan.

On October 22, 2003, our Board of Directors approved a two-for-one stock split of Symantec’s common stock. Stockholders of record at the close of business on November 5, 2003 were issued one additional share of common stock for each share owned as of that date. The stock split increased the number of total shares outstanding from approximately 154 million shares to approximately 308 million shares. The additional shares resulting from the stock dividend were issued in book-entry form on November 19, 2003. All Symantec share and per share amounts in this Form 10-Q give retroactive effect to this stock split.

On October 15, 2003 we acquired SafeWeb, Inc., a provider of SSL VPN appliances, for approximately $26.1 million in cash. We are integrating this technology into our Enterprise Security segment.

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 31% to approximately $493.9 million during the December 2003 quarter from $375.6 million during the December 2002 quarter, and 29% to approximately $1,313.7 million during the nine months ended December 31, 2003 from $1,016.9 million during the nine months ended December 31, 2002.

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 and our enterprise virus protection solutions. In addition, we believe that a significant portion of the growth in revenue during the nine months ended December 31, 2003 was attributable to the numerous security threat outbreaks that occurred in August 2003 and may not be sustainable. From a regional standpoint, sales outside of the United States contributed strongly to revenue growth and sales in the United States also grew. Strength in major foreign currencies during the December 2003 quarter and nine months ended December 31, 2003 also positively impacted our international revenue growth.

A significant portion of our deferred revenue balance of $719.4 million as of September 30, 2003 contributed to our total net revenues during the December 2003 quarter. We anticipate that a significant portion of our deferred revenue balance of $868.4 million as of December 31, 2003 will similarly contribute to our net revenues during the March 2004 quarter.

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 38% and 42% of net revenues during the December 2003 and 2002 quarters, respectively, and 40% and 43% of net revenues during the nine months ended December 31, 2003 and 2002, respectively. Net revenues increased 17% to approximately $186.7 million during the December 2003 quarter from $159.4 million during the December 2002 quarter and 22% to approximately $528.8 million during the nine months ended December 31, 2003 from $433.3 million during the nine months ended December 31, 2002. This increase was primarily due to strong growth in sales of our virus protection solutions.

Our Consumer Products segment provides security and problem-solving products to individual users. Our Consumer Products segment represented approximately 49% and 42% of net revenues during the December 2003 and 2002 quarters, respectively, and 46% and 40% of net revenues during the nine months ended December 31, 2003 and 2002, respectively. Net revenues increased 55% to approximately $242.4 million during the December 2003 quarter from $156.0 million during the December 2002 quarter and 49% to approximately $603.0 million during the nine months ended December 31, 2003 from $403.8 million during the nine months ended December 31, 2002. This increase was primarily related to increased sales of our Norton AntiVirus and Norton Internet Security products, which was, in part, fueled by higher than expected seasonal demand. In addition, we believe that a significant portion of the growth in consumer revenue during the nine months ended December 31, 2003 was attributable to the numerous security threat outbreaks that occurred in August 2003 and may not be sustainable. Our electronic distribution channel, original equipment manufacturer and subscription renewal business, also contributed to the increase in sales.

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 14% of net revenues during the December 2003 and 2002 quarters, respectively, and 12% and 16% of net revenues during the nine months ended December 31, 2003 and 2002, respectively. Net revenues increased 2% to approximately $53.3 million during the December 2003 quarter from $52.1 million during the December 2002 quarter. This increase was primarily due to sales of the former PowerQuest products after the date of acquisition during the December 2003 quarter, offset by a decrease in sales of our pcAnywhere product. Net revenues decreased 6% to approximately $151.2 million during the nine months ended December 31, 2003 from $160.6 million during the nine months ended December 2002. This decrease was primarily due to a decrease in sales of our pcAnywhere product, partially offset by the PowerQuest acquisition. We anticipate a further decline in sales of our pcAnywhere product going forward due to the extended functionality of Microsoft operating system products.

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 each of the December 2003 and 2002 quarters and during each of the nine months ended December 31, 2003 and 2002. Net revenues increased 42% to approximately $11.4 million during the December 2003 quarter

from $8.0 million during the December 2002 quarter and 70% to approximately $30.2 million during the nine months ended December 31, 2003 from $17.8 million during the nine months ended December 31, 2002. This increase was primarily related to sales of our Managed Security Services, which represented $2.2 million and $10.6 million of net revenues during the three months and nine months ended December 31, 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 December 2003 and 2002 quarters and during each of the nine months ended December 31, 2003 and 2002.

Net revenues outside of the United States represented approximately 54% and 50% of net revenues during the December 2003 and 2002 quarters, respectively, and 52% and 48% of net revenues during the nine months ended December 31, 2003 and 2002, respectively. International net revenues increased 40% to approximately $265.7 million during the December 2003 quarter from $189.3 million during the December 2002 quarter and 38% to approximately $677.2 million during the nine months ended December 31, 2003 from $492.5 million during the nine months ended December 31, 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 consumer and enterprise security products.

Strength in major foreign currencies during the December 2003 quarter, as compared to the average major foreign currency rates during the December 2002 quarter, positively impacted our international revenue growth by approximately $37.2 million when comparing revenues at comparable exchange rates. In addition, strength in major foreign currencies during the nine months ended December 31, 2003, as compared to the average major foreign currency rates during the nine months ended December 31, 2002, positively impacted our international revenue growth by approximately $90.9 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, payments to original equipment manufacturers, 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 82% and 83% of net revenues during the December 2003 and 2002 quarters, respectively, and remained flat at 82% during the nine months ended December 31, 2003 and 2002. This slight decrease was primarily due to a higher mix of consumer products sold as well as obsolescence charges taken on our high-end appliances. In addition, 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 13% and 14% during the December 2003 and December 2002 quarters, respectively, and remained flat at approximately 14% during each of the nine months ended December 31, 2003 and 2002. In absolute dollars, research and development expenses increased 24% to approximately $61.9 million during the December 2003 quarter from $50.0 million during the December 2002 quarter and 27% to approximately $182.1 million during the nine months ended December 31, 2003 from $142.9 million during the nine months ended December 31, 2002. This increase was primarily a result of increased headcount and related compensation, increased overhead costs, increased use of outside services and research and development expenses associated with the former PowerQuest and SafeWeb acquired businesses and the four companies that we acquired during the September 2002 quarter.

Sales and marketing expenses as a percentage of net revenues were approximately 34% and 37% during the December 2003 and 2002 quarters, respectively, and 36% and 37% during the nine months ended December 31, 2003 and 2002, respectively. In absolute dollars, sales and marketing expenses increased 20% to approximately $167.0 million during the December 2003 quarter from $139.5 million during the December 2002 quarter and 22% to approximately $464.6 million during the nine months ended December 31, 2003 from $379.5 million during the nine months ended December 31, 2002. This increase was primarily a result of increased headcount and related compensation, increased overhead costs, increased use of outside services, increased advertising and promotion expenses and the sales and marketing expenses associated with the former PowerQuest acquired business.

General and administrative expenses as a percentage of net revenues were approximately 4% and 5% during the December 2003 and 2002 quarters, respectively, and remained flat at approximately 5% during each of the nine months ended December 31, 2003 and 2002. In absolute dollars, general and administrative expenses increased 12% to approximately $21.7 million during the December 2003 quarter from $19.3 million during the December 2002 quarter and 33% to approximately $69.3 million during the nine months ended December 31, 2003 from $52.0 million during the nine months ended December 31, 2002. This increase was primarily a result of increased headcount and related compensation, increased use of outside services and general and administrative expenses associated with the former PowerQuest acquired business. In addition, the four companies that we acquired during the September 2002 quarter contributed to the increase in general and administrative expenses during the nine months ended December 31, 2003.

Amortization of other intangibles from acquisitions decreased 21% to approximately $0.6 million during the December 2003 quarter from $0.8 million during the December 2002 quarter. The decrease was attributed to certain other intangibles being fully amortized during the December 2003 quarter. Amortization of other intangibles increased 9% to $2.2 million during the nine months ended December 31, 2003, from $2.0 million during the nine months ended December 31, 2002. This increase was related primarily to the amortization of other intangibles acquired with the purchase of PowerQuest and SafeWeb in the December 2003 quarter, Nexland in the September 2003 quarter and Recourse and Security Focus in the September 2002 quarter.

Acquired in-process research and development was $1.6 million during the three months ended December 2003, due to the PowerQuest acquisition. We recorded no acquired in-process research and development during the three months ended December 2002. Acquired in-process research and development was $2.6 million during the nine months ended December 31, 2003, due to the PowerQuest and Nexland acquisitions, and $4.7 million during the nine months ended December 31, 2002, due to the Riptech, SecurityFocus and Recourse acquisitions. The purchase prices of the PowerQuest and SafeWeb transactions in the December 2003 quarter, 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 $2.6 million of acquired in-process research and development related to the PowerQuest and Nexland transactions 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

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 December 2003, September 2003 and September 2002 quarters. As a result, we wrote off $1.6 million in connection with our acquisition of PowerQuest during the December 2003 quarter, and $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 PowerQuest acquisition consisted primarily of research and development related to its Virtual Volume Imaging technology, which provides the capability to recover from server or desktop failures and minimize system downtime. We are integrating this technology into our Enterprise Administration segment.

The in-process technology acquired in the Nexland acquisition consisted primarily of research and development related to a next generation firewall/ VPN product. We integrated 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.

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 December 2003 quarter, and approximately ($0.4) million during the December 2002 quarter. During the December 2002 quarter, restructuring, site closures and other resulted in a net reduction of expenses of approximately $0.4 million. We recorded a reduction of approximately $1.2 million in costs previously recognized in connection with facility

related estimates associated with the restructuring and relocation of our Leiden, Netherlands operations to Dublin, Ireland. This reduction of expenses was offset by approximately $0.8 million in estimated facility related expenses associated with the consolidation of most of our United Kingdom facilities to Maidenhead, UK.

Restructuring, site closures and other were approximately $0.4 million and $4.4 million for the nine months ended December 31, 2003 and 2002, respectively. For the nine months ended December 30, 2003, we recorded approximately $0.5 million for severance, related benefits, and outplacement for a member of our senior management team. This expense was offset by a reduction in expenses of an immaterial amount due to revised estimates of facility related expenses associated with the consolidation of most of our United Kingdom facilities to Maidenhead, UK.

During the nine months ended December 31, 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 $1.4 million, due primarily 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, that was deemed 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 revenues over the remaining life of the primary patent, which expires in June 2011.

Operating income was approximately $153.6 million and $101.2 million during the December 2003 and 2002 quarters, respectively, and $348.7 million and $249.5 million during the nine months ended December 31, 2003 and 2002, respectively. The increase was primary a result of increased revenue growth of 31% and 29% during the December 2003 quarter and nine months ended December 31, 2003, respectively, offset by increased headcount related costs and related operating expenses.

Interest income was approximately $9.2 million and $9.0 million during the December 2003 and 2002 quarters, respectively. The increase was due to higher average invested cash balances during the three months ended December 31, 2003 as compared to the same period during fiscal 2003, partially offset by lower average interest rates. Interest income was $28.1 million and $28.4 million during the nine months ended December 31, 2003 and 2002, respectively. This slight decrease was due to lower average interest rates during the nine months ended December 31, 2003 as compared with the same period during fiscal 2003, partially offset by an increase in cash.

Interest expense of approximately $5.3 million during each of the December 2003 and 2002 quarters and $15.9 million during the nine months ended December 31, 2003 and 2002 was related to the 3% convertible subordinated notes issued in October 2001.

Other income (expense), net, was insignificant during the December 2003 and 2002 quarters and nine months ended December 31, 2003 and 2002.

Income (expense), net, from sale of technologies and product lines was approximately $5.2 million and $(0.3) million during the December 2003 and 2002 quarters, respectively, and $9.5 million and $4.4 million during the nine months ended December 31, 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. The December 2003 payments represent the final royalty and buy-out payments related to the divestiture of our ACT! product line.

Our overall effective tax rate was 32% on pre-tax income for the nine months ended December 31, 2003 and 2002. The effective tax rate for the nine months ended December 31, 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, the majority of which is intended to be indefinitely reinvested outside the U.S. and thus not subject to U.S. taxes. We believe the effective tax rate for the remainder of fiscal year 2004 will be approximately 32%. However, our 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 $562.9 million to $2.3 billion at December 31, 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, the settlement of the Hilgraeve patents, and the acquisition of PowerQuest, SafeWeb and Nexland.

Net cash provided by operating activities during the nine months ended December 31, 2003 was approximately $578.4 million compared with $375.4 million during the nine months ended December 31, 2002. During the nine months ended December 31, 2003, net cash provided by operating activities was comprised primarily of net income of approximately $253.7 million, an increase in liabilities, net of assets of $172.2 million, and net non-cash expenses of $152.5 million. Net cash provided by operating activities during the nine months ended December 31, 2002 was comprised of net income of approximately $180.3 million, net non-cash expenses of $105.6 million and an increase in liabilities, net of assets of $89.5 million.

Net trade accounts receivable increased $77.3 million to approximately $227.0 million at December 31, 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 December 2003 as compared to the month of March 2003.

Net cash used in investing activities during the nine months ended December 31, 2003 was approximately $413.6 million compared with $495.1 million during the nine months ended December 31, 2002. During the nine months ended December 31, 2003, net cash used in investing activities was comprised primarily of $184.9 million for acquisition related costs, $84.3 million in net purchases of marketable securities and other investments, $83.2 million of capital expenditures and $61.2 million for the purchase of intangibles. Net cash used in investing activities during the nine months ended December 31, 2002 was comprised primarily of $367.5 million for acquisition related costs, $70.8 million in net purchases of marketable securities and other investments and $56.6 million of capital expenditures.

Net cash provided by financing activities during the nine months ended December 31, 2003 was approximately $151.5 million. During the nine months ended December 31, 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 provided by financing activities during the nine months ended December 31, 2002 was approximately $24.9 million. During the nine months ended December 31, 2002, net cash provided by financing activities was primarily comprised of net proceeds from the exercise of stock options and sales of common stock through our employee stock purchase plan, offset by $64.3 million for repurchases of our common stock.

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 60.0 million shares, with no expiration date. As of the end of the December 2003 quarter, we had repurchased a total of 43.8 million shares under this program at prices ranging from $8.89 to $14.99 per share, for an aggregate amount of approximately $513.2 million. During the September 2002 quarter, we repurchased 4.4 million shares at prices ranging from $13.97 to $14.99 per share, for an aggregate amount of approximately $64.3 million. No shares were repurchased during the nine months ended December 31, 2003. On January 20, 2004, the Board of Directors increased the dollar amount of the company’s authorized stock repurchase program from $700.0 million to $940.0 million, without any specific limit on the number of shares to be repurchased. We adopted a repurchase plan under Rule 10b5-1 to facilitate such purchases, and expect to purchase approximately $60.0 million of shares per quarter over the next year. We may or may not make additional purchases outside of the Rule 10b5-1 plan.

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. The total cost of purchasing the patent and licensing additional patents was approximately $62.5 million. Under the transaction, we recorded approximately $13.9 million of patent settlement costs in the June 2003 quarter, that was deemed 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 15, 2003, we completed the acquisition of SafeWeb, Inc. a provider of SSL VPN appliances, for approximately $26.1 million in cash. We are integrating this technology into our Enterprise Security segment.

On October 27, 2003, we agreed to purchase ON Technology for an estimated $100.0 million. The completion of this acquisition is subject to customary closing conditions, and is expected to close in the March 2004 quarter. We expect to integrate this technology into our Enterprise Administration segment.

On December 5, 2003, we completed the acquisition of PowerQuest Inc., a global provider of automated deployment and recovery solutions for corporations and individual users, for approximately $150.0 million in cash. We are integrating this technology into our Enterprise Administration segment.

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.

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 December 31, 2003, we had no liability associated with any of our indemnification agreements.

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 eight 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 Noverg, Beagel, 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 one previously announced acquisition 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 December 5, 2003, we completed the acquisition of PowerQuest Inc., 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 15, 2003 we acquired SafeWeb, Inc., a provider of SSL VPN appliances. 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. 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.

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.

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.

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 five 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.

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. Consumer demand for our products depends, in part, on global economic conditions. On the enterprise side, any slowdown in corporate earnings or 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, if economic conditions deteriorate, 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. Our failure to adapt effectively to the 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 and remote access 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 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

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 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, and may experience them in the future. If these partners do suffer financial difficulties, we may have 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.

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.

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.

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 FASB is expected to propose a standard that will require companies to include 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 nine months ended December 31, 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 third 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.


*	The furnished portions of this 8-K are not to be deemed filed or incorporated by reference into any filing.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	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


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarterly Period Ended January 2, 2004.

or

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)		95014-2132 (zip code)


	PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	CONDENSED CONSOLIDATED BALANCE SHEETS
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Notes to Condensed Consolidated Financial Statements
	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 10.01
EXHIBIT 10.02
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 December 31, 2003 and March 31, 2003		2
	Condensed Consolidated Statements of Income for the three and nine months ended December 31, 2003 and 2002		3
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2003 and 2002		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		38
Item 4.	Controls and Procedures		38
PART II. Other Information
Item 1.	Legal Proceedings		39
Item 6.	Exhibits and Reports on Form 8-K		39
Signatures			40


			December 31,		March 31,
			2003		2003

(In thousands, except par value)			(Unaudited)
ASSETS
Current assets:
	Cash, cash equivalents and short-term investments		$	2,268,558	$	1,705,658
	Trade accounts receivable, net			226,956		149,664
	Inventories			14,865		5,912
	Deferred income taxes			98,253		92,284
	Other			50,538		34,628

		Total current assets		2,659,170		1,988,146
Property, equipment and leasehold improvements, net				369,577		333,275
Deferred income taxes				2,100		7,986
Acquired product rights, net				125,223		73,125
Goodwill, net				994,743		833,449
Other, net				30,134		29,749

			$	4,180,947	$	3,265,730

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	71,039	$	67,720
	Accrued compensation and benefits			94,143		90,947
	Deferred revenue			868,410		589,629
	Other accrued expenses			75,357		69,363
	Income taxes payable			115,030		76,965

		Total current liabilities		1,223,979		894,624
Convertible subordinated notes				599,993		599,998
Other long-term obligations				5,255		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: 310,326 and 297,570 shares, respectively)			3,103		1,488
	Capital in excess of par value			1,536,419		1,335,028
	Accumulated other comprehensive income			162,308		30,121
	Retained earnings			649,890		397,742

		Total stockholders’ equity		2,351,720		1,764,379

			$	4,180,947	$	3,265,730



			Three Months Ended						Nine Months Ended
			December 31,						December 31,

			2003			2002			2003			2002
(In thousands, except net income per share; unaudited)
Net revenues			$	493,905		$	375,635		$	1,313,694		$	1,016,907
Cost of revenues				87,608			65,280			229,996			181,891

	Gross margin			406,297			310,355			1,083,698			835,016
Operating expenses:
	Research and development			61,885			50,022			182,086			142,854
	Sales and marketing			167,014			139,479			464,556			379,543
	General and administrative			21,712			19,346			69,258			51,954
	Amortization of other intangibles from acquisitions			628			793			2,175			1,994
	Acquired in-process research and development			1,600			—			2,600			4,700
	Restructuring, site closures and other			(126	)		(442	)		444			4,432
	Patent settlement			—			—			13,917			—

		Total operating expenses		252,713			209,198			735,036			585,477

Operating income				153,584			101,157			348,662			249,539
	Interest income			9,184			9,039			28,088			28,408
	Interest expense			(5,291	)		(5,292	)		(15,873	)		(15,875	)
	Income (expense), net, from sale of technologies and product lines			5,215			(256	)		9,541			4,424
	Other income (expense), net			618			(300	)		580			(1,425	)

Income before income taxes				163,310			104,348			370,998			265,071
	Provision for income taxes			51,834			32,616			117,308			84,776

Net income			$	111,476		$	71,732		$	253,690		$	180,295

Net income per share — basic			$	0.36		$	0.25		$	0.83		$	0.62

Net income per share — diluted			$	0.32		$	0.22		$	0.74		$	0.56

Shares used to compute net income per share — basic				308,485			290,296			304,274			289,066

Shares used to compute net income per share — diluted				362,179			341,616			356,767			338,906


Note 3.	Acquired Product Rights, Goodwill and Other Intangible Assets



		Allocated Purchase Price Components

												Deferred Tax
						Acquired						Assets			Other Assets
		Purchase		Acquired		Product				Other		(Liabilities),			(Liabilities),
		Price		IPR&D		Rights		Goodwill		Intangibles		Net			Net

PowerQuest		$	154,347	$	1,600	$	19,600	$	119,922	$	2,400	$	(5,300	)	$	16,125
SafeWeb			26,569		—		1,000		21,603		—		3,600			366
Nexland			20,891		1,000		1,000		20,791		60		547			(2,507	)

	Total	$	201,807	$	2,600	$	21,600	$	162,316	$	2,460	$	(1,153	)	$	13,984



		Allocated Purchase Price Components

						Acquired						Deferred		Other Assets
		Purchase		Acquired		Product				Other		Tax		(Liabilities),
		Price		IPR&D		Rights		Goodwill		Intangibles		Assets, Net		Net

Riptech		$	147,446	$	2,100	$	12,700	$	116,543	$	—	$	7,974	$	8,129
Recourse			137,555		1,000		19,000		108,546		2,164		9,090		(2,245	)
SecurityFocus			76,177		1,600		6,840		64,091		2,100		503		1,043
Mountain Wave			20,698		—		2,000		17,320		—		1,740		(362	)

	Total	$	381,876	$	4,700	$	40,540	$	306,500	$	4,264	$	19,307	$	6,565


	Cash/		Original		Amount		Amount		Balance
	Non-Cash		Charge		Paid/Used		Adjusted		12/31/03


			(In thousands)
Employee severance and outplacement		Cash	$	465	$	43	$	—	$	508
Excess fixed assets/facilities		Cash/non-cash		—		—		—		—

Total restructuring, site closures and other			$	465	$	43	$	—	$	508


	Enterprise		Enterprise		Consumer								Total
	Security		Administration		Products		Services			Other			Company


	(In thousands; unaudited)
Three Months Ended December 31, 2003
Revenue from external customers	$	186,671	$	53,258	$	242,448	$	11,359		$	169		$	493,905
Operating income (loss)		34,873		36,636		151,925		(1,935	)		(67,915	)		153,584
Depreciation & amortization expense		3,798		73		969		1,446			26,289			32,575
Three Months Ended December 31, 2002
Revenue from external customers		159,434		52,146		155,960		7,972			123			375,635
Operating income (loss)		34,080		39,427		82,405		(6,354	)		(48,401	)		101,157
Depreciation & amortization expense		3,138		92		820		937			21,098			26,085
Nine Months Ended December 31, 2003
Revenue from external customers		528,837		151,238		603,006		30,245			368			1,313,694
Operating income (loss)		100,054		108,999		359,934		(7,446	)		(212,879	)		348,662
Depreciation & amortization expense		10,676		244		2,729		4,173			78,298			96,120
Nine Months Ended December 31, 2002
Revenue from external customers		433,258		160,587		403,807		17,759			1,496			1,016,907
Operating income (loss)		89,108		119,227		199,982		(15,789	)		(142,989	)		249,539
Depreciation & amortization expense		8,767		286		2,547		1,916			57,249			70,765


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



			Three
			Months									Nine Months
			Ended						Percent			Ended						Percent
			December 31,						Change			December 31,						Change
									in Dollar									in Dollar
			2003			2002			Amounts			2003			2002			Amounts


			(Unaudited)
Net revenues				100	%		100	%		31	%		100	%		100	%		29	%
Cost of revenues				18			17			34			18			18			26

		Gross margin		82			83			31			82			82			30
Operating expenses:
	Research and development			13			14			24			14			14			27
	Sales and marketing			34			37			20			36			37			22
	General and administrative			4			5			12			5			5			33
	Amortization of other intangibles from acquisitions			—			—			(21	)		—			—			9
	Acquired in-process research and development			—			—			*			—			1			(45	)
	Restructuring, site closures, and other			—			—			(71	)		—			1			(90	)
	Patent settlement			—			—			—			1			—			*

		Total operating expenses		51			56			21			56			58			26

Operating income				31			27			52			26			24			40
	Interest income			2			2			2			2			3			(1	)
	Interest expense			(1	)		(1	)		—			(1	)		(2	)		—
	Income (expense), net, from sale of technologies and product lines			1			—			*			1			1			116
	Other income (expense), net			—			—			*			—			—			(141	)

Income before income taxes				33			28			57			28			26			40
	Provision for income taxes			10			9			59			9			8			38

Net income				23	%		19	%		55	%		19	%		18	%		41	%


	*Interest Income, Interest Expense and Other Income (Expense), Net*


	*Income (Expense), Net, From Sale of Technologies and Product Lines*


Note 1.	Basis of Presentation


	*Recent Accounting Pronouncements*


	*Stock-Based Compensation*


		December 31,			March 31,
		2003			2003

		(Unaudited)

		(In thousands)
Cash, cash equivalents and short-term investments:
	Cash	$	201,973		$	111,687
	Cash equivalents		517,877			182,919
	Short-term investments		1,548,708			1,411,052

		$	2,268,558		$	1,705,658

Trade accounts receivable, net:
	Receivables	$	232,037		$	159,417
	Less: allowance for doubtful accounts		(5,081	)		(9,753	)

		$	226,956		$	149,664

Property, equipment and leasehold improvements, net:
	Computer hardware and software	$	365,191		$	307,623
	Office furniture and equipment		73,331			65,240
	Buildings and land		197,463			172,228
	Leasehold improvements		66,822			53,883

			702,807			598,974
	Less: accumulated depreciation and amortization		(333,230	)		(265,699	)

		$	369,577		$	333,275

Accumulated other comprehensive income:
	Unrealized gain on available-for-sale securities	$	614		$	1,741
	Cumulative translation adjustment		161,694			28,380

		$	162,308		$	30,121


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*


10.01		Agreement and plan of merger, dated as of September 23, 2003, among Symantec Corporation, Quartz Acquisition Corp., PowerQuest Corporation and John Fife as representative
10.02		Agreement and plan of merger, dated as of October 27, 2003, by and among Symantec Corporation, Outlaw Acquisition Corporation and ON Technology Corporation
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