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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 28, 1997.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NUMBER 0-17781
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SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 253-9600
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Securities registered pursuant to Section 12(b) of the Act:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Symantec common stock on
June 1, 1997 as reported on the Nasdaq National Market and with respect to the
Delrina exchangeable stock on the Toronto Stock Exchange:
$1,046,855,373
Number of shares outstanding of each of the registrant's classes of common
stock, including 2,919,312 shares of Delrina exchangeable stock, as of June 1,
1997:
55,323,964
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held September 18,
1997 are incorporated by reference into Part III.
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SYMANTEC CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
TABLE OF CONTENTS
PART I.
Page
Item 1. Business.................................................. 1
Item 2. Properties................................................ 9
Item 3. Legal Proceedings......................................... 9
Item 4. Submission of Matters to a Vote of Security Holders....... 9
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 10
Item 6. Selected Financial Data................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
Item 8. Financial Statements and Supplementary Data............... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 23
PART III.
Item 10 Directors and Executive Officers of the Registrant........ 24
Item 11 Executive Compensation.................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 26
Item 13. Certain Relationships and Related Transactions............ 26
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 27
Signatures........................................................ 55
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PART I
ITEM 1: BUSINESS.
FORWARD-LOOKING STATEMENTS.
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The following discussion contains forward-looking statements that are subject to
risks and uncertainties. There are several important factors that could cause
actual results to differ materially from those anticipated by the
forward-looking statements contained in the following discussion. Readers should
pay particular attention to the risk factors set forth in this section and in
the section of this report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
GENERAL.
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Symantec Corporation ("Symantec" or the "Company") develops, markets and
supports a diversified line of application and system software products designed
to enhance individual and workgroup productivity. Approximately 80% of
Symantec's net revenues are derived from products that operate on Microsoft
Corporation's ("Microsoft") MS-DOS, Windows, Windows 95 and Windows NT operating
systems for personal computers. Symantec also offers products for use on the
Apple Macintosh, Power Macintosh and IBM OS/2 operating systems.
The Company's predecessor, C&E Software, Inc., a California corporation, and
that predecessor's operating subsidiary, Symantec Corporation, a California
corporation, were formed in September 1983 and March 1982, respectively. The
Company was incorporated in Delaware in April 1988 in connection with the
September 1988 reincorporation of the Company's predecessor and its operating
subsidiary into a single Delaware corporation.
Since Symantec's initial public offering on June 23, 1989, the Company has
completed acquisitions of the following companies:
Software or Activity
Companies Acquired Date Acquired Acquired
- ------------------ ------------- --------------------
Fast Track, Inc. ("Fast Track") May 28, 1996 Network Management Utilities
Delrina Corporation ("Delrina") November 22, 1995 Remote Productivity Solutions
Intec Systems Corporation ("Intec") August 31, 1994 Applications
Central Point Software, Inc. ("Central Point") June 1, 1994 Security and Assistance
SLR Systems, Inc. ("SLR") May 31, 1994 Internet Tools
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 Security and Assistance
Contact Software International, Inc. ("Contact") June 2, 1993 Remote Productivity Solutions
Certus International Corporation ("Certus") November 30, 1992 Security and Assistance
MultiScope, Inc. ("MultiScope") September 2, 1992 Internet Tools
The Whitewater Group, Inc. ("Whitewater") September 2, 1992 Internet Tools
Symantec (UK) Ltd. ("Symantec UK") April 3, 1992 Marketing Entity
Zortech Ltd. ("Zortech") August 31, 1991 Internet Tools
Dynamic Microprocessor Associates, Inc. ("DMA") August 30, 1991 Remote Productivity Solutions
Leonard Development Group ("Leonard") August 30, 1991 Applications
Peter Norton Computing, Incorporated ("Norton") August 31, 1990 Security and Assistance
All of these acquisitions were accounted for as poolings of interest.
Accordingly, all financial information has been restated to reflect the combined
operations of these companies and Symantec with the exception of Fast Track,
Intec, SLR, MultiScope and Whitewater, which had results of operations that were
not material to Symantec's consolidated financial statements.
Symantec's business strategy is to satisfy customer needs by developing and
marketing products across multiple operating platforms that make customers
productive and keep their computers safe and reliable - anywhere, anytime.
During fiscal 1997, in a move to focus the Company's product offerings on
customer needs, Symantec sold its FormFlow product line, acquired as part of the
Delrina acquisition, to JetForm Corporation and sold the assets
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comprising its networking business unit to the Hewlett-Packard Company. See
further discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended March 31, 1997, 1996 and 1995 reflect amounts as of
and for the periods ended March 28, 1997, March 29, 1996 and March 31, 1995,
respectively.
PRODUCTS AND SERVICES.
- ----------------------
Symantec's products, comprising both application software and system software,
are currently organized into the following three major product groups: Remote
Productivity Solutions, Security and Assistance and Emerging Businesses and
Other. The following table summarizes Symantec's principal
products by product group:
Principal Products
- -------------------------------------------
REMOTE PRODUCTIVITY SOLUTIONS
ACT!(R)
Internet FastFind(TM)
WinFax(R) PRO
pcANYWHERE(R)
SECURITY AND ASSISTANCE
Norton AntiVirus(R)
Symantec AntiVirus for Macintosh (SAM(R))
Norton Your Eyes Only(TM)
Norton Utilities(R)
Norton Commander(R)
Healthy PC.com(TM)
PC Handyman(TM)
CrashGuard(TM)
EMERGING BUSINESSES AND OTHER
Symantec Cafe(TM)
Visual Cafe(TM)
Visual Cafe(TM) PRO
Visual Page(TM)
REMOTE PRODUCTIVITY SOLUTIONS
The Remote Productivity Solutions business is focused on helping remote
professionals remain productive - anytime, anywhere. This business unit focuses
on customer needs to access information, applications and data from any
location.
ACT! is an easy-to-use contact database with a graphical activity schedule, a
full-featured word processor that links Microsoft Word and Wordperfect and a
report generator. ACT! manages and integrates a user's contacts, calendar
and communication through the use of integrated e-mail messaging. In
addition, it has a drag-and-drop to link any file to any contact. ACT! runs
on the Windows, Windows 95, Windows NT, MS-DOS, Macintosh, Newton, Psion,
Lotus Notes and palmtop operating systems.
Internet FastFind allows the user to use all of the top search engines at once
as well as locate specific files on the Internet. Other features include
"Notify" which automatically tracks and alerts when changes occur to favorite
folders, FTP and Web sites and "PatchConnect" which identifies your system's
hardware and software and automatically connects you to the appropriate Internet
sites. Internet FastFind also uses Symantec's LiveUpdate to download and install
the latest free updates. Internet FastFind runs on the Windows 95 and Windows NT
operating systems.
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WinFax PRO allows users to send, receive and manage faxes. WinFax PRO provides
background faxing, which allows users to continue working on other applications
while sending a fax via the Internet or any fax machine in the world. WinFax PRO
also provides enhanced file compression, which increases the speed at which
faxes are transmitted. Other features include "Delrina Pager," which allows a
computer to page a user to alert him or her of incoming voice and fax messages
and "call identify," which allows a user to view the incoming fax or phone
number on the user's computer screen before answering the phone. In addition,
WinFax PRO for Networks offers comprehensive support for the most common e-mail
packages, enabling users to receive faxes directly to their e-mail address. It
also uses Symantec's LiveUpdate to download and install the latest free updates.
WinFax PRO runs on the Windows, Windows 95 and Windows NT operating systems.
pcANYWHERE offers reliable, fast and flexible PC-to-PC remote computing via
serial or modem connection. pcANYWHERE lets the user remotely control one PC
from the keyboard of another PC. The offsite remote PC, laptop or PC terminal
controls the operation of the distant host PC. The software allows the user to
run any MS-DOS, Windows, Windows 95, Windows NT or Windows CE application
remotely, transfer files and perform other data operations. In addition to
allowing a remote user to run a distant PC, pcANYWHERE optionally allows users
at the host (distant) machine to view the operations being conducted from the
remote site. This makes pcANYWHERE ideal for support of users as a remote
helpdesk function for both problem solving and application training.
SECURITY AND ASSISTANCE
The Security and Assistance business is dedicated to being indispensable to
customers' daily use of computers by increasing productivity and keeping
computers safe and reliable.
Norton AntiVirus/Symantec AntiVirus for Macintosh (SAM) are programs for the
protection, detection and elimination of computer viruses under the MS-DOS,
Windows, Windows 95, Windows NT, Macintosh, Power Macintosh and OS/2 operating
systems. They provide virus protection, detection and repair capability,
recognize virus-like behavior and prevent most known or unknown viruses from
infecting a system. They detect viruses and disinfect infected files and disks
during normal computer use. They also detect and disinfect floppy boot-track
viruses, stealth and encrypted viruses and remove active viruses from memory.
They are designed to prevent viruses with a unique, comprehensive, multi-layered
line of defense that combines scanning, virus sensing and inoculation. They also
use Symantec's LiveUpdate to download and install the latest free updates.
Norton Your Eyes Only offers comprehensive 32-bit security designed specifically
for the Windows 95 operating system, "on-the-fly" automatic encryption using RSA
Data Security, Inc.'s public key encryption technology, optional access control
during boot-up to prevent unauthorized access to data on the hard disk and
configurable automatic time-out blanking of the screen if the computer system is
idle for a specified period of time. The administrator version provides
configuration, distribution and management for an entire network from a central
location.
Norton Utilities are a set of "tools" designed to address the system-level
operations of the MS-DOS, Windows, Windows 95, Windows NT, Macintosh and Power
Macintosh operating systems. Norton Utilities provides disk and data recovery,
security, performance optimization, system and .ini-file monitoring and
preventive maintenance functions. The Norton Utilities can restore the structure
of a disk and files under certain conditions and can also provide for file
de-fragmentation, system operation information, file unerasing and other file
and system operation improvements. It also uses Symantec's LiveUpdate to
download and install the latest free updates.
Norton Commander is designed to provide a character-based graphical approach and
mouse capability for operations such as copy, move and delete. Norton Commander
includes a MCI mail facility, file compression, Commander Link and a PC-to-PC
file transfer function. Norton Commander includes a wide range of file viewers,
application launching functions, a customizable menuing facility and a variety
of network utilities and editor associates. Norton Commander runs on the MS-DOS,
Windows, Windows 95 and Windows NT operating systems.
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Healthy PC.com is an Internet site operated by Ziff-Davis' ZDNet division that
consists of two separate services which include a free advice and consultation
area maintained by ZDNet and the Healthy PC.com Health Club, a subscription
based membership service which provides access to Symantec's AntiVirus, disk
repair and LiveUpdate software. Healthy PC.com runs on the MS-DOS, Windows,
Windows 95 and Windows NT operating systems.
PC Handyman works continuously in the background to fix all kinds of PC
operation problems such as screen freezes and hard drive crashes, and to keep
important PC functions running smoothly. This product also provides the user
with a trouble-shooting screen to help pinpoint computer problems and identify
solutions. PC Handyman runs on the Windows 95 operating system.
CrashGuard allows users to unfreeze most applications using the familiar
Ctrl-Alt-Del keystroke combination, even when the system is hung or otherwise
not responding. This program notifies you when a crash has been intercepted and
provides a recommendation for fixing the crash. It also uses Symantec's
LiveUpdate to download and install the latest free updates. CrashGuard runs on
the Windows 95 and Windows NT operating systems.
EMERGING BUSINESSES AND OTHER
The Emerging Businesses and Other business includes products providing an easy
to use Java development environment, as well as revenue streams from the sale of
certain of the Company's software product lines and revenues from products
nearing the end of their life cycle.
Symantec Cafe features a native Java compiler that allows the building of Java
programs. It provides a Class Browser, an introduction to Java programming book
and over 35 sample applets that help developers get started quickly using Java
in their web pages. In addition, Symantec Cafe provides a fully integrated
graphical debugger for Java, allowing developers to do source level debugging of
their Java standalone applications or applets that are embedded inside an HTML
web page. This product runs on the Windows 95, Windows NT, Macintosh and Power
Macintosh operating systems.
Visual Cafe provides developers with a fast and productive visual programming
environment for creating Java applets and applications. It includes many
application components like buttons, text boxes and dialog boxes to create your
own templates to reuse on future projects. In addition, it provides
drag-and-drop visual programming for quick application development with minimal
coding as well as a powerful, integrated graphical debugger to quickly debug
applications at the source level. This product runs on the Windows 95, Windows
NT, Macintosh and Power Macintosh operating systems.
Visual Cafe PRO provides the complete Visual Cafe Java Rapid Application
environment as well as the tools to create database applets and applications to
allow the user to build Web pages with interactive database links in one
complete, fully-integrated environment. It represents data structures
graphically and uses wizards to instantly create dialogs and applications
(including master/detail joins) with live connections to database tables. This
product runs on the Windows 95, Windows NT, Macintosh and Power Macintosh
operating systems.
Visual Page allows business users to create documents on a web page for other
people to access. Visual Page provides the user with a "Standard" Word Processor
Toolbar with easy to use features to change type face sizes, align text and set
styles. It also contains a Site Window which allows easy link setup and shows
all pages, anchors and images in one convenient window. Other features include
support for Java Applets, Netscape plug-ins and embedded Quicktime movies as
well as an interface to support Apple Java Virtual Machine (VM) to make Java
applets "alive". This product runs on the Windows 95, Windows NT, Macintosh and
Power Macintosh operating systems.
SALES, INTERNATIONAL SALES AND CUSTOMER SUPPORT.
- ------------------------------------------------
Symantec markets its products worldwide utilizing a multi-channel strategy of
direct sales and indirect sales through independent software distributors, major
retail chains and resellers.
SALES AND MARKETING
Symantec utilizes both direct and indirect sales forces to encourage end users
to adopt Symantec's products as corporate standards. The direct sales force
focuses primarily on site license sales where a license for multiple
workstations is sold to a customer at a negotiated price. The sales cycle with
respect to site license sales may be lengthy and may be subject to integration
and acceptance by the customer. The Company also employs an indirect sales force
that works closely with its major distributor and reseller accounts to manage
the flow of orders,
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inventory levels and sell-through to retail chains as well as promotions and
other selling activities. At March 31, 1997, Symantec had approximately 120
people in its North American direct and indirect sales force.
Symantec maintains distribution relationships with major independent
distributors. These distributors stock Symantec's products in inventory for
redistribution to independent dealers, consultants and other resellers. Symantec
also maintains relationships with major retailers, including CompUSA and Best
Buy. Symantec markets to these retailers through independent distributors.
Additionally, Symantec sells product upgrades and certain of its products to end
users through direct mail campaigns and the Internet.
Approximately 34% of Symantec's net revenues in the year ended March 31, 1997
were derived from Symantec's two largest distributors. Ingram Micro, Inc.
represented 27%, 27% and 22% of Symantec's net revenues in fiscal 1997, 1996 and
1995, respectively, while Merisel Americas, Inc. represented 7%, 10% and 11% of
Symantec's net revenues in fiscal 1997, 1996 and 1995, respectively. Agreements
with distributors are generally nonexclusive and may be terminated by either
party without cause. Such distributors are not within the control of Symantec,
are not obligated to purchase products and also represent other vendors' product
lines. (See further discussion in Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations Business Risks - Distribution
Channels.)
Symantec's return policy allows its distributors, subject to certain
limitations, to return purchased products in exchange for new products or for
credit towards future purchases. End users may return products through dealers
and distributors within a reasonable period from the date of purchase for a full
refund, and retailers may return older versions of products. Various
distributors and resellers may have different return policies that may
negatively impact the level of products which are returned to Symantec. Product
returns occur when the Company introduces upgrades and new versions of products
or when distributors order too much product. In addition, competitive factors
often require the Company to offer rights of return for products that
distributors or retail stores are unable to sell. (See further discussion in
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations - Business Risks - Product Returns.)
Symantec's marketing activities include advertising in trade, technical and
business publications, cooperative marketing with distributors, resellers and
dealers, periodic direct mailings to existing and prospective end users and
participation in trade and computer shows. Additionally, the Company typically
offers two types of rebate programs, volume incentive rebates and rebates to end
users. Volume incentive rebates are made available to Symantec's largest
distributors and resellers whereby the distributor or reseller earns a rebate
based upon their purchases or the volume of product they sell to end users.
Volume incentive rebates are accrued when revenue is recorded. The amount of
these rebates as a percentage of net revenues has been consistent for all
periods presented and has not had a material impact on the Company's liquidity.
From time to time, Symantec makes available rebates to end users of various
products who acquired the products through major retailers. End user rebates are
accrued when revenue is recorded.
INTERNATIONAL SALES
International revenues represented approximately 29%, 32% and 31% of Symantec's
net revenues in fiscal 1997, 1996 and 1995, respectively. At March 31, 1997,
Symantec had approximately 140 sales, marketing and related personnel in its
international sales organization.
The majority of Symantec's net revenues from certain European regions are
derived from sales by affiliates of Symantec's major United States distributors.
In other countries, Symantec sells its products through authorized distributors.
In some countries, these distributors are restricted to specified territories.
Symantec typically adapts products for local markets, including translating the
documentation and software where necessary, and prepares marketing programs for
each local market.
Symantec has established marketing offices in Australia, Brazil, Canada, France,
Germany, Holland, Hong Kong, Italy, Japan, Korea, Mexico, New Zealand, Russia,
Singapore, South Africa, Sweden, Switzerland, Taiwan and the United Kingdom.
These local offices facilitate Symantec's marketing and distribution in
international markets. The Company's international operations are subject to
certain risks common to international operations, such as government
regulations, import restrictions, currency fluctuations, repatriation
restrictions and, in certain jurisdictions, reduced protection for the Company's
copyrights and trademarks. (See further discussion in Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Business Risks - Foreign
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Operations.) Information with respect to international operations and export
sales may be found in Note 12 of the Notes to Consolidated Financial Statements
in Part IV, Item 14 of this Form 10-K.
CUSTOMER SUPPORT
Symantec's product support program provides a wide variety of free and fee-based
technical support services to its customers. Symantec provides its customers
with free support via electronic and automated services as well as 90 days free
telephone support for selected products. Symantec accrues the cost of providing
this free support at the time of product sale. In August 1996, Symantec
introduced LiveUpdate, which provides free, instant access to on-line updates,
enhancements, support tips and other useful information for selected products.
In addition, Symantec offers both domestic individual users and domestic
corporate customers a variety of fee-based options designed to meet their
technical support requirements. These fee-based support programs are revised
from time to time as customer requirements change and as market trends dictate.
Fee-based technical support services did not generate material revenues in any
fiscal years presented and are not expected to generate material revenues in the
near future. (See further discussion in Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations - Business Risks -
Rapid Technological Change and Development Risks and Fluctuations in Quarterly
Operating Results.)
PRODUCT DEVELOPMENT AND ACQUISITIONS.
Symantec uses a multiple products sourcing strategy that includes internal
development, acquisitions of product lines or companies and licensing from third
parties. Symantec typically develops new products and enhancements of existing
products in one of its two core product groups (Remote Productivity Solutions
and Security and Assistance) and in selected product areas targeted as emerging
business opportunities. Each group's responsibilities include design,
development, documentation and quality assurance. Independent contractors are
used for certain aspects of the product development process and elements of
certain Company products are licensed from third-party developers.
Symantec uses strategic acquisitions, as necessary, to provide certain
technology, people and products for its overall product strategy. The Company
has completed a number of acquisitions and dispositions of companies and
products and may acquire and dispose other companies and products in the future.
(See further discussion in Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Business Risks Management of
Expanding Operations.)
The Company is devoting substantial efforts to the development of software
products that are designed to operate on various operating systems. Symantec's
total research and development expenses were approximately $89 million, $95
million and $71 million in fiscal 1997, 1996 and 1995, respectively. Research
and development expenditures are charged to operations as incurred. In fiscal
1997, Symantec capitalized approximately $8 million of capitalized software
development costs, primarily related to network administration technology, which
was sold to Hewlett-Packard in March 1997, resulting in the write off of
approximately $7 million of unamortized costs during fiscal 1997. No material
software development costs have been capitalized by the Company in fiscal 1996,
while prior to being acquired by Symantec, Delrina capitalized approximately $6
million in software development costs in fiscal year 1995. (See further
discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business Risks - Operating System and
Uncertainty of Research and Development Efforts.)
COMPETITION.
The microcomputer software market is intensely competitive and is subject to
rapid changes in both technology and the strategic direction of major
microcomputer hardware manufacturers and operating system providers. The
Company's competitiveness depends on its ability to enhance its existing
products and to offer new products on a timely basis. The Company has limited
resources and must restrict its product development efforts to a relatively
small number of projects. (See further discussion in Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Business Risks - Rapid Technological Change and Development Risks.)
Operating system vendors such as Microsoft have added features to new versions
of their products that provide some of the same functionality traditionally
offered in Symantec's products. Symantec believes this trend may continue.
Microsoft may incorporate advanced features in future versions of operating
systems that may decrease the demand for certain of the Company's products,
including those currently under development. A number of software developers
have integrated antivirus capabilities into their Internet products. While
Symantec plans to continue to improve its products with a view toward providing
enhanced functionality over what may be provided in
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operating systems, there is no assurance that these efforts will be successful
or that such improved products will be commercially accepted by software users.
Symantec will also attempt to work with operating system vendors in an effort to
make its products compatible with those operating systems, yet differentiate
those utility products from features included in the operating systems. However,
there is no assurance that these efforts will be successful. (See further
discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations Business Risks - Operating System.)
The Company competes with at least one product from many of the major
independent software vendors, including Borland International, Inc.
("Borland"), CyberMedia ("CyberMedia"), Dr Solomon's ("Dr Solomon's"), ELAN
Software Corporation ("ELAN"), International Business Machines Corporation
("IBM"), McAfee Associates, Inc. ("McAfee"), Microcom, Inc. ("Microcom"),
Microsoft, Norton-Lambert Corporation ("Norton-Lambert"), Phoenix
Technologies Ltd. ("Phoenix"), TouchStone Software Corporation
("TouchStone"), Traveling Software, Inc. ("Traveling Software"), Starfish
Software, Inc. ("Starfish") and SofNet, Inc. ("SofNet").
For example, Norton Utilities competes with operating systems, such as
Microsoft's Windows 95 and MSDOS and IBM's DOS, which offer file recovery,
anti-virus and backup features, First Aid from CyberMedia and other products
from various other utilities vendors. Norton AntiVirus competes with PC-cillin
95 from TouchStone, Dr Solomon's Anti-Virus Toolkit from Dr. Solomon's and
Viruscan from McAfee. Symantec's pcANYWHERE competes mainly with Laplink from
Traveling Software, Carbon Copy from Microcom, Close Up from Norton Lambert and
NetRemote from McAfee. ACT! competes with Lotus Organizer for Windows from IBM,
Outlook from Microsoft, GoldMine from ELAN, Sidekick from Starfish and many
other personal information managers produced by various software developers.
Delrina WinFax PRO competes with products offered by Phoenix, Traveling Software
and SofNet, as well as Microsoft's Windows 95 operating system. Cafe mainly
competes with products from Microsoft. In addition, these and other Company
products compete less directly with a number of other products that offer levels
of functionality different from those offered by Symantec's products or that
were designed for a somewhat different group of end users than those targeted by
Symantec.
Symantec also competes with microcomputer hardware manufacturers that develop
their own software products. Further, Symantec competes with other microcomputer
software companies for access to the channels of retail distribution and for the
attention of customers at the retail level and in corporate accounts. Finally,
Symantec competes with other software companies in its efforts to acquire
products or companies and to publish software developed by third parties.
Symantec believes that competition in the industry will continue to intensify as
most major software companies expand their product lines into additional product
categories. Some of the Company's competitors have substantial financial,
marketing and technological resources. (See further discussion in Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Business Risks Rapid Technological Change and Development Risks,
Operating System and Distribution Channels.)
MANUFACTURING AND BACKLOG.
Symantec's product development organization produces a set of master diskettes
and documentation for each product. Most of Symantec's domestic manufacturing is
performed by outside contractors under the supervision of Symantec's
manufacturing organization. Purchasing of most raw materials and fulfillment of
most orders is done by Symantec personnel in Symantec's Sunnyvale, California
facility. The manufacturing steps that are subcontracted to outside
organizations include the duplication of diskettes and CD-ROM's, printing of
documentation materials and assembly of the final package. Symantec performs
diskette duplication and assembly of the final package in its Dublin, Ireland
manufacturing facility for most products distributed outside of the United
States, Canada and Latin America.
Symantec has often been able to acquire materials on a volume-discount basis and
has had multiple sources of supply for certain materials. To date, Symantec has
not experienced any material difficulties or delays in production of its
software and related documentation and packaging. However, shortages may occur
in the future. For example, shortages of certain materials may occur when
Microsoft introduces new operating systems. (See further discussion in Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Business Risks - Supply Risk.)
Symantec normally ships products within one week after receiving an order. Thus,
Symantec does not consider backlog to be a significant indicator of future
performance.
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PRICE COMPETITION.
Price competition is intense in the microcomputer business software market and
is expected to continue to increase and become even more significant in the
future. See further discussion in Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations.
SEASONALITY.
While Symantec's diverse product line has tended to lessen fluctuations in
quarterly net revenues, these fluctuations have occurred and may occur in the
future. These fluctuations may be caused by a number of factors, including the
timing of announcements and releases of new or enhanced versions of Symantec's
products and product upgrades, the introduction of competitive products by
existing or new competitors, reduced demand for any given product, seasonality
in the retail software market in foreign markets, customer end-of-period buying
patterns and the market's transition between operating systems. These factors
may cause significant fluctuations in net revenues and, accordingly, operating
results. (See further discussion in Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations - Business Risks - Fluctuations
in Quarterly Operating Results.)
PRODUCT PROTECTION.
Symantec regards its software as proprietary and relies on a combination of
copyright, patent and trademark laws and license agreements in an attempt to
protect its rights. (See further discussion in Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations Business Risks -
Intellectual Property Rights.)
EMPLOYEES.
As of March 31, 1997, Symantec employed approximately 2,000 people, including
1,000 in sales, marketing and related staff activities, 600 in product
development and 400 in management, manufacturing, administration and finance.
None of the employees is represented by a labor union, and Symantec has
experienced no work stoppages. Symantec believes that its employee relations are
good.
Competition in recruiting personnel in the software industry is intense.
Symantec believes that its future success will depend in part on its ability to
recruit and retain highly skilled management, marketing and technical personnel.
Symantec believes that it must provide personnel with a competitive compensation
package, which necessitates the continued availability of stock options and
requires ongoing shareholder approval of such option programs. (See further
discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations Business Risks - Employee Risk.)
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ITEM 2: PROPERTIES.
Symantec's principal locations, all of which are leased, are as follows:
Approximate Expiration
Size of
Location Purpose (in square feet) Lease
- -------- ------- ---------------- ----------
North America
Cupertino, California
Corporate Headquarters Administration, sales and marketing 87,000 2003
Emerging Business and Research and development 161,000 2003
Remote Productivity
Solutions
Symantec Technology Future expansion * 143,000 2003
Center
Sunnyvale, California Manufacturing 78,000 1998
Santa Monica, California Research and development and 71,000 2000
marketing
Eugene, Oregon Customer service and technical 136,000 2006
support
Beaverton, Oregon Research and development and 45,000 2001
marketing
Melville, New York Research and development and 24,000 2000
marketing
Toronto, Canada Research and development and 63,000 2005
technical support
International
Leiden, Holland Administration, sales and marketing 7,000 1997
and technical support
Dublin, Ireland Administration, manufacturing 74,000 2026
and translations
Symantec's principal administrative and sales and marketing facility, as well as
certain research and development and support facilities, are located in
Cupertino, California. The Company leases a number of additional facilities for
marketing and research and development in the United States and for marketing in
Australia, Brazil, Canada, France, Germany, Holland, Hong Kong, Italy, Japan,
Korea, Mexico, New Zealand, Russia, Singapore, South Africa, Sweden,
Switzerland, Taiwan and the United Kingdom. Symantec believes its facilities are
adequate for its current needs and additional or substitute space will be
available as needed to accommodate any expansion of its operations.
* The Symantec Technology Center is currently under construction, with
anticipated completion in fiscal 1999.
ITEM 3: LEGAL PROCEEDINGS.
Information with respect to this Item may be found in Note 11 of Notes to
Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the quarter
ended March 31, 1997.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Symantec's common stock is traded on the Nasdaq National Market under the Nasdaq
symbol "SYMC". The high and low closing sales prices set forth below are as
reported on the Nasdaq National Market.
Fiscal 1997 Fiscal 1996
--------------------------------------------- ---------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1997 1996 1996 1996 1996 1995 1995 1995
---------- -------- -------- --------- --------- --------- -------- ---------
High $ 18.38 $ 16.38 $ 12.75 $ 18.13 $ 22.63 $ 29.38 $ 33.00 $ 29.50
Low 12.63 9.88 8.75 11.00 10.31 21.50 23.75 20.63
Delrina exchangeable stock has been traded on the Toronto Stock Exchange
under the symbol "DE" since the acquisition of Delrina by Symantec on November
22, 1995. The high and low closing sales prices set forth below are in Canadian
dollars as reported on the Toronto Stock Exchange. Delrina exchangeable stock is
exchangeable at the option of the stockholders on a one-for-one basis into
Symantec common stock.
Fiscal 1997 Fiscal 1996
--------------------------------------------- ---------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31,
1997 1996 1996 1996 1996 1995
(In Canadian dollars)
--------- --------- --------- --------- --------- ---------
High $ 24.35 $ 22.00 $ 17.70 $ 25.00 $ 31.00 $ 37.25
Low 17.55 13.00 12.00 15.50 16.50 29.38
As of March 31, 1997, there were approximately 852 stockholders of record,
including approximately 45 holders of record of Delrina exchangeable shares. The
Company has never paid cash dividends on its stock with the exception of cash
distributions to stockholders of acquired companies. Symantec anticipates that
it will continue to retain its earnings to finance the growth of its business.
In addition, the Company's bank line of credit and outstanding convertible
subordinated debentures limit the payment of cash dividends on common stock (See
Notes 4 and 5 of Notes to Consolidated Financial Statements in Part IV, Item 14
of this Form 10-K).
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ITEM 6: SELECTED FINANCIAL DATA.
The following selected financial data is qualified in its entirety by and
should be read in conjunction with the more detailed consolidated financial
statements and related notes included elsewhere herein. During fiscal 1997,
Symantec acquired Fast Track, Inc. ("Fast Track") in a transaction accounted for
as a pooling of interests. As the results of operations of Fast Track were not
material to Symantec's consolidated financial statements, amounts prior to the
date of acquisition were not restated to reflect the combined operations of the
companies. Additional acquisitions accounted for as poolings of interest include
Delrina Corporation in fiscal 1996, Intec Systems Corporation, Central Point
Software, Inc. and SLR Systems, Inc. in fiscal 1995, Fifth Generation Systems,
Inc. and Contact Software International, Inc. during fiscal 1994, and Certus
International Corporation, MultiScope, Inc., The Whitewater Group, Inc. and
Symantec (UK) Ltd. during fiscal 1993. The Company has never paid cash dividends
on its stock with the exception of distributions to stockholders of acquired
companies.
FIVE YEAR SUMMARY
Year Ended March 31,
(In thousands, except ---------------------------------------------------------------------
net income (loss) per share) 1997 1996 1995 1994 1993
- ---------------------------- -------- --------- -------- --------- ---------
Statement of Operations Data:
Net revenues $472,183 $ 445,432 $431,268 $ 403,206 $ 382,911
Acquisition, restructuring and
other expenses 8,585 27,617 9,545 56,094 23,836
Operating income (loss) 26,289 (48,279) 40,286 (47,290) (59,792)
Net income (loss) 26,038 (39,783) 33,409 (44,421) (46,304)
Distributions to stockholders
of acquired companies -- -- -- -- 162
Net income (loss) per share - primary $ 0.47 $ (0.76) $ 0.65 $ (0.96) $ (1.09)
Net income (loss) per share - fully diluted $ 0.47 $ (0.76) $ 0.61 $ (0.96) $ (1.09)
Shares used to compute net
income (loss) per share - primary 55,407 52,664 52,181 46,270 42,624
Shares used to compute net
come (loss) per share - fully diluted 55,841 52,664 56,491 46,270 42,624
March 31,
---------------------------------------------------------------------
(In thousands) 1997 1996 1995 1994 1993
- -------------------------- -------- -------- -------- -------- --------
Balance Sheet Data:
Working capital $129,569 $134,643 $143,405 $101,644 $100,075
Total assets 341,673 285,027 306,126 262,335 257,584
Long-term obligations, less
current portion 15,066 15,393 25,413 25,967 28,152
Stockholders' equity 217,979 180,317 184,874 129,193 139,056
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY EFFECT FUTURE RESULTS The
following discussion contains forward-looking statements that are subject to
risks and uncertainties. There are several important factors that could cause
actual results to differ materially from those anticipated by the
forward-looking statements contained in the following discussion. Readers should
pay particular attention to the risk factors set forth within this section.
Nothing in this report shall impose upon Symantec or any person a duty to update
any forward looking statement.
OVERVIEW
Symantec develops, markets and supports a diversified line of application and
system software products designed to enhance individual and workgroup
productivity. Founded in 1982, the Company has offices in the United States,
Canada, Asia, Australia, Europe, Africa and Latin America.
During the last three fiscal years, Symantec has acquired the following
companies:
Shares of Acquired
Symantec Company
Common Stock
Stock Options
Companies Acquired Date Acquired Issued Assumed
- ------------------ ------------- ---------- ---------
Fast Track, Inc. ("Fast Track") May 28, 1996 600,000 --
Delrina Corporation ("Delrina") November 22, 1995 13,684,174* 1,271,677
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc.
("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
* Includes Delrina exchangeable stock that is traded on the Toronto Stock
Exchange. Delrina stockholders received Delrina exchangeable stock in exchange
for Delrina common stock at a rate of 0.61 per share. Delrina exchangeable
stock may be converted into Symantec common stock on a one-for-one basis at
each stockholder's option.
All of these acquisitions were accounted for as poolings of interest.
Accordingly, all financial information has been restated to reflect the combined
operations of these companies and Symantec with the exception of Fast Track,
Intec and SLR, which had results of operations that were not material to
Symantec's consolidated financial statements.
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RESULTS OF OPERATIONS
The following table sets forth each item from the consolidated statements of
operations as a percentage of net revenues and the percentage change in the
total amount of each item for the periods indicated.
Period-to-Period
Percentage
Increase (Decrease)
------------------
Year Ended March 31, 1997 1996
----------------------- Compared Compared
1997 1996 1995 to 1996 to 1995
----- ----- ----- -------- --------
Net revenues 100% 100% 100% 6% 3%
Cost of revenues 20 25 21 (14) 20
----- ----- -----
Gross margin 80 75 79 13 (1)
Operating expenses:
Research and development 19 21 17 (6) 34
Sales and marketing 47 52 44 (4) 21
General and administrative 7 7 7 4 12
Acquisition, restructuring
and other non-
recurring expenses 2 6 2 (69) 189
----- ----- -----
Total operating expenses 75 86 70 (8) 28
----- ----- -----
Operating income (loss) 5 (11) 9 * *
Interest income 2 2 1 (4) 33
Interest expense -- -- -- (6) (38)
Other income (expense), net -- (1) -- (21) *
----- ----- -----
Income (loss) before income
taxes 7 (10) 10 * *
Provision (benefit) for
income taxes 1 (1) 2 * *
----- ----- -----
Net income (loss) 6% (9)% 8% * *
===== ===== =====
- ---------------------
* percentage change is not meaningful.
NET REVENUES.
Net revenues increased 6% from $445 million in fiscal 1996 to $472 million in
fiscal 1997. Net revenues increased 3% from $431 million in fiscal 1995 to $445
million in fiscal 1996.
PRODUCT GROUPS. During fiscal 1997, the Company experienced increased net
revenues from each of its core product groups: Remote Productivity Solutions and
Security and Assistance. The Remote Productivity Solutions product group is
focused on helping remote professionals remain productive, by addressing
customer needs to access information, applications and data from any location.
The Security and Assistance product group is dedicated to being indispensable to
customers' daily use of computers by increasing productivity and keeping
computers safe and reliable.
The market's acceptance of the Windows95 and Windows NT operating systems, as
well as the further expansion of personal computer sales, enabled Symantec to
experience strong fiscal 1997 sales of its Windows 95 products first introduced
during the last half of fiscal 1996 and Windows NT products introduced in fiscal
1997. The most significant product line sales growth was related to the Norton
AntiVirus products from the Security and Assistance product group and pcANYWHERE
products from the Remote Productivity Solutions product group. During fiscal
1997, the financial impact of product price reductions for Symantec's core
products was more than offset by the increase in the volume of products sold,
resulting in increased net revenues.
Symantec's third business unit is the Emerging Business and Other product group,
which includes products providing an easy to use Java development environment,
as well as revenue streams from the sale of certain of
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the Company's software product lines and revenues from products nearing the end
of their life cycles. Fiscal 1997 net revenues for the Emerging Business product
group decreased from fiscal 1996, largely as the result of declining sales from
products which Symantec no longer actively develops or markets. Symantec
expanded its line of Java development tools in fiscal 1997 in response to wider
acceptance of the Java development environment, resulting in an increase in net
revenues for the Java product line during fiscal 1997. The Emerging Business and
Other product group also recorded approximately $6 million of consulting net
revenues in fiscal 1997, resulting from a non-recurring consulting contract
which was completed during the fiscal year.
As a result of the sale of its electronic forms software products and related
tangible assets to JetForm Corporation ("JetForm") for approximately $100
million in fiscal 1997, the Emerging Business and Other product group recognized
revenue of approximately $18 million during the 1997 fiscal year and is
contractually entitled to quarterly revenue payments through the June 2000
quarter. JetForm has the option to tender payment in either cash or in
registered JetForm common stock, within a contractually defined quantity
threshold. Due to the uncertainty regarding the ultimate collectibility of these
installments, Symantec is recognizing the related revenue as payments are due
and collectibility is assured from JetForm.
During the fourth quarter of fiscal 1997, Symantec also sold the software
products and related tangible assets of its Networking Business Unit to the
Hewlett-Packard Company ("Hewlett-Packard"), resulting in the receipt of
approximately $1 million of revenue and $2 million research and development
expense reimbursement by the Emerging Business and Other product group.
Additionally, over the next two years, Hewlett-Packard is contractually
obligated to pay to Symantec a royalty stream not to exceed the present value of
$27 million, which is contingent upon future sales of certain products by
Hewlett-Packard. Due to the uncertainty regarding the amounts upon which these
royalties will be determined, Symantec is recognizing these amounts as they are
estimable.
During fiscal 1996, the Company experienced increased net revenues from its
Security and Assistance product group, offset in part by decreased revenues from
its Remote Productivity Solutions product group and products which Symantec no
longer actively develops or markets. Symantec experienced an increase in net
revenue from the introduction of several Windows 95 products; however, this
increase was substantially offset by a decrease in net revenues related to
Windows 3.1 and DOS products.
Symantec markets its products through a number of distribution channels,
including retail, site licenses, OEM, direct marketing and upgrades and the
Internet. The retail channel is Symantec's single largest product channel and
comprises approximately 60% of total product revenues.
INTERNATIONAL. Net revenues from international sales were $138 million and $142
million and represented 29% and 32% of total net revenues in fiscal years 1997
and 1996, respectively. The decrease in international net revenue as a
percentage of total net revenue is the result of domestic revenue growth
outpacing international revenue growth during the fiscal year. Additionally,
international revenues for fiscal 1996 includes the one time recognition of
approximately $7 million, previously deferred Central Point revenue. Foreign
exchange rate fluctuations during fiscal 1997 did not materially contribute to
the fluctuation in results from fiscal 1996 to fiscal 1997. Net revenues from
international sales increased by $7 million in fiscal 1996, from $135 million in
fiscal 1995 to $142 million in fiscal 1996. This increase was largely the result
of the one-time recognition in fiscal 1996 of approximately $7 million of
previously deferred Central Point revenue.
PRODUCT RETURNS. The level of actual product returns and related product return
provision are largely a factor of the level of product sell-in (gross revenue)
from normal sales activity and the replacement of obsolete quantities with the
current version of the Company's products. Changes in the levels of product
returns and related product return provision are generally offset by changing
levels of gross revenue and, therefore, do not typically have a material impact
on reported net revenues.
The Company's product return provision typically fluctuate from period to period
based upon the level and timing of product upgrade releases and changes in
product sell-in. The product return provision for fiscal 1997 was higher than
the provision for fiscal 1996 due to increased returns exposure for Windows 95
products due to additional product sell-in during fiscal 1997. The product
return provision for fiscal 1996 was higher than the provision for fiscal 1995,
due to the introduction of Symantec's Windows 95 products during the last three
quarters of fiscal 1996, which had unusually high sell-in volumes.
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GROSS MARGIN.
Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing expenses, costs for producing manuals,
packaging costs, royalties paid to third parties under publishing contracts and
amortization and write-off of capitalized software.
Prior to fiscal 1997, accounting rules requiring capitalization of certain
software development costs did not materially affect the Company, except for
amounts capitalized by Delrina prior to its acquisition by Symantec in fiscal
1996. Amounts capitalized during fiscal 1997 primarily related to the networking
business unit which was sold to Hewlett-Packard in March 1997, at which time the
amounts were written off.
Amortization of capitalized software, including amortization and the write-off
of both purchased product rights and capitalized software development expenses,
totaled $10 million, $19 million and $13 million for fiscal 1997, 1996 and 1995,
respectively. Included in the fiscal 1997 total is approximately $7 million of
unamortized capitalized software development expenses and $1 million of
unamortized purchased software product rights related to network administration
technology written off as part of the sale to Hewlett-Packard in March 1997. The
fiscal 1997 write-off of unamortized FormFlow technology sold to JetForm was
immaterial. Amortization expense in fiscal year 1997 was lower than in 1996 due
to capitalized software write-offs in fiscal 1996 related to de-emphasized
products and Delrina Windows 3.1 products. The fiscal 1996 amortization of
capitalized software expense included the aforementioned write-offs, resulting
in the significant increase in expense from fiscal 1995.
Gross margins increased to 80% of net revenues in fiscal 1997 from 75% in fiscal
1996 and from 79% in fiscal 1995. The increase in gross margin percentage in
fiscal 1997 compared to fiscal 1996 was due to the decrease in capitalized
software amortization and write-offs noted above. In addition, revenues, with no
related cost of revenues, from JetForm totaling $18 million and from
Hewlett-Packard totaling $1 million were included in net revenues during fiscal
1997. The decline in the gross margin percentage in fiscal 1996 compared to
fiscal 1995 was due to an increase in the amortization and write-off of
purchased product rights and capitalized software development expenses noted
above and increased inventory reserves related to Delrina products designed to
operate on Windows 3.1 and other products de-emphasized by Symantec during
fiscal 1996. Due to an anticipated reduction in software amortization and the
recognition of the potential future revenue streams from JetForm and
Hewlett-Packard, for which there will be no associated costs, Symantec believes
that the gross margin percentage may increase to approximately 81% to 84% in
fiscal 1998, unless there is a significant change in Symantec's net revenues.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses decreased 6% to $89 million or 19% of net
revenues in fiscal 1997 from $95 million or 21% of net revenues in fiscal 1996
and were $71 million or 17% of net revenues in fiscal 1995. The decrease in
research and development expenses in fiscal 1997 as compared to fiscal 1996 is
due primarily to decreased product development efforts associated with the
Company's decision to cease developing certain software products, and an
increase in capitalized software development costs. In fiscal 1997, Symantec
capitalized approximately $8 million of software development costs, primarily
related to network administration technology, which was subsequently sold to
Hewlett-Packard in March 1997 and resulted in the write off of approximately $7
million in unamortized costs during the fourth quarter of fiscal 1997. In
addition, a $2 million research and development expense reimbursement was
received from Hewlett-Packard in fiscal 1997 under the aforementioned agreement,
which further reduced fiscal 1997 research and development expenses.
The increase in research and development expenses in fiscal 1996 as compared to
fiscal 1995 was primarily the result of increased product development efforts
associated with Symantec's and Delrina's development of new products designed to
operate on the Windows 95 operating system.
Research and development expenditures are charged to operations as incurred.
Prior to fiscal 1997, capitalization of certain software development costs in
accordance with Statement of Accounting Standards No. 86 did not materially
affect the Company, except for amounts capitalized by Delrina prior to its
acquisition by Symantec in fiscal 1996. Delrina did not capitalize any software
development costs in fiscal 1996 and capitalized approximately $6 million in
software development costs in fiscal year 1995.
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SALES AND MARKETING EXPENSES.
Sales and marketing expenses decreased 4% to $221 million or 47% of net revenues
in fiscal 1997 from $230 million or 52% of net revenues in fiscal 1996. The
decrease in sales and marketing expenses in fiscal 1997 as compared to fiscal
1996 is due primarily to the elimination of duplicative sales and marketing
expenses as a result of the acquisition of Delrina by Symantec and the
elimination of sales and marketing expenses related to the electronic forms
software products which were sold to JetForm in September 1996. Reductions in
expenditures for products no longer actively marketed by Symantec were offset by
increased spending for new products released during the fiscal year.
Sales and marketing expenses increased to $230 million or 52% of net revenues in
fiscal 1996 from $190 million or 44% of net revenues in fiscal 1995, due to an
increase in sales and marketing expenses associated with the release of
Symantec's Windows 95 products.
GENERAL AND ADMINISTRATIVE EXPENSES.
In fiscal 1997, general and administrative expenses increased by 4% to $34
million or 7% of net revenues from $33 million or 7% of net revenues in fiscal
1996 and from $29 million or 7% of net revenues in fiscal 1995. The increase in
general and administrative expenses in absolute dollars in fiscal 1997 as
compared to fiscal 1996 is primarily the result of management consulting
expenditures, offset by benefits from the elimination of duplicative general and
administrative expenses as a result of the acquisition of Delrina by Symantec in
fiscal 1996. The increase in general and administrative expenses in absolute
dollars in fiscal 1996 as compared to fiscal 1995 was principally due to
significant general and administrative expenses incurred by Delrina in the three
month period ended September 30, 1995 and certain legal fees incurred by
Delrina.
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
Acquisition Expenses. In connection with the acquisitions completed in fiscal
1997, 1996 and 1995 (see Summary of Significant Accounting Policies and Note 10
of Notes to Consolidated Financial Statements), significant acquisition expenses
have been incurred. These acquisition expenses principally included fees for
legal, accounting and financial advisory services, the write-off of duplicative
capitalized technology, the modification of certain development contracts and
expenses related to the combination of the companies, including the elimination
of duplicative and excess facilities and personnel. These charges approximated
$1 million, $20 million and $10 million in fiscal 1997, 1996 and 1995,
respectively.
Symantec recorded total acquisition charges of approximately $1 million in
fiscal 1997 in connection with the acquisition of Fast Track.
In connection with the acquisition of Delrina in fiscal 1996, Symantec recorded
total acquisition charges of $22 million, which included $9 million for legal,
accounting and financial advisory services, $6 million for the elimination of
duplicative and excess facilities and equipment, $4 million for personnel
severance and outplacement expenses and $3 million for the consolidation and
discontinuance of certain operational activities and other acquisition-related
expenses. Offsetting these costs was a reduction in accrued acquisition,
restructuring and other expenses of $2 million, as actual costs incurred related
to the acquisitions of Central Point and SLR were less than costs previously
accrued by the Company.
In connection with the acquisitions of Central Point and SLR, Symantec recorded
total acquisition charges of $10 million in fiscal 1995. The charges included $4
million for legal, accounting and financial advisory services, $1 million for
the write-off of duplicative product-related expenses and modification of
certain development contracts, $1 million for the elimination of duplicative and
excess facilities, $3 million for personnel severance and outplacement expenses
and $1 million for the consolidation and discontinuance of certain operational
activities and other acquisition-related expenses.
Restructuring Expenses. In fiscal 1997, the Company recorded a charge of $3
million for costs related to the restructuring of certain domestic and
international sales and research and development operations, settlement of the
Carmel lawsuit (see Note 11 of Notes to Consolidated Financial Statements in
Part IV, Item 14 of this Form 10-K) and other expenses. The restructuring plans
have been completed.
In February 1995, Symantec announced a plan to consolidate certain research and
development activities. This plan was designed to gain greater synergy between
the Company's Third Generation Language and Fourth Generation
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19
Language development groups. During fiscal 1996, the Company completed the
consolidation and recorded $2 million for the relocation costs of moving
equipment and personnel.
Other Expenses. In fiscal 1997, Symantec recorded a $2 million charge in
connection with the write-off of an equity investment and a $3 million charge
for the write-off of certain in-process research and development acquired by the
Company.
In fiscal 1996, Symantec sold the assets of Time Line Solutions Corporation, a
wholly-owned subsidiary, to a group comprised of Time Line Solutions
Corporation's management and incurred a $3 million loss on the sale. In the
fourth quarter of fiscal 1996, the Company recorded $2 million for estimated
legal fees expected to be incurred in connection with a securities class action
complaint filed in March 1996 and other legal matters (See Note 11 of Notes to
Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K).
As of March 31, 1997, total accrued cash related acquisition and restructuring
expenses were $4 million and included less than $1 million for estimated legal
fees and expenses, less than $1 million for the elimination of duplicative and
excess facilities and $3 million for other acquisition related expenses.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest income
was $7 million, $8 million and $6 million in fiscal 1997, 1996 and 1995,
respectively. Higher average cash balances during fiscal 1997 compared to fiscal
1996 were offset by lower interest rates on invested cash during the year.
Interest income increased 33% in fiscal 1996 over fiscal 1995 due to higher
average invested cash balances. Interest expense was $1 million, $2 million and
$2 million in fiscal 1997, 1996 and 1995, respectively. The April 1995
conversion of convertible subordinated debentures totaling $10 million, which
were originally issued in April 1993, for 833,333 shares of Symantec common
stock, resulted in a reduction in interest expense in fiscal 1997 from 1996 and
in fiscal 1996 from 1995. Other income (expense) is primarily comprised of
foreign currency exchange gains and losses from fluctuations in currency
exchange rates.
INCOME TAXES.
The effective income tax provision for fiscal 1997 was 14%, which compares to an
effective income tax benefit of 10% in fiscal 1996 and an effective tax
provision of 25% in fiscal 1995. The 1997 income tax provision of 14% is lower
than the statutory rate primarily due to the utilization of previously
unbenefitted losses.
Realization of the $13 million of net deferred tax asset that is reflected in
the financial statements is dependent upon the Company's ability to generate
sufficient future U.S. taxable income. Management believes that it is more
likely than not that the asset will be realized based on forecasted U.S.
earnings. A valuation allowance of approximately $40 million was provided in the
financial statements. Approximately $22 million of the valuation allowance for
deferred tax assets is attributable to unbenefitted stock option deductions, the
benefit of which will be credited to equity when realized. Approximately $4
million of the valuation allowance represents net operating loss and tax credit
carryforwards of various acquired companies that are limited by separate return
limitations and under the "change of ownership" rules of Internal Revenue Code
Section 382, and the remaining $14 million of the valuation allowance relates to
unbenefitted temporary differences and net operating loss and tax credit
carryforwards.
Symantec projects the effective tax rate to be 23% in fiscal 1998. This rate is
lower than the expected U. S. federal and state combined statutory rate of 40%
is due to a lower tax rate from the Company's Irish operation and the
utilization of previously unbenefitted losses. However, this projection is
subject to change due to fluctuations in and the geographic allocation of
earnings. (See further discussion in Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations - Business Risks
Fluctuations in Quarterly Operating Results.)
LIQUIDITY AND CAPITAL RESOURCES
Cash, short-term investments and restricted investments increased $79 million to
$208 million at March 31, 1997 from $129 million at March 31, 1996. This
increase was largely due to cash provided from operating activities, net
proceeds from the exercise of stock options and the sales of common stock under
the Employee Stock Purchase Plan, and improved cash collections of trade
accounts receivable. Cash provided by operating activities was partially offset
by the reclassification of $47 million to restricted investments, a non-current
asset. The restricted investment balance relates to collateral requirements
under lease agreements entered into by Symantec during the current fiscal year.
Symantec is obligated under lease agreements for two existing office buildings,
one parcel of land and one office building under construction in Cupertino,
California to maintain a restricted cash balance invested in U.S. treasury notes
with maturities not to exceed three years. In accordance with the lease terms,
these
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funds would not be available to meet operating cash requirements. Net cash
provided by operating activities was $94 million and was comprised of the
Company's net income of $26 million and non-cash related expenses of $37 million
and a net decrease in assets and liabilities of $31 million.
Trade accounts receivable decreased $11 million from $59 million at March 31,
1996 to $48 million at March 31, 1997 primarily due to improved cash collections
during the year.
On April 29, 1997, the Board of Directors of Symantec authorized the repurchase
of up to 1,000,000 shares of Symantec common stock by June 13, 1997. The shares
will be used for employee stock purchase programs and option grants. As of June
13, 1997, management completed the repurchase of 500,000 shares at prices
ranging from $16.57 to $17.00 per share.
The Company has a $10 million line of credit that expires in March 1998. The
Company was in compliance with the debt covenants at March 31, 1997. At March
31, 1997, there were no borrowings outstanding under this line and there were
less than $1 million of standby letters of credit outstanding under this
agreement. Future acquisitions by the Company may cause the Company to be in
violation of the line of credit covenants; however, the Company believes that if
the line of credit were canceled or amounts were not available under the line,
there would not be a material adverse impact on the financial results, liquidity
or capital resources of the Company.
Symantec is obligated under lease agreements for two existing office buildings,
one parcel of land and one office building under construction in Cupertino,
California to maintain a restricted cash balance invested in U.S. treasury notes
with maturities not to exceed three years. In accordance with the lease terms,
these funds would not be available to meet operating cash requirements.
If Symantec were to sustain significant losses, the Company could be required to
reduce operating expenses, which could result in product delays, reassessment of
acquisition opportunities, which could negatively impact the Company's growth
objectives, and/or pursue further financing options. The Company believes
existing cash and short-term investments will be sufficient to fund operations
for the next year. (See further discussion in Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations - Business Risks -
Fluctuations in Quarterly Operating Results and Management of Expanding
Operations.)
BUSINESS RISKS
The preceding discussion contains forward-looking statements that are subject to
significant risks and uncertainties. There are several important factors that
could cause actual results to differ materially from historical results and
percentages and results anticipated by the forward-looking statements contained
in the following discussion.
RAPID TECHNOLOGICAL CHANGE AND DEVELOPMENT RISKS. The Company participates in a
highly dynamic industry. Future technology or market changes may cause certain
of Symantec's products to become obsolete more quickly than expected and the
trend towards server-based applications in networks and over the Internet could
have a material adverse effect on sales of the Company's products. The impact of
the market's acceptance and adoption rate of Symantec's products may result in
reduced revenues, gross margins and net income, as well as significant increases
in the volatility of Symantec's stock price.
STOCK PRICE VOLATILITY. The Company's earnings and stock price have been and may
continue to be subject to significant volatility, particularly on a quarterly
basis. Symantec has previously experienced shortfalls in revenue and earnings
from levels expected by securities analysts, which has had an immediate and
significant adverse effect on the trading price of the Company's common stock.
This may occur again in the future. Additionally, as a significant portion of
the Company's revenues often occur late in the quarter, the Company may not
learn of revenue shortfalls until late in the fiscal quarter, which could result
in an even more immediate and adverse effect on the trading price of the
Company's common stock.
PERSONAL COMPUTER AND HARDWARE GROWTH RATES. Fluctuations in customer spending
from software to hardware as the result of technological advancements in
hardware or price reductions of hardware have in the past and may in the future
result in reduced revenues which would have a material adverse effect on
operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. While Symantec's diverse product
line has tended to lessen fluctuations in quarterly net revenues, these
fluctuations have occurred in the past and are likely to occur in the future.
These fluctuations may be caused by a number of factors, including the
introduction of competitive products by new competitors, reduced demand for any
given product, seasonality in the retail software market, the market's
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transition between operating systems, the impact of the Internet and general
economic conditions. These factors may cause significant fluctuations in net
revenues and, accordingly, operating results.
MANAGEMENT OF EXPANDING OPERATIONS. Symantec continually evaluates its product
and corporate strategy and has in the past and will in the future undertake
organizational changes and product and marketing strategy modifications which
are designed to maximize market penetration, maximize use of limited corporate
resources and develop new products and product channels. These organizational
changes increase the risk that objectives will not be met due to the allocation
of valuable resources to implement changes. Further, due to the uncertain nature
of any of these undertakings, there can be no assurance that these efforts will
be successful or that the Company will realize any benefit from these efforts.
Symantec has completed a number of acquisitions and may acquire other companies
in the future. Acquisitions involve a number of special risks, including the
diversion of management's attention to assimilation of the operations and
personnel of the acquired companies in an efficient and timely manner, the
retention of key employees, the difficulty of presenting a unified corporate
image, the coordination of research and development and sales efforts and the
integration of the acquired products.
The Company has lost certain key employees of acquired companies, and, in some
cases, the assimilation of the operations of acquired companies took longer than
initially had been anticipated by the Company. In addition, because the
employees of acquired companies have frequently remained in their existing,
geographically diverse facilities, the Company has not realized certain
economies of scale that might otherwise have been achieved.
Symantec typically incurs significant expenses in connection with acquisitions,
which have a significant adverse impact on the Company's profitability and
financial resources. These expenses may have a significant adverse impact on the
Company's future profitability and financial resources.
FOREIGN OPERATIONS. A significant portion of Symantec's revenues, manufacturing
costs and marketing is transacted in foreign currencies. As a result, the
Company may be materially and adversely affected by fluctuations in currency
exchange rates, as well as increases in duty rates, exchange or price controls
or other restrictions on foreign currencies. The Company's international
operations are subject to certain risks common to international operations, such
as government regulations, import restrictions, currency fluctuations,
repatriation restrictions and, in certain jurisdictions, reduced protection for
the Company's copyrights and trademarks.
PRICE COMPETITION. Price competition is intense in the microcomputer business
software market and is expected to continue to increase and become even more
significant in the future, resulting in reduced profit margins. Should
competitive pressures in the industry continue to increase, Symantec may be
required to reduce software prices and/or increase its spending on sales,
marketing and research and development as a percentage of net revenues,
resulting in lower profit margins. There can be no assurance these changes will
be successful.
DISTRIBUTION CHANNELS. Approximately 34% of the Company's net revenues in fiscal
1997 were from sales to two large retail distributors. These customers tend to
make the majority of their purchases at the end of the fiscal quarter, in part
because they are able, or believe that they are able, to negotiate lower prices
and more favorable terms. This end-of-period buying pattern means that forecasts
of quarterly and annual financial results are particularly vulnerable to the
risk that they will not be achieved, either because expected sales do not occur
or because they occur at lower prices or on less favorable terms to the Company.
The Company's retail distribution customers also carry the products of
Symantec's competitors. The distributors have limited capital to invest in
inventory, and their decisions to purchase the Company's products is partly a
function of pricing, terms and special promotions offered by Symantec as well as
by its competitors over which the Company has no control and which it cannot
predict.
Agreements with distributors are generally nonexclusive and may be terminated by
either party without cause. Such distributors are not within the control of
Symantec, are not obligated to purchase products and may also represent
competitors' product lines. There can be no assurance that these distributors
will continue their current relationships with Symantec on the same basis, or
that they will not give higher priority to the sale of other products, which
could include products of competitors. Additionally, certain distributors and
resellers have experienced financial difficulties in the past. There can be no
assurance that distributors that account for significant sales of the Company
will not experience financial difficulties in the future. Any such problems
could lead to reduced sales and could adversely affect
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operating results of the Company. There can be no assurance that Symantec will
be able to continue to obtain adequate distribution channels for all of its
products in the future.
Due to the rapid change in software distribution technology as demonstrated by
the increase in volume of software distributed through the Internet, there can
be no assurance that Symantec will be able to develop an effective method of
distributing its software products utilizing each of the available distribution
channels or that Symantec will develop distribution channels for those channels
which are ultimately accepted by the marketplace. The presence of new channels
could adversely impact existing channels and/or product pricing, which could
have a material adverse impact on the Company's net revenues and profitability.
The Company operates with relatively little backlog; therefore, if near-term
demand for the Company's products weakens in a given quarter, there could be an
immediate, material adverse effect on net revenues and on the Company's
operating results, which would likely result in a precipitous drop in stock
price.
CHANNEL FILL. The Company's pattern of revenues and earnings may be affected by
"channel fill." Channel fill occurs following the introduction of a new product
as distributors buy significant quantities of the new product in anticipation of
sales of such product. Software upgrades typically result in an increase in net
revenues during the first three to six months following their introduction due
to purchases by existing users, usually at discounted prices, and initial
inventory purchases by Symantec's distributors. Following such purchases, the
rate of distributors' purchases often declines in a material amount, depending
on the rates of purchases by end users or "sell-through." As the desktop
applications market has become more saturated, the sales mix is shifting from
standard retail products to lower priced product upgrades. This trend is likely
to continue.
Channel fill may also occur in anticipation of price increases or in response to
sales promotions or incentives, some of which may be designed to encourage
customers to accelerate purchases that might otherwise occur in later periods.
Channels may also become filled simply because the distributors do not sell
their inventories to retail distribution or end users as anticipated. If
sell-through does not occur at a sufficient rate, distributors will delay
purchases or cancel orders in later periods or return prior purchases in order
to reduce their inventories. Such order delays or cancellations can cause
material fluctuations in revenues from one quarter to the next. The impact is
somewhat mitigated by the Company's deferral of revenue associated with
inventories estimated to be in excess of appropriate levels in the distribution
channel; however, net revenues may still be materially affected favorably or
adversely by the effects of channel fill.
Between the date Symantec announces a new version or new product and the date of
release, distributors, dealers and end users often delay purchases, cancel
orders or return products in anticipation of the availability of the new version
or new product.
Channel fill did not have a material impact on the Company's revenues in fiscal
1997, 1996 or 1995 but may have a material impact in future periods,
particularly in periods where a large number of new products are simultaneously
introduced.
PRODUCT RETURNS. The Company estimates and maintains reserves for product
returns. Product returns can occur when the Company introduces upgrades and new
versions of products or when distributors have excess inventories. Symantec's
return policy allows its distributors, subject to certain limitations, to return
purchased products in exchange for new products or for credit towards future
purchases. End users may return products through dealers and distributors within
a reasonable period from the date of purchase for a full refund, and retailers
may return older versions of products. Symantec prepares detailed analyses of
historical return rates, as well as taking into consideration upcoming product
upgrades, current market conditions, customer inventory balances and any other
known factors when estimating anticipated returns and maintains reserves for
product returns. Symantec has experienced, and may experience in the future,
significant increases in product returns above historical levels from customers
of acquired companies after an acquisition is completed. The impact of actual
returns on net revenues, net of such provisions, has not had a material effect
on the Company's liquidity as the returns typically result in the issuance of
credit towards future purchases as opposed to cash payments to the distributors.
However, there can be no assurance that future returns will not exceed the
reserves established by the Company or that future returns will not have
material adverse effect on the operating results of the Company.
UNCERTAINTY OF RESEARCH AND DEVELOPMENT EFFORTS. Symantec believes research and
development expenditures will be necessary in order to remain competitive. While
the Company believes its research and development
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expenditures will result in successful product introductions, due to the
uncertainty of software development projects, these expenditures will not
necessarily result in successful product introductions. Uncertainties impacting
the success of software development project introductions include technical
difficulties, market conditions, competitive products and customer acceptance of
new products and operating systems.
The length of Symantec's product development cycle has generally been greater
than Symantec originally expected. Although such delays have undoubtedly had a
material adverse effect on Symantec's business, Symantec is not able to quantify
the magnitude of net revenues that were deferred or lost as a result of any
particular delay because Symantec is not able to predict the amount of net
revenues that would have been obtained had the original development expectations
been met. Delays in future product development are likely to occur and could
have a material adverse effect on the amount and timing of future revenues. Due
to the inherent uncertainties of software development projects, Symantec does
not generally disclose or announce the specific expected shipment date of the
Company's product introductions. While the Company performs extensive usability
and beta testing of new products, there can be no assurance that any products
currently being developed by Symantec will be technologically successful, that
any resulting products will achieve market acceptance or that the Company's
products will be effective in competing with products either currently in the
market or introduced in the future.
OPERATING SYSTEM. The release and subsequent customer acceptance of current or
enhanced operating systems are particularly important events that increase the
uncertainty and increase the volatility of Symantec's results.
Microsoft has incorporated advanced utilities including telecommunications,
facsimile and data recovery utilities in Windows 95 and may include additional
product features in future releases of Windows 95 and Window NT that may
decrease the demand for certain of the Company's products, including those
currently under development.
Should the Company be unable to successfully or timely develop products that
operate under existing or new operating systems, the Company's future net
revenues and operating results would be immediately and significantly adversely
affected. In addition, as the timing of delivery and adoption of many of
Symantec's products is dependent on the adoption rate of these operating
systems, which the Company and securities analysts are unable to predict, the
ability of Symantec and securities analysts to forecast the Company's net
revenues has been and will continue to be adversely impacted. As a result, there
is a heightened risk that net revenues and profits will not be in line with
analysts' expectations in the periods following the introduction of existing or
new operating systems.
INTELLECTUAL PROPERTY RIGHTS. Symantec regards its software as proprietary and
relies on a combination of copyright, patent and trademark laws and license
agreements in an attempt to protect its rights. Despite these precautions, it
may be possible for unauthorized third parties to copy aspects of Symantec's
products or to obtain and use information that Symantec regards as proprietary.
All of Symantec's products are protected by copyright, and Symantec has several
patents and patent applications pending. However, existing patent and copyright
laws afford limited practical protection. In addition, the laws of some foreign
countries do not protect Symantec's proprietary rights in its products to the
same extent as do the laws of the United States. Symantec's products are not
copy protected.
As the number of software products in the industry increases and the
functionality of these products further overlap, Symantec believes that software
developers will become increasingly subject to infringement claims. This risk is
potentially greater for companies, such as Symantec, that obtain certain of
their products through publishing agreements or acquisitions, since they have
less direct control over the development of those products.
In addition, an increasing number of patents are being issued that are
potentially applicable to software, and allegations of patent infringement are
becoming increasingly common in the software industry. It is impossible to
ascertain all possible patent infringement claims because new patents are being
issued continually, the subject of patent applications is confidential until a
patent is issued, and it may not be apparent even from a patent that has already
been issued whether it is potentially applicable to a particular software
product. This increases the risk that Symantec's products may be subject to
claims of patent infringement. Although such claims may ultimately prove to be
without merit, they are time consuming and expensive to defend. Symantec has
been involved in disputes claiming patent infringement in the past, is currently
involved in such disputes and litigation and may be involved in such disputes
and/or litigation in the future. If Symantec is alleged to infringe one or more
patents, it may choose to litigate the claim and/or seek an appropriate license.
If litigation were to commence and a license were not available
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on reasonable terms or if another party were found to have a valid patent claim
against Symantec, it could have a material adverse effect on Symantec (See Note
11 of Notes to Consolidated Financial Statements).
LITIGATION. Symantec is involved in a number of other judicial and
administrative proceedings incidental to its business (See Note 11 of Notes to
Consolidated Financial Statements). The Company intends to defend and/or pursue
all of these lawsuits vigorously and, although an unfavorable outcome could
occur in one or more of the cases, the final resolution of these lawsuits,
individually or in the aggregate, is not expected to have a material adverse
effect on the financial position of the Company. However, depending on the
amount and timing of an unfavorable resolution of these lawsuits, it is possible
that the Company's future results of operations or cash flows could be
materially adversely effected in a particular period.
SALES AND MARKETING AND SUPPORT INVESTMENTS. Symantec believes substantial sales
and marketing efforts are essential to achieve revenue growth and to maintain
and enhance Symantec's competitive position. There can be no assurance that
these increased sales and marketing efforts will be successful.
BUSINESS DISRUPTION. Much of the Company's administration, sales and marketing,
manufacturing and research and development facilities are located on the west
coast of the United States. Future earthquakes or other natural disasters could
cause a significant disruption to the Company's operations and may cause delays
in product development that could adversely impact future revenues of the
Company.
Order entry and product shipping are geographically separated both domestically
and internationally. A disruption in communications between these facilities,
particularly at the end of a fiscal quarter, would likely result in an
unexpected shortfall in net revenues and could result in an adverse impact on
operating results.
SUPPLY RISK. Symantec has often been able to acquire materials on a
volume-discount basis and has had multiple sources of supply for certain
materials. To date, Symantec has not experienced any material difficulties or
delays in production of its software and related documentation and packaging.
However, shortages may occur in the future. For example, shortages of certain
materials may occur when Microsoft introduces new operating systems.
EMPLOYEE RISK. Competition in recruiting personnel in the software industry is
intense. Symantec believes that its future success will depend in part on its
ability to recruit and retain highly skilled management, marketing and technical
personnel. Symantec believes that it must provide personnel with a competitive
compensation package, which necessitates the continued availability of stock
options and requires ongoing shareholder approval of such option programs.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ANNUAL FINANCIAL STATEMENTS. See Part IV, Item 14 of this Form 10-K.
SELECTED QUARTERLY DATA. During fiscal 1996, Symantec acquired Delrina in a
transaction accounted for as a pooling of interest. All financial information
has been restated to reflect the combined operations of Symantec and Delrina.
(In thousands, except net income (loss) per share; unaudited)
Fiscal 1997 Fiscal 1996
---------------------------------------------- ----------------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1997 1996 1996 1996 1996 1995 1995 1995
-------- -------- -------- -------- -------- --------- --------- ---------
Net revenues $129,706 $124,081 $109,178 $109,218 $115,960 $111,097 $108,510 $109,865
Gross margin 100,352 102,105 88,448 87,734 95,363 80,027 73,420 87,647
Acquisition,
restructuring and
other expenses * -- -- 7,290 1,295 2,000 25,688 -- (71)
Net income (loss) ** 8,269 13,852 882 3,035 7,943 (36,806) (17,786) 6,866
Net income (loss)
per share -
primary $ 0.15 $ 0.25 $ 0.02 $ 0.06 $ 0.15 $ (0.69) $ (0.34) $ 0.13
fully diluted $ 0.15 $ 0.25 $ 0.02 $ 0.06 $ 0.15 $ (0.69) $ (0.34) $ 0.12
* See Note 10 of Notes to Consolidated Financial Statements.
** Quarterly operating results for the period ended March 31, 1997, includes
revenue and charges related to the sale of Symantec's networking business
unit (see Note 9 of Notes to Consolidated Financial Statements).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item with respect to Directors may be found in the
section captioned "Election of Symantec Directors" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on September 18, 1997 (the "Proxy
Statement"). Such information is incorporated herein by reference. Information
required by this Item with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, may be found in the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" appearing in
the Proxy Statement.
EXECUTIVE OFFICERS OF THE REGISTRANT:
The executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Gordon E. Eubanks, Jr. 50 President and Chief Executive Officer
Howard A. Bain III 51 Vice President, Worldwide Operations
and Chief Financial Officer
Mark W. Bailey 38 Senior Vice President, Business
Development/Emerging Businesses
Enrique T. Salem 31 Vice President, Security and Assistance
Business Unit and Chief Technical Officer
Dieter Giesbrecht 53 Vice President, EMEA
Dana E. Siebert 37 Vice President, Americas
Christopher Calisi 37 Vice President, Remote Professional Tools
Derek Witte 40 Vice President, General Counsel and Secretary
Executive officers are chosen by and serve at the discretion of the Board of
Directors. There is no family relationship between any director or executive
officer of Symantec and any other director or executive officer of Symantec.
GORDON E. EUBANKS, JR. is the President and Chief Executive Officer of
Symantec. He has served as a director of Symantec since November 1983 and as
the President and Chief Executive Officer of Symantec since October 1986.
Mr. Eubanks also served as Symantec's Chairman of the Board from November
1983 to October 1986 and from November 1990 to January 1993. Previously, Mr.
Eubanks was Vice President of Digital Research, Inc.'s commercial systems
division where he was responsible for the development and marketing of all
system software products. He left Digital Research, Inc. in September 1983.
Mr. Eubanks founded Compiler Systems, Inc. and authored its products:
CBASIC, one of the first successful languages on personal computers, and
CB80, a compiled version of CBASIC. Compiler Systems, Inc. was acquired by
Digital Research, Inc. in August of 1981. Mr. Eubanks received his Bachelor
of Science degree in Electrical Engineering from Oklahoma State University.
He received his Masters degree in Computer Science from Naval Postgraduate
School in Monterey, California. Mr. Eubanks was a commissioned officer in
the United States Navy from 1970 to 1979 serving in the Nuclear Submarine
Force. Mr. Eubanks is also a director of NetFrame Systems, Inc. He is a
member of the IEEE and ACM.
HOWARD A. BAIN III is currently Vice President, World-Wide Operations and CFO,
at Symantec Corporation. Mr. Bain has over twenty-five years of experience in
all phases of corporate operations and challenges. Prior to joining Symantec in
October 1991 as Vice President, Finance, he was CFO for several private venture
financed technology companies (RTP semiconductor manufacturing equipment, BiCMOS
SRAM's, laser-based large screen projection systems for HDTV and computer
graphics applications, and high performance 5-1/4" disk drives for personal
computers) where he assisted those management teams in growing their businesses
through raising over $50 million in venture capital and controlling
hyper-growth. His previous experience includes senior financial and
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accounting management positions with Fairchild Camera and Instrument Corporation
and as a consultant with Arthur Andersen & Company. Mr. Bain is a CPA and holds
a B.S.B.A. from California Polytechnic University.
MARK W. BAILEY is Senior Vice President, Business Development and Emerging
Businesses of Symantec. Mr. Bailey has led Symantec's mergers and
acquisitions and alliances effort since December 1989. Prior to that, Mr.
Bailey was an associate partner with one of the early investors in Symantec,
Kleiner Perkins Caufield & Byers. Before attending graduate school, Mr.
Bailey worked at Hewlett Packard. Mr. Bailey received a Bachelor of Science
degree cum laude in electrical engineering and computer science from
Princeton University and an MBA from Harvard University's Graduate School of
Business Administration.
ENRIQUE T. SALEM is Vice President, Security and Assistance Business Unit and
Chief Technical Officer. Mr. Salem joined Symantec in April 1990 and has
held numerous positions including Director of Development and General Manager
of Advanced Utilities Group. Previous to joining Symantec, he was Vice
President in Security Pacific National Bank, Merchant Bank Division, where he
was responsible for the development and deployment of a global trading
system. Mr. Salem holds a Bachelor of Arts degree in Computer Science from
Dartmouth College. He is a member of the Board of Directors of the Software
Council of Southern California and a member of the IEEE. Mr. Salem became an
executive officer of Symantec in October 1996.
DIETER GIESBRECHT is Vice President, EMEA (Europe, Middle East and Africa) of
Symantec. Mr. Giesbrecht joined Symantec in September 1996. From 1995 until
joining Symantec, he was Vice President of Attachmate Europe based in Paris,
France and was responsible for the EMEA region. From 1991 to 1995, he held
several executive functions within Lotus Development Europe including Managing
Director UK and Managing Director Central Europe. He has a degree in Electronics
Engineering from the Technical University of Furtwangen located in Germany. Mr.
Giesbrecht is a member of the Institute of Directors.
DANA E. SIEBERT is Vice President, Americas. Previously, Mr. Siebert served
as Vice President, Worldwide Sales of Symantec and prior to that, Vice
President, Worldwide Services of Symantec. Mr. Siebert joined Symantec in
September 1987. From 1985 to 1987, he was a Sales Manager at THINK
Technologies where he was responsible for U.S. corporate, OEM and
international sales. Previously, he held a number of sales management
positions in high technology companies including Wang Laboratories,
Computerland Corporation and Burroughs Corporation. Mr. Siebert holds a
Bachelor of Science degree in Business Administration from the University of
New Hampshire and is a member of the Software Publishers Association.
CHRISTOPHER CALISI is Vice President, Remote Professional Tools of Symantec.
From 1992 to 1996, Mr. Calisi held several positions within Symantec's Remote
Access Business Unit, including Development Manager, Director of Development,
General Manager and most recently, Vice President, Communication Products.
Mr. Calisi joined Symantec in 1992 from Unify Corporation, a relational
database and 4GL tools vendor where he served as the Manager of Sales
Engineers. Prior to Unify Corporation, Mr. Calisi held development positions
with several relational database vendors, including Britton Lee, Oracle and
Computer Associates. Mr. Calisi holds a Bachelor of Science degree from the
State University of New York at Empire State and has received executive
training at the Wharton School. Mr. Calisi holds several copyrights for
software innovations from 1981 through 1986 and is an associate of the IEEE
Committee. Mr. Calisi became an executive officer of Symantec in May 1996.
DEREK WITTE is Vice President, General Counsel and Secretary of Symantec.
Mr. Witte joined Symantec in October 1990. From October 1987 until joining
Symantec, Mr. Witte was Associate General Counsel and later Director of Legal
Services for Claris Corporation, a software subsidiary of Apple. Between
January and October 1987, Mr. Witte was Assistant General Counsel at Worlds
of Wonder, Inc. Previously, Mr. Witte practiced law with the San
Francisco-based law firms of Brobeck, Phleger & Harrison and Heller Ehrman
White and McAuliffe during the periods between 1981 and 1983 and 1983 and
1987, respectively. Mr. Witte holds a law degree and a Bachelor of Arts
degree in Economics from the University of California at Berkeley. Mr. Witte
has been a member of the California bar since 1981.
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ITEM 11: EXECUTIVE COMPENSATION.
Information with respect to this Item may be found in the section captioned
"Executive Compensation" appearing in the definitive Proxy Statement to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held on September 18, 1997. Such information is incorporated herein by
reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to this Item may be found in the section captioned
"Security Ownership of Certain Beneficial Owners and Management" appearing in
the definitive Proxy Statement to be delivered to stockholders in connection
with the Annual Meeting of Stockholders to be held on September 18, 1997.
Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this Item may be found in the section captioned
"Executive Compensation - Certain Transactions" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on September 18, 1997. Such information is
incorporated herein by reference.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Upon written request, the Company will provide, without charge, a copy of the
Company's annual report on Form 10-K, including the consolidated financial
statements, financial statement schedules and any exhibits for the Company's
most recent fiscal year. All requests should be sent to:
Lori A. Barker
Investor Relations
Symantec Corporation
10201 Torre Avenue
Cupertino, California 95014-2132
408-446-8990
(a) The following documents are filed as part of this report:
Page
Number
1. Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.............. 33
Report of Price Waterhouse, Independent Auditors............... 34
Consolidated Balance Sheets as of March 31, 1997 and 1996...... 35
Consolidated Statements of Operations for the Years Ended
March 31, 1997, 1996 and 1995............................... 36
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1997, 1996 and 1995......................... 37
Consolidated Statements of Cash Flow for the Years Ended
March 31, 1997, 1996 and 1995............................... 38
Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements........................... 39
2. Financial Statement Schedules. The following financial
statement schedule of Symantec Corporation for the years ended
March 31, 1997, 1996 and 1995 is filed as part of this Form
10-K and should be read in conjunction with the Consolidated
Financial Statements of Symantec Corporation.
Schedule
II Valuation and Qualifying Accounts........................ 56
Schedules other than that listed above have been omitted since they are
either not required, not applicable, or the information is otherwise
included.
3. Exhibits. The following exhibits are filed as part of, or incorporated by
reference into, this Form 10-K:
3.01 The Registrant's Restated Certificate of Incorporation.
(Incorporated by reference to Annex G filed with the Registrant's
Joint Management Information Circular and Proxy Statement (No.
000-17781) dated October 17, 1995.)
3.02 The Registrant's Bylaws, as currently in effect. (Incorporated by
reference to Exhibit 3.02 filed with the Registrant's Registration
Statement on Form S-1 (No. 33-28655) originally filed May 19,
1989, and amendment No. 1 thereto filed June 21, 1989, which
Registration Statement became effective June 22, 1989.)
4.01 Registration Rights Agreement. (Incorporated by reference to
Exhibit 4.02 filed with the Registrant's Registration Statement
on Form S-4 (No. 33-35385) initially filed June 13, 1990.)
4.02 Amendment No. One to Registration Rights Agreement (Incorporated
by reference to Exhibit 4.03 filed with the Registrant's Annual
Report on Form 10-K for the year ended April 2, 1993.)
4.03 Amendment No. Two to Registration Rights Agreement (Incorporated
by reference to Exhibit 4.04 filed with the Registrant's Annual
Report on Form 10-K for the year ended April 2, 1993.)
27
30
4.04 Plan of Arrangement and Exchangeable Share Provisions related to
the acquisition of Delrina. (Incorporated by reference to Annex D
filed with the Registrant's Joint Management Information Circular
and Proxy Statement dated October 17, 1995.)
4.05 Support Agreement dated July 5, 1995 between Symantec and Delrina.
(Incorporated by reference to Annex E filed with the Registrant's
Joint Management Information Circular and Proxy Statement dated
October 17, 1995.)
4.06 Form of Voting and Exchange Trust Agreement dated July 5, 1996
between Symantec and Delrina. (Incorporated by reference to Annex
F filed with the Registrant's Joint Management Information
Circular and Proxy Statement dated October 17, 1995.)
10.01 Amended Agreement Respecting Certain Rights of Publicity.
(Incorporated by reference to Exhibit 10.04 filed with the
Registrant's Registration Statement on Form S-4 (No. 33-35385)
initially filed June 13, 1990.)
10.02 Non-Competition and Non-Solicitation Agreement between Registrant
and Peter Norton and Ronald Posner. (Incorporated by reference
to Exhibit 10.06 filed with the Registrant's Registration
Statement on Form S-4 (No. 33-35385) initially filed June 13,
1990.)
10.03* 1988 Employees Stock Option Plan, as amended to date. (Incorporated
by reference to Exhibit 4.02 filed with the Registrant's
Registration Statement on Form S-8 (No. 33-88694) filed January 23,
1995.)
10.04* 1989 Employee Stock Purchase Plan, as amended to date. (Incorporated
by reference to Exhibit 4.01 filed with the Registrant's
Registration Statement on Form S-8 (No. 333-18353) filed December
20, 1996.)
10.05* Form of Stock Option Agreement and Form of Stock Option Exercise
Request, as currently in effect, under the Registrant's 1988
Employees Stock Option Plan. (Incorporated by reference to Exhibit
10.10 filed with the Registrant's Registration Statement on Form S-4
(No. 33-35385) initially filed June 13, 1990.)
10.06* 1988 Directors Stock Option Plan, as amended to date. (Incorporated
by reference to Exhibit 10.09 filed with the Registrant's Annual
Report on Form 10-K for the year ended April 2, 1993.)
10.07* 1993 Directors Stock Option Plan, as amended. (Incorporated by
reference to Exhibit 10.07 filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994)
10.08* Form of Stock Option Grant and Stock Option Exercise Notice and
Agreement under the Registrant's 1988 Directors Stock Option Plan.
(Incorporated by reference to Exhibit 10.12 filed with the
Registrant's Registration Statement on Form S-4 (No. 33-35385)
initially filed June 13, 1990.)
10.09* 1994 Patent Incentive Plan. (Incorporated by reference to
Exhibit 4.01 filed with the Registrant's Registration Statement
on Form S-8 (No. 33-60141) filed June 9, 1995.)
10.10* Symantec Corporation 1996 Equity Incentive Plan. (Incorporated
by reference to Exhibit 4.01 filed with the Registrant's
Registration Statement on Form S-8 (No. 333-18355) filed December
20, 1996.)
10.11* Symantec Corporation Deferred Compensation Plan dated as of November
7, 1996.
10.12 Participation Agreement dated as of October 18, 1996, by and among
Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc., The
Sumitomo Bank, Limited, San Francisco Branch and the other Various
Financial Institutions Identified Herein and the Sumitomo Bank,
Limited, San Francisco Branch. (Incorporated by reference to Exhibit
10.01 filed with the Registrants Quarterly Report on Form 10-Q for
the quarter ended September 27, 1996.)
10.13 Appendix A to Participation Agreement, Master Lease, Lease
Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and
Guaranty. (Incorporated by reference to Exhibit 10.02 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter ended
September 27, 1996.)
10.14 Master Lease and Deed of Trust, as amended, dated as of October 18,
1996 between Symantec Corporation and Sumitomo Bank Leasing and
Finance, Inc.
10.15 Guaranty dated as of October 18, 1996, made by Symantec Corporation
in favor of Various Financial Institutions and The Sumitomo Bank,
Limited, San Francisco Branch. (Incorporated by reference to Exhibit
10.05 filed with the Registrants Quarterly Report on Form 10-Q for
the quarter ended
- ----------------------
* Indicates a management contract or compensatory plan or arrangements.
28
31
September 27, 1996.)
10.16 Pledge Agreement dated as of October 18, 1996, made by Symantec
Corporation, in favor of Sumitomo Bank, Limited, San Francisco
Branch for the benefit of the Lenders, and Donaldson, Lufkin,
Jenrette Securities Corporations, as collateral agent. (Incorporated
by reference to Exhibit 10.06 filed with the Registrants Quarterly
Report on Form 10-Q for the quarter ended September 27, 1996.)
10.17 Assignment of Lease and Rent, as amended, dated as of October 18,
1996, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo
Bank, Limited, San Francisco Branch.
10.18 Agreement of Purchase and Sale of Cupertino City Center One between
Cigna Property and Casualty Insurance Company and Symantec
Corporation.
10.19 Agreement for Purchase and Sale and Escrow Instructions of 10201
Torre Avenue, Cupertino, CA.
10.20 Agreement for Purchase and Sale and Escrow Instructions, as amended,
dated as of May 31, 1996.
10.21 Loan Agreement dated as of October 18, 1996, among Sumitomo Bank
Leasing and Finance, Inc., Various Financial Institutions Identified
Herein and The Sumitomo Bank, Limited, San Francisco Branch.
10.22 Construction Agency Agreement dated as of March 3, 1997, between
Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation.
10.23 Symantec - CC5 Office Building and Parking Structure, as amended,
dated as of May 5, 1997, made by and between Symantec Corporation
and Webcor Builders.
10.24 Office building lease dated as of April 10, 1991, between the
Registrant and Maguire Thomas Partners Colorado Place regarding
property located in Santa Monica, California. (Incorporated by
reference to Exhibit 10.25 filed with the Registrant's Annual Report
on Form 10-K for the year ended March 31, 1991.)
10.25 Office building lease dated as of February 27, 1991, between the
Registrant and Kim Camp No. VII regarding property located in
Sunnyvale, California. (Incorporated by reference to Exhibit 10.26
filed with the Registrant's Annual Report on Form 10-K for the year
ended March 31, 1991.)
10.26 Office building lease dated as of April 19, 1995, between the
Registrant and CIGNA Property and Casualty Insurance Company
regarding property located in Cupertino, California. (Incorporated
by reference to Exhibit 10.16 filed with the Registrant's Annual
Report on Form 10-K for the year ended March
31, 1995.)
10.27 Office building lease, as amended, dated as of December 1, 1995
between Delrina (Canada) Corporation and Sherway Centre Limited
regarding property located in Toronto, Canada. (Incorporated by
reference to Exhibit 10.01 filed with the Registrants Quarterly
Report on Form 10-Q for the quarter ended December 29, 1995.)
10.28 Form of Indemnity Agreement with Officers and Directors.
(Incorporated by reference to Exhibit 10.17 filed with the
Registrant's Registration Statement on Form S-1 (No. 33-28655)
originally filed May 19, 1989, and amendment No. 1 thereto filed
June 21, 1989, which Registration Statement became effective June
22, 1989.)
10.29* Full Recourse Promissory Note and Pledge Agreement between the
Company and Gordon E. Eubanks, Jr. (Incorporated by reference
to Exhibit 10.19 filed with the Registrant's Annual Report on
Form 10-K for the year ended April 2, 1993.)
10.30* Form of Promissory Note and Pledge Agreement between the Company and
certain executives. (Incorporated by reference to Exhibit 10.20
filed with the Registrant's Annual Report on Form 10-K for the
year ended April 2, 1993.)
10.31* Form of Housing Assistance Agreement between the Company and certain
executives. (Incorporated by reference to Exhibit 10.26 filed
with the Registrant's Registration Statement on Form S-4 (No.
33-35385) initially filed June 13, 1990.)
10.32 Note Purchase Agreement, dated April 2, 1993, among Symantec
Corporation, Morgan Guaranty Trust Company of New York, as
Trustee, J. P. Morgan Investments Management, Inc., as
Investment Manager and The Northwestern Mutual Life Insurance
Company, including Form of Convertible Subordinated Notes.
(Incorporated by reference to Exhibit 10.30 filed with the
Registrant's
- ----------
* Indicates a management contract or compensatory plan or arrangement.
29
32
Annual Report on Form 10-K for the year ended April 2, 1993.)
10.33* The Registrant's Section 401(k) Plan, as amended. (Incorporated by
reference to Exhibit 10.25 filed with the Registrants Annual
Report on Form 10-K for the year ended March 31, 1995.)
10.34* Form of Executive Compensation Agreement between the Company and
certain executives. (Incorporated by reference to Exhibit 10.25
filed with the Registrants Annual Report on Form 10-K for the
year ended March 31, 1995.)
10.35 Assignment of Copyright and Other Intellectual Property Rights.
(Incorporated by reference to appendix to Prospectus/Proxy
Statement filed with the Registrant's Registration Statement on
Form S-4 (No. 33-35385) initially filed June 13, 1990.)
10.36* Employment and Consulting Agreement among Symantec Corporation,
Symantec Acquisition Corp. and Charles M. Boesenberg.
(Incorporated by reference to Exhibit 10.32 filed with the
Registrant's Annual Report of Form 10-K for the year ended
April 1, 1994.) (Confidential treatment has been granted with
respect to portions of this exhibit.)
10.37* Stock Option Grant between the Company and Charles Boesenberg.
(Incorporated by reference to Exhibit 10.29 filed with the
Registrants Annual Report on Form 10-K for the year ended March
31, 1995.)
10.38 Authorized Distributor Agreement between Symantec Corporation and
Ingram Micro, Inc. (Incorporated by reference to Exhibit 10.34
filed with the Registrant's Quarterly Report of Form 10-Q for
the quarter ended July 1, 1994.) (Confidential treatment has
been granted with respect to portions of this exhibit.)
10.39 Authorized Distributor Agreement between Symantec Corporation and
Merisel Americas, Inc. (Incorporated by reference to Exhibit
10.35 filed with the Registrant's Quarterly Report of Form 10-Q
for the quarter ended July 1, 1994.) (Confidential treatment
has been granted with respect to portions of this exhibit.)
10.40* Employment and Non-competition Agreement between Symantec
Corporation and Dennis Bennie. (Incorporated by reference to
Exhibit 10.02 filed with the Registrants Quarterly Report on
Form 10-Q for the quarter ended December 29, 1995.)
10.41 Combination Agreement between Symantec Corporation and Delrina
Corporation dated July 5, 1995. (Incorporated by reference to
Exhibit 10.01 filed with the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.)
10.42 Asset Purchase Agreement dated as of September 10, 1996 by and
between Delrina and JetForm. (Incorporated by reference to
Exhibit 2.01 filed with the Registrant's Current Report of Form
8-K filed September 26, 1996.)
10.43 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by
and between Hewlett-Packard Company and Symantec Corporation.
10.44 Class action complaint filed by the law firm of Milberg Weiss
Bershad Hynes & Lerach in Superior Court of the State of
California, County of Santa Clara against the Company and
several of its current and former officers and directors.
(Incorporated by reference to Exhibit 10.35 filed with the
Registrant's Annual Report of Form 10-K for the year ended
March 31, 1996.)
11.01 Computation of Net Income (Loss) Per Share.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Ernst & Young LLP, Independent Auditors.
23.02 Consent of Price Waterhouse, Independent Auditors.
27.01 Financial Data Schedule.
30
33
(b) Reports on Form 8-K
None
(c) Exhibits:
The Registrant hereby files as part of this Form 10-K the exhibits listed
in Item 14(a)3, as set forth above.
(d) Financial Statement Schedules:
The Registrant hereby files as part of this Form 10-K the schedule listed
in Item 14(a)2, as set forth on page 56.
31
34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors................. 33
Report of Price Waterhouse, Independent Auditors.................. 34
Consolidated Balance Sheets as of March 31, 1997 and 1996......... 35
Consolidated Statements of Operations for the years ended March
31, 1997, 1996 and 1995......................................... 36
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1997, 1996 and 1995............................. 37
Consolidated Statements of Cash Flow for the years ended March
31, 1997, 1996 and 1995......................................... 38
Summary of Significant Accounting Policies........................ 39
Notes to Consolidated Financial Statements........................ 42
32
35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Symantec Corporation
We have audited the accompanying consolidated balance sheets of Symantec
Corporation as of March 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits. We did not audit the financial
statements or schedule of Delrina Corporation, which statements reflect net
income constituting 14% of the related 1995 consolidated financial statement
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Delrina Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Symantec Corporation at March 31, 1997
and 1996, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended March 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, based upon our
audits and the report of other auditors, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Jose, California
April 25, 1997, except for paragraph 6 of Note 11, as to which the date is May
13, 1997
33
36
INDEPENDENT AUDITORS' REPORT
August 8, 1995
Auditors' Report
To the Shareholders of Delrina Corporation
We have audited the consolidated balance sheet of Delrina Corporation as at June
30, 1995 and the consolidated statements of operations, retained earnings
(deficit) and changes in financial position for the years ended June 30, 1995
and 1994, all expressed in Canadian dollars. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Delrina Corporation as at June 30,
1995 and the results of its operations and the changes in its financial position
for the years ended June 30, 1995 and 1994 in accordance with generally accepted
accounting principles in Canada.
PRICE WATERHOUSE
Chartered Accountants
34
37
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
------------------------
(In thousands) 1997 1996
- --------------------------------------------------------- --------- ---------
ASSETS
Current assets:
Cash and short-term investments $ 160,082 $ 129,199
Trade accounts receivable 47,650 59,340
Inventories 4,476 7,893
Deferred income taxes 12,823 12,875
Other 13,166 14,653
--------- ---------
Total current assets 238,197 223,960
Equipment and leasehold improvements 51,610 51,698
Restricted investments 47,448 --
Capitalized software 2,037 4,183
Other 2,381 5,186
--------- ---------
$ 341,673 $ 285,027
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,328 $ 23,368
Accrued compensation and benefits 16,241 14,888
Other accrued expenses 53,742 47,664
Income taxes payable 8,276 3,329
Current portion of long-term obligations 41 68
--------- ---------
Total current liabilities 108,628 89,317
Convertible subordinated debentures 15,000 15,000
Long-term obligations 66 393
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 55,427
and 53,636 shares) 554 536
Capital in excess of par value 291,548 279,508
Notes receivable from stockholders (144) (144)
Cumulative translation adjustment (7,580) (7,591)
Accumulated deficit (66,399) (91,992)
--------- ---------
Total stockholders' equity 217,979 180,317
--------- ---------
$ 341,673 $ 285,027
========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
35
38
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
---------------------------------------
(In thousands, except net income (loss) per share) 1997 1996 1995
- -------------------------------------------------- --------- --------- ---------
Net revenues $ 472,183 $ 445,432 $ 431,268
Cost of revenues 93,544 108,975 90,935
--------- --------- ---------
Gross margin 378,639 336,457 340,333
Operating expenses:
Research and development 88,924 94,672 70,706
Sales and marketing 220,811 229,703 190,439
General and administrative 34,030 32,744 29,357
Acquisition, restructuring and
other expenses 8,585 27,617 9,545
--------- --------- ---------
Total operating expenses 352,350 384,736 300,047
--------- --------- ---------
Operating income (loss) 26,289 (48,279) 40,286
Interest income 7,182 7,512 5,648
Interest expense (1,402) (1,495) (2,419)
Other income (expense), net (1,691) (2,130) 1,041
--------- --------- ---------
Income (loss) before income taxes 30,378 (44,392) 44,556
Provision (benefit) for income taxes 4,340 (4,609) 11,147
--------- --------- ---------
Net income (loss) $ 26,038 $ (39,783) $ 33,409
========= ========= =========
Net income (loss) per share - primary $ 0.47 $ (0.76) $ 0.65
========= ========= =========
Net income (loss) per share - fully diluted $ 0.47 $ (0.76) $ 0.61
========= ========= =========
Shares used to compute net income (loss) per share - primary 55,407 52,664 52,181
========= ========= =========
Shares used to compute net income (loss) per share - fully diluted 55,841 52,664 56,491
========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
36
39
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes
Capital in Receivable Cumulative Total
Common Excess of from Translation Accumulated Stockholders'
(In thousands) Stock Par Value Stockholders Adjustment Deficit Equity
- -------------- ------ ---------- ------------ ----------- ----------- ------------
Balances, March 31, 1994 $484 $ 226,001 $(149) $(7,054) $(90,089) $ 129,193
Net income -- -- -- -- 33,409 33,409
Acquisition of Intec and SLR:
Issued 303 shares of common stock 3 38 -- -- -- 41
Accumulated deficit -- -- -- -- (363) (363)
Issued common stock:
2,147 shares under stock plans
and other 21 21,351 -- -- -- 21,372
Repayments on notes -- -- 5 -- -- 5
Issued 57 shares to acquire subsidiary -- 1,376 -- -- --
1,376
Translation adjustment -- -- -- (159) -- (159)
---- --------- ----- ------- -------- ---------
Balances, March 31, 1995 508 248,766 (144) (7,213) (57,043) 184,874
Net loss -- -- -- -- (39,783) (39,783)
Delrina net loss for the quarter
ended June 30, 1995 -- -- -- -- 4,834 4,834
Issued common stock:
2,021 shares under stock plans
and other 20 21,101 -- -- -- 21,121
833 shares from conversion of
convertible debentures 8 9,641 -- -- -- 9,649
Translation adjustment -- -- -- (378) -- (378)
---- --------- ----- ------- -------- ---------
Balances, March 31, 1996 536 279,508 (144) (7,591) (91,992) 180,317
Net income -- -- -- -- 26,038 26,038
Acquisition of Fast Track:
Issued 600 shares of common stock 6 (5) -- -- -- 1
Accumulated deficit -- -- -- -- (445) (445)
Issued common stock:
1,191 shares under stock plans
and other 12 12,045 -- -- -- 12,057
Translation adjustment -- -- -- 11 -- 11
---- --------- ----- ------- -------- ---------
Balances, March 31, 1997 $554 $ 291,548 $(144) $(7,580) $(66,399) $ 217,979
==== ========= ===== ======= ======== =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
37
40
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended March 31,
-----------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ 26,038 $ (39,783) $ 33,409
Delrina net loss for the quarter ended June 30, 1995 -- 4,834 --
Acquired companies' net assets (445) -- (1,677)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 22,770 19,717 15,689
Amortization and write-off of capitalized software costs 10,477 19,141 13,360
Write-off of equipment and leasehold improvements 4,010 3,403 1,539
Deferred income taxes 21 (989) 7,267
Net change in assets and liabilities:
Trade accounts receivable 11,699 17,554 (15,266)
Inventories 3,432 1,450 1,308
Other current assets 1,304 (6,461) 4,008
Capitalized software costs (7,656) (3,286) (1,523)
Other assets 2,720 2,465 (6,175)
Accounts payable 7,373 (2,368) (11,224)
Accrued compensation and benefits 1,502 1,313 (1,042)
Accrued other expenses 6,104 (7,203) (1,546)
Income taxes payable 5,031 1,211 78
--------- --------- ---------
Net cash provided by operating activities 94,380 10,998 38,205
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (27,195) (35,767) (24,749)
Purchased intangibles (698) (461) (4,293)
Purchases of short-term, available-for-sale investments (180,000) (154,500) (166,524)
Maturities of short-term, available-for-sale investments 203,098 168,681 122,736
Purchases of long-term, restricted investments (47,448) -- --
Sales of fixed assets and other -- -- (1,505)
--------- --------- ---------
Net cash used in investing activities (52,243) (22,047) (74,335)
--------- --------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term obligations (354) (475) (889)
Net proceeds from sales of common stock and other 12,057 20,770 21,395
--------- --------- ---------
Net cash provided by financing activities 11,703 20,295 20,506
--------- --------- ---------
Effect of exchange rate fluctuations on cash and cash equivalents 141 2,339 (2,263)
Increase (decrease) in cash and cash equivalents 53,981 11,585 (17,887)
Beginning cash and cash equivalents 41,777 30,192 48,079
--------- --------- ---------
Ending cash and cash equivalents $ 95,758 $ 41,777 $ 30,192
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (net of refunds) during the year $ 392 $ 906 $ (759)
Interest paid on convertible subordinated debentures and
long-term obligations $ 1,182 $ 1,299 $ 2,070
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
38
41
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Symantec Corporation ("Symantec" or the "Company") develops, markets and
supports a diversified line of application and system software products designed
to enhance individual and workgroup productivity. Symantec's products,
comprising both application software and system software, are currently
organized into the following three major product groups: Remote Productivity
Solutions, Security and Assistance and Emerging Businesses and Other. Customers
consist primarily of corporations, higher education institutions, government
agencies and individual users, which are mainly located in North America, Europe
and Asia/Pacific.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Symantec Corporation and its wholly-owned subsidiaries ("Symantec" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
Basis of Presentation
During fiscal 1997, 1996 and 1995, Symantec acquired various companies in
transactions accounted for as poolings of interest. Accordingly, all financial
information has been restated to reflect the combined operations of Symantec and
the acquired companies with the exception of Intec Systems Corporation
("Intec"), SLR Systems, Inc. ("SLR") and Fast Track, Inc. ("Fast Track"). The
results of operations of Intec, SLR and Fast Track were not material to
Symantec's consolidated financial statements, and therefore, amounts prior to
the year of acquisition were not combined with Symantec's financial statements.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended March 31, 1997, 1996 and 1995 reflect amounts as of
and for the periods ended March 28, 1997, March 29, 1996 and March 31, 1995,
respectively. The fiscal year ending on April 3, 1998 will be comprised of a 53
week period.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency. Non-current assets and liabilities denominated in foreign currencies
are translated using the exchange rate on the balance sheet dates. The
cumulative translation adjustments resulting from this process are shown
separately as a component of stockholders' equity. Revenues and expenses are
translated using average exchange rates prevailing during the year. Foreign
currency transaction gains and losses are included in the determination of net
income (loss).
Revenue Recognition
Symantec recognizes revenue upon shipment when no significant vendor obligations
remain and collection of the receivable, net of provisions for estimated future
returns, is probable. Symantec offers the right of return of its products under
various policies. The Company estimates and maintains reserves for product
returns. Based on returns experienced, the Company's estimates have been
materially accurate.
During fiscal 1997, Symantec sold certain software products and related tangible
assets to JetForm Corporation ("JetForm") and to the Hewlett-Packard Company
("Hewlett-Packard") (see Note 9 of Notes to Consolidated Financial Statements).
Due to the uncertainty regarding the ultimate collectibility of certain
contractual installment payments from JetForm, Symantec is recognizing the
related revenue as payments are due and collectibility is assured. Due to the
uncertainty regarding the amounts upon which the related Hewlett-Packard
payments are determined, Symantec is recognizing these amounts as revenue as
they are determinable.
Revenues related to significant post-contract support agreements (generally
product maintenance agreements) are deferred and recognized over the period of
the agreements. The estimated cost of providing insignificant post-contract
support (generally telephone support) is accrued at the time of the sale and is
included in sales and marketing expense. Technical support costs included in
sales and marketing expense were $35.1 million, $34.5 million and $28.0 million
in fiscal 1997, 1996 and 1995, respectively.
39
42
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Symantec recognized approximately $3.0 million of North American net revenues in
the March 1995 quarter and $7.2 million of international net revenues in the
June 1995 quarter that had been previously deferred by Central Point in
accordance with Statement of Financial Accounting Standards No.48.
Cash Equivalents, Short-Term Investments and Restricted Investments
Symantec considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents. All of the
Company's cash equivalents, short-term investments and restricted investments,
consisting principally of commercial paper, corporate notes, U.S. treasury notes
and certificates of deposit, are classified as available-for-sale as of the
balance sheet date. These securities are reported at amortized cost, which
approximates fair value, and therefore, there are no unrealized gains and losses
included in stockholders' equity. Realized gains and losses and declines in
value judged to be other-than-temporary are included in interest income. The
cost of securities sold is based upon the specific identification method.
Inventories
Inventories are valued at the lower of cost or market. Cost is principally
determined using currently adjusted standards, which approximate actual cost on
a first-in, first-out basis.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization is provided on a
straight-line basis over the estimated useful lives of the respective assets,
generally the shorter of the lease term or three to seven years.
Capitalized Software
Purchased product rights are comprised of acquired software ("product rights")
and are stated at cost less accumulated amortization. Amortization is provided
on the greater of the straight-line basis over the estimated useful lives of the
respective assets, generally three to five years, or on the basis of the ratio
of current revenues to current revenues plus anticipated future revenues. In
fiscal 1997, Symantec wrote off approximately $0.6 million of unamortized
purchased product rights related to its network administration technology, as a
result of the sale of this business unit to Hewlett-Packard in March 1997.
In fiscal 1997, Symantec capitalized approximately $7.7 million of capitalized
software development costs, primarily related to network administration
technology, which was sold to Hewlett-Packard in March 1997, resulting in the
write off of approximately $7.0 million of unamortized costs during the fourth
quarter of fiscal 1997 (See Note 9 of Notes to Consolidated Financial
Statements). Amortization expense for capitalized software development costs
during the fourth quarter of fiscal 1997 totaled approximately $0.3 million.
Prior to fiscal 1997, capitalization of certain software development costs in
accordance with Statement of Financial Accounting Standards No. 86 did not
materially affect the Company, except for amounts capitalized by Delrina prior
to its acquisition by Symantec in fiscal 1996. Delrina did not capitalize any
software development costs in fiscal 1996 and capitalized approximately $6.3
million in software development costs in fiscal year 1995, which were
substantially written off in fiscal 1996 as the result of the de-emphasis of
Delrina Windows 3.1 and certain other products. The related amortization expense
was approximately $5.6 million and $4.0 million in fiscal 1996 and 1995,
respectively.
Income Taxes
Income taxes are computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Net Income (Loss) Per Share
Net income (loss) per share is calculated using the treasury stock or the
modified treasury stock method, as applicable, if dilutive. Common stock
equivalents are attributable to outstanding stock options. Fully diluted
earnings per share includes the assumed conversion of all of the outstanding
convertible subordinated debentures.
Concentrations of Credit Risk
The Company's product revenues are concentrated in the personal computer
software industry, which is highly competitive and rapidly changing. Significant
technological changes in the industry or customer requirements, or
40
43
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
the emergence of competitive products with new capabilities or technologies,
could adversely affect operating results. In addition, a significant portion of
the Company's revenue and net income is derived from international sales and
independent agents and distributors. Fluctuations of the U.S. dollar against
foreign currencies, changes in local regulatory or economic conditions, piracy
or nonperformance by independent agents or distributors could adversely affect
operating results.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of short-term investments, restricted
investments and trade accounts receivable. The Company's investment portfolio is
diversified and consists of investment grade A-1/P-1 securities. The Company is
exposed to credit risks in the event of default by these institutions to the
extent of the amount recorded on the balance sheet. The credit risk in the
Company's trade accounts receivable is substantially mitigated by the Company's
credit evaluation process, reasonably short collection terms and the
geographical dispersion of sales transactions. The Company generally does not
require collateral and maintains reserves for potential credit losses, and such
losses have been within management's expectations.
Advertising
Advertising expenditures are charged to operations as incurred except for
certain direct mail campaigns which are deferred and amortized over the expected
period of benefit or twelve months, whichever is shorter. Deferred advertising
costs have not been material in all periods presented. Advertising expense for
fiscal 1997, 1996 and 1995 was approximately $39.1 million, $43.0 million and
$41.0 million, respectively.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
applicable for the fiscal year beginning April 1, 1996, did not have a material
effect on the Company's consolidated financial condition or results of
operations.
Common Stock Repurchase
On April 29, 1997, the Board of Directors of Symantec authorized the repurchase
of up to 1,000,000 shares of Symantec common stock by June 13, 1997. The shares
will be used for employee stock purchase programs and option grants. As of June
13, 1997, management completed the repurchase of 500,000 shares at prices
ranging from $16.57 to $17.00 per share.
Recent Accounting Pronouncements
In February 1997, the Finance Accounting Standards Board issued Statement (SFAS)
No. 128, "Earnings per Share", which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. The
application of the SFAS 128 new "basic earnings per share" calculation results
in basic earnings per share of $0.48 for the year ended March 31, 1997, basic
loss per share of $0.76 for the year ended March 31, 1996 and basic earnings per
share of $0.68 for the year ended March 31, 1995. The Company does not expect
the new diluted calculation to be materially different to fully diluted earnings
per share.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation format. During fiscal 1997, certain deferred revenue
amounts which were previously classified as accrued liabilities have been
reclassified to accounts receivable. The reclassification amounted to
approximately $19.0 million, $13.0 million, and $3.0 million in fiscal 1997,
1996, and 1995, respectively. All financial information has been restated to
conform to this presentation
41
44
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BALANCE SHEET INFORMATION
March 31,
-------------------------
(In thousands) 1997 1996
- ------------------------------ --------- ---------
Cash, cash equivalents and short-term investments:
Cash $ 33,755 $ 20,176
Cash equivalents 62,003 21,601
Short-term investments 64,324 87,422
--------- ---------
$ 160,082 $ 129,199
========= =========
Trade accounts receivable:
Receivables 51,950 $ 64,356
Less: allowance for doubtful accounts (4,300) (5,016)
--------- ---------
$ 47,650 $ 59,340
========= =========
Inventories:
Raw materials 1,736 $ 1,969
Finished goods 2,740 5,924
--------- ---------
$ 4,476 $ 7,893
========= =========
Equipment and leasehold improvements:
Computer equipment 91,533 $ 79,153
Office furniture and equipment 27,706 25,753
Leasehold improvements 17,697 12,603
--------- ---------
136,936 117,509
Less: accumulated depreciation and amortization (85,326) (65,811)
--------- ---------
$ 51,610 $ 51,698
========= =========
Capitalized software:
Purchased product rights 591 $ 8,680
Capitalized software costs 2,465 5,623
Less: accumulated amortization of purchased product rights (55) (8,162)
Less: accumulated amortization of capitalized software costs (964) (1,958)
--------- ---------
$ 2,037 $ 4,183
========= =========
Other accrued expenses:
Acquisition and restructuring expenses 3,833 $ 7,833
Deferred revenue 13,825 13,350
Marketing development funds 12,529 11,412
Other 23,555 15,069
--------- ---------
$ 53,742 $ 47,664
========= =========
42
45
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS
During the three fiscal years ended March 31, 1997, Symantec completed
acquisitions of the following companies:
Shares of Acquired
Symantec Company
Common Stock
Stock Options
Companies Acquired Date Acquired Issued Assumed
- ------------------ ------------- ---------- ---------
Fast Track, Inc. ("Fast Track") May 28, 1996 600,000 --
Delrina Corporation ("Delrina") November 22, 1995 13,684,174* 1,271,677
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc.
("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
* Includes Delrina exchangeable stock that is traded on the Toronto Stock
Exchange. Delrina stockholders received Delrina exchangeable stock in exchange
for Delrina common shares at a rate of 0.61 per share. Delrina exchangeable
stock may be converted at any time into Symantec common stock on a one-for-one
basis at each stockholder's option.
All of these acquisitions were accounted for as poolings of interest. In
connection with the acquisitions of the companies listed above, Symantec
incurred significant acquisition expenses (See Note 10). Due to differing year
ends of Symantec and Delrina, financial information for dissimilar fiscal year
ends was combined. Delrina's fiscal year ended June 30, 1995 was combined with
Symantec's fiscal year ended March 31, 1995. Accordingly, Delrina's results of
operations for the quarter ended June 30, 1995 were duplicated in the combined
statements of operations for fiscal 1996 and 1995 and Delrina's net loss for the
quarter ended June 30, 1995 was credited to stockholder's equity. Delrina
reported net revenues of $19.8 million and net loss of $4.8 million in the
quarter ended June 30, 1995. The results of operations of Fast Track were not
material to Symantec's consolidated financial statements, and therefore, amounts
prior to the date of acquisition were not restated to reflect the combined
operations of the companies.
NOTE 3. CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
All cash equivalents, short-term investments and restricted investments have
been classified as available-for-sale securities. As of March 31, 1997 and 1996,
the estimated fair value of the cash equivalents and short-term investments
consisted of the following:
Cash equivalents and short-term investments (In thousands) 1997 1996
- ----------------------------------------------------------- ------- -------
Taxable commercial paper $ 64,196 $ 77,392
Money market funds 2,598 21,601
Taxable corporate notes 5,130 5,022
Taxable certificates of deposit 5,030 5,008
Treasury bills 33,648 --
Taxable fixed deposit 15,725 --
-------- --------
$126,327 $109,023
======== ========
43
46
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
All of the Company's available-for-sale cash equivalent and short-term
investment securities as of March 31, 1997 and 1996 have a contractual maturity
of less than one year. As of March 31, 1997 and 1996, the estimated fair value
of the restricted investments consisted of the following:
Restricted investments (In thousands) 1997 1996
- ------------------------------------------ ------- -------
Maturities of less than one year:
Money market funds $ 6 $ --
Treasury bills 19,815 --
------- -------
$19,821 $ --
======= =======
Maturities of one to three years:
Treasury notes $27,627 $ --
------- -------
$27,627 $ --
======= =======
The Company's available-for-sale restricted investments relate to certain
collateral requirements for lease agreements associated with the Symantec's
corporate Cupertino, California facilities and have maturities of three years or
less (See Note 6 of Notes to Consolidated Financial Statements).
Fair values of cash, cash equivalents, short-term investments and restricted
investments approximate cost due to the nature of the investments and/or their
short period to maturity.
During the period covered by the financial statements, the Company has not used
any derivative instrument for trading purposes. Symantec utilizes some natural
hedging to mitigate the Company's transaction exposures and hedges some residual
transaction exposures through the use of one-month foreign exchange forward
contracts. The Company enters into foreign exchange forward contracts with
financial institutions primarily to protect against currency exchange risks
associated with certain firmly committed transactions. Fair value of foreign
exchange forward contracts are based on quoted market prices. At March 31, 1997,
there was a total notional amount of approximately $46.3 million of outstanding
foreign exchange forward contracts all of which mature in 35 days or less. The
net liability of forward contracts was a notional amount of approximately $45.8
million at March 31, 1997. The fair value of foreign currency exchange forward
contracts approximates cost due to the short maturity periods and the minimal
fluctuations in foreign currency exchange rates. The Company does not hedge its
translation risk.
NOTE 4. CONVERTIBLE SUBORDINATED DEBENTURES
On April 2, 1993, the Company issued convertible subordinated debentures
totaling $25.0 million. The debentures bear interest at 7.75% payable
semiannually and are convertible into Symantec common stock at $12 per share at
the option of the investor. The debentures are due in three equal annual
installments beginning in 1999 and are redeemable at the option of the investors
in the event of a change in control of Symantec or the sale of all or
substantially all of the assets of the Company. Symantec, at its option, may
redeem the notes at any time on 30 to 60 days notice; however, the Company could
incur a prepayment penalty for early redemption. The holders are entitled to
certain registration rights relating to the shares of common stock resulting
from the conversion of the debentures. The Company reserved 2,083,333 shares of
common stock to be issued upon conversion of these debentures. The debentures
limit the payment of cash dividends and the repurchase of capital stock to a
total of $10.0 million plus 25% of cumulative net income subsequent to April 2,
1993.
On April 26, 1995, convertible subordinated debentures totaling $10.0 million
were converted into 833,333 shares of Symantec common stock, leaving 1,250,000
shares of common stock reserved for future conversion as of March 31, 1997.
The estimated fair value of the $15.0 million convertible subordinated
debentures was approximately $17.9 million at March 31, 1997. The estimated fair
value was based on the total shares of common stock reserved for issuance upon
conversion of the debentures at the closing price of the Company's common stock
at March 31, 1997, which exceeded the conversion price of $12 per share, plus
accrued interest.
44
47
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. LINE OF CREDIT
The Company has a $10.0 million bank line of credit that expires in March 1998.
The line of credit is available for general corporate purposes and bears
interest at the banks' reference (prime) interest rate (8.50% at March 31,
1997), the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or London
Interbank Offering Rate ("LIBOR") plus 1.25%, at the Company's discretion. The
line of credit requires bank approval for the payment of cash dividends.
Borrowings under this line are unsecured and are subject to the Company
maintaining certain financial ratios and profits. The Company was in compliance
with the line of credit covenants as of March 31, 1997. At March 31, 1997, there
was approximately $0.3 million of standby letters of credit outstanding under
this line of credit. There were no borrowings outstanding under this line at
March 31, 1997.
NOTE 6. COMMITMENTS
Symantec leases all of its facilities and certain equipment under operating
leases that expire at various dates through 2026. The Company currently
subleases some space under various operating leases which will expire at various
dates through 2000.
The future fiscal year minimum operating lease commitments were as follows at
March 31, 1997:
(In thousands)
- ------------------------------------------------------
1998 $15,800
1999 15,029
2000 13,831
2001 10,612
2002 7,639
Thereafter 24,352
-------
Operating lease commitments 87,263
Sublease income (5,343)
-------
Net operating lease commitments $81,920
=======
Rent expense charged to operations totaled approximately $12.4 million, $11.3
million and $9.7 million for the years ended March 31, 1997, 1996 and 1995,
respectively.
45
48
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In fiscal 1997, Symantec entered into lease agreements for two existing office
buildings, land and one office building under construction in Cupertino,
California. The lease agreements are for seven years and the lease payments per
year total approximately $1.0 million in fiscal 1997, $4.1 million in fiscal
1998 and $4.8 million in fiscal years 1999 through 2004. Lease payments are
based on the three month LIBOR in effect at the beginning of each fiscal
quarter. Symantec has the right to acquire the related properties at any time
during the seven year lease period. If at the end of the lease term Symantec
does not renew the lease, purchase the property under lease or arrange a third
party purchase, then the Company will be obligated to the lessor for a
guaranteed residual amount equal to a specified percentage of the Company's
purchase price of the property. Symantec would also be obligated to the lessor
for all or some portion of this amount if the price paid by the third party is
below the guaranteed residual amount. The guaranteed residual payment on the
lease agreements for the two existing office buildings totals approximately
$38.4 million. The guaranteed residual payment on the lease agreements for the
land and office building under construction was approximately $7.0 million at
March 31, 1997 and will increase to approximately $31.7 million at the
completion of the construction during fiscal year 1999. As security against this
guaranteed residual payment, Symantec is required to maintain a corresponding
investment in U.S. Treasury securities with maturities not to exceed three
years. Symantec is restricted in its use of these investments per the terms of
the lease agreement. The investments total approximately $47.4 million and are
classified as non-current restricted investments within the financial
statements.
The Company currently occupies a portion of these office buildings and has
assumed the right to sub-lease income provided by the other tenants. The
sub-lease agreements have terms expiring in April 1997 through September 2000.
NOTE 7. INCOME TAXES
The components of the provision (benefit) for income taxes were as follows:
Year Ended March 31,
-------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------ ------- ------- -------
Current:
Federal $ 514 $(5,882) $ 998
State 302 130 349
International 3,472 2,149 2,825
------- ------- -------
4,288 (3,603) 4,172
Deferred:
Federal 565 (1,006) 6,431
State 126 -- 1,761
International (639) -- (1,217)
------- ------- -------
52 (1,006) 6,975
------- ------- -------
$ 4,340 $(4,609) $11,147
======= ======= =======
The difference between the Company's effective income tax rate and the federal
statutory income tax rate as a percentage of income (loss) before income taxes
was as follows:
Year Ended March 31,
-----------------------------
1997 1996 1995
------ ------ ------
Federal statutory rate 35.0% (35.0)% 35.0%
State taxes, net of federal benefit 2.9 0.3 3.3
Non-deductible acquisition expenses -- 6.8 2.6
Non-deductible acquired in-process R&D -- -- 1.1
Impact of international operations (9.2) -- (11.2)
Losses for which no benefit is
currently recognizable -- 16.9 --
Benefit of pre-acquisition losses
of acquired entities (16.5) -- (6.7)
Other, net 2.1 0.7 1.0
-------- -------- --------
14.3% (10.3)% 25.1%
======== ======== ========
46
49
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The principal components of deferred tax assets were as follows:
March 31,
-------------------
(In thousands) 1997 1996
- ------------------------------ ------- -------
Tax credit carryforwards $ 9,158 $ 8,213
Net operating loss carryforwards 7,969 19,813
Inventory valuation accounts 2,327 2,704
Other reserves and accruals not
currently tax deductible 8,570 9,403
Accrued compensation and benefits 2,392 1,916
Deferred revenue 10,187 5,465
Sales incentive programs 5,005 4,054
Allowance for doubtful accounts 984 1,104
Acquired software 2,613 2,979
Accrued acquisition, restructuring
and other expenses 1,077 2,364
Other 2,868 579
------- -------
53,150 58,594
Valuation allowance (40,327) (45,719)
------- -------
$12,823 $12,875
======= =======
Realization of the $12.8 million of net deferred tax asset that is reflected in
the financial statements is dependent upon the Company's ability to generate
sufficient future U.S. taxable income. Management believes that it is more
likely than not that the asset will be realized based on forecasted U.S.
earnings.
Approximately $22.3 million of the valuation allowance for deferred tax assets
is attributable to unbenefitted stock option deductions, the benefit of which
will be credited to equity when realized. Approximately $4.3 million of the
valuation allowance represents net operating loss and tax credit carryforwards
of various acquired companies that are limited by separate return limitations
and under the "change of ownership" rules of Internal Revenue Code Section 382
and the remaining $13.7 million of the valuation allowance relates to
unbenefitted temporary differences and net operating loss and tax credit
carryforwards. The change in the valuation allowance for the years ended March
31, 1997, 1996 and 1995 were a net decrease of $5.4 million and net increases of
$14.8 million and $1.6 million, respectively.
Pretax income (loss) from international operations was approximately $24.9
million, $(4.1) million and $25.9 million for the years ended March 31, 1997,
1996 and 1995, respectively.
At March 31, 1997, the Company had tax credit carryforwards of approximately
$9.2 million that expire in fiscal 1998 through 2011 and net operating loss
carryforwards of approximately $19.3 million that expire in fiscal 1999 through
2012.
NOTE 8. EMPLOYEE BENEFITS
401(k) Plan
Symantec maintains a salary deferral 401(k) plan for all of its domestic
employees. The plan allows employees to contribute up to 15% of their pretax
salary up to the maximum dollar limitation prescribed by the Internal Revenue
Code. Symantec matches 100% of the first $500 of employees' contributions and
then 50% of the employee's contribution up to 6% of the employees' eligible
compensation. Company contributions under the plan were $2.0 million, $1.5
million and $1.2 million for the years ended March 31, 1997, 1996 and 1995,
respectively.
47
50
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Employee Stock Purchase Plan
In October 1989, the Company established the 1989 Employee Stock Purchase Plan
(the "ESPP"). Subject to certain limitations, Company employees may purchase,
through payroll deductions of 2 to 10% of compensation, shares of common stock
at a price per share that is the lesser of 85% of the fair market value as of
the beginning of the offering period or the end of the purchase period. On
September 25, 1996, stockholders approved an amendment to the ESPP which
included increasing by 1.4 million to 3.4 million the number of shares reserved
for issuance under the ESPP. As of March 31, 1997, approximately 1.9 million
shares had been issued and 1.5 million shares remain to be issued under the
ESPP.
Stock Option Plans
The Company maintains stock option plans pursuant to which an aggregate total of
approximately 17.4 million shares of Common stock have been reserved for
issuance as incentive and nonqualified stock options to employees, officers,
directors, consultants, independent contractors and advisors to the Company (or
of any parent, subsidiary or affiliate of the Company as the Board of Directors
or committee may determine). The purpose of these plans are to attract, retain
and motivate eligible persons whose present and potential contributions are
important to the success of the Company by offering them an opportunity to
participate in the Company's future performance through awards of stock options
and stock bonuses. Under the terms of these plans, the option exercise price may
not be less than 100% of the fair market value on the date of grant, the options
have a maximum term of ten years and generally vest over a four-year period.
On May 14, 1996, Symantec stockholders approved the 1996 Equity Incentive Plan
(the "96 Plan") which superseded the 1988 Option Plan (the "88 Plan") and made
available approximately 2.7 million shares. On September 25, 1996, stockholders
approved an amendment to the 96 Plan to make available for issuance up to
approximately 1.3 million additional shares representing the number of options
previously granted pursuant to the 88 Plan that had expired, were canceled or
were unexercisable for any reason without having been exercised in full.
Stock option and warrant activity was as follows:
Weighted
Average
Number Exercise
(In thousands, except exercise price per share) of Shares Price
- ----------------------------------------------- --------- --------
Outstanding at March 31, 1994 8,685 $12.28
Granted 3,799 19.02
Exercised (1,813) 9.53
Canceled (1,682) 20.20
------
Outstanding at March 31, 1995 8,989 14.36
Granted 5,990 16.56
Exercised (1,601) 10.40
Canceled (3,660) 22.14
------
Outstanding at March 31, 1996 9,718 13.43
Granted 2,681 13.90
Exercised (684) 9.89
Canceled (2,673) 14.21
------
Outstanding at March 31, 1997 9,042 13.61
======
(In thousands) March 31,
- ------------------------------------- ------------------
Balances are as follows: 1997 1996
------ ------
Authorized but unissued 11,901 10,418
Available for future grants 2,859 700
Exercisable and vested 4,066 3,894
Exercised, subject to repurchase -- 1
48
51
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following tables summarize information about options outstanding at March
31, 1997:
Outstanding options Exercisable options
---------------------------------------- -------------------------
Weighted
average Weighted Weighted
Number of contractual average Number of average
shares (in life exercise shares (in exercise
Range of Exercise Prices thousands) (in years) price thousands) price
- ------------------------ ----------- ----------- -------- ---------- --------
$ 1.00 - $ 12.50 2,995 7.27 $ 10.18 1,368 $9.71
$12.56 - $ 14.25 3,104 7.98 13.19 1,415 13.15
$14.31 - $ 39.13 2,943 7.64 17.54 1,283 19.42
----- -----
9,042 7.63 13.61 4,066 13.97
===== =====
These options will expire if not exercised at specific dates ranging from April
1997 to March 2007. Prices for options exercised during the three-year period
ended March 31, 1997 ranged from $0.05 to $24.00.
Stock Award Plan
During fiscal 1996, the Company registered 400,000 shares to be issued under the
terms of the 1994 Patent Incentive Plan (the "94 Patent Plan"). The purpose of
this plan is to increase awareness of the importance of patents to the Company's
business and to provide employees with incentives to pursue patent protection
for new technologies that may be valuable to the Company. The Company's
executive officers are not eligible for awards under the 1994 Patent Incentive
Plan. As of March 31, 1997, approximately 9,000 shares had been issued under
this plan.
Pro Forma Information
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires the use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB No. 25, because the exercise price of the Company's employee
stock options generally equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized in the Company's financial
statements.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123. This information is required to be determined as if the Company
had accounted for its employee stock options (including shares issued under the
Employee Stock Purchase Plan, collectively called "options") granted subsequent
to March 31,
49
52
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1995 under the fair value method of that statement. The fair value of options
granted in fiscal years 1996 and 1997 reported below has been estimated at the
date of grant using a Black-Scholes option pricing model assuming no expected
dividends and the following weighted average assumptions:
Employee Employee Stock
Stock Options Purchase Plan
---------------- ----------------
Range of Exercise Prices 1997 1996 1997 1996
- ----------------------------------- ---- ----- ---- ----
Expected life (years) 4.34 4.34 0.50 0.50
Expected volatility 0.63 0.74 0.74 0.60
Risk free interest rate 6.7% 6.0% 5.4% 5.4%
During March 1996, the Board of Directors authorized the Company to offer to
each employee with stock options having an exercise price greater than $13.10
(the "Old Options") the opportunity to cancel the affected grants and receive a
new grant for the same number of shares dated March 4, 1996 (the "New Options").
On the date of grant, the New Options have an exercise price equal to $13.10 and
a stock price of $12.63. Under the terms of this stock option cancellation and
regrant, all options began vesting as of the new grant date and no portion of
any regranted options were exercisable until March 4, 1997. Options representing
a total of approximately 2.3 million shares of common stock were canceled and
regranted. The weighted average fair value of these New Options was $14.79. The
President and Chief Executive Officer, the then Executive Vice President,
Worldwide Operations and Chief Financial Officer, the majority of the then
members of the Executive Staff, and all members of the Board of Directors
elected to exclude themselves from this stock option cancellation and regrant.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options.
The weighted-average estimated fair value of employee stock options for fiscal
year 1997 and 1996 were $7.81 and $10.44 per share, respectively. The
weighted-average estimated fair value of employee stock purchase rights granted
under the Employee Stock Purchase Plan during fiscal year 1997 and 1996 were
$7.74 and $18.94, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period (for employee stock
options) and the six-month purchase period (for stock purchases under the
Employee Stock Purchase Plan). The Company's pro forma information is as
follows:
(In thousands, except per share data) Year ended March 31,
-------------------
1997 1996
------- --------
Net income (loss) - Pro forma $14,123 $(47,015)
Net income (loss) per share - Pro forma 0.27 (0.89)
The effects on pro forma disclosures of applying SFAS No. 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to March 31,
1995, its pro forma effect will not be fully reflected until approximately
fiscal 2000.
NOTE 9. SALE OF PRODUCT RIGHTS
During September 1996, Symantec sold its electronic forms software products and
related tangible assets to JetForm for approximately $100.0 million, payable
over four years in quarterly installments through the June 2000 quarter. JetForm
has the option to tender payment in either cash or in registered JetForm common
stock, within a contractually defined quantity threshold. Due to the uncertainty
regarding the ultimate collectibility of these installments, Symantec is
recognizing the related revenue as payments are due and collectibility is
assured from JetForm. Symantec recognized revenue of approximately $18.3 million
from JetForm during fiscal 1997.
50
53
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In March 1997, Symantec also sold the software products and related tangible
assets of its Networking Business Unit to Hewlett-Packard, resulting in the
receipt of approximately $1.0 million of revenue and a $2.0 million research and
development reimbursement in the fourth quarter of fiscal 1997. Additionally, a
two year quarterly royalty payment stream not to exceed a present value of $27.0
million as of the date of the transaction date will commence beginning in fiscal
1998, which is solely contingent on future sales of certain Hewlett-Packard
products. Due to the uncertainty regarding the amounts upon which these
royalties will be determined, Symantec is recognizing these amounts as they are
estimable. In association with this sale to Hewlett-Packard, during the fourth
quarter of fiscal 1997, Symantec wrote off approximately $7.0 million of
unamortized software development costs and approximately $0.6 million of
unamortized purchased product rights, as well as incurring approximately $2.0
million of legal, accounting and other costs associated with the transaction.
NOTE 10. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expense consists of the following:
Year Ended March 31,
----------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------- -------- ------- -------
Centralization and restructuring expenses $ 3,185 $ -- $ --
Write off of acquired in-process research and
development costs 3,050 -- --
Write off of equity investment 1,750 -- --
Fast Track, Inc. acquisition expenses 600 -- --
Delrina acquisition -- 22,000 --
Loss on sale of Time Line Solutions Corporation assets -- 2,653 --
Relocation of certain research and development activities -- 2,229 --
SLR acquisition -- -- 545
Central Point acquisition -- (2,300) 9,000
Legal fees and expenses -- 2,000 --
Other -- 1,035 --
-------- ------- ------
Total acquisition, restructuring and other expenses $ 8,585 $27,617 $9,545
======== ======= ======
During fiscal 1997, Symantec recorded a $1.8 million charge in connection with
the write-off of an equity investment in a privately held company and a $3.1
million charge for the write off of certain in-process research and development
costs acquired by the Company. Additionally, during fiscal 1997, the Company
recorded a charge of $3.2 million, which included $2.4 million for personnel
severence and outplacement charges, for costs related to the restructuring of
certain domestic and international sales and research and development
operations, settlement of the Carmel lawsuit (See Note 11 to Notes to
Consolidated Financial Statements) and other expenses. The restructuring plans
were substantially completed during fiscal 1997. Symantec recorded total
acquisition charges of $0.6 million in the quarter ended June 30, 1996 in
connection with the acquisition of Fast Track, Inc.
In connection with the acquisition of Delrina (See Note 2 to Notes to
Consolidated Financial Statements) in fiscal 1996, Symantec recorded total
acquisition charges of $22.0 million, which included $8.8 million for legal,
accounting and financial advisory services, $6.4 million for the elimination of
duplicative and excess facilities and equipment, $3.7 million for personnel
severance and outplacement expenses and $3.1 million for the consolidation and
discontinuance of certain operational activities and other acquisition-related
expenses.
In November 1995, Symantec sold the assets of Time Line Solutions Corporation, a
wholly-owned subsidiary, to a group comprised of Time Line Solution
Corporation's management and incurred a $2.7 million loss on the sale.
During fiscal 1996, Symantec also expensed $1.0 million, which included a loss
on the sale of certain assets and liabilities of a subsidiary and other
expenses.
In February 1995, Symantec announced a plan to consolidate certain research and
development activities. This plan was designed to gain greater synergy between
the Company's Third Generation Language and Fourth Generation Language
development groups. During fiscal 1996, the Company incurred $2.2 million for
the relocation costs of moving equipment and personnel.
51
54
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In the fourth quarter of fiscal 1996, the Company recorded $2.0 million for
estimated legal fees expected to be incurred in connection with a securities
class action complaint filed in March 1996 and other legal expenses (See Note 11
to Consolidated Financial Statements).
In connection with the acquisitions of Central Point and SLR (See Note 2 to
Consolidated Financial Statements), Symantec recorded total acquisition charges
of $9.5 million in fiscal 1995. The charges included $3.2 million for legal,
accounting and financial advisory services, $1.0 million for the write-off of
duplicative product-related expenses and modification of certain development
contracts, $0.9 million for the elimination of duplicative and excess
facilities, $3.1 million for personnel severance and outplacement expenses and
$1.3 million for the consolidation and discontinuance of certain operational
activities and other acquisition related expenses. During fiscal 1996, the
Company recognized a reduction in accrued acquisition, restructuring and other
expenses of $2.3 million as actual costs incurred were less than costs
previously accrued by the Company.
As of March 31, 1997, total accrued cash related acquisition and restructuring
expenses were $3.8 million and included $0.2 million for estimated legal fees
and expenses, $0.4 million for the elimination of duplicative and excess
facilities and $3.2 million for other acquisition related expenses.
NOTE 11. LITIGATION
On March 18, 1996, a class action complaint was filed by the law firm of
Milberg, Weiss, Bershad, Hynes & Lerach in Superior Court of the State of
California, County of Santa Clara, against the Company and several of its
current and former officers and directors. The complaint alleges that Symantec
insiders inflated the stock price and then sold stock based on inside
information that sales were not going to meet analysts' expectations. The
complaint seeks damages in an unspecified amount. The complaint has been refiled
twice in state court, most recently on January 10, 1997, to reflect changes
brought about by Symantec's demurrer to previous complaints. The same plaintiffs
have further filed, on January 7, 1997, a complaint in federal court based on
the same facts as the state court complaint, for violation of the Securities Act
of 1934. Symantec believes that neither the state court complaint nor the
federal court complaint has any merit and will vigorously defend itself against
both complaints. The Company has accrued certain estimated legal fees and
expenses related to this matter; however, actual amounts may differ materially
from those estimated amounts.
On September 3, 1992, Borland International, Inc. ("Borland") filed a lawsuit in
the Superior Court for Santa Cruz County, California against Symantec, Gordon E.
Eubanks, Jr. (Symantec's President and Chief Executive Officer) and Eugene Wang
(a former Executive Vice President of Symantec and former employee of Borland).
The complaint, as amended, alleged misappropriation of trade secrets, unfair
competition, including breach of contract, interference with prospective
economic advantage and unjust enrichment. Under a confidential joint settlement
agreement entered into as of February 25, 1997, this case was fully settled.
On June 11, 1992, Dynamic Microprocessor Associates, Inc. ("DMA"), a former
wholly-owned subsidiary of Symantec which has since been merged into Symantec,
commenced an action against EKD Computer Sales & Supplies Corporation ("EKD"), a
former licensee of DMA and Thomas Green, a principal of EKD, for copyright
infringement, violations of the Lanham Act, trademark infringement,
misappropriation, deceptive acts and practices, unfair competition and breach of
contract. On July 14, 1992, the Suffolk County, New York sheriff's department
conducted a search of EKD's premises and seized and impounded thousands of
infringing articles. On July 21, 1992, the Court issued a preliminary injunction
against EKD and Mr. Green, enjoining them from manufacturing, marketing,
distributing, copying or purporting to license DMA's pcANYWHERE III or using
DMA's marks. On March 18, 1997, the Magistrate assigned to the action issued a
non-binding Report and Recommendation recommending that summary judgment be
granted in Symantec's/DMA's favor on certain claims and counterclaims. Judge
Block has subsequently approved the recommendation, which has disposed of
certain claims against Symantec.
On April 10, 1997, Trio Systems LLC filed a lawsuit in the United States
District Court, Central District of California, against Symantec, for damages,
injunctive and declaratory relief and for the imposition of a constructive trust
claiming copyright infringement, fraud, misrepresentation and breach of
contract, based on Symantec's alleged inclusion, in its Norton Utilities, Norton
Your Eyes Only and pcANYWHERE products, of Trio's C-Index code.
52
55
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
No discovery motions have as yet been filed. Symantec believes these claims have
no merit and intends to defend this action vigorously.
On April 23, 1997, Symantec filed a lawsuit against McAfee Associates in the
United States District Court, Northern District of California, for copyright
infringement and unfair competition. Symantec believes McAfee Associates copied
portions of Symantec's copyrighted software code and unlawfully incorporated
such code into certain of McAfee's products. Symantec plans to aggressively
pursue its remedies under this lawsuit, which include both injunctive relief and
monetary damages.
On May 13, 1997, Trend Micro Incorporated filed a lawsuit in the United States
District Court, Northern District of California, against Symantec Corporation
and McAfee Associates, alleging against Symantec patent infringement by the
Symantec product known as Norton AntiVirus for Internet E-mail Gateways. The
lawsuit requests damages, injunctive relief and costs and attorney fees.
Symantec believes this claim has no merit and intends to defend the action
vigorously.
Symantec is currently evaluating claims of patent infringement asserted by IBM
with respect to certain of the Company's products. While the Company believes
that it has valid defenses to these claims, there can be no assurance that the
outcome of any related litigation or negotiation would not have a material
adverse impact on the Company's future results of operations or cash flows.
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business. The Company intends to defend all of the
aforementioned pending lawsuits vigorously and although adverse decisions (or
settlements) may occur in one or more of the cases, the final resolution of
these lawsuits, individually or in the aggregate, is not expected to have a
material adverse effect on the financial position of the Company. However,
depending on the amount and timing of an unfavorable resolution of these
lawsuits, it is possible that the Company's future results of operations or cash
flows could be materially adversely affected in a particular period.
NOTE 12. SEGMENT INFORMATION
Symantec operates in the microcomputer software industry business segment. The
Company markets its products in North America and international countries
primarily through retail and distribution channels.
INFORMATION BY GEOGRAPHIC AREA
Year Ended March 31,
-------------------------------
(In thousands) 1997 1996 1995
- ------------------------------ ------- ------- -------
Net revenues:
U.S. operations:
North American customers $334,210 $303,280 $296,684
International customers 6,451 16,609 16,977
Intercompany 79 6,015 4,625
-------- -------- --------
340,740 325,904 318,286
Other international operations:
Customers 131,522 125,543 117,607
Intercompany 745 11,387 13,865
-------- -------- --------
132,267 136,930 131,472
Eliminations (824) (17,402) (18,490)
-------- -------- --------
$472,183 $445,432 $431,268
======== ======== ========
Operating income (loss):
U.S. operations $ 11,415 $(58,296) $ 17,907
International operations 12,931 8,201 23,449
Eliminations 1,943 1,816 (1,070)
-------- -------- --------
$ 26,289 $(48,279) $ 40,286
======== ======== ========
53
56
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
March 31,
-------------------------------
(In thousands) 1997 1996 1995
- ------------------------------ ------- ------- -------
Identifiable assets:
U.S. operations $284,023 $236,508 $255,748
International operations 57,650 48,519 50,378
-------- -------- --------
$341,673 $285,027 $306,126
======== ======== ========
Intercompany sales between geographic areas are accounted for at prices
representative of unaffiliated party transactions. "U.S. operations" include
sales to customers in the United States and exports of finished goods directly
to international customers, primarily in Canada. Exports and international OEM
transactions are primarily denominated in U.S. dollars. "Other international
operations" primarily include export sales from the Irish manufacturing
subsidiary to European and Asia/Pacific customers. International revenues, which
include net revenues from other international operations and exports made by
U.S. operations, were 29%, 32% and 31% of total revenue for fiscal 1997, 1996
and 1995, respectively.
SIGNIFICANT CUSTOMERS
The following customers accounted for more than 10% of net revenues during
fiscal 1997, 1996 and 1995:
Year Ended March 31,
----------------------------
1997 1996 1995
---- ---- ----
Ingram Micro, Inc. 27% 27% 22%
Merisel Americas, Inc. * 10 11
* Amount is less than 10%.
54
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SYMANTEC CORPORATION
(Registrant)
By /s/ Gordon E. Eubanks, Jr.
--------------------------------------
(Gordon E. Eubanks, Jr.,
President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
Signature Title Date
--------- ----- ----
CHIEF EXECUTIVE OFFICER:
/s/ Gordon E. Eubanks, Jr. President, Chief Executive June 23, 1997
- ------------------------------ Officer and Director
(Gordon E. Eubanks, Jr.)
CHIEF FINANCIAL OFFICER:
/s/ Howard A. Bain III Executive Vice President/ June 23, 1997
- ------------------------------ Worldwide Operations and
(Howard A. Bain III) Chief Financial Officer
CHIEF ACCOUNTING OFFICER:
/s/ Ronald W. Kisling Vice President Controller and June 23, 1997
- ------------------------------- Chief Accounting Officer
(Ronald W. Kisling)
DIRECTORS:
/s/ Charles M. Boesenberg Director June 23, 1997
- ------------------------------
(Charles M. Boesenberg)
/s/ Walter W. Bregman Director June 23, 1997
- ------------------------------
(Walter W. Bregman)
/s/ Carl D. Carman Chairman of the Board June 23, 1997
- ------------------------------
(Carl D. Carman)
/s/ Robert S. Miller Director June 23, 1997
- ------------------------------
(Robert S. Miller)
/s/ Robert R. B. Dykes Director June 23, 1997
- ------------------------------
(Robert R. B. Dykes)
55
58
SCHEDULE II
SYMANTEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance at Charged to Balance at
Beginning Costs and End
Classification of Period Expenses Deductions of Period
- -------------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts:
Year ended March 31, 1995 $ 4,814 $ 1,094 $(1,056) $ 4,852
Year ended March 31, 1996 4,852 903 (739) 5,016
Year ended March 31, 1997 5,016 1,599 (2,315) 4,300
56