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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 APRIL 3, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
COMMISSION FILE NUMBER 0-17781
SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
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
- --------------------------------------------------------------------------------
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
May 26, 1998 as reported on the Nasdaq National Market and with respect to the
Delrina exchangeable stock on the Toronto Stock Exchange:
$1,395,116,880
Number of shares outstanding of each of the registrant's classes of common
stock, including 2,377,776 shares of Delrina exchangeable stock, as of May 26,
1998:
57,530,593
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 17, 1998
are incorporated by reference into Part III.
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SYMANTEC CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 3, 1998
TABLE OF CONTENTS
PART I.
Page
----
Item 1. Business............................................................... 1
Item 2. Properties............................................................. 9
Item 3. Legal Proceedings...................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders.................... 10
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 11
Item 6. Selected Financial Data................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 13
Item 8. Financial Statements and Supplementary Data............................ 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................. 25
PART III.
Item 10. Directors and Executive Officers of the Registrant..................... 26
Item 11. Executive Compensation................................................. 28
Item 12. Security Ownership of Certain Beneficial Owners and Management......... 28
Item 13. Certain Relationships and Related Transactions......................... 28
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 29
Signatures...................................................................... 57
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PART I
ITEM 1: BUSINESS.
FORWARD-LOOKING STATEMENTS.
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." Nothing in this report shall
impose upon Symantec or any person a duty to update any forward looking
statement.
This document contains reference to trademarks and trade names of other
companies.
GENERAL.
Symantec Corporation ("Symantec" or the "Company") is a world leader in utility
software for business and personal computing. Symantec's business strategy is to
satisfy customer needs by developing and marketing products across multiple
operating platforms (currently those of Microsoft Corporation and Apple
Computer, Inc.) that make customers productive and keep their computers safe and
reliable - anywhere, anytime.
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 15 companies. Companies acquired during the past five
years include: Fast Track, Inc. ("Fast Track") on May 28, 1996, Delrina
Corporation ("Delrina") on November 22, 1995, Intec Systems Corporation
("Intec") on August 31, 1994, Central Point Software, Inc. ("Central Point") on
June 1, 1994, SLR Systems, Inc. ("SLR") on May 31, 1994, Fifth Generation
Systems, Inc. ("Fifth Generation") on October 4, 1993 and Contact Software
International, Inc. ("Contact") on June 2, 1993. The Company acquired Peter
Norton Computing, Inc. ("Norton") on August 31, 1990 and continues to use the
Norton brand name for products subsequently developed and marketed by Symantec.
All of these acquisitions were accounted for as poolings of interests.
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, each of which had results of operations that were not material to
Symantec's consolidated financial statements.
During fiscal 1997, in a move to focus the Company's product offerings on
specific customer needs, Symantec sold its FormFlow product line, acquired as
part of the Delrina acquisition, to JetForm Corporation ("JetForm") and sold the
assets and technology of its networking business unit to the Hewlett-Packard
Company ("Hewlett-Packard"). 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, 1998, 1997 and 1996 reflect amounts as of
and for the periods ended April 3, 1998, March 28, 1997 and March 29, 1996,
respectively. The fiscal accounting year ended April 3, 1998 comprised 53 weeks
of operations.
PRODUCTS AND SERVICES.
Symantec's products, comprising utility software for business and personal
computing, are currently organized into the following three business units:
Security and Assistance; Remote Productivity Solutions; and Internet Tools,
Royalties and Other. The following table summarizes Symantec's principal
products by business unit:
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Principal Products
SECURITY AND ASSISTANCE
Norton AntiVirus(R)
Norton AntiVirus(R) for Macintosh
Norton CrashGuard(TM) Deluxe
Norton Uninstall(TM) Deluxe
Norton Utilities(R)
Norton Web Services(TM)
Norton Your Eyes Only(R)
REMOTE PRODUCTIVITY SOLUTIONS
ACT!(R)
pcANYWHERE(R)
WinFax PRO(TM)
INTERNET TOOLS, ROYALTIES AND OTHER
Symantec Visual Cafe(TM) (Database Development Edition)
Symantec Visual Cafe(TM) (Professional Development Edition)
Symantec Visual Cafe(TM) (Web Development Edition)
Most of Symantec's products that are currently being developed and marketed
feature LiveUpdate(TM), which enables the user, free of cost, to download
application bug fix patches via an Internet connection to Symantec's corporate
website.
SECURITY AND ASSISTANCE
The Security and Assistance business unit is dedicated to being indispensable in
customers' daily use of computers by increasing productivity and keeping
computers safe and reliable. Net revenues from this business unit comprised
approximately 50% of total net revenues for the fiscal years ended March 31,
1998 and 1997 and 45% of total net revenues for the fiscal year ended March 31,
1996.
Norton AntiVirus and Norton AntiVirus for Macintosh run in a computer's
background and are designed to protect against, detect and eliminate computer
viruses. The software covers multiple sources of infection, including the
Internet, floppy disks, email attachments, shared files and networks. The
software enables the user to download, via Symantec's LiveUpdate functionality,
new virus definitions created by the Symantec AntiVirus Research Center (SARC)
(TM) . The software runs under the Windows, Windows 95, Windows NT, MS-DOS,
Macintosh and Power Macintosh operating systems. The Norton AntiVirus product
line also includes support for Lotus Notes (Norton AntiVirus for Notes) and
Novell NetWare (The Norton AntiVirus NetWare).
Norton CrashGuard Deluxe runs in a computer's background and is designed to
detect and fix a range of computer problems, including computer crashes and hard
disk fragmentation. When the program detects a crash, it allows the computer
user to unfreeze the crash and save any open files. The program also optimizes
computer performance and provides basic virus detection and elimination. Norton
CrashGuard Deluxe includes an interface to Norton Web Services, a paid
subscription service that locates and installs patches, updates and drivers
specific to a user's installed hardware and software. The program runs on the
Windows 95 and Windows NT operating systems.
Norton Uninstall Deluxe is designed to add and remove programs and files from a
user's hard drive. InstallGuard, a feature of Norton Uninstall Deluxe, provides
a one-button "undo" of program installations, restoring a computer's Windows
registry and hard drive to its original condition prior to the installation. The
program's system cleanup tools ensure that registry, files, icons and other
system options are set for optimum performance. Norton Uninstall Deluxe runs on
the Windows 95 and Windows NT operating systems.
Norton Utilities is a set of "tools" designed to address system-level
operations. In addition, Norton Utilities finds and repairs problems with
Windows 95 applications and includes an interface to Norton Web Services, a paid
subscription service that locates and installs patches, updates and drivers
specific to a user's installed hardware and software. The program also offers
crash protection, limited virus detection and repair and several new
optimization utilities to accelerate a computer's performance. Norton Utilities
runs on the Windows, Windows 95, Windows NT, MS-DOS, Macintosh and Power
Macintosh operating systems.
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Norton Web Services ("NWS") is designed to deliver an online subscription-based
service site that downloads Norton technology to Windows 95 users via an
Internet connection. NWS features Symantec's LiveUpdate Pro, a service that
locates and installs patches, updates and drivers specific to a user's installed
hardware and software. NWS was released by Symantec in December 1997. As such,
this service did not generate material revenues in any fiscal years presented.
The Company believes this service will generate increasing revenue amounts in
future periods, but there can be no assurance this product will be commercially
successful.
Norton Your Eyes Only is designed to encrypt and decrypt private computer files,
enable users to share files without compromising security, lock access to a
personal computer when the personal computer is idle and prevent booting by
unauthorized users. The program runs on the Windows 95 and Windows NT operating
systems.
REMOTE PRODUCTIVITY SOLUTIONS
The Remote Productivity Solutions business unit focuses on helping remote
professionals remain productive - anywhere, anytime. This business unit focuses
on customer needs to access information, applications and data from any
location. Net revenues from this business unit comprised approximately 40% of
total net revenues for the fiscal year ended March 31, 1998, and approximately
35% of total net revenues for the fiscal years ended March 31, 1997 and 1996.
ACT! is designed to combine a customizable database, calendar and activity
management, automatic history logging, customizable reporting and communications
via mail merge, telephone, email and fax into a single product. The product
provides extensive data sharing support for Local Area Network ("LAN") teams and
remote database synchronization for mobile users and small mobile teams. ACT!
runs on the Windows, Windows 95, Windows NT, Windows CE, MS-DOS, Macintosh,
Newton and Psion operating systems.
pcANYWHERE is designed to offer reliable, fast and flexible PC-to-PC remote
computing via serial or modem connections. pcANYWHERE enables the user to
control one PC remotely from the keyboard of another PC. The offsite remote PC,
laptop or PC terminal controls the operation of the distant host PC. In addition
to enabling 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. The software enables the user to run Windows, Windows 95,
Windows NT, Windows CE or MS-DOS applications remotely, transfer files and
perform other data operations.
WinFax PRO is designed to enable users to send, receive and manage faxes. WinFax
PRO provides background faxing, which allows users to continue working on other
applications while sending or receiving a fax via the Internet or a fax machine.
WinFax PRO also provides enhanced file compression, increasing the speed at
which faxes are transmitted. Other features include a paging function, which
enables the computer to page a user upon receipt of an incoming Fax or voice
message, and a "call identify" function, which allows a user to view an incoming
fax or phone number. WinFax PRO runs on the Windows, Windows 95 and Windows NT
operating systems.
INTERNET TOOLS, ROYALTIES AND OTHER
The Internet Tools, Royalties and Other business unit includes products
providing an easy to use Java development environment, as well as revenue
streams from the sale to third-party computing companies of certain of the
Company's software product lines and technologies, and revenues from products
nearing the end of their life cycle. Net revenues from this business unit
comprised approximately 10%, 15% and 20% of total net revenues for the fiscal
years ended March 31, 1998, 1997 and 1996, respectively.
Symantec Visual Cafe (Database Development Edition) is designed to provide a
solution for building business critical Java applications with database
connectivity. The program includes a forms designer for drag-and-drop Graphical
User Interface design and dbAWARE project wizards that walk the user through
defining a data source, adding components and the interactions between them. The
program also builds Java applications and connects to multiple databases without
writing source code. The Database Development Edition includes 100+ JavaBeans
(series of pre-written source code) and 20 database templates, and connects to
over 30 commercially available databases via industry standard protocols ("JDBC"
or "ODBC").
Symantec Visual Cafe (Professional Development Edition) is designed to provide a
Java Integrated Development Environment solution for creating Java applications
and JavaBeans with features geared toward professional Java developers. Advanced
power tools include native compilation, advanced Java Archive tools, Java
Development Kit 1.1.5 support and Visual Page. In addition, to facilitate easier
discovery of problems with source code, the program supports "debugging"
directly within a Web browser.
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Symantec Visual Cafe (Web Development Edition) is designed to provide a Rapid
Application Java Development and a HTML Web authoring solution that provides
support for Java Development Kit 1.1.5 and JavaBeans. The program includes a
drag-and-drop interface, professional templates and Java applet and JavaBeans
libraries. This product did not generate material revenues in any fiscal years
presented. The Company believes this product will generate increasing revenue
amounts in future periods, but there can be no assurance this product will be
commercially successful.
The Visual Cafe products run on Windows 95, Windows NT and Macintosh operating
systems. The Java program code developed with these products, however, can be
deployed on any platform that supports a Java Virtual Machine compliant with Sun
Microsystem's JDK standards.
SALES AND MARKETING, INTERNATIONAL SALES AND CUSTOMER SUPPORT.
Symantec markets its products worldwide utilizing a multi-channel strategy of
direct and indirect sales through independent software distributors, major
retail chains and resellers.
SALES AND MARKETING
Symantec sells its products to both individuals and corporate users primarily
through distributors and resellers. Symantec products are made available to
customers through channels that include: distributors, retail, mail order,
corporate resellers, value added resellers ("VAR's"), original equipment
manufacturers ("OEM's"), partnerships, education, consulting, etc. Symantec also
sells product upgrades and certain of its products through the use of direct
mail and over the Internet. Symantec maintains distribution relationships with
major independent distributors. These distributors stock Symantec's products for
redistribution to independent dealers, consultants and other resellers. Symantec
also maintains relationships with major retailers while marketing to these
retailers through independent distributors. (See further discussion in Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Retail Distribution Channel; New Distribution Channels.)
The company's sales force works closely with its major distributor and reseller
accounts to manage the flow of orders, inventory levels and sell-through to
customers, as well as working closely with them to manage promotions and other
selling activities. The company also sells volume license programs (corporate
site licenses) through its distribution and corporate reseller channels. (See
further discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations - Site Licenses; Channel Fill.)
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 from the Company 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 - Retail Distribution Channel.) Information with respect to customers
that represent more than 10% of the Company's revenues may be found in Note 16
of the Notes to Consolidated Financial Statements in Part IV, Item 14 of this
Form 10-K.
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 - Product Returns.)
Symantec's marketing activities include advertising in trade, technical and
business publications, on-line advertising, public relations, cooperative
marketing with distributors, resellers and dealers, 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 distributors and resellers whereby the distributor or
reseller earns a rebate based upon their purchases and sell-though of products
to end users. Volume incentive rebates are accrued when revenue is recorded.
From time to time, Symantec also makes rebates available to end users of various
products who acquired the products
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through major retailers. End user rebates are accrued when revenue is recorded.
(See further discussion in Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Sales and Marketing.)
INTERNATIONAL REVENUES
International revenues outside of North America represented approximately 32%,
29% and 32% of Symantec's net revenues in fiscal 1998, 1997 and 1996,
respectively.
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 Argentina, Australia, Brazil,
Canada, Denmark, France, Germany, Holland, Hong Kong, Italy, Japan, Korea,
Malaysia, 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 - Foreign Operations.) Information with respect to
international operations and export sales may be found in Note 16 of 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. In August 1996, Symantec introduced
LiveUpdate, which provides instant access to on-line application bug fix patches
for most of Symantec's currently marketed and developed 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. Symantec also offers
Chat Now!(TM), a fee-based technical support service via the Internet. 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 Technical Support.)
PRODUCT DEVELOPMENT, PARTNERSHIPS AND ACQUISITIONS.
Symantec uses a multiple product sourcing strategy that includes internal
development, licensing from third parties and acquisitions of technologies,
product lines or companies, as necessary. Symantec typically develops new
products and enhancements of existing products in its business units. 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.
During fiscal 1998, Symantec entered into strategic relationships with various
companies including Entrust Technologies, Inc. ("Entrust"), Hewlett-Packard and
Microsoft Corporation ("Microsoft"). Entrust has agreed to a joint development,
cross-licensing and distribution arrangement with Symantec for the development
of secure desktop suites which will provide comprehensive, easily managed
desktop solutions. In addition, the secure desktop suites are expected to
provide scalable certificate management and centralized key backup and recovery
to the consumer, workgroup and enterprise. (See further discussion in Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Reliance on Joint Business Arrangements.)
Hewlett-Packard has agreed to incorporate Symantec's pcANYWHERE32 remote-control
software package on all Hewlett-Packard Brio personal computers targeted for
small and medium sized companies without an information technology staff.
Hewlett-Packard will also provide pcANYWHERE32 free of charge to its resellers.
Microsoft and Symantec have entered into a strategic relationship to deliver
integrated technology capabilities to the Microsoft Outlook 98 messaging and
collaboration client. The first project from this relationship will be the
inclusion
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of WinFax Starter Edition, which includes components of Symantec's WinFax PRO
software, in Microsoft Outlook 98. The second project from this relationship is
expected to be the integration between Symantec's new ACT! contact manager and
Microsoft's Outlook 98.
On May 19, 1998, IBM and Symantec Corporation entered into an agreement whereby
Symantec will license IBM's immune system technology and patents. Symantec will
combine this technology with its own technology to produce a range of products,
including new solutions to support IBM platforms. As part of the agreement, IBM
has also assigned its existing anti-virus customer and OEM contracts to Symantec
and will recommend Norton AntiVirus to its corporate customers worldwide as the
anti-virus solution of choice. In addition, IBM and Symantec intend to sell and
market the Norton AntiVirus product line worldwide. (See further discussion in
Note 17 of Notes to Consolidated Financial Statements in Part IV, Item 14 of
this Form 10-K.)
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 $91 million, $89
million and $95 million in fiscal 1998, 1997 and 1996, respectively. Research
and development expenditures are charged to operations as incurred. The current
U.S. accounting standard, Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," did not materially affect the Company in fiscal 1998 and
1996. In fiscal 1997, Symantec capitalized approximately $8 million of 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 the fourth quarter of
fiscal 1997. (See further discussion in Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations - Operating System;
Uncertainty of Research and Development Efforts; Length of Product Development
Cycle.)
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 technologies,
companies and products and may acquire and dispose of other technologies,
companies and products in the future. (See further discussion in Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management of Expanding Operations.)
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 successful 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 - 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. In addition, 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 that provided in current and future
operating systems, these efforts may not be successful and such improved
products may not 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, these efforts
may not be successful. Other competitors may license their products to other
hardware and software original equipment manufacturers ("OEM's"). In addition,
as software users move toward running programs from the Internet or over a LAN,
the need for certain of Symantec's utility programs may decrease. (See further
discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations - Operating System; Microsoft Windows 98.)
Symantec faces intense competition in each of the Company's three business
units: Security and Assistance, Remote Productivity Solutions and Internet
Tools, Royalties and Other. Examples of key competitors for business units
include:
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\Security and Assistance. Norton AntiVirus competes with VirusScan from Network
Associates, Inc. ("Network Associates"), Dr. Solomon's Anti-Virus from Dr.
Solomon's Software and Inoculan from Computer Associates International, Inc.
Norton AntiVirus also competes with Trend Micro, Inc.'s InterScan VirusWall and
PC-cillin Corp. Edition. Norton Utilities competes with First Aid and Oil Change
from CyberMedia, Inc. ("CyberMedia") and Helix's Nuts & Bolts from Network
Associates. Norton Uninstall Deluxe competes with UnInstaller from CyberMedia
and CleanSweep from Quarterdeck. Norton CrashGuard Deluxe competes with First
Aid 98 Deluxe from CyberMedia, PC Medic Deluxe from Network Associates and
REALHELP from Quarterdeck Corporation ("Quarterdeck"). Norton Your Eyes Only
competes with PGPdisk from Network Associates. Norton Web Services competes with
Oil Change and First Aid from CyberMedia and TuneUp and REALHELP from
Quarterdeck.
Remote Productivity Solutions. pcANYWHERE competes with LapLink from Traveling
Software, Inc., ReachOut from Stac, Inc. and Microcom by COMPAQ Computer
Corporation. ACT! competes with other contact managers, such as GoldMine from
GoldMine Software Corporation, Maximizer from Maximizer Technologies, Inc. and
Janna Contact from Janna Systems, Inc. ACT! also competes, but less directly,
with personal information managers, such as Organizer from IBM's Lotus division
and Sidekick from Starfish Software. WinFax competes with Quarterdeck's Procomm
Plus product line.
Internet Tools, Royalties and Other. Symantec Visual Cafe (Database Development
Edition) competes with Borland JBuilder Client/Server from Inprise Corporation,
VisualAge for Java Enterprise from International Business Machines ("IBM") and
PowerJ from Sybase, Inc. Symantec Visual Cafe (Professional Development Edition)
competes with Microsoft's Visual J++, Inprise's Borland JBuilder Professional,
IBM's VisualAge for Java Professional, SuperCede by SuperCede Inc. and Sun
Microsystem's Java WorkShop. Symantec Visual Cafe (Web Development Edition)
competes with Microsoft's Visual J++, Inprise's Borland JBuilder Professional
and IBM's VisualAge for Java Standard.
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. Microsoft has incorporated
advanced utilities including telecommunications, facsimile and data recovery
utilities in Windows 95 and may include additional product features in Windows
98 or future releases of Windows NT that may decrease the demand for certain of
the Company's products, including those currently under development.
Additionally, as hardware vendors incorporate additional server-based network
management and security tools into network operating systems, the demand may
decrease for certain of the Company's products, including those currently under
development. Also, Symantec's competitors may license certain of their products
to Microsoft and OEM's for inclusion in their operating systems, which may
reduce the demand for certain of the Company's products. (See further discussion
in Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations - Operating System; Microsoft Windows 98.)
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 - Rapid Technological Change and Development Risks, Operating System
and Retail Distribution Channel.)
MANUFACTURING AND BACKLOG.
Symantec's product development organization produces a set of master CD-ROM's or
diskettes and documentation for each product that are then duplicated and
packaged into products by the manufacturing organization. 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
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manufacturing facility for most products distributed outside of the United
States and Canada. Most of Symantec's international CD-ROM manufacturing is
performed by outside contractors in Dublin, Ireland.
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.
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.
PRICE COMPETITION.
Price competition is sometimes intense with certain products in the
microcomputer business software market and is expected to continue to increase
and become even more significant in the future, and may result in reduced profit
margins. (See further discussion in Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations - Price Competition).
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 end-of-period buying patterns of foreign software markets 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 - Fluctuations in Quarterly
Operating Results and Stock Price.)
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. However, Symantec is still subject to potential legal suits.
(See further discussion in Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Intellectual Property Rights,
Litigation.)
EMPLOYEES.
As of March 31, 1998, Symantec employed approximately 2,300 people, including
1,200 in sales, marketing and related staff activities, 600 in product
development and 500 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
shares to be issued under the Company's employee stock purchase plan, and
requires ongoing shareholder approval of such incentive programs. (See further
discussion in Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations - 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 2000
Santa Monica, California Research and development and 98,000 2000
marketing
Eugene, Oregon Customer service and technical 150,000 2006
support
Beaverton, Oregon Research and development, sales 56,000 2001
and marketing
Melville, New York Research and development and 27,000 2000
marketing
Toronto, Canada Research and development, sales 66,000 2005
and technical support
International
Leiden, Holland Administration, sales, marketing 25,000 2003
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, Malaysia, 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 future expansion of its operations.
* The Symantec Technology Center is currently under construction, with
anticipated completion in fiscal 1999.
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ITEM 3: LEGAL PROCEEDINGS.
Information with respect to this Item may be found in Note 15 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, 1998.
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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 1998 Fiscal 1997
-------------------------------------- --------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1998 1997 1997 1997 1997 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
High $ 29.00 $ 27.00 $ 25.50 $20.38 $18.38 $16.38 $12.75 $18.13
Low 20.88 19.19 19.44 12.50 12.63 9.88 8.75 11.00
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 1998 Fiscal 1997
-------------------------------------- --------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1998 1997 1997 1997 1997 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
(In Canadian dollars)
High $ 40.10 $ 39.00 $ 35.00 $28.00 $24.35 $22.00 $17.70 $25.00
Low 29.50 26.75 26.25 16.50 17.55 13.00 12.00 15.50
As of March 31, 1998, there were approximately 682 stockholders of record,
including approximately 29 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. 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 6 and 7 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. Symantec did not
complete any acquisitions during fiscal 1998. 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. In fiscal 1996, Delrina Corporation was acquired. In fiscal 1995,
acquisitions included Intec Systems Corporation, Central Point Software, Inc.
and SLR Systems, Inc. In fiscal 1994, acquisitions included Fifth Generation
Systems, Inc. and Contact Software International, Inc. Each of the fiscal 1996,
1995 and 1994 acquisitions was accounted for as poolings of interests. 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) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Statements of Operations Data:
Net revenues $ 578,361 $ 472,183 $ 445,432 $ 431,268 $ 403,206
Acquisition, restructuring and
other expenses -- 8,585 27,617 9,545 56,094
Operating income (loss) 100,345 26,289 (48,279) 40,286 (47,290)
Net income (loss) 85,089 26,038 (39,783) 33,409 (44,421)
Net income (loss) per share - basic $ 1.52 $ 0.48 $ (0.76) $ 0.68 $ (0.96)
Net income (loss) per share - diluted $ 1.42 $ 0.47 $ (0.76) $ 0.64 $ (0.96)
Shares used to compute net
income (loss) per share - basic 56,097 54,705 52,664 49,338 46,270
Shares used to compute net
income (loss) per share - diluted 60,281 55,407 52,664 54,303 46,270
March 31,
--------------------------------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $ 175,537 $ 129,569 $ 134,643 $ 143,405 $ 101,644
Total assets 476,460 339,398 282,674 305,356 262,335
Long-term obligations, less
current portion 5,951 15,066 15,393 25,413 25,967
Stockholders' equity 317,507 217,979 180,317 184,874 129,193
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The following discussion contains forward-looking statements that 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 is a world leader in utility software for business and personal
computing. Founded in 1982, the Company has offices in the United States,
Canada, Asia, Australia, Europe, Africa, Latin America and South 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
* 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.
Symantec did not complete any acquisitions during fiscal 1998. 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. In fiscal 1996, Delrina Corporation was acquired
and was accounted for as a pooling of interests and amounts prior to the date of
acquisition were restated to reflect the combined operations of the companies.
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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, 1998 1997
------------------------------------ Compared Compared
1998 1997 1996 to 1997 to 1996
---- ---- ---- -------- --------
Net revenues 100% 100% 100% 22% 6%
Cost of revenues 15 20 25 (7) (14)
--- --- ---
Gross margin 85 80 75 30 13
Operating expenses:
Research and development 16 19 21 3 (6)
Sales and marketing 45 47 52 18 (4)
General and administrative 7 7 7 12 4
Acquisition, restructuring and
other expenses -- 2 6 (100) (69)
--- --- ---
Total operating expenses 68 75 86 11
--- --- ---
(8)
Operating income (loss) 17 5 (11) 282 *
Interest income 2 2 2 83 (4)
Interest expense -- -- -- (13) (6)
Other income (expense), net -- -- (1) (89) (21)
--- --- ---
Income (loss) before income taxes 19 7 (10) 269 *
Provision (benefit) for income taxes 4 1 (1) 522 *
--- --- ---
Net income (loss) 15% 6% (9)% 227 *
=== === ===
* percentage change is not meaningful.
NET REVENUES.
Net revenues increased 22% from $472 million in fiscal 1997 to $578 million in
fiscal 1998. Net revenues increased 6% from $445 million in fiscal 1996 to $472
million in fiscal 1997. Revenue growth in fiscal 1998 was largely due to sales
of Windows 95 and Windows NT versions of the Company's principal products, as
well as introductions of new products, growth in international sales outside of
North America and royalty and revenue streams from the sale of certain
technologies and product lines to third-party computing companies.
PRODUCT GROUPS. During fiscal 1998 and 1997, Symantec experienced increased net
revenues, over the prior fiscal year, from each of its principal product groups:
Security and Assistance and Remote Productivity Solutions.
The Security and Assistance business unit is dedicated to being indispensable to
customers' daily use of computers by increasing productivity and keeping
computers safe and reliable. The Security and Assistance business unit comprised
approximately 50% of net revenues for both fiscal 1998 and 1997 and 45% of net
revenues in fiscal 1996. Increased net revenues for the business unit in fiscal
1998 primarily related to sales of Windows 95, Windows NT and Macintosh versions
of Norton Utilities, as well as the multi-platform workstations/servers version
of Norton AntiVirus. New product releases of CrashGuard Deluxe and Norton
Uninstall also contributed to the fiscal 1998 net revenue increase. Increased
net revenues in fiscal 1997 were primarily attributable to increases in Norton
AntiVirus revenues over the prior year.
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The Remote Productivity Solutions business unit helps remote professionals
remain productive and work reliably, anywhere, anytime. The Remote Productivity
Solutions business unit comprised approximately 40% of the Company's net
revenues for fiscal 1998, and 35% of net revenues for fiscal 1997 and 1996.
Increased net revenues for the business unit in fiscal 1998 primarily related to
sales of Windows 95 versions of WinFax PRO, Norton pcANYWHERE and ACT!.
Increased net revenues in fiscal 1997, over fiscal 1996, were primarily
attributed to the pcANYWHERE product line.
During fiscal 1998 and 1997, the financial impact of product price reductions
for certain of Symantec's principal products was more than offset by the
increase in the volume of products sold, resulting in increased net revenues.
Internet Tools, Royalties and Other, which 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 technologies, and revenues
from products nearing the end of their life cycles, comprised approximately 10%,
15% and 20% of net revenues for fiscal 1998, 1997 and 1996, respectively. The
business unit's net revenues decreased in fiscal 1998 and 1997 over the prior
fiscal year, largely as a result of declining sales from products which Symantec
no longer actively develops or markets. Also contributing to the fiscal 1998
decrease from the prior year was the fiscal 1997 recognition of $6 million of
non-recurring consulting net revenues.
Also included in Internet Tools, Royalties and Other are royalties and other
revenue of approximately $46 million and $19 million recorded in fiscal 1998 and
1997, respectively, which partially offset the revenue declines mentioned above.
These royalties and other revenues related to the sale of certain software
products, technologies and certain tangible assets to JetForm Corporation
("JetForm") and the Hewlett-Packard Company ("Hewlett-Packard") during fiscal
1997. Revenues from these agreements may decline in fiscal 1999. See Note 12 of
Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K
for further discussion of the technology licensing and sale transactions. The
Java development tools product line continued to expand in fiscal 1998,
resulting in increased revenues over fiscal 1997 and maintaining its fiscal 1997
percentage contribution to total net revenues in fiscal 1998.
INTERNATIONAL. Net revenues from international sales outside of North America
were $186 million and $138 million and represented 32% and 29% of total net
revenues in fiscal years 1998 and 1997, respectively. The increase in net
revenues was the result of Symantec's penetration of new and emerging markets in
Latin America and Asia/Pacific, as well as increased sales in Europe.
Net revenues from international sales declined by $4 million in fiscal 1997,
from $142 million in fiscal 1996. This decrease was due largely to the
recognition in fiscal 1996 of approximately $7 million of previously deferred
revenue related to an acquired company.
Foreign exchange rate fluctuations during fiscal 1998 and 1997 did not
materially affect annual revenue. The impact of fluctuations in foreign exchange
rates on international revenues is partially mitigated by operating expenses
incurred in local currencies.
PRODUCT RETURNS. The Company estimates and maintains reserves for product
returns. The level of actual product returns and related product return
provisions 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 returns provision are generally offset by changing
levels of gross revenue and, therefore, the product return provision did not
have a material impact on reported net revenues in any period presented.
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.
Gross margins increased to 85% of net revenues in fiscal 1998 from 80% in fiscal
1997 and from 75% in fiscal 1996.
Factors contributing to an increase in gross margin percentage during fiscal
1998 include reduction of direct material costs by shifting product media from
more expensive diskettes to lower priced CD-ROM's and reductions in the size of
bound manuals through a shift in documentation from paper manuals to electronic
manuals included on CD-ROM's for all of the Company's principal products.
Additional reductions occurred in manufacturing overhead costs due to improved
economies of scale and reductions in capitalized software amortization and
write-offs as
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discussed below. In addition, fiscal 1998 royalty revenues from JetForm and
Hewlett-Packard totaling $46 million had minimal costs of revenue.
The increase in gross margin percentage in fiscal 1997 compared to fiscal 1996
was due to a decrease in capitalized software amortization and write-offs as
discussed below. In addition, fiscal 1997 royalty revenues from JetForm and
Hewlett-Packard totaling $19 million had minimal costs of revenue.
CAPITALIZED SOFTWARE. During fiscal 1998, accounting standards requiring
capitalization of certain software development costs did not materially affect
the Company. During fiscal 1997, Symantec capitalized approximately $8 million
of software development costs, primarily related to network administration
technology. Prior to fiscal 1997, accounting standards 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.
Amortization of capitalized software, including amortization and write-off of
both purchased product rights and capitalized software development expenses,
totaled $1 million, $10 million and $19 million for fiscal 1998, 1997 and 1996,
respectively. The decrease in amortization expense in fiscal 1998 is attributed
to the write-off of approximately $8 million of unamortized capitalized software
and unamortized purchased software product rights related to network
administration technology written off as part of the sale of the networking
business unit to Hewlett-Packard in March 1997. Amortization and write-off
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.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses represented 16%, 19% and 21% of net revenues
in fiscal 1998, 1997 and 1996, respectively. Research and development
expenditures are charged to operations as incurred.
Research and development expenses increased 3% to $91 million in fiscal 1998
from $89 million in fiscal 1997 as the result of increased spending on new
product development. The decrease in research and development expenses as a
percentage of net revenues in fiscal 1998 largely resulted from the Company's
decision to cease development of certain software products no longer actively
marketed by Symantec. Another contributing factor was the elimination of certain
network administration technology development due to the sale of Symantec's
networking business unit to Hewlett-Packard during fiscal 1997.
Research and development expenses decreased 6% to $89 million in fiscal 1997
from $95 million in fiscal 1996 due primarily to decreased product development
efforts resulting from the Company's decision to cease developing certain
software products and an increase in the capitalization of software development
costs, including approximately $8 million related to network administration
technology. In addition, a $2 million research and development expense
reimbursement was received from Hewlett-Packard in fiscal 1997 under the
previously mentioned technology sale agreement, which further reduced research
and development expenses in fiscal 1997.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses increased 18% to $261 million, or 45% of net
revenues in fiscal 1998 from $221 million, or 47% of net revenues, in fiscal
1997. The increase in sales and marketing expenses in fiscal 1998 as compared to
fiscal 1997 is primarily related to increased international sales and marketing
activities. North American sales and marketing activities during fiscal 1998
decreased as a percentage of net revenues as compared to fiscal 1997 due to the
elimination of activities related to the electronic forms and network
administration software technologies and products which were sold in fiscal
1997.
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 was 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 in fiscal 1997. Reductions in expenditures for
products no longer actively marketed by Symantec were offset by increased
spending for new products released during the fiscal 1997.
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GENERAL AND ADMINISTRATIVE EXPENSES.
In fiscal 1998, general and administrative expenses increased by 12% to $38
million from $34 million in fiscal 1997 and from $33 million in fiscal 1996.
General and administrative expenses were 7% of net revenues during fiscal 1998,
1997 and 1996.
General and administrative expenses increased in fiscal 1998 as compared to
fiscal 1997 at a rate proportionate to net revenue growth as the result of
increased personnel expenses associated with the growth of the Company.
The fiscal 1997 increase in general and administrative expenses, 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.
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
No acquisition, restructuring and other expenses were incurred in fiscal 1998.
Acquisition Expenses. In connection with the acquisitions completed in fiscal
1997 and 1996 (see Summary of Significant Accounting Policies and Note 3 of
Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form
10-K), Symantec incurred significant acquisition-related expenses.
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. These acquisition expenses primarily
related to legal, accounting and financial advisory services, elimination of
duplicative and excess facilities and equipment, personnel severance and
outplacement services, and operational activities consolidation and
discontinuance. Offsetting these costs was a reduction in accrued acquisition,
restructuring and other expenses of approximately $2 million, as actual costs
incurred related to certain prior acquisitions were less than costs previously
accrued by the Company.
Restructuring Expenses. In fiscal 1997, the Company recorded a charge of
approximately $3 million for costs related to the restructuring of certain
domestic and international sales and research and development operations,
certain legal settlements and other expenses. In fiscal 1996, the Company
incurred approximately $2 million for equipment and personnel relocation costs
related to the consolidation of certain research and development activities. The
restructuring plans have been completed.
Other Expenses. In fiscal 1997, Symantec recorded an approximately $2 million
charge in connection with the write-off of an equity investment and an
approximately $3 million charge for the write-off of certain in-process research
and development acquired by the Company.
In fiscal 1996, Symantec incurred a $3 million loss on the sale of the assets of
Time Line Solutions Corporation, a wholly-owned subsidiary. Additionally, in
fiscal 1996, the Company recorded $3 million for estimated legal fees and other
expenses. (See Note 15 of Notes to Consolidated Financial Statements in Part IV,
Item 14 of this Form 10-K).
Remaining acquisition, restructuring and other expense accruals as of March 31,
1998 were approximately $3 million.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE).
Interest income was $13 million, $7 million and $8 million in fiscal 1998, 1997
and 1996, respectively. Interest income increased 83% in fiscal 1998 over fiscal
1997 due to higher average invested cash balances. Higher average cash balances
during fiscal 1997 compared to fiscal 1996 were offset by lower interest rates
on invested cash during fiscal 1997 compared to fiscal 1996.
Interest expense was approximately $1 million in fiscal 1998, 1997 and 1996.
Interest expense is principally related to Symantec's convertible subordinated
debentures. (See Note 6 of Notes to Consolidated Financial Statements in Part
IV, Item 14 of this Form 10-K).
Other income (expense) is primarily comprised of foreign currency exchange gains
and losses from fluctuations in currency exchange rates.
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INCOME TAXES.
The effective income tax provision rate for fiscal 1998 was 24%, which compares
to an effective income tax provision rate of 14% in fiscal 1997 and an effective
tax benefit rate of 10% in fiscal 1996. The 1998 income tax provision rate of
24% is lower than the U.S. statutory rate primarily due to the utilization of
previously unbenefitted losses and tax credits and a lower statutory tax rate
for the Company's Irish operations. In addition, fewer unbenefitted losses were
available in fiscal 1998, which caused the fiscal 1998 tax rate to be higher
than the fiscal 1997 tax rate.
Realization of the $20 million of net deferred tax assets 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. The net deferred tax asset includes a valuation
allowance of approximately $25 million. Approximately $23 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. The remaining $2 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.
Symantec projects the effective tax rate to be 32% in fiscal 1999. This rate is
lower than the expected U.S. federal and state combined statutory rate of 40%
due primarily to a lower tax rate from the Company's Irish operation. 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 -
Fluctuations in Quarterly Operating Results; Foreign Operations.)
LIQUIDITY AND CAPITAL RESOURCES
Cash, short-term investments and long-term investments increased $100 million to
$260 million at fiscal 1998 year-end from $160 million at fiscal 1997 year-end.
This increase was largely due to cash provided from operating activities, net
proceeds from the exercise of stock options and net proceeds from the sales of
common stock under the Company's Employee Stock Purchase Plan.
In addition to cash, short-term investments and long-term investments of $260
million, the Company has $59 million of restricted investments related to
collateral requirements under lease agreements entered into by Symantec during
fiscal 1997. Symantec is obligated under certain 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 securities with maturities not to exceed three years.
In accordance with the lease terms, these funds are not available to meet
operating cash requirements. (See further discussion in Note 8 of Notes to
Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K).
Net cash provided by operating activities was $131 million and was comprised of
the Company's net income of $85 million, non-cash related expenses of $21
million and a net decrease in assets and liabilities of $25 million.
Net trade accounts receivable increased $20 million to $65 million at the end of
fiscal 1998 from $45 million at the end of fiscal 1997, primarily due to
increased operating activities during fiscal 1998. With the growth of
international sales to 32% of net revenues in fiscal 1998 from 29% of net
revenues in fiscal 1997, Symantec is carrying an increased accounts receivable
balance with longer average standard payment terms, as such longer payment terms
are standard business practice in certain international markets. At March 31,
1998, international days sale outstanding was 48 days, as compared to 32 days
for North America.
During fiscal 1998, the Board of Directors of Symantec authorized the repurchase
of up to 1,500,000 shares of Symantec common stock. At the end of fiscal 1998, a
total of 1,000,000 shares were repurchased at prices ranging from $16.57 to
$26.81 per share. The authorized repurchase period has expired for the remaining
500,000 shares. The repurchased shares have been reissued under the Company's
employee stock purchase and option programs.
The Company recently renewed its $10 million line of credit to expire in May
2000. The Company was in compliance with the debt covenants for this line of
credit as of April 3, 1998. At the end of fiscal 1998, there were no borrowings
outstanding and less than $1 million of standby letters of credit
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outstanding under this line. 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.
If Symantec were to sustain significant losses, the Company could be required to
reduce operating expenses, which could result in product delays; reassess
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 and cash generated from operating
results will be sufficient to fund operations for the next year.
BUSINESS RISKS
The preceding 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.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND STOCK PRICE. Due to the factors
noted below, 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 and investors, which has had an immediate
and significant adverse affect on the trading price of the Company's common
stock. This may occur again in the future.
RAPID TECHNOLOGICAL CHANGE AND DEVELOPMENT RISKS. The Company participates in a
highly dynamic industry characterized by rapid change and uncertainty related to
new and emerging technologies and markets. The recent trend toward server-based
applications in networks and applications distributed over the Internet could
have a material adverse affect on sales of the Company's products. Future
technology or market changes may cause certain of Symantec's products to become
obsolete more quickly than expected.
The use of a Web browser (running on either a PC or network computer) to access
client/server systems is emerging as an alternative to the traditional desktop
access through operating systems resident on personal computers. Should the
functionality associated with such system access reduce the need for Symantec's
products, the Company's future net revenues and operating results may be
adversely affected.
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 affect on
operating results.
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. Should the
Company be unable successfully or timely to develop products that operate under
existing or new operating systems, or should the functionality of such operating
systems reduce the need for Symantec's products, the Company's future net
revenues and operating results would be materially adversely affected.
Microsoft has incorporated advanced utilities including telecommunications,
facsimile and data recovery utilities in Windows 95 and may include additional
product features in Windows 98 or future releases of Windows NT that may
decrease the demand for certain of the Company's products, including those
currently under development. Additionally, as hardware vendors incorporate
additional server-based network management and security tools into network
operating systems, the demand may decrease for certain of the Company's
products, including those currently under development. Also, Symantec's
competitors may license certain of their products to Microsoft and OEM's for
inclusion in their operating systems, which may reduce the demand for certain of
the Company's products.
MICROSOFT WINDOWS 98. With the anticipated introduction of Microsoft's Windows
98 operating system, the Company's ability to generate revenue from many of its
current products will depend on its ability to develop new versions and
enhancements of those products in a timely manner for the Windows 98 operating
system. Because the Department of Justice and various state entities have filed
lawsuits against Microsoft which may delay the
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introduction of Windows 98 or change the interfaces or feature set that will be
incorporated into Windows 98, the Company's ability to develop appropriate
products for Windows 98 may be impeded, and consumers may delay purchases of the
Company's products or otherwise change purchase plans in a manner that could
adversely affect the Company and its financial results. Adverse effects related
to these events could become apparent as early as the June quarter of 1998.
DEPENDENCE ON THE INTERNET. Critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of use, accessibility,
quality of service and potential tax or other government regulation, remain
unresolved and may affect the use of the Internet as a medium to support the
functionality of the Company's products, as well as to distribute software.
Should the Company be unable to incorporate changes in the Internet environment
successfully or timely into its business operations and product development
strategy, the Company's future net revenues and operating results may be
adversely affected.
PRICE COMPETITION. Price competition is sometimes intense for certain products
in the microcomputer 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. These actions may not be sufficient to offset
the impact of price competition in the Company's business and net revenues.
INTEGRATED SUITES. In the future, Symantec and/or its competitors may move
toward providing integrated suites of products. The price of integrated suites
could be less than the sum of the prices of individual products included in
these suites when such products are sold separately. The sales volume
contribution to Symantec from integrated suites may not be sufficient to offset
the gross margin impact of selling individual products at a reduced price using
integrated product suites. Additionally, integrated suites may not achieve
market acceptance and the Company's products may not be effective in competing
with integrated suites either currently in the market or introduced in the
future.
QUARTERLY BUYING PATTERNS; ABSENCE OF BACKLOG. Most 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 is particularly true of large corporate customers that
negotiate large site licenses near the end of each quarter. 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 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 affect on net revenues and on the Company's
operating results, which would likely result in a precipitous drop in stock
price.
RETAIL DISTRIBUTION CHANNEL. The Company's retail distribution customers also
carry the products of Symantec's competitors. These retail distributors may 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. Certain distributors and resellers have experienced
financial difficulties in the past. Distributors that account for significant
sales of the Company may experience financial difficulties in the future, which
could lead to reduced sales or write-offs and could adversely affect operating
results of the Company.
NEW DISTRIBUTION CHANNELS. Symantec may not be able to develop an effective
method of distributing its software products utilizing each of the rapidly
evolving software distribution channels, including the Internet. 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 new revenues and
profitability.
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SITE LICENSES. Symantec sells volume license programs (corporate site licenses)
through the distribution channel and through corporate resellers. Average site
license revenue per unit is lower than the average revenue per unit from retail
versions shipped through the retail distribution channel. Symantec may increase
unit sales under volume licensing programs in the future, which could have a
material adverse impact on the operating results of the Company. Additionally,
Symantec's products may not be effective in competing with products either
currently in the market or introduced in the future, and the Company's failure
to compete effectively could have a material adverse impact on the operating
results of the Company.
CHANNEL FILL. The Company's pattern of net revenues and earnings may be affected
by "channel fill." Distributors may fill their distribution channels in
anticipation of price increases, sales promotions or incentives. Inventories may
be decreased between the date Symantec announces a new version or new product
and the date of release, because 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. The impact of channel fill 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, particularly in periods where a large number of new
products are simultaneously introduced.
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. While such order delays or cancellations can cause
fluctuations in net revenues from one quarter to the next, the impact is
substantially mitigated by the Company's deferral of revenue associated with
inventories estimated to be in excess of appropriate levels in the distribution
channel.
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. The Company
estimates and maintains reserves for product returns. However, future returns
could exceed the reserves established by the Company, which could have a
material adverse affect on the operating results of the Company.
FOREIGN OPERATIONS. A significant portion of Symantec's revenues, manufacturing
costs and operating expenses is transacted in foreign currencies. As a result,
the Company's results 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 expects
that its non-U.S. dollar denominated sales activities may increase in the
future. Symantec utilizes natural hedging to mitigate Symantec's transaction
exposures and hedges certain residual balance sheet positions through the use of
one-month forward contracts. These strategies may not continue to be effective,
and the Company may not be successful in minimizing or accurately forecasting
transaction gains or losses.
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 and economic
volatility.
SALES AND MARKETING. 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 sales and marketing
efforts will be successful.
TECHNICAL SUPPORT. Consistent with many companies in the software industry,
technical support costs comprise a significant portion of the Company's
operating costs and expenses. The Company's technical support levels are based,
in a large part, on projections of future sales levels. Over the short term, the
Company may not be able to respond to fluctuations in customer demand for
support services or modify the format of the Company's support services to
compete with changes in support services provided by competitors. While the
Company performs
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extensive quality control review over its technical support services provided by
corporate personnel and, to a lesser extent, over support services outsourced to
third-party vendors, customer satisfaction with the services rendered may not be
favorable. In the event of customer dissatisfaction, future product and upgrade
sales to that customer base may be negatively impacted. Fee-based technical
support services did not generate material revenues in any fiscal year presented
and are not expected to generate material revenues in the near future.
UNCERTAINTY OF RESEARCH AND DEVELOPMENT EFFORTS. Symantec believes significant
research and development expenditures will be necessary in order to remain
competitive. While the Company performs extensive usability and beta testing of
new products, any products currently being developed by Symantec may not be
technologically successful, resulting products may not achieve market
acceptance, and the Company's products may not be effective in competing with
products either currently in the market or introduced in the future.
LENGTH OF PRODUCT DEVELOPMENT CYCLE. 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 affect 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 affect
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 dates of the Company's product
introductions.
OPERATING LEVERAGE. Consistent with many companies in the software industry,
employee and facility related expenditures comprise a significant portion of the
Company's operating costs and expenses. The Company's expense levels are based,
in a large part, on projections of future revenue levels. Given the fixed nature
of these expenses over the short term, if revenue levels fall below
expectations, Symantec's operating results are likely to be adversely affected.
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, 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 limited resources to implement changes. Further, due to the
uncertain nature of any of these undertakings, these efforts may not be
successful, and that the Company may not realize any benefit from these efforts.
RELIANCE ON JOINT BUSINESS ARRANGEMENTS. Symantec has entered, and may in the
future enter, into various development or joint business arrangements for the
purpose of developing new software products or enhancements to existing software
products. Depending on the nature of each such arrangement, the development,
distribution, sale or marketing of the resulting product may be controlled
either by Symantec or its business partner. Resulting products from joint
business arrangements may not be technologically successful, may not achieve
market acceptance and may not be effective in competing with products either
currently in the market or introduced in the future.
Symantec distributes certain of its products through value-added reseller
("VAR") and independent software vendor ("ISV") customers whereby Symantec's
products are included with hardware products prior to sale through retail
channels. VAR and ISV licensing agreements are generally non-exclusive and do
not require the VAR or ISV to make minimum purchases. If the Company is not
successful in maintaining its current relationships and securing license
agreements with additional VARs and ISVs, or if the Company's VAR and ISV
customers are not successful in selling their products, the Company's future net
revenues and operating results may be adversely affected.
ACQUIRED COMPANIES. 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. 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.
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Symantec typically incurs significant expenses in connection with acquisitions,
which have a significant adverse impact on the Company's profitability and
financial resources. Future acquisitions may have a significant adverse impact
on the Company's future profitability and financial resources.
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 which requires ongoing stockholder approval.
BUSINESS DISRUPTION. A disruption in communications between the Company's
geographically dispersed order entry and product shipping centers, 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.
Disruptions in communications and Internet connectivity may also cause delays in
customer access to Symantec's Internet-based services or product sales. A
business disruption could occur as a result of natural disasters or the
interruption in service by communications carriers, and may cause delays in
product development that could adversely impact future net revenues of the
Company.
LITIGATION. Symantec is involved in a number of judicial and administrative
proceedings incidental to its business (See Note 15 of Notes to Consolidated
Financial Statements in Part IV, Item 14 of this Form 10-K). 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 affect 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 (See
Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of
this Form 10-K).
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 a number
of 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 a number of such disputes and litigation, and may be involved in the
future in such disputes and/or litigation. 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 on reasonable terms or if another party were found to have a valid
patent claim against Symantec, such a result could have a material adverse
affect on Symantec's business, operating results and financial condition (See
Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of
this Form 10-K).
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SOFTWARE DEFECTS AND PRODUCT LIABILITY. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. In the past, for example, Symantec's anti-virus
software products have incorrectly detected viruses which do not exist. Although
the Company has not experienced any material adverse effects resulting from any
such defects or errors to date, defects and errors could be found in current
versions, future upgrades to current products or newly developed and released
products, despite testing prior to release. Software defects could result in
delays in market acceptance or unexpected reprogramming costs, which could have
a material adverse affect on the Company's operating results. While Symantec has
not been the target of software viruses specifically designed to impede the
performance of the Company's products, there can be no assurance that such
viruses will not be created in the future.
The Company's license agreements with its customers contain provisions designed
to limit the exposure to potential product liability claims. It is possible,
however, that the limitation of liability provisions contained in such license
agreements may not be valid as a result of federal, state, local laws or
ordinances or unfavorable judicial decisions. A successful product liability
claim could have a material adverse affect on the Company's business, operating
results and financial condition.
YEAR 2000 - PRODUCT LIABILITY. While the Company believes that most of its
currently developed and actively marketed products are Year 2000 compliant for
significantly all functionality, these software products could contain errors or
defects related to the Year 2000. Versions of the Company's products which are
not the most currently released or which are not currently being developed may
not be Year 2000 compliant. The Company sells some of its older product lines,
which are not being actively developed and updated, as such these products are
not necessarily Year 2000 compliant. Symantec is currently party to a lawsuit
related to the alleged inability of pre-version 4.0 Norton AntiVirus products to
function properly in respect to Year 2000. Symantec believes that this lawsuit
has no merit and intends to defend itself vigorously. The final resolution of
this lawsuit is not expected to have a material adverse affect on the results of
operations and financial condition of the Company, although it is not possible
to estimate the possible loss. However, depending on the amount and timing of an
unfavorable resolution of this lawsuit, it is possible that the Company's future
results of operations or cash flows could be materially adversely affected in a
particular period. (See Note 15 of Notes to Consolidated Financial Statements in
Part IV, Item 14 of this Form 10-K).
YEAR 2000 - CORPORATE SYSTEMS. The Company has completed an assessment of its
computer systems and software and is modifying or replacing portions of its
software so that its operating systems will function properly with respect to
dates in the Year 2000 and thereafter. The Company is currently evaluating
system interfaces with third-party systems, such as those of key suppliers,
distributors and financial institutions, for Year 2000 functionality. The Year
2000 project cost is not expected to be material. The project is estimated to be
significantly completed during the 1998 calendar year. The Company believes
that, with modifications to existing software and conversions to new software,
the Year 2000 issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the Year 2000 issue could have a material adverse
impact on the operations of the Company. Additionally, the systems of other
companies with which Symantec does business may not address any Year 2000
problems on a timely basis, which could have an adverse affect on Symantec's
systems or business transactions. As testing of Year 2000 functionality of the
Company's systems must occur in a simulated environment, the Company will not be
able to test full system Year 2000 interfaces and capabilities prior to Year
2000. The Company believes that its exposure on Year 2000 issues is not material
to its business as a whole.
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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
Symantec has a 52/53-week fiscal accounting year. Accordingly, all quarterly
fiscal periods presented comprised 13 weeks, with the exception of the quarter
ended June 30, 1997, which comprised 14 weeks.
(In thousands, except net income per share; unaudited)
Fiscal 1998 Fiscal 1997
-------------------------------------------- --------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1998 1997 1997 1997 1997 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
Net revenues $156,092 $148,240 $139,013 $135,016 $129,706 $124,081 $109,178 $109,218
Gross margin 134,561 125,649 116,624 114,096 100,352 102,105 88,448 87,734
Acquisition,
restructuring and
other expenses * -- -- -- -- -- -- 7,290 1,295
Net income ** 24,138 21,836 20,580 18,535 8,269 13,852 882 3,035
Net income per share -
basic $ 0.43 $ 0.39 $ 0.37 $ 0.33 $ 0.15 $ 0.25 $ 0.02 $ 0.06
diluted $ 0.40 $ 0.37 $ 0.35 $ 0.32 $ 0.15 $ 0.25 $ 0.02 $ 0.06
* See Note 13 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 12 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 17, 1998 (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. 51 President and Chief Executive Officer
Howard A. Bain III 52 Vice President, Worldwide Operations
and Chief Financial Officer
Christopher Calisi 38 Vice President, Remote Productivity Solutions Business
Unit
Dieter Giesbrecht 54 Vice President, Europe, Middle East and Africa ("EMEA")
Enrique T. Salem 32 Vice President, Security and Assistance Business Unit
and Chief Technical Officer
Dana E. Siebert 38 Vice President, Americas
Derek Witte 41 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 a member of the IEEE and ACM.
HOWARD A. BAIN III is currently Vice President, Worldwide 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 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 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. from
California Polytechnic University.
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CHRISTOPHER CALISI is Vice President, Remote Productivity Solutions Business
Unit 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.
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.
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.
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 is a member of the Board of Directors of TimeLine Solutions and Percon,
Inc. 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.
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 Computer, Inc. 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.
27
30
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 17, 1998. 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 17, 1998. 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 17, 1998. Such information is
incorporated herein by reference.
28
31
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:
Shelley Wilson
Investor Relations
Symantec Corporation
10201 Torre Avenue
Cupertino, California 95014-2132
408-446-8891
(a) The following documents are filed as part of this report:
Page
Number
------
1. Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors........................... 35
Consolidated Balance Sheets as of March 31, 1998 and 1997................... 36
Consolidated Statements of Operations for the Years Ended
March 31, 1998, 1997 and 1996........................................... 37
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1998, 1997 and 1996..................................... 38
Consolidated Statements of Cash Flow for the Years Ended
March 31, 1998, 1997 and 1996........................................... 39
Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements....................................... 40
2. Financial Statement Schedules. The following financial statement schedule
of Symantec Corporation for the years ended March 31, 1998, 1997 and 1996
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...................................... 58
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.)
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.)
29
32
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 1996 Equity Incentive Plan, as amended.
(Incorporated by reference to Exhibit 4.01 filed with the
Registrant's Registration Statement on Form S-8 (No. 333-39175) filed
October 31, 1997.)
10.12* Symantec Corporation Deferred Compensation Plan dated as of November
7, 1996. (Incorporated by reference to Exhibit 10.11 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.13 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.)
10.14 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.)
10.15 Master Lease and Deed of Trust, as amended, dated as of October 18,
1996 between Symantec Corporation and Sumitomo Bank Leasing and
Finance, Inc. (Incorporated by reference to Exhibit 10.14 filed with
the Registrant's Annual Report on Form 10-K for the year ended March
28, 1997.)
- --------------------
* Indicates a management contract or compensatory plan or arrangement.
30
33
10.16 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 September 27, 1996.)
10.17 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.)
10.18 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. (Incorporated by reference to
Exhibit 10.17 filed with the Registrant's Annual Report on Form 10-K
for the year ended March 28, 1997.)
10.19 Agreement of Purchase and Sale of Cupertino City Center One between
Cigna Property and Casualty Insurance Company and Symantec
Corporation. (Incorporated by reference to Exhibit 10.18 filed with
the Registrant's Annual Report on Form 10-K for the year ended March
28, 1997.)
10.20 Agreement for Purchase and Sale and Escrow Instructions of 10201
Torre Avenue, Cupertino, CA. (Incorporated by reference to Exhibit
10.19 filed with the Registrant's Annual Report on Form 10-K for the
year ended March 28, 1997.)
10.21 Agreement for Purchase and Sale and Escrow Instructions, as amended,
dated as of May 31, 1996. (Incorporated by reference to Exhibit 10.20
filed with the Registrant's Annual Report on Form 10-K for the year
ended March 28, 1997.)
10.22 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.
(Incorporated by reference to Exhibit 10.21 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.23 Construction Agency Agreement dated as of March 3, 1997, between
Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation.
(Incorporated by reference to Exhibit 10.22 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.24 Symantec - CC5 Office Building and Parking Structure, as amended,
dated as of May 5, 1997, made by and between Symantec Corporation and
Webcor Builders. (Incorporated by reference to Exhibit 10.23 filed
with the Registrant's Annual Report on Form 10-K for the year ended
March 28, 1997.)
10.25 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.)
10.26 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.)
10.27 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.)
10.28 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.)
10.29 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.)
31
34
10.30* 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.)
10.31* 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.)
10.32* 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.)
10.33 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 Annual Report on Form 10-K for the
year ended April 2, 1993.)
10.34* 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.)
10.35* 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.)
10.36 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.)
10.37* 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.)
10.38* 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.)
10.39 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.)
10.40 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.)
10.41* 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.)
10.42 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.)
10.43 Asset Purchase Agreement dated as September 26, 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.)
10.44 Asset Purchase Agreement, as amended, dated as of March 28, 1998, by
and between Delrina and JetForm.
- ----------------
* Indicates a management contract or compensatory plan or arrangement.
32
35
10.45 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by
and between Hewlett-Packard Company and Symantec Corporation.
(Incorporated by reference to Exhibit 10.43 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.46 Master agreement, dated May 18, 1998, between International Business
Machines Corporation and Symantec Corporation. (Confidential
treatment has been requested with respect to portions of this
exhibit.)
10.47 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.)
21.01 Subsidiaries of the Registrant.
23.01 Consent of Ernst & Young LLP, Independent Auditors.
27.01 Financial Data Schedule for the Year Ended March 31, 1996 (restated)
27.02 Financial Data Schedule for the Year Ended March 31, 1997 (restated)
27.03 Financial Data Schedule for the Year Ended March 31, 1998
(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 58.
33
36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors............................... 35
Consolidated Balance Sheets as of March 31, 1998 and 1997....................... 36
Consolidated Statements of Operations for the years ended March 31, 1998, 1997
and 1996 ....................................................................... 37
Consolidated Statements of Stockholders' Equity for the years ended March 31,
1998, 1997 and 1996............................................................. 38
Consolidated Statements of Cash Flow for the years ended March 31, 1998, 1997
and 1996 ....................................................................... 39
Summary of Significant Accounting Policies...................................... 40
Notes to Consolidated Financial Statements...................................... 43
34
37
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, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 1998. 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 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Symantec
Corporation at March 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, 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 30, 1998, except for Note 17, as to which the date is May 19, 1998.
35
38
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
-----------------------
(In thousands) 1998 1997
--------- ---------
ASSETS
Current assets:
Cash and short-term investments $ 225,883 $ 160,082
Trade accounts receivable 65,158 45,375
Inventories 3,175 4,476
Deferred income taxes 19,677 12,823
Other 14,646 13,166
--------- ---------
Total current assets 328,539 235,922
Long-term investments 34,258 --
Restricted investments 59,370 47,448
Equipment and leasehold improvements 50,030 51,610
Other 4,263 4,418
--------- ---------
$ 476,460 $ 339,398
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,171 $ 30,328
Accrued compensation and benefits 21,332 16,241
Other accrued expenses 64,532 51,508
Income taxes payable 24,634 8,276
Current portion of convertible subordinated debentures 8,333 --
--------- ---------
Total current liabilities 153,002 106,353
Convertible subordinated debentures and other 5,951 15,066
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 57,109
and 55,427 shares) 571 554
Capital in excess of par value 311,106 291,548
Notes receivable from stockholders (144) (144)
Cumulative translation adjustment (12,716) (7,580)
Retained earnings (deficit) 18,690 (66,399)
--------- ---------
Total stockholders' equity 317,507 217,979
--------- ---------
$ 476,460 $ 339,398
========= =========
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 OPERATIONS
Year Ended March 31,
-------------------------------------
(In thousands, except net income (loss) per share) 1998 1997 1996
--------- --------- ---------
Net revenues $ 578,361 $ 472,183 $ 445,432
Cost of revenues 87,431 93,544 108,975
--------- --------- ---------
Gross margin 490,930 378,639 336,457
Operating expenses:
Research and development 91,332 88,924 94,672
Sales and marketing 261,190 220,811 229,703
General and administrative 38,063 34,030 32,744
Acquisition, restructuring and
other expenses -- 8,585 27,617
--------- --------- ---------
Total operating expenses 390,585 352,350 384,736
--------- --------- ---------
Operating income (loss) 100,345 26,289 (48,279)
Interest income 13,160 7,182 7,512
Interest expense (1,218) (1,402) (1,495)
Other income (expense), net (190) (1,691) (2,130)
--------- --------- ---------
Income (loss) before income taxes 112,097 30,378 (44,392)
Provision (benefit) for income taxes 27,008 4,340 (4,609)
--------- --------- ---------
Net income (loss) $ 85,089 $ 26,038 $ (39,783)
========= ========= =========
Net income (loss) per share - basic $ 1.52 $ 0.48 $ (0.76)
========= ========= =========
Net income (loss) per share - diluted $ 1.42 $ 0.47 $ (0.76)
========= ========= =========
Shares used to compute net income (loss) per share - basic 56,097 54,705 52,664
========= ========= =========
Shares used to compute net income (loss) per share - diluted 60,281 55,407 52,664
========= ========= =========
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 STOCKHOLDERS' EQUITY
Notes
Capital in Receivable Cumulative Retained Total
Common Excess of from Translation Earnings Stockholders'
(In thousands) Stock Par Value Stockholders Adjustment (Deficit) Equity
--------- --------- --------- --------- --------- ---------
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
Acquired company's 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
Net income -- -- -- -- 85,089 85,089
Issued common stock:
2,622 shares under stock plans
and other 26 33,179 -- -- -- 33,205
60 shares from conversion of
convertible debentures 1 715 -- -- -- 716
Repurchase 1,000 shares of
common stock (10) (21,336) -- -- -- (21,346)
Income tax benefit related to stock
options -- 7,000 -- -- -- 7,000
Translation adjustment -- -- -- (5,136) -- (5,136)
--------- --------- --------- --------- --------- ---------
Balances, March 31, 1998 $ 571 $ 311,106 $ (144) $ (12,716) $ 18,690 $ 317,507
========= ========= ========= ========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
38
41
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended March 31,
-------------------------------------
(In thousands) 1998 1997 1996
--------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ 85,089 $ 26,038 $ (39,783)
Delrina net loss for the quarter ended June 30, 1995 -- -- 4,834
Acquired company's accumulated deficit -- (445) --
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 25,231 22,770 19,717
Amortization and write-off of capitalized software costs 1,466 10,477 19,141
Write-off of equipment and leasehold improvements 1,225 4,010 3,403
Deferred income taxes (6,915) 21 (989)
Net change in assets and liabilities:
Trade accounts receivable (22,873) 11,621 19,137
Inventories 1,040 3,432 1,450
Other current assets (1,839) 1,304 (6,461)
Capitalized software costs -- (7,656) (3,286)
Other assets (556) 2,720 2,465
Accounts payable 5,568 7,373 (2,368)
Accrued compensation and benefits 5,371 1,502 1,313
Accrued other expenses 14,018 6,182 (8,786)
Income taxes payable 17,051 5,031 1,211
Income tax benefit from stock options 7,000 -- --
--------- --------- ---------
Net cash provided by operating activities 130,876 94,380 10,998
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (26,339) (27,195) (35,767)
Purchased intangibles (948) (698) (461)
Purchases of marketable securities (230,891) (180,000) (154,500)
Proceeds from sales of marketable securities 174,087 203,098 168,681
Purchases of long-term, restricted investments (11,922) (47,448) --
--------- --------- ---------
Net cash used in investing activities (96,013) (52,243) (22,047)
--------- --------- ---------
FINANCING ACTIVITIES:
Repurchase of Company's common stock (21,346) -- --
Net proceeds from sales of common stock and other 33,108 11,703 20,295
--------- --------- ---------
Net cash provided by financing activities 11,762 11,703 20,295
--------- --------- ---------
Effect of exchange rate fluctuations on cash and cash equivalents (3,370) 141 2,339
Increase in cash and cash equivalents 43,255 53,981 11,585
Beginning cash and cash equivalents 95,758 41,777 30,192
--------- --------- ---------
Ending cash and cash equivalents $ 139,013 $ 95,758 $ 41,777
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (net of refunds) during the year $ 6,037 $ 392 $ 906
Interest paid on convertible subordinated debentures and
long-term obligations $ 1,150 $ 1,182 $ 1,299
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
39
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SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Symantec Corporation ("Symantec" or the "Company") develops, markets and
supports utility software for business and personal computing. Symantec's
products are currently organized into the following three business units:
Security and Assistance; Remote Productivity Solutions; and Internet Tools,
Royalties and Other. Customers consist primarily of individual users,
corporations, higher education institutions and government agencies, which are
mainly located in North America, Europe, Asia/Pacific, Latin America and South
America.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Symantec Corporation and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Basis of Presentation
During fiscal year 1998, no companies were acquired by Symantec. During fiscal
1997 and 1996, Symantec acquired Delrina Corporation ("Delrina") and Fast Track,
Inc. ("Fast Track") in transactions accounted for as poolings of interests. All
financial information of has been restated to reflect the combined operations of
Symantec. The results of operations of 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, 1998, 1997 and 1996 reflect amounts as of
and for the periods ended April 3, 1998, March 28, 1997 and March 29, 1996,
respectively. The fiscal year ending on April 3, 1998 is 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. 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 programs. The Company estimates and maintains reserves for product
returns.
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.
Royalty revenues are recognized as earned unless collection of such revenues is
not assured. When collection is not assured, revenues are recognized as payments
are received.
Cash Equivalents, 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, long-term investments and
restricted investments are classified as available-for-sale as of the balance
sheet date. These securities are reported at fair market value and any
unrealized gains and losses are 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.
40
43
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Derivative Financial Instruments
Symantec utilizes natural hedging to mitigate the Company's foreign currency
exposures and hedges certain residual exposures through the use of one-month
foreign exchange forward contracts. The Company enters into foreign exchange
forward contracts with financial institutions primarily to minimize currency
exchange risks associated with certain balance sheet positions. Gains and losses
on the contracts are included in other income (loss) in the period as gains and
losses on the underlying transactions are recognized and generally offset. The
fair value of foreign currency exchange forward contracts approximates cost due
to the short maturity periods.
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.
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
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Accounting for Earnings Per Share," ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted net income (loss) per share with basic
and diluted net income (loss) per share. Accordingly, prior period net income
(loss) per share have been restated in accordance with SFAS 128.
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding during the periods. Diluted net income (loss) per
share is computed using the weighted average number of common shares outstanding
and potentially dilutive common shares during the periods. Diluted earnings per
share includes the assumed conversion of all of the outstanding convertible
subordinated debentures, if dilutive in the period.
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 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 and long-term investments,
restricted investments and trade accounts receivable. The Company's investment
portfolio is diversified and consists of investment grade 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.
41
44
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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
affect on the Company's consolidated financial condition or results of
operations.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements and is required to be adopted by Symantec
beginning in fiscal 1999. Symantec is evaluating the potential impact of this
accounting pronouncement on required disclosures. The Company anticipates that
its unrealized gain and loss on investments and cumulative translation
adjustment balances will be included as components of comprehensive income.
Additionally, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
establishes standards for the way that public business enterprises report
information in annual statements and interim financial reports regarding
operating segments, products and services, geographic areas and major customers.
SFAS 131 will be effective for Symantec for fiscal 1999 year-end and will apply
to both annual and interim financial reporting subsequent to this date. Symantec
is evaluating the potential impact of these accounting pronouncements on
required disclosures. SFAS 131 is not expected to have a material impact on the
financial condition or results of operations of the Company.
In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," respectively, which provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and is effective for Symantec's transactions entered into
subsequent to April 3, 1998. AcSEC is currently deliberating the potential
permanent deferral of certain provisions of SOP 97-2.
The Company does not believe that the implementation of SOP 97-2 and SOP 98-4
will have a material adverse affect on expected revenues or earnings. However,
in the event subsequent interpretations are contrary to the Company's revenue
accounting practices, the Company believes it can change its current business
practices to comply with this guidance and avoid any material adverse affect on
reported revenues and earnings. There can be no assurance this will be the case.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation format with no impact on net income (loss). All financial
information has been restated to conform to this presentation.
42
45
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BALANCE SHEET INFORMATION
March 31,
-----------------------
(In thousands) 1998 1997
--------- ---------
Cash, cash equivalents and short-term investments:
Cash $ 28,236 $ 33,755
Cash equivalents 110,777 62,003
Short-term investments 86,870 64,324
--------- ---------
$ 225,883 $ 160,082
========= =========
Trade accounts receivable:
Receivables $ 69,574 $ 49,675
Less: allowance for doubtful accounts (4,416) (4,300)
--------- ---------
$ 65,158 $ 45,375
========= =========
Inventories:
Raw materials $ 1,091 $ 1,736
Finished goods 2,084 2,740
--------- ---------
$ 3,175 $ 4,476
========= =========
Equipment and leasehold improvements:
Computer hardware and software $ 107,724 $ 91,533
Office furniture and equipment 29,407 27,706
Leasehold improvements 21,038 17,697
--------- ---------
158,169 136,936
Less: accumulated depreciation and amortization (108,139) (85,326)
--------- ---------
$ 50,030 $ 51,610
========= =========
Other assets:
Purchased product rights $ 1,358 $ 591
Capitalized software costs 2,414 2,465
Less: accumulated amortization of purchased product rights (563) (55)
Less: accumulated amortization of capitalized software costs (1,739) (964)
Other assets 2,793 2,381
--------- ---------
$ 4,263 $ 4,418
========= =========
Other accrued expenses:
Deferred revenue $ 25,537 $ 11,550
Marketing development funds 12,815 12,529
Other 26,180 27,429
--------- ---------
$ 64,532 $ 51,508
========= =========
NOTE 2. INCOME STATEMENT INFORMATION
Year Ended March 31,
-----------------------------
(In thousands) 1998 1997 1996
------- ------- -------
Technical support costs included in sales and marketing $38,582 $35,111 $34,487
Advertising expense $46,814 $39,147 $43,015
Technical support costs included in sales and marketing relate to the estimated
cost of providing insignificant post-contract support (generally telephone
support) that is accrued at the time of product sale.
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. Deferred advertising costs have not been material in all
periods presented.
43
46
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS
During the three fiscal years ended March 31, 1998, 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
* 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.
Both acquisitions were accounted for as poolings of interests. In connection
with the acquisitions of the companies listed above, Symantec incurred
significant acquisition expenses (See Note 13 of Notes to Consolidated Financial
Statements). 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 accordingly, 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 a 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 4. CAPITALIZED SOFTWARE
In fiscal 1998, capitalization of certain software development costs in
accordance with Statement of Financial Accounting Standards No. 86 did not
materially affect the Company. Amortization expense for capitalized software
development costs was approximately $0.8 million in fiscal 1998.
In fiscal 1997, Symantec capitalized approximately $7.7 million of 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 12 of Notes to Consolidated Financial Statements).
Amortization expense for capitalized software development costs was
approximately $2.9 million in fiscal 1997.
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. The related amortization expense
was approximately $5.6 million in fiscal 1996.
NOTE 5. CASH EQUIVALENTS, INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Available-For-Sale Investments and Trading Investments
All cash equivalents, short-term investments, long-term investments and
restricted investments have been classified as available-for-sale securities.
During fiscal 1998, the Company maintained a trading asset portfolio to generate
returns that offset changes in certain liabilities related to deferred
compensation arrangements. The trading assets, which consist of marketable
equity securities and have a fair value of approximately $0.2 million, have been
included in the available-for-sale tabular disclosure, due to immateriality.
44
47
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of March 31, 1998 and 1997, the estimated fair value of the cash equivalents,
short-term investments and long-term investments consisted of the following:
Cash equivalents, short and long-term investments 1998 1997
-------- --------
(In thousands)
Money market funds $ 15,685 $ 2,598
Corporate securities 161,848 69,326
Bank securities and deposits 41,655 20,755
US government and government sponsored securities 12,717 33,648
-------- --------
Total available-for-sale and trading investments $231,905 $126,327
======== ========
The estimated fair value of marketable securities by contractual maturity as of
March 31, 1998 are as follows:
Cash equivalents, short and long-term investments 1998
--------
(In thousands)
Due in one year or less $197,647
Due after one year through three years 18,685
Due after three years 15,573
--------
$231,905
========
Fair values of cash equivalents, short-term investments and long-term
investments and trading assets approximate cost due to one or more of the
following: the short-term maturities of the investments, absence of changes in
underlying interest rates and/or the absence of changes in security credit
ratings.
As of March 31, 1998 and 1997, the estimated fair value of the restricted
investments consisted of the following:
Restricted Investments 1998 1997
------- -------
(In thousands)
Money market funds $ -- $ 6
US government and government sponsored securities 59,370 47,442
------- -------
$59,370 $47,448
======= =======
The estimated fair value of restricted marketable securities by contractual
maturity as of March 31, 1998 are as follows:
Restricted Investments 1998
-------
(In thousands)
Due in one year or less $54,334
Due after one year through three years 5,036
-------
$59,370
=======
The Company's available-for-sale restricted investments relate to certain
collateral requirements for lease agreements associated with Symantec's
corporate facilities in Cupertino, California. Fair values of the restricted
investments approximate cost due to one or more of the following: the short-term
maturities of the investments, absence of changes in underlying interest rates
and/or the absence of changes in security credit ratings.
Unrealized gains (losses) on all available-for-sale securities are reported as a
component of stockholders' equity and are not material.
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 foreign currency exposures and the Company
hedges certain residual 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 balance sheet positions. The fair value of foreign
45
48
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
exchange forward contracts are based on quoted market prices. At March 31, 1998,
outstanding forward exchange contracts had a notional amount of approximately
$47.5 million, all of which mature in 35 days or less. The net liability of
forward contracts was a notional amount of approximately $47.5 million at March
31, 1998. 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 6. 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 with 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.
During October 1997, convertible subordinated debentures totaling $0.7 million
were converted into 59,666 shares of Symantec common stock, leaving 1,190,334
shares of common stock reserved for future conversions as of March 31, 1998.
The estimated fair value of the $14.3 million convertible subordinated
debentures was approximately $32.8 million at March 31, 1998. 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, 1998, which exceeded the conversion price of $12 per share, plus
accrued interest.
NOTE 7. LINE OF CREDIT
The Company recently renewed its $10.0 million bank line of credit to expire in
May 2000. 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,
1998), the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or 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,
1998. At March 31, 1998, there was less than $1 million of standby letters of
credit outstanding under this line of credit. There were no borrowings
outstanding under this line at March 31, 1998.
NOTE 8. 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 2001.
46
49
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The future fiscal year minimum operating lease commitments were as follows at
March 31, 1998:
(In thousands)
1999 $ 16,841
2000 15,305
2001 12,086
2002 8,672
2003 8,169
Thereafter 21,288
---------
Operating lease commitments 82,361
Sublease income (3,890)
---------
Net operating lease commitments $ 78,471
=========
Rent expense charged to operations totaled approximately $14.1 million, $12.4
million and $11.3 million for the years ended March 31, 1998, 1997 and 1996,
respectively.
In fiscal 1997, Symantec entered into lease agreements for two existing office
buildings, land and one office building currently under construction in
Cupertino, California. 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 lessor'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
$19.4 million at March 31, 1998 and will increase to approximately $31.7 million
at the completion of the construction during fiscal year 1999. As security
against these guaranteed residual payments, 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. At March 31, 1998, the investments total
approximately $59.4 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 August 1999 through February 2001.
NOTE 9. INCOME TAXES
The components of the provision (benefit) for income taxes were as follows:
Year Ended March 31,
----------------------------------------
(In thousands) 1998 1997 1996
-------- -------- --------
Current:
Federal $ 13,615 $ 514 $ (5,882)
State 4,879 302 130
International 15,368 3,472 2,149
-------- -------- --------
33,862 4,288 (3,603)
Deferred:
Federal (5,788) 565 (1,006)
State (2,247) 126 --
International 1,181 (639) --
-------- -------- --------
(6,854) 52 (1,006)
-------- -------- --------
$ 27,008 $ 4,340 $ (4,609)
======== ======== ========
47
50
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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,
------------------------
1998 1997 1996
---- ---- ----
Federal statutory rate 35.0% 35.0% (35.0)%
State taxes, net of federal benefit 1.5 2.9 0.3
Non-deductible acquisition expenses -- -- 6.8
Impact of international operations (4.0) (9.2) --
Losses for which no benefit is currently recognizable -- -- 16.9
Benefit of pre-acquisition losses of acquired entities (10.1) (16.5) --
Other, net 1.7 2.1 0.7
---- ---- ----
24.1% 14.3% (10.3)%
==== ==== ====
The principal components of deferred tax assets were as follows:
March 31,
---------------------
(In thousands) 1998 1997
-------- --------
Tax credit carryforwards $ 6,821 $ 9,158
Net operating loss carryforwards 3,161 7,969
Inventory valuation accounts 2,806 2,327
Other reserves and accruals not
currently tax deductible 12,828 8,570
Accrued compensation and benefits 3,512 2,392
Deferred revenue 4,155 10,187
Sales incentive programs 5,555 5,005
Allowance for doubtful accounts 1,365 984
Acquired software 1,139 2,613
Accrued acquisition, restructuring and other expenses 931 1,077
Other 2,599 2,868
-------- --------
44,872 53,150
Valuation allowance (25,195) (40,327)
-------- --------
$ 19,677 $ 12,823
======== ========
Realization of the $19.7 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 $23.3 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. The remaining $1.8 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.
The change in the valuation allowance for the years ended March 31, 1998, 1997
and 1996 was a net decrease of $15.1 million and $5.4 million, and a net
increase of $14.8 million, respectively.
Pretax income (loss) from international operations was approximately $65.0
million, $24.9 million and $(4.1) million for the years ended March 31, 1998,
1997 and 1996, respectively.
At March 31, 1998, the Company had tax credit carryforwards of approximately
$7.0 million that expire in fiscal 1999 through 2013.
48
51
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 10. 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 $2.2 million, $2.0
million and $1.5 million for the years ended March 31, 1998, 1997 and 1996,
respectively.
Employee Stock Purchase Plan
In October 1989, the Company established the 1989 Employee Stock Purchase Plan
and a total of 3.4 million shares of common stock have been reserved for
issuance under this plan. 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. As of March 31, 1998, approximately 2.4 million shares had been issued
and 1.0 million shares remain to be issued under the Employee Stock Purchase
Plan.
Stock Award Plans
During fiscal 1996, the Company registered 400,000 shares to be issued under the
terms of the 1994 Patent Incentive 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, 1998,
approximately 16,000 shares had been issued under this plan.
In March 1998, the Board of Directors approved the terms of the 1998 Star Award
Bonus Plan, under which the Company may grant up to 5,000 shares of common stock
to employees who perform exceptionally in a given quarter. Directors and
executive officers are not eligible to receive awards under this plan. Stock
awards under this plan are recorded as compensation expense at the time of
issuance. The Board of Directors reserved 20,000 shares of common stock for
issuance under this plan. As of March 31, 1998, no shares had been issued under
this plan.
Stock Option Plans
The Company maintains stock option plans pursuant to which an aggregate total of
approximately 20.1 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. On
September 18, 1997, stockholders approved an amendment to increase the number of
shares reserved for issuance by approximately 2.6 million to 6.7 million shares.
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 had 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.
49
52
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
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, 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
Granted 3,857 22.74
Exercised (2,158) 12.73
Canceled (1,413) 15.29
---------
Outstanding at March 31, 1998 9,328 17.32
=========
(In thousands) March 31,
----------------------
Balances are as follows: 1998 1997
------ ------
Authorized but unissued 10,785 11,901
Available for future grants 1,457 2,859
Exercisable and vested 3,173 4,066
The following tables summarize information about options outstanding at March
31, 1998:
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 - $13.10 3,246 6.93 $ 11.43 1,579 $11.25
$13.13 - $22.63 3,252 7.87 16.13 1,454 15.83
$22.75 - $39.13 2,830 9.56 25.44 140 28.03
-------- --------
9,328 8.06 17.32 3,173 14.09
======== ========
These options will expire if not exercised by specific dates ranging from April
1998 to March 2008. Prices for options exercised during the three-year period
ended March 31, 1998 ranged from $0.07 to $25.25.
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
50
53
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 1995 under the fair value method of that statement. The fair value
of options granted in fiscal years 1997 and 1998 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 1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
Expected life (years) 4.84 4.34 4.34 0.50 0.50 0.50
Expected volatility 0.61 0.63 0.74 0.55 0.74 0.60
Risk free interest rate 5.4% 6.7% 6.0% 5.2% 5.4% 5.4%
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 values of employee stock options for fiscal
year 1998 and 1997 were $13.44 and $7.81 per share, respectively. The
weighted-average estimated fair value of employee stock purchase rights granted
under the Employee Stock Purchase Plan during fiscal year 1998 and 1997 were
$14.71 and $7.74, respectively.
For purposes of pro forma disclosures, the estimated fair values 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:
Year Ended March 31,
--------------------------------------
(In thousands) 1998 1997 1996
--------- --------- ---------
Net income (loss) - Basic - Pro forma $ 68,601 $ 14,123 $ (47,015)
Net income (loss) - Diluted - Pro forma 69,293 14,123 (47,015)
Net income (loss) per share - Basic - Pro forma 1.29 0.28 (0.89)
Net income (loss) per share - Diluted - Pro forma 1.19 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 11. 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. As of June
13, 1997, management completed the repurchase of 500,000 shares at prices
ranging from $16.57 to $17.00 per share. Authorization to repurchase the
remaining 500,000 shares has expired as of March 31, 1998.
Additionally, on November 24, 1997, the Board of Directors of Symantec
authorized the repurchase of up to 500,000 shares of Symantec common stock. As
of December 4, 1997 management completed the repurchase of 500,000 shares at
prices ranging from $25.25 to $26.81 per share.
51
54
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 12. 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. During
February 1998, the purchase agreement was amended to accelerate certain
quarterly payments during the remaining payment term in exchange for a reduction
in the total sale price to approximately $92.5 million. 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 $24.1 million and $18.3 million
from JetForm during fiscal 1998 and 1997, respectively.
In March 1997, Symantec 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 fiscal 1997. Additionally, a two-year quarterly
royalty payment stream, not to exceed a present value of $27.0 million as of
March 1997, commenced 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 reported by Hewlett-Packard. Symantec
recognized royalty revenue of approximately $21.5 million from Hewlett-Packard
during fiscal 1998.
In connection with the sale to Hewlett-Packard, during 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 incurred approximately $2.0 million of legal, accounting and other costs
associated with the transaction.
NOTE 13. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expenses consist of the following:
Year Ended March 31,
---------------------------------
(In thousands) 1998 1997 1996
--------- -------- --------
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 -- 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
Central Point acquisition -- -- (2,300)
Legal fees and expenses -- -- 2,000
Other -- -- 1,035
--------- -------- --------
Total acquisition, restructuring and other expenses $ -- $ 8,585 $ 27,617
========= ======== ========
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
severance and outplacement charges, for costs related to the restructuring of
certain domestic and international sales and research and development
operations, settlement of a lawsuit 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.
52
55
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In connection with the acquisition of Delrina (See Note 3 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.
During fiscal 1996, 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.
The Company incurred $2.2 million for the relocation costs of moving equipment
and personnel, during fiscal 1996, as the result of the consolidation of certain
research and development activities of the Company's Third Generation Language
and Fourth Generation Language development groups.
During 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 15 to Consolidated
Financial Statements). Symantec also expensed $1.0 million, which included a
loss on the sale of certain assets and liabilities of a subsidiary and other
expenses, during fiscal 1996. 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 in connection with the acquisitions of Central Point Software, Inc. and
SLR Systems, Inc. in fiscal 1995.
As of March 31, 1998, total accrued cash related acquisition and restructuring
expenses were $2.5 million and included $0.5 million for the elimination of
duplicative and excess facilities and $2.0 million for other acquisition related
expenses.
NOTE 14. NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
("SFAS") No. 128, "Earnings Per Share", which was required to be adopted on
December 31, 1997. As a result, the Company has changed the method used to
compute earnings per share and has restated all prior periods.
Year Ended March 31,
--------------------------------
(In thousands, except per share data) 1998 1997 1996
-------- -------- --------
BASIC NET INCOME (LOSS) PER SHARE
Net income (loss) $ 85,089 $ 26,038 $(39,783)
======== ======== ========
Weighted average number of common
shares outstanding during the period 56,097 54,705 52,664
======== ======== ========
Basic net income (loss) per share $ 1.52 $ 0.48 $ (0.76)
======== ======== ========
DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) $ 85,089 $ 26,038 $(39,783)
Interest on convertible subordinated
debentures, net of income tax effect 692 -- --
-------- -------- --------
Net income (loss), as adjusted $ 85,781 $ 26,038 $(39,783)
======== ======== ========
Weighted average number of common
shares outstanding during the period 56,097 54,705 52,664
Shares issuable from assumed exercise
of options 2,964 702 --
Shares issuable from assumed conversion
of convertible subordinated debentures 1,220 -- --
-------- -------- --------
Total shares for purpose of calculating
diluted net income (loss) per share 60,281 55,407 52,664
======== ======== ========
Diluted net income (loss) per share $ 1.42 $ 0.47 $ (0.76)
======== ======== ========
For the twelve months ended March 31, 1997, 1,250,000 shares of convertible
subordinated debentures and $708,000 of interest expense were excluded from the
computation of diluted net income per share because the effect would have been
anti-dilutive.
53
56
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 15. 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 13, 1997, following Symantec's
motions directed to previous complaints. On January 7, 1997, the same plaintiffs
filed a complaint in federal court based on the same facts as the state court
complaint, for violation of the Securities Exchange Act of 1934. The court
dismissed that complaint, and plaintiffs served an amended complaint in April
1998. Symantec believes that neither the state court complaint nor the federal
court complaint has any merit and will vigorously defend itself against both
complaints.
On April 23, 1997, Symantec filed a lawsuit against McAfee Associates, Inc.,
which pursuant to a merger has become Network Associates, Inc. ("Network
Associates"), in the United States District Court, Northern District of
California, for copyright infringement and unfair competition. On October 6,
1997, the court found that Symantec had demonstrated a likelihood of success on
the merits of certain copyright claims, and issued a preliminary injunction (i)
prohibiting Network Associates from infringing Symantec's rights in specified
materials by marketing, selling, transferring or directly or indirectly copying
into any new Network Associates product or new version of an existing product
that has Symantec code, (ii) requiring Network Associates to notify distributors
who are still selling versions of PC Medic 97 that have Symantec's code to tell
customers that they should upgrade to versions that do not contain Symantec
code, and (iii) requiring Network Associates to provide Symantec and the court
with a sample of the notice to be used. On October 17, 1997, Symantec amended
its complaint to include additional claims for copyright infringement and
misappropriation of trade secrets, based on additional evidence found in the
discovery process. On April 1, 1998, Symantec amended its complaint to add
claims for misappropriation of trade secrets, RICO (Racketeer Influenced and
Corrupt Organizations Act) and related claims based on additional evidence
uncovered in the litigation. Symantec continues to investigate the extent to
which Network Associates may have misappropriated Symantec's intellectual
property, and plans to aggressively pursue its remedies under this lawsuit,
which include both injunctive relief and monetary damages.
On May 13, 1997, Trend Micro Incorporated ("Trend") filed a lawsuit in the
United States District Court, Northern District of California, against Symantec
Corporation and Network Associates, alleging patent infringement. Trend claims
that Norton AntiVirus for Internet E-mail Gateways and Norton AntiVirus for
Firewalls infringe a patent owned by Trend. The lawsuit was settled on April 6,
1998, on terms that were not material to Symantec.
On August 22, 1997, Network Associates filed a lawsuit against Symantec in the
Superior Court of the State of California, County of Santa Clara, alleging
defamation, trade libel, unfair competition and unjust enrichment. The complaint
alleged that damages to Network Associates could approximate $1 billion. Network
Associates dismissed the lawsuit on or about December 30, 1997. The court
awarded Symantec costs and attorneys' fees in connection with this matter on
April 10, 1998.
On September 15, 1997, Hilgraeve Corporation filed a lawsuit in the United
States District Court, Eastern District of Michigan, against Symantec
Corporation, alleging that unspecified Symantec products infringe a patent owned
by Hilgraeve. 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.
On February 4, 1998, CyberMedia, Inc., filed a lawsuit in the United States
District Court for the Northern District of California against Symantec
Corporation, ZebraSoft Inc., and others, alleging that Symantec Norton Uninstall
Deluxe infringes CyberMedia's copyright, and asserting related state law claims.
The suit requests damages, injunctive relief, costs and attorneys fees. In May
1998, CyberMedia filed a motion seeking an order prohibiting sale or development
of the challenged code. A hearing is set for mid-July. Symantec believes this
claim has no merit and intends to defend the action vigorously.
54
57
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On February 19, 1998, a class action complaint was filed by the Milberg, Weiss,
Bershad, Hynes & Lerach law firm in Santa Clara County Superior Court, on behalf
of a class of purchasers of pre-version 4.0 Norton AntiVirus products. A similar
complaint was filed in the same court on March 6, 1998 by an Oregon law firm.
The complaints purport to assert claims for breach of implied warranty, fraud,
unfair business practices and violation of California's Consumer Legal Remedies
Act arising from the alleged inability of earlier versions of Norton
AntiVirus(R) to function properly after the year 2000. The complaints seek
unspecified damages and injunctive relief. Symantec believes that these actions
have no merit and intends to defend itself vigorously.
In connection with the May 1998 technology licensing agreement with IBM (see
Note 17. Subsequent Event), previously asserted claims of patent infringement
asserted by IBM with respect to certain of the Company's products were resolved.
The terms of resolution were not material.
Over the past few years, it has become common for software companies, including
Symantec, to receive claims of patent infringement. Symantec is currently
evaluating claims of patent infringement asserted by several parties, with
respect to certain of the Company's products. While the Company believes that it
has valid defenses to these claims, 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 affect on the financial condition of the Company, although it
is not possible to estimate the possible loss or losses from each of these
cases. 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. The Company has accrued certain estimated legal fees and expenses
related to certain of these matters; however, actual amounts may differ
materially from those estimated amounts.
NOTE 16. 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) 1998 1997 1996
--------- --------- ---------
Net revenues:
U.S. operations:
North American customers $ 392,224 $ 334,210 $ 303,280
International customers 11,882 6,451 16,609
Intercompany 52 79 6,015
--------- --------- ---------
404,158 340,740 325,904
Other international operations:
Customers 174,255 131,522 125,543
Intercompany 1,380 745 11,387
--------- --------- ---------
175,635 132,267 136,930
Eliminations (1,432) (824) (17,402)
--------- --------- ---------
$ 578,361 $ 472,183 $ 445,432
========= ========= =========
Operating income (loss):
U.S. operations $ 69,200 $ 11,415 $ (58,296)
International operations 29,649 12,931 8,201
Eliminations 1,496 1,943 1,816
--------- --------- ---------
$ 100,345 $ 26,289 $ (48,279)
========= ========= =========
55
58
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
March 31,
--------------------------------------
(In thousands) 1998 1997 1996
-------- -------- --------
Identifiable assets:
U.S. operations $389,174 $281,748 $234,155
International operations 87,286 57,650 48,519
-------- -------- --------
$476,460 $339,398 $282,674
======== ======== ========
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 32%, 29% and 32% of total revenue for fiscal 1998, 1997
and 1996, respectively.
SIGNIFICANT CUSTOMERS
The following customers accounted for more than 10% of net revenues during
fiscal 1998, 1997 and 1996:
Year Ended March 31,
---------------------------------
1998 1997 1996
---- ---- ----
Ingram Micro, Inc. 33% 27% 27%
Tech Data Corp. 11 * *
Merisel 10 * 10
* Amount is less than 10%.
NOTE 17. SUBSEQUENT EVENT
On May 19, 1998, IBM and Symantec Corporation entered into an agreement whereby
Symantec will license IBM's immune system technology and patents. Symantec will
combine this technology with its own technology to produce a range of products,
including new solutions to support IBM platforms. As part of the agreement, IBM
has also assigned its existing anti-virus customer and OEM contracts to Symantec
and will recommend Norton AntiVirus to its corporate customers worldwide as the
anti-virus solution of choice. In addition, IBM and Symantec intend to sell and
market the Norton AntiVirus product line worldwide. Symantec will pay IBM $16
million in cash, plus future royalties and assume obligations of approximately
$3 million in connection with this technology acquisition. Symantec expects to
record a charge of approximately $16 million for in-process research and
development acquired from IBM in the June 1998 quarter.
56
59
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 5, 1998
- ------------------------------------
(Gordon E. Eubanks, Jr.) Officer and Director
CHIEF FINANCIAL OFFICER:
/s/ Howard A. Bain III Vice President, June 5, 1998
- ------------------------------------
(Howard A. Bain III) Worldwide Operations and
Chief Financial Officer
CHIEF ACCOUNTING OFFICER:
/s/ Ronald W. Kisling Vice President Controller and June 5, 1998
- ------------------------------------
(Ronald W. Kisling) Chief Accounting Officer
DIRECTORS:
/s/ Carl D. Carman Chairman of the Board June 5, 1998
- ------------------------------------
(Carl D. Carman)
/s/ Tania Amochaev Director June 5, 1998
- ------------------------------------
(Tania Amochaev)
/s/ Charles M. Boesenberg Director June 5, 1998
- ------------------------------------
(Charles M. Boesenberg)
/s/ Walter W. Bregman Director June 5, 1998
- ------------------------------------
(Walter W. Bregman)
/s/ Robert R. B. Dykes Director June 5, 1998
- ------------------------------------
(Robert R. B. Dykes)
/s/ Robert S. Miller Director June 5, 1998
- ------------------------------------
(Robert S. Miller)
57
60
SCHEDULE II
SYMANTEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance at Charged to Balance at
Beginning Costs and End
of Period Expenses Deductions of Period
------- ------- ------- -------
Allowance for doubtful accounts:
Year ended March 31, 1996 $ 4,852 $ 903 $ (739) $ 5,016
Year ended March 31, 1997 5,016 1,599 (2,315) 4,300
Year ended March 31, 1998 4,300 1,036 (920) 4,416
58
61
Symantec Corporation
Form 10-K
For the Fiscal Year Ended April 3, 1998
Exhibit Index
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.)
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.)
62
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 1996 Equity Incentive Plan, as amended.
(Incorporated by reference to Exhibit 4.01 filed with the
Registrant's Registration Statement on Form S-8 (No. 333-39175) filed
October 31, 1997.)
10.12* Symantec Corporation Deferred Compensation Plan dated as of November
7, 1996. (Incorporated by reference to Exhibit 10.11 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.13 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.)
10.14 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.)
10.15 Master Lease and Deed of Trust, as amended, dated as of October 18,
1996 between Symantec Corporation and Sumitomo Bank Leasing and
Finance, Inc. (Incorporated by reference to Exhibit 10.14 filed with
the Registrant's Annual Report on Form 10-K for the year ended March
28, 1997.)
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* Indicates a management contract or compensatory plan or arrangement.
63
10.16 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 September 27, 1996.)
10.17 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.)
10.18 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. (Incorporated by reference to
Exhibit 10.17 filed with the Registrant's Annual Report on Form 10-K
for the year ended March 28, 1997.)
10.19 Agreement of Purchase and Sale of Cupertino City Center One between
Cigna Property and Casualty Insurance Company and Symantec
Corporation. (Incorporated by reference to Exhibit 10.18 filed with
the Registrant's Annual Report on Form 10-K for the year ended March
28, 1997.)
10.20 Agreement for Purchase and Sale and Escrow Instructions of 10201
Torre Avenue, Cupertino, CA. (Incorporated by reference to Exhibit
10.19 filed with the Registrant's Annual Report on Form 10-K for the
year ended March 28, 1997.)
10.21 Agreement for Purchase and Sale and Escrow Instructions, as amended,
dated as of May 31, 1996. (Incorporated by reference to Exhibit 10.20
filed with the Registrant's Annual Report on Form 10-K for the year
ended March 28, 1997.)
10.22 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.
(Incorporated by reference to Exhibit 10.21 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.23 Construction Agency Agreement dated as of March 3, 1997, between
Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation.
(Incorporated by reference to Exhibit 10.22 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.24 Symantec - CC5 Office Building and Parking Structure, as amended,
dated as of May 5, 1997, made by and between Symantec Corporation and
Webcor Builders. (Incorporated by reference to Exhibit 10.23 filed
with the Registrant's Annual Report on Form 10-K for the year ended
March 28, 1997.)
10.25 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.)
10.26 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.)
10.27 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.)
10.28 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.)
10.29 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.)
64
10.30* 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.)
10.31* 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.)
10.32* 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.)
10.33 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 Annual Report on Form 10-K for the
year ended April 2, 1993.)
10.34* 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.)
10.35* 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.)
10.36 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.)
10.37* 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.)
10.38* 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.)
10.39 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.)
10.40 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.)
10.41* 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.)
10.42 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.)
10.43 Asset Purchase Agreement dated as September 26, 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.)
10.44 Asset Purchase Agreement, as amended, dated as of March 28, 1998, by
and between Delrina and JetForm.
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* Indicates a management contract or compensatory plan or arrangement.
65
10.45 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by
and between Hewlett-Packard Company and Symantec Corporation.
(Incorporated by reference to Exhibit 10.43 filed with the
Registrant's Annual Report on Form 10-K for the year ended March 28,
1997.)
10.46 Master agreement, dated May 18, 1998, between International Business
Machines Corporation and Symantec Corporation. (Confidential
treatment has been granted with respect to portions of this exhibit.)
10.47 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.)
21.01 Subsidiaries of the Registrant.
23.01 Consent of Ernst & Young LLP, Independent Auditors.
27.01 Financial Data Schedule for the Year Ended March 31, 1996 (restated)
27.02 Financial Data Schedule for the Year Ended March 31, 1997 (restated)
27.03 Financial Data Schedule for the Year Ended March 31, 1998
(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 58.