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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 2, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER 0-17781
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SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 253-9600
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Securities registered pursuant to Section 12(b) of the Act:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE, AND RELATED STOCK PURCHASE RIGHTS
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Symantec common stock on
June 15, 1999 as reported on the Nasdaq National Market and with respect to the
Delrina exchangeable stock on the Toronto Stock Exchange:
$1,391,941,376
Number of shares outstanding of each of the registrant's classes of common
stock, including 1,659,684 shares of Delrina exchangeable stock, as of June 15,
1999:
56,098,393
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 15, 1999
are incorporated by reference into Part III.
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SYMANTEC CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 2, 1999
TABLE OF CONTENTS
Page
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PART I.
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 10
Item 3. Legal Proceedings..................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................... 11
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 12
Item 6. Selected Financial Data............................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................ 33
Item 8. Financial Statements and Supplementary Data........................................... 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................ 34
PART III.
Item 10. Directors and Executive Officers of the Registrant.................................... 35
Item 11. Executive Compensation................................................................ 37
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 37
Item 13. Certain Relationships and Related Transactions........................................ 37
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 38
Signatures....................................................................................... 75
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"Symantec," "we," "us," and "our" refer to Symantec Corporation and all of its
subsidiaries. This document contains references to trademarks and trade names of
other companies.
PART I
ITEM 1: BUSINESS.
FORWARD-LOOKING STATEMENTS.
The following discussion contains forward-looking statements that involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others things, those risk factors set forth in this
section and in the section of this report entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." We identify
forward-looking statements by words such as "may," "will," "should," "could,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or similar terms that refer to the future. We cannot
guarantee future results, levels of activity, performance or achievements.
INTRODUCTION.
Symantec is a world leader in utility software for business and personal
computing. Symantec products and solutions make users productive and keep their
computers safe and reliable anywhere and anytime.
Our predecessor, C&E Software, Inc., a California corporation and its operating
subsidiary, Symantec Corporation, a California corporation, were formed in
September 1983 and March 1982, respectively. We were incorporated in Delaware in
April 1988 in connection with the September 1988 reincorporation and combination
of our predecessor and its operating subsidiary into a single Delaware
corporation.
Since our initial public offering on June 23, 1989, we have completed
acquisitions of 19 businesses. During fiscal 1999, we completed our acquisition
of:
o Quarterdeck Corporation in the March 1999 quarter;
o Intel Corporation's anti-virus business during the September 1998
quarter;
o Binary Research Limited's operations in the June 1998 quarter; and
o International Business Machine's anti-virus business also in the June
1998 quarter;
We accounted for each of these four acquisitions as a purchase and, accordingly,
we have included the operating results of these businesses in our consolidated
financial statements since their respective dates of acquisition. See Note 3 of
Notes to Consolidated Financial Statements in this Form 10-K.
Other companies that we have acquired during the past five years include:
o Fast Track, Inc., on May 28, 1996;
o Delrina Corporation, on November 22, 1995;
o Intec Systems Corporation, on August 31, 1994;
o Central Point Software, Inc., on June 1, 1994; and
o SLR Systems, Inc., on May 31, 1994.
We acquired Peter Norton Computing, Inc. on August 31, 1990 and continue to use
the Norton brand name for products subsequently developed and marketed by us. We
accounted for each of these five acquisitions as poolings of interests.
Accordingly, we have restated all financial information 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
our consolidated financial statements.
During fiscal 1997, in a move to focus our product offerings on specific
customer needs, we sold our electronic forms product line, acquired as part of
the Delrina acquisition, to JetForm Corporation and sold our network
administration technologies to the Hewlett-Packard Company. See further
discussion in Note 13 of Notes to Consolidated Financial Statements and Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
We have a 52/53-week fiscal accounting year. Accordingly, all references as of
and for the periods ended March 31, 1999, 1998 and 1997 reflect amounts as of
and for the periods ended April 2, 1999, April 3, 1998 and
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March 28, 1997, respectively. The fiscal accounting years ended April 2, 1999
and March 28, 1997 each comprised 52 weeks of operations and the fiscal
accounting year ended April 3, 1998 comprised 53 weeks of operations.
PRODUCTS AND SERVICES.
Our products, comprising utility software for business and personal computing,
are currently organized into the following three primary business units:
Security and Assistance; Remote Productivity Solutions; and Internet Tools. The
following table summarizes our principal products by business unit:
Principal Products. The principal products of each of our business units
include:
o SECURITY AND ASSISTANCE
Norton AntiVirus(R) and Norton AntiVirus(R) for Macintosh
Norton Utilities(R) and Norton Utilities for Macintosh
Norton SystemWorks(TM)
Norton Ghost(TM)
Norton Cleansweep(TM)
Norton Web Services(TM)
Norton 2000(TM)
o REMOTE PRODUCTIVITY SOLUTIONS
pcANYWHERE(R)
WinFax PRO(TM)
ACT!(R)
ProComm Plus(R)
TalkWorks PRO(TM)
Norton Mobile Essentials(TM)
o INTERNET TOOLS
Symantec Visual Cafe(TM) (Database Edition)
Symantec Visual Cafe(TM) (Professional Edition)
Symantec Visual Cafe(TM) (Standard Edition)
Symantec Visual Cafe(TM) (Enterprise Suite)
Most of the products that we are currently developing or marketing feature
LiveUpdate(TM). This feature enables users to download from our corporate
website, free of cost, software corrections or "patches" that fix reported
errors or "bugs" in the products.
SECURITY AND ASSISTANCE
Our Security and Assistance business unit is dedicated to providing products
that are indispensable in customers' daily use of computers by increasing their
productivity and keeping their computers safe and reliable. Net revenues from
this business unit were approximately 57%, 54% and 50% of our net revenues for
fiscal 1999, 1998 and 1997, respectively.
Norton AntiVirus runs in a computer's background and is designed to protect
against, detect and eliminate computer viruses. This software covers multiple
sources of infection, including the Internet, email attachments, floppy disks,
shared files and networks. Norton AntiVirus also enables the user to download,
via our LiveUpdate function, new virus definitions created by the Symantec
AntiVirus Research Center (SARC)(TM). Versions of this software run on the
Windows, Windows 95, Windows 98, Windows NT, MS-DOS, Macintosh and Power
Macintosh operating systems. Our Norton AntiVirus product line also includes
support for Lotus Notes, through Norton AntiVirus for Notes and Novell NetWare,
through Norton AntiVirus NetWare.
Norton Utilities is a set of "tools" that are designed to fix and prevent
computer problems, optimize system performance, recover lost files and rescue
unresponsive systems. The latest versions of Norton Utilities have extended data
protection capabilities, including crash protection and, for our Windows
versions, registry repair. In addition, Norton Utilities provides an advanced
and thorough disk optimization system, which optimizes the system based upon the
way the particular computer is used. Versions of Norton Utilities run on the
Windows, Windows 95, Windows 98, Windows NT, MS-DOS, Macintosh and Power
Macintosh operating systems.
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Norton SystemWorks is a fully integrated suite of system utilities designed to
give personal computer, or PC, users protection from viruses and crashes, solve
problems, remove unneeded files and update users' applications. Included in this
suite are the latest complete versions of five of our products: Norton
Utilities, Norton AntiVirus, Norton CleanSweep, Norton CrashGuard and Norton Web
Services. Norton SystemWorks is based on proprietary technologies that work
together to integrate these five Symantec products. Versions of Norton
SystemWorks run on the Windows 95 and Windows 98 operating systems.
Norton Ghost is designed to allow easy roll out of new personal computers in a
corporate environment by speeding and simplifying the disk cloning process.
Norton Ghost reduces the time to install a typical 300 megabyte Windows 95
system, without requiring operator input. Multiple workstations may be installed
simultaneously. This software gives administrators the ability to store an image
on another hard drive, network drive, CD-ROM, JAZ or ZIP drive and supports
FAT12, FAT16, FAT32, NTFS, HPFS, UNIX and Novell file systems. Versions of
Norton Ghost run on DOS, yet can handle Windows 95 and Windows NT long file
names, NTFS partitions, OS/2 extended attributes and OS/2 boot manager
partitions.
Norton CleanSweep is designed to remove unneeded software programs and files
from a user's hard drive. The software removes unneeded Internet files, cleans
thoroughly yet safely, speeds hard drive cleanup and makes file removal easy.
Versions of Norton CleanSweep run on the Windows 95, Windows 98 or Windows NT
operating systems.
Norton Web Services is designed to deliver an online subscription-based service
site that downloads Norton technology to Windows 95 and Windows 98 users via an
Internet connection. Norton Web Services features our LiveUpdate Pro, a service
that is designed to locate and install patches, updates and drivers specific to
users' installed hardware and software. VitalCheck is designed to ensure that
critical system components are problem free.
Norton 2000 is designed to address the three main Year 2000 issues for desktop
personal computers:
o hardware problems, such as the computer's basic input/output system,
or BIOS;
o commercial off-the-shelf application compliance; and
o end user created data.
It includes a BIOS testing and fixing component, as well as a data-scanning
component that discovers Year 2000 problems in spreadsheets and database files.
Norton 2000 will also audit installed applications on each personal computer
against a database of Year 2000 compliant applications, as reported by each
vendor. Our LiveUpdate technology ensures that the user's application database
is kept current. Norton 2000 for the consumer runs on the Windows 95, Windows 98
and Windows NT operating systems. In addition to the features of Norton 2000 for
the consumer, our Norton 2000 Corporate Edition provides a comprehensive
solution for desktop and laptop computers in distributed computing environments.
It integrates with Norton System Center to provide single-console
administration. Norton 2000 Corporate Edition provides detailed reporting and
administrative options to help track the remediation effort of a user's
organization. Norton 2000 Corporate Edition runs on the Windows 3.1, Windows 95,
Windows 98 and Windows NT operating systems.
REMOTE PRODUCTIVITY SOLUTIONS
Our Remote Productivity Solutions business unit focuses on helping information
systems/information technology, or IS/IT, organizations reduce the expense of
supporting remote workers. This business unit focuses on the need of corporate
helpdesk and support organizations to handle more efficiently the additional
work required to support mobile workers, telecommuters and remote offices. Net
revenues from this business unit were approximately 39%, 41% and 37% of our net
revenues for fiscal 1999, 1998 and 1997, respectively.
pcANYWHERE is designed to offer secure, reliable, fast and flexible
point-to-point remote computing via a multitude of communications media
including Internet, serial, local area network, ISDN, cable modems and infrared.
pcANYWHERE enables users to control and transfer data to and from a host PC from
another remote PC. The remote PC, laptop or PC terminal controls the operation
of the often distant host PC. In addition to enabling a remote user to run a
distant PC, pcANYWHERE allows users at the host machine to view the operations
being conducted from the remote site. Versions of this software support Windows,
Windows 95, Windows 98, Windows NT, Windows CE or MS-DOS applications.
pcANYWHERE also provides a pcANYWHERE JAVA client, a Netscape browser plug-in
and an Internet Explorer ActiveX control.
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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. WinFax PRO can send faxes via the
Internet or a regular phone line, using enhanced fax compression, increasing the
speed at which faxes are transmitted. Other features include a paging function,
which enables the computer to notify users via their pagers or PCS cell phones
of the receipt of an incoming fax. WinFax PRO also enables users to send
laser-quality faxes, supports a non-dedicated fax host and allows faxes to be
automatically forwarded to another fax number or an e-mail address. Versions of
WinFax PRO run on the Windows 95, Windows 98 and Windows NT operating systems.
ACT! is designed to provide a ready-to-use contact database and integrated
calendar, making it a complete solution for effectively managing business
relationships. ACT! has extensive search capabilities that provide instant
access to critical customer information. Utilizing ACT!'s built-in network
support and remote two-way data synchronization for mobile users, important
customer data can be leveraged across teams. ACT! also provides communication
methods via mail merge, telephone, email and fax in a single product. ACT! also
enables users to find customers and additional customer information to
supplement their database on the Internet. Versions of ACT! run on the Windows,
Windows 95, Windows NT, Windows CE and Macintosh operating systems.
Procomm Plus is an integrated data communications solution that is designed to
enable users to reliably send and receive information between a PC and a
mainframe or minicomputer. Flexible asynchronous terminal emulation allows users
to run full-screen mainframe or minicomputer applications on legacy systems by
simply using the PC as the remote terminal. Users are offered the convenience of
a centralized connection directory as well as a specialized communications
scripting language to quickly access a wide range of corporate hosts and on-line
systems via terminal emulations, standard file transfer protocols, FTP or
Telnet. Versions of Procomm Plus support Windows, Windows 95, Windows 98,
Windows NT 4.0 and MS-DOS applications.
TalkWorks PRO is a voice-messaging product designed for very small businesses
and home offices. TalkWorks PRO's voicemail features include multiple mailboxes,
personalized greetings and fax on demand. Its paging and notification features
enable instant access to urgent messages and customers for TalkWorks users.
TalkWorks PRO's logging and message management gives the users the capability to
track and manage their messages and calls. TalkWorks PRO also includes the
completely integrated faxing capabilities of WinFax PRO 9.0. Versions of
TalkWorks PRO run on Windows 95, Windows 98 and Windows NT operating systems.
Norton Mobile Essentials is designed to enable users to setup quickly in
multiple locations. It is a tool used by IS/IT departments to create and deploy
location profiles to their mobile workforce. A location profile consists of
every setting that end-users adjust when traveling to different locations such
as at client sites, hotels, home or the office. This product is especially
suited for companies with a highly mobile workforce and allows users to adjust
to different locations without having to manually adjust multiple Windows
settings at each location. This product also assists IS/IT professionals in
creating and distributing dial-up networking settings and static and DHCP
Internet settings in addition to location profiles. Versions of Norton Mobile
Essentials run on Windows 95, Windows 98 and Windows NT operating systems.
INTERNET TOOLS
Our Internet Tools business unit includes products providing an easy to use Java
development environment. Net revenues from this business unit were approximately
4% of our net revenues for each fiscal 1999, 1998 and 1997. In June 1999, we
announced our intent to spin out the Internet Tools business unit as an
independent company within the next three to nine months.
Symantec Visual Cafe (Database Edition) is designed to provide a solution for
building business critical Java applications with database connectivity. This
program includes a forms designer for drag-and-drop Graphical User Interface
design. It also includes dbAWARE project wizards that walk users through
defining data sources and adding components as well as controlling the
interactions between them. This program also builds Java applications and
connects to multiple databases without requiring the user to write source code.
The Database Edition includes 200+ JavaBeans, which are series of pre-written
source code and database templates. It connects to over 30 commercially
available databases via industry standard protocols.
Symantec Visual Cafe (Professional 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 JFC/Swing capabilities, support
for both Java
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Development Kit 1.1.X and Java Development Kit 1.2 through the pluggable VM
feature and Visual Page. To facilitate easier discovery of problems with source
code, this program supports "debugging" directly within a web browser.
Symantec Visual Cafe (Standard Edition) is designed to provide a Rapid
Application Java Development and a HTML Web authoring solution that supports
Java Development Kit 1.1.7, JavaBeans and JFC/Swing. This program includes a
drag-and-drop interface, professional templates and Java applet and JavaBeans
libraries.
Symantec Visual Cafe (Enterprise Suite) is designed to simplify the development
of complex, distributed applications. It includes Single-View, which presents a
single image of the distributed development environment and masks the
complexities of a multi-platform computing environment. The Enterprise Suite
also addresses a heterogeneous environment through support for both CORBA and
RMI, multiple ORBs including Iona OrbixWeb 3.1 and Inprise VisiBroker 3.3 as
well as debugging on a wide range of platforms (Sun Solaris, Hewlett-Packard
HP/UX, Compaq's Tru64 UNIX, IBM AIX, Windows NT/9x and Linux).
Versions of the Visual Cafe products run on Windows 95, Windows 98 and Windows
NT 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.
CORPORATE SUNSET
Symantec also reports revenues under a segment called Corporate Sunset. This
segment's revenues are generated from sales of products that are nearing the end
of their life cycles. Net revenues from this segment were less than 1% of our
net revenues in fiscal 1999 and 1% and 9% of our net revenues for fiscal 1998
and 1997, respectively.
SALES AND MARKETING, INTERNATIONAL SALES AND CUSTOMER SUPPORT.
We market our products worldwide utilizing a multi-channel strategy of direct
and indirect sales through independent software distributors, major retail
chains and resellers.
SALES AND MARKETING
We sell our products to individuals and corporate users primarily through
distributors and resellers. Our products are available to customers through
channels that include: distributors, retail, mail order, corporate resellers,
value added resellers, original equipment manufacturers, partnerships, education
and consulting. We also sell product upgrades and some of our products through
the use of direct mail and over the Internet. We sell corporate site licenses
through our distribution and corporate reseller channels.
We maintain distribution relationships with major independent distributors.
These distributors stock our products for redistribution to independent dealers,
consultants and other resellers. We also maintain relationships with major
retailers, while marketing to these retailers through independent distributors.
Our sales force works closely with our major distributor and reseller accounts
to manage the flow of orders, inventory levels and sell-through to customers. We
also work closely with them to manage promotions and other selling activities.
Our agreements with distributors are generally nonexclusive and may be
terminated by either party without cause. These distributors are not within our
control and are not obligated to purchase products from us. These distributors
also represent other vendors' product lines. For information with respect to
customers that represent more than 10% of our revenues, see Note 19 of the Notes
to Consolidated Financial Statements of this Form 10-K.
Our return policy allows distributors, subject to various 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 for a
full refund, within a reasonable period from the date of purchase. Retailers may
return older versions of products. Various distributors and resellers have
different return policies that may negatively impact the level of products that
are returned to us. Product returns occur when we introduce upgrades and new
versions of products or when distributors order too much product. In addition,
competitive factors often require us to offer rights of return for products that
distributors or retail stores are unable to sell.
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Our marketing activities include:
o advertising in trade, technical and business publications;
o on-line advertising;
o public relations;
o cooperative marketing with distributors, resellers and dealers;
o direct mailings to existing and prospective end users; and
o participation in trade and computer shows.
We typically offer two types of rebate programs: volume incentive rebates and
rebates to end users. Volume incentive rebates are made available to our
distributors and resellers. The distributor or reseller earns a rebate based
upon their purchases and their sale of products to end users. Volume incentive
rebates are accrued when revenue is recorded. From time to time, we also make
rebates available to end users of various products acquired through major
retailers. End user rebates are accrued when revenue is recorded.
INTERNATIONAL REVENUES
International revenues, or revenues outside of North America, represented
approximately 37%, 34% and 30% of our net revenues for fiscal 1999, 1998 and
1997, respectively.
The majority of our net revenues from various European regions are derived from
sales by affiliates of our major United States distributors. In other countries,
we sell our products through authorized distributors. In some countries, these
distributors are restricted to specified territories. We typically adapt
products for local markets. We adapt products by translating the documentation
and software, where necessary, and preparing marketing programs for each local
market.
We have marketing offices in Argentina, Australia, Brazil, Canada, China, Czech
Republic, Denmark, France, Germany, Holland, Hong Kong, Italy, Japan, Korea,
Malaysia, Mexico, New Zealand, Norway, Russia, Singapore, South Africa, Sweden,
Switzerland, Taiwan, United Arab Emirates and the United Kingdom. These local
offices facilitate our marketing and distribution in international markets. Our
international operations are subject to various risks common to international
operations, including:
o government regulations;
o import restrictions;
o currency fluctuations;
o repatriation restrictions; and
o in some jurisdictions, reduced protection for our copyrights and
trademarks.
CUSTOMER SUPPORT
Our product support program provides a wide variety of free and fee-based
technical support services to our customers. We provide customers with free
support via electronic and automated services as well as 30 to 90 days free
telephone support for selected products. In August 1996, we introduced
LiveUpdate, which provides online access to application bug fixes and/or patches
for most of our currently marketed and developed products. In addition, we offer
both domestic individual users and domestic corporate customers a variety of
fee-based options designed to meet their technical support requirements. We
revise these fee-based support programs from time to time as customer
requirements change and as market trends dictate. Fee-based technical support
services did not generate material revenues in any fiscal year presented and are
not expected to generate material revenues in the near future.
PRODUCT DEVELOPMENT, PARTNERSHIPS AND ACQUISITIONS.
We use a multiple product sourcing strategy that includes, as necessary:
o internal development;
o licensing from third parties; and
o acquisitions of technologies, product lines or companies.
We develop software products that are designed to operate on a variety of
operating systems. We typically develop new products and enhancements of
existing products through our business units. Each unit is responsible for
design, development, documentation and quality assurance.
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Independent contractors are used for aspects of the product development process.
In addition, elements of some of our products are licensed from third-party
developers.
We use strategic acquisitions, as necessary, to provide certain technology,
people and products for our overall product strategy. We have 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.
As discussed in the Introduction to this Item, during fiscal 1999, we acquired
Quarterdeck, Intel's and IBM's anti-virus businesses, and Binary's operations.
For further discussion, see Note 3 of Notes to Consolidated Financial Statements
in this Form 10-K.
COMPETITION.
The microcomputer software market is intensely competitive and is subject to
rapid changes in technology. It is influenced by the strategic direction of
major microcomputer hardware manufacturers and operating system providers. Our
competitiveness depends on our ability to enhance existing products and to offer
successful new products on a timely basis. We have limited resources and must
restrict product development efforts to a relatively small number of projects.
Examples of key competitors for products of our Security and Assistance unit
include:
o VirusScan and Dr. Solomon Anti-Virus Tool-Kit from Network Associates,
Inoculan from Computer Associates International, Inc., Trend Micro,
Inc.'s InterScan VirusWall and PC-cillin Corp. Edition, which compete
with our Norton AntiVirus product;
o Virex and McAfee VirusScan from Network Associates, which compete with
our Norton AntiVirus for Macintosh product;
o Uninstaller from Network Associates and WinDelete from IMSI Corporation,
which compete with our Norton CleanSweep product;
o Drive Image Pro from PowerQuest Corporation, RapiDeploy from Altiris,
Inc. and Micro House International's ImageCast IC3, which compete with
our Norton Ghost product;
o McAfee Office from Network Associates, which competes with our Norton
SystemWorks product;
o McAfee First Aid 2000 and McAfee Nuts & Bolts from Network Associates,
Mijenix Corporation's Fix-It Utilities 99, TechTool PRO from MicroMat,
Inc. and Executive Software International, Inc.'s Diskeeper, which
compete with our Norton Utilities product;
o PC Clinic from Network Associates and Updates.com from Updates.com,
which compete with our Norton Web Services product;
o TransCentury Office from Platinum Technology IP, Inc., Greenwich Mean
Time's Check 2000 Client Server and WRQ, Inc.'s Express 2000 Software
Manager, which compete with our Norton 2000 Corporate Edition product;
and
o Greenwich Mean Time's Check 2000, McAfee 2000 Toolbox from Network
Associates and Intelliquis' IntelliFix 2000, which compete with our
Norton 2000 product for the consumer.
Examples of key competitors for products of our Remote Productivity Solutions
unit include:
o Contact managers, such as GoldMine from GoldMine Software Corporation
and Maximizer from Multiactive Software, Inc. and less directly,
personal information managers, such as Organizer from IBM's Lotus
division, Outlook from Microsoft Corporation and Sidekick 99 from
Starfish Software, Inc., which compete with our ACT! product;
o DynamicAccess from 3Com Corporation and NetSwitcher from NetSwitcher,
which compete with our Norton Mobile Essentials product;
o pcANYWHERE competes with LapLink from Traveling Software, Inc., ReachOut
from Stac Software, Inc., Carbon Copy from Compaq Computer Corporation
and Timbuktu from Netopia, Inc.
o HotFax MessageCenter by Smith Micro Software, Inc., Communicate! PRO and
Communicate! by 01Communique, which compete with our TalkWorks PRO
product; and
o HotFax MessageCenter from Smith Micro Software and 01Communique's
Communicate! products in the broader fax and voice messaging market,
which compete with our WinFax PRO product.
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Examples of key competitors for products of our Internet Tools unit include:
o JBuilder Client/Server from Inprise Corporation, VisualAge for Java
Enterprise from IBM and PowerJ from Sybase, Inc., which compete with our
Symantec Visual Cafe (Database Edition) and Symantec Visual Cafe
(Enterprise Suite) products;
o Microsoft's Visual J++, Inprise's JBuilder Professional, IBM's VisualAge
for Java Professional, SuperCede by SuperCede Inc. and Sun Microsystems,
Inc.'s Java WorkShop, which compete with our Symantec Visual Cafe
(Professional Edition) product; and
o Microsoft's Visual J++, Inprise's JBuilder Professional and IBM's
VisualAge for Java Standard, which compete with our Symantec Visual Cafe
(Standard Edition) product.
Price competition is sometimes intense with some products in the microcomputer
business software market. We expect price competition to continue to increase
and become even more significant in the future, which may reduce our profit
margins.
We also face competition from a number of other products that offer levels of
functionality different from those offered by our products or that were designed
for a somewhat different group of end users than those targeted by us. Operating
system vendors such as Microsoft have added features to new versions of their
products that provide some of the same functions traditionally offered in our
products. Microsoft has incorporated advanced utilities in Windows 95 and
Windows 98 and we believe this trend will continue. While we plan to continue to
improve our products with a view toward providing enhanced functionality over
that provided in current and future operating systems, these efforts may be
unsuccessful and any improved products may not be commercially accepted by
users. We will also continue to attempt to work with operating system vendors in
an effort to make our products compatible with those operating systems. At the
same time, we intend to differentiate our utility products from features
included in operating systems. However, our efforts may be unsuccessful.
The demand for some of our products, including those currently under
development, may decrease, if, among other reasons:
o Microsoft includes additional product features in future releases of
Windows;
o hardware vendors incorporate additional server-based network management
and security tools into network operating systems; or
o competitors license certain of their products to Microsoft or original
equipment manufacturers for inclusion in their operating systems or
products.
In addition, we compete with other microcomputer software companies for access
to retail distribution channels and for the attention of customers at the retail
level and in corporate accounts. We also compete with other software companies
to acquire products or companies and to publish software developed by third
parties.
Many of our existing and potential competitors have greater financial, marketing
and technological resources than we do. We believe that competition in the
industry will continue to intensify as most major software companies expand
their product lines into additional product categories.
MANUFACTURING.
Our product development organization produces a set of master CD-ROMs or
diskettes and documentation for each product that are then duplicated and
packaged into products by the manufacturing organization. All of our domestic
manufacturing and order fulfillment is performed by an outside contractor under
the supervision of our manufacturing organization. Domestic purchasing of all
raw materials is done by Symantec personnel in our Cupertino, California
facility. The manufacturing steps that are subcontracted to outside
organizations include the duplication of diskettes and replication of CD-ROMs,
printing of documentation materials and assembly of the final packages. We
perform diskette duplication and assembly of the final package in our Dublin,
Ireland manufacturing facility for most products distributed outside of the
United States and Canada. All of our international CD-ROM replication is
performed by outside contractors in Dublin, Ireland.
INTELLECTUAL PROPERTY.
We regard our software as proprietary. We attempt to protect our software
technology by relying on a combination of copyright, patent, trade secret and
trademark laws, restrictions on disclosure and other methods. Litigation may be
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necessary to enforce our intellectual property rights, to protect trade secrets
or trademarks or to determine the validity and scope of the proprietary rights
of others. Furthermore, other parties have asserted and may, in the future,
assert infringement claims against us. See Note 16 of Notes to Consolidated
Financial Statements of this Form 10-K. These claims and any resultant
litigation, may result in invalidation of our proprietary rights. Litigation,
even litigation that is not meritorious, could result in substantial costs and
diversion of resources and management attention.
EMPLOYEES.
As of March 31, 1999, we employed approximately 2,400 people, including 1,300 in
sales, marketing and related staff activities, 600 in product development and
500 in management, manufacturing, administration and finance. None of our
employees is represented by a labor union and we have experienced no work
stoppages. We believe that relations with our employees are good. Competition in
recruiting personnel in the software industry is intense. We believe that our
future success will depend in part on our ability to recruit and retain highly
skilled management, marketing and technical personnel. We believe that we must
provide personnel with a competitive compensation package, which necessitates
the continued availability of stock options and shares to be issued under our
employee stock option and purchase plans and requires ongoing shareholder
approval of such incentive programs.
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ITEM 2: PROPERTIES.
Our 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
World Headquarters * Plan to vacate by November 1, 1999 187,000 2006
City Center 2 * Move-in by November 1, 1999 145,000 2006
Emerging Business and Research and development 161,000 2006
Remote Productivity
Solutions (City Center 1)
Santa Monica, California Research and development 114,336 2000
and 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
Sunnyvale, California Sub-leased space 78,000 2000
Toronto, Canada Research and development, sales 79,187 2005
and technical support
International
Leiden, Holland Administration, sales, marketing 27,480 2003
and technical support
Dublin, Ireland Administration, manufacturing 77,000 2026
and translations
Our principal administrative, sales and marketing facility, as well as certain
research and development and support facilities, are located in Cupertino,
California. We lease a number of additional facilities for marketing and
research and development in the United States, Canada and New Zealand and for
marketing in Argentina, Australia, Brazil, China, Czech Republic, France,
Germany, Holland, Hong Kong, Italy, Japan, Korea, Malaysia, Mexico, Norway,
Russia, Singapore, South Africa, Sweden, Switzerland, Taiwan, United Arab
Emirates and the United Kingdom. We believe that our facilities are adequate for
current needs and that additional or substitute space will be available as
needed to accommodate any future expansion of our operations.
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ITEM 3: LEGAL PROCEEDINGS.
Information with respect to this Item may be found in Note 16 of Notes to
Consolidated Financial Statements of this Form 10-K.
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, 1999.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Our common stock is traded on the Nasdaq National Market under the Nasdaq symbol
"SYMC". The high and low closing sales prices set forth below are as reported on
the Nasdaq National Market.
Fiscal 1999 Fiscal 1998
-------------------------------------------- --------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1999 1998 1998 1998 1998 1997 1997 1997
-------- ------- ------- ------- --------------------------------------------
High $ 22.88 $ 21.81 $ 28.00 $ 32.13 $ 29.00 $ 27.00 $ 25.50 $ 20.38
Low 14.47 8.69 10.13 22.63 20.88 19.19 19.44 12.50
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 our
common stock.
Fiscal 1999 Fiscal 1998
-------------------------------------------- --------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1999 1998 1998 1998 1998 1997 1997 1997
-------- ------- ------- ------- --------------------------------------------
(In Canadian dollars)
High $ 34.60 $ 33.00 $ 41.75 $ 46.5 $ 40.10 $ 39.00 $ 35.00 $ 28.00
Low 22.45 13.20 16.60 32.75 29.50 26.75 26.25 16.50
As of March 31, 1999, there were approximately 662 stockholders of record,
including approximately 28 holders of record of Delrina exchangeable shares. We
have not paid cash dividends in the last three years. In addition, our bank line
of credit does not allow for the payment of cash dividends on common stock. See
Note 7 of Notes to Consolidated Financial Statements of this Form 10-K.
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ITEM 6: SELECTED FINANCIAL DATA.
The following selected financial data is qualified in its entirety by and should
be read in conjunction with the more detailed consolidated financial statements
and related notes included elsewhere herein. During fiscal 1999, we acquired
Quarterdeck, Intel's and IBM's anti-virus businesses and the operations of
Binary. See Note 3 of Notes to Consolidated Financial Statements in this Form
10-K. Each of these acquisitions was accounted for as a purchase and,
accordingly, the operating results of these businesses have been included in our
consolidated financial statements since their respective dates of acquisition.
We did not complete any acquisitions during fiscal 1998. During fiscal 1997, we
acquired Fast Track, Inc. in a transaction accounted for as a pooling of
interests. Since the results of operations of Fast Track were not material to
our consolidated financial statements, amounts prior to the date of acquisition
were not restated to reflect the combined operations of the companies. In fiscal
1996, we acquired Delrina Corporation. In fiscal 1995, we acquired Intec Systems
Corporation, Central Point Software, Inc. and SLR Systems, Inc. The fiscal 1996
and 1995 acquisitions were accounted for as poolings of interests. We have not
paid cash dividends on our stock in the last three years.
FIVE YEAR SUMMARY
Year Ended March 31,
(In thousands, except ----------------------------------------------------------
net income (loss) per share) 1999 1998* 1997* 1996 1995
- ---------------------------------------- -------- -------- -------- -------- --------
Statements of Operations Data:
Net revenues $592,628 $532,940 $452,933 $445,432 $431,268
Acquisition, restructuring and
other expenses 38,395 -- 8,585 27,617 9,545
Operating income (loss) 27,841 54,924 17,550 (48,279) 40,286
Net income (loss) 50,201 85,089 26,038 (39,783) 33,409
Net income (loss) per share - basic $ 0.89 $ 1.52 $ 0.48 $ (0.76) $ 0.68
Net income (loss) per share - diluted $ 0.86 $ 1.42 $ 0.47 $ (0.76) $ 0.64
Shares used to compute net
income (loss) per share - basic 56,601 56,097 54,705 52,664 49,338
Shares used to compute net
income (loss) per share - diluted 59,289 60,281 55,407 52,664 54,303
Year Ended March 31,
(In thousands, except ----------------------------------------------------------
net income (loss) per share) 1999 1998 1997 1996 1995
- ---------------------------------------- -------- -------- -------- -------- --------
Balance Sheet Data:
Working capital $ 99,555 $175,537 $129,569 $134,643 $143,405
Total assets 563,476 476,460 339,398 282,674 305,356
Long-term obligations, less
current portion 1,455 5,951 15,066 15,393 25,413
Stockholders' equity 345,113 317,507 217,979 180,317 184,874
* We have reclassified our financial results related to the sale of certain
product lines and technologies. Although there was no impact to our net
income, we have restated our fiscal 1998 and 1997 financials to reflect
these reclassifications from net revenue to income, net of expense, from sale
of technologies and product lines. See further discussion in our Summary of
Significant Accounting Policies section in this Form 10-K.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The following discussion contains forward-looking statements that involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others things, those risk factors set forth in this
section and elsewhere in this report. We identify forward-looking statements by
words such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or similar terms that refer to the future. We cannot guarantee future results,
levels of activity, performance or achievements.
OVERVIEW
Symantec is a world leader in utility software for business and personal
computing. Symantec products and solutions make users productive and keep their
computers safe and reliable anywhere and anytime. Founded in 1982, we have
offices in 26 countries worldwide. During the last three fiscal years, we
completed the following acquisitions:
In November 1998 we completed a tender offer for the common stock of
Quarterdeck, obtaining 63% of the outstanding shares. In March 1999, Quarterdeck
shareholders approved the acquisition by Symantec of 100% of the outstanding
shares of Quarterdeck. The acquisition of Quarterdeck was accounted for as a
purchase and was paid for with cash. We recorded intangible assets of developed
software, tradename, customer base, goodwill, workforce in place and in-process
research and development for the respective purchases. We wrote off the
in-process research and development acquired. We are amortizing the value of the
workforce in place over 2 years. We are amortizing the value of the remaining
intangibles, developed software, tradename, customer base and goodwill over 5
years. See Note 3 of the Notes to Consolidated Financial Statements in this Form
10-K.
In September 1998 we entered into an agreement with Intel to acquire its
anti-virus business and to license its systems management technology. The
acquisition was accounted for as a purchase and was paid for with cash. We
recorded intangible assets of developed software, customer base and in-process
research and development as of the date of the acquisition. We wrote off the
in-process research and development acquired. We are amortizing the value of the
customer base and developed software over 5 years. See Note 3 of the Notes to
Consolidated Financial Statements in this Form 10-K.
In June 1998 we acquired the operations of Binary. The acquisition was accounted
for as a purchase and was paid for with cash. We recorded intangible assets of
developed software, workforce in place and in-process research and development
as of the date of the acquisition. We wrote off the in-process research and
development acquired. We are amortizing the value of the workforce in place and
developed software over 4 years. See Note 3 of the Notes to Consolidated
Financial Statements in this Form 10-K.
In May 1998 we entered into an agreement with IBM to acquire its immune system
technology and related anti-virus patents. The acquisition was accounted for as
a purchase and was paid for with cash. We recorded intangible assets of prepaid
research and development, customer base, goodwill and in-process research and
development. We wrote-off the in-process research and development as of the date
of the purchase. We are amortizing the value of prepaid research and development
over 1 year. We are amortizing the value of both the goodwill and customer base
over 5 years. See Note 3 of the Notes to Consolidated Financial Statements in
this Form 10-K.
We did not complete any acquisitions during fiscal 1998. During fiscal 1997, we
acquired Fast Track in a transaction accounted for as a pooling of interests. In
conjunction with our acquisition of Fast Track, we issued 600,000 shares of our
common stock. The results of operations of Fast Track were not material to our
consolidated financial statements and we did not restate amounts prior to the
date of acquisition to reflect the combined operations of the companies.
On January 6, 1999, we received a comment letter from the Securities and
Exchange Commission with respect to our Form 10-K for the fiscal year ended
March 31, 1998 and Form 10-Q for the quarter ended September 30, 1998. The
comment letter contained questions related to accounting for certain
acquisitions, including questions related to the write-off of associated
in-process research and development costs. We re-evaluated the Binary and IBM
transactions
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and the related in-process research and development costs as well as the other
questions raised in the comment letter. As a result, final operating results for
the quarters ended June, September and December 1998 and the related
year-to-date amounts were restated for the adjustments made to our acquisitions
of Binary and IBM's anti-virus business. In addition, we have reclassified our
financial results related to the sales of our electronic forms product line to
JetForm Corporation and our network administration technologies to
Hewlett-Packard Corporation from revenue to income, net of expense, from sale of
technologies and product lines. Although there was no impact to our net income,
we have restated our fiscal 1999, 1998 and 1997 financials to reflect these
reclassifications from revenue to non-operating income.
RESULTS OF OPERATIONS
The following table sets forth each item from our consolidated statements of
operations as a percentage of net revenues and the percentage change in the
total amount of each item for the periods indicated.
Period-to-Period
Percentage
Increase (Decrease)
--------------------
Year Ended March 31, 1999 1998
------------------------ Compared Compared
1999 1998 1997 to 1998 to 1997
---- --- --- -------- --------
Net revenues 100% 100% 100% 11% 18%
Cost of revenues 16 16 18 10 5
--- --- ---
Gross margin 84 84 82 11 20
Operating expenses:
Research and development 17 17 20 11 3
Sales and marketing 48 49 49 10 18
General and administrative 6 7 7 (6) 12
In-process research and development 5 -- 1 * (100)
Amortization of goodwill and other intangibles 1 -- -- * --
Litigation judgment 1 -- -- * --
Restructuring and other expenses 1 -- 1 * (100)
--- --- ---
Total operating expenses 79 73 78 20 11
--- --- ---
Operating income 5 11 4 (49) 213
Interest income 2 2 1 3 83
Interest expense -- -- -- -- --
Income, net of expense, from sale of
technologies and product lines 7 8 2 (9) 420
Other income (expense), net -- -- -- -- --
--- --- ---
Income before income taxes 14 21 7 (26) 269
Provision for income taxes 6 5 1 22 522
--- --- ---
Net income 8% 16% 6% (41) 227
=== === ===
* Percentage change is not meaningful
NET REVENUES.
Net revenues increased 11% from $533 million in fiscal 1998 to $593 million in
fiscal 1999. Net revenues increased 18% from $453 million in fiscal 1997 to $533
million in fiscal 1998. The increase in fiscal 1999 as compared to fiscal 1998
was largely due to increased sales to our corporate customers, introductions of
new products and increased sales outside of North America. The increase in
fiscal 1998 as compared to fiscal 1997 was largely due to sales of Windows 95
and Windows NT versions of our principal products, as well as introduction of
new products and growth in sales outside of North America.
BUSINESS UNITS. During fiscal 1999 and 1998, we experienced increased net
revenues over the prior fiscal year from our Security and Assistance, Remote
Productivity Solutions and Internet Tools segments, while our Corporate Sunset
segment had declining revenues.
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Our Security and Assistance business unit represented approximately 57%, 54% and
50% of total net revenues for fiscal 1999, 1998 and 1997, respectively.
Increased net revenues for this business unit in fiscal 1999 were primarily due
to sales of Norton AntiVirus. New product releases of Norton SystemWorks and
Norton Ghost also contributed to the fiscal 1999 net revenue increase. These
year over year increases were partly offset by reductions in net revenues for
Norton Utilities. Increased net revenues for this business unit in fiscal 1998
as compared to fiscal 1997 were primarily due 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 Norton
CrashGuard Deluxe and Norton Uninstall contributed to the fiscal 1998 net
revenue increase.
Our Remote Productivity Solutions business unit represented approximately 39%,
41% and 37% of total net revenues for fiscal 1999, 1998 and 1997, respectively.
Despite the reduced percentage of revenue from this business unit, absolute net
revenues for this business unit increased in fiscal 1999 over fiscal 1998. This
increase was primarily due to increased sales of pcANYWHERE. Increased net
revenues for this business unit in fiscal 1998 as compared to fiscal 1997 were
primarily due to increased sales of WinFax PRO for Windows 95, pcANYWHERE and
ACT!
Our Internet Tools business unit represented approximately 4% of total net
revenues in each of the fiscal years 1999, 1998 and 1997. This business unit's
net revenues in absolute dollars increased in fiscal 1999 as compared to fiscal
1998, and also increased in fiscal 1998 as compared to fiscal 1997. The
increases in both comparative years were due to increased sales of our Visual
Cafe Database and Professional Editions.
Our Corporate Sunset segment's revenues are generated from sales of products
that are nearing the end of their life cycles. Net revenues from this segment
were less than 1% of net revenues for fiscal 1999 and 1% and 9% of our net
revenues for fiscal 1998 and 1997, respectively.
During fiscal 1999, 1998 and 1997, the financial impact of product price
reductions for certain of our principal products was more than offset by the
increase in the volume of products sold, resulting in increased net revenues.
INTERNATIONAL. Net revenues from international sales, or revenues outside of
North America, were $219 million and $179 million and represented 37% and 34% of
net revenues in fiscal 1999 and 1998, respectively. The increase was largely due
to stronger sales to Europe and Japan. Net revenues from international sales
increased by $42 million in fiscal 1998, from $137 million in fiscal 1997. This
increase in net revenues was the result of our penetration of new and emerging
markets in Latin America and Asia/Pacific, as well as increased sales in Europe.
Foreign exchange rate fluctuations during fiscal 1999, 1998 and 1997 did not
materially affect annual revenue.
PRODUCT RETURNS. We estimate and maintain reserves for product returns. Product
returns principally relate to stock balancing and the replacement of obsolete
products which are offset by orders of equal or greater value for the current
versions of the products. The mix of products returned from the
distributors/resellers as compared to products sold to the
distributors/resellers does not impact the gross margins, as Symantec's gross
margins are consistent across its various product families. Changes in the level
of product returns and related product returns provision are generally offset by
a change in the level of gross revenue. As a result, the product returns
provision did not have a material impact on reported net revenues in any period
presented.
GROSS MARGIN.
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 margin was 84% of net revenues in fiscal 1999 and fiscal 1998 and 82% in
fiscal 1997. Factors contributing to an increase in gross margin percentage
during fiscal 1998 as compared to fiscal 1997 include reduction of direct
material costs, which were accomplished by shifting product media from more
expensive diskettes to lower priced CD-ROMs and reductions in the size of bound
manuals, accomplished through a shift in documentation for our principal
products from paper manuals to electronic manuals. Additional cost reductions
occurred in manufacturing overhead costs due to improved economies of scale and
reductions in capitalized software amortization and write-offs as discussed
below.
PURCHASED PRODUCT RIGHTS AND CAPITALIZED SOFTWARE. As indicated in the overview,
during fiscal 1999 we acquired Quarterdeck, Intel's anti-virus business and
Binary's operations, as a result of these transactions we recorded purchased
product rights and technology of approximately $8 million, $11 million and $17
million, respectively. See
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Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. During
fiscal 1998, software development costs did not materially affect us.
Amortization of purchased product rights and capitalized software totaled
approximately $11 million, $1 million and $2 million in fiscal 1999, 1998 and
1997, respectively. The increase in fiscal 1999 from fiscal 1998 is primarily
due to additional amortization related to developed technologies acquired from
Intel's anti-virus business, Binary and Quarterdeck from the date of
acquisition. The amortization will occur over the next 3 to 5 years. See Note 4
of Notes to Consolidated Financial Statements in this Form 10-K
RESEARCH AND DEVELOPMENT EXPENSES.
We charge research and development expenditures to operations as incurred.
Research and development expenses remained flat at 17% for fiscal 1999 compared
to fiscal 1998 as a percentage of net revenues and represented 20% of total
company net revenues in fiscal 1997. The decrease in research and development
expenses as a percentage of net revenues in fiscal 1998 from fiscal 1997 largely
resulted from our decision to cease development of certain software products no
longer actively marketed by us.
Research and development expenses increased 11% to $102 million in fiscal 1999
from $91 million in fiscal 1998 and increased 3% in fiscal 1998 from $89 million
in fiscal 1997. The increase in both years was a result of increased spending on
new product development.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses were 48% as a percentage of net revenues for fiscal
1999, and remained flat at 49% as a percentage of net revenues for both fiscal
1998 and 1997. The sales and marketing expenses were approximately $286 million,
$261 million and $221 million in fiscal 1999, 1998 and 1997, respectively. This
absolute increase in sales and marketing dollars for fiscal 1999 over fiscal
1998 is primarily due to increased headcount, as well as increased spending in
advertising and promotional expenses. The increase in sales and marketing
expenses in fiscal 1998 as compared to fiscal 1997 is primarily related to
increased international sales and marketing.
IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES.
As indicated in the overview, in fiscal 1999, we acquired IBM's and Intel's
anti-virus businesses, Binary's operations and Quarterdeck. The following table
outlines the value of the intangible assets recorded in connection with these
acquisitions:
Allocated Purchase Price Components (in thousands)
-------------------------------------------------------------------------------------------------------
Purchase In-Process Developed Customer Prepaid-
Price R&D Software Goodwill Base Workforce Tradename R&D
-------- ---------- --------- -------- -------- --------- --------- --------
IBM $ 20,250 $ 7,100 $ -- $11,850 $ 100 $ -- $ -- $1,200
Binary 27,871 7,100 16,900 3,751 -- 120 -- --
Intel 16,525 5,017 10,697 -- 811 -- -- --
63% of Quarterdeck 59,347 7,560 4,410 45,588 882 25 862 --
37% of Quarterdeck 25,960 740 4,070 20,210 407 15 518 --
-------- ------- ------- ------- ------ ---- ------ ------
Total $149,953 $27,517 $36,077 $81,399 $2,200 $160 $1,400 $1,200
======== ======= ======= ======= ====== ==== ====== ======
We wrote-off approximately $28 million in in-process research and development
associated with the IBM, Binary, Intel and Quarterdeck purchases. These
write-offs were necessary because the acquired technologies had not yet reached
technological feasibility and there were no alternative uses. We are using the
acquired in-process research and development associated with these acquisitions
to create new anti-virus products and enhanced management and administrative
capabilities to be integrated into our suite of anti-virus offerings and other
corporate products over the next two years. This in-process technology will also
be used to create new Uninstall and Disk Cloning products.
The efforts required to develop the purchased in-process technology principally
relate to the completion of all planning, designing, development and testing
activities that are necessary to establish that the product or service can be
produced to meet its design specifications including features, functions and
performance. We expect the acquired in-process technology to be developed into
commercially feasible products. However, there are no assurances that this will
occur. If we fail to complete these products in their entirety, or in a timely
manner, we may not continue to attract new users, we may be unable to retain our
existing users and the value of the other intangible assets may become impaired.
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We determined the fair value of the in-process technology for each of the
purchases by estimating the projected cash flows related to these projects,
including the cost to complete the in-process technologies and future revenues
to be earned upon commercialization of the products. We discounted the resulting
cash flows back to their net present values. We based the net cash flows from
such projects on our analysis of the respective markets and estimates of
revenues and operating profits related to these projects.
IBM. The in-process technology acquired in the IBM purchase primarily consisted
of the IBM immune system technology and related anti-virus patents. This
technology is designed to detect previously unknown viruses, analyze them and
distribute a cure, all automatically and faster than existing methods. We intend
to integrate this technology into our suite of anti-virus products and engage in
considerable amount of infrastructure enhancement required for its deployment
throughout 1999.
We assumed that revenue attributable to this in-process technology would
increase substantially during the first year and then decrease at rates of 35%
to 14% during the remaining three years of the four year projection. We
projected annual revenues to range from approximately $17 million to $8 million
over the term of the projection.
We based these projections on:
o penetration into IBM's and our existing installed base of customers;
o anticipated growth rates of the anti-virus markets;
o an accelerated growth of new customers during the first year of
delivering immune system technology; and
o the estimated life of the underlying technologies.
Based on our historical experience with similar products, we estimated marketing
and sales expenses for the in-process technology to be 40% as a percentage of
revenue throughout the valuation period. Based on our historical general and
administrative expenses, we estimated general and administrative expenses to be
7% throughout the period of analysis.
We assumed operating profit before acquisition related amortization charges
would be approximately $4 million during the first year. We assumed that it
would decrease at annual rates ranging from 35% to 14% during the remaining
periods, resulting in annual operating profits ranging between approximately $4
million and $2 million. We estimated costs to be incurred to reach technological
feasibility of in-process technologies from IBM as of the date of the agreement
to total approximately $2 million. We estimated the in-process technology to be
approximately 78% complete at that time. We projected the introduction of
acquired in-process technologies in early/mid 1999 and now expect the
introduction to take place in the second half of 1999.
We used a discount rate of 30% for valuing the in-process technology from IBM,
which we believe to reflect the risk associated with the completion of these
research and development projects and the estimated future economic benefits to
be generated subsequent to their completion. This discount rate is higher than
our weighted average cost of capital of 17% due to the fact that the technology
had not reached technological feasibility as of the date of the valuation.
The assumptions and projections discussed for the immune system and related
anti-virus technology acquired from IBM were made based on information available
at the time and should not be taken as indications of actual results, which
could vary materially based on the risks and uncertainties identified in the
risk factors set forth in this Form 10-K.
BINARY. The in-process technology acquired in the Binary acquisition primarily
consisted of disk cloning technologies associated with Ghost, the flagship
product of Binary. Ghost software is designed to create a complete image of a
hard drive in the form of a single file that can be copied to another computer
connected via a network.
We assumed that revenue attributable to Binary's in-process technology will
increase in the first three years of the five year projection period at annual
rates ranging from 1108% to 88% and then decrease at rates of 3% to 74% over the
remaining periods as other technologies enter the marketplace. We projected
annual revenues to range from approximately $1 million to $14 million over the
projected period. We based these estimates on:
o aggregate growth rates for the business as a whole;
o individual product revenues;
o anticipated product development cycles; and
o the life of the underlying technology.
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We estimated marketing and sales expenses for the in-process technology to be
31% as a percentage of revenue throughout the valuation period. Based on our
historical general and administrative expenses, we estimated general and
administrative expenses to be 7% throughout the period of analysis.
We projected operating profit before acquisition related amortization charges to
increase from less than $1 million during the first year to approximately $7
million during the third year. We projected that operating profits would then
decrease from 4% to 74% during the remaining two years, resulting in profits of
approximately $7 million and $2 million. Because we assumed that most product
development costs would be incurred in the first year, reducing operating
expenses as a percentage of revenue in later years, we anticipate operating
profit to increase faster than revenue in the early years.
We estimated costs to be incurred to reach technological feasibility of
in-process technologies from Binary as of the date of the acquisition to total
approximately $2 million. We estimated the in-process technology to be
approximately 50% complete at that time. We projected the introduction of
acquired in-process technologies in early/mid 1999 and this has been completed.
We used a discount rate of 30% for valuing the in-process technologies from
Binary, which we believe to reflect the risk associated with the completion of
these research and development projects and the estimated future economic
benefits to be generated subsequent to their completion. This discount rate is
higher than our weighted average cost of capital of 17% due to the fact that the
technology had not reached technological feasibility as of the date of the
valuation.
The assumptions and projections discussed for the disk cloning technologies
acquired from Binary were made based on information available at the time and
should not be taken as indications of actual results, which could vary
materially based on the risks and uncertainties identified in the risk factors
set forth in this Form 10-K.
INTEL. The in-process technology acquired in the Intel purchase consists of the
LANDesk anti-virus technology which resides in the LANDesk virus protect product
line, LDVP. The LDVP product offers centrally managed virus protection to
computer networks. We intend to initially sell the next version of LDVP software
on a standalone basis. We anticipate that during 1999 this technology will be
integrated into our suite of corporate anti-virus offerings, in addition to
future corporate products.
We assumed revenue attributable to Intel's in-process technology to be
approximately $12 million during the first year, increasing to approximately $13
million during the second year and then declining at annual rates ranging from
35% to 77% during the remaining three years of the five year projection as other
technologies enter the marketplace. We projected annual revenues to range from
approximately $13 million to $1 million over the projected period. We based
these estimates on:
o revenue estimates of the acquired LDVP business;
o aggregate growth rates for the anti-virus business as a whole;
o anticipated revenue to be earned from future corporate product
offerings;
o anticipated product development cycles; and
o the life of the underlying technology.
Based on our historical experience with similar products, we estimated marketing
and sales expenses for the in-process technology to be 43% as a percentage of
revenue throughout the valuation period. Based on our historical general and
administrative expenses, we estimated general and administrative expenses to be
8% throughout the period of analysis.
We assumed operating profit before acquisition related amortization charges to
be approximately $5 million during the first year, increasing by 7% during the
second year and then declining at annual rates ranging from 34% to 77% during
the remaining periods, resulting in annual operating profits ranging between
approximately $5 million and less than $1 million. We assumed a growth rate for
operating profits, which are slightly higher than revenue projections, when
projecting the operating profit during the early years. The higher growth rate
is attributable to the increase in revenues discussed above as the technology is
integrated more deeply into our product offerings, while research costs remain
constant.
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We estimated costs to be incurred to reach technological feasibility of
in-process technologies from Intel as of the date of the product being delivered
to us to total approximately $1 million. We estimated the in-process technology
to be 88.1% complete at that time. We projected the introduction of acquired
in-process technologies in early/mid 1999 and this has been completed.
We used a discount rate of 30% for valuing the in-process technology from Intel,
which we believe reflected the risk associated with the completion of these
research and development projects and the estimated future economic benefits to
be generated subsequent to their completion. This discount rate is higher than
our weighted average cost of capital of 17% due to the fact that the technology
had not reached technological feasibility as of the date of the valuation.
The assumptions and projections discussed for the LANDesk anti-virus technology
acquired from Intel were made based on information available at the time and
should not be taken as indications of actual results, which could vary
materially based on the risks and uncertainties identified in the risk factors
set forth in this Form 10-K.
QUARTERDECK. The in-process technology acquired in our acquisition of
Quarterdeck consisted of projects related to Quarterdeck's CleanSweep product
line. The CleanSweep product line is designed to enhance the performance of the
Windows operating system by finding and removing outdated, unnecessary, or
unwanted files, applications and system components, thereby freeing up disk
space.
The following discussion relates to our purchase of a 63% interest in November
1998:
We assumed revenue attributable to the in-process technology to be approximately
$24 million during the first year and then declining at annual rates of 5% to
65% during the remaining periods of the six year projection period as other
technologies are released into the marketplace. We projected annual revenues to
range from approximately $24 million to $3 million over the projected period. We
based these projections on:
o aggregate revenue estimates for the business as a whole;
o anticipated revenue derived from being able to increase our penetration
in the uninstaller market;
o anticipated growth rates in the utilities suites markets;
o anticipated product development cycles; and
o the life of the underlying technology.
Based on indications from similar companies, we estimated overall sales,
marketing and general and administrative expenses to be 30% throughout the
valuation period.
We assumed operating profit before acquisition related amortization charges to
be approximately $11 million during the first year, increasing by 1% during the
second year and then declining at annual rates ranging from 17% to 69% during
the remaining periods, resulting in annual operating profits ranging between
approximately $11 million and $1 million. Because we assumed that most product
development costs would be incurred in the first year, reducing operating
expenses as a percentage of revenue in later years, operating profit in early
years increases as revenue declines.
We estimated costs to be incurred to reach technological feasibility as of the
date of acquisition for Quarterdeck in-process technologies to total
approximately $1 million. We estimated the in-process technology to be 80%
complete as of the date of the acquisition. We projected the introduction of
acquired in-process technologies in early/mid 1999 and this is now expected to
take place in the second half of 1999.
We used a discount rate of 20% for valuing the in-process technology from
Quarterdeck, which we believe reflected the risk associated with the completion
of these research and development projects and the estimated future economic
benefits to be generated subsequent to their completion. This discount rate
reflects a premium above that of the risk associated with the acquired developed
technology and is higher than our weighted average cost of capital.
The following discussion relates to our purchase of the remaining 37% interest
in March 1999:
We assumed revenue attributable to the in-process technology to be approximately
$9 million during the first year, increasing to approximately $23 million during
the second year and then declining at annual rates of 14% to 45% during the
remaining periods of the six year projection period as other technologies are
released into the marketplace. We projected annual revenues to range from $9
million to $23 million over the projected period. We based these projections on:
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o aggregate revenue estimates for the business as a whole;
o anticipated revenue derived from being able to increase our penetration
in the uninstaller market;
o anticipated growth rates in the utilities suites markets;
o anticipated product development cycles; and
o the life of the underlying technology.
Based on indications from similar companies, we estimated overall sales,
marketing and general and administrative expenses to be 30% throughout the
valuation period.
We assumed operating profit before acquisition related amortization charges to
be approximately $4 million during the first year, increasing by 208% during the
second year and then declining at annual rates ranging from 14% to 45% during
the remaining periods, resulting in annual operating profits ranging between
approximately $7 million and $2 million. Because we assumed that most product
development costs would be incurred in the first year, reducing operating
expenses as a percentage of revenue in later years, operating profit in early
years increases as revenue declines.
We estimated costs to be incurred to reach technological feasibility as of the
date of acquisition for Quarterdeck in-process technologies to total
approximately $1 million. We estimated the in-process technology to be 20%
complete as of the date of the acquisition. We project introduction of acquired
in-process technologies in mid/late 1999. The percent completion is
significantly lower than the percent completion of the previous purchase due to
significant changes in product features, R&D investment levels and introduction
dates.
We used a discount rate of 20% for valuing the in-process technology from
Quarterdeck, which we believe reflected the risk associated with the completion
of these research and development projects and the estimated future economic
benefits to be generated subsequent to their completion. This discount rate
reflects a premium above that of the risk associated with the acquired developed
technology and is higher than our weighted average cost of capital.
The assumptions and projections discussed for the projects related to
Quarterdeck's CleanSweep product line were made based on information available
at the time and should not be taken as indications of actual results, which
could vary materially based on the risks and uncertainties identified in the
risk factors set forth in this Form 10-K.
There was no in-process research and development expenses in fiscal 1998. In
fiscal 1997, Symantec entered into a purchase agreement to acquire certain
software technologies to enable Web Authoring for the Mac OS environment. The
terms of the purchase agreement provided that Symantec pay $3 million upon the
signing of the agreement and the delivery of the then in-process, pre-beta
software technologies to Symantec. At the time of this purchase, no revenues had
been derived from any of the technologies acquired and revenues were not
anticipated from these technologies until calendar 1997. In accordance with FAS
86, we utilized a working model of the desktop software product (essentially a
beta version of the product) as its point of technological feasibility for
desktop products because a detailed program does not exist. Symantec had
consistently utilized this point in a desktop product's development life cycle
for purposes of the capitalization of software. In accordance with the
requirements of SFAS 86, we evaluated the purchased software for technological
feasibility and determined that a detailed program design did not exist.
Accordingly, we accounted for the cost of the purchased computer software the
same as the costs incurred to develop such software internally. Additionally,
these software technologies had no alternate future use beyond the continuing
development efforts of the Web Authoring product. Accordingly, the Company
expensed the cost of these software technologies and recorded an approximately
$3 million charge for the write-off of in-process research and development in
fiscal 1997.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses were 6% of net revenues in fiscal 1999 and
7% of net revenues for both fiscal 1998 and 1997. General and administrative
expenses decreased by 6% to $36 million in fiscal 1999 from $38 million in
fiscal 1998. In fiscal 1998, general and administrative expenses increased by
12% from $34 million in fiscal 1997.
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General and administrative expenses decreased in fiscal 1999 as compared to
fiscal 1998. This decrease was primarily due to reductions in our information
system costs. General and administrative expenses increased in fiscal 1998 as
compared to fiscal 1997 at a rate proportionate to net revenue growth. This
increase was the result of increased personnel expenses associated with the
growth of the Company.
LITIGATION JUDGMENT.
Litigation expenses that related to a judgment by a Canadian court on a
decade-old copyright action assumed by us as a result of our acquisition of
Delrina Corporation totaled approximately $6 million for fiscal 1999. See Note
16 of the Notes to Consolidated Financial Statements in this Form 10-K.
RESTRUCTURING AND OTHER EXPENSES.
During the September quarter of fiscal 1999, we implemented a plan to
restructure certain of our operations, which included outsourcing our domestic
manufacturing operations. We recorded approximately $4 million of employee
severance and outplacement expenses to reduce the workforce by approximately 5%
in both domestic and international operations. We recorded approximately $1
million for excess facilities and equipment from the abandonment of our
manufacturing facility lease. As of March 31, 1999, these activities were
substantially completed. See Note 14 of the Notes to Consolidated Financial
Statements in this Form 10-K.
There were no acquisition, restructuring and other expenses incurred in fiscal
1998.
In fiscal 1997, we recorded total acquisition charges of approximately $1
million in connection with the acquisition of Fast Track. We also 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. Other charges recorded
in fiscal 1997 included approximately $2 million in connection with the
write-off of an equity investment. See Summary of Significant Accounting
Policies and Note 14 of Notes to Consolidated Financial Statements of this Form
10-K.
Remaining acquisition, restructuring and other expense accruals as of March 31,
1999 were approximately $4 million.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE).
Interest income was approximately $14 million, $13 million and $7 million in
fiscal 1999, 1998 and 1997, respectively. Interest income increased 3% in fiscal
1999 over fiscal 1998. This increase was primarily due to higher average
invested cash balances, gains on the sale of investments and interest income
received from income tax refunds. Interest income increased 83% in fiscal 1998
over fiscal 1997. This increase was due to higher average invested cash
balances.
Interest expense was approximately $2 million in 1999 and $1 million in both
fiscal 1998 and 1997. The interest expense was principally related to our
convertible subordinated debentures, which were converted in February 1999 and
Quarterdeck's subordinated notes, that were paid off in March 1999. See Note 6
of Notes to Consolidated Financial Statements of this Form 10-K.
Other income (expense) is primarily comprised of foreign currency exchange gains
and losses from fluctuations in currency exchange rates. Foreign currency
exchange gains and losses accounted for approximately $2 million in income in
1999, which primarily resulted from the payoff of an intercompany loan. In
fiscal 1998 there was less than $1 million in expense and in 1997 there was
approximately $2 million in expense.
INCOME, NET OF EXPENSE, FROM SALE OF TECHNOLOGIES AND PRODUCT LINES. Income from
sale of technologies and product lines was approximately $41 million, $45
million and $9 million for the fiscal years 1999, 1998 and 1997, respectively.
This income is related to the sale of our electronic forms product line to
JetForm Corporation and our network administration technologies to
Hewlett-Packard, both of which took place in fiscal 1997. For fiscal 1997 the
income is net of expenses related to the sale of these technologies and product
lines, which is comprised of approximately $8 million for the write-off of
purchased intangibles and developed software costs and approximately $3 million
in legal , accounting and other expenses. See Note 13 of Notes to Consolidated
Financial Statements of this Form 10-K.
INCOME TAXES.
Our effective tax rate on income before income taxes for fiscal 1999, excluding
charges for acquired in-process research and development expenses, was 32%. Our
effective tax rate was 24% and 14% for fiscal 1998 and 1997, respectively. Our
1999 income tax rate of 32% is lower than the U.S. federal and state combined
statutory rate of
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40% primarily due to a lower statutory tax rate for our Irish operations. The
effective tax rate for fiscal 1998 and 1997 was lower due to the utilization of
previously unbenefitted losses and credits.
Our tax provision for fiscal 1999 consists of two items: 1) a $35 million tax
provision (or 32% effective tax rate) on income before income taxes of $110
million, which excludes a $27 million charge for acquired in-process research
and development expenses and 2) a $2 million tax benefit on the $27 million
charge for in-process research and development. We have established a valuation
allowance for the portion of the deferred tax asset attributable to the acquired
in-process research and development expenses that is not expected to be realized
within five years.
Realization of the $28 million of net deferred tax assets is dependent upon our
ability to generate sufficient future U.S. taxable income. Based on our forecast
of U.S. earnings, we believe that it is more likely than not that we will
realize this asset. The net deferred tax asset includes a valuation allowance of
approximately $30 million. Approximately $21 million of the valuation allowance
for deferred tax assets is attributable to unbenefitted stock option deductions,
the benefit of which we will credit to equity when realized. Approximately $7
million of the valuation allowance for deferred tax assets is attributable to
the charge for acquired in-process research and development expenses, the
benefit of which we do not expect to realize within five years. 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 under the "change of ownership" rules of Internal Revenue Code
Section 382.
We project our effective tax rate to be 32% in fiscal 2000. 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 our Irish operations. However, this
projection is subject to change due to fluctuations in and the geographic
allocation of earnings. See 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, cash equivalents, short-term investments and long-term investments
decreased approximately $63 million to $197 million at the end of fiscal 1999
from $260 million at the end of fiscal 1998. This decrease was largely due to
the acquisitions of Quarterdeck, Binary and Intel's and IBM's anti-virus
businesses and the repurchase of approximately 3 million shares of our stock
during the September and December quarters.
Quarterdeck had issued $25 million of 6% convertible senior subordinated notes,
or Notes, due in 2001. These Notes were issued to an institutional investor in a
private placement pursuant to the terms of a Note Agreement dated March 1, 1996.
These Notes were paid in full on March 30, 1999.
In addition to cash, short-term investments and long-term investments of $197
million, we have approximately $71 million of restricted investments related to
collateral requirements under lease agreements entered into by us during fiscal
1997 and 1999. In accordance with the lease terms, these funds are not available
to meet operating cash requirements. In addition, we are obligated to comply
with certain financial covenants. Future acquisitions may cause us to be in
violation of these financial covenants.
Net cash provided by operating activities was approximately $124 million and was
comprised of our net income of approximately $50 million, plus non-cash related
expenses of $57 million and a net increase in assets and liabilities of $17
million.
Net trade accounts receivable increased $11 million to approximately $76 million
and to 39 days sales outstanding at March 31, 1999 from approximately $65
million and 38 days sales outstanding at March 31, 1998.
On June 9, 1998, the Board of Directors of Symantec authorized the repurchase of
up to 5% of our outstanding common stock before December 31, 1998. The
repurchased shares were used for employee stock purchase programs and option
grants. We completed the repurchase as of October 31, 1998, repurchasing
approximately 3 million shares for approximately $56 million at prices ranging
from $13.10 to $27.21 per share.
As of March 31, 1999, we were in compliance with all covenants under our bank
line of credit agreement. There were no borrowings under this line and we had
less than $1 million of standby letters of credit outstanding under this line.
Future acquisitions may cause us to be in violation of the line of credit
covenants. However, we believe that if the line of credit was canceled or
amounts were not available under the line, there would not be a material adverse
impact on the liquidity or capital resources of the Company.
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If we were to sustain significant losses, we could be required to reduce
operating expenses, which could result in:
o product delays;
o reassessment of acquisition opportunities, which could negatively impact
our growth objectives; and/or
o the requirement to pursue further financing options.
We believe that existing cash and short-term investments and cash generated from
operating results will be sufficient to fund operations for the next year.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statements 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 were effective for Symantec beginning with the June
30, 1998 quarter. In December 1998, AcSEC issued SOP 98-9, which amends certain
provisions of SOP 97-2 and extends the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 until the beginning of Symantec's
fiscal 2000. Symantec early adopted SOP 98-9 for its financial statements and
related disclosures beginning in the March 1999 quarter. SOP 98-9 did not have a
material affect on our results.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 will be effective for Symantec at the beginning of the
June 2000 quarter for both annual and interim reporting periods. Symantec is
evaluating the potential impact of this accounting pronouncement on required
disclosures and accounting practices.
AcSec issued its SOP 98-1, Accounting for Costs of Computer Software Developed
For or Obtained for Internal-Use, under which, qualifying computer software
costs incurred during the application development stage are required to be
capitalized and amortized to expense over the software's estimated useful life.
Symantec adopted SOP 98-1 for its financial statements and related disclosures
in fiscal 1999. SOP 98-1 did not materially affect our results.
BUSINESS RISK FACTORS
The following discussion contains forward-looking statements that involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others things, those risk factors set forth in this
section and elsewhere in this report. We identify forward-looking statements by
words such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or similar terms that refer to the future. We cannot guarantee future results,
levels of activity, performance or achievements.
OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Due to the
factors noted below, our earnings and stock price have been and may continue to
be subject to significant volatility, particularly on a quarterly basis. We have
previously experienced shortfalls in revenue and earnings from levels expected
by securities analysts and investors, which have had an immediate and
significant adverse effect on the trading price of our common stock. This may
occur again in the future.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO
ADAPT OUR DEVELOPMENT TO THESE CHANGES. We participate 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 our products. Future technology or
market changes may cause certain of our 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 traditional desktop
access through operating systems that are resident on personal computers. If the
functionality associated with this type of system access reduce the need for our
products, our future net revenues and operating results could be adversely
affected.
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THE MARKET FOR OUR PRODUCTS IS INTENSELY COMPETITIVE AND WE EXPECT THAT
COMPETITION WILL CONTINUE AND MAY INCREASE. The microcomputer software market is
intensely competitive and is subject to rapid changes in technology. It is
influenced by the strategic direction of major microcomputer hardware
manufacturers and operating system providers. Our competitiveness depends on our
ability to enhance existing products and to offer successful new products on a
timely basis. We have limited resources and must restrict product development
efforts to a relatively small number of projects. See Item 1:
Business-Competition, for examples of key competitors for our products in each
of our business units.
Many of our existing and potential competitors have greater financial, marketing
and technological resources than we do. We believe that competition in the
industry will continue to intensify as most major software companies expand
their product lines into additional product categories.
INTRODUCTION OF NEW OPERATING SYSTEMS MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR
FINANCIAL RESULTS AND STOCK price. The release and subsequent customer
acceptance of current or enhanced operating systems are particularly important
events that increase the uncertainty and volatility of our results. If we are
unable to successfully and timely develop products that operate under existing
or new operating systems, or if pending or actual releases of the new operating
systems delay the purchase of our products, our future net revenues and
operating results could be materially adversely affected.
Microsoft has incorporated advanced utilities into Windows 95, including:
o telecommunications capabilities;
o facsimile capabilities, which were later dropped from Windows 98; and
o data recovery utilities.
Microsoft has included additional product features in Windows 98, including:
o enhanced disk repair;
o disk defragmentation;
o system file maintenance;
o ISDN support; and
o PPTP virtual private networking.
Inclusions of features such as these and any additional features by Microsoft in
new versions of Windows, including Windows 2000 and Windows 98 Second Edition,
may decrease the demand for certain of our products, including those currently
under development and products specifically intended for Windows 2000.
Microsoft's Windows 98 operating system was introduced during the June 1998
quarter and Windows 98 Second Edition is anticipated to be introduced at the end
of 1999. We believe that weak retail software sales during the June and
September 1998 quarters compared to the March 1998 quarter may have been due, in
part, to the release of Windows 98 at the end of the June 1998 quarter. Our
ability to generate revenue from many of our current products and products
currently under development could be less than anticipated in future periods due
to reported incompatibilities by end-users and delays in the purchase of our
products as end-users first deploy Windows 98 and Windows 98 Second Edition. In
addition, we may face declining sales following Microsoft's introduction of
Windows 2000, which was formerly known as Windows NT 5.0, currently scheduled
for the end of 1999.
Our financial results and our stock price declined significantly within
approximately 6 months after the releases of Windows 3.1, Windows 95 and Windows
98, which in some cases also caused the additional requirement for hardware
upgrades, resulting in shifts in customer spending from software to hardware. We
could face adverse financial results and additional stock price declines
following future releases of operating systems.
Additionally, as hardware vendors incorporate additional server-based network
management and security tools into network operating systems, the demand may
decrease for some of our products, including those currently under development.
Moreover, functionality previously provided only by software may be incorporated
directly into hardware, potentially reducing demand for our products.
Furthermore, our competitors may license certain of their products to Microsoft
and OEMs for inclusion with their operating systems, add-on products or
hardware, which may also reduce the demand for certain of our products.
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Shifts 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 have had and
would have a material adverse affect on operating results.
THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE
EFFECTIVELY. Consolidation in the software industry continues to occur, with
competing companies merging or acquiring other companies in order to capture
market share or expand product lines. As this consolidation occurs, the nature
of the market may change as a result of fewer players dominating particular
markets, potentially providing consumers with fewer choices. Also, some of these
companies offer a broader range of products than Symantec, ranging from desktop
to enterprise solutions. We may not be able to compete effectively against these
competitors. Any of these changes may have a significant adverse effect on our
future revenues and operating results.
Furthermore, we use strategic acquisitions, as necessary, to acquire technology,
people and products for our overall product strategy. We have 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.
The trend toward consolidation in our industry may result in increased
competition in acquiring these technologies, people or products, resulting in
increase acquisition costs or the inability to acquire the desired technologies,
people or products.
WE MUST EFFECTIVELY ADAPT TO CHANGES IN THE DYNAMIC TECHNOLOGICAL ENVIRONMENT OF
THE INTERNET IN A TIMELY MANNER. Critical issues concerning the commercial use
of the Internet, including security, reliability, cost, ease of use,
accessibility, quality of service or potential tax or other government
regulation, remain unresolved and may affect the use of the Internet as a medium
to distribute or support our software products and the functionality of some of
our products. If we are unsuccessful in timely assimilating changes in the
Internet environment into our business operations and product development
efforts, our future net revenues and operating results could be adversely
affected.
WE FACE INTENSE PRICE BASED COMPETITION FOR SALES OF OUR PRODUCTS. Price
competition is often intense in the microcomputer software market, especially
for utility and anti-virus products. Many of our competitors have significantly
reduced the price of utility and anti-virus products. Price competition may
continue to increase and become even more significant in the future, resulting
in reduced profit margins. If competitive pressures in the industry continue to
increase in regards to utility and anti-virus products, we may be required to
reduce prices and/or increase our spending on sales, marketing and research and
development of these products as a percentage of net revenues, resulting in
lower profit margins. These actions may be insufficient to offset the impact of
price competition on our business and net revenues, and may result in reduced
revenue, income and available cash.
THE TRANSITION TO INTEGRATED SUITES OF UTILITIES MAY RESULT IN REDUCED REVENUES.
Symantec and our competitors now provide integrated suites of utility products.
The price of integrated utility suites is significantly less than the total
price of stand-alone products that are included in these utility suites when
sold separately. As a result of the shift to integrated utility suites, price
competition is intense and we have experienced cannibalization of our
stand-alone products that are included within the suite. As a result, there may
be a negative impact on our revenues and operating income from selling
integrated utility suites rather than individual products, as the lower price of
integrated utility suites may not be offset by increases in the total volume of
utility suites sold. Additionally, our products may not compete effectively with
competitors' products or integrated utility suites introduced in the future.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. While
our diverse product line has tended to lessen fluctuations in quarterly net
revenues, these fluctuations have occurred and may occur in the future.
Fluctuations may be caused by a number of factors, including:
o the timing of announcements and releases of new or enhanced versions of
our products and product upgrades;
o the introduction of competitive products by existing or new competitors;
o reduced demand for any given product;
o seasonality in the end-of-period buying patterns of foreign and domestic
software markets; and
o the market's transition between operating systems.
A significant proportion of our revenues are generated during the last month of
the quarter. Most resellers tend to make a majority of their purchases at the
end of the fiscal quarter. In addition, many corporate customers negotiate site
licenses near the end of each quarter. In part, this is because these two groups
are able, or believe that they are able, to negotiate lower prices and more
favorable terms. Our reliance on a large proportion of revenue occurring at the
end of the quarter and the increase in the dollar value of transactions that
occur at the end of the quarter results in
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increased uncertainty relating to quarterly revenues. Due to this end-of-period
buying pattern, forecasts may not be achieved, either because expected sales do
not occur or because they occur at lower prices or on terms that are less
favorable to us. In addition, these factors increase the chances that our
results could diverge from the expectations of investors and analysts.
ABSENCE OF BACKLOG MAY IMPACT OUR QUARTERLY FINANCIAL RESULTS. We operate with
relatively little backlog. Therefore, if near-term demand for our products
weakens in a given quarter, there could be an immediate, material reduction in
net revenues, which would likely result in a significant and precipitous drop in
our stock price. We have not experienced any difficulties in acquiring material
or delays in production of our software and related documentation and packaging.
We normally ship products within one week after receiving an order and do not
consider backlog to be a significant indicator of future performance. However,
shortages may occur in the future.
WE ARE DEPENDENT UPON THE RETAIL DISTRIBUTION CHANNEL. A large portion of our
sales are made through the retail distribution channel, which is subject to
events that create unpredictable fluctuations in consumer demand. Our retail
distribution customers also carry our competitors' products. These retail
distributors may have limited capital to invest in inventory. Their decisions to
purchase our products are partly a function of pricing, terms and special
promotions offered by us and our competitors, over which we have no control and
which we cannot predict.
Our agreements with distributors are generally nonexclusive and may be
terminated by the distributors or by us without cause. Some distributors and
resellers have experienced financial difficulties in the past. Distributors that
account for a significant portion of our sales may experience financial
difficulties in the future. When our distributors have experienced financial
difficulties in the past, we have successfully moved these inventories to other
distributors. However, we may not be able to do so in the future. If these
distributors do experience financial difficulties and we are unable to move
their inventories to other distributors, we may experience reduced sales or
increased write-offs, which would adversely affect our operating results.
WE MAY BE UNSUCCESSFUL IN UTILIZING NEW DISTRIBUTION CHANNELS. We currently
offer a broad range of products and services over the Internet. We may not be
able to effectively adapt our existing, or adopt new, methods of distributing
our software products utilizing the rapidly evolving Internet and related
technologies. The adoption of new channels may adversely impact existing
channels and/or product pricing, which may reduce our future revenues and
profitability.
CHANNEL FILL MAY AFFECT OUR NET REVENUES. Our 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. 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. As a result, distributor inventories may decrease between the
date we announce a new version or new product and the date of release. Channels
may also become filled simply because the distributors do not sell their
inventories to retail distribution or retailers to end users as anticipated. If
sales to retailers or end-users do 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.
The impact of channel fill is somewhat mitigated by our deferral of revenue
associated with distributor and reseller inventories estimated to be in excess
of appropriate levels. 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.
PRODUCT RETURNS MAY AFFECT OUR NET REVENUES. Product returns can occur when we
introduce upgrades and new versions of products or when distributors or
retailers have excess inventories. Our return policy allows distributors,
subject to various limitations, to return purchased products in exchange for new
products or for credit towards future purchases. End users may return our
products through dealers and distributors within a reasonable period from the
date of purchase for a full refund. In addition, retailers may return older
versions of our products. We estimate and maintain reserves for product returns.
However, future returns could exceed the reserves we have established, which
could have a material adverse affect on our operating results.
OUR INCREASED SALES OF SITE LICENSES MAY INCREASE FLUCTUATIONS IN OUR FINANCIAL
RESULTS AND COULD AFFECT OUR BUSINESS. We sell corporate site licenses through
the distribution channel and through corporate resellers. We are increasingly
emphasizing sales to corporations and small businesses through volume licensing
agreements. These licensing arrangements tend to involve a longer sales cycle
than sales through other distribution channels, require greater investment of
resources in establishing the enterprise relationship and can sometimes result
in lower operating
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margins. The timing of the execution of volume licenses, or their nonrenewal or
renegotiation by large customers, could cause our results of operations to vary
significantly from quarter to quarter and could have a material adverse impact
on our results of operations. In addition, if the corporate marketplace grows
and becomes a larger component of the overall marketplace, we may not be
successful in expanding our corporate segment to take advantage of this growth.
WE OFTEN DEPEND ON JOINT BUSINESS ARRANGEMENTS FOR PRODUCT DEVELOPMENT. We have
entered into various development or joint business arrangements for the purpose
of developing new software products and enhancements to existing software
products as well as creating a presence in new markets. We may continue this
strategy in the future. Depending on the nature of each such arrangement, the
development, distribution, sale or marketing of the resulting product may be
controlled either by us or by our business partner. The products that result
from joint business arrangements may not be technologically successful, may not
achieve market acceptance and/or may not be able to compete with products either
currently in the market or introduced in the future.
WE DEPEND ON DISTRIBUTION BY VALUE-ADDED RESELLERS AND INDEPENDENT SOFTWARE
VENDORS FOR A SIGNIFICANT PORTION OF OUR REVENUES. We distribute some of our
products through value-added resellers and independent software vendors under
arrangements through which our products are included with these resellers' and
vendors' hardware products prior to sale by them through retail channels. These
licensing agreements are generally non-exclusive and do not require these
resellers or vendors to make minimum purchases. If we are unsuccessful in
maintaining our current relationships and securing license agreements with
additional value-added resellers and independent software vendors, or if these
resellers and vendors are unsuccessful in selling their products, our future net
revenues and operating results may be adversely affected.
WE MAY EXPERIENCE DIFFICULTY INTEGRATING ACQUISITIONS. We have completed a
number of acquisitions including four acquisitions in fiscal 1999 and may
acquire other companies and technology in the future. Acquisitions involve a
number of special risks, including:
o difficulties of integrating the operations of the acquired companies in
an efficient and timely manner;
o diversion of management's attention from day-to-day operations;
o potential disruption of our existing businesses;
o difficulties in successfully incorporating acquired technologies with
our existing products;
o difficulties of integration, training, retention and motivation of key
employees of the acquired company;
o the burden of presenting a unified corporate image; and
o obstacles to the integration of acquired products, research and
development and sales efforts.
In addition, because the employees of acquired companies have frequently
remained in their existing geographically diverse locations, we have not
achieved certain economies of scale that we might otherwise have realized.
Further economies of scale may not be realized in the future.
We may need to secure financing to pay for future acquisitions. Acquisition
financing may not be available on favorable terms or at all. We typically incur
significant expenses in connection with our acquisitions. Future acquisitions
may have a significant adverse impact on our future profitability and financial
resources.
WE FACE RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. We transact a significant
portion of our revenues, manufacturing costs and operating expenses outside of
the United States, often in foreign currencies. As a result, our operating
results may be materially and adversely affected by:
o fluctuations in currency exchange rates;
o increases in duty rates;
o exchange or price controls or other repatriation restrictions on foreign
currencies;
o political and economic instability;
o government regulations;
o import restrictions;
o economic volatility; and
o reduced protection for the Company's copyrights and trademarks in
certain jurisdictions.
We utilize natural hedging to mitigate our foreign currency transaction
exposure. We also hedge certain residual balance sheet positions through the use
of one-month forward contracts. These strategies may be ineffective in the
future. We may be unsuccessful in accurately forecasting transaction gains or
losses. We expect an increase of our
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activities that are not denominated in U.S. dollars in the future. If there are
continued fluctuations in the currency markets, our revenues could be materially
and adversely affected.
INCREASED UTILIZATION AND COSTS OF OUR TECHNICAL SUPPORT SERVICES MAY ADVERSELY
AFFECT OUR FINANCIAL RESULTS. Technical support costs comprise a significant
portion of our operating costs and expenses as with many companies in the
software industry. We base our technical support levels, in a large part, on
projections of future sales levels. Over the short term, we may be unable to
respond to fluctuations in customer demand for support services. We also may be
unable to modify the format of our support services to compete with changes in
support services provided by competitors. While we perform extensive quality
control review over the technical support services provided by our corporate
personnel and, to a lesser extent, over the support services outsourced to
third-party vendors, customers may be dissatisfied with these services. If we
have not satisfied our customers technical support needs, future product and
upgrade sales to these customers may be reduced.
THE RESULTS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE UNCERTAIN. We believe
that we will need to make significant research and development expenditures to
remain competitive. While we perform extensive usability and beta testing of new
products, the products we are currently developing or may develop in the future
may not be technologically successful. If they are not technologically
successful, our resulting products may not achieve market acceptance and our
products may not compete effectively with products of our competitors currently
in the market or introduced in the future.
THE LENGTH OF THE PRODUCT DEVELOPMENT CYCLE IS DIFFICULT TO PREDICT. The length
of our product development cycle has generally been greater than we originally
expected. Although such delays have undoubtedly had a material adverse affect on
our business and because we are unable to predict the amount of net revenues
that would have been obtained had the original development expectations been
met, we are unable to quantify the magnitude of net revenues that were deferred
or lost as a result of any particular delay. We are likely to experience delays
in future product development. These delays could have a material adverse affect
on the amount and timing of future revenues. Due to the inherent uncertainties
of software development projects, we do not generally disclose or announce the
specific expected shipment dates of our product introductions.
WE MAY BE UNABLE TO ADJUST EXPENSES TO FLUCTUATIONS IN REVENUES. As with many
companies in the software industry, our employee and facility related
expenditures comprise a significant portion of our operating expenses. We base
our expense levels, in a large part, on projections of future revenue levels.
Due to the fixed nature of these expenses over the short term, if revenue levels
fall below expectations, our operating results are likely to be significantly
adversely affected.
WE MUST MANAGE AND RESTRUCTURE OUR EXPANDING OPERATIONS EFFECTIVELY. We
continually evaluate our product and corporate strategy. We have in the past
undertaken and will in the future undertake organizational changes and/or
product and marketing strategy modifications. These changes and modifications
are designed to:
o maximize market penetration;
o maximize use of limited corporate resources;
o develop new products; and
o develop new 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 the Company may not realize any benefit from these
efforts.
WE MUST ATTRACT AND RETAIN PERSONNEL WHILE COMPETITION FOR PERSONNEL IN OUR
INDUSTRY IS INTENSE. We believe that our future success will depend in part on
our ability to recruit and retain highly skilled management, marketing and
technical personnel. Competition in recruiting personnel in the software
industry is intense. We may be unable to attract or retain our key employees or
to attract, assimilate and retain other highly qualified employees. We have from
time to time in the past experienced and we expect in the future to experience
difficulty in hiring and retaining skilled employees with appropriate
qualifications. To accomplish this, we believe that we must provide personnel
with a competitive compensation package, including stock options, which requires
ongoing stockholder approval.
WE DEPEND ON OUR INTERNAL COMMUNICATIONS SYSTEMS THAT MAY BE DISRUPTED. Our
order entry and product shipping centers are geographically dispersed. If our
communications between these centers are disrupted, particularly at the end of a
fiscal quarter, we will suffer an unexpected shortfall in net revenues and a
resulting adverse impact on our
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operating results. If communications and Internet connectivity are disrupted,
disruptions in communications and Internet connectivity may also cause delays in
customer access to our 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 our future net revenues.
WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. We regard our software
as proprietary and underlying technology as proprietary. We seek to protect our
proprietary rights through a combination of confidentiality agreements and
copyright, patent, trademark and trade secret laws. However, we do not employ
technology to prevent copying of our products. Despite our precautionary
measures, third parties may copy aspects of our products or otherwise obtain and
use our proprietary information without authorization or develop similar
technology independently. All of our products are protected by copyright and we
have a number of patents and patent applications pending. We may not achieve the
desired protection from, and third parties may design around, our patents. In
addition, existing copyright laws afford limited practical protection.
Furthermore, the laws of some foreign countries do not offer the same level of
protection of our proprietary rights as the laws of the United States. Any legal
action that we may bring to protect proprietary information could be expensive
and may distract management from day-to-day operations.
WE ARE INVOLVED IN LITIGATION WHICH COULD, AND ANY FUTURE LITIGATION MAY, AFFECT
OUR FINANCIAL RESULTS. From time to time, we may be subject to claims that we
have infringed the intellectual property rights of others, that our products are
not Year 2000 compliant or other product liability claims, or other claims
incidental to our business. We are involved in a number of judicial and
administrative proceedings incidental to our business. For a more complete
discussion of our current litigation, see Note 16 of Notes to Consolidated
Financial Statements in this Form 10-K. We intend to defend and/or pursue all of
these lawsuits vigorously. We may suffer an unfavorable outcome in one or more
of the cases. We do not expect the final resolution of these lawsuits to have a
material adverse effect on our financial position, individually or in the
aggregate. However, depending on the amount and timing of unfavorable
resolutions of these lawsuits, our future results of operations or cash flows
could be materially adversely affected in a particular period.
INTELLECTUAL PROPERTY LITIGATION
We believe that software developers will become increasingly subject to claims
of intellectual property infringement as the number of software products in the
industry increases and the functionality of these products further overlap. In
addition, an increasing number of patents are being issued that may apply to
software. Allegations of patent infringement are becoming increasingly common in
the software industry. We are unable to ascertain all possible patent
infringement claims because:
o new patents are being issued continually;
o the subject of patent applications is confidential until a patent is
issued; and
o when a patent has been issued, the potential applicability of the patent
to a particular software product is not apparent.
We have been involved in disputes claiming patent infringement in the past and
are currently involved in a number of patent disputes and litigation. We believe
we, like other companies that obtain some of their products through publishing
agreements or acquisitions, face potentially greater risks of infringement
claims since we have less direct control over the development of those products.
Although infringement claims may ultimately prove to be without merit, they are
expensive to defend and may consume our resources or divert our attention from
day-to-day operations. If a third party alleges that we have infringed their
intellectual property rights, we may choose to litigate the claim and/or seek an
appropriate license from the third party. If we engage in litigation and the
third party is found to have a valid patent claim against us and a license is
not available on reasonable terms, our business, operating results and financial
condition may be materially adversely affected.
YEAR 2000 - PRODUCT LIABILITY LITIGATION
We believe the software products that we currently develop and actively market
are Year 2000 compliant for significantly all functionality. However, these
products could contain errors or defects related to the Year 2000. In addition,
earlier versions of our products, those that are not the most currently released
or are not currently being developed, may not be Year 2000 compliant. We have
sold some of our older product lines, which are not being actively developed and
updated. These older products are also not necessarily Year 2000 compliant and
will no longer be sold after June 29, 1999.
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We are 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. We believe that this lawsuit has no merit and we intend to defend
against this claim vigorously. We do not expect the final resolution of this
lawsuit to have a material adverse affect on the results of operations and
financial condition of the Company. However, depending on the amount and timing
of an unfavorable resolution of this lawsuit, our future results of operations
or cash flows could be materially adversely affected in a particular period.
SOFTWARE DEFECTS AND PRODUCT LIABILITY
Software products frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. For example, in
the past, our anti-virus software products have incorrectly detected viruses
that do not exist. We have not experienced any material adverse effects
resulting from any of these defects or errors to date and we test our products
prior to release. Nonetheless, defects and errors could be found in current
versions of our products, future upgrades to current products or newly developed
and released products. Software defects could result in delays in market
acceptance or unexpected reprogramming costs, which could materially adversely
affect our operating results. Most of our license agreements with customers
contain provisions designed to limit our exposure to potential product liability
claims. It is possible, however, that these provisions limiting our liability
may not be valid as a result of federal, state, local or foreign laws or
ordinances or unfavorable judicial decisions. A successful product liability
claim could have a material adverse affect on Symantec's business, operating
results and financial condition.
OUR SOFTWARE PRODUCTS AND WEB SITE MAY BE SUBJECT TO INTENTIONAL DISRUPTION.
While we have not been the target of software viruses specifically designed to
impede the performance of the our products, such viruses could be created and
deployed against our products in the future. Similarly, experienced computer
programmers, or hackers, may attempt to penetrate our network security or the
security of our web site from time to time. A hacker who penetrates our network
or web site could misappropriate proprietary information or cause interruptions
of our services. We might be required to expend significant capital and
resources to protect against, or to alleviate, problems caused by virus creators
and hackers.
THE CONVERSION OF THE EUROPEAN CURRENCIES TO THE EURO MAY IMPACT OUR FOREIGN
EXCHANGE HEDGING PROGRAM. On January 1, 1999, the euro became the common
currency of 11 of the 15 member countries of the European Union. The national
currencies of these 11 countries will coexist with the euro at fixed exchange
rates through December 31, 2001. Euro denominated bills and coins will be
introduced on January 1, 2002 and, by July 1, 2002, the national currencies will
no longer be legal tender.
We established a euro task force to address the business implications of the
euro. The task force implemented changes to our system and processes in order to
be euro-ready on January 1, 1999. We will continue to evaluate the impact of the
euro and expect to make further changes to accommodate doing business in the
euro.
We expect that the euro will dictate changes in our foreign exchange hedging
program. These changes may lead to increased fluctuations in foreign currency
hedging results. Based on current information, we do not believe that the euro
will have a material adverse impact on our operations or financial condition.
WE MAY EXPERIENCE REDUCED DEMAND FOR OUR PRODUCTS DUE TO CHANGES IN CUSTOMER
BEHAVIOR RESULTING FROM YEAR 2000 PREPARATION. With the emerging requirements on
Year 2000 compliance and functionality, many enterprise customers may use their
Information Technology budgets in 1999 to focus on Year 2000 issues. In
addition, our customer's Information Technology organizations may be unwilling
to deploy new software until after the Year 2000 in order to reduce the
complexity of any changes in their systems required by any actual Year 2000
failures. Either of these factors could reduce sales of our products and could
have an adverse affect on revenues.
WE MAY EXPERIENCE DISRUPTION OF OUR INTERNAL SYSTEMS AS A RESULT OF THE YEAR
2000. We have completed a major evaluation of our internal applications, systems
and databases. We are modifying or replacing portions of our hardware and
associated software to enable our operational systems and networks to function
properly with respect to dates leading up to January 1, 2000 and thereafter. We
continue to evaluate interfaces between our systems and third-party systems,
such as those of key suppliers, distributors and financial institutions, for
Year 2000 functionality. In addition, the systems of other companies with which
we do business may not address Year 2000 problems on a timely basis. We expect
the process of evaluating third-party Year 2000 compliance to be an ongoing
process. We are
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evaluating Year 2000 exposures of our key suppliers, as well as our buildings
and related facilities. We expect that the costs to complete the Year 2000
project to be approximately $2 million and will be expensed as incurred.
Our Year 2000 Project is divided into several phases:
Assessment - where the vulnerability of the hardware, software, process or
service element is identified.
Planning - where corrective action is determined for each vulnerable
element.
Remediation and Unit Test - where the corrective action is taken and
initial testing is performed.
Limited System Test - where related elements are tested together, using
dates in the vulnerable range and any necessary follow-up remediation is
completed.
We track the progress of the Year 2000 on a sub-project level. The following
table is a summary of the completion status and currently expected completion
date of each phase for each sub-project. The expected completion dates are
subject to the risks and uncertainties of locating and correcting errors in
complex computer systems. The actual dates on which we complete each phase may
vary significantly. Some sub-project completion dates have shifted since our
last 10-Q filing. We have realized that our principal software vendor will be
providing delayed Year 2000 patches throughout 1999. These patches need to be
tested before installing them into our environment. In order to optimize the
usage of our special test environment and people resources, we have
conservatively extended our Limited Systems Test phase. Again, we realized that
some of our primary hardware vendors would continue to supply delayed Year 2000
fixes through 1999 and therefore we will need to prepare accordingly. Building
and related facilities dates were modified to address the resources involved in
the physical move of our World Headquarters in the latter half of 1999. We
believe that these conservative date modifications will not impair our ability
to remain in business before, throughout and beyond the transition into the new
millenium. Periodic updates regarding the Year 2000 status are provided to both
the Executive Staff and Board of Directors.
SUB-PROJECT PHASE AND STATUS OR DUE DATE
- ------------------------------------ ---------------------------------------------------
Limited
Assessment Planning Remediation System Test
---------- -------- ----------- ------------
Business Systems Complete Complete Complete Jul-Dec 1999
Networks, Servers & Communications
Americas Complete Complete Complete Jul-Dec 1999
EMEA Complete Complete Sep 1999 Oct-Dec 1999
Japan & Asia/Pacific Complete Complete Sep 1999 Oct-Dec 1999
Desktop and Mobile Computers Complete Complete Sep 1999 Jul-Dec 1999
Buildings and Related Facilities Complete Sep 1999 Dec 1999 Jul-Dec 1999
Suppliers and Outside Services Complete Aug 1999 Oct 1999 Oct-Dec 1999
If our electric power or telephone services are interrupted for significant
periods, some of our facilities might be unable to operate. We maintain business
recovery plans for our major locations to provide for an orderly response to
various disaster scenarios. We are reviewing and augmenting these plans to
provide contingency plans for potential internal and external Year 2000 related
problems. We have scheduled completion of the analysis and the associated
contingency plans for September 1999.
We believe that, following our conversion to new software and modifications of
existing computer hardware and software, we will not suffer significant
operational problems with our computer systems due to the Year 2000. However, if
we are unable to complete remaining modifications and conversions in a timely
manner, Year 2000 noncompliance might materially adversely impact our
operations. Because testing of the Year 2000 functionality of our systems must
occur in a simulated environment, we are unable to test fully all Year 2000
interfaces and capabilities prior to the Year 2000.
We have not deferred any other information systems projects as a result of our
focus on Year 2000 compliance issues. We believe that our exposure from Year
2000 issues is not material to our business as a whole. However, if certain key
suppliers or distributors should suffer business interruptions due to Year 2000
problems, we could be forced to delay product shipments.
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ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not have significant exposure to changing interest rates because of the
low levels of marketable securities on our balance sheet. We do not undertake
any specific actions to cover our exposure to interest rate risk and we are not
a party to any interest rate risk management transactions. We do not purchase or
hold any derivative financial instruments for trading purposes.
INTEREST RATE SENSITIVITY. As of March 31, 1999, the fair market value of our
financial instruments with exposure to interest risk was approximately $249
million. Sensitivity analysis for a six-month horizon was performed on our
floating rate and fixed rate financial investments and floating rate
liabilities. Parallel shifts in the yield curve of both +/-50 basis point
(+/-10% of our weighted average interest rate) would result in fair market
values for investments of approximately $255 million as well as with a 50 basis
point increase and 50 basis point decrease in interest rates. Fair market values
of floating rate financial obligations would increase by less than $1 million
for a 50 basis point rise and decrease by less than $1 million with a 50 basis
point decrease in interest rates.
EXCHANGE RATE SENSITIVITY.
We conduct business in 31 international currencies through our worldwide
operations. We have established a foreign currency hedging program, utilizing
foreign currency forward exchange contracts, or forward contracts, of one fiscal
month duration to hedge various foreign currency transaction exposures. Under
this program, increases or decreases in our foreign currency transactions are
offset by gains and losses on the forward contracts to mitigate the risk of
material foreign currency transaction losses. We do not use forward contracts
for trading purposes. At the end of each fiscal month, all foreign currency
assets and liabilities are revalued using the month end spot rate of the
maturing forward contracts and the realized gains and losses are recorded and
included in net income as a component of other income (expense).
We believe that the use of foreign currency financial instruments should reduce
the risks that arise from conducting business in international markets. We
employ established policies and procedures governing the use of financial
instruments to manage our exposure to such risks.
We use sensitivity analysis to quantify the impact market risk exposure may have
on the fair market values of our financial instruments. The financial
instruments included in the sensitivity analysis consist of all of our foreign
currency assets and liabilities and all derivative instruments, principally
forward contracts.
The sensitivity analysis assesses the risk of loss in fair market values from
the impact of hypothetical changes of instantaneous, parallel shifts in exchange
rates and interest rates yield curves on market sensitive instruments over a six
month horizon. Exchange rates rarely move in the same direction. The assumption
that exchange rates change in a parallel fashion may overstate the impact of
changing exchange rates on assets and liabilities denominated in a foreign
currency.
As of March 31, 1999, the net fair value liability of our financial instruments
with exposure to foreign currency risk was approximately $86 million. A 10%
movement in the levels of foreign currency exchange rates against the U.S.
dollar would result in a decrease in the fair value of our financial instruments
by approximately $8 million or an increase in the fair value of our financial
instruments by approximately $9 million.
This quantification of exposure to the market risk associated with foreign
exchange financial instruments does not take into account the offsetting impact
of changes in the fair value of our foreign denominated assets, liabilities and
firm commitments.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ANNUAL FINANCIAL STATEMENTS. See Part IV, Item 14 of this Form 10-K.
SELECTED QUARTERLY DATA.
We have a 52/53-week fiscal accounting year. Accordingly, we have presented
quarterly fiscal periods comprised of 13 weeks, with the exception of the
quarter ended June 30, 1997, which was comprised of 14 weeks.
(In thousands, except net income per share; unaudited)
Fiscal 1999 Fiscal 1998
-------------------------------------------- --------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1999 1998 1998 1998 1998 1997 1997 1997
-------- -------- -------- -------- -------- -------- -------- --------
Net revenues $169,618 $155,206 $130,034 $137,770 $142,792 $137,784 $129,305 $123,059
Gross margin 141,168 128,718 108,697 117,487 121,261 115,193 106,916 102,139
Acquisition,
restructuring and
other expenses ** 740 7,560 10,122 19,973 -- -- -- --
Net income 24,758 15,883 1,945 7,615 24,138 21,836 20,580 18,535
Net income per share -
basic $ 0.44 $ 0.29 $ 0.03 $ 0.13 $ 0.43 $ 0.39 $ 0.37 $ 0.33
diluted $ 0.43 $ 0.28 $ 0.03 $ 0.13 $ 0.40 $ 0.37 $ 0.35 $ 0.32
** Acquisition, restructuring and other expenses, net income and net income per
share are different from the amounts previously reported on Symantec's Form
10-Qs for fiscal 1999 as a result of changes in the companies allocation of
purchase price in connection with the acquisition of Binary's operations and IBM
anti-virus business. See Note 14 of Notes to Consolidated Financial Statements.
Note: Additionally, we have reclassified our financial results related to the
sale of certain product lines and technologies. There was no impact to our net
income, we have restated our Form 10Qs for fiscal 1999 and 1998 to reflect the
reclassifications from net revenue to income, net of expense, from sale of
technologies and product lines. See further discussion in our Summary of
Significant Accounting Policies section in this Form 10-K.
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 that we will deliver to stockholders in connection with the
Annual Meeting of Stockholders to be held on September 15, 1999. That
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
- --------------------- --- ------------------------------------------------
John W. Thompson 50 Chairman, President and Chief Executive Officer
Greg Myers 49 Chief Financial Officer, Vice President of Finance
Christopher Calisi 39 Vice President, Remote Productivity Solutions Business Unit
Dieter Giesbrecht 55 Vice President, Europe, Middle East and Africa ("EMEA")
Keith Robinson 42 Vice President, Americas
Enrique T. Salem 33 Vice President, Security and Assistance Business Unit and
Chief Technical Officer
Dana E. Siebert 39 Executive Vice President, Worldwide Sales, Marketing and Services
Derek Witte 42 Vice President, Worldwide Operations
The Board of Directors chooses executive officers, who then serve at the Board's
discretion. There is no family relationship between any of our directors or
executive officers and any other director or executive officer of Symantec.
JOHN W. THOMPSON has served as President, Chief Executive Officer and Chairman
of the Board of Directors, since May 1999. Mr. Thompson joined Symantec after 28
years at IBM Corporation. In his most recent position as General Manager of IBM
Americas, he was responsible for sales and support of IBM's technology products
and services in the United States, Canada and Latin America. Prior to his
position with IBM Americas, he was General Manager, Personal Software Products,
responsible for the development and marketing of O/S2, IBM's Intel-based
operating systems and other products. Mr. Thompson is a member of the board of
directors, Fortune Brands, Inc. and the Northern Indiana Public Service Company
(NIPSCO). He has served as chairman of the Florida A&M University Industry
Cluster and the Illinois Governor's Human Resource Advisory Council. Mr.
Thompson holds an undergraduate degree in business administration from Florida
A&M University and a master's degree in management science from MIT's Sloan
School of Management.
GREG MYERS has served as Vice President of Finance and Chief Financial Officer
for Symantec Corporation since January 1999. Mr. Myers is responsible for
worldwide finance, business development and investor relations. Previous to his
appointment as the Company's CFO in January 1999, Mr. Myers was Symantec's Vice
President of Finance, where he was responsible for world-wide accounting,
financial and strategic planning and business development. From 1997 through
mid-1998 Mr. Myers was Vice President of financial planning and analysis for
Symantec. In this role, Mr. Myers managed the Company's strategic planning
process, the Company's budget and financial planning function and the worldwide
financial controller organization. From 1993 to 1996, Mr. Myers was the director
of financial planning and analysis function, where he was responsible for the
budget, forecasting and financial analysis functions within Symantec. Before
joining Symantec in 1993, Mr. Myers was with Novell Corporation for five years
as their director of financial planning and analysis. Prior to Novell, Mr. Myers
has held various financial management positions for a number of companies within
Silicon Valley since 1975. Mr. Myers holds an undergraduate degree from
Cal-State University at Hayward and Masters in Business Administration from the
University of Santa Clara.
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CHRISTOPHER CALISI has served as Vice President, Remote Productivity Solutions
Business Unit of Symantec since September 1996. From July 1992 to August 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. He is also a Graduate of
Harvard Business School's 1997 Executive Management Program/TGM3. 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 has served as Vice President, EMEA (Europe, Middle East and
Africa) of Symantec since September 1996. From January 1996 until joining
Symantec, he was Vice President of Attachmate Europe based in Paris, France and
was responsible for the EMEA region. From 1991 to October 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.
KEITH ROBINSON has been Vice President for the Americas region since September
1998. From November 1995 to August 1996, Mr. Robinson was Vice President of
Sales for the Americas region. Prior to this, Mr. Robinson served as Vice
President and General Manager of the Pacific Rim. Mr. Robinson was also General
Manager of Symantec Canada, an organization he helped establish. Prior to
joining Symantec he was employed by Ashton-Tate since 1982, where he held
various management positions in the United States and in other international
offices. Mr. Robinson holds a bachelors degree with honors from Sheffield
University in England and a masters degree from the University of California at
Los Angeles.
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 of
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 Executive Vice President for Worldwide Sales, Marketing and
Services. Previously, Mr. Siebert served as Vice President, Americas and prior
to that, Vice President, Worldwide Sales of Symantec and has also held the
position of Vice President, Worldwide Services of Symantec. Early at Symantec,
Mr. Siebert lead the team that built Symantec's international presence. 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 Worldwide Operations. In this role, the Global
Information Systems, Facilities, Manufacturing, Purchasing and Legal departments
report to Mr. Witte. Previously, Mr. Witte served as 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.
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ITEM 11: EXECUTIVE COMPENSATION.
Information with respect to this Item may be found in the section captioned
"Executive Compensation" appearing in the definitive Proxy Statement to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held on September 15, 1999. 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 15, 1999. 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 15, 1999. Such information is
incorporated herein by reference.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Upon written request, Symantec will provide, without charge, a copy of our
annual report on Form 10-K, including the consolidated financial statements,
financial statement schedules and any exhibits for our 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.......................... 46
Consolidated Balance Sheets as of March 31, 1999 and 1998.................. 47
Consolidated Statements of Operations for the Years Ended
March 31, 1999, 1998 and 1997.......................................... 48
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1999, 1998 and 1997.................................... 49
Consolidated Statements of Cash Flow for the Years Ended
March 31, 1999, 1998 and 1997.......................................... 50
Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements...................................... 52
2. Financial Statement Schedules. The following financial statement schedule
of Symantec Corporation for the years ended March 31, 1999, 1998 and 1997
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................................. 76
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. (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.)
3.03 The registrant's Bylaws, as amended and restated effective
August 11, 1998. (Incorporated by reference to Exhibit 3.1
filed with the Registrant's Current Report 8-K filed August
19, 1998.)
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.)
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4.04 Plan of Arrangement and Exchangeable Share Provisions related
to the acquisition of Delrina. (Incorporated by reference
to Annex D filed with the Registrant's Joint Management
Information Circular and Proxy Statement dated October 17,
1995.)
4.05 Support Agreement dated November 22, 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 November 22,
1995 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.)
4.07 Rights agreement, dated as of August 12, 1998, between
Symantec Corporation and BankBoston, N.A., as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series A Junior Participating Preferred
Stock, as Exhibit B the Form of Right Certificate and as
Exhibit C the Summary of Rights to Purchase Preferred
Shares. (Incorporated by reference to Exhibit 4.1 filed
with the Registrant's Form 8-A filed August 19, 1998.)
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
- -----------------
* Indicates a management contract or compensatory plan or arrangement.
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42
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 Participation agreement, as amended by that certain Master
Amendment No. 2, dated as of September 21, 1998, between
Symantec Corporation, Sumitomo Bank Leasing and Finance,
Inc. and The Sumitomo Bank, Limited. (Incorporated by
reference to Exhibit 10.02 filed with the Registrants
Quarterly Report on Form 10-Q for the quarter ended October
2, 1998.)
10.15 Amended and Restated Participation Agreement, dated as of
February 9, 1999 by and among Symantec Corporation,
Sumitomo Bank Leasing and Financing, Inc, The Bank of Nova
Scotia, the other Various Financial Institutions Identified
Herein and the Sumitomo Bank, Limited, Los Angeles Branch.
10.16 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.)
10.17 Restated and amended Appendix A to Participation Agreement,
Master Lease, Lease Supplements Loan Agreements, Pledge
Agreement, Lessor Mortgages, and Guaranty.
10.18 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.)
10.19 Amended and Restated Master Lease and Deed of Trust, dated as
of February 9, 1999 between Symantec Corporation and
Sumitomo Bank Leasing and Finance, Inc.
10.20 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).
10.21 Amended and Restated Guaranty, dated as of February 9, 1999,
made by Symantec Corporation in favor of Various Financial
Institutions Identified Herein and The Sumitomo Bank,
Limited, San Francisco Branch.
10.22 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.)
10.23 Pledge Agreement, as amended, by that certain Master Amendment
No. 2, dated as of September 21, 1998, between Symantec
Corporation, the Bank, and Donaldson, Lufkin & Jenrette
Securities Corporation. (Incorporated by reference to
Exhibit 10.02 filed with the Registrants Quarterly Report
on Form 10-Q for the quarter ended October 2, 1998.)
10.24 Amended and Restated Pledge Agreement, dated as of February 2,
1999, made by Symantec Corporation and Delrina Corporation,
in favor of Sumitomo Bank, Limited, Los Angeles Branch for
the benefit of the Lenders, and Donaldson, Lufkin, Jenrette
Securities Corporations, as collateral agent.
10.25 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.)
10.26 Amended and Restated Assignment of Lease and Rent, dated as of
February 9, 1999, from Sumitomo Bank Leasing and Finance,
Inc., to The Sumitomo Bank, Limited, San Francisco Branch.
10.27 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.)
10.28 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.)
10.29 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.)
10.30 Agreement for Exchange and Purchase and Escrow Instructions,
dated September 22, 1998, between Symantec Corporation with
respect to CCC5 and WHQ and TST Development, L.L.C. with
respect
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43
to CCC2. (Incorporated by reference to Exhibit 10.06 filed
with the Registrants Quarterly Report on Form 10-Q for the
quarter ended October 2, 1998.)
10.31 Agreement for Exchange and Purchase and Escrow Instructions,
as amended, dated November 4, 1998 between Symantec
Corporation and TST Development, L.L.C. (Incorporated by
reference to Exhibit 10.07 filed with the Registrants
Quarterly Report on Form 10-Q for the quarter ended October
2, 1998.)
10.32 Amendment No. 1 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of November 4, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.01 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.33 Amendment No. 2 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of November 20, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.02 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.34 Amendment No. 3 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of December 4, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.03 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.35 Amendment No. 4 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of December 15, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.04 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.36 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.)
10.37 Amended and Restated Loan Agreement, dated as of February 9,
1999, among Sumitomo Bank Leasing and Finance, Inc.,
Various Financial Institution Identified Herein, The Bank
of Nova Scotia and The Sumitomo Bank, Limited, Los Angeles
Branch.
10.38 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.)
10.39 Construction Agency Agreement dated as of February 9, 1999,
between Sumitomo Bank Leasing and Finance, Inc., and
Symantec Corporation.
10.40 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.)
10.41 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.)
10.42 Office building lease, as amended, dated as of September 1,
1997 between Colorado Place Partners, LLC and Symantec
Corporation regarding property located in Santa Monica,
California. (Incorporated by reference to Exhibit 10.01
filed with the Registrants Quarterly Report on Form 10-Q
for the quarter ended July 3, 1998.)
10.43 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.)
10.44 Office building lease, as amended, dated as of May 1, 1998, by
and between RND Funding Company I and Symantec Corporation
regarding property located in Sunnyvale, California.
(Incorporated by reference to Exhibit 10.01 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended October 2, 1998.)
10.45 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
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44
reference to Exhibit 10.16 filed with the Registrant's
Annual Report on Form 10-K for the year ended March 31,
1995.)
10.46 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.)
10.47 Office building lease, as amended, dated as of December 17,
1996 between Delrina (Canada) Corporation, Delrina
Corporation, and Sherway Centre Limited regarding property
located in Toronto, Canada (Incorporated by reference to
Exhibit 10.02 filed with the Registrants Quarterly Report
on Form 10-Q for the quarter ended July 3, 1998.)
10.48 Office building lease, dated as of April 9, 1998 between hill
Samuel Bank Limited and Symantec (UK) Limited and Symantec
Corporation regarding property located in Maidenhead,
United Kingdom. (Incorporated by reference to Exhibit 10.03
filed with the Registrants Quarterly Report on Form 10-Q
for the quarter ended July 3, 1998.)
10.49 Form of Indemnity Agreement with Officers and Directors.
(Incorporated by reference to Exhibit 10.17 filed with the
Registrant's Registration Statement on Form S-1 (No.
33-28655) originally filed May 19, 1989, and amendment No.
1 thereto filed June 21, 1989, which Registration Statement
became effective June 22, 1989.)
10.50* 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.)
10.51* 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.)
10.52* Promissory Note between the Company and Mansour Safai
10.53* Promissory Note between the Company and Keith Robinson
10.54* Promissory Note between the Company and John W. Thompson
10.55* 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.)
10.56 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.)
10.57 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.)
10.58* 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.)
10.59 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.)
10.60* 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.)
10.61* 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.)
10.62* Retirement and Consulting Agreement between the Company and
Gordon E. Eubanks, Jr.
- -----------------
* Indicates a management contract or compensatory plan or arrangement.
42
45
10.63* Supplemental Option Vesting and Severance Arrangement terms
and conditions between the Company and Greg Myers.
10.64 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.)
10.65 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.)
10.66* 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.)
10.67* Employment Agreement between Symantec Corporation and John W.
Thompson.
10.68 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.)
10.69 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.)
10.70 Asset Purchase Agreement, as amended, dated as of March 28,
1998, by and between Delrina and JetForm. (Incorporated by
reference to Exhibit 10.44 filed with the Registrants
Annual Report on Form 10-K for the year ended April 3,
1998.)
10.71 Asset purchase agreement, as amended, dated as of June 29,
1998 by and between Delrina and JetForm. (Incorporated by
reference to Exhibit 10.05 filed with the Registrants
Quarterly Report on Form 10-Q for the quarter ended July 3,
1998.)
10.72 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.
10.73 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.) (Incorporated by reference to
Exhibit 10.46 filed with the Registrant's Annual Report on
Form 10-K for the year ended April 3, 1998)
10.74 Asset purchase agreement, dated as of June 24, 1998, among
Symantec Corporation and its wholly-owned subsidiary,
Symantec Limited and Binary Research Ltd. and its
wholly-owned subsidiary, Binary Research International,
Inc. (Incorporated by reference to Exhibit 10.04 filed with
the Registrants Quarterly Report on Form 10-Q for the
quarter ended July 3, 1998.)
10.75 Software license agreement, dated as of September 27, 1998,
between Symantec Corporation and Intel Corporation.
(Incorporated by reference to Exhibit 10.1 filed with the
Registrant's Current Report of Form 8-K filed October 5,
1998.)
10.76 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, 1997
(restated)
27.02 Financial Data Schedule for the Year Ended March 31, 1998
(restated)
27.03 Financial Data Schedule for the Year Ended March 31, 1999
- -----------------
* Indicates a management contract or compensatory plan or arrangement.
43
46
(b) Reports on Form 8-K:
A report on Form 8-K was filed by Symantec on January 22, 1999. It reported that
Symantec had received a comment letter from the Securities and Exchange
Commission with respect to its Form 10-K for the fiscal year ended March 31,
1998 and Form 10-Q for the quarter ended October 2, 1998. The comment letter
included questions that related to accounting for certain acquisitions,
including questions relating to the write-off of associated in-process research
and development costs.
A report on Form 8-K was filed by Symantec on April 1, 1999. It reported that
Symantec completed its tender offer for all of the outstanding shares of Common
Stock of Quarterdeck Corporation, pursuant to its Agreement and Plan of Merger
dated as of October 15, 1998 by and among Symantec Corporation, Oak Acquisition
Corporation and Quarterdeck Corporation. (incorporated by reference to Exhibit
c(1) to the Registrant's Schedule 14D-1 (Commission File No. 5-45153) initially
filed on October 19, 1998.)
(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 76.
44
47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors................................................ 46
Consolidated Balance Sheets as of March 31, 1999 and 1998........................................ 47
Consolidated Statements of Operations for the years ended March 31, 1999, 1998 and 1997.......... 48
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1999,
1998 and 1997............................................................................... 49
Consolidated Statements of Cash Flow for the years ended March 31, 1999, 1998 and 1997........... 50
Summary of Significant Accounting Policies....................................................... 52
Notes to Consolidated Financial Statements....................................................... 56
45
48
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, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 1999. 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, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1999, 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.
/S/ ERNST & YOUNG LLP
San Jose, California
April 30, 1999
46
49
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
-----------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------------- --------- ---------
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 192,755 $ 225,883
Trade accounts receivable 76,386 65,158
Inventories 6,377 3,175
Deferred income taxes 28,155 19,677
Other 12,790 14,646
--------- ---------
Total current assets 316,463 328,539
Long-term investments 4,270 34,258
Restricted investments 71,405 59,370
Equipment and leasehold improvements 52,887 50,030
Purchased product rights and capitalized software 36,209 1,470
Goodwill 75,224 --
Other 7,018 2,793
--------- ---------
$ 563,476 $ 476,460
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,862 $ 34,171
Accrued compensation and benefits 20,788 21,332
Other accrued expenses 131,919 64,532
Income taxes payable 18,339 24,634
Current portion of convertible subordinated debentures -- 8,333
--------- ---------
Total current liabilities 216,908 153,002
Convertible subordinated debentures -- 5,951
Long-term obligations 1,455 --
Commitments and contingencies
Stockholders' equity:
Preferred stock (par value: $0.01 authorized: 1,000; issued and outstanding: none) -- --
Common stock (par value: $0.01 authorized: 100,000; issued and
outstanding: 56,872 and 57,109 shares) 569 571
Capital in excess of par value 315,698 310,949
Notes receivable from stockholders (144) (144)
Accumulated other comprehensive loss (19,110) (12,559)
Retained earnings 48,100 18,690
--------- ---------
Total stockholders' equity 345,113 317,507
--------- ---------
$ 563,476 $ 476,460
========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
47
50
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
-------------------------------------
(In thousands, except net income per share) 1999 1998 1997
- ------------------------------------------------------- --------- --------- ---------
Net revenues $ 592,628 $ 532,940 $ 452,933
Cost of revenues 96,558 87,431 83,033
--------- --------- ---------
Gross margin 496,070 445,509 369,900
Operating expenses:
Research and development 101,563 91,332 88,924
Sales and marketing 286,144 261,190 220,811
General and administrative 35,722 38,063 34,030
In-process research and development 27,465 -- 3,050
Amortization of goodwill and other intangibles 6,405 -- --
Litigation judgment 5,825 -- --
Restructuring and other expenses 5,105 -- 5,535
--------- --------- ---------
Total operating expenses 468,229 390,585 352,350
--------- --------- ---------
Operating income 27,841 54,924 17,550
Interest income 13,552 13,160 7,182
Interest expense (1,839) (1,218) (1,402)
Income, net of expense, from sale of technologies
and product lines 41,155 45,421 8,739
Other income (expense), net 2,464 (190) (1,691)
--------- --------- ---------
Income before income taxes 83,173 112,097 30,378
Provision for income taxes 32,972 27,008 4,340
--------- --------- ---------
Net income $ 50,201 $ 85,089 $ 26,038
========= ========= =========
Net income per share - basic $ 0.89 $ 1.52 $ 0.48
========= ========= =========
Net income per share - diluted $ 0.86 $ 1.42 $ 0.47
========= ========= =========
Shares used to compute net income per share - basic 56,601 56,097 54,705
========= ========= =========
Shares used to compute net income per share - diluted 59,289 60,281 55,407
========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
48
51
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes
Receivable Accum. Total
Capital in from Other Retained Stock-
Common Excess of Stock- Comp. Earnings holders'
(In thousands) Stock Par Value holders Loss (Deficit) Equity
-------- ----------- ------- -------- -------- ---------
Balances, March 31, 1996 $ 536 $ 279,745 $(144) $ (7,828) $(91,992) $ 180,317
Components of comprehensive income:
Net income -- -- -- -- 26,038 26,038
Unrealized gain on short term
investments -- -- -- 213 -- 213
Translation adjustment -- -- -- 11 -- 11
---------
Total comprehensive income 26,262
---------
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 12 11,832 -- -- -- 11,844
-------- --------- ----- -------- -------- ---------
Balances, March 31, 1997 554 291,572 (144) (7,604) (66,399) 217,979
Components of comprehensive income:
Net income -- -- -- -- 85,089 85,089
Unrealized gain on short term
investments -- -- -- 181 -- 181
Translation adjustment -- -- -- (5,136) -- (5,136)
---------
Total comprehensive income 80,134
---------
Issued common stock:
2,622 shares under stock plans 26 32,998 -- -- -- 33,024
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
-------- --------- ----- -------- -------- ---------
Balances, March 31, 1998 571 310,949 (144) (12,559) 18,690 317,507
Components of comprehensive income:
Net income -- -- -- -- 50,201 50,201
Unrealized loss on
short term investments -- -- -- (461) -- (461)
Translation adjustment -- -- -- (6,090) -- (6,090)
---------
Total comprehensive income 43,650
---------
Issued common stock:
1,447 shares under stock plans 15 19,798 -- -- -- 19,813
1,990 shares from conversion of
convertible debentures 12 14,272 -- -- -- 14,284
Repurchase 2,875 shares of
common stock (29) (35,521) -- -- (20,791) (56,341)
Income tax benefit related to stock options -- 6,200 -- -- -- 6,200
-------- --------- ----- -------- -------- ---------
Balances, March 31, 1999 $ 569 $ 315,698 $(144) $(19,110) $ 48,100 $ 345,113
======== ========= ===== ======== ======== =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
49
52
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended March 31,
-----------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- --------- --------- ---------
OPERATING ACTIVITIES:
Net income $ 50,201 $ 85,089 $ 26,038
Acquired company's accumulated deficit -- -- (445)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment and
leasehold improvements 23,988 25,231 22,770
Amortization and write-off of purchased product rights
and capitalized software costs 6,031 1,466 10,477
Amortization of goodwill 6,176 -- --
Write-off of equipment and leasehold improvements 1,209 1,225 4,010
Acquired in-process research and development and
capitalized software development costs 27,465 -- (7,656)
Deferred income taxes (8,528) (6,915) 21
Net change in assets and liabilities, excluding effects of acquisitions:
Trade accounts receivable (6,487) (22,873) 11,621
Inventories (2,997) 1,040 3,432
Other current assets 4,386 (1,839) 1,304
Other assets (716) (556) 2,720
Accounts payable 869 5,568 7,373
Accrued compensation and benefits (2,363) 5,371 1,502
Other accrued expenses 24,611 14,018 6,182
Income taxes payable (6,511) 17,051 5,031
Income tax benefit from stock options 6,200 7,000 --
--------- --------- ---------
Net cash provided by operating activities 123,534 130,876 94,380
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (25,141) (26,339) (27,195)
Purchased intangibles (4,555) (948) (698)
Purchase of IBM's anti-virus business (8,000) -- --
Purchase of Binary Research Limited's operations (27,500) -- --
Purchase of Intel's anti-virus business (11,889) -- --
Purchase of Quarterdeck Corporation (32,857) -- --
Cash acquired in business purchases 922 -- --
Purchases of marketable securities (157,036) (230,891) (180,000)
Proceeds from sales of marketable securities 238,480 174,087 203,098
Purchases of long-term, restricted investments (12,035) (11,922) (47,448)
--------- --------- ---------
Net cash used in investing activities (39,611) (96,013) (52,243)
--------- --------- ---------
FINANCING ACTIVITIES:
Repayment of convertible subordinated debentures (25,000) -- --
Repurchase of Company's common stock (56,341) (21,346) --
Net proceeds from sale of common stock and other 19,352 33,108 11,703
--------- --------- ---------
Net cash used in financing activities (61,989) 11,762 11,703
--------- --------- ---------
Effect of exchange rate fluctuations on cash and cash equivalents (7,074) (3,370) 141
Increase in cash and cash equivalents 14,860 43,255 53,981
Beginning cash and cash equivalents 139,013 95,758 41,777
--------- --------- ---------
Ending cash and cash equivalents $ 153,873 $ 139,013 $ 95,758
========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
50
53
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (net of refunds) during the year $ 39,923 $ 6,037 $ 392
Interest paid on convertible subordinated debentures and
long-term obligations $ 1,616 $ 1,150 $ 1,182
Conversion of subordinated debentures $ 14,284 $ -- $ --
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
51
54
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Symantec is a world leader in utility software for business and personal
computing. Our products and solutions make users productive and keep their
computers safe and reliable anywhere and anytime. Founded in 1982, we have
offices in 26 countries worldwide.
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 the March 1999 quarter, we acquired Quarterdeck. During the September
1998 quarter, we acquired Intel's anti-virus business. During the June 1998
quarter, we acquired IBM's anti-virus business and Binary's operations. See Note
3 of Notes to Consolidated Financial Statements in this Form 10-K. Each of these
acquisitions was accounted for as a purchase and, accordingly, the operating
results have been included in our consolidated financial statements since the
respective dates of acquisition.
During fiscal 1998, no companies were acquired by Symantec. During fiscal 1997
and 1996, we acquired Delrina Corporation and Fast Track, Inc. in transactions
accounted for as poolings of interests. All financial information has been
restated to reflect the combined operations of Symantec and the acquired
entities. The results of operations of Fast Track were not material to our
consolidated financial statements and therefore, amounts prior to the year of
acquisition were not combined with Symantec's financial statements.
On January 6, 1999, we received a comment letter from the Securities and
Exchange Commission with respect to our Form 10-K for the fiscal year ended
March 31, 1998 and Form 10-Q for the quarter ended September 30, 1998. The
comment letter contained questions related to accounting for certain
acquisitions, including questions related to the write-off of associated
in-process research and development costs. We re-evaluated the Binary and IBM
transactions and the related in-process research and development costs as well
as the other questions raised in the comment letter. As a result, final
operating results for the quarters ended June, September and December 1998 and
the related year-to-date amounts were restated for the adjustments made to our
acquisitions of Binary and IBM's anti-virus business. In addition, we have
reclassified our financial results related to the sales of our electronic forms
product line to JetForm Corporation and our network administration technologies
to Hewlett-Packard Corporation from revenue to income, net of expense, from sale
of technologies and product lines. Although there was no impact to our net
income, we have restated our fiscal 1998 and 1997 financials to reflect these
reclassifications from revenue to non-operating income.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended March 31, 1999, 1998 and 1997 reflect amounts as of
and for the periods ended April 2, 1999, April 3, 1998 and March 28, 1997,
respectively. The fiscal accounting years ended April 2, 1999 and March 28, 1997
each comprised 52 weeks of operations and the fiscal accounting year ended April
3, 1998 comprised 53 weeks of operations.
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 our 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.
Revenue Recognition
Under Statement of Positions (SOP) 97-2 as modified by SOP 98-4 and SOP 98-9, we
recognize revenue upon persuasive evidence of an arrangement, delivery of
software to the customer, determination that there are no significant
post-delivery obligations and collection of a fixed or determinable license fee
is considered probable.
52
55
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
We defer revenue relating to all distribution and reseller channel inventory in
excess of defined inventory levels in these channels. We offer the right of
return of its products under various policies. We estimate and maintain reserves
for product returns. Under SOP 97-2, we recognize revenue upon shipment when no
significant vendor obligations remain and collection of the receivable, net of
provisions for estimated returns, is probable.
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 for 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 our cash
equivalents, short-term investments, long-term investments and restricted
investments are classified as available-for-sale as of the balance sheet dates.
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.
Derivative Financial Instruments
Symantec utilizes natural hedging to mitigate our foreign currency exposures and
hedges certain residual exposures through the use of one-month foreign exchange
forward contracts. We enter 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.
Purchased product rights and capitalized software
Purchased product rights, technologies and capitalized software are comprised of
acquired software ("product rights") and are stated at cost less accumulated
amortization. Amortization is provided on a straight-line basis over the
estimated useful lives of the respective assets, generally three to five years.
Goodwill
Goodwill is created through acquisitions and is stated at cost less accumulated
amortization. Amortization is provided on a straight-line basis over the
estimated useful lives of the respective assets, generally four to five years.
Income Taxes
Income taxes are computed in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."
Net Income Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128,
"Accounting for Earnings Per Share," ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted net income per share with basic and
diluted net income per share.
Basic net income per share is computed using the weighted average number of
common shares outstanding during
53
56
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
the periods. Diluted net income 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 and assumed
exercising of options, if dilutive in the period.
Concentrations of Credit Risk
Symantec'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 our 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. Our investment portfolio
is diversified and consists of investment grade securities. Symantec 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 our trade accounts
receivable is substantially mitigated by our credit evaluation process,
reasonably short collection terms and the geographical dispersion of sales
transactions. We generally do not require collateral and maintain reserves for
potential credit losses and such losses have been within management's
expectations.
Legal Expenses
Symantec accrues estimated legal expenses for lawsuits only when both of the
conditions of SFAS No. 5 are met. Costs for external attorney fees are accrued
when the likelihood of the incurrence of the related costs are probable and
management has the ability to estimate such costs. If both of these conditions
are not met, management records the related legal expenses when incurred. This
policy has been consistently applied for all periods presented. The material
assumptions used to estimate the amount of legal expenses include:
o The monthly legal expense incurred by our external attorneys on the
particular case being evaluated;
o Communication between Symantec and our external attorneys on the
expected duration of the lawsuit and the estimated expenses during that
time;
o Management's intentions regarding these lawsuits, e.g. to defend
vigorously, take to trial, minimum amounts within the estimated range
for which we would be willing to settle if settlement discussions were
to occur;
o Deductible amounts under our insurance policies; and
o Past experiences with similar lawsuits.
Amounts accrued by Symantec are not discounted.
Recent Accounting Pronouncements
In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued 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 were effective for Symantec beginning with the June 30, 1998 quarter. In
December 1998, AcSEC issued SOP 98-9, which amends certain provisions of SOP
97-2 and extends the deferral of the application of certain passages of SOP 97-2
provided by SOP 98-4 until the beginning of Symantec's fiscal 2000. Symantec
early adopted SOP 98-9 for its financial statements and related disclosures
beginning in the March 1999 quarter. SOP98-9 did not have a material affect on
our results.
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 will be effective for Symantec at the beginning of the June 2000
quarter for both annual and interim reporting periods. Symantec is evaluating
the potential impact of this accounting pronouncement on required disclosures
and accounting practices.
54
57
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
AcSec issued its SOP 98-1, Accounting for Costs of Computer Software Developed
For or Obtained for Internal-Use, under which, qualifying computer software
costs incurred during the application development stage are required to be
capitalized and amortized to expense over the software's estimated useful life.
Symantec adopted SOP 98-1 for its financial statements and related disclosures
in fiscal 1999. SOP 98-1 did not materially affect our results.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation format with no impact on net income. All financial
information has been restated to conform to this presentation.
55
58
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BALANCE SHEET INFORMATION
March 31,
-----------------------
(In thousands) 1999 1998
- --------------------------------------------------------- --------- ---------
Cash, cash equivalents and short-term investments:
Cash $ 41,031 $ 28,236
Cash equivalents 112,842 110,777
Short-term investments 38,882 86,870
--------- ---------
$ 192,755 $ 225,883
========= =========
Trade accounts receivable:
Receivables $ 81,332 $ 69,574
Less: allowance for doubtful accounts (4,946) (4,416)
--------- ---------
$ 76,386 $ 65,158
========= =========
Inventories:
Raw materials $ 1,887 $ 1,091
Finished goods 4,490 2,084
--------- ---------
$ 6,377 $ 3,175
========= =========
Equipment and leasehold improvements:
Computer hardware and software $ 134,745 $ 107,724
Office furniture and equipment 33,705 29,407
Leasehold improvements 22,516 21,038
--------- ---------
190,966 158,169
Less: accumulated depreciation and amortization (138,079) (108,139)
--------- ---------
$ 52,887 $ 50,030
========= =========
Purchased product rights and capitalized software:
Purchased product rights and technologies $ 47,181 $ 1,358
Capitalized software development costs 2,377 2,414
Less: accumulated amortization of purchased product rights and technologies (11,112) (563)
Less: accumulated amortization of capitalized software development costs (2,237) (1,739)
--------- ---------
$ 36,209 $ 1,470
========= =========
Other accrued expenses:
Deferred revenue $ 55,965 $ 25,537
Marketing development funds 8,268 12,815
Current obligations related to the purchase of IBM anti-virus business 8,000 --
Other 59,686 26,180
--------- ---------
$ 131,919 $ 64,532
========= =========
Accumulated other comprehensive (loss):
Unrealized (loss) gain on available-for-sale investments $ (304) $ 157
Cumulative translation adjustment (18,806) (12,716)
--------- ---------
$ (19,110) $ (12,559)
========= =========
NOTE 2. INCOME STATEMENT INFORMATION
Year Ended March 31,
-----------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------- ------- ------- -------
Technical support costs included in sales and marketing $34,219 $38,582 $35,111
Advertising expense $50,779 $46,814 $39,147
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.
56
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
NOTE 3. BUSINESS COMBINATIONS
Effective May 18, 1998, we entered into a Master Agreement with IBM to acquire
rights to IBM's digital immune technology. In addition, we assumed the majority
of IBM's license arrangements with customers of IBM anti-virus products. In
return for the various rights we acquired from IBM, we agreed to pay $16 million
in installments over a specified period as well as pay royalties on revenues
received by us from distribution of immune-enabled Symantec products and immune
services provided by us using the digital immune technology. The royalties are
subject to specified maximums and vary by time periods with ultimate termination
of royalties as of a specified date. We also entered into a patent
cross-licensing agreement under which the parties licensed to each other their
respective patent portfolios. The transaction was accounted for as a purchase.
As of March 31, 1999, we paid IBM $8 million in cash with the remaining $8
million payable in two equal installments in August 1999 and November 1999. In
addition, we assumed liabilities of $3 million and incurred additional expenses
of approximately $1 million as part of the transaction. Under the transaction,
we recorded approximately $7 million for in-process research and development,
$12 million for goodwill and $1 million for certain prepaid research and
development and other assets. A valuation specialist used our management's
estimates to establish the amount of in-process research and development.
Goodwill will be amortized over 5 years. As of March 31, 1999, we incurred
approximately $2 million in goodwill amortization expense related to this asset.
On June 24, 1998, we purchased the operations of Binary, an Auckland, New
Zealand based company, for approximately $28 million, which included
approximately $1 million of acquisition related costs. The transaction was
accounted for as a purchase. Under the transaction, we recorded approximately $7
million for in-process research and development and $17 million for capitalized
software technology, with the remaining $4 million of the purchase price
allocated to goodwill, net tangible and intangible assets. A valuation
specialist used our management's estimates to establish the amount of in-process
research and development. The capitalized software, goodwill and intangibles are
being amortized over a 4 year period. As of March 31, 1999, we incurred
approximately $4 million of amortization expense related to these assets.
On September 28, 1998, we entered into an agreement whereby we purchased Intel
Corporation's anti-virus business for approximately $17 million. We also
licensed Intel's systems management technology. Intel will promote Norton
AntiVirus through its worldwide reseller channels. As of March 31, 1999, we had
paid approximately $12 million under the agreement. The transaction was
accounted for as a purchase. Under the transaction, we recorded approximately $5
million for in-process research and development, $11 million for capitalized
software technology and $1 million for certain intangible assets. A valuation
specialist used our management's estimates to establish the amount of in-process
research and development. The capitalized software and intangibles are being
amortized over a 5 year period. As of March 31, 1999, we incurred approximately
$1 million of amortization expense related to these assets.
On October 15, 1998, we signed a definitive merger agreement to acquire
Quarterdeck. On November 17, 1998, we completed our tender offer for the common
stock of Quarterdeck acquiring an approximately 63% interest. On March 29, 1999,
we acquired Quarterdeck's remaining shares through a cash merger at the tender
offer price of $0.52 per share in accordance with the definitive merger
agreement. The transaction was accounted for as a purchase. Under the
transaction, we recorded approximately $8 million of acquired in-process
research and development, $8 million of capitalized software technology, $66
million of goodwill and $3 million of other intangibles. A valuation specialist
used our management's estimates to establish the amount of in-process research
and development. As of March 31, 1999, we had incurred less than $1 million of
capitalized software amortization expense and approximately $3 million of
goodwill amortization expense related to this acquisition. The amounts related
to workforce in place is being amortized over 2 years. The capitalized software,
goodwill and other intangibles will be amortized over a 5 year period. In
addition, Quarterdeck had issued $25 million of 6% convertible senior
subordinated notes, due in 2001, to an institutional investor in a private
placement pursuant to the terms of a Note Agreement dated March 1, 1996. The
Notes were paid in full without any premium on March 30, 1999.
57
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table outlines the value of the above referenced acquisition's
intangible assets (in thousands):
Allocated Purchase Price Components (in thousands)
------------------------------------------------------------------------------------------------
Purchase In-Process Developed Customer Prepaid-
Price R&D Software Goodwill Base Workforce Tradename R&D
-------- ------- ------- ------- ------ ---- ------ ------
IBM $ 20,250 $ 7,100 $ -- $11,850 $ 100 $ -- $ -- $1,200
Binary 27,871 7,100 16,900 3,751 -- 120 -- --
Intel 16,525 5,017 10,697 -- 811 -- -- --
63% of Quarterdeck 59,347 7,560 4,410 45,588 882 25 882 --
37% of Quarterdeck 25,960 740 4,070 20,210 407 15 518 --
-------- ------- ------- ------- ------ ---- ------ ------
Total $149,953 $27,517 $36,077 $81,399 $2,200 $160 $1,400 $1,200
======== ======= ======= ======= ====== ==== ====== ======
Symantec did not complete any acquisitions during fiscal 1998. During fiscal
1997, we acquired Fast Track, Inc. in a transaction accounted for as a pooling
of interests. In conjunction with Fast Track, we issued 600,000 shares of
Symantec stock on May 28, 1996, the date of acquisition. As the results of
operations of Fast Track were not material to our consolidated financial
statements, amounts prior to the date of acquisition were not restated to
reflect the combined operations of the companies.
PRO FORMA. The following unaudited pro forma results of operations for fiscal
1999 and 1998 are as if the acquisition of Binary and Quarterdeck had occurred
at the beginning of each period presented. The pro forma information excludes
approximately $15 million of in-process research and development. The pro forma
information has been prepared for comparative purposes only and is not
indicative of what operating results would have been if the acquisition had
taken place at the beginning of each period presented or of future operating
results. Financial information for IBM's and Intel's anti-virus businesses were
not available and as such have not been included in this pro forma information.
Year Ended March 31,
(In thousands, except per share data; --------------------------------
unaudited) 1999 1998
============= ===========
Net revenues $ 615,189 $ 613,844
============= ===========
Net income $ 28,384 $ 64,149
============= ===========
Basic net income per share $ 0.63 $ 0.89
============= ===========
Diluted net income per share $ 0.61 $ 0.84
============= ===========
NOTE 4. PURCHASE PRODUCT RIGHTS AND CAPITALIZED SOFTWARE
During fiscal 1999 we recorded approximately $46 million of purchased product
rights and technology and capitalized software, primarily related to our
acquisitions of Binary, Intel's anti-virus business and Quarterdeck. See Note 3
of Notes to Consolidated Financial Statements.
Amortization of purchased product rights and capitalized software expense
totaled approximately $11 million in fiscal 1999 and $1 million in fiscal 1998.
The increase for fiscal 1999 over fiscal 1998 is primarily due to additional
amortization related to the purchase of Intel's anti-virus business and the
acquisitions of Binary and Quarterdeck. The amortization will occur over the
next 3 to 5 years. See Note 3 of Notes to Consolidated Financial Statements in
this Form 10-K.
In fiscal 1998, capitalization of certain software development costs in
accordance with SFAS No. 86 did not materially affect us.
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 Note 13 of Consolidated Financial Statements in this Form 10-K.
Amortization expense for capitalized software development costs was
approximately $3 million in fiscal 1997.
58
61
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Prior to fiscal 1997, capitalization of certain software development costs in
accordance with SFAS No. 86 did not materially affect us, expect for amounts
capitalized by Delrina prior to its acquisition by Symantec in fiscal 1996. The
related amortization expense was approximately $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,
except for $ 0.5 million of trading securities. During fiscal 1999, we
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 $0.5 million, have been included in the available-for-sale tabular
disclosure, due to immateriality.
As of March 31, 1999 and 1998, 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 (in thousands) 1999 1998
- ---------------------------------------------------------------- -------- --------
Money market funds $ 19,891 $ 15,685
Corporate securities 53,839 161,848
Bank securities and deposits 60,322 41,655
Taxable Auction Rate Securities 10,010 --
US government and government sponsored securities 11,932 12,717
-------- --------
Total available-for-sale and trading investments $155,994 $231,905
======== ========
The estimated fair value of marketable securities by contractual maturity as of
March 31, 1999 are as follows:
Cash equivalents, short and long-term investments (in thousands) 1999
- ---------------------------------------------------------------- --------
Due in one year or less $151,724
Due after one year through three years 3,330
Due after three years 940
--------
$155,994
========
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 or the absence of changes in security credit ratings.
As of March 31, 1999 and 1998, the estimated fair value of the restricted
investments consisted of the following:
Restricted Investments (in thousands) 1999 1998
- -------------------------------------------------- -------- --------
US government and government sponsored securities $ 71,405 $ 59,370
======== ========
The estimated fair value of restricted marketable securities by contractual
maturity as of March 31, 1999 are as follows:
Restricted Investments (in thousands) 1999
- -------------------------------------- --------
Due in one year or less $ 45,562
Due after one year through three years 25,843
--------
$ 71,405
========
Our available-for-sale restricted investments relate to certain collateral
requirements for lease agreements associated with our 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 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, we did not used any
derivative instrument for trading
59
62
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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. We enter 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 exchange forward contracts are based on
quoted market prices. At March 31, 1999, outstanding forward exchange contracts
had a notional amount of approximately $100 million, all of which mature in 35
days or less. The net liability of forward contracts was a notional amount of
approximately $9 million at March 31, 1999. 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. We do not hedge
its translation risk.
NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES
On April 2, 1993, Symantec issued convertible subordinated debentures totaling
$25 million. The debentures bore interest at 7.75% payable semiannually and were
convertible into Symantec common stock at $12 per share at the option of the
investor. The debentures were due in three equal annual installments beginning
in 1999 and were 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 its
assets. At our option, we could redeem the notes at any time with 30 to 60 days
notice; however, we would have incurred a prepayment penalty for early
redemption. The holders were entitled to certain registration rights relating to
the shares of common stock resulting from the conversion of the debentures. We
reserved 2,083,333 shares of common stock to be issued upon conversion of these
debentures. The debentures limited the payment of cash dividends and the
repurchase of capital stock to a total of $10 million plus 25% of cumulative net
income subsequent to April 2, 1993.
On April 26, 1995, convertible subordinated debentures totaling $10 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 1,190,332
shares of common stock reserved for future conversions as of March 31, 1998.
During February 1999, the holders of Symantec's convertible subordinated
debentures converted the entire remaining $14.3 million principal amount into
1,190,332 shares of Symantec common stock. The conversion of these shares of
common stock were issued in a transaction which was exempt from registration
under the Securities Act of 1933.
Symantec's acquired subsidiary, Quarterdeck, had issued 6% convertible senior
subordinated notes totaling $25 million, due in 2001, to an institutional
investor in a private placement pursuant to the terms of a Note Agreement dated
March 1, 1996. These Notes were paid in full on March 30, 1999.
NOTE 7. LINE OF CREDIT
Symantec has a $10 million bank line of credit, which expires in May 2000. The
line of credit is available for general corporate purposes and bears interest at
the banks' reference (prime) interest rate, the U.S. offshore rate plus 1.25%, a
CD rate plus 1.25% or LIBOR plus 1.25%, at our discretion, which was 7.75% at
March 31, 1999. As of March 31, 1999, we are in compliance with all covenants
under this credit agreement and there were no borrowings and less than $1
million in standby letters of credit outstanding under this line. Future
acquisitions by Symantec may cause us to be in violation of the line of credit
covenants. However, we believe 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.
60
63
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 8. ACQUISITION RELATED CASH FLOW INFORMATION
March 31,
(In thousands; unaudited) 1999
- ------------------------------------ --------
Binary
Fair value of assets acquired $ 27,871
========
Cash paid $ 27,871
========
IBM's anti-virus business
Fair value of assets acquired $ 20,250
========
Expenses incurred $ 1,250
Liabilities assumed 3,000
Current obligation 8,000
Cash paid 8,000
--------
Total $ 20,250
========
Intel's anti-virus business
Fair value of assets acquired $ 16,525
========
Current obligations $ 3,181
Long-term obligations 1,455
Cash paid 11,889
--------
Total $ 16,525
========
Quarterdeck
Fair value of assets acquired $ 85,307
========
Expenses incurred $ 1,253
Net liabilities assumed 10,825
Balance due to Quarterdeck Shareholders 16,294
Cash and convertible debenture paid 56,935
--------
Total $ 85,307
========
NOTE 9. COMMITMENTS
Symantec leases all of its facilities and certain equipment under operating
leases that expire at various dates through 2026. We currently sublease some
space under various operating leases that will expire at various dates through
2001.
The future fiscal year minimum operating lease commitments were as follows at
March 31, 1999:
(In thousands)
- ----------------------
2000 $ 12,067
2001 8,777
2002 4,985
2003 4,241
2004 3,424
Thereafter 21,936
--------
Operating lease commitments 55,430
Sublease income (3,215)
--------
Net operating lease commitments $ 52,215
========
Rent expense charged to operations totaled approximately $15 million, $14
million and $12 million for the years ended March 31, 1999, 1998 and 1997,
respectively.
61
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In fiscal 1997, we entered into lease agreements for two existing office
buildings, City Center One (CC1) and World Headquarters (WHQ), land and one
office building under construction in Cupertino, California, City Center Five
(CC5). In fiscal 1999, the landlord exchanged CC5 for another building, City
Center Two (CC2) in Cupertino, California and committed to sell WHQ. Once the
appropriate leasehold improvements are made to CC2, we will vacate WHQ and move
into CC2 and be relieved of the lease liability associated with WHQ. 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 we do
not renew the lease, purchase the property under lease or arrange a third party
purchase, then we 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. We 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 $42 million. The guaranteed
residual payment on the lease agreements for CC2 and the associated leaseholds
under construction was approximately $28 million at March 31, 1999. As security
against these guaranteed residual payments, we are 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, 1999, the investments total
approximately $71 million and are classified as non-current restricted
investments within the financial statements.
We currently occupy a portion of these office buildings and have 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 10. INCOME TAXES
The components of the provision for income taxes were as follows:
Year Ended March 31,
---------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------ -------- -------- -------
Current:
Federal $ 11,649 $ 13,615 $ 514
State 5,335 4,879 302
International 22,226 15,368 3,472
-------- -------- -------
39,210 33,862 4,288
Deferred:
Federal (1,949) (5,788) 565
State (597) (2,247) 126
International (3,692) 1,181 (639)
-------- -------- -------
(6,238) (6,854) 52
-------- -------- -------
$ 32,972 $ 27,008 $ 4,340
======== ======== =======
The difference between Symantec's effective income tax rate and the federal
statutory income tax rate as a percentage of income before income taxes was as
follows:
Year Ended March 31,
---------------------------------------
1999 1998 1997
-------- -------- -------
Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 3.5 1.5 2.9
Acquired in-process research and development charges
with no current tax benefit 7.1 -- --
Impact of international operations (3.9) (4.0) (9.2)
Benefit of pre-acquisition losses of acquired entities -- (10.1) (16.5)
Other, net (2.1) 1.7 2.1
-------- -------- -------
39.6% 24.1% 14.3%
======== ======== =======
62
65
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The principal components of deferred tax assets were as follows:
March 31,
-----------------------
(In thousands) 1999 1998
-------- --------
Tax credit carryforwards $ 232 $ 6,821
Net operating loss carryforwards 2,927 3,161
Inventory valuation accounts 3,057 2,806
Other reserves and accruals not
currently tax deductible 10,943 8,521
Accrued compensation and benefits 3,722 3,512
Deferred revenue 6,019 4,155
Sales incentive programs 5,195 5,555
Allowance for doubtful accounts 1,478 1,365
Reserve for returns and allowances 9,536 4,307
Acquired in-process research and development expenses,
other intangible assets 9,135 1,139
Accrued acquisition, restructuring and other expenses 1,545 931
Other 4,831 2,599
-------- --------
58,620 44,872
Valuation allowance (30,465) (25,195)
-------- --------
$ 28,155 $ 19,677
======== ========
Realization of the approximately $28 million of net deferred tax asset that is
reflected in the financial statements is dependent upon our 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 $21 million of the valuation allowance for deferred tax assets is
attributable to unbenefitted stock option deductions, the benefit of which will
be credited to equity when realized. Approximately $7 million of the valuation
allowance for deferred tax assets is attributable to the charge for acquired
in-process research and development expenses, the benefit of which is not
expected to be realized within five years. 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.
The change in the valuation allowance for the years ended March 31, 1999, 1998
and 1997 was a net increase of approximately $5 million and net decreases of
approximately $15 million and $5 million, respectively.
Pretax income from international operations was approximately $64 million, $65
million and $25 million for the years ended March 31, 1999, 1998 and 1997,
respectively.
No provision has been made for federal or state income taxes on unremitted
earnings of certain of our foreign subsidiaries (cumulative $90 million at March
31, 1999) since Symantec plans to indefinitely reinvest all such earnings. At
March 31, 1999, the unrecognized deferred tax liability for these earnings was
approximately $23 million.
NOTE 11. 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 approximately $2 million
for each of the years ended March 31, 1999, 1998 and 1997, respectively.
Employee Stock Purchase Plan
In October 1989, we established the 1989 Employee Stock Purchase Plan ("89
Plan") and a total of approximately 3.4 million shares of common stock had been
reserved for issuance under this plan. Subject to certain limitations, our
employees may purchase, through payroll deductions of 2% to 10% of compensation,
shares of common stock
63
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 1999, approximately 2.8 million shares had been issued and
approximately 0.6 million shares had remained available under the 89 Plan.
On September 17, 1998, Symantec stockholders approved the 1998 Employee Stock
Purchase Plan (the "98 Plan"). The terms of the 98 Plan are substantially
similar to the terms of the 89 Plan for which it supersedes and makes available
500,000 shares. As of March 31, 1999, no shares had been issued under the 98
Plan.
Stock Award Plans
During fiscal 1996, we 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 our business and to provide employees
with incentives to pursue patent protection for new technologies that may be
valuable to Symantec. Our executive officers are not eligible for awards under
the 1994 Patent Incentive Plan. As of March 31, 1999, a total of 21,351 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 Symantec 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, 1999, a total of 1,300 shares had been issued under
this plan.
Stock Option Plans
Symantec maintains stock option plans pursuant to which an aggregate total of
approximately 22.3 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 our success by offering them an opportunity to participate in the
Symantec'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
and a total of approximately 6.7 million shares of common stock had been
reserved for issuance under this plan. On September 17, 1998, stockholders
approved an amendment to increase the number of shares reserved for issuance by
approximately 2.3 million to 9.0 million shares. As of March 31, 1999 a total of
7.8 million had been issued under this plan.
Stock option and warrant activity was as follows:
Weighted
Average
(In thousands, except weighted average Number Exercise
exercise price per share) of Shares Price Per Share
--------- ---------------
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
Granted 3,331 20.18
Exercised (991) 13.40
Canceled (1,140) 19.28
------
Outstanding at March 31, 1999 10,528 18.37
======
64
67
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Stock option balances are as follows:
(In thousands) March 31,
------------------------
1999 1998
------ ------
Authorized and/or outstanding 11,707 10,785
Available for future grants 1,179 1,457
Exercisable and vested 3,965 3,173
The following tables summarize information about options outstanding at March
31, 1999:
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
- -------------------------------------- --------- ---------- ---------- ---------- ----------
$ 3.14 - $ 15.25 4,078 6.62 $ 12.57 2,462 $12.34
$ 15.26 - $ 22.63 3,509 8.56 19.01 865 17.84
$ 22.64 - $ 39.13 2,941 8.66 25.66 638 25.88
---------- ----------
10,528 7.84 18.37 3,965 15.72
========== ==========
These options will expire if not exercised by specific dates ranging from April
1999 to March 2009. Prices for options exercised during the three-year period
ended March 31, 1999 ranged from $1.00 to $26.91.
We elected to follow APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for our employee stock options because, as discussed
below, the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB No. 25, because the exercise price of our employee stock options generally
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized in our 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 we had
accounted for our 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 1998 and 1999 reported below has been estimated at
the date of grant using Black-Scholes option pricing model assuming no expected
dividends and the following weighted average assumptions:
Employee Employee Stock
Stock Options Purchase Plan
------------------------------------ -------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- --------- ----------
Expected life (years) 5.27 4.84 4.34 0.50 0.50 0.50
Expected volatility 0.66 0.61 0.63 0.79 0.55 0.74
Risk free interest rate 5.1% 5.4% 6.7% 4.8% 5.2% 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
our 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
1999 and 1998 were $12.56 and $13.44 per share, respectively. The
weighted-average estimated fair value of employee stock purchase rights granted
under the Employee Stock Purchase Plan during fiscal 1999 and 1998 were $10.47
and $14.71, respectively.
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, except per share information) 1999 1998 1997
- ------------------------------------------------- ----------- ----------- -----------
Net income - Basic - Pro forma $ 25,100 $ 68,601 $ 14,123
Net income - Diluted - Pro forma 25,727 69,293 14,123
Net income per share - Basic - Pro forma 0.47 1.29 0.28
Net income per share - Diluted - Pro forma 0.45 1.19 0.27
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 12. COMMON STOCK REPURCHASE
On April 29, 1997, the Board of Directors of Symantec, the Board, 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 expired as of March 31, 1998.
On November 24, 1997, the Board 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.
On June 9, 1998, the Board authorized the repurchase of up to 5% of Symantec's
outstanding common stock before December 31, 1998. The Company completed the
repurchase as of October 30, 1998, repurchasing a total of 2.875 million shares
at prices ranging from $13.10 to $27.21, for an aggregate amount of
approximately $56 million.
On March 22, 1999, the Board authorized the repurchase of up to $75 million of
the Company's common stock. As of June 15, 1999, the Company has repurchased
1,000,000 shares at prices ranging from $17.90 to $19.87, for an aggregate
amount of approximately $19 million.
NOTE 13. SALE OF TECHNOLOGIES AND PRODUCT RIGHTS
During September 1996, Symantec sold its electronic forms software product line
and related tangible assets to JetForm for approximately $100 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 $93 million. During June 1998, the
purchase agreement was amended once again to modify certain payments, however,
the total sales price remained at $93 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, we are recognizing the related
revenue as payments are due and collectibility is assured from JetForm. We
recognized income of approximately $34 million, $24 million and $18 million from
JetForm during fiscal 1999, 1998 and 1997, respectively.
In March 1997, Symantec sold its network administration technologies and related
tangible assets to Hewlett-Packard, resulting in the receipt of approximately $1
million of revenue and a $2 million research and development reimbursement in
fiscal 1997. Additionally, a two-year quarterly royalty payment stream, not to
exceed a present value of $27 million as of March 1997, commenced in fiscal
1998, which was 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 recognized these amounts as they were
received from Hewlett-Packard. We recognized income of approximately $7 million
and $22 million from Hewlett-Packard during fiscal 1999 and 1998, respectively.
Royalty payments from Hewlett-Packard ended during the December 1998 quarter.
In connection with the sale to Hewlett-Packard during fiscal 1997, Symantec
wrote off approximately $7 million of
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
unamortized software development costs and less than $1 million of unamortized
purchased product rights, as well as incurred approximately $2 million of legal,
accounting and other costs associated with the transaction.
NOTE 14. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expenses consist of the following:
Year Ended March 31,
----------------------------------------------
(In thousands) 1999 1998 1997
- ------------------------------------------------------ ----------- ----------- -----------
Centralization and restructuring expenses $ -- $ -- $ 3,185
Write off of equity investment -- -- 1,750
Fast Track, Inc. acquisition -- -- 600
Employee severance and out-placement 3,800 -- --
Excess facilities and equipment 1,305 -- --
----------- ----------- -----------
Total acquisition, restructuring and other expenses $ 5,105 $ -- $ 5,535
=========== =========== ===========
On September 29, 1998, Symantec's CEO announced a reduction in work force and
the outsourcing of Symantec's domestic short-run manufacturing, product
distribution and return teams which resulted in the closure and vacancy of the
Sunnyvale, California site in February 1999 and the termination of related
employees. The exit plan associated with the reduction in work force and
facility closure specifically identified all the significant actions, including:
o the number and categories of individuals who would not continue
employment with Symantec;
o the termination dates and severance packages for each terminating
employee;
o the planned date we would vacate the Sunnyvale, California building
which was under an existing operating lease; and
o the excess equipment, furniture, fixtures and leasehold improvements to
be disposed of.
Details of the restructuring charge are as follows:
(In thousands) Cash/ Restructuring Amount Balance
Description Non-cash Charge Paid at 3/31/99
- ----------------------------- -------- ------------ ---------- ----------
Employee severance and out-placement Cash $ 3,800 $ 3,132 $ 668
Excess facilities and equipment Cash & Non-cash 1,305 310 995
------------ ---------- -------
Total restructuring and other expenses $ 5,105 $ 3,442 $ 1,663
============ ========== =======
Employee severance and out-placement was primarily comprised of severance
packages for employees who were to be terminated as a result of the
restructuring. As part of the restructuring plan, we specifically identified
those individuals who would not continue employment with Symantec. The severance
periods ranged from one to six months. Symantec's Human Resource Department met
with each terminating employee and presented them with their termination date
and severance package. The total cost of the severance packages was accrued and
included in restructuring charge after the identified employees had their
severance packages communicated to them. Additionally, Symantec accrued
estimated costs associated with outplacement services to be provided to
terminating employees as these costs have no future economic benefit to us. The
remaining accrual at March 31, 1999 was for outstanding severance and
outplacement costs .
Excess facilities and equipment included remaining lease payments associated
with building leases for the Sunnyvale, California site subsequent to the
planned abandonment date. The cash outlays for the lease are to be made over the
remaining term of the lease. In addition, Symantec reserved for the write-off of
the site-specific equipment, furniture, fixtures and leasehold improvements that
would no longer be utilized. The accrual at March 31, 1999 relates to the
remaining lease payments, which will be paid over the remaining lease term
subsequent to the abandonment of the facility.
No acquisition, restructuring and other expenses were incurred during fiscal
1998.
During fiscal 1997, Symantec recorded charges of approximately $2 million in
connection with the write-off of an equity investment in a privately held
company. Additionally, during fiscal 1997, we recorded a charge of approximately
$3 million for centralization and restructuring costs, which is outlined below.
Symantec recorded
67
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
total acquisition charges of less than $1 million in the quarter ended June 30,
1996 in connection with the acquisition of Fast Track, Inc.
CENTRALIZATION AND RESTRUCTURING COSTS
(In thousands) Cash/ Restructuring Amount Balance
Description Non-cash Charge Paid at 3/31/99
- ----------------------------- -------- ------------ ---------- ----------
Employee severance and out-placement Cash $ 2,434 $ 1,680 $ 754
Excess facilities and equipment Cash & Non-cash 276 250 26
Legal and other Cash 475 410 65
---------- -------- -------
Total restructuring and other expenses $ 3,185 $ 2,340 845
========== ======== =======
In June and September 1996, Executive Management approved and committed Symantec
to close the Bedford, Massachusetts and St. Louis, Missouri facilities. The
facility closures were part of the Company's plan to consolidate certain
research and development activities. These exit plans specifically identified
the following significant actions to complete the closures:
o the number and categories of individuals who would not continue
employment with Symantec;
o the termination date and severance package for each terminating
employee;
o the date the Bedford and St. Louis facilities would be vacated; and
o the excess equipment, furniture, fixtures and leasehold improvements to
be disposed of.
Employee severance and out-placement expenses were primarily comprised of
severance packages for employees who were to be terminated as a result of the
closure of the Bedford and St. Louis sites. The severance reserve was computed
based on an estimated severance compensation, benefits and related employer
payroll taxes. The severance periods ranged from one to six months. Prior to
amounts being accrued, Symantec's Human Resource Department met with each
terminating employee and presented them with their termination date and
severance package. Additionally, Symantec accrued estimated costs associated
with out-placement services provided to terminating employees as these costs had
no future economic benefit to the Company. The actual cash outlays for these
accrued expenses were made during the terminated employees' severance period.
The remaining accrual is a result of the following:
o Certain employees who were identified for termination found employment
at other Symantec locations and therefore were not eligible to receive
the severance packages. At the time of the site closures, Symantec had
determined that these individuals would not find employment elsewhere
within the Company.
o Symantec determined that most employees had not availed themselves of
the out-placement services offered by the Company at the time of their
termination.
Excess facilities and equipment included remaining lease payments associated
with the building leases for the Bedford and St. Louis sites. The cash outlays
for these leases were made over the remaining lives of the leases. The Company
expensed to operations lease rental costs until the time the facilities were
vacated. In addition, Symantec reserved for the write-off of excess equipment,
furniture, fixtures and leasehold improvements which would not be utilized. Such
equipment, furniture, fixtures and leasehold improvements were either not
utilized or were scrapped.
Legal and other primarily included Symantec's legal expenses related to the site
closures and the settlement of a lawsuit. These costs and expenses were incurred
in the period of the restructuring charge.
As of March 31, 1999, total accrued cash related to acquisition and
restructuring expenses were approximately $4 million and included $1 million for
excess facilities and equipment and $3 million for other acquisition related
expenses.
68
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 15. NET INCOME PER SHARE
The components of the net income per share were as follows:
Year Ended March 31,
---------------------------------
(In thousands, except per share data) 1999 1998 1997
------- ------- -------
BASIC NET INCOME PER SHARE
Net income $50,201 $85,089 $26,038
======= ======= =======
Weighted average number of common
shares outstanding during the period 56,601 56,097 54,705
======= ======= =======
Basic net income per share $ 0.89 $ 1.52 $ 0.48
======= ======= =======
DILUTED NET INCOME PER SHARE
Net income $50,201 $85,089 $26,038
Interest on convertible subordinated
debentures, net of income tax effect 627 692 --
------- ------- -------
Net income, as adjusted $50,828 $85,781 $26,038
======= ======= =======
Weighted average number of common
shares outstanding during the period 56,601 56,097 54,705
Shares issuable from assumed exercise
of options 1,684 2,964 702
Shares issuable from assumed conversion
of convertible subordinated debentures 1,004 1,220 --
------- ------- -------
Total shares for purpose of calculating
diluted net income per share 59,289 60,281 55,407
======= ======= =======
Diluted net income per share $ 0.86 $ 1.42 $ 0.47
======= ======= =======
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.
NOTE 16. 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
demurrers directed to previous complaints. The parties are currently conducting
discovery. On January 7, 1997, the same plaintiffs filed a complaint in the
United States District Court, Northern District of California, based on the same
facts as the state court complaint, for violation of the Securities Exchange Act
of 1934. The district court dismissed that complaint and plaintiffs served an
amended complaint in April 1998. Symantec's motion to dismiss the new federal
complaint was granted in part, substantially narrowing the complaint. 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
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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. Following motions by Network Associates, the court
dismissed Symantec's unfair competition and trade secret claims regarding the
copyrighted code and its RICO and interference claims. On October 22, 1998, the
court consolidated this case with the case against Network Associates and the
case brought by CyberMedia, both of which are described below.
On September 4, 1998, Symantec filed a new lawsuit against Network Associates in
the United States District Court, Northern District of California, for copyright
infringement, trade secret misappropriation and unfair competition. 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 September 15, 1997, Hilgraeve Corporation ("Hilgraeve") filed a lawsuit in
the United States District Court, Eastern District of Michigan, against
Symantec, 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. ("CyberMedia,"), which in September 1998
was acquired by Network Associates, filed a lawsuit in the United States
District Court, Northern District of California, against Symantec, ZebraSoft
Inc. and others, alleging that Symantec's 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 a preliminary injunction prohibiting sale or development
of the challenged code, which preliminary injunction was granted with respect to
Symantec's domestic activities in September 1998. Subsequently, Symantec ceased
selling the Norton Uninstall Deluxe product. Symantec intends to defend the
action vigorously.
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.
Those actions were consolidated and a consolidated amended complaint was filed
in late October 1998. The complaint originally purported to assert claims for
breach of implied warranty, fraud, unfair business practices and violation of
California's Consumer Legal Remedies Act, among others, arising from the alleged
inability of earlier versions of Norton AntiVirus to function properly after the
year 2000; all but the unfair business practice claims have been dismissed
following Symantec's demurrer. The complaint seeks unspecified damages and
injunctive relief. Symantec believes that these actions have no merit and
intends to defend itself vigorously.
In July 1998, the Ontario Court of Justice (General Division) ruled that
Symantec should pay a total of approximately $6.8 million for damages and legal
costs to Triolet Systems, Inc. and Brian Duncombe in a decade-old copyright
action, for damages arising from the grant of a preliminary injunction against
the defendant. The damages were awarded following the court's ruling that
evidence presented later in the case showed the injunction was not warranted.
Symantec inherited the case through its 1995 acquisition of Delrina Corporation,
which was the plaintiff in this lawsuit. Symantec has appealed the decision.
Symantec recorded a charge of $5.8 million in June 1998 representing the
unaccrued portion of the judgment plus costs.
In March 1997, a class action complaint was filed against Quarterdeck in San
Diego County Superior Court. The case was later transferred to and is currently
pending in Los Angeles County Superior Court. The complaint, purportedly on
behalf of a class of purchasers of Quarterdeck's MagnaRAM2 product, seeks
damages and injunctive relief under the Consumers Legal Remedies Act and
Business and Professions Code sections beginning with 17200 and 17500. Symantec
believes these claims to be without merit and intends to defend itself
vigorously.
In October 1997, a complaint was filed in the United States District Court for
the District of Utah on behalf of PowerQuest Corporation against Quarterdeck.
The complaint alleges that Quarterdeck's partitioning software (included in
Partition-It and Partition-It Extra Strength) violates a patent held by
PowerQuest. In January 1998, PowerQuest obtained a second patent relating to
partitioning and has amended its complaint to allege infringement of that patent
as well. The plaintiff seeks an injunction against distribution of Partition-It
and Partition-It Extra Strength and monetary damages. Symantec believes this
action has no merit and intends to defend the lawsuit
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
vigorously.
On July 30, 1998, a class action complaint was filed against Quarterdeck in the
Supreme Court of the State of New York, County of New York, on behalf of a
purported class of purchasers of Procomm Plus version 4.0 for Windows product
(the "Product"). The complaint purported to assert claims for breach of warranty
and violation of New York's Consumer Protection From Deceptive Acts and
Practices Act arising from the Product's inability to process dates containing
the year 2000. The complaint was dismissed and the court entered judgment in
Quarterdeck's favor in April 1999.
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, the outcome of any related litigation or
negotiation could 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. Depending, however, 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.
The legal expenses accrued by the Company are deemed probable because the
lawsuits have been filed, management has determined its plans of action with
regards to the cases and accordingly knows that it will incur legal expenses
related to the particular lawsuit. Utilizing the assumptions noted in the
accounting policy, management is able to estimate a minimum amount of legal fees
to be incurred in these lawsuits.
The total amount of legal expenses accrued as of the respective year ends and
the amounts expensed for the years ended are reflected below:
Balance as of March 31, 1997 $1.0 million Amount expensed in 1997 $2.6 million
Balance as of March 31, 1998 $2.5 million Amount expensed in 1998 $4.9 million
Balance as of March 31, 1999 $7.2 million Amount expensed in 1999 $10.1 million
NOTE 17. LEASE BUILDINGS
In fiscal 1997, Symantec entered into lease agreements for two existing office
buildings (Cupertino City Center One, or CC1, and World HeadQuarters, or WHQ),
one parcel of land and one office building under construction (Cupertino City
Center Five, or CC5) in Cupertino, California. During fiscal 1999 Symantec's
landlord, exchanged CC5 for another leased building (Cupertino City Center Two,
or CC2) located in Cupertino, California and committed to sell WHQ to an
unrelated third party on or before November 1, 1999, thus relieving Symantec of
its responsibility for its lease of WHQ. Symantec will move both personnel and
equipment into CC2 once certain tenant improvements are completed, which is
currently scheduled to occur before November 1, 1999. In connection with these
leases, Symantec is required 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. In addition, we are obligated to comply with certain
financial covenants. Future acquisitions may cause us to be in violation of
these financial covenants.
NOTE 18. ADOPTION OF STOCKHOLDER RIGHTS PLAN
On August 11, 1998, Symantec's Board of Directors, the Board, adopted a
stockholder rights plan designed to ensure orderly consideration of any future
unsolicited acquisition attempt to ensure fair value of the Company for its
stockholders.
In connection with the plan, the Board declared a dividend of one preferred
share purchase right for each share of Symantec's common stock outstanding on
August 21, 1998 (the "Record Date"). The Board further directed the
71
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
issuance of one such right with respect to each share of Symantec's common stock
that is issued after the Record Date, except in certain circumstances. The
rights will expire on August 12, 2008.
The rights are initially attached to Symantec's common stock and will not trade
separately. If a person or a group (an "Acquiring Person") acquires 20% or more
of the Company's common stock, or announces an intention to make a tender offer
for 20% or more of Symantec's common stock, the rights will be distributed and
will thereafter trade separately from the common stock. Each right will be
exercisable for 1/1000th of a share of a newly designated Series A Junior
Participating Preferred Stock at an exercise price of $150.00. The preferred
stock has been structured so that the value of 1/1000th of a share of such
preferred stock will approximate the value of one share of common stock. Upon a
person becoming an Acquiring Person, holders of the rights (other than the
Acquiring Person) will have the right to acquire shares of Symantec's common
stock at a substantially discounted price.
If a person becomes an Acquiring Person and Symantec is acquired in a merger or
other business combination, or 50% or more of its assets are sold to an
Acquiring Person, the holder of rights (other than the Acquiring Person) will
have the right to receive shares of common stock of the acquiring corporation at
a substantially discounted price. After a person has become an Acquiring Person,
the Board, at its option, require the exchange of outstanding rights (other than
those held by the Acquiring Person) for common stock at an exchange ratio of one
share of Symantec's common stock per right.
The Board may redeem outstanding rights at any time prior to a person becoming
an Acquiring Person at a price of $0.001 per right. Prior to such time, the
terms of the rights may be amended by the Board. In addition, the Board also
amended Symantec's bylaws to: permit only the Chairman, President or the Board
to call a special meeting of the stockholders; require that the Board be given
prior notice of a stockholder proposal to take action by written consent so that
a record date for such action can be established; require advance notice to the
Board of stockholder-sponsored proposals for consideration at annual meetings
and for stockholder nominations for the election of directors; permit the Board
to meet on one- rather than two-day advance notice; and conform the bylaws to
applicable provisions of Delaware law regarding the inspection of elections at
stockholder meetings.
NOTE 19. SEGMENT INFORMATION
Symantec markets its products in North America and international countries
primarily through retail and distribution channels.
Symantec's reportable segments are significant strategic business units that
offer different products and services, distinguished by customer needs. We have
four reportable segments: Remote Productivity Solutions, Security and
Assistance, Internet Tools and Corporate Sunset. The Remote Productivity
Solutions business unit focuses on helping Information Technology organizations
reduce the expense of supporting remote workers. This business unit focuses on
corporate helpdesk and support organizations' need to more efficiently handle
the additional work required to support mobile workers, telecommuters and remote
offices. 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. The Internet Tools business unit
includes products providing an easy to use Java development environment. The
Corporate Sunset segment includes revenues from products nearing the end of
their life cycle.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Symantec's business units are
aligned by discrete products. There are no intersegment sales. Symantec's Chief
Executive Officer and his staff evaluate performance based on profit or loss
from operations before income taxes not including nonrecurring gains and losses,
foreign exchange gains and losses and miscellaneous other income and expenses.
Non-segment items included all general and administrative expenses and charges
that are one-time in nature, such as in-process research and development,
judgment settlements and restructuring and other expenses, and are not allocated
to the business units. Assets and liabilities are not discretely reviewed by
segment.
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In Thousands) Remote Security Non-
Productivity and Internet Corporate Total Segment Total
Solutions Assistance Tools Sunset Segments Items Company
-----------------------------------------------------------------------------------------------
FISCAL 1999
Revenue from
external customers $228,322 $338,703 $ 24,077 $ 1,526 $592,628 $ -- $592,628
Operating income (loss) 69,613 67,376 (10,413) (10,577) 115,999 (88,158) 27,841
Depreciation &
amortization expense 1,112 7,377 762 27,721 36,972 -- 36,972
FISCAL 1998
Revenue from
external customers 216,318 288,931 20,392 7,299 532,940 -- 532,940
Operating income (loss) 62,972 65,689 (14,167) (14,899) 99,595 (44,671) 54,924
Depreciation &
amortization expense 1,693 1,843 709 22,849 27,094 -- 27,094
FISCAL 1997
Revenue from
external customers 166,380 225,726 19,224 41,603 452,933 -- 452,933
Operating income (loss) 18,168 46,744 (1,540) 2,195 65,567 (48,017) 17,550
Depreciation &
amortization expense 1,929 2,012 657 32,573 37,171 -- 37,171
GEOGRAPHICAL INFORMATION
March 31,
------------------------------------
(In thousands) 1999 1998 1997
-------- -------- --------
Net revenues from external customers:
United States $353,734 334,976 300,884
Other foreign countries 238,894 197,964 152,049
-------- -------- --------
$592,628 $532,940 $452,933
======== ======== ========
Long-lived assets:
United States $151,942 $ 36,126 $ 40,771
Canada 2,017 3,142 5,770
Ireland 6,335 6,943 4,272
Other foreign countries 11,031 8,082 5,215
-------- -------- --------
$171,325 $ 54,293 $ 56,028
======== ======== ========
SIGNIFICANT CUSTOMERS
The following customers covered all segments and accounted for more than 10% of
net revenues during fiscal 1999, 1998 and 1997:
March 31,
------------------------------------
(In thousands) 1999 1998 1997
-------- -------- --------
Ingram Micro, Inc. 47% 36% 28%
Tech Data Corp. 19 12 *
Merisel 13 11 *
* Amount is less than 10%.
73
76
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 20. COMPREHENSIVE INCOME
Symantec adopted SFAS No. 130, "Reporting Comprehensive Income," beginning with
the quarter ended June 30, 1998. SFAS No. 130 establishes new rules for the
reporting and disclosure of comprehensive income and its components; however, it
has no impact on net income or stockholders' equity. The components of
comprehensive income, net of tax, are as follows:
Year ended March 31,
------- ------- -------
(In thousands) 1999 1998 1997
- -------------------------------------------------------- ------- ------- -------
Other comprehensive income (loss):
Add: change in unrealized gain (loss) on
available-for-sale investments,
net of a tax provision (benefit) of ($290),
$35 and $26. (616) 181 213
Less: reclassification adjustment for gains
included in net income,
net of a tax provision of $73, $0 and $0. 155 -- --
Add: change in cumulative translation
adjustment ("CTA"), a tax provision
(benefit) of ($1,476), ($993)and $1. (6,090) (5,136) 11
------- ------- -------
Total other comprehensive income (loss) (6,551) (4,955) 224
------- ------- -------
NOTE 21. SUBSEQUENT EVENT
On June 10, 1999 Symantec announced that it intends to establish our Internet
Tools Business Unit as a separate company. Symantec will be the initial sole
investor, however, additional third party investors are expected. The transition
is in its early stages and details will be determined over the next three to
nine months.
74
77
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/ John W. Thompson
------------------------------------
(John W. Thompson,
Chairman, 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/ John W. Thompson. Chairman, President, Chief June 30, 1999
- -------------------------------------------- Executive Officer and Director
(John W. Thompson.)
CHIEF FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER:
/s/ Gregory Myers Chief Financial Officer June 30, 1999
- --------------------------------------------
(Gregory Myers)
DIRECTORS:
/s/ Carl D. Carman Director June 30, 1999
- --------------------------------------------
(Carl D. Carman)
/s/ Tania Amochaev Director June 30, 1999
- --------------------------------------------
(Tania Amochaev)
/s/ Charles M. Boesenberg Director June 30, 1999
- --------------------------------------------
(Charles M. Boesenberg)
/s/ Walter W. Bregman Director June 30, 1999
- --------------------------------------------
(Walter W. Bregman)
/s/ Robert R. B. Dykes Director June 30, 1999
- --------------------------------------------
(Robert R. B. Dykes)
/s/ Robert S. Miller Director June 30, 1999
- --------------------------------------------
(Robert S. Miller)
75
78
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, 1997 5,016 1,599 (2,315) 4,300
Year ended March 31, 1998 4,300 1,036 (920) 4,416
Year ended March 31, 1999 4,416 609 (79) 4,946
79
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. (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.)
3.03 The registrant's Bylaws, as amended and restated effective
August 11, 1998. (Incorporated by reference to Exhibit 3.1
filed with the Registrant's Current Report 8-K filed August
19, 1998.)
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.)
4.05 Support Agreement dated November 22, 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 November 22,
1995 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.)
4.07 Rights agreement, dated as of August 12, 1998, between
Symantec Corporation and BankBoston, N.A., as Rights Agent,
which includes as Exhibit A the form of Certificate of
Designations of Series A Junior Participating Preferred
Stock, as Exhibit B the Form of Right Certificate and as
Exhibit C the Summary of Rights to Purchase Preferred
Shares. (Incorporated by reference to Exhibit 4.1 filed
with the Registrant's Form 8-A filed August 19, 1998.)
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.)
80
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 9, 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 Participation agreement, as amended by that certain Master
Amendment No. 2, dated as of September 21, 1998, between
Symantec Corporation, Sumitomo Bank Leasing and Finance,
Inc. and The Sumitomo Bank, Limited. (Incorporated by
reference to Exhibit 10.02 filed with the Registrants
Quarterly Report on Form 10-Q for the quarter ended October
2, 1998.)
10.15 Amended and Restated Participation Agreement, dated as of
February 9, 1999 by and among Symantec Corporation,
Sumitomo Bank Leasing and Financing, Inc, The Bank of Nova
Scotia, the other Various Financial Institutions Identified
Herein and the Sumitomo Bank, Limited, Los Angeles Branch.
10.16 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.)
10.17 Restated and amended Appendix A to Participation Agreement,
Master Lease, Lease Supplements Loan Agreements, Pledge
Agreement, Lessor Mortgages, and Guaranty.
10.18 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.)
10.19 Amended and Restated Master Lease and Deed of Trust, dated as
of February 9, 1999 between Symantec Corporation and
Sumitomo Bank Leasing and Finance, Inc.
10.20 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).
10.21 Amended and Restated Guaranty, dated as of February 9, 1999,
made by Symantec Corporation in favor of Various Financial
Institutions Identified Herein and The Sumitomo Bank,
Limited, San Francisco Branch.
10.22 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.)
10.23 Pledge Agreement, as amended, by that certain Master Amendment
No. 2, dated as of September 21, 1998, between Symantec
Corporation, the Bank, and Donaldson, Lufkin & Jenrette
Securities Corporation. (Incorporated by reference to
Exhibit 10.02 filed with the Registrants Quarterly Report
on Form 10-Q for the quarter ended October 2, 1998.)
10.24 Amended and Restated Pledge Agreement, dated as of February 2,
1999, made by Symantec Corporation and Delrina Corporation,
in favor of Sumitomo Bank, Limited, Los Angeles Branch for
the benefit of the Lenders, and Donaldson, Lufkin, Jenrette
Securities Corporations, as collateral agent.
10.25 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.)
10.26 Amended and Restated Assignment of Lease and Rent, dated as of
February 9, 1999, from Sumitomo Bank Leasing and Finance,
Inc., to The Sumitomo Bank, Limited, San Francisco Branch.
10.27 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.)
10.28 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.)
81
10.29 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.)
10.30 Agreement for Exchange and Purchase and Escrow Instructions,
dated September 22, 1998, between Symantec Corporation with
respect to CCC5 and WHQ and TST Development, L.L.C. with
respect to CCC2. (Incorporated by reference to Exhibit
10.06 filed with the Registrants Quarterly Report on Form
10-Q for the quarter ended October 2, 1998.)
10.31 Agreement for Exchange and Purchase and Escrow Instructions,
as amended, dated November 4, 1998 between Symantec
Corporation and TST Development, L.L.C. (Incorporated by
reference to Exhibit 10.07 filed with the Registrants
Quarterly Report on Form 10-Q for the quarter ended October
2, 1998.)
10.32 Amendment No. 1 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of November 4, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.01 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.33 Amendment No. 2 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of November 20, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.02 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.34 Amendment No. 3 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of December 4, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.03 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.35 Amendment No. 4 of Agreement for Exchange and Purchase and
Escrow Instructions, dated as of December 15, 1998 between
Symantec Corporation and TST Development, L.L.C.
(Incorporated by reference to Exhibit 10.04 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended January 1, 1999.)
10.36 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.)
10.37 Amended and Restated Loan Agreement, dated as of February 9,
1999, among Sumitomo Bank Leasing and Finance, Inc.,
Various Financial Institution Identified Herein, The Bank
of Nova Scotia and The Sumitomo Bank, Limited, Los Angeles
Branch.
10.38 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.)
10.39 Construction Agency Agreement dated as of February 9, 1999,
between Sumitomo Bank Leasing and Finance, Inc., and
Symantec Corporation.
10.40 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.)
10.41 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.)
10.42 Office building lease, as amended, dated as of September 1,
1997 between Colorado Place Partners, LLC and Symantec
Corporation regarding property located in Santa Monica,
California. (Incorporated by reference to Exhibit 10.01
filed with the Registrants Quarterly Report on Form 10-Q
for the quarter ended July 3, 1998.)
10.43 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.)
82
10.44 Office building lease, as amended, dated as of May 1, 1998, by
and between RND Funding Company I and Symantec Corporation
regarding property located in Sunnyvale, California.
(Incorporated by reference to Exhibit 10.01 filed with the
Registrants Quarterly Report on Form 10-Q for the quarter
ended October 2, 1998.)
10.45 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.)
10.46 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.)
10.47 Office building lease, as amended, dated as of December 17,
1996 between Delrina (Canada) Corporation, Delrina
Corporation, and Sherway Centre Limited regarding property
located in Toronto, Canada (Incorporated by reference to
Exhibit 10.02 filed with the Registrants Quarterly Report
on Form 10-Q for the quarter ended July 3, 1998.)
10.48 Office building lease, dated as of April 9, 1998 between hill
Samuel Bank Limited and Symantec (UK) Limited and Symantec
Corporation regarding property located in Maidenhead,
United Kingdom. (Incorporated by reference to Exhibit 10.03
filed with the Registrants Quarterly Report on Form 10-Q
for the quarter ended July 3, 1998.)
10.49 Form of Indemnity Agreement with Officers and Directors.
(Incorporated by reference to Exhibit 10.17 filed with the
Registrant's Registration Statement on Form S-1 (No.
33-28655) originally filed May 19, 1989, and amendment No.
1 thereto filed June 21, 1989, which Registration Statement
became effective June 22, 1989.)
10.50* 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.)
10.51* 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.)
10.52* Promissory Note between the Company and Mansour Safai
10.53* Promissory Note between the Company and Keith Robinson
10.54* Promissory Note between the Company and John W. Thompson
10.55* 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.)
10.56 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.)
10.54.1 10.57 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.)
10.58* 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.)
10.59 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.)
10.60* 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.)
10.61* 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.)
10.62* Retirement and Consulting Agreement between the Company and
Gordon E. Eubanks, Jr.
10.63* Supplemental Option Vesting and Severance Arrangement terms
and conditions between the Company and Greg Myers.
83
10.64 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.)
10.65 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.)
10.66* 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.)
10.67* Employment Agreement between Symantec Corporation and John W.
Thompson.
10.68 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.)
10.69 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.)
10.70 Asset Purchase Agreement, as amended, dated as of March 28,
1998, by and between Delrina and JetForm. (Incorporated by
reference to Exhibit 10.44 filed with the Registrants
Annual Report on Form 10-K for the year ended April 3,
1998.)
10.71 Asset purchase agreement, as amended, dated as of June 29,
1998 by and between Delrina and JetForm. (Incorporated by
reference to Exhibit 10.05 filed with the Registrants
Quarterly Report on Form 10-Q for the quarter ended July 3,
1998.)
10.72 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.
10.73 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.) (Incorporated by reference to
Exhibit 10.46 filed with the Registrant's Annual Report on
Form 10-K for the year ended April 3, 1998)
10.74 Asset purchase agreement, dated as of June 24, 1998, among
Symantec Corporation and its wholly-owned subsidiary,
Symantec Limited and Binary Research Ltd. and its
wholly-owned subsidiary, Binary Research International,
Inc. (Incorporated by reference to Exhibit 10.04 filed with
the Registrants Quarterly Report on Form 10-Q for the
quarter ended July 3, 1998.)
10.75 Software license agreement, dated as of September 27, 1998,
between Symantec Corporation and Intel Corporation.
(Incorporated by reference to Exhibit 10.1 filed with the
Registrant's Current Report of Form 8-K filed October 5,
1998.)
10.76 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, 1997
(restated)
27.02 Financial Data Schedule for the Year Ended March 31, 1998
(restated)
27.03 Financial Data Schedule for the Year Ended March 31, 1999
- -----------------
* Indicates a management contract or compensatory plan or arrangement.