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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1995.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
COMMISSION FILE NUMBER 0-17781
- --------------------------------------------------------------------------------
SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 253-9600
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on June 1,
1995 as reported on the Nasdaq National Market:
$877,160,943
Number of shares outstanding of each of the registrant's classes of common stock
as of June 1, 1995:
38,241,349
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 August 29, 1995
are incorporated by reference into Part III
- --------------------------------------------------------------------------------
SYMANTEC CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
TABLE OF CONTENTS
PART I.
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . 12
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . 14
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART III.
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . 27
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 27
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 27
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . 28
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
PART I
ITEM 1: BUSINESS.
GENERAL.
Symantec Corporation ("Symantec" or the "Company") develops, markets and
supports a diversified line of application and system software products designed
to enhance individual and workgroup productivity as well as manage networked
computing environments. Approximately 80% of Symantec's net revenues are
derived from products that operate on Microsoft Corporation's ("Microsoft") MS-
DOS or Windows operating systems for IBM and IBM-compatible personal computers.
Symantec also offers products for use on the Apple Macintosh and IBM OS/2
operating systems.
The Company's predecessor, C&E Software, Inc., a California corporation, and
that predecessor's operating subsidiary, Symantec Corporation, a California
corporation, were formed in September 1983 and March 1982, respectively. The
Company was incorporated in Delaware in April 1988 in connection with the
September 1988 reincorporation of the Company's predecessor and its operating
subsidiary into a single Delaware corporation.
Since Symantec's initial public offering on June 23, 1989, the Company has
completed acquisitions of the following companies:
Software or Activity
Software or Activity
Companies Acquired Date Acquired Acquired
- --------------------------------------------------- ----------------- ---------------------
Intec Systems Corporation ("Intec") August 31, 1994 Applications
Central Point Software, Inc. ("Central Point") June 1, 1994 Utilities
SLR Systems, Inc. ("SLR") May 31, 1994 Development Tools
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 Utilities
Contact Software International, Inc. ("Contact") June 2, 1993 Applications
Certus International Corporation ("Certus") November 30, 1992 Utilities
MultiScope, Inc. ("MultiScope") September 2, 1992 Development Tools
The Whitewater Group, Inc. ("Whitewater") September 2, 1992 Development Tools
Symantec (UK) Ltd. ("Symantec UK") April 3, 1992 Marketing Entity
Zortech Ltd. ("Zortech") August 31, 1991 Development Tools
Dynamic Microprocessor Associates, Inc. ("DMA") August 30, 1991 Utilities
Leonard Development Group ("Leonard") August 30, 1991 Applications
Peter Norton Computing, Incorporated ("Norton") August 31, 1990 Utilities
All of these acquisitions were accounted for as poolings of interest.
Accordingly, all financial information has been restated to reflect the combined
operations of these companies and Symantec with the exception of Intec, SLR,
MultiScope and Whitewater, which had results of operations that were not
material to Symantec's consolidated financial statements.
Symantec's strategy is to develop and market products that are, or may become,
leaders in their respective categories, maintain a broad product line across
multiple platforms and develop and market a strong product offering for the
enterprise or networked computing environment. Symantec's early products were
primarily productivity applications, such as Q&A, a non-programmable database,
and Time Line, a sophisticated project management program. In 1989, Symantec
expanded its business into utility products, initially with Macintosh utilities
products, and then into DOS utilities in fiscal 1991 with the acquisition of
Norton, the developer of Norton Utilities and Norton Commander. In fiscal 1992,
Symantec acquired DMA, the developer of pcANYWHERE and in fiscal 1993, Symantec
acquired Certus, the developer of Novi, an Anti-virus product that was merged
into The Norton AntiVirus. In fiscal 1992 and 1993, Symantec acquired three
development tools companies (Zortech, Whitewater and MultiScope) and expanded
its development tools business into the DOS and Windows object oriented
programming markets. In fiscal 1994, Symantec continued this expansion into the
application development market with the acquisition of certain technology for
developing an architecture and tools to build client-server applications from
DataEase International, Inc. Also in fiscal 1994, Symantec added to its
internal development of network utilities with the acquisition of Fifth
Generation, which had certain network utility
1
products under development. The acquisition of Contact in fiscal 1994 expanded
the Company's product line with the addition of ACT!, a contact management
product. The acquisition of Central Point in fiscal 1995 added a number of
desktop and enterprise utility products to Symantec's product offerings,
including Mac Tools, PC Tools, XTree Gold and Central Point Antivirus. Many of
the products acquired through the acquisition of Central Point were duplicative
of products marketed by Symantec prior to the acquisition. As a result, the
comparison of future Company revenues to historical revenues on a pooled basis
may be adversely impacted by the elimination of duplicative products.
The Company believes that the prevailing trends in the software industry are
movements by companies to downsize from mainframes and minicomputers to
microcomputers; a continuation of the move to graphical user interfaces, as
demonstrated by the strong demand for Windows products; a move to networked
environments of microcomputers; and a move to object-oriented programming among
software developers. As a result, Symantec is currently expanding its
development of network management utilities and applications that support
network and workgroup computing and is continuing its development of object-
oriented programming tools.
While Symantec's diverse product line has tended to lessen fluctuations in
quarterly net revenues, such fluctuations have occurred recently and are likely
to occur in the future. These fluctuations may be caused by a number of
factors, including new product introductions and product upgrades, reduced
demand for any given product, the market's transition between operating systems,
(including the market's acceptance and transition to Microsoft Corporation's new
operating system "Windows 95" when released) and a transition from a desktop PC
environment to an enterprise-wide networked environment.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references
as of and for the periods ended March 31, 1995, 1994 and 1993 reflect amounts as
of and for the periods ended March 31, 1995, April 1, 1994, and April 2, 1993,
respectively.
2
PRODUCTS AND SERVICES.
Symantec's products, comprising both application software and system software,
are currently organized into seven product groups: advanced utilities, security
utilities, network/communications utilities, contact management, development
tools, project management/productivity applications and client-server
technology. The following table summarizes Symantec's principal products by
product group and the operating system(s) on which they run:
Principal Products Operating System(s)
- -------------------------------------------- -----------------------------
ADVANCED UTILITIES
The Norton Utilities-Registered Trademark- Windows, MS-DOS, Macintosh
The Norton Utilities-Registered Trademark-Administrator Windows, MS-DOS
The Norton Commander-Registered Trademark- MS-DOS
The Norton Desktop-TM-for Windows Windows
PC Tools-TM- Windows, MS-DOS
Mac Tools-Registered Trademark- Macintosh, Power Macintosh
SuperDoubler-TM- Macintosh
Suitcase-TM- Macintosh
XTreeGold-TM- Windows, MS-DOS
SECURITY UTILITIES
The Norton AntiVirus-Registered Trademark- MS-DOS, Windows
The Norton AntiVirus-Registered Trademark-for NetWare Windows, MS-DOS, Macintosh
Central Point Antivirus Windows, MS-DOS, Macintosh, OS/2
Symantec-Registered Trademark-AntiVirus for Macintosh (SAM-TM-)Macintosh
Symantec-Registered Trademark-AntiVirus for Macintosh (SAM-TM-) Administrator Macintosh
The Norton Enterprise Backup-TM- Windows, MS-DOS
The Norton Backup-TM- Windows, MS-DOS
Fastback Plus-TM- Windows, MS-DOS, Macintosh
The Norton Disklock-Registered Trademark- Windows, MS-DOS, Macintosh
NETWORK/COMMUNICATIONS UTILITIES
The Norton pcANYWHERE-TM- Windows, MS-DOS, OS/2
The Norton pcANYWHERE-TM-Access Server OS/2
The Norton Administrator for Networks-TM- Windows
CONTACT MANAGEMENT
ACT!-TM- Windows, MS-DOS, Macintosh,
Macintosh
ACT! Mobile Link-TM- Windows
DEVELOPMENT TOOLS
Symantec C++-Registered Trademark- Windows, MS-DOS, Macintosh, Power
Macintosh, OS/2
THINK C-TM- Macintosh
PROJECT MANAGEMENT/PRODUCTIVITY APPLICATIONS
Time Line-Registered Trademark- Windows, MS-DOS
Q&A-TM- Windows, MS-DOS, OS/2
CLIENT-SERVER TECHNOLOGY
Symantec-Registered Trademark-Enterprise Developer-TM- Windows
3
ADVANCED UTILITIES
THE NORTON UTILITIES/THE NORTON UTILITIES ADMINISTRATOR are a set of "tools"
with both MS-DOS and Windows components designed to address the system-level
operations of an IBM-compatible personal computer. The Norton Utilities product
provides disk and data recovery, security, performance optimization, system and
.ini-file monitoring and preventive maintenance functions. The Norton Utilities
can restore the structure of a disk and files under certain conditions and can
also provide for file de-fragmentation, system operation information, file
unerasing and other file, performance and operations improvements. The Norton
Utilities for Macintosh is similar to The Norton Utilities for MS-DOS. The
Norton Utilities Administrator is a network version of The Norton Utilities.
THE NORTON COMMANDER is an MS-DOS shell designed to provide a character-based
graphical approach and mouse capability for MS-DOS operations such as copy, move
and delete. The Norton Commander includes an MCI mail facility, file
compression and Commander Link, a PC-to-PC file transfer function. The Norton
Commander includes a wide range of file viewers, application launching functions
and a customizable menuing facility.
THE NORTON DESKTOP FOR WINDOWS/PC TOOLS FOR WINDOWS gives the user easy access
and maneuverability within the Windows environment by integrating
thefunctionality of the Windows' Program Manager and File Manager. The Norton
Desktop for Windows enables the user to access a number of integrated tools
including Norton Backup, Norton AntiVirus, Deskedit, Unerase-Registered
Trademark-, Superfind-TM-, Norton Disk Doctor-Registered Trademark-, SmartErase-
TM-, Sleeper-TM-, Batch Builder-TM-, Keyfinder-TM- and Icon Editor. From the
integrated file manager the user can also launch, copy, move, view and delete a
file or application by clicking and dragging icons on the desktop. PC Tools for
Windows includes CrashGuard-TM-, System Consultant-TM-, File Companions-TM-,
INI-Consultant-TM-, AutoSync-TM-, DiskFix-Registered Trademark- and Optimizer.
SUPERDOUBLER automatically and transparently increases hard disk space through
file compression. SuperDoubler includes accelerated background copying and
deleting for the Macintosh .
SUITCASE is a resource management tool for the Macintosh operating system.
Suitcase helps organize and access font, DA, sound and FKEY resources.
XTREEGOLD is a full featured file manager which includes full keystroke
capability in order to take advantage of its powerful shortcuts.
SECURITY UTILITIES
THE NORTON ANTIVIRUS/THE NORTON ANTIVIRUS FOR NETWARE/CENTRAL POINT
ANTIVIRUS/SYMANTEC ANTIVIRUS FOR MACINTOSH ("SAM-TM-") are programs for the
protection, detection and elimination of computer viruses under the MS-DOS,
Windows, Macintosh and OS/2 operating systems. They provide virus protection,
detection and repair capability, recognize virus-like behavior and prevent most
known or unknown viruses from infecting a system. They detect viruses and
disinfect infected files and disks during normal computer use. They also detect
and disinfect floppy boot-track viruses, stealth and encrypted viruses and
remove active viruses from memory. Norton AntiVirus is also available for
Novell's operating system as an NetWare Loadable Module ("NLM") and is known as
The Norton AntiVirus for NetWare. The NLM can scan MS-DOS, Windows, and
Macintosh file types.
SYMANTEC ANTIVIRUS FOR MACINTOSH (SAM-TM-) ADMINISTRATOR is an application which
provides centralized network distribution and maintenance of the Symantec
AntiVirus for Macintosh. Its configurable network installation and upgrade
capabilities enable administrators to ensure that all remote networked Macintosh
systems are completely protected.
THE NORTON ENTERPRISE BACKUP is a WAN-based data management software tool that
reduces the administrative burden of data management with a centrally managed
server and workstation product that can automatically and dynamically use backup
resources across multiple servers, LANs and WANs. Norton Enterprise Backup will
also redirect the backup process to other tape drives if one drive becomes full
or breaks. It is also easy to restore information or a whole disk drive with
Norton Enterprise Backup.
THE NORTON BACKUP AND FASTBACK PLUS are hard disk backup programs. The Norton
Backup and Fastback Plus provide automatic program installation and
configuration, point and shoot file selection and user-level options. Both MS-
DOS and Windows versions of both products are available. A Mac version of
Fastback is also available.
4
THE NORTON DISKLOCK protects PC and Macintosh computers from unwanted intrusion.
Disklock provides boot protection to prevent unauthorized users from accessing a
PC's hard disk drive. In addition to full disk access control, The Norton
DiskLock allows for basic password protection and selective locking to secure
individual files or folders in a shared environment. The Norton DiskLock
provides SpeedCrypt for especially sensitive data and is available in MS-DOS,
Windows and Macintosh versions.
THE NORTON ADMINISTRATOR FOR NETWORKS is a single solution to reduce network
management costs substantially through the automation of key manually intensive
LAN administration tasks. Its key features include full integration of hardware
and software inventory, software distribution, license monitoring and metering
and the automation of costly LAN administration tasks. It supports all major
operating systems and provides the ability to add in Norton AntiVirus,
pcANYWHERE remote control technology, Norton Utilities Administrator and Norton
Disklock Administrator.
COMMUNICATIONS UTILITIES
THE NORTON PCANYWHERE offers reliable, fast and flexible PC-to-PC remote
computing via serial or modem connection. The Norton pcANYWHERE lets the user
remotely control one PC from the keyboard of another. The offsite remote PC,
laptop or PC terminal controls the operation of the distant host PC. The
software allows the user to run any MS-DOS or Windows application remotely,
transfer files and perform other data operations. In addition to allowing a
user to remotely run a distant PC, pcANYWHERE optionally allows users at the
host (distant) machine to view the operations being conducted from the remote
site. This makes pcANYWHERE ideal for support of users as a remote helpdesk
function for both problem solving and application training.
THE NORTON PCANYWHERE ACCESS SERVER allows network administrators to centrally
manage multiple remote control sessions. The Norton pcANYWHERE Access Server
provides mobile users with simple, efficient and secure access to networks.
CONTACT MANAGEMENT
ACT! is an easy-to-use contact database with a graphical activity schedule, a
full featured word processor and a report generator. ACT! manages and
integrates a user's contacts, calendar and communication through the use of
integrated E-mail messaging.
ACT! MOBILE LINK is an add-on product to ACT! for Windows. ACT! Mobile Link
automates communication between individuals in the office and mobile
professionals by providing the ability to remotely access and exchange contact
information. It supports data maintained centrally as well as using e-mail to
synchronize two or more users of the same database and calendar.
DEVELOPMENT TOOLS
SYMANTEC C++ is a set of professional programming tools for C++ and provides
support for developing MS-DOS, Windows and Macintosh applications. The MS-DOS
and Windows version includes enhanced 32-bit development support, including 32-
bit MFC on CD-ROM. It supports full template debugging and features a
hierarchical project management system with full dependency tracking. The
Macintosh version includes a new version of THINK Class Library (TLC 2.0), which
allows developers to write applications that are portable to PowerPC
microprocessor-based Macintoshes. Symantec C++ for Macintosh also includes
Bedrock exception-handling and THINK Inspector that allows quick debugging.
THINK C provides users with an integrated set of tools, including a C compiler,
to develop software in C for the Macintosh. The product consists of five main
components: a text editor that allows a programmer to enter and modify text
files of statements in human-readable C programming language (source code); a
compiler that translates files of statements in C source code into binary
instruction modules that a computer can execute (object code); a linker that
enables separate object code modules to be combined to form a complete program;
a source level debugger to support the testing of software while it is being
developed; and a project manager that automates the management of all of these
processes.
PROJECT MANAGEMENT/PRODUCTIVITY APPLICATIONS
TIME LINE is a SQL-based client-server solution that integrates multi-project
management with a business environment. It is a project organizing, scheduling
and resource allocation program. Time Line uses the critical
5
path method to determine project schedules, performs resource leveling and
lead/lag scheduling and presents information in PERT, Gantt and actual versus
planned formats.
Q&A is an easy-to-use, integrated database management and word processing
program with sophisticated report generation capabilities. Q&A also has a
natural language interface that allows the user to request reports from a
database using plain English sentences instead of database commands.
CLIENT-SERVER TECHNOLOGY
SYMANTEC ENTERPRISE DEVELOPER is the next generation of client-server
application development tools for creating complex distributed database
applications. Enterprise Developer utilizes a repository based, business model
driven development approach that allows a corporation to model its business
needs. Symantec Enterprise Developer's SCALE architecture leverages these
models to automate the application development process. Since the company's
business needs are captured in a centralized model stored in a repository, they
can easily be maintained and modified as needed.
DISTRIBUTION, SALES AND SUPPORT.
Symantec markets its products domestically and in major foreign markets,
primarily through independent software distributors and major retail chains.
DOMESTIC SALES
Symantec's sales strategy is to use a direct field sales force that works with
businesses to encourage them to adopt Symantec's products as corporate
standards. Symantec also employs a distribution sales group to work closely
with its major distributor and reseller accounts on the management of orders,
inventory level and sell-through to retailers, as well as promotions and selling
activities. Symantec's telemarketing sales group manages and supports major
dealer and corporate end user accounts. Symantec's sales personnel are located
in major metropolitan areas. At March 31, 1995, Symantec had approximately 110
people in its domestic direct field sales and telemarketing groups.
With the expansion to enterprise-wide computing systems markets, Symantec
believes that it must develop relationships with customers and deliver products
developed for this market segment.
Symantec maintains distribution relationships with a number of major independent
software distributors, including Ingram Micro D, Inc. ("Ingram Micro D") and
Merisel Americas, Inc. ("Merisel"). These distributors stock Symantec's
products in inventory for redistribution to independent dealers, consultants and
other resellers. Symantec also maintains relationships with many of the major
computer and software retailing organizations in the United States, including
Egghead Discount Software ("Egghead"), Corporate Software, Inc., Software
Spectrum, Inc. and PC Connection, Inc. Symantec markets to each of these retail
accounts either directly or through one of its authorized national distributors.
Like many other software companies, Symantec also sells product upgrades and
certain of its products directly to end users through direct mail campaigns. In
addition, Symantec has site licensed many of its products to corporate
customers.
Approximately 33% of Symantec's net revenues in the year ended March 31, 1995
was derived from Symantec's two largest accounts - Ingram Micro D and Merisel.
Ingram Micro D represented 22%, 17% and 15% of Symantec's net revenues in fiscal
1995, 1994 and 1993, respectively. Merisel represented 11%, 13% and 13% of
Symantec's net revenues in fiscal 1995, 1994 and 1993, respectively.
Symantec's return policy allows its distributors, subject to certain
limitations, to return purchased products in exchange for new products or for
credit towards future purchases. Individual end users may return products
through dealers and distributors within a reasonable period from the date of
purchase for a full refund, and retailers may return older versions of products.
Various distributors and resellers may have more liberal return policies that
may negatively impact the level of products which are returned to Symantec.
Product returns occur when the Company introduces upgrades and new versions of
products or when distributors order too much product. In addition, competitive
factors often require the Company to offer rights of return for products that
distributors or retail stores are unable to sell. Symantec has experienced and
may experience in the future, significant increases in product returns above
historical levels from customers of acquired companies after the acquisition is
completed.
6
Symantec prepares detailed analyses of historical return rate experiences in its
estimation of anticipated returns and maintains reserves for product returns.
In addition to detailed historical return rates, the Company's estimation of
return reserves takes into consideration upcoming product upgrades, current
market conditions, customer inventory balances and any other known factors that
could impact anticipated returns. Based upon returns experienced, the Company's
estimates have been materially accurate. The impact of actual returns net of
such provisions has not had a material effect on the Company's liquidity as the
returns typically result in the issuance of credit towards future purchases as
opposed to cash payments to the distributors.
Symantec's marketing activities include advertising in trade, technical and
business publications; cooperative marketing with distributors, resellers and
dealers; periodic direct mailings to customers and prospective customers; and
participation in trade and computer shows. Additionally, the Company typically
offers two types of rebate programs, volume incentive rebates and rebates to end
users. Volume incentive rebates are made available to Symantec's largest
distributors and resellers whereby the distributor or reseller earns a rebate as
a pre-determined percentage of their purchases of the Company's products.
Volume incentive rebates are accrued when revenue is recorded. The amount of
these rebates has been consistent for all periods presented and has not had a
material impact on the Company's liquidity. The Company also from time to time
offers rebates to end users who purchase the Company's products. During fiscal
1995, Symantec offered rebates to end users who purchased either pcANYWHERE or
The Norton AntiVirus. End user rebates are accrued when revenue is recorded.
These end user rebates have been offered on a limited basis and have not been
material to the Company's results of operations or liquidity in fiscal 1995,
1994 and 1993.
INTERNATIONAL SALES
International revenues represented approximately 35%, 33% and 31% of Symantec's
net revenues in fiscal 1995, 1994 and 1993, respectively. At March 31, 1995,
Symantec had approximately 117 sales, marketing and related personnel in its
international sales organization.
Most of Symantec's revenues from Canada are derived from sales by affiliates of
Symantec's major United States distributors. In other countries, Symantec sells
its products through authorized distributors. In some countries these
distributors are restricted to specified territories. Symantec typically adapts
products for local markets, including translating the documentation and software
where necessary, and prepares comprehensive marketing programs for each local
market.
Symantec has established offices in Australia, Brazil, Canada, France, Germany,
Holland, Italy, Japan, Mexico, Russia, Sweden, Switzerland, Taiwan and the
United Kingdom. These local offices facilitate Symantec's marketing and
distribution in international markets. The Company's international operations
are subject to certain risks common to foreign operations, such as government
regulations, import restrictions, currency fluctuations, repatriation
restrictions and, in certain jurisdictions, reduced protection for the Company's
copyrights and trademarks. Information with respect to international operations
and export sales may be found in the Notes to Consolidated Financial Statements
included in Part IV, Item 14 of this Form 10-K.
CUSTOMER SUPPORT
During the March 1994 quarter, Symantec introduced a new product support program
that provides a wide variety of free and fee-based technical support services to
its customers. Symantec provides its customers with free support via electronic
and automated services as well as 90 days complimentary free telephone support
for selected products. Symantec accrues the cost of providing this free support
at the time of product sale. In addition, Symantec offers both individual users
and corporate customers a variety of fee-based options designed to meet their
individual technical support requirements. Fee-based technical support services
did not generate material revenues in fiscal 1995 or 1994 and are not expected
to generate material revenues in the near future.
PRODUCT DEVELOPMENT AND ACQUISITIONS.
Symantec uses a multiple products sourcing strategy that includes internal
development, acquisitions of product lines or companies and licensing from
third-parties. Development of new products and enhancement of existing products
are typically performed by Symantec in individual product groups. Each group's
responsibilities include
7
design, development, documentation and quality assurance. Outside contractors
are used for certain aspects of the product development process.
Symantec uses strategic acquisitions, as necessary, to provide certain
technology and products for its overall product strategy. Symantec has
completed a number of acquisitions of companies and products and expects to
acquire other companies and products in the future. In addition to the
significant business risks associated with acquisitions, which include the
successful combination of the companies in an efficient and timely manner, the
coordination of research and development and sales efforts, the retention of key
personnel and the integration of the acquired products, Symantec frequently
incurs significant acquisition expenses for legal, accounting and financial
advisory services and other costs related to the combination of the companies.
These costs have in the past had and may, with respect to possible future
acquisitions, have a significant adverse impact on the Company's profitability
and financial resources. There can be no assurance that any of the Company's
acquisitions will be successfully assimilated into the Company's operations. In
addition, the comparison of future Company revenues, expenses and profitability
to historical revenues, expenses and profitability on a pooled basis may be
adversely impacted by the elimination of duplicative products and operating
activities.
The Company is devoting substantial efforts to the development of software
products that are designed to operate on Microsoft's new operating system
("Windows 95"), which is currently under development and testing. The Company
is also devoting substantial efforts to the development of products for
networked operating environments and network management. Due to the inherent
uncertainties of software development projects, there can be no assurance that
any products currently being developed by Symantec, including products being
developed for Windows 95, will be technologically successful, that any resulting
products will achieve market acceptance or that the Company will be effective in
competing with products currently in the market. There can also be no assurance
that Symantec will elect to develop software products for the operating
environments that ultimately are accepted by the marketplace, including
Windows 95. Development for networked operating environments is more complex
than development for the desktop and requires a higher level of research and
development expenditures. As a consequence of the complexity of developing
products for networked operating environments and operating systems using
graphical user interfaces and Symantec's emphasis on technical excellence,
Symantec has experienced delays in the development and delivery of its products
and is likely to experience such delays in the future. Any such delays could
result in a loss of competitiveness of Symantec's products and could adversely
affect Symantec and its financial results.
Symantec's total research and development expenses were approximately $62.8
million, $64.1 million and $71.1 million in fiscal 1995, 1994 and 1993,
respectively. Research and development expenditures are charged to operations
as incurred. The decrease in research and development expenses in fiscal 1995
is principally due to the consolidation of product development efforts resulting
from the acquisition of Central Point. Financial accounting rules requiring
capitalization of certain software development costs have not materially
affected the Company.
Norton Commander, Norton Backup and elements of certain other programs are
licensed from third-party developers.
COMPETITION.
The microcomputer software market is intensely competitive and is subject to
rapid changes in technology and in the strategic direction of major
microcomputer hardware manufacturers and operating system providers. The
Company's competitiveness depends on its ability to enhance its existing
products and to offer new products on a timely basis. The Company has more
limited resources than certain of its competitors, and must restrict its product
development efforts to a relatively small number of projects. Further, the
Company has less experience in the enterprise/network market than many of it
competitors and fewer relationships and less experience with systems integrators
and other third-party vendors that provide consulting and implementation
services necessary to sell many of these products.
Historically, much of the Company's revenues were derived from products using
the MS-DOS operating system and its character-based interface, which has been
largely supplanted by the Microsoft Windows operating environment. With the
anticipated introduction of Microsoft's Windows 95 operating system, the
Company's ability to generate revenue from many of its current products will
depend on its ability to develop new versions and
8
enhancements of those products in a timely manner for the Windows 95 operating
system and/or other operating systems that may gain market acceptance. The
Company has experienced delays in the development and delivery of its products
and may experience such delays in the future, which would result in a loss of
competitiveness of the Company's products and could adversely affect the Company
and its financial results.
Operating system vendors such as Microsoft have added features to new versions
of their products that provide some of the same functionality traditionally
offered in Symantec's utilities products. Symantec believes this trend may
continue. Microsoft may incorporate advanced utilities in Windows 95 that may
decrease the demand for certain of the Company's products, including those
currently under development. While Symantec plans to continue to improve its
utilities products with a view toward providing enhanced functionality over what
may be provided in operating systems, there is no assurance that these efforts
will be successful or that such improved products will be accepted by software
users. Symantec will also attempt to work with operating system vendors in an
effort to make its utilities products compatible with those operating systems,
yet differentiate those utilities products from features included in the
operating systems. However, there is no assurance that these efforts will be
successful.
Because of the breadth of its product line, Symantec competes with at least one
product from many of the major independent software vendors, including Borland
International, Inc. ("Borland"), Cheyenne Software, Inc. ("Cheyenne"), Claris
Corporation, Computer Associates International, Inc. ("Computer Associates"),
Gupta Corporation ("Gupta"), Intel Corporation ("Intel"), Lotus Development
Corporation ("Lotus"), McAfee Associates, Inc. ("McAfee"), Microsoft, Novell,
Inc. ("Novell") and Software Publishing Corporation ("Software Publishing").
For example, The Norton Enterprise Backup competes with ARCserve from Cheyenne,
Network Archivist from Palindrome and Backup Exec from Arcada Software, Inc.
The Norton Administrator for Networks competes with Microsoft System Management
Server from Microsoft and LanDesk from Intel. Symantec Enterprise Developer
competes with PowerBuilder from Sybase, Inc. and SQL Windows from Gupta. Norton
Utilities and Norton Backup compete with operating systems, such as Microsoft's
MS-DOS, IBM's DOS and Novell's DR-DOS, which offer file recovery, anti-virus and
backup features as well as products from independent utilities vendors. Norton
AntiVirus and Central Point Antivirus compete with Viruscan from McAfee.
Symantec's The Norton pcANYWHERE competes mainly with Laplink from Traveling
Software, Carbon Copy from Microcom, Close Up from Norton Lambert and NetRemote
from McAfee. ACT! and 1st ACT! compete with Lotus Organizer for Windows from
Lotus, Maximizer from Modatech Systems, Inc. and many other personal information
managers produced by various software developers. Symantec C++ competes with
C++ compilers from Borland and Microsoft. Norton Desktop for Windows and PC
Tools for Windows compete with Dashboard from Starfish Software. Time Line
competes most directly with Microsoft Project from Microsoft, SuperProject from
Computer Associates and Harvard Project Manager from Software Publishing. In
addition, these and other Company products compete less directly with a number
of other products that offer levels of functionality different from those
offered by Symantec's products or that were designed for a somewhat different
group of end users.
Symantec also competes with microcomputer hardware manufacturers that develop
their own software products. Further, Symantec competes with other
microcomputer software companies for access to the channels of retail
distribution and for the attention of customers at the retail level and in
corporate accounts. Finally, Symantec competes with other software companies in
its efforts to acquire products or companies and to publish software developed
by third parties. Symantec believes that, in the next few years, competition in
the industry will intensify as most major software companies expand their
product lines into additional product categories. Some of Symantec's competitors
have substantially greater financial, marketing and technological resources than
Symantec.
Price competition is significant in the microcomputer business software market
and may continue to increase and become even more significant in the future,
resulting in reduced profit margins. Additionally, should competitive pressures
in the industry increase, Symantec may have to increase its spending on sales
and marketing as a percentage of revenues, resulting in lower profit margins.
MANUFACTURING AND BACKLOG.
Symantec's product development organization produces a set of master diskettes
and documentation for each product. Most of Symantec's domestic manufacturing
is performed by outside contractors under supervision of
9
Symantec's manufacturing organization. Purchasing of most raw materials and
most fulfillment of orders is done by Symantec personnel in Symantec's
Sunnyvale, California facility. The manufacturing steps that are subcontracted
to outside organizations include the duplication of diskettes and CD-ROM's,
printing of documentation materials and assembly of the final package. Symantec
performs diskette duplication and assembly of the final package in its Dublin,
Ireland, manufacturing facility for most products distributed outside of the
United States and Canada.
Symantec is often able to acquire materials on a volume-discount basis and has
multiple sources of supply for certain materials. To date, Symantec has not
experienced any material difficulties or delays in production of its software
and related documentation and packaging. However, shortages may occur in the
future. For example, shortages of certain materials may occur when Microsoft
introduces new operating systems such as Windows 95.
Symantec normally ships products within one week after receiving an order.
Thus, Symantec does not consider backlog to be a significant indicator of future
performance.
PRODUCT PROTECTION.
Symantec regards its software as proprietary and relies on a combination of
copyright, patents, trade secret and trademark laws, license agreements and
technical measures in an attempt to protect its rights. Despite these
precautions, it may be possible for unauthorized third parties to copy aspects
of Symantec's products or to obtain and use information that Symantec regards as
proprietary. All of Symantec's products are protected by copyright, and
Symantec has several patents and patent applications pending. However, existing
patent and copyright laws afford limited practical protection. In addition, the
laws of some foreign countries do not protect Symantec's proprietary rights in
its products to the same extent as do the laws of the United States. Symantec's
products are not copy protected.
As the number of software products in the industry increases and the
functionality of these products further overlaps, Symantec believes that
software developers will become increasingly subject to infringement claims.
This risk is potentially greater for companies, such as Symantec, that obtain
certain of their products through publishing agreements or acquisitions, since
they have less direct control over the development of those products.
Additionally, an increasing number of software patents are being issued, some of
which are very broad in nature. This increases the risk that Symantec's
products may be subject to claims of patent infringement. Although such claims
may ultimately prove to be without merit, they can be time consuming and
expensive to defend. Symantec is currently involved in several lawsuits
involving trade secret or patent disputes (See Note 11 of Notes to Consolidated
Financial Statements included in Part IV, Item 14 of this Form 10-K).
EMPLOYEES.
As of March 31, 1995, Symantec employed 1,442 people, including 596 in sales,
marketing and related staff activities, 458 in product development and 388 in
management, manufacturing, administration and finance. None of the employees is
represented by a labor union and Symantec has experienced no work stoppages.
Symantec believes that its employee relations are good.
Competition in recruiting personnel in the software industry is intense.
Symantec believes that its future success will depend in part on its ability to
recruit and retain highly skilled management, marketing and technical personnel.
10
ITEM 2: PROPERTIES.
Symantec's principal locations, all of which are leased, are as follows:
Approximate Expiration
Size of
Location Purpose (in square feet) Lease
- ---------------------------- ----------------------------------- ---------------- -----
DOMESTIC
Cupertino, California
Corporate Headquarters Administration, sales and marketing 87,000 1998
and research and development
Development Tools Development 42,000 2000
Sunnyvale, California Manufacturing 78,000 1998
Santa Monica, California Research and development and 81,000 1998
marketing
Santa Monica, California Research and development 31,000 2000
Novato, California Research and development and 28,000 1996
marketing
Bedford, Massachusetts Research and development and 13,000 1997
marketing
Eugene, Oregon Customer service and technical 167,000 1999
support
Baton Rouge, Louisiana Research and development 48,000 1995
and marketing
Beaverton, Oregon Research and development and 51,000 1997
marketing
Huntington, New York Research and development and 11,000 2000
marketing
Richardson, Texas Research and development and 4,000 1998
marketing
Shelton, Connecticut Research and development and 21,000 1998
marketing
St. Louis, Missouri Research and development 3,000 1996
INTERNATIONAL
Leiden, Holland Administration, sales 7,000 1997
and marketing
Dublin, Ireland Manufacturing and 44,000 2026
translations
Symantec's principal administrative, sales and marketing facility as well as
certain research and development and support facilities are located in
Cupertino, California. The Company leases a number of additional facilities for
marketing and research and development in the United States and for marketing in
Europe, Australia, Japan and Canada. Symantec believes its facilities are
adequate for its current needs and additional or substitute space will be
available as needed to accommodate any expansion of its operations.
ITEM 3: LEGAL PROCEEDINGS.
Information with respect to this Item may be found in Note 11 of Notes to
Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K.
11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and key employees of the Company are as follows:
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------
Gordon E. Eubanks, Jr. 48 President and Chief Executive Officer
Robert R. B. Dykes 45 Executive Vice President, Worldwide Operations
and Chief Financial Officer
John C. Laing 44 Executive Vice President, Worldwide Sales
Eugene Wang 38 Executive Vice President, Applications and Development Tools
Ellen W. Taylor 57 Vice President and General Manager, Peter Norton
Computing Group
Derek Witte 38 Vice President and General Counsel
Executive officers are chosen by and serve at the discretion of the Board of
Directors. There is no family relationship between any director or executive
officer of Symantec and any other director or executive officer of Symantec.
GORDON E. EUBANKS, JR. is the President and Chief Executive Officer of Symantec.
He has served as a director of Symantec since November 1983 and as the President
and Chief Executive Officer of Symantec since October 1986. Mr. Eubanks also
served as Symantec's Chairman of the Board from November 1983 to October 1986
and from November 1990 to January 1993. Previously, Mr. Eubanks was Vice
President of Digital Research Inc.'s commercial systems division, where he was
responsible for the development and marketing of all system software products.
He left Digital Research in September 1983. Mr. Eubanks founded Compiler
Systems, Inc. and authored its products: CBASIC, one of the first successful
languages on personal computers, and CB80, a compiled version of CBASIC.
Compiler Systems was acquired by Digital Research in August of 1981. Mr.
Eubanks received his Bachelor of Science degree in Electrical Engineering from
Oklahoma State University. He received his Masters degree in Computer Science
from Naval Postgraduate School in Monterey, California. Mr. Eubanks was a
commissioned officer in the United States Navy from 1970 to 1979 serving in the
Nuclear Submarine Force. Mr. Eubanks is also a director of NetFrame and
RasterOps Corporation. He is a member of the IEEE and ACM.
On February 26, 1993, criminal indictments were filed against Mr. Eubanks for
allegedly violating various California Penal Code Sections relating to the
misappropriation of trade secrets and unauthorized access to a computer system.
Symantec believes that the charges have no merit (See Note 11 of Notes to
Consolidated Financial Statements included in Part IV, Item 14 of this Form 10-
K).
ROBERT R. B. DYKES is Executive Vice President, Worldwide Operations and Chief
Financial Officer. Mr. Dykes joined Symantec in October 1988. From April 1984
to October 1988, Mr. Dykes was the Chief Financial Officer at Adept Technology,
Inc., a robotics firm, where he oversaw all financial procedures and reporting
and developed venture capital and funding strategies. From July 1983 to April
1984, Mr. Dykes was with Xebec, a publicly held Winchester disk drive controller
manufacturer, most recently as Chief Financial Officer. Prior to Xebec, Mr.
Dykes spent 12 years in various financial positions at Ford Motor Company in New
Zealand and Australia and with its Finance Staff in Dearborn, Michigan, most
recently as manager of the marketing budgets for the Ford and Lincoln Mercury
car divisions. Mr. Dykes holds a Bachelor of Commerce and Administration degree
from Victoria University in Wellington, New Zealand. Mr. Dykes is on the board
of directors of Flextronics International, Ltd. Mr. Dykes is chairman of the
CFO committee of the Software Publishers Association.
12
JOHN C. LAING is Executive Vice President, Worldwide Sales. Mr. Laing joined
Symantec in March 1989 as Vice President/Sales. Before joining Symantec, Mr.
Laing served as Regional Director for Apple Computer, Inc., a microcomputer
manufacturer, in the Midwest. In that position his responsibilities included
managing Apple's sales, marketing and support activities within Illinois,
Wisconsin and Northern Indiana. Prior to joining Apple in July 1986, Mr. Laing
served as Vice President and General Manager at ECZEL Corporation, a division of
Crown Zellerbach Corporation. Mr. Laing spent the majority of his earlier
career at Xerox Corporation, where he served in a variety of sales and sales
management positions over a ten-year period. Mr. Laing is a director of
Macromedia, Inc., a multimedia software developer, and the Software Publishers
Association.
EUGENE WANG is Executive Vice President, Applications and Development Tools.
Mr. Wang joined Symantec in September 1992. From September 1988 to September
1992, Mr. Wang was vice president and general manager of languages at Borland
International, Inc., where he was responsible for the product management and
marketing of four product lines. From 1983 to September 1988, Mr. Wang was vice
president of marketing and a director of Gold Hill Computers, Inc. Mr. Wang
holds a Bachelor of Science degree in computer science from the University of
California at Berkeley.
On February 26, 1993, criminal indictments were filed against Mr. Wang for
allegedly violating various California Penal Code Sections relating to the
misappropriation of trade secrets and unauthorized access to a computer system.
Symantec believes that the charges have no merit (See Note 11 of Notes to
Consolidated Financial Statements included in Part IV, Item 14 of this Form 10-
K).
ELLEN W. TAYLOR is Vice President and General Manager, Peter Norton Computing
Group. Ms. Taylor joined Symantec in 1991 and is responsible for all
development activities pertaining to the Company's utility products. From 1987
until joining Symantec, Ms. Taylor was vice president, product marketing at
Interleaf, Inc. Ms. Taylor also worked at Computer Associates from 1980 until
1987 as manager of several departments, including special projects, operating
systems support, quality assurance, documentation and product resources. Ms.
Taylor holds a Bachelor of Arts in psychology from San Diego State University
and an associates degree in computer science from Palomar College, San Marcos,
California.
DEREK WITTE is Vice President and General Counsel. Mr. Witte joined Symantec in
October 1990. From October 1987 until joining Symantec, Mr. Witte was Associate
General Counsel and later Director of Legal Services for Claris Corporation, a
software subsidiary of Apple. Between January and October 1987, Mr. Witte was
Assistant General Counsel at Worlds of Wonder, Inc. Previously Mr. Witte
practiced law with the San Francisco based law firms of Brobeck, Phleger &
Harrison and Heller Ehrman White and McAuliffe during the periods between 1981
and 1983 and 1983 and 1987, respectively. Mr. Witte holds a law degree and a
Bachelor of Arts degree in Economics from the University of California at
Berkeley. Mr. Witte has been a member of the California bar since 1981.
13
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Symantec's common stock has been traded on the Nasdaq National Market under
the Nasdaq symbol "SYMC" since the Company's initial public offering on June 23,
1989. The high and low closing sales prices set forth below are as reported on
the Nasdaq National Market.
Fiscal 1995 Fiscal 1994
-------------------------------------------- -------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1995 1994 1994 1994 1994 1993 1993 1993
-------- -------- -------- -------- -------- -------- -------- --------
High $ 23.75 $ 19.00 $ 16.13 $ 16.88 $ 18.38 $ 20.25 $ 20.00 $ 18.13
Low 16.13 14.88 10.75 10.06 13.50 15.50 10.88 12.63
As of March 31, 1995, there were approximately 824 stockholders of record. The
Company has never paid cash dividends on its stock with the exception of cash
distributions to stockholders of acquired companies. Symantec anticipates that
it will continue to retain its earnings to finance the growth of its business.
In addition, the Company's bank line of credit and outstanding convertible
subordinated debentures limit the payment of cash dividends on common stock (See
Notes 4 and 5 of Notes to Consolidated Financial Statements in Part IV, Item 14
of this Form 10-K).
14
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 1995,
Symantec acquired Intec Systems Corporation ("Intec"), Central Point Software,
Inc. ("Central Point") and SLR Systems, Inc. ("SLR") in transactions accounted
for as poolings of interest. All financial information has been restated to
reflect the combined operations of Symantec and Central Point. Prior year
amounts have not been restated for Intec and SLR as their results of operations
were not material to Symantec's consolidated financial statements. The Company
has never paid cash dividends on its stock with the exception of distributions
to stockholders of acquired companies.
FIVE YEAR SUMMARY
Year Ended March 31,
(In thousands, except ---------------------------------------------------------------------
net income (loss) per share) 1995 1994 1993 1992 1991
- --------------------------------------- --------- --------- --------- --------- ---------
Statement of Operations Data:
Net revenues $ 334,867 $ 328,299 $ 344,626 $ 365,711 $ 236,604
Acquisition, restructuring and
other expenses 9,545 56,094 12,773 9,822 6,500
Operating income (loss) 37,131 (62,519) (53,996) 40,429 35,454
Net income (loss) 28,500 (56,967) (39,095) 26,261 24,642
Distributions to stockholders
of acquired companies -- -- 162 1,986 3,622
Net income (loss) per share - primary $ 0.77 $ (1.69) $ (1.22) $ 0.79 $ 0.80
Net income (loss) per share - fully diluted $ 0.71 $ (1.69) $ (1.22) $ 0.78 $ 0.78
Shares used to compute net
income (loss) per share - primary 37,383 33,790 32,131 33,371 30,980
Shares used to compute net
income (loss) per share - fully diluted 41,693 33,790 32,131 33,561 31,628
March 31,
---------------------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- -------------------------------------- --------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $ 95,044 $ 49,581 $ 85,139 $ 74,370 $ 41,448
Total assets 221,315 188,792 230,894 213,493 137,783
Long-term obligations, less
current portion 25,408 25,966 27,148 4,866 5,824
Stockholders' equity 111,322 64,054 116,643 131,050 78,490
15
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Symantec develops, markets and supports a diversified line of application and
system software products designed to enhance individual and workgroup
productivity as well as manage networked computing environments. Founded in
1982, the Company has offices in the United States, Canada, Australia, Japan and
Europe.
Due to a number of factors and risks, including the rapid change in hardware and
software technology, market conditions, seasonality in the retail software
market, the timing of product announcements, the release of new or enhanced
products, the introduction of competitive products by existing or new
competitors and the significant risks associated with acquisitions of companies,
technology and software product rights, historical results and percentage
relationships will not necessarily be indicative of the operating results of any
future period. The pending release of Windows 95 by Microsoft is a particularly
important event that increases the uncertainty and will likely increase the
volatility of Symantec's results and common stock price over the next twelve
months.
The Company's earnings and stock price have been and may continue to be subject
to significant volatility, particularly on a quarterly basis. Symantec has
previously experienced shortfalls in revenue and earnings from levels expected
by securities analysts, which had an immediate and significant adverse effect on
the trading price of the Company's common stock. This may occur again in the
future. Additionally, as a growing percentage of the Company's revenues are
generated from enterprise software products which are frequently sold through
site licenses which often occur late in the quarter, the Company may not learn
of revenue shortfalls until late in the fiscal quarter, which could result in an
even more immediate and adverse effect on the trading price of the Company's
common stock. Finally, the Company participates in a highly dynamic industry,
which often results in significant volatility of the Company's common stock
price.
During the last three fiscal years, Symantec has acquired the following
companies:
Shares of Acquired
Symantec Company
Common Stock
Stock Options
Companies Acquired Date Acquired Issued Assumed
- ------------------------------------------------------ ------------------ --------- --------
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc. ("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 2,769,010 --
Contact Software International, Inc. ("Contact") June 2, 1993 2,404,019 232,589
Certus International Corporation ("Certus") November 30, 1992 368,141 32,619
MultiScope, Inc. ("MultiScope") September 2, 1992 253,075 125,089
The Whitewater Group, Inc. ("Whitewater") September 2, 1992 69,740 9,644
All of these acquisitions were accounted for as poolings of interest.
Accordingly, all financial information has been restated to reflect the combined
operations of these companies and Symantec with the exception of Intec, SLR,
MultiScope and Whitewater, which had results of operations that were not
material to Symantec's consolidated financial statements.
16
RESULTS OF OPERATIONS
The following table sets forth each item from the consolidated statements of
operations as a percentage of net revenues and the percentage change in the
total amount of each item for the periods indicated.
Period-to-Period
Percentage
Increase (Decrease)
---------------------
Year Ended March 31, 1995 1994
-------------------------- Compared Compared
1995 1994 1993 to 1994 to 1993
------ ------ ------ -------- --------
Net revenues . . . . . . . . . . . . . . . 100% 100% 100% 2% (5)%
Cost of revenues . . . . . . . . . . . . . 18 24 30 (24) (23)
------ ------ ------
Gross margin . . . . . . . . . . . . 82 76 70 11 3
Operating expenses:
Research and development . . . . . . . . 19 20 21 (2) (10)
Sales and marketing. . . . . . . . . . . 44 50 52 (11) (8)
General and administrative . . . . . . . 5 8 9 (33) (19)
Acquisition, restructuring and
other non-recurring expenses . . . . . 3 17 4 (83) 339
------ ------ ------
Total operating expenses . . . . . . 71 95 86 (24) 6
------ ------ ------
Operating income (loss). . . . . . . . . . 11 (19) (16) * 16
Interest income. . . . . . . . . . . . . . 1 1 -- 126 (13)
Interest expense . . . . . . . . . . . . . (1) (1) -- (4) 81
Other income (expense), net. . . . . . . . -- -- -- * (75)
------ ------ ------
Income (loss) before income taxes. . . . . 11 (19) (16) *
Provision (benefit) for income taxes . . . 2 (2) (5) * (57)
------ ------ ------
Net income (loss). . . . . . . . . . . . . 9% (17)% (11)% * 46
------ ------ ------
------ ------ ------
- ----------------------------------
* percentage change is not meaningful.
NET REVENUES.
Net revenues increased 2% from $328.3 million in fiscal 1994 to $334.9 million
in fiscal 1995. The increase in fiscal 1995 net revenues from the prior year is
principally due to an increase in site license and distribution product revenues
which was partially offset by a decrease in upgrade and OEM product revenues.
The increase in site license revenues during fiscal 1995 is primarily due to the
release of several new enterprise products which are generally sold through site
licenses. The decrease in upgrade revenues is primarily due to several products
which were intentionally not upgraded in anticipation of the release of the
Windows 95 operating systems.
Net revenues decreased 5% from $344.6 million in fiscal 1993 to $328.3 million
in fiscal 1994. The decrease in fiscal 1994 net revenues from the prior year is
principally due to the decrease in Central Point product revenues and lower
distribution and OEM revenues which was partially offset by increased revenues
from new product introductions, increased international revenues and increased
upgrade and site license revenues.
In March 1994, due to the market's concerns regarding Central Point's long-term
viability and the announced acquisition of Central Point by Symantec, Central
Point was unable to reasonably estimate future product returns from its
distributors and resellers. In addition, there were high levels of inventory in
the distribution channel which had been shipped into the channel prior to the
acquisition. Central Point believed that there was a high risk
17
of this inventory being returned. In accordance with Statement of Financial
Accounting Standards No. 48, Central Point revenue and the related cost of
revenue for fiscal 1994 for software shipments to Central Point's distributors
and resellers was deferred until sold by the distributors or resellers to the
end user.
As a result, revenues relating to product inventory at Central Point's
distributors and resellers as of March 31, 1994 were deferred until sold by the
distributors or resellers to end users. This revenue and cost of revenue
deferral resulted in a decrease in domestic net revenues of approximately $5.0
million and international net revenues of approximately $10.0 million and an
increase in the fiscal 1994 loss before provision for income taxes of
approximately $12.3 million. Symantec's marketing and sales programs were
successful in moving the domestic deferred channel inventory through to end
users. Symantec has also been analyzing returns related to the Central Point
products for the last four quarters to determine when such products were being
sold through to end users and in the March 1995 quarter Symantec was able to
assess the remaining Central Point product returns in the domestic distribution
channel and as a result recognized approximately $3.0 million of domestic net
revenue previously deferred by Central Point.
Symantec expects to recognize the associated remaining international deferred
revenue when Symantec is able to verify that the remaining international product
sell-through has occurred and is able to estimate any remaining return
exposures. Symantec expects to recognize the remaining deferred revenue
associated with this international distributor inventory in the June 1995
quarter.
The Company's products include enterprise products which are frequently sold
through site licenses where a license for multiple workstations is sold to a
customer at a negotiated price and desktop software products which are generally
sold through the distribution channel or directly to end-users. Enterprise
product revenues are typically comprised of lower volume, high dollar site
license transactions compared to desktop product revenues which are typically
comprised of higher volume, low dollar pre-packaged product transactions. The
prices of site licenses tend to vary based upon the individual products
purchased, the number of units licensed and the number of workstations at the
customer's site. There was no material impact to net revenues resulting from
changes in desktop product pricing.
Price competition is significant in the microcomputer business software market
and may continue to increase and become even more significant in the future,
resulting in reduced profit margins. Should competitive pressures in the
industry continue to increase, Symantec may be required to increase its spending
on sales, marketing and research and development as a percentage of net
revenues, resulting in lower profit margins. In addition, aggressive pricing
strategies of competitors in other software markets, some of whom have
significantly more financial resources than Symantec, may further cause the
Company to reduce software prices and/or increase sales and marketing expenses
on a number of the Company's products.
Net revenues from international sales grew from approximately $106.8 million in
fiscal 1993 to $109.3 million in fiscal 1994 and to $115.6 million in fiscal
1995 and represented 31%, 33% and 35% of net revenues, respectively. The
increase in international sales from fiscal 1994 to fiscal 1995 is largely due
to the favorable impact of the change in foreign currency exchange rates during
fiscal 1995.
During fiscal 1995, Symantec released several new or upgraded enterprise
products, including The Norton Administrator for Networks v. 1.5, The Norton
Enterprise Backup v. 1.0, The Norton pcANYWHERE Access Server v. 1.0, The Norton
pcANYWHERE for Windows v. 2.0, Symantec Enterprise Developer v. 2.0, The Norton
AntiVirus for Netware v. 2.0, ACT! Mobile Link for Windows v. 2.0, Symantec C++
v. 7.0 for Windows, Time Line for Windows v. 6.1, NetControl v. 1.0 and Symantec
AntiVirus for Macintosh Administrator v. 4.0. The Company also released a
number of new desktop products during fiscal 1995, including More PC Tools for
DOS and Windows, Symantec AntiVirus for Macintosh v. 4.0, MacTools Pro v. 4.0,
ACT! v. 2.0 for Macintosh and ACT! v. 1.1 for the HP Palmtops, Disklock MAC v.
3.0 and The Norton Utilities for Macintosh v. 3.1.
Enhanced product releases typically result in net revenue increases during the
first three to six months following their introduction due to upgrade purchases
by existing users, usually at discounted prices, and initial inventory purchases
by the Company's distributors. In addition, between the date the Company
announces a new version or new product and the date of release, distributors,
dealers and end users often delay purchases, cancel orders or return products in
anticipation of the availability of the new version or new product.
18
The Company's pattern of revenues and earnings may also be affected by a
phenomenon known as "channel fill." Channel fill occurs following the
introduction of a new product or a new version of a product as distributors buy
significant quantities of the new product or version in anticipation of sales of
such product or version. Following such purchases, the rate of distributors'
purchases often declines in a material amount, depending on the rates of
purchases by end users or "sell-through." The phenomenon of "channel fill" may
also occur in anticipation of price increases or in response to sales promotions
or incentives, some of which may be designed to encourage customers to
accelerate purchases that might otherwise occur in later periods. Channels may
also become filled simply because the distributors are unable to, or do not,
sell their inventories to retail distribution or end users as anticipated. If
sell-through does not occur at a sufficient rate, distributors will delay
purchases or cancel orders in later periods or return prior purchases in order
to reduce their inventories. Such order delays or cancellations can cause
material fluctuations in revenues from one quarter to the next. The impact is
somewhat mitigated by the Company's deferral of revenue associated with
inventories estimated to be in excess of levels deemed appropriate in the
domestic distribution channel; however, net revenues may still be materially
affected favorably or adversely by the effects of channel fill. Channel fill
did not have a material impact on the Company's revenues in fiscal 1995, 1994 or
1993 but may have a material impact in future periods, especially in periods
where a large number of new products are introduced. The Company expects to
release a large number of new products when Microsoft releases Windows 95.
Symantec believes that many of its customers are moving toward an enterprise-
wide computing oriented environment where more desktop personal computers will
be interconnected into large local-area and wide-area networks administered by
corporate MIS departments.
Symantec's entry into the enterprise software market is relatively new and as a
result, Symantec is beginning to compete with companies with which it has not
previously competed. As a result, there is uncertainty regarding customer
acceptance of the Company's products as Symantec has not been a major supplier
in the enterprise market. These factors increase the uncertainty of forecasting
financial results. While the Company expects the market's shift toward
enterprise products to continue, there can be no assurance that the Company's
enterprise products will be successful or will gain customer acceptance.
With the expansion to enterprise-wide computing systems markets, Symantec
believes that it must continue to develop relationships with systems integrators
and other third-party vendors that provide consulting and integration services
to customers and deliver products developed for this market segment.
Furthermore, the length of the sales cycle with respect to enterprise products
is longer and customers of enterprise products may take delivery of a product
subject to integration and acceptance by the customer. In addition, a very high
proportion of enterprise product sales are completed in the last few days of
each quarter, in part because customers are able, or believe that they are able,
to negotiate lower prices and more favorable terms. Each of these factors
increase the risk that forecasts of quarterly financial results will not be
achieved.
Approximately 22% and 11% or a total of 33% of the Company's net revenues in
fiscal 1995 were from sales to two large distributors. These customers tend to
make the great majority of their purchases at the end of the fiscal quarter, in
part because they are able, or believe that they are able, to negotiate lower
prices and more favorable terms. This end-of-period buying pattern means that
forecasts of quarterly and annual financial results are particularly vulnerable
to the risk that they will not be achieved, either because expected sales do not
occur or because they occur at lower prices or on less favorable terms to the
Company. The Company's distribution customers also carry the products of the
Company's competitors, some of which have greater financial resources than the
Company. The distributors have limited capital to invest in inventory and their
decisions to purchase the Company's products is partly a function of pricing,
terms and special promotions offered by the Company as well as by its
competitors over which the Company has no control and which it cannot predict.
While Symantec's diverse product line has tended to lessen fluctuations in
quarterly net revenues, these fluctuations have occurred recently and are likely
to occur in the future. These fluctuations may be caused by a number of
factors, including the timing of announcements and releases of new or enhanced
versions of its products and product upgrades, the introduction of competitive
products by existing or new competitors, reduced demand for any given product,
the market's transition between operating systems, and the transition from a
desktop PC environment to an enterprise-wide environment and may cause
significant fluctuations in sales revenues and, accordingly, operating results.
19
The Company is devoting substantial efforts to the development of software
products that are designed to operate on Microsoft's new operating system
("Windows 95"), which is currently under development and testing. Microsoft may
incorporate advanced utilities in Windows 95 or in future releases of Windows 95
that may decrease the demand for certain of the Company's products, including
those currently under development. Further, should Microsoft incur further
delays in the development or release of Windows 95, which is scheduled by
Microsoft to be released in August 1995, should Windows 95 not achieve market
acceptance, or should Symantec be unable to successfully or timely develop
products that operate under Windows 95, Symantec's future revenues and,
accordingly, profitability would be immediately and significantly adversely
affected. In addition, as the timing of delivery and adoption of many products
is dependent on Microsoft's delivery of beta and final versions of Windows 95
and the adoption rate of Windows 95, which the Company and securities analysts
are unable to predict, the Company's and securities analysts' ability to
forecast the Company's revenues is being adversely impacted. Also, the Company
expects that demand for certain of its existing utility products will decline in
advance of the Windows 95 release. It is difficult for securities analysts or
the Company to forecast the extent of this decline. For all of the preceding
reasons, there is a heightened risk that revenues and profits will not be in
line with analysts' expectations in the periods preceding and following the
introduction of Windows 95.
The length of Symantec's product development cycle has generally been greater
than Symantec originally expected. Although such delays have undoubtedly had a
material adverse effect on Symantec's business, Symantec is not able to quantify
the magnitude of revenues that were deferred or lost as a result of any
particular delay because Symantec is not able to predict the amount of revenues
that would have been obtained had the original development expectations been
met. Delays in product development, including products being developed for
Windows 95, are likely to occur in the future and could have a material adverse
effect on the amount and timing of future revenues. Due to the inherent
uncertainties of software development projects, Symantec does not generally
disclose or announce the specific expected shipment date of the Company's
product introductions.
In addition, there can be no assurance that any products currently being
developed by Symantec, including products being developed for Windows 95, will
be technologically successful, that any resulting products will achieve market
acceptance or that the Company's products will be effective in competing with
products either currently in the market or introduced in the future.
During fiscal 1993, Symantec believes revenues were adversely affected by an
unexpected substantial price reduction in 486-based personal computers that
caused a shift in customer spending from software to personal computer hardware.
Symantec also believes that the shift was caused by the introduction of Windows
3.1, which requires more computing capability. If the next class of personal
computers, including those based on Intel's Pentium or P6 microprocessor or
Motorola's Power-PC, are also rapidly reduced in price, there may be another
unexpected shift in customer buying away from software and Symantec's products,
which could result in significantly reduced revenues and a material adverse
effect on operating results. Symantec has noted that Pentium processors are
being marketed aggressively by Intel. The introduction of Windows 95 and a
decline in the price of Pentium processors could cause a shift in customer
spending from software to personal computer hardware and could adversely impact
the Company's net revenues.
The Company estimates and maintains reserves for product returns. Increased
product returns occur when the Company introduces product upgrades and new
products and discontinues certain software products. In addition, competitive
factors require the Company to offer increased rights of return for products
that distributors or retail stores are unable to sell. The Company has set its
reserves for returns in accordance with historical product return experience.
Setting reserves involves making significant judgments about future competitive
conditions and product life cycles. Those judgments involve evaluating
information that often is incomplete, unclear and in conflict. Symantec
prepares detailed analyses of historical return rate experiences in its
estimation of reserves for product returns. In addition to detailed historical
return rates, the Company's estimation of return reserves takes into
consideration upcoming product upgrades, current market conditions, distributor
and "superstore" inventory balances and sell-through volume and any other known
factors that may impact anticipated product returns. Based upon returns
experienced, the Company's estimates have been materially accurate. However,
there can be no assurance that historical experience will be an accurate guide
for the future because the rate of returns is primarily a function of the
competitive state of the market in the future and thus, in large part, is a
function of the actions of the Company's competitors, which the Company cannot
accurately anticipate. The Company's product return
20
reserve balances typically fluctuate from period to period based upon the level
and timing of product upgrade releases. Product return reserve balances at
March 31, 1995 were lower than reserve balances at March 31, 1994. The decrease
is primarily due to Central Point product shipments which were previously
deferred and subsequently sold through to the end users. The level of actual
product returns and related product return reserves is largely a factor of the
level of product sell-in (gross revenue) from normal sales activity and the
replacement of obsolete quantities with the current version of the Company's
product. As a result, gross revenues generally move in the same direction as
product returns. Changes in the levels of product returns and related product
return reserves are generally offset by changing levels of gross revenue and,
therefore, do not typically have a material impact on reported net revenues.
The Company operates with relatively little backlog; therefore, if near-term
demand for the Company's products weakens in a given quarter, there could be a
material adverse effect on revenues and on the Company's operating results.
Symantec maintains a research and development facility in Santa Monica,
California that was damaged during the January 1994 earthquake in Southern
California. Much of the Company's administration, sales and marketing,
manufacturing facilities and research and development efforts are located on the
west coast of the United States. Future earthquakes or other natural disasters
could cause a significant disruption to the Company's operations and may cause
delays in product development that could adversely impact future revenues of the
Company.
Also, Symantec's order entry department is located in Oregon, with shipments
being made from a warehouse in California. Order entry and shipping is
similarly separated in Europe. A disruption in communications between these
facilities, particularly at the end of a fiscal quarter would likely result in
an unexpected shortfall in revenues and could result in unexpected losses.
During the March 1994 quarter, Symantec introduced a new product support program
that provides a wide variety of free and fee-based technical support services to
its customers. Symantec provides its customers with free support via electronic
and automated services as well as 90 days complimentary free telephone support
for certain of the Company's products. In addition, Symantec offers both
individual users and corporate customers a variety of fee-based support options
for certain of the Company's products, designed to meet their individual
technical support requirements. Fee-based technical support services did not
generate significant revenues in the years ended March 31, 1995 and 1994 and are
not expected to generate material revenues in the near future.
GROSS MARGIN.
Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing expenses, manuals, packaging, royalties paid
to third parties under publishing contracts and amortization and write-off of
capitalized software. Amortization of capitalized software, including
amortization and the write-off of both purchased product rights and capitalized
software development expenses, totaled $6.4 million, $17.8 million and $17.5
million for fiscal 1995, 1994 and 1993, respectively. The decrease in
amortization and write-off of capitalized software costs in fiscal 1995 over
fiscal 1994 and 1993 is due to the write-off of certain previously capitalized
software costs by Central Point during fiscal 1994 and by Fifth Generation in
fiscal 1993.
Gross margins increased to 82% of net revenues in fiscal 1995 from 76% and 70%
in fiscal 1994 and 1993, respectively. The increase in the gross margin
percentage in fiscal 1995 compared to fiscal 1994 was largely due to the growth
in higher margin enterprise products which are typically sold through site
licenses and is also due to Symantec's ability to manufacture Central Point
products with a lower cost structure than Central Point was able to prior to the
merger. In addition, the decrease in amortization expense of capitalized
software contributed to the increase in the gross margin percentage in fiscal
1995. The increase in the gross margin percentage in fiscal 1994 compared to
fiscal 1993 was due to improvements in the gross margin percentage of Fifth
Generation's products and the gradual shift in Symantec's product mix from
desktop products toward higher margin enterprise products in fiscal 1994 which
was partially offset by the decline in Central Point's gross margin percentage
due to its software write-offs. This improvement in the gross margin percentage
of Fifth Generation's products was largely due to the absence of significant
software amortization and write-off of capitalized software by Fifth Generation
during fiscal 1993. Additionally, Symantec was able to produce the Fifth
Generation products with a lower cost structure than Fifth Generation was able
to prior to the merger. Symantec believes that the gross margin percentage will
remain near the current level unless there is a significant change in Symantec's
net revenues.
21
The microcomputer business software market has been subject to rapid changes
that can be expected to continue. Future technology or market changes,
including the release of Windows 95, may cause certain products to become
obsolete more quickly than expected and thus may result in capitalized software
write-offs and an increase in required inventory reserves and, therefore,
reduced gross margins and net income. In addition, the modifications to
computer software, including the correction of software bugs, may result in
significant inventory rework costs, including the cost of replacing inventory in
the distribution channel.
On December 31, 1993, Symantec acquired certain technology for developing an
architecture and tools to build client-server applications from DataEase
International, Inc. in exchange for 391,456 shares of Symantec common stock and
cancellation of the principal and accrued interest on a $1.0 million outstanding
note receivable. The Company capitalized approximately $7.7 million of
purchased product rights as a result of this transaction.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses decreased 2% to $62.8 million or 19% of net
revenues in fiscal 1995 from $64.1 million or 20% of net revenues in fiscal
1994, and was $71.1 million or 21% of net revenues in fiscal 1993. The decrease
in research and development expenses in fiscal 1995 is principally due to the
consolidation of product development efforts resulting from the acquisition of
Central Point. The decrease in research and development expenses in fiscal 1994
was primarily due to lower spending on the Company's security utility product
development efforts resulting from the consolidation of the development efforts
of Symantec and Fifth Generation and a $2.0 million decrease in spending
relating to Central Point products.
Symantec believes increased research and development expenditures will be
necessary in order to remain competitive and expects research and development
expenses to increase in dollar amount.
Research and development expenditures are charged to operations as incurred.
Financial accounting rules requiring capitalization of certain internal software
development costs did not materially affect the Company in the periods
presented.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses decreased 11% to $147.6 million or 44% of net
revenues in fiscal 1995 from $165.1 million or 50% of net revenues in fiscal
1994. The decrease in fiscal 1995 was principally due to the elimination of
duplicative sales organizations as a result of the acquisition of Central Point.
Subsequent to the acquisition of Central Point by Symantec in fiscal 1995,
various duplicative sales organizations were eliminated as a result of the
combination of the companies. Sales and marketing expenses for fiscal 1994
decreased 8% over fiscal 1993 due to the elimination of duplicative sales
organizations as a result of the acquisitions of Fifth Generation and Contact
and the reduction of sales and marketing expenses incurred by Central Point.
Symantec believes substantial sales and marketing efforts are essential to
achieve revenue growth and to maintain and enhance Symantec's competitive
position. Accordingly, with the continued expansion of its international
operations, as well as the introduction of new and upgraded products, including
products currently being developed for Windows 95, Symantec expects the expenses
associated with these efforts to increase in dollar amount and to continue to
constitute its most significant operating expense. There can be no assurance
that these increased sales and marketing efforts will be successful. Symantec
believes that the Company's sales and marketing expenses may increase
significantly in the September 1995 quarter to support the introduction of
Windows 95 products. These sales and marketing expenses may become committed,
and may be unable to be reduced, even if Microsoft announces a delay in Windows
95. This situation would have a material adverse impact on profitability.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses decreased 33% from $25.2 million or 8% of
net revenues in fiscal 1994 to $17.0 million or 5% of net revenues in fiscal
1995. This decrease was principally due to benefits resulting from the
consolidation of the general and administrative functions of Symantec and
Central Point. Subsequent to the acquisition of Central Point by Symantec in
fiscal 1995, various duplicative general and administrative functions were
eliminated as a result of the combination of the companies. In addition,
general and administrative expenses
22
decreased due to the settlement of two class action lawsuits in fiscal 1994
resulting in a decrease in legal expenses during fiscal 1995.
General and administrative expenses decreased 19% from $31.1 million or 9% of
net revenues in fiscal 1993 to $25.2 million or 8% of net revenues in fiscal
1994. This decrease was principally due to benefits resulting from the
consolidation of the general and administrative functions of Contact and Fifth
Generation at Symantec's corporate headquarters, which was partially offset by
increases in legal expenses associated with two class action lawsuits (See
Note 10 of Notes to Consolidated Financial Statements).
Future growth of the Company is expected to result in an increase in the dollar
amount of general and administrative spending from current levels.
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
ACQUISITION EXPENSES. In connection with the various acquisitions completed in
fiscal 1995, 1994 and 1993 (see Summary of Significant Accounting Policies and
Note 10 of Notes to Consolidated Financial Statements), significant acquisition
expenses were incurred. These acquisition expenses principally included fees
for legal, accounting and financial advisory services, the write-off of
duplicative capitalized technology, the modification of certain development
contracts and expenses related to the combination of the companies, including
the elimination of duplicative and excess facilities and personnel. These
charges approximated $9.5 million, $25.9 million and $5.1 million in fiscal
1995, 1994 and 1993, respectively.
In connection with the acquisitions of Central Point and SLR, Symantec recorded
total acquisition charges of $9.5 million in fiscal 1995. The charges included
$3.2 million for legal, accounting and financial advisory services, $1.0 million
for the write-off of duplicative product-related expenses and modification of
certain development contracts, $0.9 million for the elimination of duplicative
and excess facilities, $3.1 million for personnel severance and outplacement
expenses, and $1.3 million for the consolidation and discontinuance of certain
operational activities and other acquisition related expenses.
Symantec has completed a number of acquisitions and expects to acquire other
companies in the future. In addition to the significant business risks
associated with acquisitions, including the successful combination of the
companies in an efficient and timely manner, the coordination of research and
development and sales efforts, the retention of key personnel and the
integration of the acquired products, Symantec typically incurs significant
acquisition expenses for legal, accounting and financial advisory services, the
write-off of duplicative technology and other expenses related to the
combination of the companies. These expenses may have a significant adverse
impact on the Company's future profitability and financial resources.
RESTRUCTURING EXPENSES. During fiscal 1994, Symantec implemented a plan to
consolidate and centralize certain operational activities (See Note 10 of Notes
to Consolidated Financial Statements). The plan was designed to reduce
operating expenses and enhance operational efficiencies by centralizing certain
order administration, technical support and customer service activities in
Eugene, Oregon. In fiscal 1994, the Company recorded a charge of $4.7 million,
which included $1.1 million for the elimination of duplicative and excess
facility expenses, $1.5 million for the relocation of the Company's existing
operations and equipment, $1.1 million for employee relocation expenses and $1.0
million for employee severance payments. The Company's centralization has been
completed.
During fiscal 1994, Central Point incurred $16.0 million of expenses related to
the restructuring of its operations in order to reduce its overall cost
structure and to redirect its software development and marketing efforts away
from the personal desktop computer market toward personal computer network
markets. The charge included $6.2 million for employee severance, outplacement
and relocation expenses, $5.6 million for the write-off of certain excess fixed
and intangible assets, $1.8 million for lease abandonments and facility
relocation and $2.4 million for the consolidation and discontinuance of certain
operational activities and other related expenses. This restructuring has been
substantially completed.
During fiscal 1993, Symantec recorded a $4.4 million charge for expenses related
to the restructuring of certain operational functions within the Company. The
plan was designed to reduce operating expenses and reallocate resources from DOS
products to Windows and Development Tools products. This charge included $1.0
million for the elimination of excess facilities, $0.4 million for the
relocation of certain employees and $3.0 million for
23
outplacement expenses and severance payments associated with the reduction in
staffing. This restructuring has been completed.
During fiscal 1993, Central Point incurred $0.7 million of charges related to
the restructuring of its operations, including the sale of its manufacturing
operations, personnel relocation and severance, and the write-off of certain
property and equipment. This restructuring has been completed.
OTHER EXPENSES. During fiscal 1994, Symantec reached an agreement with the
plaintiffs and Symantec's insurance carriers to settle two securities class
actions and a related derivative lawsuit brought by stockholders of Symantec
(See Note 10 of Notes to Consolidated Financial Statements). The combined
settlement amount of the cases was $19.0 million, approximately $12.5 million of
which was paid by Symantec's insurance carriers. Symantec recorded a charge in
fiscal 1994 of $6.5 million, representing Symantec's portion of the settlement.
During fiscal 1993, the Company recorded a $2.6 million charge for estimated
total legal fees expected to be incurred in connection with the Borland civil
lawsuit and the related criminal prosecution (See Notes 10 and 11 of Notes to
Consolidated Financial Statements).
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business (See Note 11 of Notes to Consolidated
Financial Statements). The Company intends to defend all of these lawsuits
vigorously and although an unfavorable outcome could occur in one or more of the
cases, the final resolution of these lawsuits, individually or in the aggregate,
is not expected to have a material adverse effect on the financial position of
the Company. However, depending on the amount and timing of an unfavorable
resolution of these lawsuits, it is possible that the Company's future results
of operations or cash flows could be materially adversely effected in a
particular period.
In fiscal 1994, Central Point purchased from unrelated parties certain in-
process software technologies for $3.0 million which was immediately expensed.
(See Note 10 of Notes to Consolidated Financial Statements).
As of March 31, 1995, total accrued acquisition and restructuring expenses were
$8.6 million and included $1.1 million for the modification of certain
development contracts, $1.4 million for the elimination of duplicative and
excess facilities, $1.3 million for employee severance, outplacement and
relocation expenses and $4.8 million for the consolidation and discontinuance of
certain operational activities and other acquisition related expenses.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE).
Interest income was $3.3 million, $1.5 million and $1.7 million in fiscal 1995,
1994 and 1993, respectively. The increase in interest income in fiscal 1995
over fiscal 1994 is due to higher average invested cash balances and higher
average interest rates on invested cash. Interest expense was $2.4 million,
$2.5 million and $1.4 million in fiscal 1995, 1994 and 1993, respectively. The
increase in interest expenses in fiscal 1995 and 1994 over fiscal 1993 is
principally due to interest expense on convertible subordinated debentures which
were issued on April 2, 1993, which was partially offset by the retirement of
acquired company debt. On April 26, 1995, convertible subordinated debentures
totaling $10.0 million were converted into 833,333 shares of Symantec common
stock. As a result, interest expense is expected to decrease in fiscal 1996.
Other expense is primarily comprised of foreign currency exchange losses from
fluctuations in currency exchange rates.
The Company conducts business in various foreign currencies and is therefore
subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are recorded and
the date that they are settled. Symantec utilizes some natural hedging to
mitigate the Company's transaction exposures and, effective December 31, 1993,
the Company commenced hedging some residual transaction exposures through the
use of 30-day forward contracts. At March 31, 1995, there was a total of
approximately $30.0 million of outstanding forward exchange contracts. The net
liability of forward contracts was approximately $12.3 million at
March 31, 1995. There have been no significant gains or losses to date with
respect to these activities. Gains or losses would occur on 30-day forward
contracts held by the Company when changes in foreign currency exchange rates
occur. These gains and losses should be largely offset by the transaction gains
and losses resulting from foreign currency denominated cash, accounts
receivable, intercompany balances and trade payables. There can be no assurance
that these strategies will continue to be effective or that transaction gains or
losses can be minimized or forecasted accurately. The Company does not hedge
its translation risk.
24
INCOME TAXES.
The effective income tax rate for fiscal 1995 was 26%, which compared to an
effective income tax benefit rate of 11% in fiscal 1994 and 29% in fiscal 1993.
The 1995 income tax rate of 26% is lower than the statutory rate primarily due
to the benefit of preacquisition losses of Central Point and certain foreign
earnings taxed at lower rates, which were partially offset by Central Point
acquisition costs that were not deductible for income tax purposes.
A net deferred tax asset of approximately $9.9 million is reflected in the
financial statements. Approximately $25 million of future U.S. taxable income
will be necessary to realize this net deferred tax asset. While there can be no
assurance that future income will be sufficient to realize this benefit,
management believes that this benefit will be realized in the near future based
on projected income from new and existing products. A valuation allowance of
$28.9 million was provided in the financial statements. The valuation allowance
consists primarily of $14.7 million for Central Point preacquisition losses and
$11.1 million for unbenefitted stock option deductions, the benefit of which
will be credited to equity when realized. The remaining portion of the
valuation allowance represents net operating loss carryforwards of various
acquired companies that are limited under the "change of ownership" rules of
Internal Revenue Code Section 382.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased $44.7 million from $60.5 million at
March 31, 1994 to $105.2 million at March 31, 1995, largely due to cash provided
from operating activities, net proceeds from the sales of common stock and the
exercise of stock options which was partially offset by cash expenditures for
capital equipment and purchased intangibles. Net cash provided by operating
activities was $50.1 million and was primarily due to the change in net assets
and liabilities, non-cash related expenses and the Company's net income of $28.5
million.
Trade accounts receivable increased $5.7 million from $48.3 million at March 31,
1994 to $54.0 million at March 31, 1995 primarily due to the increase in
Symantec's product revenues during the March 1995 quarter over the March 1994
quarter. The large decline in other current assets from $13.7 million at
March 31, 1994 to $6.3 million at March 31, 1995 was principally due to the
write-off and elimination of other assets acquired from Central Point.
The Company has a $10.0 million line of credit that expires in October 1995.
The line of credit is available for general corporate purposes and bears
interest at the banks' reference (prime) interest rate (9.0% at March 31, 1995),
the U.S. offshore rate plus 1.5%, a CD rate plus 1.5% or LIBOR plus 1.5%, at the
Company's discretion. The line of credit requires bank approval for the payment
of cash dividends. Borrowings under this line are unsecured and are subject to
the Company maintaining certain financial ratios and profits. At March 31,
1995, there was approximately $ 0.5 million of outstanding standby letters of
credit under this line of credit. There were no borrowings outstanding under
this line at March 31, 1995. The Company was in compliance with the debt
covenants at March 31, 1995. Company acquisitions in the future may cause the
Company to be in violation of the line of credit covenants; however, Symantec
believes that if the line of credit were canceled or amounts were not available
under the line, there would not be a material adverse impact on the financial
results, liquidity or capital resources of the Company.
The Company may utilize significant amounts of cash in connection with the
potential acquisition of additional companies and software product rights in the
future. However, if the Company were to sustain significant losses, there can
be no assurances that the bank line of credit, which is available through
October 1995, would remain available. Additionally, the Company could be
required to reduce operating expenses, which could result in further product
delays; reassess acquisition opportunities, which could negatively impact the
Company's growth objectives; and/or pursue further financing options. The
Company believes existing cash and short-term investments will be sufficient to
fund operations for the next year.
25
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ANNUAL FINANCIAL STATEMENTS. See Part IV, Item 14 of this Form 10-K.
SELECTED QUARTERLY DATA. During fiscal 1995, Symantec acquired Central Point,
Intec and SLR in transactions accounted for as poolings of interest. All
financial information has been restated to reflect the combined operations of
Symantec and Central Point. Prior year amounts have not been restated for Intec
and SLR as their results of operations were not material to Symantec's
consolidated financial statements.
(IN THOUSANDS, EXCEPT NET INCOME (LOSS) PER SHARE; UNAUDITED)
FISCAL 1995 FISCAL 1994
-------------------------------------------- --------------------------------------------
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
1995 1994 1994 1994 1994 1993 1993 1993
-------- -------- -------- -------- -------- -------- -------- --------
Net revenues $88,548 $84,128 $79,078 $83,113 $77,130 $82,661 $79,688 $88,820
Gross margin 73,865 69,193 64,519 66,460 58,827 64,049 59,651 65,384
Acquisition,
restructuring and
other expenses -- -- -- 9,545 15,536 21,500 6,958 12,100
Net income (loss) 10,419 9,058 7,976 1,047 (21,103) (11,073) (14,676) (10,115)
Net income (loss)
per share -
primary $ 0.27 $ 0.25 $ 0.22 $ 0.03 ($ 0.61) ($ 0.33) ($ 0.44) ($ 0.31)
fully diluted $ 0.26 $ 0.24 $ 0.22 $ 0.03 ($ 0.61) ($ 0.33) ($ 0.44) ($ 0.31)
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
26
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item with respect to Directors may be found in the
section captioned "Election of Symantec Directors" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on August 29, 1995. Such information is
incorporated herein by reference. Information required by this Item with
respect to executive officers may be found in Part I hereof in the section
captioned "Executive Officers of the Registrant.
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 August 29, 1995. 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 August 29, 1995. 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 August 29, 1995. Such information is
incorporated herein by reference.
27
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Upon written request, the Company will provide without charge, a copy of the
Company's annual report on Form 10-K, including the financial statements,
financial statement schedules and any exhibits for the Company's most recent
fiscal year. All requests should be sent to:
Ronald W. Kisling, Director of Finance
Investor Relations
Symantec Corporation
10201 Torre Avenue
Cupertino, California 95014-2132
408-446-8990
(a) The following documents are filed as part of this report:
Page
Number
1. FINANCIAL STATEMENTS.
Report of Ernst & Young LLP, Independent Auditors................... 33
Report of KPMG Peat Marwick LLP, Independent Auditors............... 34
Consolidated Balance Sheets as of March 31, 1995 and 1994........... 35
Consolidated Statements of Operations for the Years Ended
March 31, 1995, 1994 and 1993.................................... 36
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1995, 1994 and 1993.............................. 37
Consolidated Statements of Cash Flow for the Years Ended
March 31, 1995, 1994 and 1993.................................... 38
Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements................................ 39
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule of Symantec Corporation for the years ended March 31, 1995,
1994 and 1993 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 Schedule II - Valuation and Qualifying Accounts................ 53
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 Exhibit 4.02 of Amendment No. 2
filed with the Registrant's Form S-3 Registration Statement
(No. 33-82012) filed December 23, 1994.)
3.02 The Registrant's Bylaws, as currently in effect. (Incorporated by
reference to Exhibit 3.02 filed with the Registrant's
Registration Statement on Form S-1 (No. 33-28655) originally
filed May 19, 1989, and amendment No. 1 thereto filed June 21,
1989, which Registration Statement became effective June 22,
1989.)
4.01 Registration Rights Agreement. (Incorporated by reference to
Exhibit 4.02 filed with the Registrant's Registration Statement
on Form S-4 (No. 33-35385) initially filed June 13, 1990.)
4.02 Amendment No. One to Registration Rights Agreement (Incorporated
by reference to Exhibit 4.03 filed with the Registrant's Annual
Report on Form 10-K for the year ended April 2, 1993.)
28
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.)
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. 33-88694)
filed January 23, 1995.)
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 Office building lease dated as of August 1, 1991, between Lincoln
Town Center and Symantec Corporation regarding property located
in Cupertino, California. (Incorporated by reference to
Exhibit 10.11 filed with the Registrant's Annual Report on Form
10-K for the year ended April 2, 1993.)
10.10 Addendum No. 4 to Office Building Lease By and Between Lincoln
Property Company N.C., Inc. and Symantec Corporation Dated
August 1, 1991. (Incorporated by reference to Exhibit 10.13
filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993.)
10.11 Office building lease dated as of July 16, 1991, between Zenger-
Miller and Symantec Corporation regarding property located in
Cupertino, California. (Incorporated by reference to Exhibit
10.12 filed with the Registrant's Annual Report on Form 10-K
for the year ended April 2, 1993.)
10.12 Office building lease dated as of November 8, 1989, between
Symantec Corporation and North Bay Center regarding property
located in Novato, California. (Incorporated by reference to
Exhibit 10.15 filed with the Registrant's Registration
Statement on Form S-4 (No. 33-35385) initially filed June 13,
1990.)
10.13 Office building lease dated as of November 1, 1989, between
Symantec Corporation and Oakmead Village, Ltd. regarding
property located in Santa Clara, California. (Incorporated by
reference to Exhibit 10.17 filed with the Registrant's
Registration Statement on Form S-4 (No. 33-35385) initially
filed June 13, 1990.)
10.14 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.)
10.15 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.)
- -------------------------
* Indicates a management contract or compensatory plan or arrangement.
29
10.16 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.
10.17* 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.)
10.18* 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.)
10.19* 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.)
10.20* 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.)
10.21 Agreement and Plan of Reorganization between Symantec Acquisition
Corp. and Fifth Generation Systems, Inc. dated August 30, 1993
and related Agreement of Merger. (Incorporated by reference to
Exhibit 2.01 filed with the Registrant's Current Report on Form
8-K filed October 19, 1993.)
10.22 Agreement and Plan of Reorganization by and among Symantec
Corporation, Symantec Acquisition Corp. and Central Point
Software, Inc. dated March 31, 1994. (Incorporated by
reference to Exhibit 10.27 filed with the Registrant's Annual
Report on Form 10-K for the year ended April 1, 1994.)
10.23 Agreement of Purchase and Sale of Assets among DataEase
International, Inc., DataEase Sapphire International Group,
N.V. and Symantec Corporation dated September 2, 1993.
(Incorporated by reference to Exhibit 10.31 filed with the
Registrant's Quarterly Report of Form 10-Q for the quarter
ended December 31, 1993.) (Confidential treatment has been
granted with respect to portions of this exhibit.)
10.24 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 at 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.)
10.25* The Registrant's Section 401(k) Plan, as amended.
10.26* Form of Executive Compensation Agreement between the Company and
certain executives.
10.27 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.)
10.28* 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.)
10.29* Stock Option Grant between the Company and Charles Boesenberg.
10.30 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.)
10.31 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
- -------------------------
* Indicates a management contract or compensatory plan or arrangement.
30
Form 10-Q for the quarter ended July 1, 1994.) (Confidential
treatment has been granted with respect to portions of this
exhibit.)
10.32 Stipulation of Settlement in the case of Ayln J. Scheatzle, et al.
vs. Gordon E. Eubanks, Jr., et al. and Symantec Corporation.
(Incorporated by reference to Exhibit 10.36 filed with the
Registrant's Quarterly Report of Form 10-Q for the quarter
ended July 1, 1994.)
11.01 Computation of Net Income (Loss) Per Share.
23.01 Consent of Ernst & Young LLP, Independent Auditors.
23.02 Consent of KPMG Peat Marwick LLP, Independent Auditors.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
None
(c) Exhibits:
The Registrant hereby files as part of this Form 10-K the exhibits listed
in Item 14(a)3, as set forth above.
(d) Financial Statement Schedules:
The Registrant hereby files as part of this Form 10-K the schedule listed
in Item 14(a)2, as set forth on page 53.
31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors. . . . . . . . . . . 33
Report of KPMG Peat Marwick LLP, Independent Auditors. . . . . . . . . 34
Consolidated Balance Sheets as of March 31, 1995 and 1994. . . . . . . 35
Consolidated Statements of Operations for the years ended
March 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 37
Consolidated Statements of Cash Flow for the years ended
March 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 38
Summary of Significant Accounting Policies . . . . . . . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 41
32
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, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended March 31, 1995. Our audit also included the
financial statement schedule listed in the Index at Item 14(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits. We did not
audit the financial statements of Fifth Generation Systems, Inc., which
statements reflect a net loss constituting approximately 39% of the related 1993
consolidated financial statement total. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Fifth Generations Systems, Inc., is based solely on
the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Symantec Corporation
at March 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended March 31, 1995,
in conformity with generally accepted accounting principles. Also, in our
opinion, based upon our audits and the report of other auditors, the financial
statement schedule, when considered in relation to the basic statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Jose, California
April 21, 1995
33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Fifth Generation Systems, Inc.:
We have audited the consolidated balance sheet of Fifth Generation Systems, Inc.
(the Company) and subsidiaries as of December 31, 1992 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fifth Generation
Systems, Inc. and subsidiaries at December 31, 1992, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principals.
The accompanying consolidated financial statements have been prepared assuming
that Fifth Generation Systems, Inc. and subsidiaries will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements,
substantially all of the Company's debt matured May 15, 1993 and redemption of
one half of the redeemable preferred stock is redeemable June 30, 1993. In
addition, the Company suffered substantial losses from operations for the year
ended December 31, 1992. These situations raise substantial doubt about the
entity's ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 1. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
KPMG PEAT MARWICK LLP
August 6, 1993
Baton Rouge, Louisiana
34
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
------------------------
(In thousands) 1995 1994
- ----------------------------------------------------------------- --------- ---------
ASSETS
Current assets:
Cash and short-term investments $ 105,188 $ 60,534
Trade accounts receivable 53,986 48,342
Inventories 4,177 7,842
Deferred income taxes 9,939 17,975
Other 6,339 13,660
--------- ---------
Total current assets 179,629 148,353
Equipment and leasehold improvements 28,880 25,369
Purchased intangibles 8,274 11,228
Other 4,532 3,842
--------- ---------
$ 221,315 $ 188,792
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,919 $ 27,556
Accrued compensation and benefits 12,347 12,257
Other accrued expenses 51,789 57,745
Income taxes payable 2,006 367
Current portion of long-term obligations 524 847
--------- ---------
Total current liabilities 84,585 98,772
Convertible subordinated debentures 25,000 25,000
Long-term obligations 408 966
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 70,000; issued and outstanding: 37,175
and 34,990 shares) 372 350
Capital in excess of par value 177,418 157,637
Notes receivable from stockholders (144) (149)
Cumulative translation adjustment (2,860) (2,183)
Accumulated deficit (63,464) (91,601)
--------- ---------
Total stockholders' equity 111,322 64,054
--------- ---------
$ 221,315 $ 188,792
--------- ---------
--------- ---------
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
35
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
---------------------------------------
(In thousands, except net income (loss) per share) 1995 1994 1993
- --------------------------------------------------------------- --------- --------- ---------
Net revenues $ 334,867 $ 328,299 $ 344,626
Cost of revenues 60,830 80,388 104,706
--------- --------- ---------
Gross margin 274,037 247,911 239,920
Operating expenses:
Research and development 62,761 64,088 71,106
Sales and marketing 147,647 165,052 178,903
General and administrative 16,953 25,196 31,134
Acquisition, restructuring and
other expenses 9,545 56,094 12,773
--------- --------- ---------
Total operating expenses 236,906 310,430 293,916
--------- --------- ---------
Operating income (loss) 37,131 (62,519) (53,996)
Interest income 3,334 1,478 1,693
Interest expense (2,419) (2,517) (1,389)
Other income (expense), net 327 (419) (1,659)
--------- --------- ---------
Income (loss) before income taxes 38,373 (63,977) (55,351)
Provision (benefit) for income taxes 9,873 (7,010) (16,256)
--------- --------- ---------
Net income (loss) $ 28,500 $ (56,967) $ (39,095)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share - primary $ 0.77 $ (1.69) $ (1.22)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share - fully diluted $ 0.71 $ (1.69) $ (1.22)
--------- --------- ---------
--------- --------- ---------
Shares used to compute net income (loss) per share - primary 37,383 33,790 32,131
--------- --------- ---------
--------- --------- ---------
Shares used to compute net income (loss) per share - fully diluted 41,693 33,790 32,131
--------- --------- ---------
--------- --------- ---------
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
36
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes Retained
Capital in Receivable Cumulative Earnings Total
Common Excess of from Translation (Accumulated Stockholders'
(In thousands) Stock Par Value Stockholders Adjustment (Deficit) Equity
- ----------------------------------- -------- --------- ------------ --------- -------- --------
Balances, March 31, 1992 $ 312 $100,929 $ (275) $ 156 $ 29,927 $131,049
Acquisition of MultiScope and
Whitewater:
Issued 323 shares of common
stock 3 5,004 -- -- -- 5,007
Accumulated deficit -- -- -- -- (6,951) (6,951)
Net loss -- -- -- -- (39,095) (39,095)
Certus net loss for the quarter
ended March 31, 1992 -- -- -- -- (1,015) (1,015)
Contact net loss for the quarter
ended June 30, 1992 -- -- -- -- 92 92
Issued common stock:
1,197 shares under stock plans 12 6,475 -- -- -- 6,487
Repayments on notes -- -- 58 -- -- 58
Other equity transactions
of acquired companies -- 18,197 -- -- -- 18,197
Distributions to stockholders of
acquired companies -- -- -- -- (162) (162)
Translation adjustment -- -- -- (794) -- (794)
Income tax benefit related to
stock options -- 3,770 -- -- -- 3,770
-------- -------- -------- -------- -------- --------
Balances, March 31, 1993 327 134,375 (217) (638) (17,204) 116,643
Net loss -- -- -- -- (56,967) (56,967)
Fifth Generation net loss for the
quarter ended March 31, 1993 -- -- -- -- (16,390) (16,390)
XTree net loss for the six months
ended March 31, 1993 -- -- -- -- (1,040) (1,040)
Issued common stock:
1,870 shares under stock plans 19 13,725 -- -- -- 13,744
391 shares for acquisition of
product rights 4 6,496 -- -- -- 6,500
Repayments on notes -- -- 68 -- -- 68
Other equity transactions of
acquired companies -- 3,041 -- -- -- 3,041
Translation adjustment -- -- -- (1,545) -- (1,545)
-------- -------- -------- -------- -------- --------
Balances, March 31, 1994 350 157,637 (149) (2,183) (91,601) 64,054
Acquisition of Intec and SLR:
Issued 303 shares of common stock 3 38 -- -- -- 41
Accumulated deficit -- -- -- -- (363) (363)
Net income -- -- -- -- 28,500 28,500
Issued common stock:
1,882 shares under stock plans 19 19,743 -- -- -- 19,762
Repayments on notes -- -- 5 -- -- 5
Translation adjustment -- -- -- (677) -- (677)
-------- -------- -------- -------- -------- --------
Balances, March 31, 1995 $ 372 $177,418 $ (144) $ (2,860) $(63,464) $111,322
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
37
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended March 31,
----------------------------------------
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------- ---------- ---------- ----------
OPERATING ACTIVITIES:
Net income (loss) $ 28,500 $ (56,967) $ (39,095)
Fifth Generation net loss for the quarter ended March 31, 1993 -- (16,390) --
XTree net loss for the six months ended March 31, 1993 -- (1,040) --
Contact net loss for the quarter ended June 30, 1992 -- -- 92
Certus net loss for the quarter ended March 31, 1992 -- -- (1,015)
Acquired companies' net assets (322) -- (1,944)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation and amortization of equipment and
leasehold improvements 13,363 15,122 17,113
Amortization and write-off of capitalized software costs 6,442 17,793 17,503
Write-off of equipment and leasehold improvements 1,539 4,403 (337)
Deferred income taxes 8,073 1,409 (7,608)
Net change in assets and liabilities:
Trade accounts receivable (3,265) 3,799 7,799
Inventories 3,891 (1,596) 3,926
Other current assets 7,685 10,796 (11,227)
Other assets 33 446 (392)
Accounts payable (10,383) (2,602) 3,406
Accrued compensation and benefits (123) 1,608 1,328
Accrued other expenses (6,765) 27,864 8,375
Income tax benefit related to stock options -- -- 3,770
Income taxes payable 1,430 (3,170) (4,321)
---------- ---------- ----------
Net cash provided by (used in) operating activities 50,098 1,475 (2,627)
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures (17,701) (9,103) (21,123)
Purchased intangibles (4,191) (4,632) (12,863)
Purchases of short-term, available-for-sale investments (116,782) (72,043) (17,187)
Maturities of short-term, available-for-sale investments 61,989 46,732 22,728
Sales of fixed assets and other -- 149 2,941
---------- ---------- ----------
Net cash used in investing activities (76,685) (38,897) (25,504)
---------- ---------- ----------
FINANCING ACTIVITIES:
Principal payments on long-term obligations (889) (12,459) (34,726)
Borrowings under long-term obligations -- -- 59,673
Distributions to stockholders of acquired companies -- -- (162)
Net proceeds from sales of common stock and other 19,767 16,853 24,742
---------- ---------- ----------
Net cash provided by financing activities 18,878 4,394 49,527
---------- ---------- ----------
Effect of exchange rate fluctuations on cash and cash equivalents (2,430) (761) (632)
Increase (decrease) in cash and cash equivalents (10,139) (33,789) 20,764
Beginning cash and cash equivalents 32,911 66,700 45,936
---------- ---------- ----------
Ending cash and cash equivalents $ 22,772 $ 32,911 $ 66,700
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid (net of refunds) during the year $ (7,578) $ (8,777) $ 2,589
Interest paid on convertible subordinated debentures and
long-term obligations 2,070 1,891 1,293
The accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements are an integral part of these statements.
38
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Symantec develops, markets and supports a diversified line of application and
system software products designed to enhance individual and workgroup
productivity as well as manage networked computing environments.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Symantec Corporation and its wholly-owned subsidiaries ("Symantec" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
BASIS OF PRESENTATION
During fiscal 1995, 1994 and 1993, Symantec acquired various companies in
transactions accounted for as poolings of interest. Accordingly, all financial
information has been restated to reflect the combined operations of Symantec and
the acquired companies with the exception of Intec, SLR, MultiScope and
Whitewater. The results of operations of these companies were not material to
Symantec's consolidated financial statements and, therefore, prior year amounts
were not combined with Symantec's financial statements.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references
as of and for the periods ended March 31, 1995, 1994 and 1993 reflect amounts as
of and for the periods ended March 31, 1995, April 1, 1994 and April 2, 1993,
respectively.
FOREIGN CURRENCY TRANSLATION
In general, the local currency is the functional currency of the Company's
foreign subsidiaries. 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 not material and are included in the
determination of net income (loss).
REVENUE RECOGNITION
Symantec recognizes revenue upon shipment when no significant vendor obligations
remain and collection of the receivable, net of provisions for estimated future
returns, is probable. Prior to fiscal 1994, Central Point generally recognized
revenue upon shipment, along with a provision for estimated returns. Due to
significant changes in the market's perception of Central Point's long-term
viability and the Agreement and Plan of Reorganization signed by Symantec and
Central Point in fiscal 1994, Central Point was no longer able to reasonably
estimate future returns from distributors and resellers. In accordance with
Statement of Financial Accounting Standards No. 48, revenue and the related cost
of revenue for 1994 for software shipments to these distributors and resellers
was deferred until sold by the distributor or reseller to the end user. The
effect of this revenue and cost of revenue deferral was to increase the 1994
loss before provision for income taxes.
Amounts related to significant post-contract support agreements (generally
product maintenance agreements) are deferred and recognized over the period of
the agreements. The estimated cost of providing insignificant post-contract
support (generally telephone support) is accrued at the time of the sale.
In March 1994, due to the market's concerns regarding Central Point's long-term
viability and the announced acquisition of Central Point by Symantec, Central
Point was unable to reasonably estimate future product returns from its
distributors and resellers. In addition, there were high levels of inventory in
the distribution channel which had been shipped into the channel prior to the
acquisition. Central Point believed that there was a high risk of this
inventory being returned. In accordance with Statement of Financial Accounting
Standards No. 48, Central Point revenue and the related cost of revenue for
fiscal 1994 for software shipments to Central Point's distributors and resellers
was deferred until sold by the distributors or resellers to the end user.
As a result, revenues relating to product inventory at Central Point's
distributors and resellers as of March 31, 1994 were deferred until sold by the
distributors or resellers to end users. This revenue and cost of revenue
deferral resulted in a decrease in domestic net revenues of approximately $5.0
million and international net revenues of approximately $10.0 million and an
increase in the fiscal 1994 loss before provision for income taxes of
approximately $12.3 million. Symantec's marketing and sales programs were
successful in moving the
39
SYMANTEC CORPORATION
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
domestic deferred channel inventory through to end users. Symantec has also
been analyzing returns related to the Central Point products for the last four
quarters to determine when such products were being sold through to end users
and in the March 1995 quarter Symantec was able to assess the remaining Central
Point product returns in the domestic distribution channel and as a result
recognized approximately $3.0 million of domestic net revenue previously
deferred by Central Point.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Symantec considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents. In fiscal 1995,
the Company adopted Financial Accounting Standards Board Statement No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities." All of the Company's cash equivalents and short-term investments,
consisting principally of commercial paper and auction rate preferred bonds, are
classified as available-for-sale as of the balance sheet date and are reported
at fair value with unrealized gains and losses included in stockholders' equity.
Realized gains and losses and declines in value judged to be other-than-
temporary are included in interest income. The cost of securities sold is based
upon the specific identification method. In accordance with SFAS No. 115, prior
period financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect of adopting SFAS No. 115 was not
material to the Company's financial statements.
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 INTANGIBLES
Purchased intangibles are comprised of acquired software ("product rights") and
are stated at cost less accumulated amortization. The cost of product rights
represents the fair value of various software products acquired by Symantec.
Amortization is provided on the greater of the straight-line basis over the
estimated useful lives of the respective assets, generally three to five years,
or on the basis of the ratio of current revenues to current revenues plus
anticipated future revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenditures are charged to operations as incurred.
Financial accounting rules requiring capitalization of certain software
development costs have not materially affected the Company.
INCOME TAXES
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated using the treasury stock or the
modified treasury stock method, as applicable. Common stock equivalents are
attributable to outstanding stock options. Fully diluted earnings per share
includes the assumed conversion of all of the outstanding convertible
subordinated debentures.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of short-term investments and trade accounts
receivable. The Company's investment portfolio is diversified and consists of
investment grade securities. The credit risk in the Company's trade accounts
receivable is substantially mitigated by the Company's credit evaluation
process, reasonably short collection terms and the geographical dispersion of
sales transactions.
40
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BALANCE SHEET INFORMATION
March 31,
------------------------
(In thousands) 1995 1994
- ------------------------------------------- --------- ---------
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
Cash $ 12,325 $ 15,718
Cash equivalents 10,447 17,193
Short-term investments 82,416 27,623
--------- ---------
$ 105,188 $ 60,534
--------- ---------
--------- ---------
TRADE ACCOUNTS RECEIVABLE:
Receivables $ 58,188 $ 52,676
Less: allowance for doubtful accounts (4,202) (4,334)
--------- ---------
$ 53,986 $ 48,342
--------- ---------
--------- ---------
INVENTORIES:
Raw materials $ 904 $ 1,189
Finished goods 3,273 6,653
--------- ---------
$ 4,177 $ 7,842
--------- ---------
--------- ---------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Computer equipment $ 49,983 $ 39,804
Office furniture and equipment 19,659 20,723
Leasehold improvements 8,236 7,201
--------- ---------
77,878 67,728
Less: accumulated depreciation and amortization (48,998) (42,359)
--------- ---------
$ 28,880 $ 25,369
--------- ---------
--------- ---------
PURCHASED INTANGIBLES:
Product rights $ 29,583 $ 29,998
Less: accumulated amortization (21,309) (18,770)
--------- ---------
$ 8,274 $ 11,228
--------- ---------
--------- ---------
OTHER ACCRUED EXPENSES:
Acquisition and restructuring expenses $ 8,614 $ 14,076
Deferred revenue 22,556 23,612
Marketing development funds 7,706 6,438
Other 12,913 13,619
--------- ---------
$ 51,789 $ 57,745
--------- ---------
--------- ---------
41
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS
During the three fiscal years ended March 31, 1995, Symantec completed
acquisitions of the following companies:
Shares of Acquired
Symantec Company
Common Stock
Stock Options
Companies Acquired Date Acquired Issued Assumed
- --------------------------------------------------- ------------------ ----------- -----------
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc. ("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 2,769,010 --
Contact Software International, Inc. ("Contact") June 2, 1993 2,404,019 232,589
Certus International Corporation ("Certus") November 30, 1992 368,141 32,619
MultiScope, Inc. ("MultiScope") September 2, 1992 253,075 125,089
The Whitewater Group, Inc. ("Whitewater") September 2, 1992 69,740 9,644
All of these acquisitions were accounted for as poolings of interest. In
connection with the acquisitions of the companies listed above, Symantec
incurred significant acquisition expenses (See Note 10). Due to differing year
ends of Symantec, Fifth Generation, Contact and Certus, financial information
for dissimilar fiscal year ends was combined. Fifth Generation's fiscal year
ended December 31, 1992 was combined with Symantec's fiscal year ended
March 31, 1993. Accordingly, Fifth Generation's results of operations for the
quarter ended March 31, 1993 were charged to stockholders' equity. Fifth
Generation's net loss of $16.4 million for the quarter ended March 31, 1993 was
largely due to the decline in net revenues to $1.9 million and the write-off of
previously capitalized software costs. Contact's fiscal years ended June 30,
1993 and 1992 were combined with Symantec's fiscal years ended March 31, 1993
and 1992, respectively. Accordingly, Contact's results for the quarter ended
June 30, 1992 were duplicated in the combined statements of operations for
fiscal 1993 and 1992 and Contact's net loss for the quarter ended June 30, 1992,
was credited to stockholders' equity. Contact's net revenues for the quarter
ended June 30, 1992 were $3.4 million. Certus' fiscal year ended December 31,
1991 was combined with Symantec's fiscal year ended March 31, 1992.
Accordingly, Certus' results of operations for the quarter ended March 31, 1992
were charged to stockholders' equity. Certus' net revenues for the quarter
ended March 31, 1992 were $0.8 million.
In addition, during the year ended March 31, 1994, Central Point acquired
Executive Systems, Inc. ("XTree"), which was accounted for as a pooling of
interest. Due to differing fiscal year ends of Central Point and XTree,
financial information related to XTree's fiscal year ended September 30, 1992,
was combined with financial information related to Central Point's year ended
March 31, 1993. Accordingly, XTree's results of operations for the six months
ended March 31, 1993, were charged to stockholders' equity. XTree reported net
revenues of $6.9 million and a net loss of $1.0 million for the six months ended
March 31, 1993.
42
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The table below sets forth the composition of combined net revenues and net
income (loss) for the pre-acquisition periods indicated. Information for the
year ended March 31, 1995 with respect to Central Point reflects the two months
ended June 1, 1994, the date Central Point was acquired. Net revenues and net
income (loss) of Intec and SLR for the pre-acquisition periods were immaterial.
Year Ended March 31,
---------------------------------------
(In thousands) 1995 1994 1993
--------- --------- ---------
Net revenues:
Symantec $ 321,381 $ 267,700 $ 257,541
Central Point 13,486 60,599 87,085
--------- --------- ---------
$ 334,867 $ 328,299 $ 344,626
--------- --------- ---------
--------- --------- ---------
Net income (loss):
Symantec $ 25,849 $ (11,112) $ (28,603)
Central Point 2,651 (45,855) (10,492)
--------- --------- ---------
$ 28,500 $ (56,967) $ (39,095)
--------- --------- ---------
--------- --------- ---------
On December 31, 1993, Symantec acquired certain technology for developing an
architecture and tools to build client-server applications from DataEase
International, Inc. in exchange for 391,456 shares of Symantec common stock and
cancellation of the principal and accrued interest on a $1.0 million outstanding
note receivable. The Company capitalized approximately $7.7 million of
purchased product rights as a result of this transaction.
NOTE 3. CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
All cash equivalents and short-term investments have been classified as
available-for-sale securities and as of March 31, 1995 consisted of the
following:
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
Tax-exempt commercial paper and
agency discount notes $ 7,452 $ -- $ -- $ 7,452
Auction-rate preferred securities 5,033 -- 1 5,032
Taxable commercial paper 80,368 11 -- 80,379
---------- ---------- ---------- ----------
$ 92,853 $ 11 $ 1 $ 92,863
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
All of the Company's available-for-sale securities as of March 31, 1995 have a
contractual maturity of one year or less. For the year ended March 31, 1995,
there were no material sales of available-for-sale securities. Fair values of
cash, cash equivalents and short-term investments approximate cost due to the
short period to maturity.
Symantec utilizes some natural hedging to mitigate the Company's transaction
exposures and effective December 31, 1993, the Company commenced hedging some
residual transaction exposures through the use of 30-day foreign exchange
forward contracts. The Company enters into foreign exchange forward contracts
with financial institutions primarily to protect against currency exchange risks
associated with certain firmly committed transactions. Fair value of foreign
exchange forward contracts are based on quoted market prices. At March 31, 1995
there was a total notional amount of approximately $30.0 million of outstanding
foreign exchange forward contracts all of which were less than 30 days old. The
net liability of forward contracts was a notional amount of approximately $12.3
million at March 31, 1995. Fair value of foreign currency exchange forward
contracts approximate cost due to the short period to maturity. The Company
does not hedge its translation risk.
The estimated fair value of the $25.0 million convertible subordinated
debentures, was approximately $49.0 million at March 31, 1995. The estimated
fair value was based on the total shares of common stock reserved for issuance
upon conversion of the debentures at the closing price of the Company's common
stock at March 31, 1995.
43
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. CONVERTIBLE SUBORDINATED DEBENTURES
On April 2, 1993, the Company issued convertible subordinated debentures
totaling $25.0 million. The debentures bear interest at 7.75% payable
semiannually and are convertible into Symantec common stock at $12 per share at
the option of the investor. The debentures are due in three equal annual
installments beginning in 1999 and are redeemable at the option of the investors
in the event of a change in control of Symantec or the sale of all or
substantially all of the assets of the Company or at the option of the Company
at the face amount plus interest should the Company's then current stock price
meet or exceed $16.80 per share. The holders are entitled to certain
registration rights relating to the shares of common stock resulting from the
conversion of the debentures. The Company has reserved 2,083,333 shares of
common stock to be issued upon conversion of these debentures. The debentures
limit the payment of cash dividends and the repurchase of capital stock to a
total of $10.0 million plus 25% of cumulative net income subsequent to April 2,
1993.
On April 26, 1995, convertible subordinated debentures totaling $10.0 million
were converted into 833,333 shares of Symantec common stock.
NOTE 5. LINE OF CREDIT
The Company has a $10.0 million bank line of credit that expires in October
1995. The line of credit is available for general corporate purposes and bears
interest at the banks' reference (prime) interest rate (9.0% at March 31, 1995),
the U.S. offshore rate plus 1.5%, a CD rate plus 1.5% or LIBOR plus 1.5%, at the
Company's discretion. The line of credit requires bank approval for the payment
of cash dividends. Borrowings under this line are unsecured and are subject to
the Company maintaining certain financial ratios and profits. The Company was
in compliance with the line of credit covenants as of March 31, 1995. At
March 31, 1995, there was approximately $0.5 million of standby letters of
credit outstanding under this line of credit. There were no borrowings
outstanding under this line at March 31, 1995.
NOTE 6. COMMITMENTS
Symantec leases all of its facilities and certain equipment under operating
leases that expire at various dates through 2026.
The future fiscal year minimum operating lease commitments were as follows at
March 31, 1995:
(In thousands)
- ------------------------------
1996 $ 9,605
1997 8,000
1998 6,169
1999 3,014
2000 1,004
Thereafter 7,017
---------
$ 34,809
---------
---------
Rent expense charged to operations totaled $7.8 million, $8.6 million and $8.8
million for the years ended March 31, 1995, 1994 and 1993, respectively.
44
NOTE 7. INCOME TAXES
The components of the provision (benefit) for income taxes were as follows:
Year Ended March 31,
----------------------------------------
(In thousands) 1995 1994 1993
- ----------------------------------------------- ---------- ---------- ----------
Current:
Federal $ -- $ (9,371) $ (8,900)
State 100 60 (554)
Foreign 1,737 818 935
---------- ---------- ----------
1,837 (8,493) (8,519)
Deferred:
Federal 6,306 1,925 (6,641)
State 1,730 (450) (1,072)
Foreign -- 8 (24)
---------- ---------- ----------
8,036 1,483 (7,737)
---------- ---------- ----------
$ 9,873 $ (7,010) $ (16,256)
---------- ---------- ----------
---------- ---------- ----------
The difference between the Company's effective income tax rate and the federal
statutory income tax rate as a percentage of income (loss) before income taxes
was as follows:
Year Ended March 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
Federal statutory rate 35.0% (34.0)% (34.0)%
State taxes, net of federal benefit 3.1 (2.3) (2.0)
Non-deductible acquisition expenses 3.0 2.0 0.8
Benefit of preacquisition losses of Central Point (7.8) -- --
Impact of foreign operations (8.7) 0.4 3.3
Current year losses not benefited -- 21.9 1.1
Other, net 1.1 1.0 1.4
---------- ---------- ----------
25.7% (11.0)% (29.4)%
---------- ---------- ----------
---------- ---------- ----------
The principal components of deferred tax assets were as follows:
March 31,
----------
(In thousands) 1995 1994
- ----------------------------------------------- ---------- ----------
Tax credit carryforwards $ 6,228 $ 3,485
Net operating loss carryforwards 14,123 13,726
Inventory valuation accounts 1,122 1,920
Other reserves and accruals not currently tax deductible 3,756 3,866
Accrued compensation and benefits 1,744 2,541
Deferred revenue 2,960 6,176
Sales incentive programs 968 3,187
Allowance for doubtful accounts 825 1,037
Acquired software 3,563 3,621
Accrued acquisition, restructuring and other expenses 2,264 5,337
Other 1,300 2,392
---------- ----------
38,853 47,288
Valuation allowance (28,914) (29,313)
---------- ----------
$ 9,939 $ 17,975
---------- ----------
---------- ----------
45
Approximately $11.1 million of the valuation allowance for deferred tax assets
is attributable to stock option deductions, the benefit of which will be
credited to equity when realized. The remaining portion of the valuation
allowance is comprised primarily of $14.7 million for Central Point
preacquisition losses and $3.1 million for net operating loss and tax credit
carryforwards of other acquired companies that are limited under the "change of
ownership" rules of Internal Revenue Code Section 382. The change in the
valuation allowance for the years ended March 31, 1995 and 1994 was a net
decrease of $0.4 million and a net increase of $27.4 million, respectively.
Pretax income (loss) from foreign operations was approximately $22.3 million,
$10.0 million and $(4.6) million for the years ended March 31, 1995, 1994 and
1993, respectively.
At March 31, 1995, the Company had tax credit carryforwards of $6.2 million that
expire in fiscal 1997 through 2010 and net operating loss carryforwards of $35.3
million that expire in fiscal 1999 through 2010.
NOTE 8. EMPLOYEE BENEFITS
401(K) PLAN
Symantec maintains a salary deferral 401(k) plan for all of its domestic
employees. The plan allows employees to contribute up to 15% of their pretax
salary up to the maximum dollar limitation prescribed by the Internal Revenue
Code. Symantec matches 50% of employees' contributions up to 6% of the
employees' contribution. Company contributions under the plan were $1.2
million, $1.1 million and $0.8 million for the years ended March 31, 1995, 1994
and 1993, respectively.
STOCK PURCHASE PLAN
In October 1989, the Company established the 1989 Employee Stock Purchase Plan
and has reserved 1.1 million shares of common stock for issuance under the plan.
During fiscal 1995, Symantec shareholders approved an increase in the number of
shares reserved for issuance under the Stock Purchase Plan from 1.1 million to
1.5 million. Subject to certain limitations, Symantec employees may purchase,
through payroll deductions of 2 to 10% of compensation, shares of common stock
at a price per share that is the lesser of 85% of the fair market value as of
the beginning of the offering period or the end of the purchase period. As of
March 31, 1995, 1.0 million shares had been issued under the plan.
STOCK OPTION PLANS
The Company has reserved 13.8 million shares of its common stock for issuance as
incentive and nonqualified stock options to employees, officers, directors,
consultants and independent contractors, including an increase of 4.0 million
shares approved in fiscal 1995 by Symantec's stockholders for issuance under the
1988 Employees Stock Option Plan. Options under the Company's option plans may
be granted at prices not less than 100% of fair market value on the date of
grant, have a maximum term of ten years and generally vest over a four-year
period. In addition, the Company has reserved an additional 0.6 million shares
of its common stock for issuance under acquired company option plans and
acquired company warrants.
During September 1992 the Board of Directors authorized the Company to offer to
each employee with stock options having an exercise price greater than $11 (the
"Old Options") the opportunity to amend the terms of the Old Options and reduce
the exercise price to $11 per share (the fair market value of the Company's
stock as of the offer date). Under the terms of this stock option repricing, no
portion of any repriced option (the "Repriced Options") could be exercised until
September 23, 1993 and each Repriced Option was converted to a nonqualified
stock option. Options representing 3,128,290 shares of common stock were
repriced. The President and Chief Executive Officer, the Executive Vice
President, Worldwide Operations, and Chief Financial Officer and the members of
the Board of Directors elected to exclude themselves from this stock option
repricing.
46
Stock option and warrant activity was as follows:
Number Exercise
(In thousands, except exercise price per share) of Shares Price Per Share
- --------------------------------------------------- --------- ---------------------
Outstanding at March 31, 1992 6,096 $ 0.05 - $ 54.95
Granted 2,691 3.14 - 64.65
Exercised (658) 0.07 - 54.95
Cancelled (1,456) 1.00 - 64.65
---------
Outstanding at March 31, 1993 6,673 0.05 - 64.65
Granted 3,362 0.07 - 21.01
Exercised (1,347) 0.05 - 21.01
Cancelled (1,125) 0.05 - 64.65
---------
Outstanding at March 31, 1994 7,563 0.05 - 64.65
Granted 2,971 10.06 - 23.75
Exercised (1,554) 0.05 - 21.01
Cancelled (1,439) 0.50 - 64.65
---------
Outstanding at March 31, 1995 7,541 0.50 - 54.95
---------
---------
(In thousands) March 31,
- ------------------------------------------------- -----------------------
Balances are as follows: 1995 1994
--------- ---------
Reserved for issuance 9,893 7,752
Available for future grants 2,352 189
Exercisable and vested 3,335 3,120
Exercised, subject to repurchase 1 1
NOTE 9. RELATED PARTY TRANSACTIONS
As part of the acquisition of Peter Norton Computing, Incorporated ("Norton") in
fiscal 1991, Symantec assumed Norton's perpetual exclusive license agreement
with Mr. Norton, a member of Symantec's Board of Directors until his resignation
on September 27, 1994, to use his name and image for computer software products.
Under the terms of the license, Mr. Norton is entitled to receive a royalty
equal to the greater of 1% of net sales or 0.4% of the suggested retail price of
products bearing Mr. Norton's name. Mr. Norton may terminate the agreement if
Symantec fails to pay Mr. Norton an average of at least $30,000 of royalties in
any three consecutive years. Royalty expense under the agreement was $1.9
million, $1.6 million and $1.4 million for the years ended March 31, 1995, 1994
and 1993, respectively.
Additionally, in connection with certain indemnification agreements entered into
as part of the acquisition of Norton, Mr. Norton agreed to reimburse Symantec
for certain litigation and acquisition costs in excess of specified amounts.
The net amount payable to Mr. Norton pursuant to these agreements at
March 31, 1995 and 1994 was $0.3 million and $0.9 million, respectively.
47
NOTE 10. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expense consists of the following:
Year Ended March 31,
----------------------------------------
(In thousands) 1995 1994 1993
- ----------------------------------------------------- ---------- ---------- ----------
SLR acquisition $ 545 $ -- $ --
Central Point acquisition 9,000 -- --
Fifth Generation acquisition -- 15,000 --
Contact acquisition -- 7,400 --
XTree acquisition -- 3,514 --
Certus acquisition -- -- 3,000
Whitewater acquisition -- -- 1,648
MultiScope acquisition -- -- 452
Centralization and restructuring expense -- 4,700 4,400
Central Point restructuring charges -- 16,025 673
Purchased in-process research and development -- 2,955 --
Class action lawsuit settlement -- 6,500 --
Civil lawsuit and related criminal legal fees -- -- 2,600
---------- ---------- ----------
Total acquisition, restructuring and other expenses $ 9,545 $ 56,094 $ 12,773
---------- ---------- ----------
---------- ---------- ----------
On August 31, 1994, Symantec completed the acquisition of Intec Systems
Corporation ("Intec"). No significant acquisition expenses related to the
combination of Symantec and Intec were incurred.
In connection with the acquisitions of Central Point and SLR (See Notes 2 and
10), Symantec recorded total acquisition charges of $9.5 million in fiscal 1995.
The charges included $3.2 million for legal, accounting and financial advisory
services, $1.0 million for the write-off of duplicative product-related expenses
and modification of certain development contracts, $0.9 million for the
elimination of duplicative and excess facilities, $3.1 million for personnel
severance and outplacement expenses, and $1.3 million for the consolidation and
discontinuance of certain operational activities and other acquisition related
expenses.
In connection with the acquisitions of Fifth Generation and Contact by Symantec
and the acquisition of XTree by Central Point (See Notes 2 and 10), the Company
recorded total charges of $25.9 million in fiscal 1994. The charges included
$4.3 million for legal, accounting and financial advisory services, $7.6 million
for the write-off of duplicative product related expenses and modification of
certain development contracts, $3.6 million for the elimination of duplicative
and excess facilities, $5.3 million for personnel severance and outplacement
expenses, and $5.1 million for the consolidation and discontinuance of certain
operational activities and other acquisition related expenses.
In connection with the acquisitions of Certus, Whitewater and MultiScope in
fiscal 1993 (See Notes 2 and 10), Symantec incurred significant acquisition
expenses for legal, accounting and financial advisory services and expenses
related to the combination of the companies, including the elimination of
duplicative and excess facilities and personnel. These expenses approximated
$5.1 million in fiscal 1993.
During fiscal 1994, Symantec implemented a plan to consolidate and centralize
certain operational activities. The plan was designed to reduce operating
expenses and enhance operational efficiencies by centralizing certain order
administration, technical support and customer service activities in Eugene,
Oregon. The Company recorded a charge of $4.7 million which included $1.1
million for the elimination of duplicative and excess facility expenses, $1.5
million for the relocation of the Company's existing operations and equipment,
$1.1 million for employee relocation expenses and $1.0 million for employee
severance payments. The Company's centralization has been completed.
During fiscal 1994, Central Point incurred $16.0 million of expenses related to
the restructuring of its operations in order to reduce its overall cost
structure and to redirect its software development and marketing efforts away
from the personal desktop computer market toward personal computer network
markets. The charge included $6.2 million for employee severance, outplacement
and relocation expenses, $5.6 million for the write-off of certain
48
excess fixed and intangible assets, $1.8 million for lease abandonments and
facility relocation and $2.4 million for the consolidation and discontinuance of
certain operational activities and other related expenses. Of the total
charges, $5.9 million resulted from the write-off of assets and $10.1 million
involved cash outflows. This restructuring has been substantially completed.
During fiscal 1993, Symantec recorded a $4.4 million charge for expenses
relating to the restructuring of certain operational functions within the
Company. The plan was designed to reduce operating expenses and reallocate
resources from DOS products to Windows and Development Tools products. This
charge included $1.0 million for the elimination of excess facilities, $0.4
million for the relocation of certain employees and $3.0 million for
outplacement expenses and severance payments associated with the reduction in
staffing. This restructuring has been completed.
During fiscal 1993, Central Point incurred $0.7 million of charges related to
the restructuring of its operations, including the sale of its manufacturing
operation, personnel relocation and severance, and the write-off of certain
property and equipment. This restructuring has been completed.
As of March 31, 1995, total accrued acquisition and restructuring expenses were
$8.6 million and included $1.1 million for the modification of certain
development contracts, $1.4 million for the elimination of duplicative and
excess facilities, $1.3 million for employee severance, outplacement and
relocation expenses and $4.8 million for the consolidation and discontinuance of
certain operational activities and other acquisition related expenses.
During fiscal 1994, Central Point purchased from unrelated parties certain in-
process software technologies for approximately $3.0 million which was
immediately expensed.
During fiscal 1994, Symantec reached an agreement with the plaintiffs and
Symantec's insurance carriers to settle two securities class action lawsuits and
a related derivative lawsuit brought by stockholders of Symantec. The combined
settlement amount of the cases was $19.0 million, approximately $12.5 million of
which was paid by Symantec's insurance carriers. Symantec recorded a charge of
$6.5 million representing Symantec's portion of the class action settlement.
During fiscal 1993, the Company recorded a $2.6 million charge for estimated
total legal fees expected to be incurred in connection with the Borland civil
lawsuit and the related criminal prosecution (See Note 11).
NOTE 11. LITIGATION
On May 19, 1995, Personal Computer Peripherals Corporation ("PCPC") filed a
lawsuit in the U.S. District Court for the District of Delaware against Symantec
and five other companies, alleging that the defendants' products for backing up
data on a computer network infringe a patent held by PCPC. The complaint seeks
an injunction preventing the sale of infringing products. Symantec believes
that the complaint has no merit.
On December 30, 1994, Software Engineering Carmel ("Carmel") filed a lawsuit in
the U.S. District Court for the District of Oregon against Central Point, a
wholly owned subsidiary of the Company. Carmel developed and maintains the
anti-virus program distributed by Central Point. The complaint alleges that
Central Point breached its contract with Carmel by not fulfilling an implied
obligation under the contract to use its best efforts or, alternatively, its
reasonable efforts to market the anti-virus program developed by Carmel. The
complaint also alleges that Central Point violated the non-competition provision
in its agreement, by selling a competing anti-virus program, apparently based on
Symantec's sale of its own anti-virus product. The complaint seeks damages in
the amount of $6.75 million and a release of Carmel from its obligation not to
sell competing products. Symantec believes the complaint has no merit.
On September 3, 1992, Borland International, Inc. ("Borland") filed a lawsuit in
the Superior Court for Santa Cruz County, California against Symantec, Gordon E.
Eubanks, Jr. (Symantec's President and Chief Executive Officer) and Eugene Wang
(an Executive Vice President of Symantec who is a former employee of Borland).
The complaint, as amended, alleges misappropriation of trade secrets, unfair
competition, inducing breach of contract,
49
interference with prospective economic advantage and unjust enrichment. Borland
alleged that prior to joining Symantec, Mr. Wang transmitted to Mr. Eubanks
confidential information concerning Borland's product and marketing plans.
Borland claims damages in an unspecified amount. Symantec has denied the
allegations of Borland's complaint and contends that Borland has suffered no
damages from the alleged actions. Borland obtained a temporary restraining
order and a preliminary injunction prohibiting the defendants from using,
disseminating or destroying any Borland proprietary information or trade
secrets. Symantec filed a cross complaint against Borland alleging that Borland
had committed abuse of process and defamation in publishing statements that
Symantec had acted in contempt of a temporary restraining order. The case is
not being actively prosecuted at this time pending the outcome of the criminal
proceedings, discussed below. Symantec believes the claims have no merit.
On September 2, 1992, the Scotts Valley, California police department, operating
with search warrants for Borland proprietary and trade secret information,
searched Symantec's offices and the homes of Messrs. Eubanks and Wang and
removed documents and other materials. On February 26, 1993, criminal
indictments were filed against Messrs. Eubanks and Wang for allegedly violating
various California Penal Code Sections relating to the misappropriation of trade
secrets and unauthorized access to a computer system. On August 23, 1993, the
Court recused the District Attorney's Office from prosecution of the action. On
October 5, 1993, the State Attorney General and the District Attorney's Office
filed a Notice of Appeal of the Order. The matter is still pending in the
appellate court. Symantec believes the criminal charges against Messrs. Eubanks
and Wang have no merit.
On June 11, 1992, Dynamic Microprocessor Associates, Inc. ("DMA"), a wholly-
owned subsidiary of Symantec, commenced an action against EKD Computer Sales &
Supplies Corporation ("EKD"), a former licensee of DMA and Thomas Green, a
principal of EKD, for copyright infringement, violations of the Lanham Act,
trademark infringement, misappropriation, deceptive acts and practices and
unfair competition and breach of contract. On July 14, 1992, the Suffolk County
sheriff's department conducted a search of EKD's premises and seized and
impounded thousands of infringing articles. On July 21, 1992, the Court issued
a preliminary injunction against EKD and Mr. Green, enjoining them from
manufacturing, marketing, distributing, copying or purporting to license DMA's
pcANYWHERE III or using DMA's marks.
On July 20, 1992 and in a subsequent amendment, EKD and Mr. Green answered
Symantec's complaint denying all liability and asserting counterclaims against
Symantec and Lee Rautenberg, a former principal of DMA. In May 1993, EKD and
Mr. Green were granted permission to file a Second Amended Answer and
counterclaims that dropped every previously raised claim and now allege that DMA
obtained the temporary restraining order and preliminary injunction in bad faith
and that DMA, Symantec and Mr. Rautenberg breached certain license agreements
and violated certain federal and New York State antitrust laws. In February
1995, DMA was granted leave to file an Amended Complaint, which EKD subsequently
responded to by a Third Amended Answer and Counterclaims virtually identical to
EKD's Second Amended pleading. Symantec believes the charges made by EKD and Mr.
Green have no merit.
Subsequent to the acquisition of DMA by Symantec, Peter Byer, a former sales and
marketing employee of DMA, filed a lawsuit in the Supreme Court of the State of
New York against DMA, Symantec and Lee Rautenberg (who was formerly President of
DMA). The lawsuit alleges that Peter Byer was orally promised an 8% equity
interest in DMA in connection with his performance of services, that he was
underpaid commissions under DMA's commission plan, and that DMA was unjustly
enriched because it paid Mr. Byer less than the fair value of his services. The
lawsuit seeks damages of at least $5.3 million. Symantec believes the charges
have no merit. Furthermore, Mr. Rautenberg and the other stockholders of DMA
have an obligation to indemnify Symantec for any liabilities resulting from this
action.
Symantec is involved in other judicial and administrative proceedings incidental
to its business. The Company intends to defend all of the aforementioned
pending lawsuits vigorously and although an adverse decisions (or settlements)
may occur in one or more of the cases, the final resolution of these lawsuits,
individually or in the aggregate, is not expected to have a material adverse
effect on the financial position of the Company. However, depending on the
amount and timing of an unfavorable resolution of these lawsuits, it is possible
that the Company's future results of operations or cash flows could be
materially adversely affected in a particular period.
50
NOTE 12. SEGMENT INFORMATION
Symantec operates in the microcomputer software industry business segment. The
Company markets its products in the United States and in foreign countries
primarily through retail and distribution channels.
INFORMATION BY GEOGRAPHIC AREA
Year Ended March 31,
----------------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------- ---------- ---------- ----------
NET REVENUES:
Domestic operations:
Domestic customers $ 219,259 $ 219,032 $ 237,822
Foreign customers 16,977 33,504 40,382
Intercompany 1,393 496 180
---------- ---------- ----------
237,629 253,032 278,384
Foreign operations:
Customers 98,631 75,763 66,422
Intercompany 65 58 101
---------- ---------- ----------
98,696 75,821 66,523
Eliminations (1,458) (554) (281)
---------- ---------- ----------
$ 334,867 $ 328,299 $ 344,626
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME (LOSS):
Domestic operations $ 15,625 $ (72,198) $ (49,528)
Foreign operations 22,299 9,984 (4,447)
Eliminations (793) (305) (21)
---------- ---------- ----------
$ 37,131 $ (62,519) $ (53,996)
---------- ---------- ----------
---------- ---------- ----------
March 31,
----------------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------- ---------- ---------- ----------
IDENTIFIABLE ASSETS:
Domestic operations $ 179,487 $ 152,880 $ 194,196
Foreign operations 41,828 35,912 36,698
---------- ---------- ----------
$ 221,315 $ 188,792 $ 230,894
---------- ---------- ----------
---------- ---------- ----------
Intercompany sales between geographic areas are accounted for at prices
representative of unaffiliated party transactions.
SIGNIFICANT CUSTOMERS
The following customers accounted for more than 10% of net revenues during
fiscal 1995, 1994 and 1993:
Year Ended March 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
Ingram Micro D 22% 17% 15%
Merisel 11 13 13
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SYMANTEC CORPORATION
(Registrant)
By /s/ Gordon E. Eubanks, Jr.
-----------------------------------------------
(Gordon E. Eubanks, Jr.,
President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
Signature Title Date
- --------------------------------------- --------------------------- ---------------
CHIEF EXECUTIVE OFFICER:
/s/ Gordon E. Eubanks, Jr. President, Chief Executive June 6, 1995
- --------------------------------------- Officer and Director
(Gordon E. Eubanks, Jr.)
CHIEF FINANCIAL OFFICER:
/s/ Robert R. B. Dykes Executive Vice President/ June 6, 1995
- --------------------------------------- Worldwide Operations and
(Robert R. B. Dykes) Chief Financial Officer
CHIEF ACCOUNTING OFFICER:
/s/ Howard A. Bain III Vice President Finance and June 6, 1995
- --------------------------------------- Chief Accounting Officer
(Howard A. Bain III)
DIRECTORS:
/s/ Charles M. Boesenberg Director June 6, 1995
- ---------------------------------------
(Charles M. Boesenberg)
/s/ Walter Bregman Director June 6, 1995
- ---------------------------------------
(Walter Bregman)
/s/ Carl D. Carman Chairman of the Board June 6, 1995
- ---------------------------------------
(Carl D. Carman)
/s/ Robert S. Miller Director June 6, 1995
- ---------------------------------------
(Robert S. Miller)
Director June 6, 1995
- ---------------------------------------
(Leslie L. Vadasz)
52
SCHEDULE II
SYMANTEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance at Charged to Balance at
Beginning Costs and End
Classification of Period Expenses Deductions of Period
- ---------------------------------------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts:
Year ended March 31, 1993 $ 3,177 $ 2,216 $ (1,452) $ 3,941
Year ended March 31, 1994 3,941 1,850 (1,457) 4,334
Year ended March 31, 1995 4,334 564 (696) 4,202
53