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EXCEL - IDEA: XBRL DOCUMENT - SYMANTEC CORPFinancial_Report.xls

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 3, 2014
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 000-17781
Symantec Corporation
(Exact name of the registrant as specified in its charter) 
Delaware
 
77-0181864
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
Identification no.)
 
 
 
350 Ellis Street,
 
 
Mountain View, California
 
94043
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(650) 527-8000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
    Accelerated filer ¨    
  
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
  
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Shares of Symantec common stock, $0.01 par value per share, outstanding as of October 31, 2014: 690,147,433 shares.



SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended October 3, 2014
TABLE OF CONTENTS
 
 
Page  
 
 

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
October 3,
2014
 
March 28,
2014*
 
 
 
 
 
(Unaudited)
(Dollars in millions)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,972

 
$
3,707

Short-term investments
821

 
377

Trade accounts receivable, net
722

 
1,007

Inventories, net
11

 
14

Deferred income taxes
152

 
142

Deferred commissions
111

 
115

Other current assets
249

 
290

Total current assets
5,038

 
5,652

Property and equipment, net
1,181

 
1,116

Intangible assets, net
690

 
768

Goodwill
5,860

 
5,858

Long-term deferred commissions
24

 
21

Other long-term assets
90

 
124

Total assets
$
12,883

 
$
13,539

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
219

 
$
282

Accrued compensation and benefits
310

 
365

Deferred revenue
2,874

 
3,322

Current portion of long-term debt
350

 

Other current liabilities
292

 
337

Total current liabilities
4,045

 
4,306

Long-term debt
1,745

 
2,095

Long-term deferred revenue
543

 
581

Long-term deferred tax liabilities
441

 
425

Long-term income taxes payable
130

 
252

Other long-term obligations
82

 
83

Total liabilities
6,986

 
7,742

Commitments and contingencies (Note 6)

 

Stockholders’ equity:
 
 
 
Common stock
7

 
7

Additional paid-in capital
6,404

 
6,744

Accumulated other comprehensive income
154

 
194

Accumulated deficit
(668
)
 
(1,148
)
Total stockholders’ equity
5,897

 
5,797

Total liabilities and stockholders’ equity
$
12,883

 
$
13,539

*Derived from audited financial statements.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

3


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
 
 
 
 
(Unaudited)
(In millions, except per share data)
Net revenue:
 
 
 
 
 
 
 
Content, subscription, and maintenance
$
1,445

 
$
1,499

 
$
3,019

 
$
3,019

License
172

 
138

 
333

 
327

Total net revenue
1,617

 
1,637

 
3,352

 
3,346

Cost of revenue:
 
 
 
 
 
 
 
Content, subscription, and maintenance
240

 
252

 
509

 
515

License
25

 
19

 
52

 
41

Amortization of intangible assets
13

 
13

 
26

 
28

Total cost of revenue
278

 
284

 
587

 
584

Gross profit
1,339

 
1,353

 
2,765

 
2,762

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
565

 
592

 
1,209

 
1,244

Research and development
276

 
248

 
584

 
510

General and administrative
93

 
114

 
196

 
233

Amortization of intangible assets
27

 
29

 
56

 
100

Restructuring, separation, and transition
30

 
122

 
50

 
203

Total operating expenses
991

 
1,105

 
2,095

 
2,290

Operating income
348

 
248

 
670

 
472

Interest income
3

 
3

 
6

 
6

Interest expense
(19
)
 
(20
)
 
(40
)
 
(45
)
Other income, net
1

 
20

 
2

 
38

Income before income taxes
333

 
251

 
638

 
471

Provision for income taxes
89

 
10

 
158

 
73

Net income
$
244

 
$
241

 
$
480

 
$
398

Basic net income per share
$
0.35

 
$
0.34

 
$
0.69

 
$
0.57

Diluted net income per share
$
0.35

 
$
0.34

 
$
0.69

 
$
0.56

Weighted-average shares outstanding — basic
690

 
699

 
691

 
698

Weighted-average shares outstanding — diluted
696

 
707

 
697

 
707

Cash dividends declared per common share
$
0.15

 
$
0.15

 
$
0.30

 
$
0.30

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.


4


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
 
 
 
 
(Unaudited)
(Dollars in millions)
Net income
$
244

 
$
241

 
$
480

 
$
398

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Translation adjustments
(42
)
 
14

 
(40
)
 
(4
)
Net foreign currency translation adjustments
(42
)
 
14

 
(40
)
 
(4
)
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gain on available-for-sale securities, net of taxes of $0 million and $0 million for the three and six months ended October 3, 2014 and September 27, 2013, respectively

 
1

 

 

Reclassification adjustments for realized gain included in net income, net of taxes of $0 million and $5 million for the three months ended October 3, 2014 and September 27, 2013, respectively, and $0 million and $10 million for the six months ended October 3, 2014 and September 27, 2013, respectively

 
(11
)
 

 
(14
)
Net change in unrealized (loss) gain on available-for-sale securities

 
(10
)
 

 
(14
)
Other comprehensive (loss) income, net of taxes
(42
)
 
4

 
(40
)
 
(18
)
Comprehensive income
$
202

 
$
245

 
$
440

 
$
380

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

5


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
(Unaudited)
(Dollars in millions)
OPERATING ACTIVITIES:
 
 
 
Net income
$
480

 
$
398

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
145

 
139

Amortization of intangible assets
82

 
128

Amortization of debt issuance costs and discounts
2

 
5

Stock-based compensation expense
89

 
77

Deferred income taxes
30

 
51

Excess income tax benefit from the exercise of stock options
(5
)
 
(13
)
Net gain from sale of short-term investments

 
(32
)
Other
3

 
11

Net change in assets and liabilities, excluding effects of acquisitions:
 
 
 
Trade accounts receivable, net
268

 
465

Inventories, net
3

 
8

Deferred commissions
(3
)
 
20

Accounts payable
(77
)
 
(92
)
Accrued compensation and benefits
(50
)
 
(110
)
Deferred revenue
(374
)
 
(556
)
Income taxes payable
(101
)
 
(72
)
Other assets
30

 
31

Other liabilities
(56
)
 
45

Net cash provided by operating activities
466

 
503

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(199
)
 
(118
)
Cash payments for acquisitions, net of cash acquired
(19
)
 
(17
)
Purchases of short-term investments
(1,071
)
 
(102
)
Proceeds from maturities of short-term investments
411

 

Proceeds from sales of short-term investments
156

 
67

Net cash used in investing activities
(722
)
 
(170
)
FINANCING ACTIVITIES:
 
 
 
Repayments of debt and other obligations
(18
)
 
(1,189
)
Proceeds from convertible note hedge

 
189

Net proceeds from sales of common stock under employee stock benefit plans
66

 
160

Excess income tax benefit from the exercise of stock options
5

 
13

Tax payments related to restricted stock units
(34
)
 
(30
)
Dividends paid, net
(207
)
 
(210
)
Repurchases of common stock
(250
)
 
(250
)
Proceeds from other financing, net
34

 

Net cash used in financing activities
(404
)
 
(1,317
)
Effect of exchange rate fluctuations on cash and cash equivalents
(75
)
 
26

Change in cash and cash equivalents
(735
)
 
(958
)
Beginning cash and cash equivalents
3,707

 
4,685

Ending cash and cash equivalents
$
2,972

 
$
3,727

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

6


SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Symantec Corporation (“Symantec,” “we,” “us,” “our,” and “the Company” refer to Symantec Corporation and all of its subsidiaries) as of October 3, 2014 and March 28, 2014, and for the three and six months ended October 3, 2014 and September 27, 2013 have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.”) for interim financial information and with the instructions on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, we have omitted certain information and notes normally provided in our annual Consolidated Financial Statements. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 28, 2014. The results of operations for the three and six months ended October 3, 2014 are not necessarily indicative of the results expected for the entire fiscal year.
We have a 52/53-week fiscal accounting year. Unless otherwise stated, references to three and six month ended periods in this report relate to fiscal periods ended October 3, 2014 and September 27, 2013. The six months ended October 3, 2014 consisted of 27 weeks, whereas the six months ended September 27, 2013 consisted of 26 weeks. Our 2015 fiscal year consists of 53 weeks and ends on April 3, 2015.
There have been no material changes in our significant accounting policies for the three and six months ended October 3, 2014, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 28, 2014. Certain immaterial amounts in our 2014 Condensed Consolidated Financial Statements within operating expenses have been reclassified to be comparable with classifications used in our 2015 Condensed Consolidated Financial Statements.
Segment reporting change
In fiscal 2015, we are focused on managing our businesses as a portfolio and optimizing certain businesses for margin or growth. As a result, beginning from the second quarter of fiscal year 2015, we modified our segment reporting structure to match our new operating structure and how our Chief Operating Decision Maker ("CODM") reviews the business and allocates resources. The CODM function is comprised of our Chief Executive Officer and Chief Financial Officer. Reclassifications of prior period segment information have been made to conform to the current period presentation. This change does not impact our previously reported Condensed Consolidated Financial Statements. See Note 8 for additional information on our segment reporting change.
Recently issued authoritative guidance
On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment, that provides new guidance related to reporting discontinued operations. This new standard raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The new standard is effective for the Company April 4, 2015, and will impact the treatment of the tax-free separation of our information management business that is expected to occur by the end of December 2015. See Note 12 for information regarding the separation. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are evaluating the impact of adopting this new accounting guidance on our Condensed Consolidated Financial Statements and related disclosures.
On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers, and will replace most existing revenue recognition guidance in U.S. GAAP. The new standard is effective for the Company April 1, 2017, and early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that the standard will have on our Condensed Consolidated Financial Statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

7


There was no other recently issued authoritative guidance that has a material impact to our Condensed Consolidated Financial Statements through the reporting date.
Note 2. Fair Value Measurements
For assets and liabilities measured at fair value, such amounts are based on an expected exit price representing the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
Level 1:  Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2:  Observable inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3:  Unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
Assets measured and recorded at fair value on a recurring basis
Cash equivalents. Cash equivalents consist of money market funds that are classified as Level 1, and corporate securities and commercial paper classified as Level 2, all of which have an original maturity of three months or less, and the carrying amount is a reasonable estimate of fair value.
Short-term investments. Short-term investments consist of U.S. government securities with original maturities greater than three months and are classified as recurring Level 1. Also included in short-term investments are commercial paper, federal agency and corporate and international government securities with original maturities greater than three months, which are classified as Level 2. Short-term investments are priced using inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the fair value of these assets. Marketable equity securities are classified as Level 1 and are recorded at fair value using quoted prices in active markets for identical assets.
There have been no transfers between fair value measurement levels during the six months ended October 3, 2014. The following table summarizes our assets measured at fair value on a recurring basis, by level, within the fair value hierarchy:
 
October 3, 2014
 
March 28, 2014
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Cash equivalents
$
1,810

 
$
60

 
$
1,870

 
$
2,380

 
$
40

 
$
2,420

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds

 
297

 
297

 

 
120

 
120

U.S. government securities
207

 

 
207

 
95

 

 
95

U.S. agency securities

 
139

 
139

 

 
45

 
45

Commercial paper

 
71

 
71

 

 
24

 
24

Other investments

 
102

 
102

 

 
47

 
47

Marketable equity securities
5

 

 
5

 
6

 

 
6

Fair value of long-term debt
As of October 3, 2014 and March 28, 2014, the fair value of the Company’s current and long-term debt, based on Level 2 inputs, was $2.2 billion.

8


Note 3. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill were as follows:
 
Consumer Security
 
Enterprise
Security
 
Information
Management
 
Total
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Net balance as of March 28, 2014
$
1,233

 
$
1,918

 
$
2,707

 
$
5,858

Additions (1)

 
11

 

 
11

Adjustments (2)
(1
)
 
(6
)
 
(2
)
 
(9
)
Net balance as of October 3, 2014
$
1,232

 
$
1,923

 
$
2,705

 
$
5,860

 
(1)  Additions due to an acquired business.
(2)  Adjustments made to goodwill reflect foreign currency exchange rate fluctuations.
Effective in the second quarter of fiscal 2015, we evaluated our segment reporting structure and modified the reporting to match our new operating structure. Our reporting units for goodwill are the same as our reportable operating segments, and the net goodwill balance has been allocated to the reporting units based on their relative fair value. See Note 8 for information regarding the changes related to segment information.
As a result of the change in our segments, we assessed goodwill for impairment immediately prior to the changes to the new reporting units and determined that the estimated fair value of our reporting units exceeded their respective carrying amount including goodwill. Based on the results of our impairment analysis, we do not believe that impairment existed as of the date of the change in our segments.
Intangible assets, net
 
October 3, 2014
 
March 28, 2014
 
Gross
 Carrying 
Amount
 
Accumulated
Amortization
 
Net
 Carrying 
Amount
 
Weighted-
Average
Remaining
Useful Life
 
Gross
 Carrying 
Amount
 
Accumulated
Amortization
 
Net
 Carrying 
Amount
 
Weighted-
Average
Remaining
Useful Life
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Customer relationships
$
757

 
$
(513
)
 
$
244

 
3 years
 
$
766

 
$
(469
)
 
$
297

 
3 years
Developed technology
283

 
(155
)
 
128

 
3 years
 
287

 
(142
)
 
145

 
4 years
Finite-lived tradenames
125

 
(110
)
 
15

 
1 year
 
125

 
(103
)
 
22

 
2 years
Patents
21

 
(15
)
 
6

 
3 years
 
21

 
(14
)
 
7

 
4 years
Indefinite-lived tradenames
297

 

 
297

 
Indefinite
 
297

 

 
297

 
Indefinite
Total
$
1,483

 
$
(793
)
 
$
690

 
2 years
 
$
1,496

 
$
(728
)
 
$
768

 
3 years
Total future amortization expense for intangible assets that have finite lives is as follows:

9


 
October 3,
2014
 
(Dollars in millions)
Remainder of fiscal 2015
$
76

2016
106

2017
88

2018
67

2019
37

Thereafter
19

Total
$
393

Note 4. Supplemental Financial Information
Property and equipment, net
 
October 3,
2014
 
March 28,
2014
 
 
 
 
 
(Dollars in millions)
Land
$
79

 
$
79

Computer hardware and software
1,825

 
1,797

Office furniture and equipment
141

 
140

Buildings
540

 
539

Leasehold improvements
368

 
356

Construction in progress
85

 
28

 
3,038

 
2,939

Accumulated depreciation
(1,857
)
 
(1,823
)
Total
$
1,181

 
$
1,116

Dividends and dividend equivalents
During the quarter ended October 3, 2014, we declared and paid a cash dividend of $0.15 per common share for a total of $104 million. During the six months ended October 3, 2014, we declared and paid cash dividends of $0.30 per common share for a total of $207 million. Each quarterly dividend was recorded as a reduction to additional paid-in capital. In addition, our Board of Directors approved dividend equivalent rights entitling holders of restricted stock and performance-based stock to dividend equivalents to be paid in the form of cash upon vesting, for each share of the underlying units.
On November 5, 2014, we declared a cash dividend of $0.15 per share of common stock to be paid on December 17, 2014 to stockholders of record as of the close of business on November 24, 2014. All shares of common stock issued and outstanding, and unvested restricted stock and performance-based stock, as of the record date will be entitled to the dividend and dividend equivalents, respectively. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.
Changes in accumulated other comprehensive income by component
Components of accumulated other comprehensive income, on a net of tax basis, were as follows: 

10


 
Foreign Currency
Translation
Adjustments
 
  Unrealized Gain On  
Available-For-Sale
Securities
 
Total    
 
 
 
 
 
 
 
(Dollars in millions)
Balance as of March 28, 2014
$
191

 
$
3

 
$
194

Other comprehensive income before reclassifications
(40
)
 

 
(40
)
Amounts reclassified from accumulated other comprehensive income

 

 

Balance as of October 3, 2014
$
151

 
$
3

 
$
154

There were no effects to net income of amounts reclassified from accumulated other comprehensive income for the three and six months ended October 3, 2014.
Note 5. Restructuring, Separation, and Transition
Our restructuring, separation, and transition costs and liabilities consist primarily of severance, facilities, separation, transition and other related costs. Severance costs generally include severance payments, outplacement services, health insurance coverage, and legal costs. Facilities costs generally include rent expense and lease termination costs, less estimated sublease income. Separation and other related costs will include advisory, consulting and other costs incurred in connection with the separation of our information management business. Transition and other related costs consist of consulting charges associated with the implementation of a new Enterprise Resource Planning system, and costs related to the outsourcing of certain back office functions. Restructuring, separation, and transition costs are managed at the corporate level and are not allocated to our reportable segments. See Note 8 of these Condensed Consolidated Financial Statements for information regarding the reconciliation of total segment operating income to total consolidated operating income.
Restructuring plans
Fiscal 2014 Plan
We initiated a restructuring plan in the fourth quarter of fiscal 2013 to reduce management and redundant personnel resulting in headcount reductions across the Company. As of October 3, 2014, total costs related to this plan incurred since inception were $238 million, primarily related to severance and related employee benefits. The costs for severance and benefits are substantially complete, however we expect to incur immaterial adjustments to existing reserves in subsequent periods.
Fiscal 2015 Plan
Our Board of Directors has approved the strategic decision to separate our business into two independent publicly-traded companies: one focused on security and one focused on information management. We expect to complete this transaction by the end of December 2015, subject to market, regulatory and certain other conditions. In order to separate the business, we initiated a restructuring plan to properly align personnel and expect to incur associated severance and facilities costs. We also expect to incur separation costs in the form of advisory, consulting and disentanglement expenses. These actions are expected to be completed in fiscal 2016. In connection with this plan, through October 3, 2014, we incurred charges of $17 million consisting of $8 million related to severance costs, and $9 million in separation costs. As of November 3, 2014, we expect to incur total severance and facilities costs between $100 million and $120 million, approximately half of which is expected to be incurred in fiscal 2015. We expect to incur separation costs between $80 million and $100 million, excluding any potential tax implications outside the U.S and potential advisor fees payable upon separation. Total restructuring and separation costs are expected to be between $180 million and $220 million.
Other exit and disposal costs
Our other exit and disposal costs consist primarily of costs associated with closing or consolidating certain facilities. Largely as a result of business acquisitions, management may make a plan to exit certain facilities either at the time of acquisition or after the acquisition in conjunction with our efforts to integrate and streamline our operations. As of October 3, 2014, liabilities for these excess facility obligations at several locations around the world are expected to be paid throughout the respective lease terms as we continue to occupy these facilities, the longest of which extends through fiscal 2016.


11


Restructuring, separation, and transition summary
 
March 28, 2014
 
Costs, Net of
Adjustments 
(1)
 
Cash Payments
 
October 3, 2014
 
Cumulative
Incurred to Date
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Restructuring and separation liabilities:
 
 
 
 
 
 
 
 
 
Fiscal 2014 Plan
 
 
 
 
 
 
 
 
 
Severance costs
$
38

 
$
16

 
$
(42
)
 
$
12

 
$
235

Other exit and disposal costs

 

 

 

 
$
3

Fiscal 2014 Plan Total
$
38

 
$
16

 
$
(42
)
 
$
12

 
$
238

Fiscal 2015 Plan
 
 
 
 
 
 
 
 
 
Severance costs

 
8

 

 
8

 
$
8

Separation costs

 
9

 
(9
)
 

 
$
9

Other exit and disposal costs

 

 

 

 

Fiscal 2015 Plan Total
$

 
$
17

 
$
(9
)
 
$
8

 
$
17

Total restructuring and separation liabilities
$
38

 
$
33

 
$
(51
)
 
$
20

 
 
Transition and other related costs
 
 
17

 
 
 
 
 
 
Total restructuring, separation, and transition costs
 
 
$
50

 
 
 
 
 
 
Balance Sheet:
 
 
 
 
 
 
 
 
 
Other current liabilities
$
37

 
 
 
 
 
$
19

 
 
Other long-term obligations
1

 
 
 
 
 
1

 
 
Total restructuring liabilities
$
38

 
 
 
 
 
$
20

 
 
 
(1) Adjustments primarily relate to foreign currency exchange rate fluctuations.
Note 6. Commitments and Contingencies
Indemnification
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In addition, our bylaws contain indemnification obligations to our directors, officers, employees and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements.
We provide limited product warranties and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.
Litigation contingencies
During the first quarter of fiscal 2013, we were advised by the Commercial Litigation Branch of the Department of Justice’s Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the government is investigating our compliance with certain provisions of our U.S. General Services Administration (“GSA”) Multiple Award Schedule Contract No. GS-35F-0240T effective January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices.

12


As reported on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $222 million from the period beginning January 2007 and ending September 2012. We have fully cooperated with the government throughout its investigation and in January 2014, representatives of the government indicated that their initial analysis of our actual damages exposure from direct government sales under the GSA schedule is approximately $145 million; since the initial meeting, the government’s analysis of our potential damages exposure relating to direct sales has increased. The government has also indicated they are going to pursue claims for certain sales to New York, California, and Florida as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure.
In 2012, a sealed civil lawsuit was filed against Symantec related to compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the lawsuit. On September 16, 2014, the states of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the Department of Justice filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the Department of Justice in an Omnibus Complaint; the state claims also do not state specific damages amounts. Symantec and the government continue to discuss potential resolutions through confidential settlement discussions.
It is possible that the litigation could lead to claims or findings of violations of the False Claims Act, and could be material to our results of operations and cash flows for any period. Resolution of False Claims Act investigations can ultimately result in the payment of somewhere between one and three times the actual damages proven by the government, plus civil penalties in some cases, depending upon a number of factors. Our current estimate of the low end of the range of the probable estimated loss from this matter is $25 million, which we have accrued. This amount contemplates estimated losses from both the investigation of compliance with the terms of the GSA Schedule contract as well as possible violations of the False Claims Act. There is at least a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter, however, we are currently unable to determine a range of estimated losses resulting from this matter.
We are also involved in a number of other judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it is not possible to estimate the possible loss or losses from each of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on our business, results of operations, financial condition or cash flow.
Note 7. Stock Repurchases
The following table summarizes our stock repurchase activity:
 
Three Months Ended 
 October 3, 2014
 
Six Months Ended 
 October 3, 2014
 
 
 
 
 
(In millions, except per share data)
Total number of shares repurchased

 
5

 
 
 
11

Dollar amount of shares repurchased

 
$
125

 
 
 
$
250

Average price paid per share

 
$
23.75

 
 
 
$
22.12

Range of price paid per share
$
22.42

-
$
25.30

 
$
19.59

-
$
25.30

Through our stock repurchase programs we have repurchased shares on a quarterly basis since the fourth quarter of fiscal 2004. During the fourth quarter of fiscal 2013, our Board of Directors authorized a $1.0 billion stock repurchase program which commenced in fiscal 2014. Our active stock repurchase program has $408 million remaining authorized for future repurchase as of October 3, 2014, and does not have an expiration date.

13


Note 8. Segment Information
In fiscal 2015, we are focused on managing our businesses as a portfolio and optimizing certain businesses for margin or growth. As a result, in the second quarter of fiscal 2015 we formed a new consumer group and modified our segment reporting structure to match our operating structure based on financial information reviewed by our CODM. Consumer Security consists of our consumer businesses that were previously reported in User Productivity & Protection. Enterprise Security consists of our enterprise security businesses that were previously reported in User Productivity & Protection and Information Security. Our Information Management segment was not impacted by the change in our operating structure. The three reporting segments, which are the same as our operating segments, are as follows:
Consumer Security: Our Consumer Security segment focuses on making it simple for customers to be productive and protected at home and at work. Our Norton-branded services provide multi-layer security and identity protection on major desktop and mobile operating systems, to defend against increasingly complex online threats to individuals, families, and small businesses.
Enterprise Security: Our Enterprise Security segment protects organizations so they can securely conduct business while leveraging new platforms and data. These products include our Secure Socket Layer ("SSL") Certificates, authentication, mail and web security, data center security, data loss prevention, information security services, endpoint security and management, encryption, and mobile offerings.
Information Management: Our Information Management segment focuses on backup and recovery, archiving and eDiscovery, storage and high availability solutions, ensuring that our customers’ IT infrastructure and mission-critical applications are protected, managed and available.
There were no intersegment sales during the three and six months ended October 3, 2014 or September 27, 2013. Reclassifications of prior period information have been made to conform to the current period presentation. The following table summarizes the operating results of our reporting segments:
 
Consumer Security
 
Enterprise  
Security
 
Information    
Management
 
Total
Segments
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Three Months Ended October 3, 2014
 
 
 
 
 
 
 
Net revenue
$
485

 
$
511

 
$
621

 
$
1,617

Percentage of total net revenue
30
%
 
32
%
 
38
%
 
100
%
Operating income
257

 
85

 
122

 
464

Operating margin
53
%
 
17
%
 
20
%
 
 
Three Months Ended September 27, 2013
 
 
 
 
 
 
 
Net revenue
$
518

 
$
517

 
$
602

 
$
1,637

Percentage of total net revenue
32
%
 
31
%
 
37
%
 
100
%
Operating income
225

 
80

 
145

 
450

Operating margin
43
%
 
15
%
 
24
%
 
 
Six Months Ended October 3, 2014
 
 
 
 
 
 
 
Net revenue
$
1,018

 
$
1,063

 
$
1,271

 
$
3,352

Percentage of total net revenue
30
%
 
32
%
 
38
%
 
100
%
Operating income
525

 
155

 
211

 
891

Operating margin
52
%
 
15
%
 
17
%
 
 
Six Months Ended September 27, 2013
 
 
 
 
 
 
 
Net revenue
$
1,042

 
$
1,061

 
$
1,243

 
$
3,346

Percentage of total net revenue
31
%
 
32
%
 
37
%
 
100
%
Operating income
449

 
138

 
293

 
880

Operating margin
43
%
 
13
%
 
24
%
 
 


14


Operating segments are based upon the nature of the business and how the business is managed. Our CODM uses financial information to evaluate the performance of, and to assign resources to, each of the operating segments. We do not allocate to the operating segments certain operating expenses, which we manage separately at the corporate level. These unallocated costs can include amortization of intangible assets, restructuring, separation, and transition charges, stock-based compensation expense, and acquisition-related charges.
The reconciliation of total segment operating income to total consolidated operating income is as follows:
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Total segment operating income
$
464

 
$
450

 
$
891

 
$
880

Reconciling items:
 
 
 
 
 
 
 
Stock-based compensation
46

 
38

 
89

 
77

Amortization of intangibles
40

 
42

 
82

 
128

Restructuring, separation, and transition
30

 
122

 
50

 
203

Total consolidated operating income
$
348

 
$
248

 
$
670

 
$
472

Note 9. Stock-Based Compensation
The following table sets forth the total stock-based compensation expense recognized in our Condensed Consolidated Statements of Income:
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Cost of revenue
$
6

 
$
4

 
$
12

 
$
8

Sales and marketing
18

 
15

 
35

 
29

Research and development
15

 
12

 
28

 
25

General and administrative
7

 
7

 
14

 
15

Total stock-based compensation expense
46

 
38

 
89

 
77

Tax benefit associated with stock-based compensation expense
(14
)
 
(10
)
 
(26
)
 
(21
)
Net stock-based compensation expense
$
32

 
$
28

 
$
63

 
$
56

Net stock-based compensation expense per share — basic
$
0.05

 
$
0.04

 
$
0.09

 
$
0.08

Net stock-based compensation expense per share — diluted
$
0.05

 
$
0.04

 
$
0.09

 
$
0.08










15


The following table summarizes additional information pertaining to our stock-based compensation:
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
(Dollars in millions, except per grant data)
Restricted stock
 
 
 
Weighted-average fair value per grant
$
21.48

 
$
24.23

Fair value of awards granted
$
267

 
$
63

Total fair value of awards vested
$
87

 
$
89

Total unrecognized compensation expense
$
367

 
$
208

Weighted-average remaining vesting period
3 years

 
2 years

Performance-based restricted stock
 
 
 
Weighted-average fair value per grant
$
26.30

 
$
19.04

Fair value of awards granted
$
44

 
$
33

Total fair value of awards vested
$
21

 
$
12

Total unrecognized compensation expense
$
21

 
$
33

Weighted-average remaining vesting period
2 years

 
2 years

Stock options
 
 
 
Weighted-average fair value per grant
$

 
$

Total intrinsic value of stock options exercised
$
6

 
$
48

Total unrecognized compensation expense
$
2

 
$
9

Weighted-average remaining vesting period
1 year

 
1 year


Performance-based restricted stock units

Our Board of Directors appointed Michael A. Brown as our new President and Chief Executive Officer ("CEO"), effective September 24, 2014. During the second quarter of fiscal 2015, we granted 344,717 performance-based restricted stock units, ("PRUs") to our new CEO which had a fair value of $11 million. These PRUs are subject to vesting based on the Company’s achievement of (1) targeted non-GAAP earnings per share for fiscal 2015 and (2) the achievement of the total shareholder return (“TSR”) ranking for the Company as compared to the S&P 500 for the 2 year period ending at the end of fiscal 2016 and for the three year period ending at the end of fiscal 2017. The fair value of these PRUs was calculated using a Monte Carlo simulation option pricing model. Additionally, we granted 147,736 restricted stock units (“RSUs”) to Mr. Brown that will vest in three annual installments beginning on September 1, 2015. The compensation expense is amortized ratably over the requisite service period.
Note 10. Income Taxes
The effective tax rate was approximately 27% and 25% for the three and six months ended October 3, 2014, and 4% and 15% for the three and six months ended September 27, 2013, respectively.
For the three and six months ended October 3, 2014, the tax expense was reduced by $3 million and $20 million, respectively, in tax benefits primarily resulting from tax settlements, lapses of statutes of limitations, and prior year items.
For the three and six months ended September 27, 2013, the tax provision was reduced by $33 million for the resolution of a tax matter related to the sale of our 49% ownership interest in the joint venture with Huawei during the fourth quarter of fiscal 2012, as well as by $24 million for tax benefits related to the settlement of the Symantec 2005 through 2008 Internal Revenue Service (“IRS”) audit. The tax provision for the three and six months ended September 27, 2013 was further reduced by $8 million and $11 million in tax benefits, respectively, primarily resulting from individually insignificant tax settlements, lapses of statutes of limitations, and prior year items. These tax benefits were offset by $6 million and $12 million in tax expense, for the three and six months ended September 27, 2013, respectively, resulting from the sale of short-term investments.
The provision for the three and six months ended October 3, 2014 and September 27, 2013 otherwise reflects a forecasted tax rate of 27% and 29%, for each period, respectively. The forecasted tax rates for all periods presented reflect the benefits of

16


lower-taxed international earnings and domestic manufacturing incentives, partially offset by state income taxes. The forecasted tax rate for the period ended September 27, 2013 includes the partial benefit of the U.S. federal research and development tax credit which expired on December 31, 2013.
We are a U.S.-based multinational company subject to tax in multiple U.S. and international tax jurisdictions. A substantial portion of our international earnings were generated from subsidiaries organized in Ireland and Singapore. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease, whether by payment, remeasurement, and/or release in the next 12 months, by between $30 million and $150 million. Depending on the nature and timing of such settlements and expiration of statutes of limitations during the next 12 months, we estimate between $15 million and $70 million could affect our income tax provision and therefore benefit the resulting effective tax rate. As of October 3, 2014, we have $127 million on deposit with the IRS pertaining to U.S. tax matters in the Symantec fiscal 2009 through 2013 audit cycle, and it is reasonably possible that additional cash payments between $15 million and $65 million will be made in the next 12 months.
We continue to monitor the progress of ongoing tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.
Note 11. Earnings Per Share
The components of earnings per share are as follows:
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
October 3,
2014
 
September 27,
2013
 
 
 
 
 
 
 
 
 
(In millions, except per grant data)
Net income
$
244

 
$
241

 
$
480

 
$
398

Net income per share — basic
$
0.35

 
$
0.34

 
$
0.69

 
$
0.57

Net income per share — diluted
$
0.35

 
$
0.34

 
$
0.69

 
$
0.56

Weighted-average outstanding common shares — basic
690

 
699

 
691

 
698

Dilutive potential shares issuable from assumed exercise of stock options
1

 
2

 
1

 
2

Dilutive potential shares related to stock award plans
5

 
6

 
5

 
7

Weighted-average shares outstanding — diluted
696

 
707

 
697

 
707

Anti-dilutive weighted-average stock options
1

 
3

 
2

 
4

Anti-dilutive weighted-average restricted stock

 

 

 

Note 12. Subsequent Event
The Planned Separation of Information Management from the Security Business
On October 9, 2014, we announced plans to separate our business into two independent publicly-traded companies: one focused on security and one focused on information management. The transaction is intended to take the form of a tax-free distribution to Symantec shareholders of 100% of the capital stock of our information management business. We expect to complete the transaction by the end of December 2015, subject to market, regulatory and certain other conditions. John Gannon has been appointed as General Manager of the information management business, and Don Rath has been appointed as acting Chief Financial Officer. After the transaction, Michael Brown and Thomas Seifert will continue to lead Symantec as Chief Executive Officer and Chief Financial Officer, respectively. For additional cost information, see Note 5.

17


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors That May Affect Future Results
The discussion below contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Act, and the Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include references to our ability to utilize our deferred tax assets, as well as statements including words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” and similar expressions. In addition, statements that refer to projections of our future financial performance, anticipated growth and trends in our businesses and in our industries, the anticipated impacts of acquisitions, our intent to pay quarterly cash dividends in the future, the actions we intend to take as part of our new strategy, the expected impact of our new strategy and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions, based on our current expectations about future events and may not prove to be accurate. We do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. These forward-looking statements involve risks and uncertainties, and our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors, including those that we discuss in Risk Factors, set forth in Part I, Item 1A, of our annual report on Form 10-K for the fiscal year ended March 28, 2014 and in Item 1A of this quarterly report on Form 10-Q. We encourage you to read that section carefully.
Fiscal Calendar
We have a 52/53-week fiscal accounting year ending on the Friday closest to March 31. The three and six months ended October 3, 2014 consisted of 13 and 27 weeks, respectively. The three and six months ended September 27, 2013 consisted of 13 and 26 weeks, respectively.
OVERVIEW
Our Business
Symantec Corporation protects the world’s information and is a global leader in security, backup and availability solutions. Our market leading products and services protect people and information in any environment – from the smallest mobile device, to the enterprise data center, to cloud-based systems.
Strategy
We operate a global civilian cyber intelligence threat network and track a vast number of threats across the Internet from hundreds of millions of mobile devices, endpoints and servers across the globe. We believe one of our competitive advantages is our database of threat indicators which allows us to reduce the number of false positives and provide faster and better protection for customers through all of our products.
We are leveraging our capabilities in advanced threat protection and data loss prevention and extending them into our core security offerings. We are also pioneering new solutions in growing markets like mobile, cloud, appliances, backup, data loss prevention, and managed security services.
In fiscal 2015, we are focused on five priorities: optimizing certain businesses for operating margin, prioritizing investments for growth, further reducing costs and improving efficiencies, attracting top talent to our executive team, and continuing to return significant cash to shareholders. We are optimizing some of our businesses by methodically evaluating every product line to balance our profitability targets against our objectives. In order to prioritize investments for growth, we are realigning our research and development budgets to apply the best resources to the most promising market opportunities. To further reduce costs and improve efficiencies, we are consolidating our global footprint, data centers, and product support capabilities as well as streamlining the way we run our businesses with initiatives to increase research and development efficiencies and sales productivity. We are focused on attracting talented business and technology leaders to the company. We remain committed to returning significant cash to shareholders in the form of dividends and share buybacks.




18


Recent Developments
The Planned Separation of Information Management from the Security Businesses
On October 9, 2014, we announced plans to separate our business into two independent publicly-traded companies: one focused on security and one focused on information management. The transaction is intended to take the form of a tax-free distribution to Symantec shareholders of 100% of the capital stock of our information management business. We expect to complete the transaction by the end of December 2015, subject to market, regulatory and certain other conditions. John Gannon has been appointed as General Manager of the information management business, and Don Rath has been appointed as acting Chief Financial Officer. After the transaction, Michael Brown and Thomas Seifert will continue to lead Symantec as Chief Executive Officer and Chief Financial Officer, respectively. For additional cost information, see Note 5.
Change in Management
On September 25, 2014, our Board of Directors appointed Michael Brown, previously interim Chief Executive Officer, as President and Chief Executive Officer.
Our Operating Segments
Our operating segments are significant strategic business units that offer different products and services distinguished by customer needs. In the second quarter of fiscal 2015, we modified our segment reporting structure to match our new operating structure. The three reporting segments which are the same as our operating segments are:
Consumer Security: Our Consumer Security segment focuses on making it simple for customers to be productive and protected at home and at work. Our Norton-branded services provide multi-layer security and identity protection on major desktop and mobile operating systems, to defend against increasingly complex online threats to individuals, families, and small businesses.
Enterprise Security: Our Enterprise Security segment protects organizations so they can securely conduct business while leveraging new platforms and data. These products include our SSL Certificates, authentication, mail and web security, data center security, data loss prevention, information security services, endpoint security and management, encryption, and mobile offerings.
Information Management: Our Information Management segment focuses on backup and recovery, archiving and eDiscovery, storage and high availability solutions, ensuring that our customers' IT infrastructure and mission-critical applications are protected, managed and available.
Financial Results and Trends 
Total revenue decreased by $20 million for the three months ended October 3, 2014, as compared to the same period last year, primarily due to declines in our content, subscription and maintenance revenue. Content, subscription, and maintenance revenue decreased by $54 million for the three months ended October 3, 2014, as compared to the same period last year, primarily due to weakness in our information availability offerings and declines in our core consumer security businesses. We experienced license revenue growth for the three and six months ended October 3, 2014, as compared to the same period last year, primarily due to growth in our NetBackup appliances.
Revenue decreased domestically for the three and six months ended October 3, 2014, while international revenue experienced a net revenue increase for the six months ended October 3, 2014, in each case as compared to the same period last year. The increase in international revenue was due to a favorable foreign currency fluctuation of $24 million in the Europe, Middle East, and Africa ("EMEA") region.
Gross margins remained constant at 83% and 82% during the three and six months ended October 3, 2014, respectively, when compared to the same period last year. Additionally, total cost of revenue remained relatively consistent for the three months ended October 3, 2014, as compared to the same period in the prior year.
Operating expenses declined by $114 million and $195 million for the three and six months ended October 3, 2014, respectively, as compared to the same period in the prior year, primarily due to lower restructuring costs.

19


We expect our operating margins to fluctuate in future periods as a result of a number of factors, including our operating results and the timing and amount of expenses incurred.
Critical Accounting Estimates
There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our Condensed Consolidated Financial Statements during the three and six months ended October 3, 2014, as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 28, 2014.
RESULTS OF OPERATIONS
Total Net Revenue
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
Change in
 
October 3,
2014
 
September 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Content, subscription, and maintenance revenue
$
1,445

 
$
1,499

 
$
(54
)
 
(4)
 %
 
$
3,019

 
$
3,019

 
$

 
%
Percentage of total net revenue
89
%
 
92
%
 
 
 
 
 
90
%
 
90
%
 
 
 
 
License revenue
172

 
138

 
34

 
25
 %
 
333

 
327

 
6

 
2
%
Percentage of total net revenue
11
%
 
8
%
 
 
 
 
 
10
%
 
10
%
 
 
 
 
Total
$
1,617

 
$
1,637

 
$
(20
)
 
(1)
 %
 
$
3,352

 
$
3,346

 
$
6

 
%
Content, subscription and maintenance revenue represented 89% and 90% of total net revenue for the three and six months ended October 3, 2014, respectively. Our content, subscription and maintenance revenue decreased by $54 million for the three months ended October 3, 2014, compared to the same period last year, primarily due to weakness in our information availability offerings and declines in our core consumer security businesses. Content, subscription and maintenance revenue remained consistent for the six months ended October 3, 2014, compared to the same period last year.
Our license revenue, which includes sales from software licenses, appliances, and certain revenue-sharing arrangements, increased by $34 million and $6 million during the three and six months ended October 3, 2014, respectively, compared to the same period last year. The license revenue growth was primarily due to growth in our NetBackup appliances.

Net Revenue and Operating Income by Segment
Consumer Security Segment
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
Change in
 
October 3,
2014
 
September 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Consumer Security revenue
$
485

 
$
518

 
$
(33
)
 
(6)
 %
 
$
1,018

 
$
1,042

 
$
(24
)
 
(2)
 %
Percentage of total net revenue
30
%
 
32
%
 
 
 
 
 
30
%
 
31
%
 
 
 
 
Consumer Security operating income
$
257

 
$
225

 
$
32

 
14
 %
 
$
525

 
$
449

 
$
76

 
17
 %
Consumer Security operating margin
53
%
 
43
%
 
 
 
 
 
52
%
 
43
%
 
 
 
 
Consumer Security revenue decreased by $33 million and $24 million for the three and six months ended October 3, 2014, respectively, as compared to the same period last year. The consumer security revenue decrease was primarily due to declines

20


in our core consumer security products driven by our channel strategy to exit certain high-cost and unprofitable original equipment manufacturer ("OEM") arrangements, coupled with the impact of our decision to change our renewal practices.
Consumer Security operating income increased $32 million and $76 million for the three and six months ended October 3, 2014, respectively, as compared to the same period last year, primarily due to reductions in advertising and promotion costs.
Enterprise Security Segment
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
Change in
 
October 3,
2014
 
September 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Enterprise Security revenue
$
511

 
$
517

 
$
(6
)
 
(1)
 %
 
$
1,063

 
$
1,061

 
$
2

 
%
Percentage of total net revenue
32
%
 
31
%
 
 
 
 
 
32
%
 
32
%
 
 
 
 
Enterprise Security operating income
$
85

 
$
80

 
$
5

 
6
 %
 
$
155

 
$
138

 
$
17

 
12
%
Enterprise Security operating margin
17
%
 
15
%
 
 
 
 
 
15
%
 
13
%
 
 
 
 
Enterprise Security revenue remained relatively consistent for the three and six months ended October 3, 2014, respectively, as compared to the same period last year, as growth in our endpoint security products was largely offset by weakness in our endpoint management products.
Enterprise Security operating income increased $5 million and $17 million for the three and six months ended October 3, 2014, respectively, as compared to the same period last year primarily due to reductions in outside services costs.
Information Management Segment
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
Change in
 
October 3,
2014
 
September 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Information Management revenue
$
621

 
$
602

 
$
19

 
3
 %
 
$
1,271

 
$
1,243

 
$
28

 
2
 %
Percentage of total net revenue
38
%
 
37
%
 
 
 
 
 
38
%
 
37
%
 
 
 
 
Information Management operating income
$
122

 
$
145

 
$
(23
)
 
(16)
 %
 
$
211

 
$
293

 
$
(82
)
 
(28)
 %
Information Management operating margin
20
%
 
24
%
 
 
 
 
 
17
%
 
24
%
 
 
 
 
Information Management revenue increased $19 million and $28 million for the three and six months ended October 3, 2014, respectively, when compared to the same period last year, primarily due to an increase in revenue from our NetBackup appliances offset by weakness in our information availability offerings and Backup Exec products.
Information Management operating income decreased $23 million and $82 million for the three and six months ended October 3, 2014, respectively, when compared to the same period last year, driven by increases in headcount related expenses as well as increases in equipment costs related to our appliance offerings.

21


Net Revenue by Geography
 
Three Months Ended
 
Six Months Ended
 
October 3,
2014
 
September 27,
2013
 
Change in
 
October 3,
2014
 
September 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Americas (U.S., Canada and Latin America)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer segment
$
279

 
$
297

 
$
(18
)
 
(6)
 %
 
$
586

 
$
608

 
$
(22
)
 
(4)
 %
Enterprise Security segment
271

 
279

 
(8
)
 
(3)
 %
 
562

 
568

 
(6
)
 
(1)
 %
Information Management segment
334

 
314

 
20

 
6
 %
 
676

 
647

 
29

 
4
 %
Total Americas
$
884

 
$
890

 
$
(6
)
 
(1)
 %
 
$
1,824

 
$
1,823

 
$
1

 
 %
Percentage of total net revenue
55
%
 
54
%
 
 
 
 
 
55
%
 
54
%
 
 
 
 
EMEA (Europe, Middle East, Africa)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer segment
$
135

 
$
142

 
$
(7
)
 
(5)
 %
 
$
283

 
$
278

 
$
5

 
2
 %
Enterprise Security segment
141

 
135

 
6

 
4
 %
 
291

 
278

 
13

 
5
 %
Information Management segment
179

 
180

 
(1
)
 
(1)
 %
 
376

 
371

 
5

 
1
 %
Total EMEA
$
455

 
$
457

 
$
(2
)
 
 %
 
$
950

 
$
927

 
$
23

 
2
 %
Percentage of total net revenue
28
%
 
28
%
 
 
 
 
 
28
%
 
28
%
 
 
 
 
Asia Pacific/Japan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer segment
$
71

 
$
79

 
$
(8
)
 
(10)
 %
 
$
149

 
$
156

 
$
(7
)
 
(4)
 %
Enterprise Security segment
99

 
103

 
(4
)
 
(4)
 %
 
210

 
215

 
(5
)
 
(2)
 %
Information Management segment
108

 
108

 

 
 %
 
219

 
225

 
(6
)
 
(3)
 %
Total Asia Pacific/Japan
$
278

 
$
290

 
$
(12
)
 
(4)
 %
 
$
578

 
$
596

 
$
(18
)
 
(3)
 %