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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 January 2, 2015
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 January 30, 2015: 682,380,095 shares.

1


SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended January 2, 2015
TABLE OF CONTENTS
 
 
Page  
 
 

2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
January 2,
2015
 
March 28,
2014*
 
 
 
 
 
(Unaudited)
(Dollars in millions)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,764

 
$
3,707

Short-term investments
976

 
377

Trade accounts receivable, net
982

 
1,007

Inventories, net
12

 
14

Deferred income taxes
143

 
142

Deferred commissions
120

 
115

Other current assets
258

 
290

Total current assets
5,255

 
5,652

Property and equipment, net
1,186

 
1,116

Intangible assets, net
669

 
768

Goodwill
5,854

 
5,858

Long-term deferred commissions
25

 
21

Other long-term assets
113

 
124

Total assets
$
13,102

 
$
13,539

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
212

 
$
282

Accrued compensation and benefits
382

 
365

Deferred revenue
2,961

 
3,322

Current portion of long-term debt
350

 

Other current liabilities
328

 
337

Total current liabilities
4,233

 
4,306

Long-term debt
1,745

 
2,095

Long-term deferred revenue
533

 
581

Long-term deferred tax liabilities
465

 
425

Long-term income taxes payable
133

 
252

Other long-term obligations
83

 
83

Total liabilities
7,192

 
7,742

Commitments and contingencies (Note 6)

 

Stockholders’ equity:
 
 
 
Common stock
7

 
7

Additional paid-in capital
6,230

 
6,744

Accumulated other comprehensive income
119

 
194

Accumulated deficit
(446
)
 
(1,148
)
Total stockholders’ equity
5,910

 
5,797

Total liabilities and stockholders’ equity
$
13,102

 
$
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
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
 
 
 
 
(Unaudited)
(In millions, except per share data)
Net revenue:
 
 
 
 
 
 
 
Content, subscription, and maintenance
$
1,412

 
$
1,508

 
$
4,431

 
$
4,527

License
226

 
197

 
559

 
524

Total net revenue
1,638

 
1,705

 
4,990

 
5,051

Cost of revenue:
 
 
 
 
 
 
 
Content, subscription, and maintenance
239

 
244

 
748

 
759

License
28

 
26

 
80

 
67

Amortization of intangible assets
12

 
13

 
38

 
41

Total cost of revenue
279

 
283

 
866

 
867

Gross profit
1,359

 
1,422

 
4,124

 
4,184

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
563

 
610

 
1,772

 
1,854

Research and development
267

 
252

 
851

 
762

General and administrative
94

 
98

 
290

 
331

Amortization of intangible assets
27

 
28

 
83

 
128

Restructuring, separation, and transition
81

 
29

 
131

 
232

Total operating expenses
1,032

 
1,017

 
3,127

 
3,307

Operating income
327

 
405

 
997

 
877

Interest income
3

 
3

 
9

 
9

Interest expense
(20
)
 
(20
)
 
(60
)
 
(65
)
Other income (loss), net
2

 
(1
)
 
4

 
37

Income before income taxes
312

 
387

 
950

 
858

Provision for income taxes
90

 
104

 
248

 
177

Net income
$
222

 
$
283

 
$
702

 
$
681

Basic net income per share
$
0.32

 
$
0.41

 
$
1.02

 
$
0.98

Diluted net income per share
$
0.32

 
$
0.40

 
$
1.01

 
$
0.96

Weighted-average shares outstanding — basic
689

 
696

 
690

 
697

Weighted-average shares outstanding — diluted
697

 
702

 
697

 
706

Cash dividends declared per common share
$
0.15

 
$
0.15

 
$
0.45

 
$
0.45

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
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
 
 
 
 
(Unaudited)
(Dollars in millions)
Net income
$
222

 
$
283

 
$
702

 
$
681

Other comprehensive loss, net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(35
)
 
(1
)
 
(75
)
 
(5
)
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gain on available-for-sale securities, net of taxes of $0 million for the three months ended January 2, 2015 and December 27, 2013, and $0 million for the nine months ended January 2, 2015 and December 27, 2013

 

 

 

Reclassification adjustments for realized gain included in net income, net of taxes of $0 million for the three months ended January 2, 2015 and December 27, 2013, and $0 million and $10 million for the nine months ended January 2, 2015 and December 27, 2013, respectively

 

 

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

 

 

 
(14
)
Other comprehensive loss, net of taxes
(35
)
 
(1
)
 
(75
)
 
(19
)
Comprehensive income
$
187

 
$
282

 
$
627

 
$
662

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
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
(Unaudited)
(Dollars in millions)
OPERATING ACTIVITIES:
 
 
 
Net income
$
702

 
$
681

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
213

 
207

Amortization of intangible assets
121

 
170

Amortization of debt issuance costs and discounts
3

 
6

Stock-based compensation expense
140

 
111

Deferred income taxes
28

 
9

Excess income tax benefit from the exercise of stock options
(6
)
 
(13
)
Net gain from sale of short-term investments

 
(32
)
Other
8

 
8

Net change in assets and liabilities, excluding effects of acquisitions:
 
 
 
Trade accounts receivable, net
(7
)
 
145

Inventories, net
1

 
11

Deferred commissions
(16
)
 
27

Accounts payable
(65
)
 
(54
)
Accrued compensation and benefits
28

 
(83
)
Deferred revenue
(232
)
 
(470
)
Income taxes payable
(94
)
 
30

Other assets
22

 
30

Other liabilities
(22
)
 
49

Net cash provided by operating activities
824

 
832

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(300
)
 
(183
)
Payments for acquisitions, net of cash acquired, and purchases of intangibles
(39
)
 
(17
)
Purchases of short-term investments
(1,429
)
 
(174
)
Proceeds from maturities of short-term investments
495

 
99

Proceeds from sales of short-term investments
270

 
67

Net cash used in investing activities
(1,003
)
 
(208
)
FINANCING ACTIVITIES:
 
 
 
Repayments of debt and other obligations
(19
)
 
(1,189
)
Proceeds from convertible note hedge

 
189

Net proceeds from sales of common stock under employee stock benefit plans
78

 
183

Excess income tax benefit from the exercise of stock options
6

 
13

Tax payments related to restricted stock units
(37
)
 
(32
)
Dividends paid, net
(311
)
 
(314
)
Repurchases of common stock
(375
)
 
(375
)
Proceeds from other financing, net
36

 

Net cash used in financing activities
(622
)
 
(1,525
)
Effect of exchange rate fluctuations on cash and cash equivalents
(142
)
 
29

Change in cash and cash equivalents
(943
)
 
(872
)
Beginning cash and cash equivalents
3,707

 
4,685

Ending cash and cash equivalents
$
2,764

 
$
3,813

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 January 2, 2015 and March 28, 2014, and for the three and nine months ended January 2, 2015 and December 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 nine months ended January 2, 2015 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 nine month ended periods in this report relate to fiscal periods ended January 2, 2015 and December 27, 2013. The nine months ended January 2, 2015 consisted of 40 weeks, whereas the nine months ended December 27, 2013 consisted of 39 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 nine months ended January 2, 2015, 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.
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 all 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 for restructuring actions being taken in connection with the planned separation, see Note 5.
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 is expected to impact the treatment of the planned separation of our information management business that is expected to occur by the end of December 2015. Early

7


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.
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 nine months ended January 2, 2015. The following table summarizes our assets measured at fair value on a recurring basis, by level, within the fair value hierarchy:

8


 
January 2, 2015
 
March 28, 2014
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Cash equivalents
$
1,503

 
$
67

 
$
1,570

 
$
2,380

 
$
40

 
$
2,420

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds

 
270

 
270

 

 
120

 
120

U.S. government securities
299

 

 
299

 
95

 

 
95

U.S. agency securities

 
82

 
82

 

 
45

 
45

Commercial paper

 
221

 
221

 

 
24

 
24

Other investments

 
99

 
99

 

 
47

 
47

Marketable equity securities
5

 

 
5

 
6

 

 
6

Fair value of debt
As of January 2, 2015 and March 28, 2014, the fair value of the Company’s current and long-term debt was $2.2 billion based on Level 2 inputs.
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)
(3
)
 
(8
)
 
(4
)
 
(15
)
Net balance as of January 2, 2015
$
1,230

 
$
1,921

 
$
2,703

 
$
5,854

 
(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.

9


Intangible assets, net
 
January 2, 2015
 
March 28, 2014
 
Gross
 Carrying 
Amount
 
Accumulated
Amortization
 
Net
 Carrying 
Amount
 
Gross
 Carrying 
Amount
 
Accumulated
Amortization
 
Net
 Carrying 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Customer relationships
$
734

 
$
(516
)
 
$
218

 
$
766

 
$
(469
)
 
$
297

Developed technology
296

 
(159
)
 
137

 
287

 
(142
)
 
145

Finite-lived tradenames
125

 
(113
)
 
12

 
125

 
(103
)
 
22

Patents
21

 
(16
)
 
5

 
21

 
(14
)
 
7

Total finite-lived intangible assets
1,176

 
(804
)
 
372

 
1,199

 
(728
)
 
471

Indefinite-lived tradenames
297

 

 
297

 
297

 

 
297

Total
$
1,473

 
$
(804
)
 
$
669

 
$
1,496

 
$
(728
)
 
$
768

During the third quarter of fiscal 2015, we acquired rights to certain technology for $20 million. This cost was assigned to developed technology and will be amortized to cost of goods sold on a straight-line basis over the estimated useful life of three years
Total future amortization expense for intangible assets that have finite lives is as follows:
 
January 2,
2015
 
(Dollars in millions)
Remainder of fiscal 2015
$
40

2016
112

2017
93

2018
71

2019
37

Thereafter
19

Total
$
372

Note 4. Supplemental Financial Information
Property and equipment, net
 
January 2,
2015
 
March 28,
2014
 
 
 
 
 
(Dollars in millions)
Land
$
79

 
$
79

Computer hardware and software
1,719

 
1,797

Office furniture and equipment
126

 
140

Buildings
544

 
539

Leasehold improvements
372

 
356

Construction in progress
93

 
28

 
2,933

 
2,939

Accumulated depreciation
(1,747
)
 
(1,823
)
Total
$
1,186

 
$
1,116


10


Dividends and dividend equivalents
During the quarter ended January 2, 2015, we declared and paid a cash dividend of $0.15 per common share for a total of $104 million. During the nine months ended January 2, 2015, we declared and paid cash dividends of $0.45 per common share for a total of $311 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 February 5, 2015, we declared a cash dividend of $0.15 per share of common stock to be paid on March 18, 2015 to stockholders of record as of the close of business on February 26, 2015. 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: 
 
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
(75
)
 

 
(75
)
Amounts reclassified from accumulated other comprehensive income

 

 

Balance as of January 2, 2015
$
116

 
$
3

 
$
119

There were no effects to net income of amounts reclassified from accumulated other comprehensive income for the three and nine months ended January 2, 2015.
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 new Enterprise Resource Planning systems. 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 January 2, 2015, the related 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

11


to be completed in fiscal 2016. We expect to incur total severance and facilities costs between $100 million and $120 million, more than 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. As of January 2, 2015, liabilities for 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.
Restructuring, separation, and transition expense summary
 
Three Months Ended 
 January 2, 2015
 
Nine Months Ended 
 January 2, 2015
 
(Dollars in millions)
Fiscal 2014 Plan Total
$

 
$
16

Fiscal 2015 Plan
 
 
 
Severance costs
39

 
47

Separation costs
29

 
38

Other exit and disposal costs
1

 
1

Fiscal 2015 Plan Total
69

 
86

Transition and other related costs
12

 
29

Total restructuring, separation, and transition costs
$
81

 
$
131

Restructuring, separation, and transition liabilities summary
 
March 28, 2014
 
Costs, Net of
Adjustments
 
Cash Payments
 
January 2, 2015
 
Cumulative
Incurred to Date
 
(Dollars in millions)
Fiscal 2014 Plan Total
$
38

 
$
16

 
$
(47
)
 
$
7

 
$
238

Fiscal 2015 Plan
 
 
 
 
 
 
 
 
 
Severance costs

 
47

 
(15
)
 
32

 
47

Separation costs

 
38

 
(31
)
 
7

 
38

Other exit and disposal costs

 
1

 

 
1

 
1

Fiscal 2015 Plan Total

 
86

 
(46
)
 
40

 
86

Total restructuring and separation liabilities
$
38

 
102

 
$
(93
)
 
$
47

 
 
Transition and other related costs
 
 
29

 
 
 
 
 
 
Total restructuring, separation, and transition costs
 
 
$
131

 
 
 
 
 
 
Balance Sheet:
January 2, 2015
 
March 28, 2014
 
(Dollars in millions)
Other current liabilities
$
47

 
$
37

Other long-term obligations

 
1

Total restructuring liabilities
$
47

 
$
38



12


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.
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 and the relator on behalf of New York in an Omnibus Complaint; the state claims also do not state specific damages amounts.
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.

13


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 
 January 2, 2015
 
Nine Months Ended 
 January 2, 2015
 
 
 
 
 
(In millions, except per share data)
Total number of shares repurchased
5

 
16

Dollar amount of shares repurchased
$
125

 
$
375

Average price paid per share
$
25.63

 
$
23.18

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 $283 million remaining authorized for future repurchase as of January 2, 2015, and does not have an expiration date.
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 nine months ended January 2, 2015 or December 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:

14


 
Consumer Security
 
Enterprise  
Security
 
Information    
Management
 
Total
Segments
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Three Months Ended January 2, 2015
 
 
 
 
 
 
 
Net revenue
$
461

 
$
509

 
$
668

 
$
1,638

Operating income
245

 
85

 
168

 
498

Three Months Ended December 27, 2013
 
 
 
 
 
 
 
Net revenue
517

 
528

 
660

 
1,705

Operating income
224

 
107

 
178

 
509

Nine Months Ended January 2, 2015
 
 
 
 
 
 
 
Net revenue
1,479

 
1,572

 
1,939

 
4,990

Operating income
770

 
240

 
379

 
1,389

Nine Months Ended December 27, 2013
 
 
 
 
 
 
 
Net revenue
1,559

 
1,589

 
1,903

 
5,051

Operating income
673

 
245

 
471

 
1,389

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 stock-based compensation expense, amortization of intangible assets, restructuring, separation, and transition charges, and acquisition-related charges.
The reconciliation of total segment operating income to total consolidated operating income is as follows:
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Total segment operating income
$
498

 
$
509

 
$
1,389

 
$
1,389

Reconciling items:
 
 
 
 
 
 
 
Stock-based compensation
51

 
34

 
140

 
111

Amortization of intangibles
39

 
41

 
121

 
169

Restructuring, separation, and transition
81

 
29

 
131

 
232

Total consolidated operating income
$
327

 
$
405

 
$
997

 
$
877

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
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Cost of revenue
$
6

 
$
5

 
$
18

 
$
13

Sales and marketing
20

 
15

 
55

 
44

Research and development
17

 
9

 
45

 
34

General and administrative
8

 
5

 
22

 
20

Total stock-based compensation expense
51

 
34

 
140

 
111

Tax benefit associated with stock-based compensation expense
(14
)
 
(7
)
 
(40
)
 
(28
)
Net stock-based compensation expense
$
37

 
$
27

 
$
100

 
$
83


15


The following table summarizes additional information pertaining to our stock-based compensation:
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
(Dollars in millions, except per grant data)
Restricted stock units
 
 
 
Weighted-average fair value per grant
$
22.55

 
$
24.46

Fair value of awards granted
$
390

 
$
231

Total fair value of awards vested
$
98

 
$
97

Total unrecognized compensation expense
$
406

 
$
273

Weighted-average remaining vesting period
3 years

 
3 years

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

 
$
19.04

Fair value of awards granted
$
44

 
$
33

Total fair value of awards vested
$
22

 
$
12

Total unrecognized compensation expense
$
20

 
$
13

Weighted-average remaining vesting period
2 years

 
2 years

Stock options
 
 
 
Weighted-average fair value per grant
$

 
$

Total intrinsic value of stock options exercised
$
11

 
$
54

Total unrecognized compensation expense
$
1

 
$
6

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 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 29% and 26% for the three and nine months ended January 2, 2015, and 27% and 21% for the three and nine months ended December 27, 2013, respectively.
For the three and nine months ended January 2, 2015, the tax expense was reduced by $8 million and $28 million, respectively, in tax benefits primarily resulting from tax settlements, lapses of statutes of limitations, and prior year items. The tax provision was also reduced by $2 million in tax benefits for the three and nine months ended January 2, 2015 resulting from the extension of the U.S. federal research and development tax credit through 2014 ("R&D credit") as part of the Tax Increase Prevention Act of 2014. There was no benefit to the tax provision, in the three and nine months ended January 2, 2015, resulting from separation costs incurred in these periods.
For the three and nine months ended December 27, 2013, the tax provision was reduced by a net tax benefit of $7 million related to certain foreign operations. The tax provision for the three and nine months ended December 27, 2013 was also reduced by $2 million and $13 million in tax benefits, respectively, primarily resulting from individually insignificant tax settlements, lapses of statutes of limitations, and prior year items. For the nine months ended December 27, 2013, the tax provision was further reduced by $33 million for the resolution of a tax matter related to the sale of our 49% ownership interest

16


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. These tax benefits were partially offset by $12 million in tax expense, in the nine months ended December 27, 2013, resulting from the sale of short-term investments.
The provision for the three and nine months ended January 2, 2015 and December 27, 2013 otherwise reflects a forecasted tax rate of 28% and 29%, for each period, respectively. The forecasted tax rates for all periods presented reflect the benefits of lower-taxed international earnings and domestic manufacturing incentives, and the R&D credit, partially offset by state income taxes. The forecasted tax rate for the period ended January 2, 2015 includes the partial benefit of the R&D credit which expired on December 31, 2014.
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 January 2, 2015, 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
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
January 2,
2015
 
December 27,
2013
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
Net income
$
222

 
$
283

 
$
702

 
$
681

Net income per share — basic
$
0.32

 
$
0.41

 
$
1.02

 
$
0.98

Net income per share — diluted
$
0.32

 
$
0.40

 
$
1.01

 
$
0.96

Weighted-average outstanding common shares — basic
689

 
696

 
690

 
697

Dilutive potential shares from stock-based compensation
8

 
6

 
7

 
9

Weighted-average shares outstanding — diluted
697

 
702

 
697

 
706

Anti-dilutive weighted-average employee share based awards

 
4

 
1

 
5

Note 12. Subsequent Events

On February 3, 2015, our Board of Directors authorized a new $1.0 billion stock repurchase program which commenced immediately and does not have an expiration date. This is in addition to the previous program with $283 million remaining authorized for future repurchase.

On December 8, 2010, Intellectual Ventures ("IV") sued Symantec for patent infringement in the U.S. District Court in Delaware. The complaint alleged infringement of four patents by various Symantec internet security products, including Norton

17


security products, Symantec Endpoint Protection, and other Symantec email and web security products. In January 2014, one patent was dismissed from the case. On January 26, 2015, a jury trial began on the remaining three patents. At trial, IV requested a damages award of up to $299 million. Symantec offered evidence that the three patents were invalid and not infringed. Symantec also offered evidence that, even if any of the patents are found to be valid and infringed, any damages would be significantly lower than the amount requested by IV.  After a nine-day trial, on February 6, 2015, the jury issued a verdict finding that:  two of the three patents are valid and infringed and awarded damages in the amount of $17 million.  Symantec is considering its options to overturn all or part of the verdict, including the filing of post-trial motions for judgment as a matter of law and/or a motion for a new trial and/or filing an appeal to the Federal Circuit. Symantec does not believe that it is probable that it has incurred a material loss and, as a result, has not made an accrual for this matter.
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 nine months ended January 2, 2015 consisted of 13 and 40 weeks, respectively. The three and nine months ended December 27, 2013 consisted of 13 and 39 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.

18


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.
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 all 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.
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 $67 million and $61 million for the three and nine months ended January 2, 2015, respectively, as compared to the same periods last year, reflecting declines in our content, subscription and maintenance revenue, partially offset by increased license revenue. Content, subscription, and maintenance revenue decreased by $96 million for both the three and nine months ended January 2, 2015, as compared to the same periods last year, primarily due to the general strengthening of the U.S. dollar against foreign currencies combined with a decline in our consumer security business. We experienced license revenue growth for the three and nine months ended January 2, 2015, as compared to the same periods last year, primarily due to growth in our NetBackup products. Revenue decreased internationally for the three and nine months ended January 2, 2015, while domestic revenue was relatively consistent for the three and nine months ended January 2, 2015, in each case as compared to the same periods last year. The decreases in international revenue were primarily due to unfavorable foreign currency fluctuations in the Europe, Middle East, and Africa ("EMEA") and Asia Pacific/Japan regions.
Gross margins remained constant at 83% for both the three and nine months ended January 2, 2015, respectively, when compared to the same periods last year. Additionally, total cost of revenue remained relatively consistent for the three and nine months ended January 2, 2015, as compared to the same periods in the prior year.
Operating expenses remained relatively consistent for the three months ended January 2, 2015, as compared to the same period in the prior year as costs associated with the fiscal 2015 restructuring plan were largely offset by lower selling and

19


marketing expenses. Operating expenses declined by $180 million for the nine months ended January 2, 2015 as compared to the same period in the prior year, primarily due to lower restructuring costs related to our fiscal 2014 plan, which is substantially complete, and lower spending.
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 nine months ended January 2, 2015, 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.

20



RESULTS OF OPERATIONS
Total Net Revenue
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
Change in
 
January 2,
2015
 
December 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Content, subscription, and maintenance revenue
$
1,412

 
$
1,508

 
$
(96
)
 
(6)
 %
 
$
4,431

 
$
4,527

 
$
(96
)
 
(2)
 %
Percentage of total net revenue
86
%
 
88
%
 
 
 
 
 
89
%
 
90
%
 
 
 
 
License revenue
226

 
197

 
29

 
15
 %
 
559

 
524

 
35

 
7
 %
Percentage of total net revenue
14
%
 
12
%
 
 
 
 
 
11
%
 
10
%
 
 
 
 
Total
$
1,638

 
$
1,705

 
$
(67
)
 
(4)
 %
 
$
4,990

 
$
5,051

 
$
(61
)
 
(1)
 %
Content, subscription, and maintenance revenue represented 86% and 89% of total net revenue for the three and nine months ended January 2, 2015, respectively. Our content, subscription and maintenance revenue decreased by $96 million for the three and nine months ended January 2, 2015, as compared to the same periods last year primarily due to the general strengthening of the U.S. dollar against foreign currencies and declines in our consumer security business.
Our license revenue, which includes sales of software licenses, appliances, and certain revenue-sharing arrangements, increased by $29 million for the three months ended January 2, 2015, as compared to the same period last year due to an increase in sales of our NetBackup products. Growth from sales of our NetBackup products also drove license revenue growth of $35 million for the nine months ended January 2, 2015, which was partially offset by weakness in sales of our Backup Exec products.

Net Revenue and Operating Income by Segment
Consumer Security Segment
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
Change in
 
January 2,
2015
 
December 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Consumer Security revenue
$
461

 
$
517

 
$
(56
)
 
(11)
 %
 
$
1,479

 
$
1,559

 
$
(80
)
 
(5)
 %
Percentage of total net revenue
28
%
 
30
%
 
 
 
 
 
30
%
 
31
%
 
 
 
 
Consumer Security operating income
$
245

 
$
224

 
$
21

 
9
 %
 
$
770

 
$
673

 
$
97

 
14
 %
Consumer Security operating margin
53
%
 
43
%
 
 
 
 
 
52
%
 
43
%
 
 
 
 
Consumer Security revenue decreased by $56 million and $80 million for the three and nine months ended January 2, 2015, respectively, as compared to the same periods last year. The consumer security revenue decrease was primarily due to declines 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 $21 million and $97 million for the three and nine months ended January 2, 2015, respectively, as compared to the same periods last year, primarily due to reductions in advertising and promotion costs.

21



Enterprise Security Segment
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
Change in
 
January 2,
2015
 
December 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Enterprise Security revenue
$
509

 
$
528

 
$
(19
)
 
(4)
 %
 
$
1,572

 
$
1,589

 
$
(17
)
 
(1)
 %
Percentage of total net revenue
31
%
 
31
%
 
 
 
 
 
31
%
 
31
%
 
 
 
 
Enterprise Security operating income
$
85

 
$
107

 
$
(22
)
 
(21)
 %
 
$
240

 
$
245

 
$
(5
)
 
(2)
 %
Enterprise Security operating margin
17
%
 
20
%
 
 
 
 
 
15
%
 
15
%
 
 
 
 
Enterprise Security revenue decreased by $19 million and $17 million for the three and nine months ended January 2, 2015, respectively, as compared to the same periods last year primarily due to unfavorable foreign currency fluctuations of $18 million and $13 million, respectively.
Enterprise Security operating income decreased $22 million for the three months ended January 2, 2015, as compared to the same period last year primarily due to the reduction in revenue. Enterprise Security operating income remained relatively consistent for the nine months ended January 2, 2015, as compared to the same period last year.
Information Management Segment
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
Change in
 
January 2,
2015
 
December 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Information Management revenue
$
668

 
$
660

 
$
8

 
1
 %
 
$
1,939

 
$
1,903

 
$
36

 
2
 %
Percentage of total net revenue
41
%
 
39
%
 
 
 
 
 
39
%
 
38
%
 
 
 
 
Information Management operating income
$
168

 
$
178

 
$
(10
)
 
(6)
 %
 
$
379

 
$
471

 
$
(92
)
 
(20)
 %
Information Management operating margin
25
%
 
27
%
 
 
 
 
 
20
%
 
25
%
 
 
 
 
Information Management revenue increased $8 million and $36 million for the three and nine months ended January 2, 2015, respectively, as compared to the same periods last year, primarily due to an increase in revenue from our NetBackup products partially offset by unfavorable foreign currency fluctuations and weakness in our Backup Exec products. In addition, the revenue increase for the nine months ended January 2, 2015 was partially offset by weakness in our information availability offerings.
Information Management operating income decreased $10 million and $92 million for the three and nine months ended January 2, 2015, respectively, as compared to the same periods last year, driven by increases in headcount related expenses including higher sales commissions expense and higher performance-based bonus expense.

22


Net Revenue by Geography
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
Change in
 
January 2,
2015
 
December 27,
2013
 
Change in
 
$            
 
%      
$            
 
%      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Americas (U.S., Canada and Latin America)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Security segment
$
270

 
$
299

 
$
(29
)
 
(10)
 %
 
$
856

 
$
906

 
$
(50
)
 
(6)
 %
Enterprise Security segment
282

 
282

 

 
 %
 
844

 
850

 
(6
)
 
(1)
 %
Information Management segment
355

 
333

 
22

 
7
 %
 
1,031

 
981

 
50

 
5
 %
Total Americas
$
907

 
$
914

 
$
(7
)
 
(1)
 %
 
$
2,731

 
$
2,737

 
$
(6
)
 
 %
Percentage of total net revenue
56
%
 
54
%
 
 
 
 
 
55
%
 
54
%
 
 
 
 
EMEA (Europe, Middle East, Africa)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Security segment
$
125

 
$
140

 
$
(15
)
 
(11)
 %
 
$
408

 
$
418

 
$
(10
)
 
(2)
 %
Enterprise Security segment
134

 
141

 
(7
)
 
(5)
 %
 
425

 
419

 
6

 
1
 %
Information Management segment
205

 
213

 
(8
)
 
(4)
 %
 
581

 
584

 
(3
)
 
(1)
 %
Total EMEA
$
464

 
$
494

 
$
(30
)
 
(6)
 %
 
$
1,414

 
$
1,421

 
$
(7
)
 
 %
Percentage of total net revenue
28
%
 
29
%
 
 
 
 
 
28
%
 
28
%
 
 
 
 
Asia Pacific/Japan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer Security segment
$
66

 
$
78

 
$
(12
)
 
(15)
 %
 
$
215

 
$
235

 
$
(20
)
 
(9)
 %
Enterprise Security segment
93

 
105

 
(12
)
 
(11)
 %
 
303

 
320

 
(17
)
 
(5)
 %
Information Management segment
108

 
114

 
(6
)
 
(5)
 %
 
327

 
338

 
(11
)
 
(3)
 %
Total Asia Pacific/Japan
$
267

 
$
297

 
$
(30
)
 
(10)
 %
 
$
845

 
$
893

 
$
(48
)
 
(5)
 %
Percentage of total net revenue
16
%
 
17
%
 
 
 
 
 
17
%
 
18
%
 
 
 
 
Total
$
1,638

 
$
1,705

 
$
(67
)
 
(4)
 %
 
$
4,990

 
$
5,051

 
$
(61
)
 
(1)
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
$
808

 
$
801

 
$
7

 
1
 %
 
$
2,410

 
$
2,420

 
$
(10
)
 
 %
U.S. percentage of total net revenue
49
%
 
47
%
 
 
 
 
 
48
%
 
48
%
 
 
 
 
International
830

 
904

 
(74
)
 
(8)
 %
 
2,580

 
2,631

 
(51
)
 
(2)
 %
International percentage of total net revenue
51
%
 
53
%
 
 
 
 
 
52
%
 
52
%
 
 
 
 
Total
$
1,638

 
$
1,705

 
$
(67
)
 
(4)
 %
 
$
4,990

 
$
5,051

 
$
(61
)
 
(1)
 %
The Americas region revenue was relatively consistent during the three and nine months ended January 2, 2015, as compared to the same periods last year. The EMEA region revenue decreased for the three and nine months ended January 2, 2015, as compared to the same periods last year, due to unfavorable foreign currency fluctuations of $40 million and $16 million, respectively. The Asia Pacific and Japan region revenue decreased for the three and nine months ended January 2, 2015, as compared to the same periods last year, primarily due to unfavorable foreign currency fluctuations of $19 million and $28 million, respectively.
Our international sales are expected to continue to be a significant portion of our revenue. As a result, revenue is expected to continue to be affected by foreign currency exchange rates as compared to the U.S. dollar. We are unable to predict the extent to

23


which revenue in future periods will be impacted by changes in foreign currency exchange rates. If international sales become a greater portion of our total sales in the future, changes in foreign currency exchange rates may have a potentially greater impact on our revenue and operating results.
Cost of Revenue
 
Three Months Ended
 
Nine Months Ended
 
January 2,
2015
 
December 27,
2013
 
Change in
 
January 2,
2015
 
December 27,
2013
 
Change in
 
$