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EX-10.01 - EXHIBIT 10.01 - SYMANTEC CORPa1116exhibit1001.htm

 
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 1, 2016
or
o
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 o
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 o
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 o
  
Non-accelerated filer o
  
Smaller reporting company o
 
  
(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 o    No þ
Shares of Symantec common stock, $0.01 par value per share, outstanding as of January 29, 2016: 652,222,522 shares
 



SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended January 1, 2016
TABLE OF CONTENTS
Page
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
January 1, 2016
 
April 3, 2015
 
(Unaudited)
(In millions, except par value)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,213

 
$
2,843

Short-term investments
56

 
1,017

Accounts receivable, net
490

 
700

Deferred income taxes
223

 
152

Deferred commissions
52

 
64

Other current assets
189

 
231

Current assets held for sale
3,950

 
415

Total current assets
7,173

 
5,422

Property and equipment, net
986

 
950

Intangible assets, net
464

 
525

Goodwill
3,146

 
3,146

Long-term deferred commissions
11

 
9

Other long-term assets
156

 
71

Long-term assets held for sale

 
3,110

Total assets
$
11,936

 
$
13,233

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
241

 
$
169

Accrued compensation and benefits
203

 
232

Deferred revenue
2,180

 
2,427

Current portion of long-term debt

 
350

Other current liabilities
271

 
339

Current liabilities held for sale
932

 
936

Total current liabilities
3,827

 
4,453

Long-term debt
1,740

 
1,746

Long-term deferred revenue
366

 
444

Long-term deferred tax liabilities
399

 
308

Long-term income taxes payable
140

 
134

Other long-term obligations
70

 
79

Long-term liabilities held for sale

 
134

Total liabilities
6,542

 
7,298

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 3,000 shares authorized; 657 and 898 shares issued; 657 and 684 shares outstanding, respectively
7

 
7

Additional paid-in capital
5,239

 
6,094

Accumulated other comprehensive income
75

 
104

Retained earnings (accumulated deficit)
73

 
(270
)
Total stockholders’ equity
5,394

 
5,935

Total liabilities and stockholders’ equity
$
11,936

 
$
13,233

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

3


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Unaudited)
 
(In millions, except per share data)
Net revenues
$
909

 
$
970

 
$
2,727

 
$
3,057

Cost of revenues
150

 
177

 
468

 
551

Gross profit
759

 
793

 
2,259

 
2,506

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
308

 
403

 
984

 
1,265

Research and development
174

 
193

 
571

 
604

General and administrative
68

 
91

 
218

 
276

Amortization of intangible assets
13

 
21

 
41

 
66

Restructuring, separation, and transition
50

 
51

 
116

 
92

Total operating expenses
613

 
759

 
1,930

 
2,303

Operating income
146

 
34

 
329

 
203

Interest income
1

 
3

 
6

 
9

Interest expense
(17
)
 
(19
)
 
(56
)
 
(59
)
Other income (expense), net
(1
)
 
1

 
(3
)
 
6

Income from continuing operations before income taxes
129

 
19

 
276

 
159

Provision for income taxes
15

 
44

 
84

 
105

Income (loss) from continuing operations
114

 
(25
)
 
192

 
54

Income from discontinued operations, net of income taxes
56

 
247

 
251

 
648

Net income
$
170


$
222


$
443


$
702

 
 
 
 
 
 
 
 
Net income (loss) per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
0.17

 
$
(0.04
)
 
$
0.28

 
$
0.08

Discontinued operations
$
0.08

 
$
0.36

 
$
0.37

 
$
0.94

Net income per share - basic
$
0.26

 
$
0.32

 
$
0.65

 
$
1.02

 
 
 
 
 
 
 
 
Net income (loss) per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.17

 
$
(0.04
)
 
$
0.28

 
$
0.08

Discontinued operations
$
0.08

 
$
0.36

 
$
0.37

 
$
0.93

Net income per share - diluted
$
0.25

 
$
0.32

 
$
0.65

 
$
1.01

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
665

 
689

 
677

 
690

Diluted
671

 
689

 
683

 
697

Cash dividends declared per common share
$
0.15

 
$
0.15

 
$
0.45

 
$
0.45


Note: Net income (loss) per share amounts may not add due to rounding.
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

4


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Unaudited)
 
(Dollars in millions)
Net income
$
170

 
$
222

 
$
443

 
$
702

Other comprehensive loss, net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Translation adjustments
(11
)
 
(35
)
 
(33
)
 
(75
)
Reclassification adjustments for loss included in net income

 

 
1

 

Net foreign currency translation adjustments
(11
)
 
(35
)
 
(32
)
 
(75
)
Unrealized gain (loss) on available-for-sale securities, net of taxes of $(1), $0, $2 and $0, respectively
(2
)
 

 
3

 

Other comprehensive loss, net of taxes
(13
)
 
(35
)
 
(29
)
 
(75
)
Comprehensive income
$
157

 
$
187

 
$
414

 
$
627

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

5


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
(Unaudited)
 
(Dollars in millions)
OPERATING ACTIVITIES:
 
 
 
Net income
$
443

 
$
702

Income from discontinued operations
(251
)
 
(648
)
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation
161

 
173

Amortization of intangible assets
63

 
92

Amortization of debt issuance costs and discounts
3

 
3

Stock-based compensation expense
118

 
94

Deferred income taxes
63

 
29

Excess income tax benefit from the exercise of stock options
(6
)
 
(6
)
Other
14

 
8

Net change in assets and liabilities, excluding effects of acquisitions:
 
 
 
Accounts receivable, net
26

 
24

Deferred commissions
10

 
(4
)
Accounts payable
61

 
(69
)
Accrued compensation and benefits
(23
)
 
(2
)
Deferred revenue
(175
)
 
(199
)
Income taxes payable
(94
)
 
(237
)
Other assets
(49
)
 
18

Other liabilities
(48
)
 
(28
)
Net cash provided by (used in) continuing operating activities
316

 
(50
)
Net cash provided by discontinued operating activities
230

 
874

Net cash provided by operating activities
546

 
824

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(225
)
 
(249
)
Payments for acquisitions, net of cash acquired, and purchases of intangibles
(4
)
 
(39
)
Purchases of short-term investments
(377
)
 
(1,429
)
Proceeds from maturities of short-term investments
1,038

 
495

Proceeds from sales of short-term investments
299

 
270

Net cash provided by (used in) continuing investing activities
731

 
(952
)
Net cash used in discontinued investing activities
(57
)
 
(51
)
Net cash provided by (used in) investing activities
674

 
(1,003
)
FINANCING ACTIVITIES:
 
 
 
Repayments of debt and other obligations
(368
)
 
(19
)
Net proceeds from sales of common stock under employee stock benefit plans
63

 
78

Excess income tax benefit from the exercise of stock options
6

 
6

Tax payments related to restricted stock units
(35
)
 
(30
)
Dividends and dividend equivalents paid
(312
)
 
(311
)
Repurchases of common stock
(868
)
 
(375
)
Proceeds from other financing, net

 
36

Net cash used in continuing financing activities
(1,514
)
 
(615
)
Net cash used in discontinued financing activities
(17
)
 
(7
)
Net cash used in financing activities
(1,531
)
 
(622
)
Effect of exchange rate fluctuations on cash and cash equivalents
(51
)
 
(142
)
Change in cash and cash equivalents
(362
)
 
(943
)
Beginning cash and cash equivalents
2,874

 
3,707

Ending cash and cash equivalents
2,512

 
2,764

Less: Cash and cash equivalents of discontinued operations
299

 
30

Cash and cash equivalents of continuing operations
$
2,213

 
$
2,734

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

6


SYMANTEC CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1Description of Business and Significant Accounting Policies
Business
Symantec Corporation (“Symantec,” “we,” “us,” “our,” and “the Company” refer to Symantec Corporation and all of its subsidiaries) is a global leader in security.
In the second quarter of fiscal 2016, the Company entered into a definitive agreement to sell the assets of its information management business ("Veritas") (which represented a reporting segment) to The Carlyle Group and certain co-investors ("Carlyle"). The agreement was amended in January 2016 and closed on January 29, 2016, see Note 13, Subsequent Events. Beginning in the third quarter of fiscal 2016, the results of Veritas are presented as discontinued operations in our Condensed Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, the related assets and liabilities have been classified as held for sale on our Condensed Consolidated Balance Sheets. See Note 3, Discontinued Operations, for additional information on discontinued operations.
Basis of presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") 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 April 3, 2015. The results of operations for the three and nine months ended January 1, 2016, 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 1, 2016 and January 2, 2015. The nine months ended January 1, 2016, consisted of 39 weeks whereas the nine months ended January 2, 2015, consisted of 40 weeks. Our 2016 fiscal year consists of 52 weeks and ends on April 1, 2016.
There have been no material changes in our significant accounting policies for the three and nine months ended January 1, 2016, compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended April 3, 2015.
Recently adopted accounting guidance
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment, that provides new guidance related to reporting discontinued operations. This 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 standard became effective for the Company in the first quarter of fiscal 2016, and applies to the presentation and disclosure of the sale of Veritas which closed in January 2016. For additional information about our reporting of discontinued operations, see Note 3, Discontinued Operations.
In April 2015, the FASB issued ASU No. 2015-03, Interest–Imputation of Interest, which requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related liability. We adopted the standard in the first quarter of fiscal 2016, and it did not have a material impact on our Condensed Consolidated Financial Statements.

7


Recent accounting guidance not yet adopted
In May 2014, the FASB issued ASU 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 standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which defers the effective date of the new revenue reporting standard by one year. The standard will be effective for the Company for the fiscal year beginning on March 31, 2018. We have not yet selected a transition method nor have we determined the effect of the standard on our Condensed Consolidated Financial Statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, which simplifies the presentation of deferred income taxes by requiring that all deferred income tax liabilities and assets be classified as noncurrent. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The standard will be effective for the Company for the fiscal quarter ended April 1, 2016. The Company intends to adopt this standard on a prospective basis, and believes there will be a material balance sheet reclassification of current deferred income tax liabilities and assets to noncurrent, but cannot determine the exact amount at this time.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard is effective for the Company for the fiscal year beginning March 31, 2018, with early adoption permitted under limited circumstances. The Company is currently evaluating the effect the standard will have on its Condensed Consolidated Financial Statements.
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 primarily of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable estimate of fair value.
Short-term investments. Short-term investments consist of investment securities with original maturities greater than three months and marketable equity securities. Investment securities 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 recorded at fair value using quoted prices in active markets for identical assets.

8


There have been no transfers between fair value measurement levels during the nine months ended January 1, 2016. The following table summarizes our assets measured at fair value on a recurring basis, by level, within the fair value hierarchy:
 
January 1, 2016
 
April 3, 2015
 
Fair Value
 
Cash and Cash Equivalents
 
Short-term Investments
 
Fair Value
 
Cash and Cash Equivalents
 
Short-term Investments
 
(Dollars in millions)
Cash
$
889

 
$
889

 
$

 
$
776

 
$
776

 
$

Non-negotiable certificates of deposit

 

 

 
296

 
260

 
36

Level 1
 
 
 
 
 
 
 
 
 
 
 
Money market
1,324

 
1,324

 

 
1,725

 
1,725

 

U.S. government securities
25

 

 
25

 
284

 

 
284

Marketable equity securities
10

 

 
10

 
5

 

 
5

 
1,359

 
1,324

 
35

 
2,014

 
1,725

 
289

Level 2
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
8

 

 
8

 
166

 

 
166

U.S. agency securities
3

 

 
3

 
68

 

 
68

Commercial paper
10

 

 
10

 
333

 
82

 
251

Negotiable certificates of deposit

 

 

 
184

 

 
184

International government securities

 

 

 
23

 

 
23

 
21

 

 
21

 
774

 
82

 
692

Total
$
2,269

 
$
2,213

 
$
56

 
$
3,860

 
$
2,843

 
$
1,017

Fair value of debt
As of January 1, 2016 and April 3, 2015, the total fair value of our current and long-term debt was $1.8 billion and $2.2 billion, respectively, based on Level 2 inputs.
Note 3. Discontinued Operations
In the second quarter of fiscal 2016, the Company entered into a definitive agreement to sell the assets of its information management business, Veritas, to Carlyle. The agreement was amended in January 2016 and closed on January 29, 2016, see Note 13, Subsequent Events. Beginning in the third quarter of fiscal 2016, the results of Veritas are presented as discontinued operations in our Condensed Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, the related assets and liabilities have been classified as held for sale on our Condensed Consolidated Balance Sheets. The Company has two remaining reporting segments, Consumer Security and Enterprise Security. See Note 8, Segment Information, for more information on our operating segments. See Note 6, Restructuring, Separation, and Transition, for more information on severance, facilities and separation costs related to our fiscal 2015 plans to separate our security and information management businesses.
The Company and Veritas entered into Transition Service Agreements ("TSA") pursuant to which the Company will provide Veritas certain limited services including financial support services, information technology services, and access to facilities, and Veritas will provide the Company financial support services.  The TSAs commence with the close of the transaction and expire at various dates through fiscal year 2019.

9


The following table presents the aggregate carrying amounts of the classes of assets and liabilities held for sale:
 
January 1,
2016
 
April 3,
2015
 
(Dollars in millions)
Assets:
 
 
 
Cash and cash equivalents
$
299

 
$
31

Accounts receivable, net
417

 
293

Deferred commissions
57

 
67

Other current assets
44

 
24

Property and equipment, net
300

 
255

Intangible assets, net
87

 
103

Goodwill
2,699

 
2,701

Long-term deferred commissions
12

 
17

Other long-term assets
35

 
34

Total assets held for sale
$
3,950

 
$
3,525

 
 
 
 
Liabilities:
 
 
 
Accounts payable
$
76

 
$
44

Accrued compensation and benefits
131

 
166

Deferred revenue
561

 
682

Other current liabilities
44

 
44

Long-term deferred revenue
98

 
111

Other long-term obligations
22

 
23

Total liabilities held for sale
$
932

 
$
1,070

The following table presents information regarding certain components of income from discontinued operations, net of income taxes:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions)
Net revenues
$
570

 
$
668

 
$
1,749

 
$
1,933

Cost of revenues
92

 
102

 
292

 
315

Operating expenses
377

 
273

 
1,135

 
824

Other income (expense), net
8

 

 
2

 
(3
)
Income from discontinued operations before income tax
109

 
293

 
324

 
791

Provision for income taxes
53

 
46

 
73

 
143

Net income from discontinued operations
$
56

 
$
247

 
$
251

 
$
648

Note 4Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill are as follows:
 
 
 
Consumer Security
 
Enterprise Security
 
Total
 
 
 
(Dollars in millions)
Net balance as of April 3, 2015
 
 
$
1,230

 
$
1,916

 
$
3,146

Translation adjustments
 
 
1

 
(1
)
 

Net balance as of January 1, 2016
 
 
$
1,231

 
$
1,915

 
$
3,146


10


Intangible assets, net
 
January 1, 2016
 
April 3, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(Dollars in millions)
Customer relationships
$
402

 
$
(304
)
 
$
98

 
$
637

 
$
(498
)
 
$
139

Developed technology
155

 
(90
)
 
65

 
200

 
(117
)
 
83

Finite-lived trade names
2

 
(1
)
 
1

 
21

 
(19
)
 
2

Patents
21

 
(18
)
 
3

 
21

 
(17
)
 
4

Total finite-lived intangible assets
580

 
(413
)
 
167

 
879

 
(651
)
 
228

Indefinite-lived trade names
297

 

 
297

 
297

 

 
297

Total
$
877

 
$
(413
)
 
$
464

 
$
1,176

 
$
(651
)
 
$
525

Goodwill and intangible assets to be disposed of as a result of our sale of Veritas were included in assets held for sale in our Condensed Consolidated Balance Sheets as of January 1, 2016 and April 3, 2015, and accordingly, are excluded from the tables above.
As of January 1, 2016, future amortization expense related to finite-lived intangible assets by fiscal year is as follows:
 
January 1, 2016
 
(Dollars in millions)
Remainder of 2016
$
19

2017
67

2018
51

2019
24

2020
5

Thereafter
1

Total
$
167

Note 5. Debt
The following table summarizes components of our debt:
 
January 1, 2016
 
April 3, 2015
 
Amount
 
Effective
Interest Rate
 
Amount
 
Effective
Interest Rate
 
(Dollars in millions)
Senior Notes
 
 
 
 
 
 
 
2.75% due September 15, 2015
$

 
%
 
$
350

 
2.76
%
2.75% due June 15, 2017
600

 
2.79
%
 
600

 
2.79
%
4.20% due September 15, 2020
750

 
4.25
%
 
750

 
4.25
%
3.95% due June 15, 2022
400

 
4.05
%
 
400

 
4.05
%
Total principal amount
1,750

 
 
 
2,100

 
 
Less: unamortized discount and issuance costs
(10
)
 
 
 
(4
)
 
 
Total debt
1,740

 
 
 
2,096

 
 
Less: current portion

 
 
 
(350
)
 
 
Total long-term portion
$
1,740

 
 
 
$
1,746

 
 
Senior Notes
Our Senior Notes are senior unsecured obligations that rank equally in right of payment with all of our existing and future unsecured, unsubordinated obligations and are redeemable by us at any time, subject to a “make-whole” premium. Interest on our Senior Notes is payable semiannually. Both the discount and issuance costs are being amortized as incremental interest expense over the respective terms of the Senior Notes. The principal balance of our 2.75% Senior Notes due September 15, 2015 matured and was settled by a cash payment of $350 million in the second quarter of fiscal 2016.

11


Revolving credit facility
In fiscal 2011, we entered into a $1.0 billion senior unsecured revolving credit facility (“credit facility”), which was amended in fiscal 2013. The amendment extended the term of the credit facility to June 7, 2017. Loans under the credit facility will bear interest, at our option, at a rate equal to either a) LIBOR plus a margin based on debt ratings, as defined in the credit facility agreement or b) the bank’s base rate plus a margin based on debt ratings, as defined in the credit facility agreement. Under the terms of the credit facility, we must comply with certain financial and non-financial covenants, including a covenant to maintain a specified ratio of debt to EBITDA (earnings before interest, taxes, depreciation and amortization). As of January 1, 2016, we were in compliance with the required covenants, and no amounts were outstanding.
Note 6Restructuring, 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 include advisory, consulting and other costs incurred in connection with the separation of our information management business. Transition and other related costs primarily 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, Segment Information, 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 1, 2016, the related costs for severance and benefits are substantially complete; however, we may experience immaterial adjustments to existing accruals in subsequent periods.
Fiscal 2015 Plan
In fiscal 2015, we announced plans to separate our security and information management businesses. In order to separate the businesses, we put a restructuring plan in place to properly align personnel, and have therefore incurred associated severance and facilities costs. We also incurred separation costs in the form of advisory, consulting and disentanglement expenses. These actions were completed in the fourth quarter of fiscal 2016 with the sale of Veritas on January 29, 2016. Total restructuring and separation costs in the fourth quarter of fiscal 2016 are expected to be $30 million to $40 million, excluding advisor fees of approximately $40 million payable upon separation. See Note 3, Discontinued Operations, and Note 13, Subsequent Events, for more information on the sale of Veritas. As of January 1, 2016, liabilities for excess facility obligations at several locations around the world are expected to be paid throughout the respective lease terms, the longest of which extends through fiscal 2020.
Restructuring, separation, and transition expense summary
 
Three Months Ended
January 1, 2016
 
Nine Months Ended
January 1, 2016
 
(Dollars in millions)
Fiscal 2015 Plan
 
 
 
Severance costs
$
14

 
$
31

Separation costs
4

 
5

Other exit and disposal costs
15

 
19

Fiscal 2015 Plan Total
33

 
55

Transition and other related costs
17

 
61

Restructuring, separation, and transition costs from continuing operations
50

 
116

Restructuring, separation, and transition costs from discontinued operations
64

 
233

Total restructuring, separation, and transition costs
$
114

 
$
349


12


Restructuring, separation, and transition liabilities summary
 
April 3, 2015
 
Costs, Net of
Adjustments
 
Cash Payments
 
January 1, 2016
 
Cumulative
Incurred to Date
 
(Dollars in millions)
Fiscal 2014 Plan total
$
4

 
$

 
$
(4
)
 
$

 
$
238

Fiscal 2015 Plan
 
 
 
 
 
 
 
 
 
Severance costs
59

 
36

 
(74
)
 
21

 
138

Separation costs
17

 
189

 
(160
)
 
46

 
270

Other exit and disposal costs
6

 
19

 
(11
)
 
14

 
26

Fiscal 2015 Plan total
$
82

 
$
244

 
$
(245
)
 
$
81

 
$
434

Restructuring and separation plans total
$
86

 
244

 
$
(249
)
 
$
81

 
 
Transition and other related costs
 
 
105

 
 
 
 
 
 
Total restructuring, separation, and transition costs
 
 
$
349

 
 
 
 
 
 
The restructuring and separation liabilities shown above remain with the Company in continuing operations and are included in accounts payable, other current liabilities and other long-term obligations in our Condensed Consolidated Balance Sheets.
Note 7Commitments and Contingencies
Indemnifications
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
GSA
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 was 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.

13


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, and a First Amended Omnibus Complaint was filed on October 8, 2015; 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 the high end of the range of estimated losses resulting from this matter.
IV
On December 8, 2010, Intellectual Ventures ("IV") sued Symantec for patent infringement in the U.S. District Court in Delaware. The complaint alleged infringement by various Symantec internet security products. On February 6, 2015, the jury issued a verdict and subsequent Court decisions invalidated some of the patents-in-suit, therefore leaving an $8 million damages verdict; through a post-trial motion, Symantec is seeking to overturn that verdict. 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.
EDS & NDI
On January 24, 2011, a class action lawsuit was filed against the Company and its previous e-commerce vendor Digital River, Inc.; the lawsuit alleged violations of California’s Unfair Competition Law, the California Legal Remedies Act and unjust enrichment related to prior sales of Extended Download Service ("EDS") and Norton Download Insurance ("NDI"). On March 31, 2014, the U.S. District Court for the District of Minnesota certified a class of all people who purchased these products between January 24, 2005, and March 10, 2011. In August 2015, the parties executed a settlement agreement pursuant to which the Company would pay the plaintiffs $30 million, which we accrued. On October 8, 2015, the Court granted approval of the settlement, which was subsequently paid by the Company. A final approval hearing was held on January 19, 2016, and we are awaiting the Court's order on final approval.
Other
We are 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 flows.
Note 8Segment Information
On January 29, 2016, the Company completed the sale of its information management business. Financial results of the Company's information management business are included in income from discontinued operations for the three and nine months ended January 1, 2016 and January 2, 2015. See Note 3, Discontinued Operations for additional information. Accordingly, the following segment information reflects the Company's current segment reporting structure, and segment results for all reported periods have been adjusted to conform to the current segment structure.
The Company now operates in the following two reporting segments, which are the same as our operating segments:
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. Our Enterprise Security segment includes our threat protection products, information protection products, cyber security services, and website security, previously named trust services.

14


There were no intersegment sales for the periods presented. The following table summarizes the operating results of our reporting segments:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions)
Total Segments
 
 
 
 
 
 
 
Net revenues
$
909

 
$
970

 
$
2,727

 
$
3,057

Operating income
254

 
330
 
812

 
1,016
Consumer Security
 
 
 
 
 
 
 
Net revenues
$
414

 
$
461

 
$
1,264

 
$
1,479

Operating income
230

 
245
 
707

 
770
Enterprise Security
 
 
 
 
 
 
 
Net revenues
$
495

 
$
509

 
$
1,463

 
$
1,578

Operating income
24

 
85

 
105

 
246

Operating segments are based upon the nature of our business and how our business is managed. Our Chief Operating Decision Makers, comprised of our Chief Executive Officer and Chief Financial Officer, use operating segment financial information to evaluate the Company's performance and to assign resources.
A significant portion of the segments' operating expenses and cost of revenues, to a lesser extent, arise from shared services and infrastructure that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources. These expenses (collectively "corporate charges") include legal, accounting, real estate, information technology services, treasury, human resources and other corporate infrastructure expenses. Charges were allocated to the segments, and the allocations were determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the segments. Corporate charges previously allocated to our information management business, but not classified within discontinued operations, were not reallocated to our other segments. At the beginning of the third quarter of fiscal 2016, as Veritas became operationally separate, operating costs related to Veritas were attributed directly to Veritas which reduced our unallocated corporate charges to zero. These charges are presented below as a component of the reconciliation between the total segment operating income and Symantec's income from continuing operations and are classified as unallocated corporate charges. In addition, we do not allocate stock-based compensation expense, amortization of intangible assets and restructuring, separation, and transition charges.
The following table provides a reconciliation of the Company's total reportable segments’ operating income from continuing operations to its consolidated operating income:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions)
Total segment operating income
$
254

 
$
330

 
$
812

 
$
1,016

Reconciling items:
 
 
 
 
 
 
 
Unallocated corporate charges

 
182

 
186

 
535

Stock-based compensation
38

 
34

 
118

 
94

Amortization of intangibles
20

 
29

 
63

 
92

Restructuring, separation and transition
50

 
51

 
116

 
92

Total consolidated operating income from continuing operations
$
146

 
$
34

 
$
329

 
$
203



15


Note 9Stockholders' Equity
Dividends
The following table summarizes dividends declared and paid for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions, except per share data)
Dividends declared and paid
$
98

 
$
104

 
$
303

 
$
311

Cash dividends declared per common share
$
0.15

 
$
0.15

 
$
0.45

 
$
0.45

Quarterly dividends in the third quarter of fiscal 2016 were recorded as a reduction to retained earnings with any excess applied to additional paid-in capital. When in a retained deficit position, quarterly dividends were recorded as a reduction to additional paid-in capital. Our restricted stock and performance-based stock units have dividend equivalent rights entitling holders to dividend equivalents to be paid in the form of cash upon vesting for each share of the underlying units.
On February 4, 2016, we declared a cash dividend of $0.15 per share of common stock to be paid on March 16, 2016, to all stockholders of record as of the close of business on February 22, 2016. 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.
Stock repurchases
Through our stock repurchase programs we have repurchased shares on a quarterly basis since the fourth quarter of fiscal 2004. Under the programs, shares are repurchased on open market and through an accelerated stock repurchase ("ASR") transactions. During the second quarter of fiscal 2016, our Board of Directors authorized a new $1.5 billion stock repurchase program which commenced immediately. This additional amount authorized, in conjunction with amounts previously authorized under our prior program, resulted in $1.8 billion remaining authorized for future repurchases as of January 1, 2016, and does not have an expiration date.
Repurchases on open market transactions
The following table summarizes our stock repurchases on open market transactions for the periods presented and excludes the impact of shares purchased under our accelerated stock repurchase agreement (except for the remaining authorization amount):
 
Three Months Ended January 1, 2016
 
Nine Months Ended January 1, 2016
 
(In millions, except per share data)
Total number of shares repurchased
5.7

 
17.0

Dollar amount of shares repurchased
$
118

 
$
368

Average price paid per share
$
20.68

 
$
21.69

Remaining authorization at end of period
$
1,790

 
$
1,790

Accelerated Stock Repurchase Agreement
In November 2015, we entered into an ASR agreement with a financial institution to repurchase an aggregate of $500 million of our common stock. During the third quarter of fiscal 2016, we made an upfront payment of $500 million to the financial institution pursuant to the ASR agreement, and received and retired an initial delivery of 19.9 million shares of our common stock. On January 15, 2016, our fourth quarter of fiscal 2016, the ASR was completed, which, per the terms of the agreement, resulted in our receiving an additional 5.0 million shares of our common stock. The total shares received and retired under the terms of the ASR were 24.9 million, with an average price paid per share of $20.08. The $500 million upfront payment is presented under the caption repurchases of common stock in our Condensed Consolidated Statements of Cash Flows.

16


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 April 3, 2015
$
101

 
$
3

 
$
104

Other comprehensive income before reclassifications
(33
)
 
3

 
(30
)
Loss reclassified from accumulated other comprehensive income
1

 

 
1

Balance as of January 1, 2016
$
69

 
$
6

 
$
75

Note 10Stock-Based Compensation
Stock-based compensation expense
The following table sets forth the stock-based compensation expense recognized in our Condensed Consolidated Statements of Operations:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions)
Cost of revenues
$
3

 
$
4

 
$
7

 
$
12

Sales and marketing
12

 
11

 
39

 
34

Research and development
14

 
11

 
41

 
26

General and administrative
9

 
8

 
31

 
22

Total stock-based compensation expense
38

 
34

 
118

 
94

Tax benefit associated with stock-based compensation expense
(14
)
 
(9
)
 
(37
)
 
(27
)
Net stock-based compensation expense from continuing operations
24

 
25

 
81

 
67

Net stock-based compensation expense from discontinued operations
12

 
12

 
49

 
34

Net stock-based compensation expense
$
36

 
$
37

 
$
130

 
$
101

Restricted stock units
The following table summarizes additional information related to our stock-based compensation from restricted stock units, which are our primary equity awards:
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
(In millions, except per grant data)
Weighted-average fair value per grant
$
23.32

 
$
22.55

Awards granted
13.7

 
17.3

Total fair value of awards vested
$
191

 
$
98

Total unrecognized compensation expense
$
389

 
$
406

Weighted-average remaining vesting period
2.1 years

 
2.6 years



17


Note 11Income Taxes
The following table summarizes our effective tax rate for income from continuing operations for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions)
Income before income taxes
$
129

 
$
19

 
$
276

 
$
159

Provision for income taxes
$
15

 
$
44

 
$
84

 
$
105

Effective tax rate
12
%
 
232
%
 
30
%
 
66
%
Our effective tax rate for income from continuing operations for the three and nine months ended January 1, 2016 differs from the federal statutory income tax rate primarily due to the benefits of lower-taxed international earnings, domestic manufacturing incentives and the R&D credit, partially offset by state income taxes. Our effective tax rate for income from continuing operations for the three and nine months ended January 2, 2015 differs from the federal statutory income tax rate primarily due to the impact of unallocated corporate charges triggering foreign losses benefited by lower international tax rates as well as an overall reduction in pre-tax income.
For the three and nine months ended January 1, 2016, we recorded an income tax expense on discontinued operations of $53 million and $73 million, respectively. For the three and nine months ended January 2, 2015, we recorded an income tax expense on discontinued operations of $46 million and $143 million, respectively. See Note 3, Discontinued Operations, for further details regarding the discontinued operations.
The tax provision for the nine months ended January 1, 2016 was also reduced by $8 million in tax benefits related to certain foreign operations.
For the three and nine months ended January 2, 2015, the tax provision was reduced by tax benefits primarily resulting from settlements with certain taxing authorities and lapses of statutes of limitations of $2 million and $12 million, respectively.
On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing agreement. A final decision has yet to be issued by the Tax Court. At this time, the U.S. Department of the Treasury has not withdrawn the requirement to include stock-based compensation from its regulations. We evaluated the opinion and determined the net impact to our consolidated financial statements was not material. We will continue to monitor developments related to the case and the potential impact on our consolidated financial statements.
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, release, or a combination of both) in the next 12 months by $21 million, which could reduce our income tax provision and therefore benefit the resulting effective tax rate.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.

18


Note 12Earnings Per Share
The components of earnings per share are as follows:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(In millions, except per share data)
Income (loss) from continuing operations
$
114

 
$
(25
)
 
$
192

 
$
54

Income from discontinued operations, net of tax
56

 
247

 
251

 
648

Net income
$
170

 
$
222

 
$
443

 
$
702

Income (loss) per share — basic:
 
 
 
 
 
 
 
Continuing operations
$
0.17

 
$
(0.04
)
 
$
0.28

 
$
0.08

Discontinued operations
$
0.08

 
$
0.36

 
$
0.37

 
$
0.94

Net income per share
$
0.26

 
$
0.32

 
$
0.65

 
$
1.02

Income (loss) per share — diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.17

 
$
(0.04
)
 
$
0.28

 
$
0.08

Discontinued operations
$
0.08

 
$
0.36

 
$
0.37

 
$
0.93

Net income per share
$
0.25

 
$
0.32

 
$
0.65

 
$
1.01

 
 
 
 
 
 
 
 
Weighted-average shares outstanding — basic
665

 
689

 
677

 
690

Dilutive potential shares from stock-based compensation
6

 

 
6

 
7

Weighted-average shares outstanding — diluted
671

 
689

 
683

 
697

Anti-dilutive potential shares
6

 
32

 
6

 
1


Note: Net income (loss) per share amounts may not add due to rounding.
Note 13. Subsequent Events
Divestiture of our information management business
In January 2016, the Company and Carlyle amended the terms of the definitive agreement for Carlyle's acquisition of the information management business, Veritas. Based on the amended terms of the definitive agreement, the Company received net consideration of $6.6 billion in cash and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. The transaction closed on January 29, 2016. The results of Veritas are presented as discontinued operations in our Condensed Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, the related assets and liabilities have been classified as held for sale on our Condensed Consolidated Balance Sheets. The gain on sale will be recorded in the fourth quarter of 2016, to the extent that the net proceeds from the final sale amount exceed the book carrying value of the assets sold. See Note 3, Discontinued Operations, for additional information on the presentation of discontinued operations.
Capital return program
On January 29, 2016, our Board of Directors announced a $2.0 billion capital return program.
Subsequently, on February 4, 2016, Symantec and Silver Lake announced that Silver Lake is purchasing $500 million aggregate principal amount of 2.5 percent convertible senior notes due 2021 with an initial conversion price of $21.00 per share. The notes will be redeemable at Symantec’s option beginning in 2020 if its common stock trades at 150% of the conversion price or more for at least 20 trading days in a period of 30 consecutive trading days, and the holder will be entitled to require that Symantec repurchase the notes beginning in 2020, in each case at a price of 100% of the principal amount plus accrued interest. Symantec expects to complete the sale of the notes on or before March 4, 2016. In connection with Silver Lake's investment, the Symantec Board authorized a $1 billion increase to its capital return program, bringing the total authorization amount to approximately $5 billion. The Company expects a total of $2.7 billion will be returned to shareholders in the form of a special dividend of $4.00 per share, and $2.3 billion will be returned through ASR transactions.
 In connection with the approximate $5 billion capital return program, the Board has also determined to reduce the normal quarterly dividend to $0.075 per share of common stock in fiscal 2017.

19


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”) 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, 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 April 3, 2015. We encourage you to read that section carefully.
OVERVIEW
Our business
Symantec Corporation is a global leader in security. We operate our business on 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 our products. We are leveraging our capabilities in threat protection and data loss prevention and extending them into our core security offerings. We are also pioneering new solutions in growing markets like cloud, advanced threat protection, information protection and cyber security services.
Fiscal calendar
We have a 52/53-week fiscal year ending on the Friday closest to March 31. The three and nine months ended January 1, 2016 consisted of 13 and 39 weeks, respectively. The three and nine months ended January 2, 2015, consisted of 13 and 40 weeks, respectively.
Strategy
Our security strategy is to deliver a unified security analytics platform that provides big data analytics, utilizes our vast telemetry, provides visibility into real-time global threats, and powers Symantec and third-party security analytics applications; leverage this analytics platform to provide best-in-class consumer and enterprise security products; and offer cyber security services that provide a full-suite of services from monitoring to incident response to threat intelligence, all supported by over 500 cyber security experts and nine global security response centers.
During fiscal 2016, we executed on our five priorities: running our businesses with a portfolio approach by managing 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.
After closing the divestiture of Veritas, we are now a more focused company and the world leader in cybersecurity and have updated our priorities to include: delivering upon our Unified Security strategy, building our enterprise security pipeline and go-to-market capabilities, improving our cost structure, and efficiently allocating capital.

20


Divestiture of our information management business
In the second quarter of fiscal 2016, we entered into a definitive agreement to sell the assets of our information management business, Veritas, to Carlyle. In January 2016, we and Carlyle amended the terms of the definitive agreement for Carlyle's acquisition of the information management business, Veritas. Based on the amended terms of the definitive agreement, we received net consideration of $6.6 billion in cash and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. The transaction closed on January 29, 2016. The results of Veritas are presented as discontinued operations in our Condensed Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, the related assets and liabilities have been classified as held for sale on our Condensed Consolidated Balance Sheets. Accordingly, the following discussion reflects our current segment reporting structure, and segment results for all reported periods have been adjusted to conform to the current segment structure. In addition, all information in the Results of Operations and Liquidity and Capital Resources sections relates to our continuing operations unless stated otherwise.
For additional information on the sale of Veritas and on our discontinued operations, see Note 3, Discontinued Operations, and Note 13, Subsequent Events, of the Notes to Condensed Consolidated Financial Statements in this quarterly report.
Our operating segments
Our current operating segments are significant strategic business units that offer different products and services distinguished by customer needs. We now operate in the following two reporting segments, which are the same as our operating segments:
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. Our Enterprise Security segment includes our threat protection products, information protection products, cyber security services, and website security, previously named trust services.
For further description of our operating segments see Note 8, Segment Information, of the Notes to Condensed Consolidated Financial Statements in this quarterly report.
Financial results and trends
The following table provides an overview of key financial metrics for the periods indicated below:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
 
(Dollars in millions)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
  Net revenues
$
909

 
$
970

 
$
2,727

 
$
3,057

  Gross profit
759

 
793

 
2,259

 
2,506

  Operating income
146

 
34

 
329

 
203

Operating margin percentage
16
%
 
4
%
 
12
%
 
7
%
Consolidated Cash Flow Data:
 
 
 
 
 
 
 
  Cash flow from continuing operations
 
 
 
 
$
316

 
$
(50
)
The nine months ended January 1, 2016, consisted of 39 weeks and the nine months ended January 2, 2015, consisted of 40 weeks.
Net revenues for the three and nine months ended January 1, 2016, decreased $61 million and $330 million, respectively, compared to the corresponding prior year periods. The decreases were primarily due to unfavorable currency fluctuations and declines in our consumer security revenue. In addition, net revenues for the nine months ended January 1, 2016, decreased due to the impact of an additional week in the nine months ended January 2, 2015.
Our gross margin of 83% for both the three and nine months ended January 1, 2016, remained relatively stable compared to 82% for both corresponding previous year periods. The cost of revenues decreased proportionally compared to the decrease in net revenues.

21


Operating income for the three and nine months ended January 1, 2016, increased $112 million and $126 million, respectively, compared to the corresponding prior year periods. The increases in operating income were due primarily to a decrease in corporate charges previously allocated to our information management business but not classified within discontinued operations. These corporate charges were included in cost of revenues and expenses from continuing operations and include legal, accounting, real estate, information technology services, treasury, human resources and other corporate infrastructure expenses. See Note 8, Segment Information, of the Notes to Condensed Consolidated Financial Statements in this quarterly report for more details. The reduction of unallocated corporate charges increased operating income by $182 million and $349 million in the three and nine months ended January 1, 2016, respectively. The increases were partially offset by decreased revenue of $61 million and $330 million for the three and nine months ended January 1, 2016, respectively. We anticipate that our quarterly operating income will continue to benefit from a reduction of unallocated corporate costs as compared to the year ago period until the third quarter of fiscal 2017. 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.
Net cash provided by continuing operating activities was $316 million for the nine months ended January 1, 2016, which resulted from income from continuing operations of $192 million adjusted for non-cash items, including depreciation and amortization charges of $227 million and stock-based compensation expense of $118 million, as well as net changes in deferred income taxes resulting in inflows of $63 million. These amounts were partially offset by decreases in deferred revenue of $175 million and income taxes payable of $94 million.
Critical accounting policies and 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 1, 2016, 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 April 3, 2015.
Recently issued authoritative guidance
See Note 1, Description of Business and Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for recently issued authoritative guidance, including the expected dates of adoption and the effects on our results of operations and financial condition.
RESULTS OF OPERATIONS
The following table sets forth certain Condensed Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
January 1, 2016
 
January 2, 2015
Net revenues
100
%
 
100
%
 
100
%
 
100
%
Cost of revenues
17
%
 
18
%
 
17
%
 
18
%
Gross profit
83
%
 
82
%
 
83
%
 
82
%
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
34
%
 
42
%
 
36
%
 
41
%
Research and development
19
%
 
20
%
 
21
%
 
20
%
General and administrative
7
%
 
9
%
 
8
%
 
9
%
Amortization of intangible assets
1
%
 
2
%
 
2
%
 
2
%
Restructuring, separation, and transition
6
%
 
5
%
 
4
%
 
3
%
Total operating expenses
67
%
 
78
%
 
71
%
 
75
%
Operating income
16
%
 
4
%
 
12
%
 
7
%
Non-operating expense, net
2
%
 
2
%
 
2
%
 
1
%

Note: The total percentages may not add due to rounding.

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Net revenues
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
% Change
 
January 1, 2016
 
January 2, 2015
 
% Change
 
(Dollars in millions)
Net revenues
$
909

 
$
970

 
(6)
 %
 
$
2,727

 
$
3,057

 
(11)
 %
Net revenues decreased $61 million and $330 million for the three and nine months ended January 1, 2016, respectively, compared to the corresponding prior year periods. The decreases were primarily due to unfavorable currency fluctuations of approximately $39 million and $167 million, respectively, and declines in our consumer security revenue driven by the ongoing impact of changes to our renewal practices and a reduction in OEM arrangements. These declines were partially offset by an increase in Data Loss Prevention revenue. Net revenues for the nine months ended January 1, 2016, also decreased due to the impact of the additional week in the nine months ended January 2, 2015.
Net revenues and operating income by segment
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
% Change
 
January 1, 2016
 
January 2, 2015
 
% Change
 
(Dollars in millions)
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
Consumer Security
$
414

 
$
461

 
(10)
 %
 
$
1,264

 
$
1,479

 
(15)
 %
Enterprise Security
495

 
509

 
(3)
 %
 
1,463

 
1,578

 
(7)
 %
Percentage of total net revenues:
 
 
 
 
 
 
 
 
 
 
 
Consumer Security
46
%
 
48
%
 
 
 
46
%
 
48
%
 
 
Enterprise Security
54
%
 
52
%
 
 
 
54
%
 
52
%
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
Consumer Security
$
230

 
$
245

 
(6)
 %
 
$
707

 
$
770

 
(8)
 %
Enterprise Security
24

 
85

 
(72)
 %
 
105

 
246

 
(57)
 %
Operating margin:
 
 
 
 
 
 
 
 
 
 
 
Consumer Security
56
%
 
53
%
 
 
 
56
%
 
52
%
 
 
Enterprise Security
5
%
 
17
%
 
 
 
7
%
 
16
%
 
 
Consumer Security revenue decreased $47 million and $215 million for the three and nine months ended January 1, 2016, respectively, compared to the same periods last year. The decreases were partially due to unfavorable foreign currency fluctuations of approximately $18 million and $80 million, respectively, and the ongoing impact of changes to our renewal practices and a reduction in OEM arrangements. Consumer Security operating income decreased $15 million and $63 million for the three and nine months ended January 1, 2016, respectively, primarily due to the decreases in revenue, which were partially offset by reductions in cost of revenues and in sales and marketing and research and development expenses.
Enterprise Security revenue decreased $14 million and $115 million for the three and nine months ended January 1, 2016, respectively, compared to the same periods last year, primarily due to unfavorable foreign currency fluctuations of approximately $21 million and $87 million, respectively, which were partially offset by an increase in Data Loss Prevention revenue. Enterprise Security operating income decreased $61 million for the three months ended January 1, 2016, compared to the same period last year, primarily due to increased investments in research and development and sales and marketing, along with decreases in revenue. Enterprise Security operating income decreased $141 million for the nine months ended January 1, 2016, compared to the same period last year, primarily due to decreased revenue and increased investments in research and development.
In addition to the aforementioned factors, each segment's revenue also decreased for the nine months ended January 1, 2016, due to the impact of the additional week in the nine months ended January 2, 2015.

23


Net revenues by geographic region
 
Three Months Ended
 
Nine Months Ended
 
January 1, 2016
 
January 2, 2015
 
% Change
 
January 1, 2016
 
January 2, 2015
 
% Change
 
(Dollars in millions)
Revenues by geographic region:
 
 
 
 
 
 
 
 
 
 
 
Americas (U.S., Canada and Latin America)
$
539

 
$
551

 
(2
)%
 
$
1,607

 
$
1,701

 
(6)
 %
EMEA (Europe, Middle East and Africa)
224

 
259

 
(14
)%
 
677

 
835

 
(19)
 %
APJ (Asia Pacific and Japan)
146

 
160

 
(9
)%
 
443

 
521

 
(15)
 %
Total net revenues
$
909

 
$
970

 
(6
)%
 
$
2,727

 
$
3,057

 
(11)
 %
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
$
484

 
$
496

 
(2
)%
 
$
1,441

 
$
1,506

 
(4)
 %
International
425

 
474

 
(10