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EX-32.02 - EXHIBIT 32.02 - SYMANTEC CORPa93016exhibit3202.htm
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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 September 30, 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
image0a02.jpg
 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 October 28, 2016: 623,419,220 shares
 



SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended September 30, 2016
TABLE OF CONTENTS
Page
 
 
 
 
 
 


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except share amounts which are reflected in thousands, and par value per share amounts)
 
September 30,
2016
 
April 1,
2016*
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
5,610

 
$
5,983

Short-term investments
9

 
42

Accounts receivable, net
459

 
556

Other current assets
391

 
378

Total current assets
6,469

 
6,959

Property and equipment, net
933

 
957

Intangible assets, net
1,961

 
443

Goodwill
7,232

 
3,148

Equity investments
159

 
157

Other long-term assets
110

 
103

Total assets
$
16,864

 
$
11,767

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
139

 
$
175

Accrued compensation and benefits
218

 
219

Deferred revenue
2,085

 
2,279

Current portion of long-term debt
600

 

Income taxes payable
96

 
941

Other current liabilities
371

 
419

Total current liabilities
3,509

 
4,033

Long-term debt
6,576

 
2,207

Long-term deferred revenue
402

 
359

Long-term deferred tax liabilities
2,234

 
1,235

Long-term income taxes payable
192

 
160

Other long-term obligations
89

 
97

Total liabilities
13,002

 
8,091

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 1,000 shares authorized; 21 shares issued; 0 outstanding

 

Common stock and additional paid-in capital, $0.01 par value: 3,000,000 shares authorized; 623,348 and 612,266 shares issued and outstanding, respectively
4,527

 
4,309

Accumulated other comprehensive income (loss)
(1
)
 
22

Accumulated deficit
(664
)
 
(655
)
Total stockholders’ equity
3,862

 
3,676

Total liabilities and stockholders’ equity
$
16,864

 
$
11,767

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

3


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
September 30,
2016
 
October 2,
2015
 
September 30,
2016
 
October 2,
2015
Net revenues
$
979

 
$
906

 
$
1,863

 
$
1,818

Cost of revenues
210

 
160

 
359

 
318

Gross profit
769

 
746

 
1,504

 
1,500

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
338

 
336

 
629

 
676

Research and development
200

 
199

 
370

 
397

General and administrative
145

 
66

 
229

 
150

Amortization of intangible assets
34

 
14

 
48

 
28

Restructuring, separation, transition, and other
64

 
31

 
134

 
66

Total operating expenses
781

 
646

 
1,410

 
1,317

Operating income (loss)
(12
)
 
100

 
94

 
183

Interest income
4

 
2

 
9

 
5

Interest expense
(52
)
 
(19
)
 
(79
)
 
(39
)
Other income (expense), net
10

 
4

 
23

 
(2
)
Income (loss) from continuing operations before income taxes
(50
)
 
87

 
47

 
147

Provision for income taxes
19

 
34

 
50

 
69

Income (loss) from continuing operations
(69
)
 
53

 
(3
)
 
78

Income (loss) from discontinued operations, net of income taxes
(75
)
 
103

 
(6
)
 
195

Net income (loss)
$
(144
)
 
$
156


$
(9
)
 
$
273

 
 
 
 
 
 
 
 
Income (loss) per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
(0.11
)
 
$
0.08

 
$

 
$
0.11

Discontinued operations
$
(0.12
)
 
$
0.15

 
$
(0.01
)
 
$
0.29

Net income (loss) per share - basic
$
(0.23
)
 
$
0.23

 
$
(0.01
)
 
$
0.40

 
 
 
 
 
 
 
 
Income (loss) per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
(0.11
)
 
$
0.08

 
$

 
$
0.11

Discontinued operations
$
(0.12
)
 
$
0.15

 
$
(0.01
)
 
$
0.28

Net income (loss) per share - diluted
$
(0.23
)
 
$
0.23

 
$
(0.01
)
 
$
0.40

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
620

 
682

 
617

 
682

Diluted
620

 
687

 
617

 
689

Cash dividends declared per common share
$
0.075

 
$
0.15

 
$
0.15

 
$
0.30

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

4


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in millions)
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
Net income (loss)
$
(144
)
 
$
156

 
$
(9
)
 
$
273

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Translation adjustments
2

 
(34
)
 
(22
)
 
(22
)
Reclassification adjustments for net loss included in net income (loss)

 
1

 

 
1

Net foreign currency translation adjustments
2

 
(33
)
 
(22
)
 
(21
)
Unrealized gain (loss) on available-for-sale securities, net of taxes

 
5

 
(1
)
 
5

Other comprehensive income (loss), net of taxes
2

 
(28
)
 
(23
)
 
(16
)
Comprehensive income (loss)
$
(142
)
 
$
128

 
$
(32
)
 
$
257

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
 
Six Months Ended
 
September 30, 2016
 
October 2, 2015
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(9
)
 
$
273

(Income) loss from discontinued operations, net of income taxes
6

 
(195
)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) continuing operating activities:
 
 
 
Depreciation and amortization
205

 
153

Stock-based compensation expense
134

 
80

Deferred income taxes
49

 
15

Excess income tax benefit from the exercise of stock options
(5
)
 
(6
)
Other
31

 
8

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable, net
225

 
108

Accounts payable
(66
)
 
17

Accrued compensation and benefits
(35
)
 
(54
)
Deferred revenue
(213
)
 
(207
)
Income taxes payable
(841
)
 
(46
)
Other assets
6

 
47

Other liabilities
(51
)
 
(30
)
Net cash provided by (used in) continuing operating activities
(564
)
 
163

Net cash provided by (used in) discontinued operating activities
(153
)
 
271

Net cash provided by (used in) operating activities
(717
)
 
434

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(39
)
 
(111
)
Payments for acquisitions, net of cash acquired
(4,533
)
 
(4
)
Purchases of short-term investments

 
(326
)
Proceeds from maturities of short-term investments
31

 
1,018

Proceeds from sales of short-term investments

 
76

Proceeds from divestiture of information management business, net of transaction costs
7

 

Net cash provided by (used in) continuing investing activities
(4,534
)
 
653

Net cash used in discontinued investing activities

 
(38
)
Net cash provided by (used in) investing activities
(4,534
)
 
615

FINANCING ACTIVITIES:
 
 
 
Repayments of debt and other obligations
(17
)
 
(367
)
Proceeds from issuance of debt, net of issuance costs
4,999

 

Net proceeds from sales of common stock under employee stock benefit plans
49

 
44

Excess income tax benefit from the exercise of stock options
5

 
6

Tax payments related to restricted stock units
(34
)
 
(25
)
Dividends and dividend equivalents paid
(120
)
 
(210
)
Repurchases of common stock

 
(250
)
Proceeds from other financing
10

 

Net cash provided by (used in) continuing financing activities
4,892

 
(802
)
Net cash used in discontinued financing activities

 
(12
)
Net cash provided by (used in) financing activities
4,892

 
(814
)
Effect of exchange rate fluctuations on cash and cash equivalents
(14
)
 
(12
)
Change in cash and cash equivalents
(373
)
 
223

Beginning cash and cash equivalents
5,983

 
2,874

Ending cash and cash equivalents
5,610

 
3,097

Less: Cash and cash equivalents of discontinued operations

 
736

Cash and cash equivalents of continuing operations
$
5,610

 
$
2,361

Supplemental disclosure of cash flow information
 
 
 
Cash paid for income taxes, net of refunds
$
977

 
$
94

The accompanying notes are an integral part of these Condensed Consolidated Financial 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 cybersecurity.
On August 1, 2016 (the "close date"), we completed our acquisition of Blue Coat, Inc. ("Blue Coat"). Blue Coat's results of operations have been included in our Condensed Consolidated Statements of Operations beginning August 1, 2016. See Note 3 for more information on the Blue Coat acquisition.
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. 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 accompanying Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 1, 2016. The results of operations for the three and six months ended September 30, 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 six month ended periods in this report relate to fiscal periods ended September 30, 2016 and October 2, 2015. The six months ended September 30, 2016 and October 2, 2015, each consisted of 26 weeks. Our 2017 fiscal year consists of 52 weeks and ends on March 31, 2017.
There have been no material changes in our significant accounting policies as compared to those described in our Annual Report on Form 10-K for the fiscal year ended April 1, 2016. In connection with the Blue Coat acquisition, we assumed options to purchase common stock with a fair value of $265 million
Stock-based compensation
Stock-based compensation expense is measured at the grant date based on the fair value of the award and is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and are forfeited. We estimate forfeitures based on historical experience. Our granted stock-based awards principally consist of restricted stock units (“RSUs”). The fair value of each RSU is equal to the market value of our common stock on the date of grant. The fair values of RSUs are not discounted by the dividend yield because the Company’s RSUs include dividend-equivalent rights. We use the Black-Scholes model to determine the fair value of stock options. The Black-Scholes model incorporates various subjective variables, including our expected stock price volatility over the expected life of the options, actual and projected employee stock option exercise and forfeiture behaviors, risk-free interest rates, and expected dividends.
Recent accounting guidance not yet adopted
In May 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance on revenue from contracts with customers. The new standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires significantly expanded disclosures about revenue recognition. As currently issued and amended, the standard is effective for us for our first quarter of fiscal 2019 and may be applied retrospectively or using the cumulative effect transition method. Early adoption as of the original effective date is permitted, but we do not intend to adopt the provisions of the new standard early. We expect to determine an adoption method by the end of fiscal 2017 and to have a preliminary qualitative assessment of the effect that the standard will have on our Consolidated Financial Statements.
In January 2016, the FASB issued new authoritative guidance on financial instruments. 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 us for our first quarter of fiscal 2019, with early adoption permitted under limited circumstances. We are currently evaluating the effect the standard will have on our Consolidated Financial Statements.
In February 2016, the FASB issued new authoritative guidance on lease accounting. Among its provisions, the standard requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases and also requires additional qualitative and quantitative disclosures about lease arrangements. The standard is effective for us for our first quarter

7


of fiscal 2020 with early adoption permitted. It is not expected that the adoption of the standard will have a material impact to our operating results.
In March 2016, the FASB issued authoritative guidance simplifying several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, accounting for forfeitures, and classification of excess tax benefits on the statement of cash flows. The standard is effective for us for our first quarter of fiscal 2018, however, early adoption is permitted. We believe the most significant impact of the new guidance will be volatility to our effective tax rate from the change in accounting for income taxes and on its classification of excess tax benefit on the Consolidated Statements of Cash Flows. The impact of this standard on our effective tax rate for future periods will be dependent on our stock price at the time the awards vest and the number of awards that vest.
In June 2016, the FASB issued new authoritative guidance on credit losses which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, we will be required to use a new forward-looking “expected loss” model. Additionally, for available-for-sale debt securities with unrealized losses, we will measure credit losses in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will be effective for us for our first quarter of fiscal 2021. We are currently evaluating the effect the standard will have on our Consolidated Financial Statements.
Note 2. Fair Value Measurements
We account for certain assets at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices included in Level 1 for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value.
Assets measured and recorded at fair value on a recurring basis
Our 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. Our short-term investments consist of investment securities with original maturities greater than three months and marketable equity securities.
The following table summarizes our assets measured at fair value on a recurring basis, by level, within the fair value hierarchy:
 
September 30, 2016
 
April 1, 2016
 
Fair Value
 
Cash and Cash Equivalents
 
Short-term Investments
 
Fair Value
 
Cash and Cash Equivalents
 
Short-term Investments
 
(In millions)
Cash
$
944

 
$
944

 
$

 
$
1,072

 
$
1,072

 
$

Non-negotiable certificates of deposit
46

 
46

 

 
1

 

 
1

Level 1
 
 
 
 
 
 
 
 
 
 
 
Money market
2,977

 
2,977

 

 
2,905

 
2,905

 

U.S. government securities
117

 
117

 

 
335

 
310

 
25

Marketable equity securities
9

 

 
9

 
11

 

 
11

 
3,103

 
3,094

 
9

 
3,251

 
3,215

 
36

Level 2
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds

 

 

 
45

 
43

 
2

U.S. agency securities
574

 
574

 

 
526

 
523

 
3

Commercial paper
952

 
952

 

 
1,121

 
1,121

 

Negotiable certificates of deposit

 

 

 
9

 
9

 

 
1,526

 
1,526

 

 
1,701

 
1,696

 
5

Total
$
5,619

 
$
5,610

 
$
9

 
$
6,025

 
$
5,983

 
$
42


8


There were no transfers between fair value measurements levels during the six months ended September 30, 2016.
Fair value of debt
As of September 30, 2016 and April 1, 2016, the total fair value of our debt was $7.3 billion and $2.3 billion, respectively, based on Level 2 inputs.
Assets Measured and Recorded at Fair Value on a Non-Recurring Basis
Our non-financial assets, which primarily consist of goodwill, other intangible assets, property and equipment and equity investments, are measured at fair value on a non-recurring basis, generally when there is a transaction involving those assets such as a purchase transaction, a business combination or if any indicators for impairment exist. On a periodic basis whenever events or changes in circumstances indicate their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets, non-financial assets are assessed for impairment. If applicable, these non-financial assets are written-down to and recorded at fair value.
Note 3. Acquisition
On the close date, we acquired all of the outstanding common stock of Blue Coat, a provider of advanced web security solutions for global enterprises and governments. With this acquisition we are positioned to introduce new cybersecurity solutions, to address the ever-evolving threat landscape, the changes introduced by the shift to mobile and cloud, and the challenges created by regulatory and privacy concerns.
The total consideration for the acquisition of Blue Coat was approximately $4.67 billion, net of cash acquired, and consisted of the following:
 
August 1, 2016
 
(In millions)
Cash and equity consideration for outstanding Blue Coat common shares and restricted stock awards
$
2,006

Cash consideration for outstanding Blue Coat debt
1,910

Issuance of Symantec 2.0% convertible debt to Bain Capital Funds (selling shareholder)
750

Fair value of vested assumed Blue Coat stock options
102

Cash consideration for acquiree acquisition-related expenses
51

    Total consideration
4,819

Cash acquired
(146
)
Net consideration transferred
$
4,673

The cash consideration for the retirement of Blue Coat debt included the repayment of the associated principal, accrued interest, premiums and other costs.
We funded a portion of the total purchase price through debt financing, including borrowings of an aggregate principal amount of $2.8 billion under an amended and restated credit facility and a new term loan facility. On the close date, we also issued 2.0% Convertible Unsecured Notes due 2021 for an aggregate principal amount of $1.25 billion, $750 million of which was to a selling shareholder. See Note 5 for more information on these debt instruments.
Our preliminary allocation of the purchase price, based on the estimated fair values of the assets acquired and liabilities assumed on the close date, is as follows:

9


 
August 1, 2016
 
(In millions)
Assets
 
Accounts receivable
$
125

Other current assets
65

Property and equipment
54

Intangibles
1,608

Goodwill
4,086

Other long-term assets
9

Total assets acquired
5,947

Liabilities
 
Deferred revenue
144

Other current liabilities
111

Long-term deferred revenue
76

Long-term deferred tax liabilities
924

Other long-term obligations
19

Total liabilities assumed
1,274

Total purchase price
$
4,673

The allocation of the purchase price was based upon a preliminary valuation, and our estimates and assumptions are subject to refinement within the measurement period (up to one year from the close date). Adjustments to the purchase price allocation may require adjustments to goodwill prospectively. The primary areas of the preliminary purchase price allocation that are not yet finalized are certain tax matters, intangible assets, and identification of contingencies.
The preliminary goodwill of $4.1 billion arising from the acquisition is attributed to the expected synergies, including future cost efficiencies, and other benefits that are expected to be generated by combining Symantec and Blue Coat. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. See Note 4 for more information on goodwill.
Preliminary identified intangible assets and their respective useful lives are as follows:
 
Fair Value
 
Weighted-average Estimated Useful Life
 
(In millions)
 
 
Customer relationships
$
844

 
7 years
Developed technology and patents
739

 
4.3 years
Finite-lived trade names
4

 
2 years
Product backlog
2

 
4 months
Total identified finite-lived intangible assets
1,589

 
 
In-process research and development
19

 
N/A
Total identified intangible assets
$
1,608

 
 
The fair value of in-process research and development was determined using the relief-from-royalty method. A key assumption of this method is a hypothetical technology licensing rate applied to forecasted revenue. The premise associated with this valuation method is that, in lieu of ownership of the asset, a market participant would be willing to pay a licensing fee for the use of that asset.
Impact on operating results
Our results of continuing operations for the three and six months ended September 30, 2016 include $88 million of net revenues and $105 million of loss before income taxes attributable to Blue Coat beginning August 1, 2016. The Blue Coat results are included in our Enterprise Security segment. See Note 9 for more information on our segments. Additionally, transaction costs of $40 million incurred by Symantec in connection with the Blue Coat acquisition are included in general and administrative expense in the Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2016.

10


Unaudited pro forma information
The unaudited pro forma financial results combine the historical results of Symantec and Blue Coat for the three and six months ended September 30, 2016 and October 2, 2015. The results include the effects of pro forma adjustments as if Blue Coat were acquired at the beginning of our 2016 fiscal year. The pro forma results for the three and six months ended September 30, 2016 and October 2, 2015 include nonrecurring adjustments for amortization of acquired intangible assets, stock-based compensation, commissions, interest on debt used to finance the acquisition, and acquisition-related transaction costs, as well as for the income tax effect of the other pro forma adjustments.
 The unaudited pro forma financial results presented below do not include any anticipated synergies or other expected benefits of the acquisition. These pro forma results are presented for informational purposes only and are not indicative of future operations or results that would have been achieved had the acquisition been completed as of the beginning of our 2016 fiscal year. The following table summarizes the pro forma financial information:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions)
Net revenues
$
1,023

 
$
1,041

 
$
2,086

 
$
2,078

Net income (loss)
$
(158
)
 
$
40

 
$
(119
)
 
$

Note 4Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill are as follows:
 
 
 
Consumer Security
 
Enterprise Security
 
Total
 
 
 
(In millions)
Net balance as of April 1, 2016
 
 
$
1,231

 
$
1,917

 
$
3,148

Acquisition of Blue Coat
 
 

 
4,086

 
4,086

Translation adjustments
 
 

 
(2
)
 
(2
)
Net balance as of September 30, 2016
 
 
$
1,231

 
$
6,001

 
$
7,232

See Note 3 for more information on the Blue Coat acquisition.
Intangible assets, net
 
September 30, 2016
 
April 1, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(In millions)
Customer relationships
$
1,247

 
$
(361
)
 
$
886

 
$
406

 
$
(320
)
 
$
86

Developed technology
883

 
(125
)
 
758

 
144

 
(84
)
 
60

Finite-lived trade names
19

 
(4
)
 
15

 
2

 
(2
)
 

Patents
21

 
(19
)
 
2

 
21

 
(18
)
 
3

Total finite-lived intangible assets
2,170

 
(509
)
 
1,661

 
573

 
(424
)
 
149

Indefinite-lived trade names
281

 

 
281

 
294

 

 
294

In-process research and development
19

 

 
19

 

 

 

Total
$
2,470

 
$
(509
)
 
$
1,961

 
$
867

 
$
(424
)
 
$
443

As a result of our acquisition of Blue Coat, we recorded $1.6 billion of acquired intangible assets during the three months ended September 30, 2016. See Note 3 for more information on the Blue Coat acquisition.

11


As of September 30, 2016, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:
 
September 30, 2016
 
(In millions)
Remainder of 2017
$
272

2018
347

2019
317

2020
301

2021
153

Thereafter
271

Total
$
1,661

Note 5Debt
The following table summarizes components of our debt:
 
September 30, 2016
 
April 1, 2016
 
Amount
 
Effective
Interest Rate
 
Amount
 
Effective
Interest Rate
 
(In millions, except percentages)
2.75% Senior Notes due June 15, 2017
$
600

 
2.79
%
 
$
600

 
2.79
%
Senior Term Loan A-1 due May 10, 2019
1,000

 
LIBOR plus (1)

 

 
%
Senior Term Loan A-2 due August 1, 2019
800

 
LIBOR plus (1)

 

 
%
Senior Term Loan A-3 due August 1, 2019
200

 
LIBOR plus (1)

 

 
%
4.2% Senior Notes due September 15, 2020
750

 
4.25
%
 
750

 
4.25
%
2.5% Convertible Senior Notes due April 1, 2021
500

 
3.76
%
 
500

 
3.76
%
Senior Term Loan A-5 due August 1, 2021
1,800

 
LIBOR plus (1)

 

 
%
2.0% Convertible Unsecured Notes due August 15, 2021
1,250

 
2.66
%
 

 
%
3.95% Senior Notes due June 15, 2022
400

 
4.05
%
 
400

 
4.05
%
Total principal amount
7,300

 
 
 
2,250

 
 
Less: Unamortized discount and issuance costs
(124
)
 
 
 
(43
)
 
 
Total debt
7,176

 
 
 
2,207

 
 
Less: Current portion
(600
)
 
 
 

 
 
Total long-term debt
$
6,576

 
 
 
$
2,207

 
 
 
(1) The senior term facilities bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus a margin based on the debt rating of our non-credit-enhanced, senior unsecured long-term debt.

12


The future maturities of debt by fiscal year are as follows as of September 30, 2016:
 
 
September 30, 2016
 
 
(In millions)
Remainder of 2017
 
$

2018
 
600

2019
 

2020
 
2,000

2021
 
1,250

Thereafter
 
3,450

Total
 
$
7,300


Senior Term Facilities
On May 10, 2016, we entered into a senior unsecured credit facility (“Amended and Restated Credit Facility”). The agreement provided for a 5-year Revolving Credit Facility and a 3-year term loan in an amount of $1.0 billion (the “Senior Term Loan A-1”), which is set to expire on May 10, 2019. On July 18, 2016, we amended and restated our credit agreement to provide for, among other things, an additional $800 million 3-year term loan (“Senior Term Loan A-2”) which is set to expire on August 1, 2019. Interest on both the Senior Term Loan A-1 and Senior Term Loan A-2 are payable according to the terms of the agreement. The Amended and Restated Credit Agreement became effective concurrently on the close date of the Blue Coat acquisition. See Note 3 for more information on the Blue Coat acquisition.
On August 1, 2016, we entered into a Term Loan Agreement (the "Term Loan Agreement") with a group of lenders that allows us to borrow an aggregate amount of $2.0 billion, consisting of a $1.8 billion 5-year term loan (“Senior Term Loan A-5”), with a maturity date of August 1, 2021, and a $200 million 3-year term loan (“Senior Term Loan A-3”), with a maturity date of August 1, 2019. The Term Loan Agreement closed concurrently with the Blue Coat acquisition on August 1, 2016. Interest on borrowings under the Term Loan Agreement is payable according to the terms of the agreement. As of October 3, 2016, the Term Loan Agreement was held by a foreign subsidiary of Symantec.
We utilized the proceeds of the Senior Term Loan A-2 under the Amended and Restated Credit Agreement and proceeds of the Term Loan Agreement (collectively the “Acquisition Term Loans”), to pay a portion of the purchase price for the Blue Coat acquisition. Across each of the facilities which were either amended and restated, or entered into in connection with the close of the Blue Coat acquisition, we paid a total of $52 million of issuance costs. The issuance costs are being amortized over the respective periods of the Acquisition Term Loans and Amended and Restated Credit Facility using the effective interest method. The Amended and Restated Credit Facility and Term Loan Facility include a consolidated leverage ratio covenant. As of September 30, 2016, we were in compliance with all covenants in the indentures governing the credit facilities.
Convertible Unsecured Notes
On August 1, 2016, we issued 2.0% Convertible Unsecured Notes due August 15, 2021 (the "Notes") for an aggregate principal amount of $1.25 billion. An aggregate of $750 million of the Notes were issued to Bain Capital Fund XI, L.P. and Bain Capital Europe Fund IV, L.P. (collectively with their affiliates, "Bain") and $500 million to Silver Lake Partners IV Cayman (AIV II), L.P. The Notes were issued concurrently on the close date of the Blue Coat acquisition and the proceeds were used to pay a portion of the purchase price for Blue Coat. The fair value of the equity component of the Notes using level 2 inputs, was $39 million, and was included in additional paid-in capital on the Company's Condensed Consolidated Balance Sheet as of September 30, 2016.
The Notes are convertible into cash, shares of our common stock or a combination of cash and common stock, at our option, at a conversion rate of 48.9860 per $1,000 principal amount (which represents an initial conversion price of approximately $20.41 per share), subject to customary anti-dilution adjustments. If holders of the Notes convert them in connection with a fundamental change, we may be required to provide a make-whole premium in the form of an increased conversion rate, subject to a maximum amount.
With certain exceptions, upon change in control of Symantec, the holders of the Notes may require that we repurchase all or part of the principal amount of the Notes at a purchase price equal to the principal amount plus accrued and unpaid interest. The Notes are not redeemable by us. The indenture of the Notes includes customary events of default, which may result in the acceleration of the maturities of the Notes. In accordance with the provisions of the investment agreement with the holders of the Notes, dated June 12, 2016 and as amended on July 31, 2016, we appointed a designee of Bain to the Board of Directors (the "Board") on August 1, 2016. Bain's rights to Board representation will terminate under certain circumstances, including if

13


Bain and its affiliates beneficially own less than 4% of all the Company's outstanding common stock (on an as-converted basis).
Revolving Credit Facility
On May 10, 2016, we terminated our previous $1.0 billion senior revolving credit facility and entered into a new senior unsecured credit facility (the “Revolving Credit Facility”). The new credit agreement provides for a 5-year $1.0 billion revolving credit facility.
The Amended and Restated Credit Agreement (as discussed in the Senior Term Facility) which was entered into by the Company on July 18, 2016, includes provisions for the Revolving Credit Facility. Under the Amended and Restated Credit Agreement, the Revolving Credit Facility bears a commitment fee which has pricing adjustments relative to the Company's senior unsecured long-term credit rating. The commitment fee is payable in arrears quarterly. Drawings under the Revolving Credit Facility bear interest according to the terms of the agreement.
The Amended and Restated Credit Agreement includes a consolidated leverage ratio covenant, which is similar to that of the Term Loan Facility. As of September 30, 2016, we were in compliance with the required covenants for the Revolving Credit Facility, and no amounts were outstanding.
Note 6. Discontinued Operations
On January 29, 2016, we completed the sale of our former information management business ("Veritas"). 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.
In connection with the divestiture, the Company and Veritas entered into Transition Service Agreements ("TSA") pursuant to which we provide Veritas certain limited services including financial support services, information technology services, and access to facilities, and Veritas provides us certain limited financial support services. The TSAs commenced with the close of the transaction and expire at various dates through fiscal 2019. During the three and six months ended September 30, 2016, we recorded income of $8 million and $17 million, respectively, for all services provided to Veritas, which is presented as part of other income (expense), net in the Condensed Consolidated Statements of Operations.
We also have retained various customer relationships and contracts that were reported historically as a part of the Veritas business. Approximately $157 million related to these relationships and contracts have been reported as part of our deferred revenue in the Condensed Consolidated Balance Sheet as of September 30, 2016, along with a $65 million asset representing the service and maintenance rights we have under an agreement with Veritas. These balances will be amortized to discontinued operations through the remaining term of the underlying contracts.
The following table presents information regarding certain components of income (loss) from discontinued operations, net of income taxes:
 
Three Months Ended
 
Six Months Ended
 
September 30,
2016
 
October 2, 2015
 
September 30,
2016
 
October 2, 2015
 
(In millions)
Net revenues
$
51

 
$
592

 
$
123

 
$
1,179

Cost of revenues
(6
)
 
(104
)
 
(9
)
 
(200
)
Operating expenses

 
(385
)
 
(24
)
 
(758
)
Gain on sale of Veritas

 

 
38

 

Other expense, net
(2
)
 
(1
)
 

 
(6
)
Income from discontinued operations before income taxes
43

 
102

 
128

 
215

Income taxes expense (benefit)
118

 
(1
)
 
134

 
20

Income (loss) from discontinued operations, net of income taxes
$
(75
)
 
$
103

 
$
(6
)
 
$
195

During the first quarter of fiscal 2017, the Company received an additional payment of $38 million, which represented a purchase price adjustment for the sale of Veritas.

14


Note 7. Restructuring, Separation, Transition, and Other Costs
Our restructuring, separation, transition, and other 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 related costs include advisory, consulting and other costs incurred in connection with the separation of Veritas. Transition costs primarily consist of consulting charges associated with the implementation of new enterprise resource planning systems and costs to automate business processes. Other costs primarily consist of asset write-offs and advisory fees incurred in connection with restructuring events. Restructuring, separation, transition, and other costs are managed at the corporate level and are not allocated to our reportable segments. See Note 9 for information regarding the reconciliation of total segment operating income to total consolidated operating income (loss) from continuing operations.
Fiscal 2017 Plan
We initiated a restructuring plan in the first quarter of fiscal 2017 to reduce complexity by means of long-term structural improvements. We expect to reduce headcount and close certain facilities in connection with the restructuring plan. We expect to incur total costs in connection with the plan to range between $230 million and $280 million, of which approximately $90 million to $100 million is expected to be for severance and termination benefits, $45 million to $60 million is expected to be for contract termination and relocation costs, and the remainder is expected to be in the form of other costs, including advisory fees and asset write-offs. Non-cash expenses in connection with the plan are expected to be approximately $50 million. These actions are expected to be completed in fiscal 2018. As of September 30, 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 2022.
Fiscal 2015 Plan
In fiscal 2015, we initiated a restructuring plan primarily to align personnel with our plans to separate Veritas. These actions were substantially completed in the fourth quarter of fiscal 2016 with the sale of Veritas on January 29, 2016. See Note 6 for more information on the sale of Veritas.
Restructuring, separation, transition, and other expense summary
 
 
Three Months Ended
September 30, 2016
 
Six Months Ended
September 30, 2016
 
 
(In millions)
Fiscal 2017 Plan
 
 
 
 
Severance costs
 
$
14

 
$
38

Other exit and disposal costs
 
20

 
35

Asset write-offs
 
5

 
14

Fiscal 2017 Plan total
 
39

 
87

Fiscal 2015 Plan total
 

 
2

Transition and other related costs
 
25

 
45

Restructuring, separation, transition, and other from continuing operations
 
64

 
134

Restructuring, separation, transition, and other from discontinued operations
 
1

 
10

Total restructuring, separation, transition, and other
 
$
65

 
$
144


15


Restructuring and separation liabilities summary
 
Balance as of April 1, 2016
 
Costs, Net of
Adjustments
 
Cash
Payments
 
Non-Cash Charges
 
Balance as of September 30, 2016
 
Cumulative
Incurred to Date
 
(In millions)
Fiscal 2017 Plan
 
 
 
 
 
 
 
 
 
 
 
Severance costs
$

 
$
38

 
$
(31
)
 
$

 
$
7

 
$
38

Other exit and disposal costs
4

 
35

 
(21
)
 

 
18

 
39

Asset write-offs

 
14

 

 
(14
)
 

 
14

Fiscal 2017 Plan total
4

 
87

 
(52
)
 
(14
)
 
25

 
$
91

Fiscal 2015 Plan total
29

 
12

 
(32
)
 

 
9

 
$
468

Restructuring and separation plans total
$
33

 
$
99

 
$
(84
)
 
$
(14
)
 
$
34

 
 
As of September 30, 2016 and April 1, 2016, the restructuring and separation liabilities are included in accounts payable, other current liabilities and other long-term obligations in our Condensed Consolidated Balance Sheets.
Note 8Commitments 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.
In connection with the sale of Veritas, we assigned several leases to Veritas Technologies LLC or its related subsidiaries.  As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC or its related subsidiaries' breach of payment obligations under the terms of the lease. As with our other indemnification obligations discussed above and in general, 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. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and 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

16


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.
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.
EDS & NDI
On January 24, 2011, a class action lawsuit was filed against us and our 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 we would pay the plaintiffs $30 million, which we accrued. On October 8, 2015, the Court granted preliminary approval of the settlement, which was subsequently paid into escrow by us. The Court granted final approval on April 22, 2016, and entered judgment in the case. Objectors to the settlement have appealed to the Eighth Circuit Court of Appeals, challenging the Court’s approval of the settlement.
Finjan
On August 28, 2013, Finjan, Inc. filed a complaint against Blue Coat Systems, Inc. in the U.S. District Court for the Northern District of California alleging that certain Blue Coat products infringe six of Finjan's U.S. patents. On August 4, 2015, a jury returned a verdict that certain Blue Coat products infringe five of the Finjan patents-in-suit and awarded Finjan lump-sum damages of $40 million. On November 20, 2015, the trial court entered a judgment in favor of Finjan on the jury verdict and certain non-jury legal issues. On July 28, 2016, in its ruling on post-trial motions the trial court denied Blue Coat’s motions seeking a new trial or judgment as a matter of law and denied Finjan’s request for enhanced damages and attorneys’ fees. In August 2016, we completed our acquisition of Blue Coat. We intend to vigorously contest the judgment and continue to investigate all available remedies for relief, including the filing of a Notice of Appeal to the Federal Circuit Court of Appeals. Our current best estimated loss and related interest with respect to the jury verdict is $40 million, which was accrued by Blue Coat and assumed by us as a part of the acquisition of Blue Coat.
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 9Segment Information
We 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.

17


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 services.
There were no intersegment sales for the periods presented. The following table summarizes the operating results of our reporting segments:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions)
Total Segments
 
 
 
 
 
 
 
Net revenues
$
979

 
$
906

 
$
1,863

 
$
1,818

Operating income
249

 
283
 
502

 
558
Consumer Security
 
 
 
 
 
 
 
Net revenues
$
405

 
$
420

 
$
808

 
$
850

Operating income
224

 
232
 
449

 
477
Enterprise Security
 
 
 
 
 
 
 
Net revenues
$
574

 
$
486

 
$
1,055

 
$
968

Operating income
25

 
51

 
53

 
81

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 ("CEO") and Chief Financial Officer, use operating segment financial information to evaluate our 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. Corporate 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 Veritas, 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, costs related to restructuring, separation and transition events, and certain acquisition and integration costs.
The following table provides a reconciliation of our total reportable segments’ operating income to our consolidated operating income (loss) from continuing operations:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions)
Total segment operating income
$
249

 
$
283

 
$
502

 
$
558

Reconciling items:
 
 
 
 
 
 
 
Unallocated corporate charges

 
87

 

 
186

Stock-based compensation
85

 
45

 
134

 
80

Amortization of intangible assets
69

 
20

 
89

 
43

Restructuring, separation, transition, and other
64

 
31

 
134

 
66

Acquisition and integration costs
43

 

 
51

 

Total consolidated operating income (loss) from continuing operations
$
(12
)
 
$
100

 
$
94

 
$
183


18


Note 10Stockholders' Equity
Dividends
The following table summarizes dividends declared and paid and dividend equivalents paid for the periods presented:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions, except per share data)
Dividends declared and paid
$
47

 
$
102

 
$
93

 
$
205

Dividend equivalents paid
5

 
1

 
27

 
5

Total dividends and dividend equivalents paid
$
52

 
$
103

 
$
120

 
$
210

Cash dividends declared per common share
$
0.075

 
$
0.15

 
$
0.15

 
$
0.30

Our RSUs and performance-based restricted stock units ("PSUs") are entitled to dividend equivalents to be paid in the form of cash upon vesting for each share of the underlying unit.
On November 3, 2016, we declared a cash dividend of $0.075 per share of common stock to be paid on December 14, 2016, to all stockholders of record as of the close of business on November 21, 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.
Changes in accumulated other comprehensive income (loss) by component
Components of accumulated other comprehensive income (loss), on a net of tax basis, were as follows:
 
Foreign Currency
Translation Adjustments
 
Unrealized Gain on
Available-For-Sale
Securities
 
Total
 
(In millions)
Balance as of April 1, 2016
$
15

 
$
7

 
$
22

Other comprehensive loss before reclassifications
(22
)
 
(1
)
 
(23
)
Balance as of September 30, 2016
$
(7
)
 
$
6

 
$
(1
)

19


Note 11Stock-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
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions)
Cost of revenues
$
5

 
$
2

 
$
8

 
$
4

Sales and marketing
24

 
16

 
38

 
27

Research and development
24

 
16

 
39

 
28

General and administrative
32

 
11

 
49

 
21

Total stock-based compensation expense
85

 
45

 
134

 
80

Tax benefit associated with stock-based compensation expense
(25
)
 
(13
)
 
(40
)
 
(23
)
Net stock-based compensation expense from continuing operations
60

 
32

 
94

 
57

Net stock-based compensation expense from discontinued operations

 
24

 

 
37

Net stock-based compensation expense
$
60

 
$
56

 
$
94

 
$
94

The following table summarizes additional information related to our stock-based compensation:
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
(In millions, except per grant data)
Restricted stock units
 
 
 
Weighted-average fair value per grant
$
18.59

 
$
23.53

Awards granted and assumed in acquisition
13.8

 
12.8

Total fair value of awards vested
$
94

 
$
140

Total unrecognized compensation expense
$
301

 
$
462

Weighted-average remaining vesting period
2.1 years

 
2.3 years

Performance-based restricted stock units
 
 
 
Weighted-average fair value per grant
$
19.84

 
$
27.03

Awards granted and assumed in acquisition
4.9

 
0.9

Total fair value of awards released
$
13

 
$
5

Total unrecognized compensation expense
$
68

 
$
24

Weighted-average remaining vesting period
1.4 years

 
1.8 years

Stock options

 

Total intrinsic value of stock options exercised
$
50

 
$
2

Total unrecognized compensation expense
$
134

 
$

Weighted-average remaining vesting period
1.8 years

 

Blue Coat acquisition
In connection with the Blue Coat acquisition, we assumed the outstanding equity awards under two of Blue Coat’s equity incentive plans (the Blue Coat, Inc. 2016 Equity Incentive Plan and the Batman Holdings, Inc. 2015 Amended and Restated Equity Incentive Plan (collectively, the "Plans")), including 7.5 million vested and 12.5 million unvested stock options, 4.8 million unvested RSUs, and 3.0 million unvested PRUs. Upon vesting, these assumed options will be exercisable into, and these assumed RSUs and PRUs will settle into shares of our common stock.  The assumed RSUs and PRUs generally retained the terms and conditions under which they were originally granted. We will not grant additional options or shares under the Plans. Future equity

20


awards by Symantec will be made under Symantec's 2013 Equity Incentive Plan, as amended. See Note 3 for more information on the Blue Coat acquisition.
Included in the aforementioned assumed Blue Coat equity awards were RSUs and PRUs granted to Gregory S. Clark, former Blue Coat CEO and our current CEO, in connection with the closing of the Blue Coat acquisition. These equity awards were assumed by Symantec on the close date for an equivalent of 1.3 million Symantec RSUs and 1.0 million PRUs. The RSUs vest at various times over 3-years and PRUs are subject to 2-year vesting and the achievement of certain performance metrics during the applicable performance period. These awards had a combined fair value of $46 million on the close date of the Blue Coat acquisition. In addition, Blue Coat had previously granted Mr. Clark stock options which were assumed by Symantec on the close date. Upon assumption of these options, Mr. Clark held 3.9 million unvested options to purchase our common stock with a fair value of $53 million on the close date, of which $50 million will be recognized as stock-based compensation expense over the 2-year vesting period and the remainder was included as part of the consideration transferred for the acquisition.
Note 12Income Taxes
The following table summarizes our effective tax rate for income (loss) from continuing operations for the periods presented:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions, except percentages)
Income (loss) before income taxes
$
(50
)
 
$
87

 
$
47

 
$
147

Provision for income taxes
$
19

 
$
34

 
$
50

 
$
69

Effective tax rate
(38
)%
 
39
%
 
106
%
 
47
%
Our effective tax rate for income (loss) from continuing operations for the three and six months ended September 30, 2016 differs from the federal statutory income tax rate primarily due to the benefits of lower-taxed international earnings and the research and development credit, offset by various permanent differences and tax expense related to the loss of tax attributes due to restructuring activities as noted below. Additionally, as pre-tax income (loss) approaches break even, small changes can produce significant variability in the effective tax rate. Our effective tax rate for income from continuing operations for the three and six months ended October 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.
For the three and six months ended September 30, 2016, we recorded an income tax expense on discontinued operations of $118 million and $134 million respectively. For the three and six months ended October 2, 2015, we recorded an income tax benefit on discontinued operations of $1 million and income tax expense on discontinued operations of $20 million, respectively. See Note 6 for further details regarding discontinued operations.
For the three months ended September 30, 2016, our tax provision was increased due to a deferred tax expense of $52 million related to the loss of tax attributes as a result of restructuring activities. For the three and six months ended September 30, 2016, our tax provision was reduced by tax benefits primarily resulting from settlements with certain taxing authorities and lapses of statutes of limitations of $1 million and $9 million, respectively.
For the three and six months ended October 2, 2015, our tax provision was reduced by $8 million in tax benefits related to certain foreign operations.
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 $7 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.

21


Note 13Net Income (Loss) Per Share
Basic and diluted net income (loss) per share are computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include the dilutive effect of the shares' underlying outstanding stock options, restricted stock, employee stock purchase plan and Convertible Senior Notes.
The components of net income (loss) per share are as follows:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
 
(In millions, except per share data)
Income (loss) from continuing operations
$
(69
)
 
$
53

 
$
(3
)
 
$
78

Income (loss) from discontinued operations, net of tax
(75
)
 
103

 
(6
)
 
195

Net income (loss)
$
(144
)
 
$
156

 
$
(9
)
 
$
273

Income (loss) per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
(0.11
)
 
$
0.08

 
$

 
$
0.11

Discontinued operations
$
(0.12
)
 
$
0.15

 
$
(0.01
)
 
$
0.29

Net income (loss) per share - basic
$
(0.23
)
 
$
0.23

 
$
(0.01
)
 
$
0.40

Income (loss) per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
(0.11
)
 
$
0.08

 
$

 
$
0.11

Discontinued operations
$
(0.12
)
 
$
0.15

 
$
(0.01
)
 
$
0.28

Net income (loss) per share - diluted
$
(0.23
)
 
$
0.23

 
$
(0.01
)
 
$
0.40

 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
620

 
682

 
617

 
682

Dilutive potential shares

 
5

 

 
7

Weighted-average shares outstanding - diluted
620

 
687

 
617

 
689

 
Note: The total amounts may not add due to rounding.
The following convertible shares, stock options and restricted stock units have been excluded from the computation of diluted net income (loss) per share because their effect would have been anti-dilutive:
 
As of
 
September 30, 2016
 
October 2,
2015
 
(In millions)
Convertible shares
91

 

Stock options
19

 

Restricted stock units
29

 
11

Total
139

 
11

Under the treasury stock method, the Convertible Senior Notes will generally have a dilutive impact on earnings when our average stock price for the period exceeds approximately $16.77 per share for the 2.5% Convertible Senior Notes and $20.41 per share for the 2.0% Convertible Senior Notes. During the three and six months ended September 30, 2016, the conversion feature of both notes was anti-dilutive due to a loss from continuing operations.
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

22


“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, and of our restructurings, 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 1, 2016 and in Part II Item 1A, of this quarterly report on Form 10-Q. We encourage you to read those sections carefully.
OVERVIEW
Our business
Symantec Corporation is a global leader in cybersecurity. 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.
On August 1, 2016 (the "close date"), we acquired all of the outstanding common stock of Blue Coat, Inc. ("Blue Coat"), a provider of advanced web security solutions for global enterprises and governments. With this acquisition we are positioned to introduce new cyber security solutions, to address the ever-evolving threat landscape, the changes introduced by the shift to mobile and cloud, and the challenges created by regulatory and privacy concerns. All information related to Blue Coat discussed in the financial results and trends, results of operations and liquidity and capital resources sections relates to the inclusion as of the close date.
Fiscal calendar
We have a 52/53-week fiscal year ending on the Friday closest to March 31. The three and six months ended September 30, 2016 and October 2, 2015, both consisted of 13 and 26 weeks, respectively. Our 2017 fiscal year consists of 52 weeks and ends on March 31, 2017.
Strategy
Our strategy is to deliver an integrated cyber defense platform that spans the four crucial security pillars: Information, Users, Web, and Messaging. This platform combines best of breed solutions at all the major control points to protect companies in the cloud generation of computing. To complement our platform we offer a full suite of cyber security services, from monitoring to incident response to threat intelligence.
Divestiture of Veritas
On January 29, 2016, we sold our former information business ("Veritas"). 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. The following discussion relates to our continuing operations unless stated otherwise.
Our operating segments
Our current operating segments are significant strategic business units that offer different products and services distinguished by customer needs. We 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 services.
For further description of our operating segments see Note 9 of the Notes to Condensed Consolidated Financial Statements.

23


Financial results and trends
The following table provides an overview of key financial metrics for the periods indicated below:
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2, 2015
 
September 30, 2016
 
October 2, 2015
 
(In millions, except percentages)
Condensed Consolidated Statements of Operations data:
 
 
 
 
 
 
 
  Net revenues
$
979

 
$
906

 
$
1,863

 
$
1,818

  Gross profit
769

 
746

 
1,504

 
1,500

  Operating income (loss)
(12
)
 
100

 
94

 
183

Operating margin percentage
(1)
 %
 
11
%
 
5
%
 
10
%
Condensed Consolidated Statements of Cash Flows data:
 
 
 
 
 
 
 
  Cash flow from continuing operating activities
 
 
 
 
$
(564
)
 
$
163

Net revenues for the three and six months ended September 30, 2016 increased $73 million and $45 million, respectively, compared to the same periods last year. The increase was primarily due to net revenues from acquired Blue Coat enterprise web security solutions and favorable foreign currency impacts, partly offset by a decline in our consumer security revenue.
Our gross margin was 79% for the three months ended September 30, 2016 compared to 82% for the three months ended October 2, 2015. Our gross margin was 81% for the six months ended September 30, 2016 compared to 83% for the six months ended October, 2 2015. The decreases in our gross margin were primarily due to the impact of the assumed deferred revenue fair value write-down, increased amortization expense related to acquired intangible asset and acquired inventory write-up related to the Blue Coat acquisition.
Operating loss for the three months ended September 30, 2016 was $12 million compared to operating income of $100 million for the same period last year. Operating income for the six months ended September 30, 2016 was $94 million compared to $183 million for the same period last year. The changes were primarily due to the decrease in our gross margins, increased expenses as a result of the Blue Coat acquisition, including amortization of intangible assets, and increased restructuring expenses related to ongoing cost savings initiatives. The increased expenses for the three and six months ended September 30, 2016 were partially offset by the absence of unallocated corporate charges in three and six months ended September 30, 2016, compared to $87 million and $186 million, respectively, of unallocated corporate charges previously allocated to Veritas for the three and six months ended October 2, 2015. These unallocated corporate charges, including legal, accounting, real estate, information technology services, treasury, human resources and other corporate infrastructure expenses, were included in cost of revenues and operating expenses for the three and six months ended October 2, 2015. These unallocated corporate charges were eliminated with the operational separation of Veritas in the third quarter of fiscal 2016 and do not have an impact on our operations going forward. See Note 9 of the Notes to Condensed Consolidated Financial Statements for more information about our unallocated corporate charges. We expect our operating margin 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 used in continuing operating activities was $564 million for the six months ended September 30, 2016, compared to net cash provided by continuing operating activities of $163 million for the six months ended October 2, 2015. This change was primarily due to an increase in the cash payments for taxes of $883 million driven by the gain on sale from the divestiture of Veritas, partially offset by decreased payments for restructuring and separation liabilities of $85 million and an increase in income from continuing operations adjusted for non-cash items of $83 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 six months ended September 30, 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 1, 2016, except as noted below.
Stock options
In connection with the Blue Coat acquisition, we assumed options to purchase common stock with a fair value of $265 million. Determining the fair value of options requires judgment. We use the Black-Scholes model to determine the fair value of stock options. The determination of the fair value of options using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected life of the options, actual and projected employee stock option exercise and forfeiture behaviors, risk-free interest rates, and expected dividends. Because the options assumed in the Blue Coat acquisition were all at- or in-the-

24


money and Blue Coat lacks sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term, we estimate the expected life of assumed options using the “simplified method”. For vested options, this represents the midpoint between the valuation date and the contractual term. For unvested options, this represents the midpoint between the average vesting time and full contractual term. Expected volatility is based on the average of historical volatility over the most recent period commensurate with the expected life of the option and the implied volatility of traded options. The risk free interest rate is equal to the U.S. Treasury constant maturity rates for the period equal to the expected life. The options assumed are without dividend-equivalents rights and their fair values are discounted by our dividend yield.
Recently issued authoritative accounting guidance
See Note 1 of the Notes to Condensed Consolidated Financial Statements for recently issued authoritative accounting 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
 
Six Months Ended
 
September 30, 2016
 
October 2,
2015
 
September 30, 2016
 
October 2,
2015
Net revenues
100
 %
 
100
%
 
100
%
 
100
%
Cost of revenues
21
 %
 
18
%
 
19
%
 
17
%
Gross profit
79
 %
 
82
%
 
81
%
 
83
%
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
35
 %
 
37
%
 
34
%
 
37
%
Research and development
20
 %
 
22
%
 
20
%
 
22
%
General and administrative
15
 %
 
7
%
 
12
%
 
8
%
Amortization of intangible assets
3
 %
 
2
%
 
3
%
 
2
%
Restructuring, separation, transition, and other
7
 %
 
3
%
 
7
%
 
4
%
Total operating expenses
80
 %
 
71
%
 
76
%
 
72
%
Operating income (loss)
(1)
 %
 
11
%
 
5
%
 
10
%
Non-operating expense, net
4
 %
 
1
%
 
3
%
 
2
%
 
Note: The total percentages may not add due to rounding.
Net revenues
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2, 2015
 
% Change
 
September 30, 2016
 
October 2, 2015
 
% Change
 
(In millions, except percentages)
Net revenues
$
979

 
$
906

 
8
%
 
$
1,863

 
$
1,818

 
2
%
Net revenues increased $73 million and $45 million for the three and six months ended September 30, 2016, respectively, compared to the same periods last year. The increase was primarily due to $88 million of net revenues from acquired Blue Coat enterprise web security solutions and favorable foreign currency impacts of $15 million and $26 million for the three and six months ended September 30, 2016, respectively. These increases were offset partly by a decline in our consumer security revenue primarily driven by new customer acquisition not being sufficient to replace customers lost through natural attrition.

25


Net revenues and operating income by segment
 
Three Months Ended
 
Six Months Ended
 
September 30, 2016
 
October 2, 2015
 
% Change
 
September 30, 2016
 
October 2, 2015
 
% Change
 
(In millions, except percentages)
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
Consumer Security
$
405

 
$
420

 
(4)
 %
 
$
808

 
$
850

 
(5)
 %
Enterprise Security