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Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

    

For the Fiscal Year Ended March 30, 2018

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

    

For the Transition Period from                      to                    

Commission File Number 000-17781

Symantec Corporation

(Exact name of the registrant as specified in its charter)

 

Delaware   77-0181864

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

Identification no.)

350 Ellis Street,

Mountain View, California

 

94043

(Zip code)

(Address of principal executive offices)  

Registrant’s telephone number, including area code:

(650) 527-8000

 

 

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share    The NASDAQ Stock Market LLC
(Title of each class)    (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes      No  

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer 

   Accelerated filer     Non-accelerated filer     Smaller reporting company 
      Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  

Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of Symantec common stock on September 28, 2018 as reported on the Nasdaq Global Select Market: $7,810,381,908. Solely for purposes of this disclosure, shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded as of such date because such persons may be deemed to be affiliates. This determination of possible affiliate status is not a conclusive determination for any other purposes.

The number of shares of Symantec common stock, $0.01 par value per share, outstanding as of October 15, 2018 was 638,800,147 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

 


Table of Contents

SYMANTEC CORPORATION

FORM 10-K

For the Fiscal Year Ended March 30, 2018

TABLE OF CONTENTS

 

          Page  
PART I

 

Item 1.

   Business      4  

Item 1A.

   Risk Factors      12  

Item 1B.

   Unresolved Staff Comments      30  

Item 2.

   Properties      30  

Item 3.

   Legal Proceedings      31  

Item 4.

   Mine Safety Disclosures      31  
PART II

 

Item 5.

   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      32  

Item 6.

   Selected Financial Data      35  

Item 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      36  

Item 7A.

   Quantitative and Qualitative Disclosures about Market Risk      49  

Item 8.

   Financial Statements and Supplementary Data      51  

Item 9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      51  

Item 9A.

   Controls and Procedures      52  

Item 9B.

   Other Information      52  
PART III

 

Item 10.

   Directors, Executive Officers and Corporate Governance      53  

Item 11.

   Executive Compensation      66  

Item 12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      115  

Item 13.

   Certain Relationships and Related Transactions, and Director Independence      118  

Item 14.

   Principal Accounting Fees and Services      121  
PART IV

 

Item 15.

   Exhibits, Financial Statement Schedules      122  

Item 16.

   Form 10-K Summary      187  

Signatures

     188  

“Symantec,” “we,” “us,” “our,” and “the Company” refer to Symantec Corporation and all of its subsidiaries. Symantec, the Symantec Logo and Norton are trademarks or registered trademarks of Symantec in the United States (“U.S.”) and other countries. Other names may be trademarks of their respective owners.

EXPLANATORY NOTE

As previously reported, we were unable to timely file our Annual Report on Form 10-K for the fiscal year ended March 30, 2018 and our Quarterly Report on Form 10-Q for the first quarter of fiscal 2019 ended June 29, 2018 and we anticipate being unable to timely file our Quarterly Report on Form 10-Q for the second quarter of fiscal 2019 ended September 28, 2018 as a result of an Audit Committee investigation as described herein. We expect to file the delinquent Quarterly Reports as promptly as practicable following this Annual Report filing.

 

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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,” “goal,” “intent,” “momentum,” “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, restructurings, stock repurchases and investment activities; the outcome or impact of pending litigation, claims or disputes; our intent to pay quarterly cash dividends in the future; plans for and anticipated benefits of our solutions; matters arising out of our completed Audit Committee investigation and the ongoing U.S. Securities and Exchange Commission (the “SEC”) investigation; 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.

These and other risks are described under Item 1A, Risk Factors. We encourage you to read that section carefully.

 

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PART I

Item 1. Business

Overview

Symantec Corporation is a global leader in cyber security. We provide cyber security products, services and solutions to more than 350,000 organizations and 50 million individuals worldwide. Our Integrated Cyber Defense Platform helps enterprise, business and government customers unify cloud and on-premises security to protect against threats and safeguard information across every control point and attack vector. Our Cyber Safety solutions (delivered through the Norton and LifeLock offerings) help consumers protect their information, identities, devices and networks at home and online.

Our business and consumer offerings are powered by the largest civilian threat intelligence network, which uses machine learning and human intelligence to analyze trillions of rows of data every day across hundreds of millions of devices to discover and help prevent advanced threats that might otherwise go undetected. We believe this threat intelligence data is a competitive advantage, and a primary way we are able to provide faster and better protection for customers.

Founded in 1982, Symantec has operations in more than 45 countries. Our headquarters are located at 350 Ellis Street, Mountain View, California. Our Internet home page is located at www.symantec.com. The information contained, or referred to, on our website is not part of this annual report unless expressly noted.

Fiscal 2018 Business Highlights

During fiscal 2018, we continued to make progress enhancing and expanding our product and services portfolio and improving product integration, partner integration and sales delivery to help business customers deploy our Integrated Cyber Defense Platform. We also made progress driving revenue growth and market adoption for our Consumer Digital Safety solutions, building on our Norton and LifeLock product portfolio. In addition, we implemented operational improvements to reduce costs and complexity, building on the business transformation programs we initiated in fiscal 2017, and leveraged synergies from the successful integration of our acquired businesses.

 

   

Our enterprise product teams built extensive point-to-point integrations across endpoint, network, cloud and email security products, responding to customer demand to consolidate vendors and enhance their security posture across control points.

 

   

We further extended our Integrated Cyber Defense platform through application programming interfaces (APIs) and engineering-level integration with more than 100 certified technology partners. Their complementary products and services expand our ecosystem, helping businesses implement a coordinated and robust approach to threat protection, detection and response.

 

   

We began offering consumers bundled services of our Norton-branded security services with LifeLock-branded identity theft protection services, allowing individuals and families to help defend against increasingly complex online threats. Bundling these solutions enabled us to combine our Norton and LifeLock demand generation and customer relationship management programs to drive new customer acquisition, improve retention and cross-sell within our large installed base.

 

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We completed several acquisitions, including Fireglass Ltd. and Skycure Ltd.

 

   

Fireglass provides agentless isolation solutions that prevent ransomware, malware, and phishing threats in real-time from reaching user endpoints or the corporate network. With this acquisition, we further strengthened our enterprise security strategy to deliver an Integrated Cyber Defense Platform and extended our participation in the Secure Web Gateway and Email protection markets delivered both on premises and in the cloud.

 

   

Skycure provides mobile threat defense for devices running modern operating systems, including iOS and Android. This acquisition extends our endpoint security capabilities. With the addition of Skycure our Integrated Cyber Defense Platform now enables visibility into and control over all endpoint devices, including mobile devices, whether corporate owned or bring your own device.

 

   

We completed the divestiture of our Website Security (“WSS”) and Public Key Infrastructure (“PKI”) solutions to DigiCert, Inc., allowing us to sharpen our enterprise security focus on Integrated Cyber Defense. At the closing of the transaction, we received a minority ownership stake in DigiCert.

 

   

We launched significant new products to advance our portfolio and competitive position:

 

   

Symantec Endpoint Protection 14.1 delivers superior, multi-layer protection to help stop threats regardless of how they attack endpoints, while integrating with other security products to provide an orchestrated response. Its single, lightweight agent offers high performance while maintaining end-user productivity. In addition, Symantec Endpoint Protection 14.1 is designed to be effective even in sites with low connectivity, using advanced machine learning and other signature-less technologies to minimize the need for content updates.

 

   

Symantec Advanced Threat Protection 3.0 extends and differentiates our endpoint security offering with new technology that includes file-less attack detection and enhanced adversary intelligence. It also enables “flight recorder” functionality, which records all activity on the endpoint, providing valuable forensic data to incident responders with no new agent to install.

Business Strategy

Our strategy is to combine best-of-breed technology with unmatched scale to deliver comprehensive cyber security platforms for enterprise, business and government customers, as well as consumers.

Our Enterprise Security strategy is to leverage our product portfolio, partner ecosystem and global threat intelligence network to deliver Integrated Cyber Defense to enterprise, business and government customers. Our Integrated Cyber Defense platform enables us to acquire new customers and cross-sell our full portfolio of products and services to existing customers with improved visibility, enhanced controls, accelerated response and reduced cost of ownership.

Our Consumer Digital Safety strategy is to combine and leverage our portfolio of Norton and LifeLock brands, products, and services to deliver a comprehensive set of Cyber Safety solutions that addresses today’s continually evolving and increasingly complex threat landscape. This threat landscape puts consumers at increased risk of having their security, privacy, and identities compromised. As risks shift from PC-based attacks to more sophisticated threats (ransomware, identity theft, Internet of Things (“IoT”) risks), our software and services provide a multi-layered approach to protect consumers everywhere, regardless of device, network or location.

 

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Products and Services

Enterprise Security Portfolio: Integrated Cyber Defense

Our Enterprise Security portfolio includes a deep and broad mix of products, services and solutions, delivered as part of an Integrated Cyber Defense platform. Our platform unifies cloud and on-premises security to provide advanced threat protection and information protection across all endpoints, networks, email, and cloud applications. Key components of the platform include:

 

   

Core Services

 

   

Advanced Threat Protection: Multiple layers of threat prevention, detection and forensic technology provide a robust view of malicious activities across control points, enabling users to contain, investigate and remediate threats.

 

   

Information Protection: Encryption, data loss prevention, multi-factor authentication, tagging, and analytics enable businesses and governments to protect confidential information and IT assets while managing compliance requirements and restricting access to authenticated users.

 

   

Control Points

 

   

Endpoint Security: A single agent architecture delivers multi-layered security across all possible endpoints - desktop, server, mobile, and IoT - and enables customers to protect enterprise and mobile workforces regardless of operating system, device or network security approaches.

 

   

Network Security: Cloud and on-premises network security solutions, based on an advanced proxy architecture, provide superior defense against advanced threats, enable users to protect critical business information, and help ensure secure and compliant use of cloud applications and the web.

 

   

Email Security: Multiple layers of protection (including threat isolation and advanced analytics) against ransomware, spear phishing and enterprise email compromise help identify targeted attacks, and enable users to protect email against user error and data leakage.

 

   

Cloud Security: Advanced solutions that secure cloud access, cloud infrastructure and cloud applications, and provide in-depth visibility, data security, and threat protection to safeguard users, information and workloads across public and private clouds.

 

   

Foundation

Our solutions are powered by the following critical features:

 

   

Threat Intelligence: A global threat intelligence network applies artificial intelligence to analyze over 1 trillion lines of telemetry annually, automatically updating intelligence on millions of malicious files and URL threat indicators across all control points to discover and block advanced targeted attacks that might otherwise go undetected.

 

   

Open Ecosystem: A rich set of open APIs (Application Programming Interfaces) with over 100 certified technology partners creating the broadest ecosystem in cyber security, enabling a coordinated and robust approach to threat protection, detection and response.

 

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Platform Integrations: A curated set of multi-point integrations between Symantec and technology partner solutions, orchestrating and automating actions, events and intelligence across the platform and eco-system to empower a powerful cyber defense.

In addition to our core product portfolio, Symantec offers enterprise security services including:

 

   

Consulting Services: We provide the experience, expertise, and industry intelligence to assist enterprises to better architect, design, implement, and optimize their security software, people and processes. Symantec consultants guide enterprises toward solutions that meet their business goals and leave them with the knowledge to maintain and enhance their security environment.

 

   

Premium Support Services: Our premium support services for enterprises focus on timely and accurate issue resolution by placing a product family expert at the center of a tailored support experience, who provides technical support, manages escalations, delivers case and system reviews, oversees environmental health checks, and provides proactive services like upgrade planning and feature optimization.

 

   

Cyber Security Services: We provide continual threat monitoring, customized guidance, and 24x7 personalized service within an enterprise’s security environment through our Managed Security Services, DeepSight Intelligence, and Incident Response Services.

Consumer Digital Safety Portfolio

Our Consumer Digital Safety solutions consist of the following key elements, which we are integrating into a singular user experience for individuals and their families:

 

   

Norton Security: Our Norton Security solutions are available as a subscription service providing protection for devices against malware, viruses, adware, and ransomware on multiple platforms: Windows, Mac, Android and iOS. Users also have access to a password manager, parental controls, and safe web browsing that blocks malicious sites and filters browser search results. Users also can perform secure cloud backups of photos, financial files and other important documents on Windows, providing additional protection in the event ransomware attacks make these files unavailable. For mobile devices, Norton Security also filters risky apps, enables stolen device recovery, provides contact recovery, and blocks unwanted spam texts and calls. Norton Security includes 24x7 support by trained support agents who work to remediate any problems.

 

   

LifeLock Identity Theft Protection: Our LifeLock identity theft protection solution provides identity monitoring, alerts, and restoration to our customers. LifeLock puts users in control of their identity elements, including social security numbers, bank accounts, email addresses, physical addresses, driver’s license and phone numbers. The service alerts users on key events and recommends actions to prevent unauthorized access. If an identity theft takes place, LifeLock’s identity experts work with the user to restore their identities, managing interaction with various governmental agencies, financial institutions and merchants - and addressing legal fees, wage loss and associated damages.

 

   

Norton Wi-Fi Privacy: Our Norton Wi-Fi Privacy service offers a protected way to connect to the Internet, encrypting data users send over Internet connections and enhancing levels of privacy online. With this service, users can confidently send private information like passwords, bank details, and credit card numbers when using public Wi-Fi on PC, Mac or mobile device without risk of compromise. Users can also access globally to their favorite

 

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apps, websites and online streaming by changing their virtual location. This service also limits the ability of websites to track users, thereby eliminating persistent personalized ads based on browsing history.

Business Segments, International Operations and Significant Customers

For financial information regarding our Enterprise Security and Consumer Digital Safety segments, revenues and property and equipment by geographical area and significant customers, see Note 14 to the Consolidated Financial Statements in this annual report. For information regarding risks associated with our international operations, see Item 1A, Risk Factors.

Sales and Go-to-Market Strategy

Our go-to-market network includes direct sales forces and broad e-commerce capabilities, as well as indirect sales resources that support our global partner ecosystem. We also maintain strategic relationships with a number of original equipment manufacturers (“OEMs”), Internet service providers (“ISPs”), global service integrators (“GSI”s), wireless carriers, and retail and online stores through which we market and sell our products.

Enterprise

We sell and market our products and services to large enterprises, including business, government and public-sector customers, through our field sales force and reseller channels. Our field sales team leverages our global partner ecosystem, primarily targeting senior executives and IT department personnel responsible for managing a company’s highest-order IT and cyber security initiatives.

We also sell and market our products and services to small, medium and large businesses through field sales and inside sales forces that leverage indirect sales partners around the world, who are specifically trained and certified to sell our solutions. These partners include national solution providers, regional solution providers, national account resellers, global/federal system integrators, and managed service providers.

Our enterprise products and services are also available on our e-commerce platform, as well as through authorized distributors, GSIs and OEMs, who incorporate our technologies into their products, bundle our products with their offerings, or serve as authorized resellers of our products.

Consumer

We sell and market our consumer products and services to individuals, households and small businesses globally. We bring these products to market through direct marketing and co-marketing programs supported by our e-commerce and tele-sales platforms. In addition, we utilize Internet-based resellers, system builders, ISPs, employee benefits providers, wireless carriers, retailers, and OEMs to distribute our offerings worldwide. We drive consumer business growth through global brand and demand campaigns, new customer acquisition, improved retention cross-sell and customer success programs.

Research and Development

Symantec embraces a global research and development strategy to drive organic innovation and product integration across our portfolio. Our engineering and product management teams are focused on delivering new versions of existing product lines as well as developing entirely new products and

 

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services to drive the company’s leadership in cyber security. We also have a technology research organization focused on short, medium, and longer-term applied research projects, with the goal of transferring completed innovations into our product groups for commercialization.

Symantec’s Security Technology and Response organization is a global team of security engineers, threat analysts, and researchers who provide the underlying functionality, content, and support for many of our solutions. These front-line security experts analyze threat telemetry collected through our vast cyber intelligence networks to protect our customers against current and emerging threats. Our research and development teams also leverage these vast data sets and insights to develop new technologies and approaches in order to improve security outcomes for our customers.

Research and development expenses were $956 million, $823 million and $748 million in fiscal 2018, 2017 and 2016, respectively. We believe that technical leadership is essential to our success, and we expect to continue to commit substantial resources to research and development.

Product and Technical Support

Symantec has support facilities throughout the world, staffed by technical product experts knowledgeable in the operating environments in which our products are deployed. Our support experts assist customers with both issue resolution and threat detection.

We provide Enterprise Security customers with various levels of support. Our support program offers annual maintenance support contracts, including content, updates, and technical support. Our essential technical support includes: self-service options, assisted support delivered by telephone or electronically during contracted-for hours, immediate patches for severe problems, periodic software updates, and access to our technical knowledge base and frequently asked questions.

Our Consumer Digital Safety support includes self-help online services and phone, chat, and email support worldwide. Most of our Norton Security products come with automatic downloads of the latest virus definitions, application bug fixes, and patches, as well as a “Virus Protection Promise,” which in some markets provides free virus removal services to customers whose protected computers become infected. Our Consumer Digital Safety service and support offerings come with 24x7x365 support, along with remediation services during normal business hours.

Competition

Our markets are consolidating, highly competitive, and subject to rapid changes in technology. The competitive landscape has changed significantly over the past few years, with new competition arising. Some of the market growth has come from startups that focus on solving a particular issue or delivering a niche-oriented product, and from larger integration providers that increasingly seek to add to or extend their offerings. We focus on delivering comprehensive customer solutions, integrating across our broad product portfolio and partnering with other technology providers to differentiate our offerings and platforms from the competition.

In addition to the competition we face from direct competitors, we face indirect or potential competition from retailers, application providers, operating system providers, network equipment manufacturers and other OEMs who may provide various solutions and functions in their current and future offerings. We compete with these same parties to acquire technologies, products, or companies. We also compete with other software companies in our effort to place our products on the computer equipment sold to consumers and enterprises by OEMs. We compete for access to distribution channels and for spending at the retail level for our consumer offerings and in corporate accounts for our enterprise offerings.

 

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Our Enterprise Security competitors vary by product category, geography, channel and customer size:

 

   

Endpoint security competitors include McAfee LLC (formerly Intel Security, “McAfee”), Microsoft Corporation (“Microsoft”), and Carbon Black, Inc., as well as several point-product competitors, freeware providers and regional security companies.

 

   

Network security competitors include Palo Alto Networks Inc. (“Palo Alto”), FireEye Inc. (“FireEye”), Cisco Systems, Inc. (“Cisco”), McAfee, and Forcepoint LLC (“Forcepoint”), as well as other established and emerging companies.

 

   

Cloud security competitors include Cisco and McAfee (formerly Skyhigh Networks), as well as other established and emerging companies. We expect additional competition as the market for security-as-a-service continues to develop and expand.

 

   

Email security competitors include Proofpoint, Inc. and Microsoft.

 

   

Advanced threat protection competitors include McAfee, Palo Alto, FireEye, International Business Machines Corporation (“IBM”) and Dell EMC, as well as Niksun and Trend Micro. As new IT budgets are created to address next-generation threats, we expect to compete with additional specialized vendors as well as larger vendors that may continue to acquire or bundle their products.

 

   

Information protection competitors include RSA (a Dell Technologies business), McAfee, Forcepoint, Digital Guardian and Microsoft.

 

   

Cyber security services and managed security services competitors include FireEye, IBM, and SecureWorks Corporation, as well as other additional established and emerging companies.

Our Consumer Digital Safety competitors vary by product category, geography and channel. Norton Security competitors include McAfee, Microsoft and Trend Micro. Consumer backup product competitors include Carbonite, Inc. LifeLock identity theft protection competitors include credit bureaus Experian, Equifax, and TransUnion, as well as others including Affinion, EWS, Intersections, and LexisNexis.

We believe that the principal competitive factors necessary to be successful in our industry include product quality and effectiveness, time-to-market, price, reputation, financial stability, breadth of product offerings, customer support, brand recognition, and effective sales and marketing efforts.

Intellectual Property

Protective measures

We regard some of the features of our internal operations, software, and documentation as proprietary and rely on copyright, patent, trademark and trade secret laws, confidentiality procedures, contractual arrangements, and other measures to protect our proprietary information. Our intellectual property is an important and valuable asset that enables us to gain recognition for our products, services, and technology and enhance our competitive position.

As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, distributors, and corporate partners and we enter into license agreements with respect to our software, documentation, and other proprietary information. These license agreements are

 

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generally non-transferable and have either a perpetual or subscription based time limited term. We also educate our employees on trade secret protection and employ measures to protect our facilities, equipment, and networks.

Trademarks, patents, copyrights, and licenses

Symantec, and the Symantec Norton and LifeLock logos, are trademarks or registered trademarks in the U.S. and other countries. In addition, we have used, registered, or applied to register other trademarks and service marks to help distinguish our products, technologies, and services from those of our competitors in the U.S. and other countries. We actively enforce our trademark, service mark, and trade name rights in the U.S. and abroad based on our rights under common law, and various state and federal laws and regulations, as well as rights recognized by international treaties and conventions. The duration of our trademark registrations varies from country to country, and in the U.S. we generally are able to maintain our trademark rights and renew any trademark registrations for as long as the trademarks are in use.

We have approximately 2,225 patents, in addition to foreign patents and pending U.S. and foreign patent applications, which relate to various aspects of our products and technology. The duration of our patents is determined by the laws of the country of issuance and for the U.S. is typically 17 years from the date of issuance of the patent or 20 years from the date of filing of the patent application resulting in the patent, which we believe is adequate relative to the expected lives of our products.

Our products are protected under U.S. and international copyright laws and laws related to the protection of intellectual property and proprietary information. We take measures to label such products with the appropriate proprietary rights notices, and we actively enforce such rights in the U.S. and abroad. However, these measures may not provide sufficient protection, and our intellectual property rights may be challenged. In addition, we license some intellectual property from third parties for use in our products, and generally must rely on the third party to protect the licensed intellectual property rights. While we believe that our ability to maintain and protect our intellectual property rights is important to our success, we also believe that our business as a whole is not materially dependent on any particular patent, trademark, license, or other intellectual property right.

Seasonality

As is typical for many large technology companies, our business is seasonal. Revenues are generally higher in our third and fourth fiscal quarters.

Corporate Responsibility

Our annual Corporate Responsibility Report can be found via the Symantec website at https://www.symantec.com/about/corporate-responsibility.

Audit Committee Investigation Completed

As previously disclosed, the Audit Committee has concluded its internal investigation, which was originally announced in May 2018. Please see Part III, Item 11 “Executive Compensation” — “Executive Compensation and Related Information” — “Compensation Discussion & Analysis” — “Additional Matters — Audit Committee Investigation” for more details.

Employees

As of March 30, 2018, we employed more than 11,800 people worldwide.

 

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Available information

Our Internet home page is located at www.symantec.com. We make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission (“SEC”) on our investor relations website located at www.symantec.com/invest. The information contained, or referred to, on our website is not part of this annual report unless expressly noted. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov. In addition, you may read and copy any filing that we make with the SEC at the public reference room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.

Item 1A. Risk Factors

A description of the risk factors associated with our business is set forth below. The list is not exhaustive and you should carefully consider these risks and uncertainties before investing in our common stock.

A decrease in demand for our solutions could adversely affect our financial results.

We are subject to fluctuations in demand for our solutions due to a variety of factors, including market transitions, general economic conditions, competition, product obsolescence, technological change, shifts in buying patterns, the timing and duration of hardware refresh cycles, financial difficulties and budget constraints of our current and potential customers, public awareness of security threats to IT systems and other factors. While such factors may, in some periods, increase product sales, fluctuations in demand can also negatively impact our sales. If demand for our solutions declines, whether due to general economic conditions, a shift in buying patterns or otherwise, our revenues and margins would likely be adversely affected.

Fluctuations in our quarterly financial results have affected the trading price of our outstanding securities in the past and could affect the trading price of outstanding securities in the future.

Our quarterly financial results have fluctuated in the past and are likely to vary in the future due to a number of factors, many of which are outside of our control. If our quarterly financial results or our predictions of future financial results fail to meet our expectations or the expectations of securities analysts and investors, the trading price of our outstanding securities could be negatively affected. Volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions. Our operating results for prior periods may not be effective predictors of our future performance.

Factors associated with our industry, the operation of our business, and the markets for our solutions may cause our quarterly financial results to fluctuate, including:

 

   

Fluctuations in our revenue due to the transition of our sales contracts to a higher mix of products subject to ratable versus point-in-time revenue recognition;

   

The timing of satisfying revenue recognition criteria, particularly with regard to our enterprise sales transactions, as a result of our adoption of new revenue recognition accounting standards under ASC 606 on March 31, 2018;

   

Fluctuations in demand for our solutions;

   

Entry of new competition into our markets;

   

Competitive pricing pressure for one or more of our classes of our solutions;

 

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Our ability to timely complete the release of new or enhanced versions of our solutions;

   

The timing and extent of significant restructuring charges;

   

The impact of acquisitions and our ability to achieve expected synergies;

   

Fluctuations in foreign currency exchange rates;

   

The number, severity, and timing of threat outbreaks (e.g. worms, viruses, malware, ransomware and other malicious threats) and cyber security incidents (e.g., large scale data breaches);

   

Our resellers making a substantial portion of their purchases near the end of each quarter;

   

Customers’ tendency to negotiate licenses and other agreements near the end of each quarter;

   

Cancellation, deferral, or limitation of orders by customers;

   

Changes in the mix or type of products and subscriptions sold;

   

Our ability to achieve targeted operating income and margins;

   

Movements in interest rates;

   

The rate of adoption of new technologies and new releases of operating systems;

   

Changes in tax laws, rules, and regulations;

   

Weakness or uncertainty in general economic or industry conditions in any of the multiple markets in which we operate that could reduce customer demand and ability to pay for our solutions;

   

Political and military instability caused by war or other events, which could slow spending within our target markets, delay sales cycles, and otherwise adversely affect our ability to generate revenues and operate effectively;

   

The timing of and rate and discounts at which customers replace older versions of our hardware products that reach end of life; and

   

Disruptions in our business operations or target markets caused by, among other things, terrorism or other intentional acts, outbreaks of disease, or earthquakes, floods, or other natural disasters.

Any of the foregoing factors could cause the trading price of our outstanding securities to fluctuate significantly.

Our business depends on customers renewing their arrangements for maintenance, subscriptions, managed security services and cloud-based (“cloud”) offerings.

A large portion of our revenue is derived from arrangements for maintenance, subscriptions, managed security services and cloud offerings, yet customers have no contractual obligation to purchase additional solutions after the initial subscription or contract period. Our customers’ renewal rates, and our customer retention, may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our solutions or our customer support, customer budgets and the pricing of our solutions compared with the solutions offered by our competitors, any of which may cause our revenue to grow more slowly than expected, or to decline. Accordingly, we must invest significant time and resources in providing ongoing value to our customers. If these efforts fail, or if our customers do not renew for other reasons, or if they renew on terms less favorable to us, our revenue may decline and our business will suffer.

Matters relating to or arising from our Audit Committee investigation, including regulatory investigations and proceedings, litigation matters and potential additional expenses, may adversely affect our business and results of operations.

As previously disclosed in our public filings, the Audit Committee of our Board of Directors (the “Audit Committee”) has recently completed an internal investigation (the “Audit Committee Investigation”). In connection with the Audit Committee Investigation, we voluntarily contacted the SEC in May 2018. The SEC commenced a formal investigation and we continue to cooperate with that investigation.

 

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Furthermore, if the SEC commences legal action, we could be required to pay significant penalties and become subject to injunctions, a cease and desist order and other equitable remedies. The completion of the Audit Committee investigation and filing of delinquent periodic reports will not automatically resolve the SEC investigation. We can provide no assurances as to the outcome of any governmental investigation.

We have incurred, and may continue to incur, significant expenses related to legal, accounting, and other professional services in connection with the internal investigation and related legal matters. These expenses, the delay in timely filing our periodic reports, and the diversion of the attention of the management team that has occurred, and is expected to continue, has adversely affected, and could continue to adversely affect, our business and financial condition.

As a result of the matters reported above, we are exposed to greater risks associated with litigation, regulatory proceedings and government enforcement actions. In addition, securities class actions and other lawsuits have been filed against us, our directors and officers (see also, “We are subject to pending securities class action and stockholder derivative legal proceedings” below). Any future investigations or additional lawsuits may adversely affect our business, financial condition, results of operations and cash flows.

We are subject to pending securities class action and stockholder derivative legal proceedings that may adversely affect our business.

Several securities class action and derivative lawsuits were filed against us following our announcement on May 10, 2018 of the Audit Committee Investigation, including an action brought derivatively on behalf of Symantec’s 2008 Employee Stock Purchase Plan. In addition, we have received certain demands from purported stockholders to inspect corporate books and records under Delaware law. No specific amounts of damages have been alleged in these lawsuits. We will continue to incur legal fees in connection with these pending cases, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we will be successful in any defense. If any of the lawsuits related to our Audit Committee Investigation are decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations and cash flows. Further, the amount of time that will be required to resolve these lawsuits is unpredictable and these actions may divert management’s attention from the day-to-day operations of our business, which could further adversely affect our business, results of operations and cash flows.

We have not been in compliance with Nasdaq’s requirements for continued listing and as a result our common stock may be delisted from trading on Nasdaq, which would have a material effect on us and our stockholders.

We were delinquent in the filing of our periodic reports with the SEC and have delayed convening our 2018 Annual Meeting of Stockholders (the “Annual Meeting”), as a result of which we are not in compliance with listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”) Listing Rule 5250(c)(1), which requires timely filing of periodic financial reports with the SEC. Under Nasdaq’s listing rules, we were permitted to submit to Nasdaq a plan to regain compliance with the Nasdaq listing rules. We previously submitted such a plan to the Nasdaq Staff, and Nasdaq has granted us until November 26, 2018 to regain compliance. We expect to file our delinquent Quarterly Reports as promptly as practicable following this Annual Report filing, however there can be no guarantee that we will be able to file by November 26, 2018, in which case our common stock may again be subject to delisting by Nasdaq. If our common stock is delisted, there can no assurance whether or when it would

 

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again be listed for trading on Nasdaq or any other exchange. If our common stock is delisted, the market price of our shares will likely decline and become more volatile, and our stockholders may find that their ability to trade in our stock will be adversely affected. Furthermore, institutions whose charters do not allow them to hold securities in unlisted companies might sell our shares, which could have a further adverse effect on the price of our stock.

The delayed filing of some of our periodic SEC reports has made us currently ineligible to use a registration statement on Form S-3 to register the offer and sale of securities, which could adversely affect our ability to raise future capital or complete acquisitions.

As a result of the delayed filing of some of our periodic reports with the SEC, we will not be eligible to register the offer and sale of our securities using a registration statement on Form S-3 until November 2019 at the earliest. Should we wish to register the offer and sale of our securities to the public prior to the time we are eligible to use Form S-3, both our transaction costs and the amount of time required to complete the transaction could increase, making it more difficult to execute any such transaction successfully and potentially harming our financial condition.

If we are unable to develop new and enhanced solutions that achieve widespread market acceptance, or if we are unable to continually improve the performance, features, and reliability of our existing solutions or adapt our business model to keep pace with industry trends, our competitive position may weaken and our business and operating results could be adversely affected.

Our future success depends on our ability to effectively respond to the rapidly changing needs of our customers, as well as competitive technological developments and industry changes by developing or introducing new and enhanced solutions on a timely basis.

We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. If we are unable to anticipate or react to competitive challenges or if existing or new competitors gain market share in any of our markets, our competitive position could weaken, and we could experience a decline in our sales that could adversely affect our business and operating results. Additionally, we must continually address the challenges of dynamic and accelerating market trends and competitive developments, such as the emergence of advanced persistent threats in the security space, the continued decline in the PC market and the market shift towards mobility and the increasing transition towards cloud-based solutions, all of which continue to make it more difficult for us to compete effectively. For example, although we have been investing heavily in solutions that address the cloud security market, we cannot be certain that it will develop at a rate or in the manner we expect or that we will be able to compete successfully with new entrants or more established competitors. Customers may require features and capabilities that our current solutions do not have. Our failure to develop new solutions and improve our existing solutions that satisfy customer preferences and effectively compete with other market offerings in a timely and cost-effective manner may harm our ability to renew our subscriptions with existing customers and to create or increase demand for our solutions, which may adversely impact our operating results. The development and introduction of new solutions involves a significant commitment of time and resources and are subject to a number of risks and challenges including:

 

   

Lengthy development cycles;

   

Evolving industry standards and technological developments by our competitors and customers;

   

Evolving platforms, operating systems and hardware products, such as mobile devices, and related product and service interoperability challenges;

   

Entering into new or unproven markets;

   

Executing new product and service strategies;

 

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Trade compliance difficulties;

   

Developing or expanding efficient sales channels; and

   

Obtaining sufficient licenses to technology and technical access to operating system software.

If we are not successful in managing these risks and challenges, or if our new or improved solutions are not technologically competitive or do not achieve market acceptance, our business and operating results could be adversely affected.

If we are unable to attract and retain qualified employees, lose key personnel, fail to integrate replacement personnel successfully, or fail to manage our employee base effectively, we may be unable to develop new and enhanced solutions, effectively manage or expand our business, or increase our revenues.

Our future success depends upon our ability to recruit and retain key management, technical, sales, marketing, finance and other personnel. Our officers and other key personnel are employees-at-will, and we cannot assure you that we will be able to retain them. Competition for people with the specific skills that we require is significant, especially in and around our headquarters in Silicon Valley, and we face difficulties in attracting, retaining and motivating employees as a result. In order to attract and retain personnel in a competitive marketplace, we believe that we must provide a competitive compensation package, including cash and equity-based compensation. Additionally, changes in immigration laws could impair our ability to attract and retain highly qualified employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could suffer. The volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. In addition, we may be unable to obtain required stockholder approvals of future increases in the number of shares required for issuance under our equity compensation plans. As a result, we may issue fewer equity-based incentives and may be impaired in our efforts to attract and retain necessary personnel. If we are unable to hire and retain qualified employees, or conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our business and operating results could be adversely affected.

Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. From time to time, key personnel leave our company. Although we strive to reduce the negative impact of changes in our leadership, the loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, the effectiveness of our disclosure controls and procedures, our internal control over financial reporting, and our results of operations. In addition, hiring, training, and successfully integrating replacement sales and other personnel could be time consuming and expensive, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future financial results. These risks may be exacerbated by the uncertainty associated with the acquisitions, divestitures and transitions we have experienced over the last few years.

We operate in a highly competitive environment, and our competitors may gain market share in the markets for our solutions that could adversely affect our business and cause our revenues to decline.

We operate in intensely competitive markets that experience rapid technological developments, changes in industry standards, changes in customer requirements and frequent new product introductions and improvements. If we are unable to anticipate or react to these competitive challenges or if existing or new competitors gain market share in any of our markets, our competitive position could weaken and we could experience a decline in our sales that could adversely affect our business

 

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and operating results. To compete successfully, we must maintain an innovative research and development effort to develop new solutions and enhance our existing solutions, effectively adapt to changes in the technology or product rights held by our competitors, appropriately respond to competitive strategies and effectively adapt to technological changes and changes in the ways that our information is accessed, used and stored within our enterprise and consumer markets. If we are unsuccessful in responding to our competitors or to changing technological and customer demands, our competitive position and our financial results could be adversely affected.

Our competitors include software and cloud-based vendors that offer solutions that directly compete with our offerings. In addition to competing with these vendors directly for sales to end-users of our solutions, we compete with them for the opportunity to have our solutions bundled with the offerings of our strategic partners such as computer hardware OEMs and ISPs. Our competitors could gain market share from us if any of these strategic partners replace our solutions with those of our competitors or if these partners more actively promote our competitors’ solutions than our own. In addition, software and cloud-based vendors who have bundled our solutions with theirs may choose to bundle their solutions with their own or other vendors’ solutions or may limit our access to standard interfaces and inhibit our ability to develop solutions for their platform. In the future, further product development by these vendors could cause our solutions to become redundant, which could significantly impact our sales and financial results.

We face growing competition from network equipment, computer hardware manufacturers, large operating system providers and other technology companies, as well as from companies in the identity threat protection space such as credit bureaus. Many of these competitors are increasingly developing and incorporating into their products data protection software that competes at some levels with our offerings. Our competitive position could be adversely affected to the extent that our customers perceive the functionality incorporated into these products as replacing the need for our solutions.

Security protection is also offered by some of our competitors at prices lower than our prices or, in some cases is offered free of charge. Some companies offer lower-priced or free security products within their computer hardware or software products. Our competitive position could be adversely affected to the extent that our customers perceive these lower cost or free security products as replacing the need for more effective, full featured solutions, such as those that we provide. The expansion of these competitive trends could have a significant negative impact on our sales and operating results by causing, among other things, price reductions of our solutions, reduced profitability and loss of market share.

Many of our competitors have greater financial, technical, sales, marketing or other resources than we do and consequently, may have the ability to influence customers to purchase their products instead of ours. Further consolidation within our industry or other changes in the competitive environment could result in larger competitors that compete with us on several levels. We also face competition from many smaller companies that specialize in particular segments of the markets in which we compete.

Our cloud offerings present execution and competitive risks.

Our cloud offerings are critical to our business. Our competitors are rapidly developing and deploying cloud offerings for consumers and business customers. Pricing and delivery models are evolving. Devices and form factors influence how users access services in the cloud. We have made and are continuing to make significant investments in, and devoting significant resources to develop and deploy, our own cloud strategies. We cannot assure you that our ongoing investments in and development of cloud offerings will achieve the expected returns for us or that we will be able to compete successfully in the marketplace. In addition to software development costs, we are incurring significant costs to build and maintain infrastructure to support cloud offerings. These costs may

 

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reduce the operating margins we have previously achieved. Whether we are successful in this business model depends on our execution in a number of areas, including:

 

   

Continuing to innovate and bring to market compelling cloud-based solutions that generate increasing traffic and market share; and

   

Ensuring that our cloud offerings meet the reliability expectations of our customers and maintain the security of their data.

Over the long term we intend to invest in research and development activities, and these investments may achieve delayed, or lower than expected, benefits which could harm our operating results.

While we continue to focus on managing our costs and expenses, over the long term, we also intend to invest significantly in research and development activities as we focus on organic growth through internal innovation in each of our business segments. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position, and that the level of these investments will increase in future periods. We recognize the costs associated with these research and development investments earlier than the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.

Changes in industry structure and market conditions could lead to charges related to discontinuance of certain of our products or businesses and asset impairments.

In response to changes in industry structure and market conditions, we may be required to strategically reallocate our resources and consider restructuring, disposing of or otherwise exiting certain businesses. Any decision to limit investment in or dispose of or otherwise exit businesses may result in the recording of special charges, such as inventory and technology-related write-offs, workforce reduction costs, charges relating to consolidation of excess facilities or claims from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of our carrying basis of assets, including purchased intangible assets, could change as a result of such assessments and decisions. Although in certain instances our supply agreements allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed, our loss contingencies may include liabilities for contracts that we cannot cancel, reschedule or adjust with contract manufacturers and suppliers.

Further, our estimates relating to the liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, we are required to evaluate goodwill impairment on an annual basis and between annual evaluations in certain circumstances, and future goodwill impairment evaluations may result in a charge to earnings.

We may need to change our pricing models to compete successfully.

The intense competition we face, in addition to general and economic business conditions, can put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions or develop products or support offerings that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect our operating results.

Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as our sales force implements and our customers adjust to the new pricing policies. We or our competitors may bundle solutions for promotional purposes or as a long-term go-to-market or

 

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pricing strategy or provide guarantees of prices. These practices could, over time, significantly constrain the prices that we can charge for certain of our offerings.

Defects, disruptions or risks related to our cloud offerings could impair our ability to deliver our services and could expose us to liability, damage our brand and reputation or otherwise negatively impact our business.

Our cloud offerings may contain errors or defects that users identify after they begin using them that could result in unanticipated service interruptions, which could harm our reputation and our business. Since our customers use our cloud offerings for mission-critical protection from threats to electronic information, endpoint devices, and computer networks, any errors, defects, disruptions in service or other performance problems with our cloud offerings could significantly harm our reputation and may damage our customers’ businesses. If any such performance problems occur, customers could elect not to renew, or delay or withhold payment to us, we could lose future sales or customers may make warranty or other claims against us, which could result in an increase in our provision for doubtful accounts or warranty, an increase in collection cycles for accounts receivable or the expense and risk of litigation.

We currently serve our cloud-based customers from hosting facilities, including third-party hosting facilities, located across the globe. Damage to, or failure of, any significant element of these hosting facilities could result in interruptions in our service, which could harm our customers and expose us to liability. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in the delivery of our solutions. Interruptions or failures in our service delivery could cause customers to terminate their subscriptions with us, could adversely affect our renewal rates, and could harm our ability to attract new customers. Our business would also be harmed if our customers believe that our cloud offerings are unreliable.

Our solutions are complex and operate in a wide variety of environments, systems, applications and configurations, which could result in failures of our solutions to function as designed.

Because we offer very complex solutions, undetected errors, failures or bugs may occur, especially when solutions are first introduced or when new versions are released. Our products are often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations, which may cause errors or failures in our solutions or may expose undetected errors, failures, or bugs in our solutions. Our customers’ computing environments are often characterized by a wide variety of standard and non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time-consuming. In addition, despite testing by us and others, errors, failures, or bugs may not be found in new solutions or releases until after they are delivered to customers. In the past, we have discovered software errors, failures, and bugs in certain of our solutions after their introduction and, in some cases, have experienced delayed or lost revenues as a result of these errors.

Errors, failures, or bugs in solutions released by us could result in negative publicity, damage to our brand and reputation, returns, loss of or delay in market acceptance of our products, loss of competitive position, or claims by customers or others. Many of our end-user customers use our solutions in applications that are critical to their businesses and may have a greater sensitivity to defects in our solutions than to defects in other, less critical, software products. In addition, if an actual or perceived breach of information integrity, security or availability occurs in one of our end-user customer’s systems, regardless of whether the breach is attributable to our products, the market perception of the effectiveness of our solutions could be harmed. Alleviating any of these problems could require significant expenditures, our capital and other resources and could cause interruptions,

 

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delays, or cessation of our licensing, which could cause us to lose existing or potential customers and could adversely affect our operating results.

Our products, solutions, cloud offerings, systems and website may be subject to intentional disruption that could adversely impact our reputation and future sales.

Despite our precautions and significant ongoing investments to protect against security risks, data protection breaches, cyber-attacks and other intentional disruptions of our solutions, we expect to be an ongoing target of attacks specifically designed to impede the performance and availability of our offerings and harm our reputation as a company. Similarly, experienced computer programmers or other sophisticated individuals or entities may attempt to penetrate our network security or the security of our systems and website and misappropriate proprietary information or cause interruptions of our services, including the operation of our global civilian cyber intelligence threat network. While we invest and devote significant resources to maintain and continually enhance and update our methods to detect and alert us to such breaches, attacks and disruptions, these efforts may not be sufficient, even with rapid detection, to prevent the damage such a breach of our products, solutions, cloud offerings, systems, and website may cause.

Our inability to successfully recover from a disaster or other business continuity event could impair our ability to deliver our products and services and harm our business.

We are heavily reliant on our technology and infrastructure to provide our products and services to our customers. For example, we host many of our products using third-party data center facilities and we do not control the operation of these facilities. These facilities are vulnerable to damage, interruption or performance problems from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in the delivery of our products and services.

Furthermore, our business administration, human resources and finance services depend on the proper functioning of our computer, telecommunication and other related systems and operations. A disruption or failure of these systems or operations because of a disaster or other business continuity event could cause data to be lost or otherwise delay our ability to complete sales and provide the highest level of service to our customers. In addition, we could have difficulty producing accurate financial statements on a timely basis, which could adversely affect the trading value of our stock. Although we endeavor to ensure there is redundancy in these systems and that they are regularly backed-up, there are no assurances that data recovery in the event of a disaster would be effective or occur in an efficient manner, including the operation of our global civilian cyber intelligence threat network.

Any errors, defects, disruptions or other performance problems with our products and services could harm our reputation and may damage our customers’ businesses. For example, we may experience disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously, fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our products and services, including the operation of our global civilian cyber intelligence threat network, could impact our revenues or cause customers to cease doing business with us. In addition, our business would be harmed if any of events of this nature caused our customers and potential customers to believe our services are unreliable. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business

 

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continuity events that could have a significant disruptive effect on our operations. We could potentially lose customer data or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster recovery scenario.

We collect, use, disclose, store or otherwise process personal information, which subjects us to privacy and data security laws and contractual commitments, and our actual or perceived failure to comply with such laws and commitments could harm our business.

We collect, use, store or disclose (collectively, “process”) an increasingly large amount of personal information, including from employees and customers, in connection with the operation of our business, particularly in relation to our identity and fraud protection offerings. We process an increasingly high volume, variety and velocity of personal information as a result of our identity and fraud protection offerings that rely on large data repositories of personal information and consumer transactions. The personal information we process is subject to an increasing number of federal, state, local and foreign laws regarding privacy and data security, as well as contractual commitments. Any failure or perceived failure by us to comply with such obligations may result in governmental enforcement actions, fines, litigation, or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Additionally, changes to applicable privacy or data security laws could impact how we process personal information, and therefore limit the effectiveness of our solutions or our ability to develop new solutions. For example, the European Union General Data Protection Regulation, which becomes fully effective on May 25, 2018, imposes more stringent data protection requirements, and provides for greater penalties for noncompliance of up to the greater of 20 million or four percent of worldwide annual revenues. Our customers may also accidentally disclose their passwords or store them on a device that is lost or stolen, creating the perception that our systems are not secure against third-party access.

Additionally, third parties with whom we work, such as vendors or developers, may violate applicable laws or our policies and such violations can place personal information of our customers at risk. This could have an adverse effect on our reputation and business. In addition, such third parties could be the target of cyberattack and other data breaches which could impact our systems or our customers’ records.

Our acquisitions and divestitures create special risks and challenges that could adversely affect our financial results.

As part of our business strategy, we may acquire or divest businesses or assets. These activities can involve a number of risks and challenges, including:

 

   

Complexity, time and costs associated with managing these transactions, including the integration of acquired business operations, workforce, products, IT systems and technologies;

   

Diversion of management time and attention;

   

Loss or termination of employees, including costs associated with the termination or replacement of those employees;

   

Assumption of liabilities of the acquired business or assets, including litigation related to the acquired business or assets;

   

The addition of acquisition-related debt;

   

Increased or unexpected costs and working capital requirements;

   

Dilution of stock ownership of existing stockholders;

   

Unanticipated delays or failure to meet contractual obligations; and

   

Substantial accounting charges for acquisition-related costs, amortization of intangible assets, and higher levels of stock-based compensation expense.

 

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We have invested and continue to invest and devote significant resources in the integration of businesses we acquire, including our August 2016 acquisition of Blue Coat, Inc. (“Blue Coat”) and February 2017 acquisition of LifeLock, Inc. (“Life Lock”). The success of each acquisition depends in part on our ability to realize the anticipated business opportunities, including certain cost savings and operational efficiencies or synergies and growth prospects from integrating these businesses in an efficient and effective manner. If integration of our acquired businesses is not successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects. To integrate acquired businesses, we must integrate and manage the personnel and business systems of the acquired operations. We also must effectively integrate the different cultures of acquired business organizations into our own in a way that aligns various interests, and may need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions. Moreover, to be successful, large complex acquisitions depend on large-scale product, technology and sales force integrations that are difficult to complete on a timely basis or at all, and may be more susceptible to the special risks and challenges described above.

In addition, we have in the past, and may in the future, divest businesses, product lines or assets. For example, in January 2016 we completed the sale of Veritas, and in October 2017 we divested our WSS and PKI solutions. These and similar initiatives may require significant separation activities that could result in the diversion of management’s time and attention, loss of employees, substantial separation costs and accounting charges for asset impairments.

Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of profitability or other financial benefits from our acquired or divested businesses, product lines or assets or to realize other anticipated benefits of divestitures or acquisitions.

If we fail to manage our sales and distribution channels effectively, or if our partners choose not to market and sell our solutions to their customers, our operating results could be adversely affected.

We sell our solutions to customers around the world through multi-tiered sales and distribution networks.

Sales through these different channels involve distinct risks, including the following:

Direct Sales. A significant portion of our revenues from enterprise products is derived from sales by our direct sales force to end-users. Risks associated with direct sales include:

 

   

Longer sales cycles associated with direct sales efforts;

   

Difficulty in hiring, retaining, and motivating our direct sales force, particularly through periods of transition in our organization;

   

Substantial amounts of training for sales representatives to become productive in selling our solutions, including regular updates to our products, and associated delays and difficulties in recognizing the expected benefits of investments in new products and updates;

   

Increased administrative costs in processing orders and increased credit risk in pursuing payment from each end user; and

   

Increased responsibility for custom and export activities that may result in added costs.

Indirect Sales Channels. A significant portion of our revenues is derived from sales through indirect channels, including distributors that sell our products to end-users and other resellers. This channel involves a number of risks, including:

 

   

Our resellers and distributors are generally not subject to minimum sales requirements or any obligation to market our solutions to their customers;

 

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Our reseller and distributor agreements are generally nonexclusive and may be terminated at any time without cause;

   

Our lack of control over the timing of delivery of our solutions to end-users;

   

Our resellers and distributors may violate applicable law or regulatory requirements or otherwise cause damage to our reputation through their actions;

   

Our resellers and distributors frequently market and distribute competing solutions and may, from time to time, place greater emphasis on the sale of these solutions due to pricing, promotions, and other terms offered by our competitors; and

   

Any consolidation of electronics retailers can continue to increase their negotiating power with respect to hardware and software providers such as us.

OEM Sales Channels. A portion of our revenues is derived from sales through our OEM partners that incorporate our products into, or bundle our products with, their products. Our reliance on this sales channel involves many risks, including:

 

   

Our lack of control over the volume of products delivered and the timing of such delivery;

   

Most of our OEM partners are not subject to minimum sales requirements. Generally our OEM partners do not have any obligation to market our products to their customers;

   

Our OEM partners may terminate or renegotiate their arrangements with us and new terms may be less favorable due to competitive conditions in our markets and other factors;

   

Sales through our OEM partners are subject to changes in general economic conditions, strategic direction, competitive risks, and other issues that could result in a reduction of OEM sales;

   

The development work that we must generally undertake under our agreements with our OEM partners may require us to invest significant resources and incur significant costs with little or no assurance of ever receiving associated revenues;

   

The time and expense required for the sales and marketing organizations of our OEM partners to become familiar with our solutions may make it more difficult to introduce those solutions to the market; and

   

Our OEM partners may develop, market, and distribute their own solutions and market and distribute products of our competitors, which could reduce our sales.

If we fail to manage our sales and distribution channels successfully, these channels may conflict with one another or otherwise fail to perform as we anticipate, which could reduce our sales and increase our expenses as well as weaken our competitive position. Some of our distribution partners have experienced financial difficulties in the past, and if our partners suffer financial difficulties in the future because of general economic conditions or for other reasons, these partners may delay paying their obligations to us and we may have reduced revenues or collections that could adversely affect our operating results. In addition, reliance on multiple channels subjects us to events that could cause unpredictability in demand, which could increase the risk that we may be unable to plan effectively for the future, and could adversely affect our operating results.

We face heightened regulation in our Consumer Digital Safety segment, which could impede our ability to market and provide our solutions or adversely affect our business, financial position and results of operations.

We are subject to heightened regulation in our Consumer Digital Safety segment as a result of the sale of our identity and information protection products, which we began selling at the end of fiscal 2017 as a result of our acquisition of LifeLock , including a wide variety of federal, state, and local laws and regulations, including the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Federal Trade Commission Act (“FTC Act”), and comparable state laws that are patterned after the FTC Act. Moreover, LifeLock entered into consent decrees and similar arrangements with the Federal Trade

 

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Commission (the “FTC”) and 35 states’ attorneys general in 2010, and a settlement with the FTC in 2015 relating to allegations that certain of LifeLock’s advertising and marketing practices constituted deceptive acts or practices in violation of the FTC Act, which impose additional restrictions on the LifeLock business, including prohibitions against making any misrepresentation of “the means, methods, procedures, effects, effectiveness, coverage, or scope of” LifeLock’s identity theft protection services. Any of the laws and regulations that apply to our business are subject to revision or new or changed interpretations, and we cannot predict the impact of such changes on our business.

Additionally, the nature of our identity and information protection products subjects us to the broad regulatory, supervisory, and enforcement powers of the Consumer Financial Protection Bureau (CFPB) which may exercise authority with respect to our services, or the marketing and servicing of those services, by overseeing our financial institution or credit reporting agency customers and suppliers, or by otherwise exercising its supervisory, regulatory, or enforcement authority over consumer financial products and services.

Our international operations involve risks that could increase our expenses, adversely affect our operating results, and require increased time and attention of our management.

We derive a substantial portion of our revenues from customers located outside of the U.S. and we have significant operations outside of the U.S., including engineering, sales, customer support, and production. Our international operations are subject to risks in addition to those faced by our domestic operations, including:

 

   

Potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;

   

Requirements of foreign laws and other governmental controls, including tariffs, trade barriers and labor restrictions and related laws that reduce the flexibility of our business operations;

   

Potential changes in trade relations arising from policy initiatives or other political factors;

   

Regulations or restrictions on the use, import, or export of encryption technologies that could delay or prevent the acceptance and use of encryption products and public networks for secure communications;

   

Local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;

   

Central bank and other restrictions on our ability to repatriate cash from our international subsidiaries or to exchange cash in international subsidiaries into cash available for use in the U.S.;

   

Fluctuations in currency exchange rates, economic instability and inflationary conditions could reduce our customers’ ability to obtain financing for software products or could make our products more expensive or could increase our costs of doing business in certain countries;

   

Limitations on future growth or inability to maintain current levels of revenues from international sales if we do not invest sufficiently in our international operations;

   

Longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;

   

Difficulties in staffing, managing, and operating our international operations;

   

Difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;

   

Seasonal reductions in business activity in the summer months in Europe and in other periods in other countries;

   

Costs and delays associated with developing software and providing support in multiple languages; and

 

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Political unrest, war, or terrorism, or regional natural disasters, particularly in areas in which we have facilities.

A significant portion of our transactions outside of the U.S. is denominated in foreign currencies. Accordingly, our revenues and expenses will continue to be subject to fluctuations in foreign currency rates. We have in the past and expect in the future to be affected by fluctuations in foreign currency rates, especially if international sales continue to grow as a percentage of our total sales or our operations outside the U.S. continue to increase.

If we fail to accurately predict our manufacturing requirements and manage our supply chain we could incur additional costs or experience manufacturing delays that could harm our business.

We generally provide forecasts of our requirements to our supply chain partners on a rolling basis. If our forecast exceeds our actual requirements, a supply chain partner may assess additional charges or we may have liability for excess inventory, each of which could negatively affect our gross margin. If our forecast is less than our actual requirements, the applicable supply chain partner may have insufficient time or components to produce or fulfill our product requirements, which could delay or interrupt manufacturing of our products or fulfillment of orders for our products, and result in delays in shipments, customer dissatisfaction, and deferral or loss of revenue. Further, we may be required to purchase sufficient inventory to satisfy our future needs in situations where a component or product is being discontinued. If we fail to accurately predict our requirements, we may be unable to fulfill those orders or we may be required to record charges for excess inventory. Any of the foregoing could adversely affect our business, financial condition or results of operations.

We are dependent on original design manufacturers, contract manufacturers and third-party logistics providers to design and manufacture our hardware-based products and to fulfill orders for our hardware-based products.

We depend primarily on original design manufacturers (each of which is a third-party original design manufacturer for numerous companies) to co-design and co-develop the hardware platforms for our products. We also depend on independent contract manufacturers (each of which is a third-party contract manufacturer for numerous companies) to manufacture and fulfill our hardware-based products. These supply chain partners are not committed to design or manufacture our products, or to fulfill orders for our products, on a long-term basis in any specific quantity or at any specific price. In addition, certain of our products or key components of our products are currently manufactured by a single third-party supplier. There are alternative suppliers that could provide components, as our agreements do not provide for exclusivity or minimum purchase quantities, but the transition and qualification from one supplier to another could be lengthy, costly and difficult. Also, from time to time, we may be required to add new supply chain partner relationships or new manufacturing or fulfillment sites to accommodate growth in orders or the addition of new products. It is time consuming and costly to qualify and implement new supply chain partner relationships and new manufacturing or fulfillment sites, and such additions increase the complexity of our supply chain management. Our ability to ship products to our customers could be delayed, and our business and results of operations could be adversely affected if we fail to effectively manage our supply chain partner relationships; if one or more of our original design manufacturers does not meet our development schedules; if one or more of our independent contract manufacturers experiences delays, disruptions or quality control problems in manufacturing our products; if one or more of our third-party logistics providers experiences delays or disruptions or otherwise fails to meet our fulfillment schedules; or if we are required to add or replace original design manufacturers, independent contract manufacturers, third-party logistics providers or fulfillment sites.

 

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In addition, these supply chain partners have access to certain of our critical confidential information and could wrongly disclose or misuse such information or be subject to a breach or other compromise that introduces a vulnerability or other defect in the products manufactured by our supply chain partners. While we take precautions to ensure that hardware manufactured by our independent contractors is reviewed, any espionage acts, malware attacks, theft of confidential information or other malicious cyber incidents perpetrated either directly or indirectly through our independent contractors, may compromise our system infrastructure, expose us to litigation and associated expenses and lead to reputational harm that could result in a material adverse effect on our financial condition and operating results. In addition, we are subject to risks resulting from the perception that certain jurisdictions, including China, do not comply with internationally recognized rights of freedom of expression and privacy and may permit labor practices that are deemed unacceptable under evolving standards of social responsibility. If manufacturing or logistics in these foreign countries is disrupted for any reason, including natural disasters, IT system failures, military or government actions or economic, business, labor, environmental, public health, or political issues, or if the purchase or sale of products from such foreign countries is prohibited or disfavored, our business, financial condition and results of operations could be adversely affected.

If we do not protect our proprietary information and prevent third parties from making unauthorized use of our products and technology, our financial results could be harmed.

Most of our software and underlying technology is proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and procedures and through copyright, patent, trademark and trade secret laws. However, these measures afford only limited protection and may be challenged, invalidated or circumvented by third parties. Third parties may copy all or portions of our products or otherwise obtain, use, distribute, and sell our proprietary information without authorization.

Third parties may also develop similar or superior technology independently by designing around our patents. Our shrink-wrap license agreements are not signed by licensees and therefore may be unenforceable under the laws of some jurisdictions. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as the laws of the U.S., and we may be subject to unauthorized use of our products in those countries. The unauthorized copying or use of our products or proprietary information could result in reduced sales of our products. Any legal action to protect proprietary information that we may bring or be engaged in with a strategic partner or vendor could adversely affect our ability to access software, operating system, and hardware platforms of such partner or vendor, or cause such partner or vendor to choose not to offer our products to their customers. In addition, any legal action to protect proprietary information that we may bring or be engaged in, could be costly, may distract management from day-to-day operations, and may lead to additional claims against us, which could adversely affect our operating results.

From time to time we are a party to lawsuits and investigations, which typically require significant management time and attention and result in significant legal expenses, and which could negatively impact our business, financial condition, results of operations, and cash flows.

We have initiated and been named as a party to lawsuits, including patent litigation, class actions and governmental claims and we may be named in additional litigation. The expense of initiating and defending, and in some cases settling, such litigation may be costly and divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations, and cash flows. In addition, an unfavorable outcome in such litigation could result in significant fines, settlements, monetary damages or injunctive relief that could negatively impact our ability to conduct our business, results of operations, and cash flows.

 

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Third parties claiming that we infringe their proprietary rights could cause us to incur significant legal expenses and prevent us from selling our products.

From time to time, third parties may claim that we have infringed their intellectual property rights, including claims regarding patents, copyrights, and trademarks. Because of constant technological change in the segments in which we compete, the extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. In addition, former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us confidential or proprietary information of these former employers. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of, or redesign our products, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our customers. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. We have made and expect to continue making significant expenditures to investigate, defend and settle claims related to the use of technology and intellectual property rights as part of our strategy to manage this risk.

In addition, we license and use software from third parties in our business. These third-party software licenses may not continue to be available to us on acceptable terms or at all, and may expose us to additional liability. This liability, or our inability to use any of this third-party software, could result in delivery delays or other disruptions in our business that could materially and adversely affect our operating results.

Changes to our effective tax rate could increase our income tax expense and reduce (increase) our net income (loss).

Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:

 

   

Changes to the U.S. federal income tax laws, including impacts of the recently enacted Tax Cuts and Jobs Act (H.R.1) (the “Act”) and future interpretations of the Act, the consequences of which have not yet been fully determined;

   

Changes to other tax laws, regulations, and interpretations in multiple jurisdictions in which we operate, including actions resulting from the Organisation for Economic Co-operation and Development’s base erosion and profit shifting project, proposed actions by international bodies, as well as the requirements of certain tax rulings;

   

Changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

   

The tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods; and

   

Tax assessments, or any related tax interest or penalties that could significantly affect our income tax expense for the period in which the settlements take place.

We report our results of operations based on our determination of the aggregate amount of taxes owed in the tax jurisdictions in which we operate. From time to time, we receive notices that a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have reported to such authority. We are regularly engaged in discussions and sometimes disputes with these tax authorities. If the ultimate determination of our taxes owed in any of these jurisdictions is for an amount in excess of the tax provision we have recorded or reserved for, our operating results, cash flows, and financial condition could be adversely affected.

 

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We cannot predict our future capital needs and we may be unable to obtain financing, which could have a material adverse effect on our business, results of operations and financial condition.

Adverse economic conditions or a change in our business performance may make it more difficult to obtain financing for our operations, investing activities (including potential acquisitions or divestitures) or financing activities. Any required financing may not be available on terms acceptable to us, or at all. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our financial or operational flexibility, and would also require us to fund additional interest expense. If additional financing is not available when required or is not available on acceptable terms, we may be unable to successfully develop or enhance our software and services through acquisitions in order to take advantage of business opportunities or respond to competitive pressures, which could have a material adverse effect on our software and services offerings, revenues, results of operations and financial condition.

Failure to maintain our credit ratings could adversely affect our liquidity, capital position, ability to hedge certain financial risks, borrowing costs and access to capital markets.

Our credit risk is evaluated by the major independent rating agencies, and such agencies have in the past and could in the future downgrade our ratings. We cannot assure you that we will be able to maintain our current credit ratings, and any additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, may have a negative impact on our liquidity, capital position, ability to hedge certain financial risks and access to capital markets. In addition, changes by any rating agency to our outlook or credit rating could increase the interest we pay on outstanding or future debt.

There are risks associated with our outstanding and future indebtedness that could adversely affect our financial condition.

As of March 30, 2018, we had an aggregate of $5.1 billion of outstanding indebtedness that will mature in calendar years 2018 through 2025, including approximately $4.0 billion in aggregate principal amount of existing senior notes and $1.1 billion of outstanding term loans under our senior credit facilities, and we may incur additional indebtedness in the future and/or enter into new financing arrangements. In addition, as of March 30, 2018, we had $1.0 billion available for borrowing under our revolving credit facility. Our ability to meet expenses, to remain in compliance with the covenants under our debt instruments and to pay interest and repay principal for our substantial level of indebtedness depends on, among other things, our operating performance, competitive developments and financial market conditions, all of which are significantly affected by financial, business, economic and other factors. We are not able to control many of these factors. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on our debt, including the notes, and meet our other obligations.

Our substantial level of indebtedness could have important consequences, including the following:

 

   

We must use a substantial portion of our cash flow from operations to pay interest and principal on the term loans and revolving credit facility and our existing senior notes and other indebtedness, which reduces funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes and potential acquisitions;

   

We may be unable to refinance our indebtedness or to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes;

   

We are exposed to fluctuations in interest rates because borrowings under our senior credit facilities bear interest at variable rates;

 

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Our leverage may be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in responding to current and changing industry and financial market conditions;

   

We may be more vulnerable to an economic downturn and adverse developments in our business;

   

We may be unable to comply with financial and other covenants in our debt agreements, which could result in an event of default that, if not cured or waived, may result in acceleration of certain of our debt and would have an adverse effect on our business and prospects and could force us into bankruptcy or liquidation; and

   

Changes by any rating agency to our outlook or credit rating could negatively affect the value of our debt and and/or our common stock, adversely affect our access to debt markets, and increase the interest we pay on outstanding or future debt.

There can be no assurance that we will be able to manage any of these risks successfully.

In addition, we conduct a significant portion of our operations through our subsidiaries, which are generally not guarantors of our debt. Accordingly, repayment of our indebtedness will be dependent in part on the generation of cash flow by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment or otherwise. In general, our subsidiaries will not have any obligation to pay amounts due on our debt or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make the required principal and interest payments on our indebtedness.

Our existing credit agreements impose operating and financial restrictions on us.

The existing credit agreements contain covenants that limit our ability and the ability of our restricted subsidiaries to:

 

   

Incur additional debt;

   

Create liens on certain assets to secure debt;

   

Enter into certain sale and leaseback transactions;

   

Pay dividends on or make other distributions in respect of our capital stock or make other restricted payments; and

   

Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.

All of these covenants may adversely affect our ability to finance our operations, meet or otherwise address our capital needs, pursue business opportunities, react to market conditions or otherwise restrict activities or business plans. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and, to the extent such indebtedness is secured in the future, proceed against any collateral securing that indebtedness.

Some of our products contain “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

Certain of our products are distributed with software licensed by its authors or other third parties under so-called “open source” licenses, which may include, by way of example, the GNU General Public License, GNU Lesser General Public License, the Mozilla Public License, the BSD License, and the Apache License.

 

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Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software if we combine our proprietary software with open source software in a certain manner. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source, but we cannot be sure that all open source is submitted for approval prior to use in our products. In addition, many of the risks associated with usage of open source cannot be eliminated, and could, if not properly addressed, negatively affect our business.

Our contracts with the U.S. government include compliance, audit and review obligations. Any failure to meet these obligations could result in civil damages and/or penalties being assessed against us by the government.

We sell products and services through government contracting programs directly and via partners, though we no longer hold a GSA contract. In the ordinary course of business, sales under these government contracting programs may be subject to audit or investigation by the U.S. government. Noncompliance identified as a result of such reviews (as well as noncompliance identified on our own) could subject us to damages and other penalties, which could adversely affect our operating results and financial condition.

Item 1B. Unresolved Staff Comments

There are no unresolved issues with respect to any Commission staff’s written comments that were received at least 180 days before the end of our fiscal year to which this report relates and that relate to our periodic or current reports under the Exchange Act.

Item 2. Properties

Our properties consist primarily of owned and leased office facilities for sales, research and development, administrative, customer service and technical support personnel. Our corporate headquarters is located in Mountain View, California where we occupy facilities totaling approximately 734,000 square feet, of which 723,000 square feet is owned and 11,000 square feet is leased. Our leased facilities are occupied under agreements that expire on various dates through fiscal 2029. The following table presents the approximate square footage of our facilities as of March 30, 2018:

 

     Approximate Square
Footage (1)
 
(In thousands)    Owned      Leased  

Americas (U.S., Canada and Latin America)

     1,402        746  

EMEA (Europe, Middle East and Africa)

     163        227  

APJ (Asia Pacific and Japan)

     -        945  
  

 

 

    

 

 

 

Total approximate square footage

     1,565        1,918  
  

 

 

    

 

 

 

 

(1) 

Included in the total approximate square footage above are vacant and available-for-lease properties totaling approximately 151,000 square feet. Total square footage excludes approximately 664,000 square feet relating to facilities subleased to third parties. As of March 30, 2018, we also own facilities that are held as available-for-sale on our Consolidated Balance Sheets. These facilities comprise approximately 403,000 square feet of space. In October 2018, we completed the sale of these facilities.

 

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We believe that our existing facilities are adequate for our current needs and that the productive capacity of our facilities is substantially utilized.

Item 3. Legal Proceedings

Information with respect to this Item may be found under the heading “Litigation contingencies” in Note 15 to the Consolidated Financial Statements in this Annual Report on Form 10-K which information is incorporated into this Item  3 by reference.

Item 4. Mine Safety Disclosures

Not applicable.

 

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PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price range of common stock and number of stockholders

Our common stock is traded on the Nasdaq Global Select Market under the symbol “SYMC.” As of March 30, 2018, there were 1,665 stockholders of record. The high and low closing sales prices set forth below are as reported on the Nasdaq Global Select Market during each quarter of the two most recent fiscal years.

 

     2017      2018  
     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

High

   $ 21.24      $ 25.27      $ 25.45      $ 30.83      $ 33.14      $ 34.16      $ 33.92      $ 29.57  

Low

   $ 16.60      $ 20.28      $ 23.49      $ 24.01      $ 28.06      $ 27.47      $ 27.36      $ 25.51  

 

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Stock performance graph

The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the S&P 500 Composite Index and the S&P Information Technology Index for the five fiscal years ended March 30, 2018 (assuming the initial investment of $100 in our common stock and in each of the other indices on the last day of trading for fiscal 2013, and the reinvestment of all dividends). The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast the possible future performance of our common stock.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN

Among Symantec Corporation, the S&P 500 Index

and the S&P Information Technology Index

 

 

LOGO

275 Symantec Corporation 250 S&P 500 225 S&P Information Technology 200 Dollars 175 150 125 100 75 3/29/2013 3/28/2014 4/3/2015 4/1/2016 3/31/2017 3/30/2018

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Symantec under the Securities Act or the Exchange Act.

Dividends

During fiscal 2018 and 2017, we declared and paid aggregate cash dividends and dividend equivalents of $211 million or $0.30 per common share, and $222 million or $0.30 per common share, respectively. Dividends declared and paid each quarter during fiscal 2018 and 2017 were $0.075 per share. All future dividends are subject to the approval of our Board of Directors.

 

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Repurchases of our equity securities

Through our stock repurchase programs we have repurchased shares of our common stock since the fourth quarter of fiscal 2004. Under these programs, shares may be repurchased on the open market and through accelerated stock repurchase transactions. As of March 30, 2018, we have $800 million remaining authorized to be completed in future periods with no expiration date. Stock repurchases during the three months ended March 30, 2018, were as follows:

 

(In millions, except per share data)   Total
Number of
Shares
Purchased
    Average
Price
Paid per
Share
    Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
     Maximum Dollar
Value of Shares
That May Yet Be
Purchased

Under the Plans
or Programs
 

December 30, 2017 to January 26, 2018

    -     $ -       -      $ 800  

January 27, 2018 to February 23, 2018

    -     $ -       -      $ 800  

February 24, 2018 to March 30, 2018

    -     $ -       -      $ 800  
 

 

 

     

 

 

    

Total number of shares repurchased

    -         -     
 

 

 

     

 

 

    

 

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Item 6. Selected Financial Data

The following selected consolidated financial data is derived from our Consolidated Financial Statements. This data should be read in conjunction with our Consolidated Financial Statements and related notes included in this annual report and with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Historical results may not be indicative of future results.

Five-Year Summary

Summary of Operations:

 

     Year Ended (1)  
(In millions, except per share data)    March 30,
2018 (2)
     March 31,
2017 (3)
    April 1,
2016 (4)
    April 3,
2015
     March 28,
2014
 

Net revenues

   $ 4,834      $ 4,019     $ 3,600     $ 3,956      $ 4,183  

Operating income (loss)

   $ 49      $ (100   $ 457     $ 154      $ 144  

Income (loss) from continuing operations (2)

   $ 1,127      $ (236   $ (821   $ 109      $ 91  

Income from discontinued operations, net of income taxes (4)

   $ 11      $ 130     $ 3,309     $ 769      $ 807  

Net income (loss)

   $ 1,138      $ (106   $ 2,488     $ 878      $ 898  

Income (loss) per share — basic: (5)

            

Continuing operations

   $ 1.83      $ (0.38   $ (1.23   $ 0.16      $ 0.13  

Discontinued operations

   $ 0.02      $ 0.21     $ 4.94     $ 1.12      $ 1.16  

Net income (loss) per share — basic

   $ 1.85      $ (0.17   $ 3.71     $ 1.27      $ 1.29  

Income (loss) per share — diluted: (5)

            

Continuing operations

   $ 1.69      $ (0.38   $ (1.23   $ 0.16      $ 0.13  

Discontinued operations

   $ 0.02      $ 0.21     $ 4.94     $ 1.10      $ 1.15  

Net income (loss) per share — diluted

   $ 1.70      $ (0.17   $ 3.71     $ 1.26      $ 1.28  

Cash dividends declared per common share

   $ 0.30      $ 0.30     $ 4.60     $ 0.60      $ 0.60  

Consolidated Balance Sheets Data:

 

(In millions)    March 30,
2018
     March 31,
2017
     April 1,
2016
     April 3,
2015
     March 28,
2014
 

Cash, cash equivalents and short-term investments

   $ 2,162      $ 4,256      $ 6,025      $ 3,860      $ 4,084  

Total assets

   $ 15,759      $ 18,174      $ 11,767      $ 13,233      $ 13,539  

Long-term debt

   $ 5,026      $ 6,876      $ 2,207      $ 1,746      $ 2,095  

Total stockholders’ equity

   $ 5,023      $ 3,487      $ 3,676      $ 5,935      $ 5,797  

 

(1) 

We have a 52/53-week fiscal year. Our fiscal 2015 was a 53-week year, whereas fiscal 2018, 2017, 2016 and 2014 each consisted of 52 weeks.

 

(2) 

In fiscal 2018, we sold our WSS and PKI solutions and recognized a gain of $653 million before income taxes associated with the sale (see Note 3 to the Consolidated Financial Statements) and we recognized an income tax benefit of $659 million as a result of the enactment of the Tax Cuts and Jobs Act (H.R.1) (see Note 10 to the Consolidated Financial Statements).

 

(3) 

In fiscal 2017, we acquired Blue Coat, Inc. (“Blue Coat”) and LifeLock, Inc. (“LifeLock”) and the results of operations of those entities were included from their respective dates of acquisition (see Note 3 to the Consolidated Financial Statements).

 

(4)

In fiscal 2016, we recorded $1.1 billion in income tax expense related to unremitted earnings of foreign subsidiaries from the proceeds of the sale of our divested information management business (“Veritas”). This charge was presented in loss from

 

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continuing operations in the Consolidated Statements of Operations (see Note 10 to the Consolidated Financial Statements). As a result of the sale, a net gain of $3.0 billion was presented as part of income from discontinued operations, net of income taxes (see Note 3 to the Consolidated Financial Statements).

 

(5) 

Net income per share amounts may not add due to rounding.

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

Please read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related Notes thereto included under Item 15 of this Annual Report on Form 10-K.

OVERVIEW

Fiscal calendar and basis of presentation

We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to years in this report relate to fiscal year ended March 30, 2018, March 31, 2017 and April 1, 2016, each of which was a 52-week year.

Key financial metrics

The following table provides our key financial metrics for continuing operations for fiscal 2018 compared with fiscal 2017:

 

(In millions, except for percentages and per share amounts)    Fiscal 2018      Fiscal 2017  

Net revenues

   $ 4,834      $ 4,019  

Operating income (loss)

   $ 49      $ (100

Income (loss) from continuing operations

   $ 1,127      $ (236

Income (loss) per share from continuing operations — diluted

   $ 1.69      $ (0.38

Cash, cash equivalent and short-term investments

   $ 2,162      $ 4,256  

Net cash provided by (used in) continuing operating activities

   $ 957      $ (145

Deferred revenue

   $ 3,103      $ 2,787  

 

   

Net revenues grew 20% in fiscal 2018 compared to fiscal 2017 primarily as a result of the inclusion of revenue from our consumer identity and information protection products acquired at the end of fiscal 2017 for a full year and increased revenues from sales of our enterprise network and web security solutions which included products acquired in our fiscal 2017 acquisition, partially offset by a decrease in revenue as a result of the divestiture of our WSS and PKI solutions. See Note 14 to the Consolidated Financial Statements for further information on our products and services revenues.

 

   

Operating income increased primarily as a result of increased net revenues and our cost reduction initiatives and integration synergy program we announced in fiscal 2017. This increase was partially offset by increased operating expenses as a result of acquisitions of Blue Coat and LifeLock, including stock-based compensation, amortization of intangible assets, and advertising and promotional expenses. The increase in operating income was also partially offset by increased transition costs primarily due to costs related to our enterprise resource planning and supporting systems and separation costs related to the divestiture of our WSS and PKI solutions.

 

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Income from continuing operations and diluted income per share from continuing operations increased primarily as a result of the $653 million gain on the divestiture of our WSS and PKI solutions and a net tax benefit of $690 million primarily as a result of the Tax Cuts and Jobs Act (H.R.1) (the “Act”). Partially offsetting the increase in the diluted income per share from continuing operations was a higher diluted share count due to including the dilutive effect of potentially issuable common shares under our equity award programs and convertible debt. Such potentially issuable common shares were excluded from our net loss per share computation in fiscal 2017 as they would have been anti-dilutive.

 

   

Cash, cash equivalents and short-term investments decreased primarily as a result of our $3.2 billion of debt repayments as part of our plan to deleverage our balance sheet and $401 million paid for acquisitions, partially offset by $933 million in net cash proceeds from the divestiture of our WSS and PKI solutions and cash flow from continuing operating activities of $957 million.

 

   

Cash flow from continuing operating activities increased primarily due to a one-time tax payment of $887 million related to the gain on sale from the divestiture of our information management business (“Veritas”) in fiscal 2017 and an increase in deferred revenue.

 

   

Deferred revenue increased $316 million, primarily due to our shift in sales contracts to a higher mix of solutions subject to ratable versus point in time revenue recognition and longer contract duration in our Enterprise Security segment, which resulted in less in-period revenue recognized, and due to higher billings towards the end of the fiscal year, reflecting seasonal sales cycles in that segment. These factors were partially offset by a decrease of $319 million in deferred revenue as a result of the divestiture of our WSS and PKI solutions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

A summary of our significant accounting policies is included in Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our Consolidated Financial Statements.

Revenue recognition

We recognize revenue primarily pursuant to the requirements under the authoritative guidance on software revenue recognition, and any applicable amendments or modifications. Revenue recognition requirements in the software industry are very complex and require us to make estimates and assumptions.

 

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We enter into arrangements that can include various combinations of software and non-software elements. Where elements are delivered over different periods of time, and when allowed under GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. We use a hierarchy to determine the fair value to be used for allocating revenue to non-software elements: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence, and (iii) estimated selling price (“ESP”). For software elements, we follow the industry-specific software guidance which only allows for the use of VSOE in establishing fair value. VSOE of each element is based on the price for which the undelivered element is sold separately by us. We determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for serial undelivered items, the entire arrangement fee is recognized ratably over the performance period. When VSOE does not exist for a discrete undelivered item, consideration for the entire arrangement is deferred until that item is delivered. Our deferred revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product content updates, managed security services, subscriptions, and arrangements where VSOE does not exist. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and increasing flexibility in contractual arrangements could materially impact the amount recognized in the current period and deferred over time. ESPs for non-software elements are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. Our process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.

Valuation of goodwill, intangible assets and long-lived assets

Business combinations. We allocate the purchase price of acquired businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Any residual purchase price is recorded as goodwill. Goodwill is allocated to reporting units expected to benefit from the business combination. The allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, future expected cash flows from customer relationships, developed technology, trade names and acquired patents; and discount rates. Management estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Income taxes

We are subject to tax in multiple U.S. and foreign tax jurisdictions. We are required to estimate the current tax exposure as well as assess the temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. We apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates.

We use a two-step process to recognize liabilities for uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that the tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest

 

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amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

As of March 30, 2018, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. These amounts may require further adjustments as a result of additional future guidance from the U.S. Department of the Treasury, changes in our assumptions, and the availability of further information and interpretations. In other cases, we have not been able to make a reasonable estimate and we continue to account for those items based on our existing accounting policies and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional tax benefit of $659 million, which is included as a component of income tax expense from continuing operations. This includes an income tax benefit of $1.6 billion resulting from the application of the Act to existing deferred tax balances, including a reduction of the previously accrued deferred tax liability for foreign earnings by $1.4 billion. This was partially offset by $893 million of tax expense that was recorded for the one-time transition tax liability under the Act.

Stock-based compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award. We recognize stock-based compensation cost over the award’s requisite service period on a straight-line basis except for performance-based restricted stock units (“PRUs”) with graded vesting which we recognize on a graded basis. For awards with performance conditions, the amount of compensation cost we recognize over the requisite service period is based on the actual achievement of the performance condition or management’s best estimate of the achievement if not yet known. No compensation cost is ultimately recognized for forfeited awards in which employees do not render the requisite service. We estimate the number of stock-based awards that will be forfeited due to employee turnover. Our forfeiture assumption is primarily based on historical experience.

The fair value of each restricted stock unit (“RSU”) and PRU that does not contain a market condition is equal to the market value of our common stock on the date of grant. The fair value of each PRU that contains a market condition is estimated using the Monte Carlo simulation option pricing model. The fair values of RSUs and PRUs are not discounted by the dividend yield because our RSUs and PRUs are entitled to dividend equivalents to be paid in the form of cash upon vesting for each share of the underlying unit.

We use the Black-Scholes model to determine the fair value of unvested stock options assumed in acquisitions and the fair value of rights to acquire shares of common stock under our employee stock purchase plan (“ESPP”). The determination of the fair value of awards using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. If the acquired companies lack 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 rates for the period equal to the expected life. The options assumed are without dividend equivalents and their fair values are discounted by our dividend yield.

 

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We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates which could materially impact our future stock-based compensation expense.

Loss contingencies

We are subject to contingencies that expose us to losses, including various legal and regulatory proceedings, asserted and potential claims that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. We review the status of each significant matter quarterly and we may revise our estimates. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our consolidated financial statements for that reporting period.

RESULTS OF OPERATIONS

The following table sets forth our Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:

 

     Fiscal Year  
     2018     2017     2016  

Net revenues

     100     100     100

Cost of revenues

     21       21       17  
  

 

 

   

 

 

   

 

 

 

Gross profit

     79       79       83  

Operating expenses:

      

Sales and marketing

     33       36       36  

Research and development

     20       20       21  

General and administrative

     12       14       8  

Amortization of intangible assets

     5       4       2  

Restructuring, transition and other costs

     8       7       4  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     78       81       70  
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     1       (2)       13  

Interest expense

     (5)       (5)       (2)  

Gain on divestiture

     14       -       -  

Other income (expense), net

     (0)       1       0  
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     9       (7)       11  

Income tax expense (benefit)

     (14)       (1)       34  
  

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     23       (6)       (23)  

Income from discontinued operations, net of income taxes

     0       3       92  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

             24             (3)             69
  

 

 

   

 

 

   

 

 

 

 

Note: The percentages may not add due to rounding.

Net revenues

 

     Fiscal Year      Variance in %  
(In millions, except for percentages)    2018      2017      2016      2018 vs. 2017     2017 vs. 2016  

Net revenues

   $ 4,834      $ 4,019      $ 3,600        20     12

 

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Fiscal 2018 compared to fiscal 2017

Net revenues increased $815 million, attributable to increases of $616 million from our Consumer Digital Safety segment and $199 million from our Enterprise Security segment, net of the impact of the divestiture of our WSS and PKI solutions. The increase in revenue from our Consumer Digital Safety segment was primarily a result of the inclusion of revenue from our identity and information protection products acquired at the end of fiscal 2017 for a full year.

Fiscal 2017 compared to fiscal 2016

Net revenues increased $419 million, primarily due to an increase of $425 million in revenue from our Enterprise Security segment as a result of the acquisition of Blue Coat during the second quarter of fiscal 2017.

Net revenues by geographical region

Percentage of revenue by geographic region as presented below is based on the billing location of the customer.

 

     Fiscal Year  
     2018     2017     2016  

Americas

     63     58     59

EMEA

     22     24     25

APJ

     16     18     16

 

Note: The Americas include U.S., Canada and Latin America; EMEA includes Europe, Middle East and Africa; APJ includes Asia Pacific and Japan. The percentages may not add up to 100% due to rounding.

Fiscal 2018 compared to fiscal 2017

Our percentage of revenue from the Americas increased, primarily as a result of the inclusion of revenue from our identity and information protection products acquired at the end of fiscal 2017 for a full year as sales of these products are generated entirely in the United States.

Fiscal 2017 compared to fiscal 2016

The geographical distribution of our revenue was relatively consistent in fiscal 2017 compared to fiscal 2016.

Cost of revenues

 

     Fiscal Year      Variance in %  
(In millions, except for percentages)    2018      2017      2016      2018 vs. 2017     2017 vs. 2016  

Cost of revenues

   $ 1,032      $ 853      $ 615        21     39

Fiscal 2018 compared to fiscal 2017

Our cost of revenues increased $179 million primarily due to an increase related to our network and web security solutions and consumer identity and information protection products that were acquired in fiscal 2017, including $88 million of increased amortization of acquired intangible assets and $60 million of increased technical support costs primarily driven by the consumer identity and information protection products, and an increase of $30 million in royalty fees.

 

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Fiscal 2017 compared to fiscal 2016

Our cost of revenues increased $238 million primarily due to $122 million of increased amortization of acquired intangible assets and increased other costs related to sales of our network and web security solutions and consumer identity and information protection products that were acquired in fiscal 2017, including an acquired product inventory fair value write-up of $24 million. These increases in cost of revenues were partially offset by decreased costs related to Veritas of $22 million.

Operating expenses

 

     Fiscal Year      Variance in %  
(In millions, except for percentages)    2018      2017      2016      2018 vs. 2017     2017 vs. 2016  

Sales and marketing

   $ 1,593      $ 1,459      $ 1,292        9     13

Research and development

     956        823        748        16     10

General and administrative

     574        564        295        2     91

Amortization of intangible assets

     220        147        57        50     158

Restructuring, transition and other costs

     410        273        136        50     101
  

 

 

    

 

 

    

 

 

      

Total

   $ 3,753      $ 3,266      $ 2,528        15     29
  

 

 

    

 

 

    

 

 

      

Fiscal 2018 compared to fiscal 2017

Sales and marketing expense increased $134 million primarily due to increases of $148 million in advertising and promotional expense, largely related to promotion of our identity and information protection products, and $58 million in stock-based compensation expense. These increases were partially offset by the decreased expenses from our divested WSS and PKI solutions.

Research and development expense increased $133 million primarily due to increases of $90 million in stock-based compensation expense and $27 million in salary and benefits expense as a result of higher headcount.

General and administrative expense increased $10 million primarily due to a $35 million increase in salary and benefits expense as a result of higher headcount, a $15 million increase in stock-based compensation expense and increased cybersecurity and compliance costs, partially offset by a decrease of $41 million in acquisition-related and integration expenses due to a lower level of acquisition activities in fiscal 2018.

Stock-based compensation expense reported in operating expenses increased $163 million to $582 million in fiscal 2018 from $419 million in fiscal 2017, primarily due to the equity awards granted in connection with our fiscal 2018 and 2017 acquisitions.

Amortization of intangible assets increased $73 million primarily due to the intangible assets acquired in our fiscal 2017 acquisitions.

Restructuring, transition and other costs increased $137 million, primarily due to an increase of $178 million in transition costs, including increases of $90 million in costs primarily related to our enterprise resource planning and supporting systems and other transformation initiatives and $88 million in separation costs related to the sale of our WSS and PKI solutions.

Fiscal 2017 compared to fiscal 2016

Sales and marketing expense increased $167 million primarily as a result of our fiscal 2017 acquisitions and included increases of $54 million in stock-based compensation expense and

 

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$24 million in integration expense. These increases were partially offset by a reduction of expenses from new and ongoing cost savings initiatives and decreased costs related to Veritas of $88 million.

Research and development expense increased $75 million primarily as a result of the acquisition of Blue Coat and included an increase of $54 million in stock-based compensation expense. This increase was partially offset by a reduction of expenses from new and ongoing cost savings initiatives and decreased costs related to Veritas of $44 million.

General and administrative expense increased $269 million primarily as a result of the acquisition of Blue Coat and included an increase of $160 million in stock-based compensation expense. In addition, we incurred higher acquisition-related and integration expenses of $79 million. These increases were partly offset by a reduction of expenses from new and ongoing cost savings initiatives and decreased costs related to Veritas of $32 million.

Our stock-based compensation in operating expenses increased $268 million to $419 million in fiscal 2018 from $151 million in fiscal 2017, primarily due to the equity awards granted in connection with the Blue Coat and LifeLock acquisitions, and the expected level of achievement for PRUs granted in fiscal 2017.

Amortization of intangible assets increased $90 million primarily due to the $2.9 billion of intangible assets acquired in the Blue Coat and LifeLock acquisitions.

Restructuring, transition and other costs increased $137 million, primarily due to increases of $60 million in advisory fees incurred in connection with restructuring events and facilities exit costs and $52 million in severance costs as we initiated a restructuring plan during fiscal 2017.

Non-operating income (expense), net

 

     Fiscal Year  
(In millions)    2018      2017      2016  

Interest expense

   $ (256    $ (208    $ (75

Gain on divestiture

     653        -        -  

Other income (expense), net

     (9      46        10  
  

 

 

    

 

 

    

 

 

 

Total other income (expense), net

   $ 388      $ (162    $ (65
  

 

 

    

 

 

    

 

 

 

Fiscal 2018 compared to fiscal 2017

Non-operating income (expense), net, increased, primarily due to a $653 million gain as a result of the divestiture of our WSS and PKI solutions, partially offset by an increase of $48 million in interest expense primarily due to increased interest associated with the debt issued in fiscal 2017, an increase of $26 million in net foreign currency loss, and a $26 million loss from our equity method investment received in connection with the divestiture of our WSS and PKI solutions.

Fiscal 2017 compared to fiscal 2016

Non-operating expense, net, increased, primarily due to an increase of $133 million in interest expense, mainly related to our increased borrowings in fiscal 2017. This increase was partially offset by an increase of $14 million in income, net of direct costs, from transition services provided to Veritas.

Provision for income taxes

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

 

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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.

 

     Fiscal Year  
(In millions, except for percentages)    2018     2017     2016  

Income (loss) from continuing operations before income taxes

   $ 437     $ (262   $ 392  

Provision for (benefit from) income taxes

   $ (690   $ (26   $ 1,213  

Effective tax rate on income from continuing operations

     (158 )%      10     309

Fiscal 2018 compared to fiscal 2017

The decrease in our effective tax rate in fiscal 2018 as compared to fiscal 2017 was primarily due to a provisional tax benefit of $659 million, which is included as a component of income tax expense from continuing operations. This includes an income tax benefit of $1,552 million resulting from the application of the Act to existing deferred tax balances, including a reduction of the previously accrued deferred tax liability for foreign earnings by $1,420 million, partially offset by $893 million of tax expense that was recorded for the one-time transition tax liability under the Act.

Fiscal 2017 compared to fiscal 2016

The decrease in our effective tax rate in fiscal 2017 as compared to fiscal 2016 was primarily driven by tax expense of $1.1 billion in fiscal 2016 for providing U.S. taxes on certain undistributed foreign earnings, primarily those attributable to the sale of Veritas, partially offset by tax expense of $52 million in fiscal 2017 related to the loss of tax attributes as a result of restructuring activities.

See Note 10 to the Consolidated Financial Statements for more information.

Segment operating results

We do not allocate to our operating segments certain operating expenses that we manage separately at the corporate level and are not used in evaluating the results of, or in allocating resources to, our segments. These unallocated expenses primarily consist of unallocated corporate charges related to Veritas in fiscal 2016 and stock-based compensation expense, amortization of intangible assets, restructuring, transition and other costs, and acquisition-related costs in all periods presented. See Note 14 for more information.

Enterprise Security Segment

 

     Fiscal Year     Variance in %  
(In millions, except for percentages)    2018     2017     2016     2018 vs. 2017     2017 vs. 2016  

Net revenues

   $ 2,554     $ 2,355     $ 1,930       8     22

Percentage of total net revenues

     53     59     54    

Operating income

   $ 473     $ 187     $ 102       153     83

Operating margin

     19     8     5    

Fiscal 2018 compared to fiscal 2017

Revenue increased $199 million, primarily due to increases of $331 million in revenue from sales of our network and web security solutions and $36 million from sales of endpoint and information

 

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protection solutions, partially offset by a $184 million decrease in revenue as a result of the divestiture of our WSS and PKI solutions. Revenue during fiscal 2018 was also unfavorably affected by a shift in the mix of sales towards subscription and cloud-delivered solutions subject to ratable revenue recognition, which resulted in less in-period recognized revenue and more revenue deferred to the balance sheet as compared to fiscal 2017. Operating income increased $286 million, primarily due to higher revenue discussed above, a $51 million decrease in sales and marketing expenses and a $38 million decrease in cost of revenues.

Fiscal 2017 compared to fiscal 2016

Revenue increased $425 million, primarily due to a $422 million increase from sales of our network and web security solutions, primarily as a result of our acquisition of Blue Coat. Operating income increased $85 million, primarily due to higher revenue and a reduction of expenses from cost savings initiatives. These increases were partially offset by expenses associated with the Blue Coat acquisition in the post-acquisition period, and the cost of revenues from acquired inventory write-ups related to the Blue Coat acquisition of $24 million.

Consumer Digital Safety Segment

 

     Fiscal Year     Variance in %  
(In millions, except for percentages)    2018     2017     2016     2018 vs. 2017     2017 vs. 2016  

Net revenues

   $ 2,280     $ 1,664     $ 1,670       37     -

Percentage of total net revenues

     47     41     46    

Operating income

   $ 1,111     $ 839     $ 924       32     (9 )% 

Operating margin

     49     50     55    

Fiscal 2018 compared to fiscal 2017

Revenue increased $616 million due to a $639 million increase in revenue from sales of our identity and information protection products acquired at the end of fiscal 2017, offset by a $23 million decrease in revenue related to our consumer security products. Our revenue growth reflects the benefit of the shift to subscription-based contracts and bundling of our consumer products, which is helping to mitigate the trend of declining revenues from sales of stand-alone security products. Operating income increased $272 million, primarily due to sales of our identity and information protection products, partially offset by higher related cost of sales and operating expenses.

Fiscal 2017 compared to fiscal 2016

Revenue decreased $6 million due to a decline in revenue from sales of consumer security products of $83 million as the revenue generated from customer additions was not sufficient to replace revenue lost through customer attrition. This decline was mostly offset by a $77 million increase in revenue due to sales of our identity and information protection products acquired in the acquisition of LifeLock. Operating income decreased $85 million, primarily due to the consumer security revenue decline coupled with increased operating expenses as a result of the LifeLock acquisition.

 

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LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS

Liquidity

We have historically relied on cash generated from operations, borrowings under credit facilities, issuances of debt, and proceeds from divestitures for our liquidity needs.

As of March 30, 2018, we had cash, cash equivalents and short-term investments of $2.2 billion, of which $1.3 billion was held by our foreign subsidiaries. Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity, and generate investment returns. Under the transition tax of the Act, we have treated all previously untaxed foreign earnings as taxable in the U.S. and as a result we recorded a provisional liability for the one-time transition tax, payable over eight years, of $896 million in fiscal 2018. The move to a participation exemption system under the Act allows us to make distributions of non-U.S. earnings to the U.S. without incurring additional U.S. federal tax, however these distributions may be subject to applicable state or non-U.S. taxes. We have not recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in our subsidiaries, because we plan to indefinitely reinvest such earnings and basis differences.

We also have an undrawn credit facility of $1.0 billion which expires in May 2021.

Our principal cash requirements are primarily to meet our working capital needs, support on-going business activities, including the payment of taxes, fund capital expenditures, service existing debt, and invest in business acquisitions. As a part of our plan to deleverage our balance sheet, we may from time to time make optional repayments of our debt obligations, which may include repurchases of our outstanding debt, depending on various factors such as market conditions.

Our capital allocation strategy is to balance driving shareholder returns, managing financial risk, and preserving our flexibility to pursue strategic options, including acquisitions. Historically this has included a quarterly cash dividend, the repayment of debt and the repurchase of our common stock.

Cash flows

The following table summarizes our cash flow activities:

 

     Year Ended  
(In millions)    March 30, 2018     March 31, 2017     April 1, 2016  

Net cash provided by (used in):

      

Continuing operating activities

   $ 957     $ (145   $ 1,462  

Continuing investing activities

   $ (21   $ (6,766   $ 7,236  

Continuing financing activities

   $ (3,475   $ 5,280     $ (4,740

Increase (decrease) in cash and cash equivalents

   $ (2,473   $ (1,736   $ 3,109  

Cash from continuing operating activities

Our primary source of cash from operations has been from cash collections from our customers. Due to seasonality, our billings are generally higher in our third and fourth fiscal quarters and lower in our first and second fiscal quarters. Cash inflows are affected by fluctuations in our billings and timing of the related collections.

Our primary uses of cash include payments for operating expenses and income taxes, payments to our resellers and distribution partners, and other on-going business activities.

 

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Our cash flows from operations in fiscal 2018 were $957 million, compared to cash used of $145 million in fiscal 2017. Our cash flows for fiscal 2018 reflected net income of $1.1 billion adjusted by non-cash amortization and depreciation of $640 million, stock-based compensation of $610 million, offset by a deferred tax benefit of $1.8 billion, primarily as a result of the enactment of the Act in December 2017, and a gain on divestiture of $653 million. Our cash flows for fiscal 2017 reflected a net loss of $106 million, adjusted by non-cash amortization and depreciation of $492 million, stock-based compensation of $440 million, offset by a deferred tax provision of $168 million.

Changes in operating assets and liabilities consisted primarily of:

Accounts receivable increased $170 million in fiscal 2018, compared to a decrease of $45 million in fiscal 2017, reflecting higher billings in the last month of fiscal 2018 and our shift in sales to solutions with ratable revenue recognition in our Enterprise Security segment.

Deferred revenue increased $541 million in fiscal 2018, compared to an increase of $125 million in fiscal 2017, reflecting the factors discussed in the Overview.

Income taxes payable increased $880 million in fiscal 2018, compared to a decrease of $871 million in fiscal 2017. The increase in fiscal 2018 reflected the one-time transition tax of $896 million discussed above, while the decrease in fiscal 2017 was primarily the result of a one-time tax payment of $887 million related to the gain on sale from the divestiture of Veritas.

The decrease in cash flow from continuing operating activities in fiscal 2017 compared to fiscal 2016 was primarily due to net loss from continuing operation of $106 million in fiscal 2017, compared to net income of $2.5 billion in fiscal 2016, as well as a higher adjustment to net income for deferred taxes in fiscal 2016. In addition, income taxes payable decreased $871 million in fiscal 2017, reflecting the cash payment for taxes as a result of the gain on sale from the divestiture of Veritas, compared to an increase in tax payable of $742 million in fiscal 2016.

Cash from continuing investing activities

Our cash flows from continuing investing activities consisted primarily of proceeds from divestitures, payments for acquisitions, and net purchases of short-term investments. Our investing activities in fiscal 2018 included $933 million in net cash proceeds from the divestiture of our WSS and PKI solutions, partially offset by $401 million paid for acquisitions and net purchases of $387 million of short-term investments, while our investing activities in fiscal 2017 primarily included $6.7 billion paid for the Blue Coat and LifeLock acquisitions.

Our investing activities in fiscal 2016 primarily included proceeds from the divestiture of Veritas of $6.5 billion and net proceeds from short-term investments of $1.0 billion.

Cash from continuing financing activities

Our financing cash flows consist primarily of issuances and repayments of debt, payment of dividends and dividend equivalents to stockholders, stock repurchases, and tax payments related to shares withheld in the settlement of RSUs. Our financing activities in fiscal 2018 primarily consisted of debt repayments of $3.2 billion, while our financing activities in fiscal 2017 primarily consisted of net proceeds from borrowings of $6.1 billion.

Our financing activities in fiscal 2016 primarily consisted of payments of dividends and dividend equivalents of $3.0 billion and repurchases of common stock of $1.9 billion.

 

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Cash requirements

Debt - As of March 30, 2018, our total outstanding principal amount of indebtedness was $5.1 billion, summarized as follows. Our Senior Term Loans are pre-payable, and we expect to continue to focus on repayment in fiscal 2019. See Note 7 to the Consolidated Financial Statements for further information on our debt.

 

(In millions)    March 30, 2018  

Senior Term Loans

   $ 1,100  

Senior Notes

     2,250  

Convertible Senior Notes

     1,750  
  

 

 

 

Total debt

   $ 5,100  
  

 

 

 

Dividends - On May 10, 2018, we announced a cash dividend of $0.075 per share of common stock to be paid in June 2018. On August 2, 2018, we announced a cash dividend of $0.075 per share of common stock to be paid in September 2018. Any future dividends will be subject to the approval of our Board of Directors. See Note 11 to the Consolidated Financial Statements for more information on our dividends and dividend equivalents.

Share repurchases - Under our stock repurchase programs, we may purchase shares of our outstanding common stock through open market and through accelerated stock repurchase transactions. As of March 30, 2018, the remaining balance of our share repurchase authorization is $800 million and does not have an expiration date. See Note 11 to the Consolidated Financial Statements for more information on our share repurchases.

Contractual obligations

The following is a schedule of our significant contractual obligations as of March 30, 2018:

 

     Payments Due by Period  
(In millions)    Total      Less than 1 Year      1 - 3 Years      3 - 5 Years      Over 5 Years  

Debt (1)

   $ 5,100      $ -      $ 1,850      $ 2,150      $ 1,100  

Interest payments on debt (2)

     788        180        318        153        137  

Purchase obligations (3) (4)

     659        496        126        31        6  

Long-term income taxes payable (5)

     896        72        144        144        536  

Operating leases (6)

     253        78        92        46        37  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,696      $ 826      $ 2,530      $ 2,524      $ 1,816  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

See Note 7 to the Consolidated Financial Statements for further information on our debt.

 

(2) 

Interest payments were calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes and Senior Term Facilities. Interest on variable rate debt was calculated using the interest rate in effect as of March 30, 2018. See Note 7 to the Consolidated Financial Statements for further information on the Senior Notes, Convertible Senior Notes and Senior Term Facilities.

 

(3) 

These amounts are associated with agreements for purchases of goods or services generally including agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The table above also includes agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included in the table above because management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials.

 

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(4) 

Purchase obligations do not include future minimum contractual obligations related to a five-year purchase agreement with a service provider for a total contract value of $500 million that we entered into in September 2018.

 

(5) 

These amounts represent the transition tax on previously untaxed foreign earnings of foreign subsidiaries under the Act which may be paid in installments over an eight-year period. See Note 10 to the Consolidated Financial Statements for further information on our income taxes and the impact from the recently enacted legislation.

 

(6) 

We have entered into various non-cancelable operating lease agreements that expire on various dates through fiscal 2029. The amounts in the table above exclude expected sublease income.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of March 30, 2018 we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $302 million in long-term income taxes payable has been excluded from the contractual obligations table. See Note 10 to the Consolidated Financial Statements for further information.

Fiscal 2019 Restructuring Plan

On August 2, 2018, we announced a restructuring plan under which we will initiate targeted reductions of our global workforce of up to approximately 8%. We estimate that we will incur total costs in connection with the restructuring plan of approximately $50 million, primarily for severance and termination benefits. These actions are expected to be completed in fiscal 2019.

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. Refer to Note 15 to the Consolidated Financial Statements for further information on our indemnifications.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks related to fluctuations in interest rates and foreign currency exchange rates. We may use derivative financial instruments to mitigate certain risks in accordance with our investment and foreign exchange policies. We do not use derivatives or other financial instruments for trading or speculative purposes.

Interest rate risk

Our short-term investments primarily consist of corporate bonds. An increase in interest could have an adverse impact on its market value. As of March 30, 2018, the fair value of our short-term investments was $388 million. A hypothetical increase in the corporate bonds’ yield curve of 50 basis points would not result in a significant reduction in fair value.

As of March 30, 2018, we had $4.0 billion in aggregate principal amount of fixed-rate Senior Notes and Convertible Senior Notes outstanding, with a carrying amount and a fair value of $3.9 billion, based on Level 2 inputs. Since these notes bear interest at fixed rates, they do not result in any financial statement risk associated with changes in interest rates. However, the fair value of these notes fluctuates when interest rates change.

As of March 30, 2018, we also had $1.1 billion outstanding debt with variable interest rates based on the London InterBank Offered Rate (“LIBOR”). A reasonably possible hypothetical adverse change of 50 basis points in LIBOR would not result in a significant increase in interest expense on an annualized basis.

 

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In addition, we have a $1.0 billion revolving credit facility that if drawn bears interest at a variable rate based on LIBOR and would be subject to the same risks associated with adverse changes in LIBOR.

Foreign currency exchange rate risk

We conduct business in numerous currencies through our worldwide operations and, as such, we are exposed to foreign currency risk. Our entities conduct their businesses in the primary local currency in which they operate; however, they may also conduct business in other currencies. To the extent our entities hold monetary assets or liabilities, earn revenues or incur costs in currencies other than the entity’s functional currency, they are exposed to foreign exchange gains or losses and impacts to operating results as a result. As part of our foreign currency risk mitigation strategy, we have entered into foreign exchange forward contracts with up to six months in duration to help mitigate foreign exchange risk; however, we are not able to hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates. We have considered historical trends in exchange rates and determined that it is possible that adverse changes in exchange rates for any currency could occur. As of March 30, 2018 and March 31, 2017, we had open foreign currency forward contracts with notional amounts of $848 million and $696 million, respectively. A hypothetical ten percent depreciation of foreign currency would result in a reduction in fair value of $55 million and $29 million for fiscal 2018 and fiscal 2017, respectively. This analysis disregards the possibilities that the rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.

 

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Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements and related disclosures included in Part IV, Item 15 of this annual report are incorporated by reference into this Item 8.

Selected Quarterly Financial Data (Unaudited)

 

    Fiscal 2018     Fiscal 2017  
(In millions, except per share
data)
  Fourth
Quarter
    Third
Quarter (1)
    Second
Quarter
    First
Quarter
    Fourth
Quarter
    Third
Quarter
    Second
Quarter
    First
Quarter
 

Net revenues

  $ 1,210     $ 1,209     $ 1,240     $ 1,175     $ 1,115     $ 1,041     $ 979     $ 884  

Gross profit

    946       960       978       918       856       806       769       735  

Operating income (loss)

    6       96       (9     (44     (178     (16     (12     106  

Income tax expense (benefit)

    (7     (606     (53     (24     (71     (5     19       31  

Income (loss) from continuing operations

    (58     1,311       (16     (110     (177     (56     (69     66  

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

    (1     31       4       (23     34       102       (75     69  

Net income (loss)

    (59     1,342       (12     (133     (143     46       (144     135  

Income (loss) per share — basic: (2)

               

Continuing operations

  $   (0.09   $ 2.12     $ (0.03   $ (0.18   $ (0.29   $ (0.09   $ (0.11   $ 0.11  

Discontinued operations

  $ (0.00   $ 0.05     $ 0.01     $ (0.04   $ 0.06     $ 0.16     $ (0.12   $ 0.11  

Net income (loss) per share — basic

  $ (0.10   $ 2.17     $ (0.02   $ (0.22   $ (0.23   $ 0.07     $ (0.23   $ 0.22  

Income (loss) per share — diluted: (2)

               

Continuing operations

  $ (0.09   $ 1.97     $ (0.03   $ (0.18   $ (0.29   $ (0.09   $ (0.11   $ 0.11  

Discontinued operations

  $ (0.00   $ 0.05     $ 0.01     $ (0.04   $ 0.06     $ 0.16     $ (0.12   $ 0.11  

Net income (loss) per share — diluted

  $ (0.10   $ 2.01     $ (0.02   $ (0.22   $ (0.23   $ 0.07     $ (0.23   $ 0.22  

 

(1) 

During the third quarter of fiscal 2018, we recognized a gain on divestiture of our WSS and PKI solutions of $658 million and an income tax benefit of $810 million as a result of the enactment of the Act.

 

(2) 

Net income (loss) per share amounts may not add due to rounding.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

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Item 9A. Controls and Procedures

 

  a)

Evaluation of Disclosure Controls and Procedures

The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our management (with the participation of our Chief Executive Officer and Chief Financial Officer) has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act). Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.

 

  b)

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for Symantec. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Our management has concluded that, as of March 30, 2018, our internal control over financial reporting was effective at the reasonable assurance level based on these criteria.

The effectiveness of our internal control over financial reporting as of March 30, 2018 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in Part IV, Item 15 of this Annual Report on Form 10-K.

 

  c)

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  d)

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Item 9B. Other Information

None.

 

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Criteria for Nomination to the Board

The Nominating and Governance Committee of our Board of Directors (the “Board”) will consider candidates submitted by Symantec stockholders, as well as candidates recommended by directors and management, for nomination to the Board. The Nominating and Governance Committee has generally identified nominees based upon recommendations by outside directors, management and executive recruiting firms. The goal of the Nominating and Governance Committee is to assemble a Board that offers a diverse portfolio of perspectives, backgrounds, experiences, knowledge and skills derived from high-quality business and professional experience. The Nominating and Governance Committee annually reviews the appropriate skills and characteristics required of directors in the context of the current composition of the Board, our operating requirements and the long-term interests of our stockholders.

Two of our director-nominees for our 2018 Annual Meeting of Stockholders (“the Annual Meeting”) have been nominated pursuant to an agreement we entered into with Starboard Value LP on September 16, 2018. For more information about this agreement, see “Agreement with Starboard Value LP” below.

The key attributes, experience and skills we consider important for our directors in light of our current business and structure are:

 

   

Industry and Technology Expertise. As a cybersecurity company, understanding new technologies and emerging industry trends or having experience in security and related technologies is useful in understanding our business and the market segments in which we compete, our research and development efforts, competing technologies, the various products and processes that we develop, and evolving customer requirements.

 

   

Global Expertise. We are a global organization with employees, offices and customers in many countries. Directors with global operating expertise can provide a useful business and cultural perspective regarding many significant aspects of our business.

 

   

Leadership Experience. Directors who have served in a senior leadership position, as a general manager of a business or as the functional leader of a global sales, marketing or product development organization, are important to us, because they bring experience and perspective in analyzing, shaping, and overseeing the execution of important strategic, operational and policy issues at a senior level.

 

   

Public Company Board Experience. Directors who have served on other public company boards can offer advice and insights with regard to the dynamics and operation of a board of directors, the relations of a board to the company’s chief executive officer and other senior management personnel and the importance of public-company corporate governance, including oversight matters, strategic decisions and operational and compliance-related matters.

 

   

Business Combinations and Partnerships Experience. Directors who have a background in mergers and acquisitions and strategic partnership transactions can provide insight into developing and implementing strategies for growing our business through combinations or partnerships with other organizations.

 

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Financial Expertise. Knowledge of financial markets, financial operations, and accounting and financial reporting processes is important because it assists our directors in understanding, advising, and overseeing Symantec’s capital structure, financing and investing activities, financial reporting, and internal control of such activities.

 

   

Diversity. In addition to a diverse portfolio of professional background, experiences, knowledge and skills, the composition of the Board should reflect the benefits of diversity as to gender, race, and ethnic background.

In addition to the brief biographical descriptions set forth under “Our Board of Directors” below, we include under “Director Qualifications” the key individual attributes, experience and skills of each of our directors that led to the conclusion that each director should serve as a member of the Board at this time.

Our Board of Directors

Our Board currently consists of thirteen directors, eleven of whom expect to be nominated for election at our 2018 Annual Meeting of Stockholders (the “Annual Meeting”), including ten independent directors and our Chief Executive Officer. Each director is elected to serve a one-year term, with all directors subject to annual election. Robert S. Miller, a member of our Board since 1994, and Geraldine B. Laybourne, a member of our Board since 2008, are not standing for reelection at the Annual Meeting. These directors are identified below, along with their ages at October 10, 2018 and other information.

 

Name

  Age    

Principal Occupation

   Director
Since
 

Gregory S. Clark

    53     Chief Executive Officer      2016  

Frank E. Dangeard

    60     Managing Partner, Harcourt      2007  

Peter A. Feld

    39     Managing Member and Head of Research, Starboard Value LP      2018  

Dale L. Fuller

    60     Operating Partner, The Riverside Company      2018  

Kenneth Y. Hao

    50     Managing Partner and Managing Director, Silver Lake Partners      2016  

David W. Humphrey

    41     Managing Director, Bain Capital      2016  

Geraldine B. Laybourne

    71     Chairman of the Board, Katapult Studio      2008  

David L. Mahoney

    64     Director      2003  

Robert S. Miller

    76     Former President and Chief Executive Officer, International Automotive Components Group      1994  

Anita M. Sands

    42     Director      2013  

Daniel H. Schulman

    60     President and Chief Executive Officer, PayPal Holdings, Inc.      2000  

V. Paul Unruh

    70     Director      2005  

Suzanne M. Vautrinot

    58     President, Kilovolt Consulting Inc.      2013  

Mr. Clark has served as our Chief Executive Officer and a member of our Board since 2016. Prior to joining Symantec, he served as the Chief Executive Officer of Blue Coat, which we acquired in 2016, and as a member of Blue Coat’s board of directors from 2011 to August 2016. From 2008 to 2011, Mr. Clark was the President and Chief Executive Officer of Mincom, a global software and service provider to asset-intensive industries. Before joining Mincom, he was a Founder and served as President and Chief Executive Officer of E2open, a provider of cloud-based supply chain software, from 2001 until 2008. Earlier in his career, Mr. Clark founded a security software firm, Dascom, which was acquired by IBM in 1999. Mr. Clark previously served on the boards of directors of Imperva, Inc. from May 2014 through August 2015 and Emulex Corporation from 2013 through its acquisition by Avago Technologies Ltd. in 2015. He served as a distinguished engineer and Vice President of IBM’s Tivoli Systems, a division providing security and management products, from 1999 until 2001. Mr. Clark holds a Bachelor’s degree from Griffith University.

 

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Director Qualifications:

 

   

Industry and Technology Experience — Chief Executive Officer of Symantec Corporation; former Chief Executive Officer of Blue Coat and former President and Chief Executive Officer of Mincom.

 

   

Global Experience — Chief Executive Officer of Symantec Corporation; former Chief Executive Officer of Blue Coat and former President and Chief Executive Officer of Mincom.

 

   

Leadership Experience — Chief Executive Officer of Symantec Corporation; former Chief Executive Officer of Blue Coat; former President and Chief Executive Officer of Mincom and Founder, President and Chief Executive Officer of E2open.

 

   

Public Company Board Experience — former member of the board of directors of Imperva, Inc. and Emulex Corporation.

 

   

Business Combinations and Partnerships Experience — Chief Executive Officer of Symantec Corporation; former Chief Executive Officer of Blue Coat; former President and Chief Executive Officer of Mincom and Founder, President and Chief Executive Officer of E2open.

 

   

Financial Experience — Chief Executive Officer of Symantec Corporation; former Chief Executive Officer of Blue Coat; former President and Chief Executive Officer of Mincom and Founder, President and Chief Executive Officer of E2open.

Mr. Dangeard has served as a member of our Board since 2007. He has been the Managing Partner of Harcourt, an advisory firm, since 2008. Mr. Dangeard was Chairman and Chief Executive Officer of Thomson, a provider of digital video technologies, solutions and services, from 2004 to 2008. From 2002 to 2004, he was Deputy Chief Executive Officer of France Telecom, a global telecommunications operator. From 1997 to 2002, Mr. Dangeard was Senior Executive Vice President of Thomson and served as its Vice Chairman in 2000. Prior to joining Thomson, he was Managing Director of SG Warburg & Co. Ltd. from 1989 to 1997 in London, Paris and Madrid and Chairman of SG Warburg France from 1995 to 1997. Prior to that, Mr. Dangeard was a lawyer with Sullivan & Cromwell, in New York and London. He serves on the boards of Arqiva PLC, Royal Bank of Scotland Group PLC (“RBS Group”), as chairman of the board of directors of Nat West Markets PLC, the investment bank of the RBS Group, and on a number of advisory boards. Mr. Dangeard has previously served as a director of a variety of companies, including Crédit Agricole CIB, Eutelsat, Home Credit, SonaeCom, Thomson, Electricité de France and Telenor. He graduated from the École des Hautes Études Commerciales, the Paris Institut d’Études Politiques and holds an LLM degree from Harvard Law School.

Director Qualifications:

 

   

Industry and Technology Experience — former Chairman and Chief Executive Officer of Thomson; former Deputy Chief Executive Officer of France Telecom; former Deputy Chairman of Telenor; former member of the boards of directors of Eutelsat, SonaeCom and RPX Corporation.

 

   

Global Experience — member of the board of directors of RBS Group (UK), of Arqiva (UK) and chairman of NatWest Markets (UK); former Chairman and Chief Executive Officer of Thomson (France); former Deputy Chief Executive Officer of France Telecom (France); former Deputy Chairman of Telenor (Norway) and former member of the boards of directors of Crédit Agricole CIB (France), Eutelsat (France), Home Credit (Czech Republic), Electricité de France (France) and SonaeCom (Portugal).

 

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Leadership Experience — Managing Partner of Harcourt; former Chairman and Chief Executive Officer of Thomson; former Deputy Chief Executive Officer of France Telecom; former Deputy Chairman of Telenor and former Chairman of SG Warburg France and Managing Director of SG Warburg & Co. Ltd; Chairman of NatWest Markets.

 

   

Public Company Board Experience —member of the board of directors of RBS Group; former Deputy Chairman of Telenor and former member of the boards of directors of Eutelsat, Electricité de France, Thomson, and SonaeCom.

 

   

Business Combinations and Partnerships Experience — former Chairman and Chief Executive Officer of Thomson; former Deputy Chief Executive Officer of France Telecom; former Deputy Chairman of Telenor; former Chairman of SG Warburg France and former lawyer at Sullivan & Cromwell LLP.

 

   

Financial Experience — former Chairman and Chief Executive Officer of Thomson; former Deputy Chief Executive Officer of France Telecom; former Chairman of the Audit Committee of Electricité de France and former Deputy Chairman of Telenor; member of the board of RBS Group; Chairman of NatWest Markets.

Mr. Feld has served as a member of our Board since September 2018. Mr. Feld has served as a Managing Member and Head of Research of Starboard Value LP since 2011. Mr. Feld previously served on the boards of directors of several technology companies, including Marvell Technology Group Ltd. from May 2016 to June 2018, The Brink’s Company from January 2016 to November 2017, Insperity, Inc. from March 2015 to June 2017, Darden Restaurants, Inc. from October 2014 to September 2015, Tessera Technologies, Inc. (n/k/a Xperi Corporation) from 2013 to April 2014, Integrated Device Technology, Inc. from 2012 to February 2014 and Unwired Planet, Inc. (n/k/a Great Elm Capital Group, Inc.) from 2011 to March 2014 and as Chairman from 2011 to 2013. Mr. Feld received a Bachelor of Arts degree in Economics from Tufts University.

Director Qualifications:

 

   

Industry and Technology Experience —member of the boards of directors of many public and private technology companies.

 

   

Global Expertise — Managing Member and the Head of Research of Starboard Value LP; former member of the board of directors of Marvell Technology Group, Insperity, Inc., and Darden Restaurants, Inc.

 

   

Leadership Experience — Managing Member and the Head of Research of Starboard Value LP.

 

   

Public Company Board Experience — former member of the boards of directors of Marvell Technology Group, Insperity, Inc., and Darden Restaurants, Inc.

 

   

Business Combinations and Partnerships Experience — Managing Member and the Head of Research of Starboard Value LP.

 

   

Financial Experience — over 10 years of capital markets and corporate governance experience.

Mr. Fuller has served as a member of our Board since September 2018. Mr. Fuller has served as an Operating Partner at the Riverside Company, a private equity firm, since 2013 and on the board of

 

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directors of comScore, Inc., a media measurement and analytics company, since March 2018, and as Chairman of the board of directors of MobiSocial, Inc., a technology startup, since 2013. Mr. Fuller previously served on the boards of directors of several technology companies, including Quantum Corporation from September 2014 to March 2017 and AVG Technologies N.V. from 2008 to October 2016 and as Chairman from 2009 to October 2016. Mr. Fuller holds an honorary doctorate degree from St. Petersburg State University and a Bachelor of Science degree from Pacific College.

Director Qualifications:

 

   

Industry and Technology Experience — member of the boards of directors of many public and private technology companies.

 

   

Global Experience — former member of the boards of directors of Quantum Corporation, AVG Technologies, N.V., Zoran Corporation and Phoenix Technologies, Ltd.

 

   

Leadership Experience — Operating Partner at the Riverside Company, prior president and CEO of MokaFive and member of the boards of directors of numerous major technology companies.

 

   

Public Company Board Experience —member of the boards of directors of comScore; former board member of Quantum Corporation and AVG Technologies.

 

   

Business Combinations and Partnerships Experience — former member of the boards of directors of Quantum Corporation, AVG Technologies, N.V., Zoran Corporation and Phoenix Technologies, Ltd.

 

   

Financial Experience — over 10 years of capital markets and corporate governance experience.

Mr. Hao has served as a member of our Board since 2016. Mr. Hao joined Silver Lake Partners in 2000 and currently serves Silver Lake as a Managing Partner and Managing Director. Mr. Hao also serves on the boards of directors of SMART Global Holdings, Inc., as well as on the boards of directors of a number of private companies in Silver Lake’s portfolio. Prior to joining Silver Lake, he was an investment banker with Hambrecht & Quist, where he served as a Managing Director in the Technology Investment Banking group. He also serves on the Executive Council for UCSF Health. Mr. Hao graduated from Harvard University with a Bachelor’s degree in economics.

Director Qualifications:

 

   

Industry and Technology Experience — over 25 years of technology investment experience; member of the boards of directors of many public and private technology companies.

 

   

Global Experience — extensive experience investing in large global businesses and established Silver Lake’s Asia business.

 

   

Leadership Experience — Managing Partner and Managing Director of Silver Lake and member of the boards of directors of numerous major technology companies.

 

   

Public Company Board Experience —member of the board of directors of SMART Global Holdings, Inc.; former board member of Broadcom Limited and Netscout Systems.

 

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Business Combinations and Partnerships Experience — Managing Partner and Managing Director of Silver Lake Partners and former investment banker with Hambrecht & Quist.

 

   

Financial Experience — over 25 years of investment experience in complex transactions.

Mr. Humphrey has served as a member of our Board since August 2016 when he joined in connection with Bain Capital’s investment in Symantec, prior to which he served on Blue Coat’s board of directors since May 2015. He is a Managing Director of Bain Capital, a private equity firm, where he co-leads the firm’s investing efforts in technology, media and telecom investments and where he has worked since 2001. Prior to joining Bain Capital, Mr. Humphrey was an investment banker in the mergers and acquisitions group at Lehman Brothers from 1999 to 2001. He serves on the boards of directors of BMC Software and Genpact Ltd. and on the board of directors of a number of private companies in Bain Capital’s portfolio. Mr. Humphrey previously served on the boards of directors of Bright Horizons Family Solutions, Inc. Burlington Coat Factory Warehouse Corporation, Skillsoft PLC and Bloomin’ Brands, Inc. He received a Master of Business Administration degree from Harvard Business School and a Bachelor’s degree from Harvard University.

Director Qualifications:

 

   

Industry and Technology Experience — former member of the board of directors of Blue Coat; Managing Director of Bain Capital; and member of the boards of directors of BMC Software, Inc., Viewpoint Construction Software, Navicure, Inc. and Genpact Ltd.

 

   

Global Experience — extensive experience investing in large global businesses.

 

   

Leadership Experience — Managing Director of Bain Capital and leader of its technology, media and telecom vertical; and member of the boards of directors of BMC Software, Inc. Viewpoint Construction Software, Navicure, Inc. and Genpact Ltd.

 

   

Public Company Board Experience —member of the board of directors of BMC Software and Genpact Ltd. and former member of the boards of directors of Bright Horizons Family Solutions, Inc. Burlington Coat Factory Warehouse Corporation, Skillsoft PLC and Bloomin’ Brands, Inc.

 

   

Business Combinations and Partnerships Experience — Managing Director of Bain Capital and former investment banker with Lehman Brothers.

 

   

Financial Experience — Managing Director of Bain Capital and former investment banker with Lehman Brothers.

Ms. Laybourne has served as a member of our Board since January 2008. She has been the Chairman of the Board of Katapult Studio (formerly Kandu), a children’s software company, since May 2013, and was acting Chief Executive Officer from October 2014 to May 2015. Ms. Laybourne was the Chairman of the Board of Alloy, Inc., which later merged into Defy Media, LLC, a media company, from November 2010 to April 2015. She founded Oxygen Media in 1998 and served as its Chairman and Chief Executive Officer until November 2007, when the network was acquired by NBC Universal. Prior to starting Oxygen Media, Ms. Laybourne spent 16 years at Nickelodeon. From 1996 to 1998, she was President of Disney/ABC Cable Networks where she managed cable programming for the Walt Disney Company and ABC. Ms. Laybourne is also currently a member of the board of directors of four private companies, serves on the Board of Trustees for Vassar College, and is a former member of the board of directors of J.C. Penney, Electronic Arts and Move, Inc. She earned a Bachelor’s degree in art history from Vassar College and a Master of Science degree in elementary education from the University of Pennsylvania. Ms. Laybourne will not stand for re-election at the Annual Meeting.

 

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Director Qualifications:

 

   

Leadership Experience — Chairman of Katapult Studio; Founder and former Chairman and Chief Executive Officer of Oxygen Media LLC; former President of Disney/ABC Cable Networks; former President of Nickelodeon and former Vice Chairman of MTV Networks.

 

   

Public Company Board Experience — former board member of J.C. Penney Company, Electronic Arts Inc. and Move, Inc.

 

   

Business Combinations and Partnerships Experience — Founder, former Chairman and Chief Executive Officer of Oxygen Media LLC until it was acquired by NBC Universal.

Mr. Mahoney has served as a member of our Board since 2003. He previously served as co-Chief Executive Officer of McKesson HBOC, Inc., a healthcare services company, and as Chief Executive Officer of iMcKesson LLC, also a healthcare services company, from 1999 to 2001. Mr. Mahoney is a member of the boards of directors of Adamas Pharmaceuticals, Inc. Corcept Therapeutics Incorporated, and Mercy Corps, a non-profit organization, the board of trustees of Mount Holyoke College, as well as a trustee of the Schwab/Laudus fund family and the San Francisco Museum of Modern Art. He has previously served as a director of a variety of companies, including Tercica Inc. Mr. Mahoney has a Bachelor’s degree from Princeton University and a Master of Business Administration degree from Harvard Business School.

Director Qualifications:

 

   

Industry and Technology Experience — former co-Chief Executive Officer of McKesson HBOC, Inc.; former Chief Executive Officer of iMcKesson LLC; various executive roles at McKesson Corporation and former Principal at McKinsey & Co.

 

   

Global Experience — former co-Chief Executive Officer of McKesson HBOC, Inc.; former Chief Executive Officer of iMcKesson LLC; various executive roles at McKesson Corporation and former Principal at McKinsey & Co.

 

   

Leadership Experience — former co-Chief Executive Officer of McKesson HBOC, Inc.; former Chief Executive Officer of iMcKesson LLC; various executive roles at McKesson Corporation and former Principal at McKinsey & Co.

 

   

Public Company Board Experience —member of the board of directors of Corcept Therapeutics Incorporated; Lead Independent Director at Adamas Pharmaceuticals, Inc. and former member of the board of directors of Tercica, Inc.

 

   

Business Combinations and Partnerships Experience — former co-Chief Executive Officer of McKesson HBOC, Inc.; former Chief Executive Officer of iMcKesson LLC; various executive roles at McKesson Corporation and former Principal at McKinsey & Co.

 

   

Financial Experience — former roles at McKesson HBOC; serves on the Audit Committee of Corcept Therapeutics Incorporated (former Chair of the Audit Committee) and the Investment Committee of the Schwab/Laudus fund family; served on the Audit Committees of Tercica Inc., Adamas Pharmaceuticals, Inc., Symantec, and is Chair of the Finance Committee of Mercy Corps and San Francisco Museum of Modern Art.

Mr. Miller has served as a member of our Board since September 1994. Mr. Miller is also the Chairman of the Board of MidOcean Partners, a private equity firm specializing in leveraged buyouts,

 

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recapitalizations and growth capital investments in middle-market companies and has served on the Board of the Dow Chemical Company since 2015. Mr. Miller previously served as the President and Chief Executive Officer of International Automotive Components (IAC) Group, a global supplier of automotive components and systems, from August 2015 through September 2018. He served as Chairman of the Board of American International Group (AIG), an insurance and financial services organization, from July 2010 to June 2015. Mr. Miller served as Chief Executive Officer of Hawker Beechcraft, an aircraft manufacturing company, from February 2012 to February 2013. He served as Executive Chairman of Delphi Corporation, an auto parts supplier, from January 2007 until November 2009 and as Chairman and Chief Executive Officer from July 2005 until January 2007. From January 2004 to June 2005, Mr. Miller was non-executive Chairman of Federal Mogul Corporation, an auto parts supplier. From September 2001 until December 2003, he was Chairman and Chief Executive Officer of Bethlehem Steel Corporation, a large steel producer. Prior to joining Bethlehem Steel, Mr. Miller served as Chairman and Chief Executive Officer on an interim basis upon the departure of Federal Mogul’s top executive in September 2000. Hawker Beechcraft filed a voluntary petition for reorganization under the United States Bankruptcy Code (USBC) in May 2012. In addition to his executive roles, Mr. Miller has previously served as a director of a variety of companies, including AIG, UAL Corporation, WL Ross Holding Corp., Reynolds American, Inc., U.S. Bancorp, and Waste Management, Inc. He earned a degree in economics from Stanford University, a law degree from Harvard Law School and a Master of Business Administration, majoring in finance from Stanford Business School. Mr. Miller will not stand for re-election at the Annual Meeting.

Director Qualifications:

 

   

Global Experience — former President and Chief Executive Officer of IAC Group; former Chairman of AIG; former Chief Executive Officer of Hawker Beechcraft, Inc.; former Chief Executive Officer of Delphi Corporation and former Vice Chairman of Chrysler Corporation.

 

   

Leadership Experience — former President and Chief Executive Officer of IAC Group; Chairman of Mid Ocean Partners; former Chairman of AIG; former Chief Executive Officer of Hawker Beechcraft, Inc.; former Chairman and Chief Executive Officer of Delphi Corporation; former Chairman and Chief Executive Officer of Federal Mogul Corporation and former Chairman and Chief Executive Officer of Bethlehem Steel Corporation.

 

   

Public Company Board Experience — member of the board of directors of Dow Chemical and former member of the boards of directors of AIG, UAL Corporation, WL Ross Holding Corp., Reynolds American, Inc., U.S. Bancorp and Waste Management, Inc.

 

   

Business Combinations and Partnerships Experience — former President and Chief Executive Officer of IAC Group; former Chief Executive Officer of Hawker Beechcraft, Inc., Delphi Corporation and Federal Mogul Corporation and former Vice Chairman of Chrysler Corporation.

 

   

Financial Experience — former Chief Financial Officer of Chrysler Corporation and served on the Audit Committees of AIG, UAL Corporation, Reynolds American, Waste Management, U.S. Bancorp, Federal Mogul Corporation and Pope & Talbot.

Ms. Sands has served as a member of our Board since October 2013. She served as Group Managing Director, Head of Change Leadership and a member of the Wealth Management Americas Executive Committee of UBS Financial Services, a global financial services firm, from April 2012 to September 2013. Ms. Sands was Group Managing Director and Chief Operating Officer of Wealth Management Americas at UBS Financial Services from April 2010 to April 2012. Prior to that, she was a Transformation Consultant at UBS Financial Services from October 2009 to April 2010. Prior to

 

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joining UBS Financial Services, Ms. Sands was Managing Director, Head of Transformation Management at Citigroup’s Global Operations and Technology organization. She also held several leadership positions with RBC Financial Group and CIBC. Ms. Sands is on the boards of directors of ServiceNow, Inc., Pure Storage, Inc. and two private companies. She received a Bachelor’s degree in physics and applied mathematics from The Queen’s University of Belfast, Northern Ireland, a Doctorate in atomic and molecular physics from The Queen’s University of Belfast, Northern Ireland and a Master of Science degree in public policy and management from Carnegie Mellon University.

Director Qualifications:

 

   

Industry and Technology Experience — former Managing Director and Chief Operating Officer at UBS Financial Services and various executive positions of global financial services firms.

 

   

Global Experience — former Managing Director and Chief Operating Officer at UBS Financial Services and various executive positions of global financial services firms.

 

   

Leadership Experience — former Managing Director and Chief Operating Officer at UBS Financial Services and various executive positions of global financial services firms.

 

   

Public Company Board Experience —member of the boards of directors of ServiceNow, Inc. and Pure Storage, Inc.

 

   

Financial Experience — former Managing Director and Chief Operating Officer at UBS Financial Services and various executive positions of global financial services firms.

Mr. Schulman has served as a member of our Board since 2000. He has served as President and then Chief Executive Officer of PayPal Holdings, Inc., an online payment system company, since September 2014. Previously, Mr. Schulman served as Group President, Enterprise Group of American Express, a financial services company, from 2010 to September 2014. He was President, Prepaid Group of Sprint Nextel Corporation, a cellular phone service provider, from 2009 until 2010. Mr. Schulman served as Chief Executive Officer of Virgin Mobile USA, a cellular phone service provider, from 2001 to 2009, when Sprint Nextel acquired that company. He also served as a member of the board of directors of Virgin Mobile USA from 2001 to 2009. Mr. Schulman is a member of the boards of directors of PayPal Holdings, Inc., Verizon Communications Inc. and a non-profit organization. He received a Bachelor’s degree in economics from Middlebury College and a Master of Business Administration degree, majoring in Finance, from New York University.

Director Qualifications:

 

   

Industry and Technology Experience — President and Chief Executive Officer of PayPal; former Group President, Enterprise Group of American Express and former Chief Executive Officer and Chief Operating Officer of priceline.com.

 

   

Global Experience — President and Chief Executive Officer of PayPal and former Group President of American Express.

 

   

Leadership Experience — President and Chief Executive Officer of PayPal; former Group President, Enterprise Group of American Express; former President, Prepaid Group of Sprint Nextel Corporation; former Chief Executive Officer of Virgin Mobile USA and former Chief Executive Officer and Chief Operating Officer of priceline.com.

 

   

Public Company Board Experience — member of the boards of directors of PayPal Holdings, Inc. and Verizon Communications Inc. and former member of the boards of directors of Virgin Mobile USA and Flextronics International Ltd.

 

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Business Combinations and Partnerships Experience — President and Chief Executive Officer of PayPal and former Chief Executive Officer of Virgin Mobile USA.

 

   

Financial Experience — President and Chief Executive Officer of PayPal; former Group President, Enterprise Group of American Express; former President, Prepaid Group of Sprint Nextel Corporation; former Chief Executive Officer of Virgin Mobile USA and former Chief Executive Officer and Chief Operating Officer of priceline.com.

Mr. Unruh has served as a member of our Board since 2005 following the acquisition of Veritas, where he had served on the board of directors since 2003. Mr. Unruh retired as Vice Chairman of Bechtel Group, Inc., a global engineering and construction services company, in 2003. During his 25-year tenure at Bechtel Group, he held a number of management positions including Treasurer, Controller and Chief Financial Officer. Mr. Unruh also served as President of Bechtel Enterprises, the finance, development and ownership arm from 1997 to 2001. He is a member of the board of directors of Aconex Ltd., which is traded on the Australian Stock Exchange, and a private company. Mr. Unruh is a Certified Public Accountant.

Director Qualifications:

 

   

Global Experience — former Vice Chairman of and held various executive positions at Bechtel Group, Inc.; former President of Bechtel Enterprises and member of the board of directors of Aconex Ltd. (Australia).

 

   

Leadership Experience — former Vice Chairman of and held various executive positions at Bechtel Group, Inc. and former President of Bechtel Enterprises.

 

   

Public Company Board Experience — former member of the boards of directors of Heidrick & Struggles International Inc., Move, Inc., URS Corporation and Aconex Ltd. (Australia).

 

   

Business Combinations and Partnerships Experience — former board member of Veritas Corporation, Move, Inc., and URS Corporation.

 

   

Financial Experience — certified public accountant; former Chief Financial Officer, Treasurer and Controller of Bechtel Group, Inc.; former President of Bechtel Enterprises; served on the Audit Committees of Heidrick & Struggles International, Inc. and Move, Inc.

Ms. Vautrinot has served as a member of our Board since 2013. She has been President of Kilovolt Consulting Inc., an advisory firm, since October 2013. Ms. Vautrinot retired from the United States Air Force in October 2013 after over 30 years of service. During her career with the United States Air Force, she served in a number of leadership positions including Major General and Commander, 24th Air Force/Network Operations from 2011 to October 2013; Special Assistant to the Vice Chief of Staff from December 2010 to 2011; Director of Plans and Policy, U.S. Cyber Command from 2010 to 2010 and Deputy Commander, Network Warfare, U.S. Strategic Command, from 2008 and 2010. Ms. Vautrinot is a member of the board of directors of Ecolab, Inc., Wells Fargo & Company, a private company and a non-profit organization. She received a Bachelor of Science degree from the U.S. Air Force Academy, a Master of Systems Management degree from University of Southern California, and completed Air Command and Staff College as well as Air War College. Ms. Vautrinot was a National Security Fellow at the John F. Kennedy School of Government at Harvard University. In 2017 she was inducted into the National Academy of Engineering.

Director Qualifications:

 

   

Industry and Technology Experience — Major General and Commander (retired) and various leadership positions of United States Air Force.

 

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Global Experience — Major General and Commander (retired) of United States Air Force; member of the boards of directors of Ecolab, Inc. and Wells Fargo & Company.

 

   

Leadership Experience — Major General and Commander (retired) and various leadership positions of United States Air Force.

 

   

Public Company Board Experience — member of the boards of directors of Ecolab, Inc. and Wells Fargo & Company.

 

   

Financial Experience — serves on the Audit Committees of Ecolab, Inc. and Wells Fargo & Company.

Agreement with Starboard Value LP

In September 2018, the Company entered into an agreement with Starboard Value LP and certain of its affiliates (collectively, “Starboard”) regarding, among other things, the membership and composition of the Board and committees thereof (the “Starboard Agreement”). Under the terms of the Starboard Agreement, the Company appointed Peter A. Feld and Dale L. Fuller to serve on the Board and agreed to nominate them for election to the Board at the Annual Meeting. The Starboard Agreement also provides that Robert S. Miller and Geraldine B. Laybourne will not stand for re-election as directors at the Annual Meeting and that, within 30 days after the Annual Meeting, the Company will appoint Richard S. “Rick” Hill to the Board and an additional director to the Board who will be selected by the then-appointed Board from a list of candidates mutually agreed by the Company and Starboard pursuant to the procedures described in the Starboard Agreement. With respect to the Annual Meeting, Starboard has agreed to, among other things, vote all shares of the Company’s common stock beneficially owned by Starboard in favor of the Company’s director nominees and, subject to certain conditions, vote in accordance with the Board’s recommendations on all other proposals.

Pursuant to the Starboard Agreement, if at any time Starboard beneficially owns less than 3.0% of the Company’s then-outstanding common stock (the “Minimum Ownership Threshold”), Mr. Feld (or, if Mr. Feld is no longer serving on the Board, the substitute Starboard employee director who replaced Mr. Feld) will immediately resign from the Board. Furthermore, until the earlier of (x) 15 business days prior to the deadline for the submission of stockholder nominations for the 2019 annual meeting of stockholders and (y) 90 days prior to the first anniversary of the Annual Meeting, for so long as Starboard satisfies the Minimum Ownership Threshold, Starboard also has certain additional rights to recommend or select substitute directors as provided in the Starboard Agreement.

Summary of Director Qualifications and Experience

 

    Clark   Dangeard   Feld   Fuller   Hao   Humphrey   Laybourne   Mahoney   Miller   Sands   Schulman   Unruh   Vautrinot

Industry and Technology Expertise

  Ö   Ö   Ö   Ö   Ö   Ö     Ö     Ö   Ö   Ö   Ö

Global Expertise

  Ö   Ö     Ö   Ö   Ö     Ö   Ö   Ö   Ö   Ö   Ö

Leadership Experience

  Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö

Public Company Board Experience

  Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö

Business Combinations and Partnerships Experience

  Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö   Ö     Ö   Ö  

Financial Expertise

  Ö   Ö   Ö   Ö   Ö   Ö     Ö   Ö   Ö   Ö   Ö   Ö

Diversity

          Ö     Ö       Ö       Ö

 

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Our Executive Officers

The names of our current executive officers, their ages as of October 10, 2018, and their positions are shown below.

 

Name

   Age     

Position

Gregory S. Clark

     53      Chief Executive Officer

Amy L. Cappellanti-Wolf

     53      Senior Vice President and Chief Human Resources Officer

Michael D. Fey

     43      President and Chief Operating Officer

Samir Kapuria

     45      Executive Vice President, Cyber Security Services

Nicholas R. Noviello

     49      Executive Vice President and Chief Financial Officer

Scott C. Taylor

     54      Executive Vice President, General Counsel and Secretary

The Board chooses executive officers, who then serve at the Board’s discretion. There is no family relationship between any of the directors or executive officers and any other director or executive officer of Symantec.

For information regarding Mr. Clark, please refer to “Our Board of Directors” above.

Ms. Cappellanti-Wolf has served as our Senior Vice President and Chief Human Resources Officer since July 2014. Prior to joining us, she was Chief Human Resources Officer at Silver Spring Networks, Inc., a smart grid products provider, from June 2009 to July 2014. From September 2001 to June 2009, Ms. Cappellanti-Wolf served as Vice President, Human Resources of Cisco Systems, Inc., a networking company. From 2000 to 2001, she served as a Human Resources Director at Sun Microsystems, Inc. Ms. Cappellanti-Wolf served as Human Resources Director for The Walt Disney Company from 1995 to 2000 and held various roles in human resources with Frito-Lay, Inc., a division of PepsiCo, Inc., from 1988 to 1995. She has a Bachelor’s degree in journalism from West Virginia University and a Master’s degree in industrial and labor relations from West Virginia University.

Mr. Fey has served as our President and Chief Operating Officer since August 2016. Prior to that, he served as the President and Chief Operating Officer of Blue Coat from December 2014 to August 2016, when we acquired that company. Prior to joining Blue Coat, Mr. Fey served in a variety of capacities at the Intel Security Group from 2012 until 2014, including as Executive Vice President, Chief Technology Officer and as General Manager of Corporate Products. Previously, he served as Senior Vice President, Advanced Technologies and Field Engineering with McAfee, a software security company, from 2007 until 2012. Mr. Fey holds a Bachelor’s degree from Embry-Riddle Aeronautical University.

Mr. Kapuria has served as our Executive Vice President, Cyber Security Services since May 2018. Prior to that, he served as our Senior Vice President, Cyber Security Services from November 2014 to May 2018, as our Vice President, Products and Services from July 2012 to November 2014, and as our Vice President, Business Strategy and Security Intelligence from April 2011 to July 2012. Prior to April 2011, Mr. Kapuria held numerous other management positions with Symantec. Mr. Kapuria holds a bachelor’s degree in finance from the University of Massachusetts.

Mr. Noviello has served as our Executive Vice President and Chief Financial Officer since December 2016. Prior to that, he served as our Executive Vice President and Chief Integration Officer from August 2016 to November 2016. Prior to joining Symantec, Mr. Noviello served as Blue Coat’s Chief Financial Officer from January 2016 to August 2016, when we acquired that company. Prior to joining Blue Coat, he served as Executive Vice President, Finance and Operations, and Chief Financial Officer for NetApp, a publicly traded global data management and storage company, from January 2012 through January 2016. From January 2008 until January 2012, Mr. Noviello held a variety of

 

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positions of increasing seniority within the finance organization at NetApp, including Controller and Global Controller. Prior to joining NetApp, he spent eight years at Honeywell International, where he was Chief Financial Officer of two global business units, ran investor relations, and was a leader on the corporate mergers and acquisitions team. Mr. Noviello started his career at PricewaterhouseCoopers. He is a Certified Public Accountant and holds a Bachelor’s degree in business administration from Boston University and a Master’s degree in taxation from Fairleigh Dickinson University.

Mr. Taylor has served as our Executive Vice President, General Counsel and Secretary since August 2008. From February 2007 to August 2008, he served as our Vice President, Legal. Prior to joining Symantec, Mr. Taylor held various legal and administrative positions at Phoenix Technologies Ltd., a provider of core systems software, from January 2002 to February 2007, including most recently as Chief Administrative Officer, Senior Vice President and General Counsel. From May 2000 to September 2001, he was Vice President and General Counsel at Narus, Inc., a venture-backed private company that designs IP network management software. Mr. Taylor is a director of Piper Jaffray Companies, a national advisory board member of the Stanford University Center for Comparative Studies on Race and Ethnicity and serves on the board of trustees of Menlo School. He holds a Juris Doctorate from George Washington University and a Bachelor’s degree from Stanford University.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Exchange Act requires Symantec’s directors, executive officers and any persons who own more than 10% of Symantec’s common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulation to furnish Symantec with copies of all Section 16(a) forms that they file.

Based solely on its review of the copies of such forms furnished to Symantec and written representations from the directors and executive officers, Symantec believes that all Section 16(a) filing requirements were met in fiscal 2018, except as follows: a Form 5 covering the distribution and sale of shares held in family trusts by Gregory S. Clark, due on May 14, 2018, was filed late on a Form 4 on June 5, 2018.

Code of Conduct and Code of Ethics

We have adopted a code of conduct that applies to all of our Board members, officers and employees. We have also adopted a code of ethics for our Chief Executive Officer and senior financial officers, including our principal financial officer and principal accounting officer. Our Code of Conduct and Financial Code of Ethics are posted on the Investor Relations section of our website located at investor.symantec.com, by clicking on “Company Charters,” under “Corporate Governance.” Any amendments or waivers of our Code of Conduct and Code of Ethics for Chief Executive Officer and Senior Financial Officers pertaining to a member of our Board or one of our executive officers will be disclosed on our website at the above-referenced address.

 

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Identification of Audit Committee and Financial Expert

We have a separately-designated Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee, including each member that our Board has determined is an “audit committee financial expert” under SEC rules and regulations, are identified below.

 

Members:

  

Frank E. Dangeard

Robert S. Miller

Anita M. Sands

V. Paul Unruh (Chair)

Suzanne M. Vautrinot

Financial Experts:

   Our Board has unanimously determined that all Audit Committee members are financially literate under current Nasdaq listing standards, and at least one member has financial sophistication under Nasdaq listing standards. In addition, our Board has unanimously determined that V. Paul Unruh qualifies as an “audit committee financial expert” under SEC rules and regulations. Mr. Unruh is independent as defined by current Nasdaq listing standards for Audit Committee membership. Designation as an “audit committee financial expert” is an SEC disclosure requirement and does not impose any additional duties, obligations or liability on any person so designated.

Item 11. Executive Compensation

Executive Compensation and Related Information

COMPENSATION DISCUSSION & ANALYSIS (CD&A)

This compensation discussion and analysis (“CD&A”) describes the material elements of Symantec’s fiscal 2018 executive compensation program. For fiscal 2018, our named executive officers (“NEOs”) included the following current executive officers:

 

   

Gregory S. Clark, Chief Executive Officer (“CEO”);

 

   

Michael D. Fey, President and Chief Operating Officer (“COO”);

 

   

Nicholas R. Noviello, Executive Vice President and Chief Financial Officer (“CFO”); and

 

   

Scott C. Taylor, Executive Vice President, General Counsel and Secretary.

Our fiscal 2018 NEOs also included one executive officer who resigned following the end of fiscal 2018:

 

   

Francis C. Rosch, Former Executive Vice President, Consumer Digital Safety

Three Years of Transformation, Success and Challenges

This CD&A largely focuses on executive compensation granted in fiscal 2018. It also includes a discussion of long-term incentive compensation granted in fiscal 2017 and fiscal 2016, but earned based all or partly on fiscal 2018 financial or stock price performance.

 

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Symantec has undertaken a significant transformation of its business between fiscal 2016 and fiscal 2018. In fiscal 2016, Symantec completed its strategic decision to focus solely on cybersecurity with the divestiture of its information management business, Veritas, which was completed in the fourth quarter of fiscal 2016. Our fiscal 2016 executive compensation program rewarded performance against an EPS target for the first three quarters of fiscal 2016, as well as performance in our TSR ranking over a two- and three-year period, respectively.

In fiscal 2017, Symantec continued its transformation by undertaking a major operational initiative to reduce costs and complexity, continuing to refocus its core business to deliver comprehensive cybersecurity products for both enterprises and consumers with the acquisitions of Blue Coat and LifeLock, and reconstituting its management team, which included a new CEO, COO and CFO from our Blue Coat acquisition. In fiscal 2017, we revised our executive compensation program to ensure that the appropriate incentives were in place to drive and complete our business transformation and cost reduction initiatives, a process we expected to take more than a single fiscal year. The fiscal 2017 executive compensation program leveraged non-GAAP operating income for fiscal 2018 as a key metric to focus the Company’s efforts on the announced cost savings plan and business transformation initiatives.

In fiscal 2018, Symantec focused on continued operational execution of the business transformation embarked upon in fiscal 2017 with a focus on revenue, operating income, EPS and cash flow growth. Key objectives for fiscal 2018 included:

 

   

Delivering strong revenue growth with the integrated business portfolio across both our Enterprise and Consumer segments;

 

   

Growing non-GAAP operating income dollars;

 

   

Improving non-GAAP operating income margin;

 

   

Increasing non-GAAP EPS;

 

   

Reducing debt levels;

 

   

Increasing deferred revenue balances; and

 

   

Delivering strong operating cash flow.

The improvement in our results over these three years of transformation demonstrates that we have met our key objectives.

 

LOGO

Non-GAAP Operating Non-GAAP Revenue Income / Non-GAAP EPS Operating Cash Flow ($mm) (1) Margin Expansion ($)(1) ($mm) ($mm) (1) 29% 27% 9% 18 CAGR CAGR CAGR 18 18 17% 16 16 16 18 CAGR $1,710 16 $1.67 $4,960 $1,194 $950 $4,163 $1,026 $1.03 $1.18 $802 $3,600 34% 29% 29% ($209) FY16A FY17A FY18A FY16A FY17A FY18A FY16A FY17A FY18A FY16A FY17A FY18A

 

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(1) 

Please see below “- Reconciliation of Selected GAAP Measures to Non-GAAP Measures” for a reconciliation of the relevant adjusted measures to the most directly comparable generally accepted accounting principles (“GAAP”) measures.

The design of our fiscal 2018 executive compensation program was aligned with the objectives noted above, with the intent to ultimately reinforce metrics and goals that would support stockholder value creation. In addition, the compensation programs were established in consideration of competitive market practices, the fact that several of the senior leaders were relatively new to Symantec and that we operate in the highly competitive cybersecurity talent market.

In developing our fiscal 2018 executive compensation programs, the Compensation Committee also relied on our regular stockholder outreach and engagement activities as well as more formal channels to communicate with stockholders, including the opportunity for stockholders to cast a non-binding advisory vote regarding executive compensation at our annual meeting. At our 2017 annual meeting of stockholders, the advisory vote on executive compensation for fiscal 2017 was approved by approximately 87% of stockholder votes.

Fiscal Year 2018 Business Results

During fiscal 2018, we focused on executing our plan and strategy following the substantial transformational changes we experienced in fiscal 2017. Symantec’s financial and operational results for fiscal 2018 demonstrate this increased focus on execution:

 

   

The Company’s fiscal 2018 total revenue, determined in accordance with GAAP, was $4.834 billion, an increase of 20% over fiscal 2017, with fiscal 2018 Enterprise Security segment GAAP revenue up 8%, and fiscal 2018 Consumer Digital Safety segment GAAP revenue up 37%.

 

   

Non-GAAP operating margin for fiscal 2018 was 34.5% compared to 28.7% in fiscal 2017. This year-over-year improvement reflects our top-line revenue growth, as well as enhanced operating efficiencies.

 

   

The Company significantly reduced the principal amount of debt during fiscal 2018 from approximately $8.3 billion to $5.1 billion, with $1.75 billion of the fiscal 2018 year-end balance comprised of convertible notes.

 

   

The Company grew deferred revenue balances by $316 million in fiscal 2018.

 

   

The Company generated cash flow from operating activities in fiscal 2018 of $950 million, compared to $209 million used for operating activities in fiscal 2017. Cash flow from operating activities in fiscal 2017 was impacted by a one-time payment for income taxes related to the gain on sale from the divestiture of Veritas during fiscal 2016. The divestiture of Veritas focused our portfolio and was a key component of our strategic refocus of the business to deliver comprehensive cybersecurity products.

 

   

The Company developed compelling product portfolios across both our Enterprise and Consumer solutions.

 

   

The Company completed the sale of its website security business and related PKI assets to DigiCert Inc. to refine the Company’s focus on higher growth cybersecurity offerings.

 

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Additional Matters — Audit Committee Investigation

As disclosed on May 10, 2018, the Audit Committee of the Board, with the assistance of independent outside counsel and a forensic accounting firm, undertook a thorough independent investigation relating to allegations raised by a former employee (the “Audit Committee Investigation”). On September 24, 2018, the Company issued a press release announcing the completion of the Audit Committee Investigation, providing the following details regarding the Audit Committee’s findings and recommendations:

The Company does not anticipate a restatement or adjustment of any audited or unaudited, filed or previously announced, GAAP or non-GAAP financial statements, except as described below, with respect to a specific transaction with a customer entered into in the fourth quarter of fiscal 2018 (ended March 30, 2018).

No employment actions with respect to any Section 16 officer have been recommended as a result of this investigation.

The Audit Committee noted relatively weak and informal processes with respect to some aspects of the review, approval and tracking of transition and transformation expenses. The Audit Committee also observed that beginning in the second quarter of fiscal 2018 (ended September 29, 2017), the Company initiated a review by an outside accounting firm of, and took other steps to enhance, the Company’s policies and procedures regarding non-GAAP measures.

In addition to the matters announced in May 2018, the Audit Committee reviewed a transaction with a customer for which $13 million was recognized as revenue in the fourth quarter of fiscal 2018. After subsequent review of the transaction, the Company has concluded that $12 million of the $13 million should be deferred. Accordingly, the previously announced financial results for the fourth quarter of fiscal 2018 and the first quarter of fiscal 2019 (ended June 29, 2018) will be revised to take into account this deferral and any other financial adjustments required as a result of this revision.

The Audit Committee also reviewed certain allegations concerning, and identified certain behavior inconsistent with, the Company’s Code of Conduct and related policies. The Audit Committee referred these matters to the Company for appropriate action, which the Company intends to take.

The Audit Committee proposed certain recommendations which the Board of Directors has adopted, including: appointing a separate Chief Accounting Officer; appointing a separate Chief Compliance Officer reporting to the Audit Committee; clarifying and enhancing the Code of Conduct and related policies; and adopting certain enhanced controls and policies related to the matters investigated.

Following the completion of the Audit Committee Investigation, the Company has either implemented, or is in the process of implementing, the Audit Committee’s recommendations. Additionally, following the completion of the Audit Committee Investigation, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 30, 2018. As further described in Part II, Item 9A “Controls and Procedures” herein, our management has concluded that, as of March 30, 2018, our internal control over financial reporting was effective at the reasonable assurance level.

Also as previously announced, the Company voluntarily contacted the SEC regarding the Audit Committee’s investigation. The SEC commenced a formal investigation and the Company will continue to cooperate with that investigation.

 

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Fiscal Year 2019 Compensation Preview

As announced in connection with the Audit Committee Investigation, certain of the Company’s filings with the Securities and Exchange Commission were delayed, including this Annual Report on Form 10-K and the fiscal 2018 CD&A contained herein. Subsequent to the announcement of fiscal 2018 performance results, fiscal 2019 guidance, and the Audit Committee Investigation, Symantec’s stockholders experienced a substantial decline in the Company’s stock price. In this context, Mr. Clark, in consultation with the Compensation Committee, elected to forego a fiscal 2019 equity award. Mr. Clark also determined, in consultation with the Compensation Committee, that none of the Company’s NEOs would receive a base salary increase for fiscal 2019.

Fiscal Year 2018 Compensation Results — Overview of Compensation through Our Transformation

Fiscal Year 2018 Compensation Components

Our fiscal year 2017 compensation program design reflected the transformation we planned to undertake. Our fiscal year 2018 compensation programs built upon the substantial transformation achieved by the Company in fiscal 2017. In fiscal 2018, we maintained our historical compensation program design for base salary and short-term cash incentive awards, and reverted back to our historical compensation program design for PRUs, as shown below:

 

 

Component

 

  

 

Metrics / Purpose

 

Base Salary   

 Supports attraction and retention of talent

 

 Aligned with role, contributions, and competitive market practice

   
  Annual Incentive(1)     

 50% Revenue (non-GAAP)

 Encourages overall company growth, a key stockholder value driver

 

 50% Operating Income (non-GAAP)

 Provides a strong focus on cost control, aligns with stockholder value growth

   
Equity Incentive   

  70% Performance Based Restricted Stock Units (PRUs)

 Independently-measured corporate metrics (non-GAAP EPS and relative TSR) provide  short-term and long-term motivation

 

 30% time-vested restricted stock units (RSUs)

 Promotes retention and stockholder alignment

 

(1) 

In fiscal 2018, these awards would have been payable in fully-vested RSU awards.

 

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Compensation Outcomes Driven by our 2018 Results

Our fiscal 2018 financial results and total stockholder return drove the outcomes of the 2018 Executive Annual Incentive Plan (“FY18 EAIP”) and the FY18 PRUs, FY17 PRUs and FY16 PRUs, as follows:

 

Component   Metric (1)(2)     Achievement     Funding
FY18 EAIP  

 

FY18 Adjusted Non-
GAAP Operating
Income (3)

 

  95.20%   0%
 

 

FY18 Adjusted Non-
GAAP Revenue (3)

 

  96.40%   0%
FY18 PRUs  

 

FY18 Adjusted
Non-GAAP EPS

 

  95.20%  

 

50.5% of the FY18 Year One Shares became eligible to be earned at the end of fiscal 2020.

 

FY17 PRUs  

 

FY18 Adjusted Non-
GAAP Operating
Income (4)

 

  109.29%  

 

268.20% (of which 250.00% vested and was funded as of FY18 end) (5)

 

FY16 PRUs   2-year relative TSR   112.20%  

 

106.45% (based on FY16 Q1-Q3 EPS, 1-year TSR ended FY17 and 2-year TSR ended FY18)

 

 

(1) 

Please refer to the respective sections for each component below for a full overview of how the targets for each award were calculated.

 

(2) 

In calculating the actual FY18 performance of each metric, the Company utilizes the relevant metric that we report in our quarterly earnings releases, and makes certain adjustments where required, in accordance with the terms of the underlying plans. Please refer to the respective sections below for details on the adjustments to the actual results under each plan, where appropriate.

 

(3) 

Please see “-II. Executive Annual Incentive Plan — Executive Annual Incentive Plan Performance Measures and Target Setting” for a description of how FY18 adjusted non-GAAP operating income and FY18 adjusted non-GAAP revenue is calculated under the FY18 EAIP.

 

(4) 

Please see “-III. Equity Incentive Awards — Performance-based Restricted Stock Units (PRUs) — Fiscal Year 2017 PRU Achievement” for a description of how FY18 adjusted non-GAAP operating income is calculated under the FY17 PRUs.

 

(5) 

An additional 18.20% is eligible to be earned at the end of fiscal 2019, subject to continued employment through that date.

The plan payouts reflect mixed results relative to the performance goals established for the respective plans:

FY18 EAIP. In fiscal 2018, the Company set challenging performance targets for the FY18 EAIP based on the strong progress made against its business strategy during fiscal 2017. Our Compensation Committee established the adjusted non-GAAP operating income and revenue metrics because it believed, among other factors, that these measures strongly correlate with stockholder value creation. Despite significant year-over-year improvements in results, the Company did not achieve the incremental threshold levels set for the non-GAAP operating income and non-GAAP revenue under the FY18 Executive Annual Incentive Plan. Accordingly, no payouts were made to our named executive officers under the payout formula for the FY18 Executive Annual Incentive Plan.

 

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FY18 PRUs. These awards may be earned over three years based on the Company’s achievement of non-GAAP EPS for fiscal 2018, as adjusted under the plan, along with relative TSR against the Nasdaq 100 index for the two-year and three-year periods ending at the completion of fiscal 2019 and fiscal 2020, respectively. 50% of the total FY18 PRUs (“FY18 Year One Shares”) were eligible to be earned based on fiscal 2018 non-GAAP EPS. Our Compensation Committee established the non-GAAP EPS portion for the FY18 Year One Shares because it believed it would allow evaluation of Company performance on its short-term strategy execution, while requiring longer-term three-year vesting to provide alignment with stockholders over a more extended time period. For fiscal 2018, our non-GAAP EPS target under the FY18 PRUs was $1.64 per share with a threshold performance level of $1.56 per share. The Compensation Committee determined that we achieved a fiscal 2018 non-GAAP EPS of $1.56 per share, or 95.2% of this metric, resulting in the threshold level having been achieved and 50.5% of the FY18 Year One Shares (25.25% of the total FY18 PRUs) becoming eligible to be earned at the end of the FY18 PRU Performance Period at the end of fiscal 2020.

FY17 PRUs. These awards were earned based on fiscal 2018 adjusted non-GAAP operating income, which was selected as the metric for the FY17 PRUs because it provided a powerful incentive to both complete the Company’s business transformation goal while also requiring the executive team to deliver increased profitability. The fiscal 2018 non-GAAP operating income target under the FY17 PRUs was $1,560 million (which took into account the Blue Coat and LifeLock acquisition and DigiCert, Inc. divestiture). The Company achieved $1,705 million in adjusted non-GAAP operating income in fiscal 2018, resulting in the achievement of 109.29% of target, with a payout of 268.20%, 250% of which being earned and vested at the end of fiscal 2018. The Compensation Committee believes the targets set in June 2016, and subsequently revised in March 2017 and October 2017, had the desired effect to drive the demonstrated growth in non-GAAP operating income from fiscal 2016 to fiscal 2018.

FY16 PRUs. These awards were earned based on a combination of fiscal 2016 EPS results and subsequent relative TSR versus the S&P 500 over fiscal 2017 and fiscal 2018. The FY16 PRUs paid out at 112.2% of target.

See “II. Executive Annual Incentive Plan” below for details on the EAIP design and pay outcome, and “Previously Granted Long Term Incentive Pay Outcomes” below for a full description of the design and pay outcomes of the FY18, FY17, and FY16 PRUs.

Our Compensation Philosophy and Practices

Our executive compensation programs are designed to drive our success as a market leader in cybersecurity. As we structure and oversee these programs, we focus on the achievement of corporate and individual performance objectives, and aim to attract and retain highly-qualified executive management while maximizing long-term stockholder value.

A number of principles and circumstances inform our executive compensation decisions. One important principle is our belief that it benefits all of our constituencies for management’s compensation to be tied to the Company’s current and long-term performance. As a result, at-risk pay comprises a significant portion of our executive compensation, particularly for individuals in more senior and influential positions.

We believe it is important to attract, motivate and retain highly-qualified executives who demonstrate strong commitment to Symantec’s success. We review relevant market and industry practices to structure compensation packages that are competitive in the markets in which we compete for executive talent. While we strive for a basic level of internal pay equity among our management team members, we believe that it is also important to reward outstanding individual performance, team success, and Company-wide results.

 

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We are also sensitive to our need to balance the interests of our executive officers with those of our stockholders, especially when compensation decisions might increase our cost structure or stockholder dilution. We strive to appropriately balance the interests of all of our constituencies — our stockholders, our executive officers, our employee base, our business partners and our community.

Compensation Policies and Practices

As described below, the overriding principle driving the design of our executive compensation programs continues to be our belief that our employees, customers, partners and stockholders all benefit when management’s compensation is tied to our current and long-term performance. The following factors demonstrate our commitment to pay-for-performance and to corporate governance best practices:

 

   

Payouts Based on Performance. We reward performance that meets targets set by the Compensation Committee. Our compensation plans do not have guaranteed payout levels, and our executive officers do not receive any payouts under performance-based cash or equity awards if the goals are not met. Our compensation plans are also capped to discourage excessive or inappropriate risk-taking by our executive officers.

 

   

Performance-based Restricted Stock Units (“PRUs”); no Options. The majority of the annual, at-target equity compensation of our executive officers is in the form of PRUs, which have no value unless our Company achieves the targeted metrics for each PRU award. We do not award stock options to our executive officers (although some executives that joined our Company in connection with an acquisition may hold options granted to them by the acquired company and assumed by our Company).

 

   

Metrics Correspond to Stockholder Value. Our incentive plans use multiple, non-duplicative measures that correlate to stockholder value, with no single metric overly emphasized in determining payouts in any year.

 

   

Relevant Compensation Peer Group. Our compensation peer group consists primarily of businesses with a focus on software development, or software and engineering-driven companies that compete with us for talent. Our peer group companies are comparable to us in terms of complexity, global reach, revenue and market capitalization. We reevaluate our peer group on an annual basis and, as necessary, make adjustments to our peer group.

 

   

Meaningful Stock Ownership Guidelines for Executives. We have long-standing stock ownership guidelines for our named executive officers, requiring them to hold a significant minimum value in shares so that they have a material financial stake in our Company and our success, aligning the interests of our executives with those of our stockholders. We also prohibit the sale of shares by executives (except to meet tax withholding obligations) if doing so would cause them to fall below required ownership levels.

 

   

Annual Say-on-Pay Vote and Stockholder Engagement. We seek stockholder feedback on our executive compensation through an annual advisory vote and ongoing stockholder engagement.

 

   

No Tax Gross-ups Permitted. We do not provide for gross-ups of excise tax amounts under Section 4999 of the Code.

 

   

Limited Cash Severance. We limit any potential cash severance payments to not more than 1x of each of our non-CEO’s executive officers’ total target cash compensation and to 2x our CEO’s annual base salary.

 

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Clawback Provisions. We have a recoupment, or “clawback”, policy applicable to all incentive-based compensation for certain violations of Symantec policies and to all performance-based compensation granted to the Company’s executives (even after they leave Symantec). This policy supplements contractual clawback rights which we have had in place for all of our executive compensation plans for many years, providing that any excess compensation paid to an executive officer is to be returned if our financial statements are the subject of a restatement due to error or misconduct.

 

   

Short-selling, Hedging and Pledging Prohibited. Our executives are prohibited from short-selling Symantec stock, hedging or engaging in transactions involving Symantec-based derivative securities, and they are prohibited from pledging their Symantec stock. For more on these prohibitions and waivers therefrom, see “Related Policies and Considerations– Insider Trading, Hedging and Pledging Policies.”

 

   

Stockholder Approval Required for Repricing or Exchanges. Our equity incentive plan prohibits the repricing or exchange of equity awards without stockholder approval.

Named Executive Officer Compensation

General

Our named executive officers were compensated in a manner consistent with our core pay-for-performance compensation philosophy. The following are some important elements of our named executive officers’ compensation for fiscal 2018:

 

   

Majority of pay at risk. For fiscal 2018, based on full target award value, approximately 95% of our CEO’s target total direct compensation was at risk and approximately 94% of the target total direct compensation for our other named executive officers was at risk.

 

   

Short-term incentive compensation linked directly to Symantec financial results. Our annual incentive compensation for executives is structured to emphasize performance. Under the FY18 Executive Annual Incentive Plan, the named executive officers were eligible to receive performance-based incentive cash awards based on Company achievement of targeted non-GAAP operating income and non-GAAP revenue during fiscal 2018. In fiscal 2018, these short-term awards would have been payable in fully-vested RSU awards.

 

   

100% equity-based long-term incentive compensation, the majority of which is performance-based. For fiscal 2018, the long-term compensation component of our named executive officers’ compensation packages consisted entirely of equity incentive awards.

 

   

Seventy percent of the value of the target equity incentive awards granted to our named executive officers were made in PRUs (with the remaining 30% in RSUs).

 

   

Under the FY18 PRUs, the NEOs were eligible to earn:

 

   

50% of the shares based on Company achievement of adjusted non-GAAP EPS for fiscal 2018. The Compensation Committee believed this metric would create a near-term measure for goal achievement and short-term stockholder value creation that could be impacted by the performance of the executive team while creating long-term alignment with stockholder value creation.

 

   

25% of the shares may be earned at the end of fiscal 2019 and the final 25% of the shares may be earned at the end of fiscal 2020 based on Company achievement

 

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over the two-year and three-year periods of relative TSR for the Company compared to TSR for the Nasdaq 100 index. The Compensation Committee believed these were proper metrics to allow for continued evaluation of the Company’s performance on short-term financial execution against its peers while also maintaining multi-year sustainability of stockholder value creation.

 

   

The FY18 PRUs further encourage executive retention with the Company since the executive must, subject to limited circumstance, be employed with the Company through the end of fiscal 2020 in order to vest in any earned FY18 PRUs.

 

   

The fiscal 2018 incentive compensation performance measures were selected because they focus on measuring the executive team’s execution following Symantec’s business transformation during the preceding fiscal year. The TSR benchmark group was updated to the Nasdaq 100 index under the FY18 PRU plan from the S&P 500 which was used in our prior PRU plans (except for the FY17 PRU plan, under which TSR was not a metric) because the Compensation Committee believes the Nasdaq 100 index is more closely aligned to Symantec in terms of industries represented in the index.

“Say on Pay” Advisory Vote on Executive Compensation and Stockholder Engagement

We hold an advisory vote on named executive officer compensation, commonly known as a “Say-on-Pay” vote, on an annual basis. While these votes are not binding, we believe that it is important for our stockholders to have an opportunity to express their views regarding our executive compensation programs and philosophy as disclosed in our proxy statement on an annual basis. The Compensation Committee values our stockholders’ opinions and the Board and the Compensation Committee consider the outcome of each vote when making future compensation decisions for our named executive officers. We received approximately 97% and 87% of the votes cast on the advisory vote in favor of our executive compensation programs in fiscal 2016 and fiscal 2017, respectively.

In addition to the annual advisory vote on executive compensation, we are committed to ongoing engagement with our stockholders on executive compensation matters generally. These engagement efforts take place through telephone calls, in-person meetings and correspondence with our stockholders. For example, during fiscal 2018 we engaged in discussions with stockholders representing approximately 65% of our then outstanding shares to discuss, among other topics, executive compensation matters.

COMPENSATION COMPONENTS

The major components of target compensation for our named executive officers during fiscal 2018 were: (i) base salary, (ii) short-term cash incentive awards and (iii) long-term equity incentive awards.

Analysis of Compensation Components

Note that the financial measures used as performance targets for our NEOs are non-GAAP measures and differ from the comparable GAAP measures reported in our financial statements and may differ from the non-GAAP results we report in our quarterly earnings releases. We explain how we use these non-GAAP measures in our discussions on the calculations of each metric below.

I. Base Salary

The Compensation Committee reviews the named executive officers’ base salaries annually as part of its overall competitive market assessment and may make adjustments based on talent,

 

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experience, performance, contribution levels, individual role, positioning relative to market and our overall salary budget. Except as described under “Named Executive Officer Compensation” above, the independent members of the Board review the CEO’s salary in executive session (i.e., without any executives present), and changes are considered in light of market pay assessments and the Board’s annual CEO performance evaluation, in each case without the participation of our CEO. In setting the base salaries for the other named executive officers, the Compensation Committee also generally considers the recommendations of the CEO based upon his annual review of their performance. See “Factors We Consider in Determining Our Compensation Programs” for a discussion of how the Compensation Committee performs its competitive market assessment.

The following table presents each named executive officer’s base salary for fiscal 2018. None of our named executive officers received a base salary increase in fiscal 2018 as compared to fiscal 2017, because our Compensation Committee deemed the base salary for each named executive officer was effective in continuing to achieve the Compensation Committee’s goals for this component of each officer’s executive compensation.

 

Name of NEO

   Fiscal 2017
Annual Salary ($)
     Change in
Salary (%)
     Fiscal 2018
Annual Salary ($)
 

Gregory S. Clark (1)

     1,000,000        -        1,000,000  

Michael D. Fey (1)

     865,000        -        865,000  

Nicholas R. Noviello (1)

     650,000        -        650,000  

Scott C. Taylor

     600,000        -        600,000  

Francis C. Rosch (2)

     700,000        -        700,000  

 

(1) 

Messrs. Clark, Fey and Noviello joined the Company following the Company’s acquisition of Blue Coat in August 2016 and received an annualized portion of the amounts listed here for fiscal 2017.

 

(2) 

Mr. Rosch served as our Executive Vice President, Consumer Digital Safety through June 28, 2018.

II. Executive Annual Incentive Plan

Executive Annual Incentive Plans for our executive officers were adopted pursuant to the Senior Executive Incentive Plan, which was most recently approved by our stockholders in 2013. The Executive Annual Incentive Plans are annual cash incentives designed to reward named executive officers (and other participants) for generating strong financial results for our Company in the short term. In fiscal 2018, these awards would have been payable in fully-vested RSU awards. To align our executives’ incentive awards with key drivers of the Company’s financial performance, all named executive officers earn incentive compensation based on performance against pre-set corporate targets. The Compensation Committee typically sets, and evaluates achievement of, individual performance targets for named executive officers as well.

 

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Executive Annual Incentive Plan Target Opportunities: Under the Executive Annual Incentive Plans, each named executive officer has a target award opportunity for a given fiscal year, expressed as a percentage of base salary, with the ability to earn above or below that target based on actual performance. Target award opportunities for our Executive Annual Incentive Plans are established by the Compensation Committee using the various inputs described below. The following table presents each named executive officer’s target bonus opportunity (on an actual and percentage of base salary basis) for fiscal 2018 under the FY18 Executive Annual Incentive Plan:

 

Name of NEO

   Fiscal 2018 Target
Percent of Base (%)
     Fiscal 2018
Target ($)
 

Gregory S. Clark

     150        1,500,000  

Michael D. Fey

     150        1,297,500  

Nicholas R. Noviello

     100        650,000  

Scott C. Taylor

     100        600,000  

Francis C. Rosch

     100        700,000  

In general, these target award opportunities for fiscal 2018 were determined based on relevant market data, desired market positions, the desired mix between cash and equity-based incentive pay, internal pay equity goals, and the role of the named executive officer. Mr. Clark’s target bonus opportunity was increased to 150% of base salary for fiscal 2018 to more closely align with competitive market practices for CEOs with similar scope and responsibilities. When target bonus opportunities are established for executive officers, there is no assurance that the performance objectives associated with the awards will be realized and all payouts are capped based on achievement of relevant performance metrics. Payment is contingent upon achievement of the threshold performance level for both metrics.

The threshold performance levels were not achieved in fiscal 2018, so no payouts were made to our named executive officers under the FY18 Executive Annual Incentive Plan.

Executive Annual Incentive Plan Performance Measures and Target Setting: Executive Annual Incentive Plan performance targets are typically established within the first 90 days of each plan year. Our management develops goals to propose to the Compensation Committee after taking into account a variety of factors, including our historical performance, internal budgets, market and peer performance and external expectations for our performance. The Compensation Committee reviews, adjusts as necessary and approves the goals, the range of performance to be rewarded and the weighting of the goals. After the end of each fiscal year, the Compensation Committee reviews our actual performance against the performance measures established in the fiscal year’s Executive Annual Incentive Plans (after making any appropriate adjustments to such measures for the effects of corporate events that were not anticipated in establishing the performance measures), determines the extent of achievement and approves the payment of annual cash incentives, if warranted.

The FY18 Executive Annual Incentive Plan was comprised of two metrics: non-GAAP operating income and non-GAAP revenue. We used these performance metrics because:

 

   

over time, we believe that non-GAAP operating income and non-GAAP revenue measures strongly correlate with stockholder value creation for Symantec;

 

   

non-GAAP operating income and non-GAAP revenue measures are transparent to investors and are calculated on the same basis as described in our quarterly earnings releases and supplemental materials, with certain adjustments as described below;

 

   

non-GAAP operating income and non-GAAP revenue measures are designed to balance growth and profitability; and

 

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the executive team can have a direct impact on these metrics through skillful management and oversight.

Consistent with the presentation in our quarterly earnings releases and supplemental materials, in our executive compensation programs, we define (i) non-GAAP operating income as GAAP operating income, adjusted, as applicable, to exclude website security and PKI results included in our third quarter of fiscal year 2018 results, stock-based compensation expense, charges related to the amortization of intangible assets, restructuring, separation, transition and other related expenses, acquisition and integration expenses, certain gains or losses on litigation contingencies and settlements, the impact from deferred revenue and inventory fair value adjustments as part of business combination accounting entries and certain other income and expense items that management considers unrelated to Symantec’s core operations; and (ii) non-GAAP revenue as GAAP revenue adjusted, as applicable, to exclude website security and PKI revenue included in our third quarter of fiscal year 2018 revenue, certain litigation contingencies and settlements, and the impact from deferred revenue fair value adjustments as part of business combination accounting entries. For purposes of calculating achievement of both metrics under the FY18 Executive Annual Incentive Plan, foreign exchange movements were held constant at plan rates, pursuant to the terms of the plans.

The FY18 Executive Annual Incentive Plan provides that the determination of achievement of the non-GAAP operating income and non-GAAP revenue metrics is formulaic, while the individual performance metric is determined based on a qualitative evaluation of the individual’s performance against pre-established objectives with input from our CEO. In rating the individual’s performance, the Compensation Committee gives weight to the input of our CEO, but final decisions about the compensation of our named executive officers is made solely by the Compensation Committee. The Compensation Committee has discretion to adjust individual awards as appropriate.

 

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Weighted Average Annual Individual Individual Base of Revenue and Incentive Performance Payout Salary $ Operating Income Target % Factor % Amount $ Funding %

The payout curves for each of non-GAAP revenue and non-GAAP operating income are as follows:

 

Fiscal 2018 Non-GAAP Operating Income

Performance and Payout Ranges

  

Fiscal 2018 Non-GAAP Revenue

Performance and Payout Ranges

 

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Payout as % of Target 200% 150% 100% 50% 0% Target level payout between $1.707 and $1.747 billion 130% payout at $1.792 billion Max at $2.000 billion 40% payout at $1.655 billion $1,600 $1,700 $1,800 $1,900 $2,000 Non-GAAP Operating Income (millions) Payout as % of Target 200% 150% 100% 50% 0% Max at $5.207 billion Target at $5.007 billion 40% payout at $4.901 billion $4,800 $4,900 $5,000 $5,100, $5,200 Non-GAAP Revenue (millions)

 

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The non-GAAP operating income and non-GAAP revenue metrics are tested and funded independently of each other and are weighted equally. With the exception of our CEO, the actual individual payouts are generally further modified based on the individual performance factor generally in the range of 0% to 140% based on the performance achievement against pre-established individual goals for the fiscal year.

 

     Non-GAAP
Operating Income (%)
     Non-GAAP
Revenue (%)
     Individual
Performance
Modifier (%)
     Total Payout
as a Percentage of
Target (%)
 

Threshold

     40        40        35        14  

Target

     100        100        100        100  

Maximum

     200        200        140        280  

Non-GAAP operating income and non-GAAP revenue performance targets were established based on a range of inputs, including external market economic conditions, growth outlooks for our product portfolio, the competitive environment, our internal budgets and market expectations. The targets for achievement of non-GAAP operating income and non-GAAP revenue and payout curves for the FY18 Executive Annual Incentive Plan reflected the substantial improvement in non-GAAP operating income and non-GAAP revenue that the Company experienced in fiscal 2017 and were adjusted to reflect the financial impact of the divestiture of the Company’s website security business and related PKI assets to DigiCert, Inc. that was completed in October 2017 (the adjustment also took into consideration the effect of two small acquisitions that were completed in July 2017).

As presented in the table below, for fiscal 2018, our non-GAAP operating income target under the FY18 EAIP was $1,707 million and our non-GAAP revenue target under the FY18 EAIP was $5,007 million. The non-GAAP operating income and non-GAAP revenue targets prior to the October 2017 adjustment were $1,857 million and $5,210 million, respectively. The Compensation Committee sets rigorous targets for incentive plan metrics, the achievement of which would reflect outstanding performance. As described more fully below under Achievement of Fiscal 2018 Performance Metrics, the Company did not achieve either of the threshold performance levels and no payouts were made to our named executive officers.

Individual Performance Assessment: In general, individual awards are determined based in part on assessment of individual performance results and impact against both quantitative and qualitative expectations for the executive’s role. The CEO’s payout opportunity does not include any individual performance modifier.

Individual performance is evaluated based on both quantitative and qualitative results in the following key areas:

 

   

financial and operational goals for the executive’s area of responsibility and the entire Company;

 

   

leadership qualities as well as functional competencies and knowledge for the executive’s area of responsibility; and

 

   

development and management of the executive’s team of employees.

Leadership skills are a common component of each of these objectives and are a significant factor in the assessment of individual performance. The executive’s willingness to contribute to cross-functional initiatives outside his or her primary area of responsibility, and the executive’s contribution to our performance-focused culture, are also extremely important aspects of the individual performance assessment.

 

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Under the FY18 Executive Annual Incentive Plan, if the threshold performance level for each Company performance metric is achieved, the CEO evaluates the level of each named executive officer’s individual performance against the pre-determined goals following the end of fiscal year and then make a recommendation to the Compensation Committee. The Compensation Committee would then review the CEO’s compensation recommendations for the other named executive officers, make any appropriate adjustments, and approve their compensation, if warranted.

Achievement of Fiscal 2018 Performance Metrics:

FY18 Executive Annual Incentive Plan Results

 

     Target ($)
(millions)
     Actual ($)
(millions) (1)
     Achievement (%)     Threshold (%)     Funding (%)  

Non-GAAP Operating Income

     1,707        1,625        95.2     97     0

Non-GAAP Revenue

     5,007        4,827        96.4     98     0

Fiscal 2018 Funding

               0

 

(1) 

For purposes of calculating achievement of both metrics, foreign exchange movements were held constant at plan rates, pursuant to the terms of the plans.

With the strong progress made against the business transition plan in fiscal 2017, including year-over-year improvements in financial results between fiscal 2016 and fiscal 2017, in fiscal 2018 the Compensation Committee set challenging targets for non-GAAP operating income and non-GAAP revenue under the FY18 Executive Annual Incentive Plan that required outstanding performance be achieved in fiscal 2018. Notwithstanding the year-over-year improvements in results between fiscal 2017 and fiscal 2018, the Company did not achieve either of the threshold performance levels set for non-GAAP operating income and non-GAAP revenue under the FY18 Executive Annual Incentive Plan. Because neither threshold was achieved, no payouts were made to our named executive officers under the payout formula for the FY18 Executive Annual Incentive Plan. Individual performance metrics were set for our executive officers and were designed to be a factor in determining payout amounts, but ultimately were not taken into consideration because the threshold financial operating metrics were not achieved.

III. Equity Incentive Awards

The primary purpose of our equity incentive awards is to align the interests of our named executive officers with those of our stockholders by rewarding the named executive officers for creating stockholder value over the long term. By compensating our executives with equity incentive awards, our executives hold a stake in Symantec’s financial future. The gains realized in the long term depend on our executives’ ability to drive the financial performance of Symantec as reflected in its share price. Equity incentive awards are also a useful vehicle for attracting and retaining executive talent in the highly-competitive market for talent in which we compete.

Our 2013 Plan, provides for the award of stock options, stock appreciation rights, restricted stock, and restricted stock units (including PRUs). For fiscal 2018, the equity incentive component of our executive compensation program consisted of PRUs and RSUs for all of our named executive officers. We also offer all employees in eligible countries the opportunity to participate in the 2008 Employee Stock Purchase Plan, which allows for the purchase of our stock at a discount to the fair market value through payroll deductions. This plan is designed to comply with Section 423 of the Code. During fiscal 2018, four of the named executive officers participated in the 2008 Employee Stock Purchase Plan.

We seek to provide equity incentive awards that are competitive with companies in our peer group and the other information technology companies that the Compensation Committee includes in its

 

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competitive market assessment. As such, we establish target equity incentive award grant guideline levels for the named executive officers based on competitive market assessments. When making annual equity awards to named executive officers, we consider our Company performance during the past year, the role, responsibility and performance of the individual named executive officer, the competitive market assessment described above, prior equity awards, and the level of vested and unvested equity awards then held by each named executive officer. In making equity awards, we also generally take into consideration gains recognizable by the executive from equity awards made in prior years. Mercer, an outside consulting firm, provides the Compensation Committee with market data on these matters, as well as providing to the Compensation Committee summaries of the prior grants made to the individual named executive officers.

As discussed below, the Compensation Committee believes that for fiscal 2018, a mix of PRUs and time-vested RSUs was the appropriate long-term equity incentive for named executive officers. For fiscal 2018, our CEO received approximately 70% of the value of his target annual equity incentive award in the form of PRUs and 30% in the form of RSUs. This is consistent with our philosophy to allocate a significant portion of the value of the CEO’s target total long-term equity incentive award in the form of PRUs rather than time-vested RSUs. For the fiscal 2018 awards, in order to provide a strong incentive to deliver on our longer- term performance objectives, we applied the same philosophy to grant a majority of the value of the target total long-term equity incentive award in the form of PRUs with our other named executive officers as well. 70% of the other named executive officers’ equity incentive award target value was also granted in the form of PRUs and approximately 30% in the form of RSUs.

For Messrs. Clark, Noviello and Fey, fiscal 2018 marked each executive’s first full fiscal year with Symantec following the acquisition of Blue Coat in August 2016 and included each executive’s first full-year equity incentive grant by Symantec. Accordingly, comparisons with certain equity grant amounts listed for fiscal 2017 herein (for example, in the Summary Compensation Table, below) may not take into account the grants each of these executives received in fiscal 2017 by Blue Coat prior to the close of the acquisition. See Note 2 to the Summary Compensation Table, below.

Restricted Stock Units (RSUs): RSUs represent the right to receive one share of Symantec common stock for each RSU vested upon the settlement date, which is the date on which certain conditions, such as continued employment with us for a pre-determined length of time, are satisfied. The Compensation Committee believes that RSUs align the interests of the named executive officers with the interests of our stockholders because the value of these awards appreciates if the trading price of our common stock appreciates, and these awards also have retention value even during periods in which our trading price does not appreciate, which supports continuity in the senior management team.

Shares of our common stock are issued to RSU holders as the awards vest. The vesting schedule for RSUs granted to our named executive officers in fiscal 2018 as part of the annual review process provide that each award vests in three installments: 30% in June 2018, 30% in June 2019 and 40% in June 2020.

Details of RSUs granted to our named executive officers in fiscal 2018 are disclosed in the Grants of Plan-Based Awards table on page 106 and summarized in the last table within the next subsection below.

Performance-based Restricted Stock Units (PRUs): The Compensation Committee grants PRUs in furtherance of our pay for performance philosophy. Our Compensation Committee established this program to enhance our pay for performance culture with components directly linked to Company performance against established metrics over two- and three-year periods. Unlike our RSU awards, the

 

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shares underlying the PRUs awarded for fiscal 2018 are eligible to be earned only if we achieve a threshold of non-GAAP EPS for fiscal 2018 and a threshold of relative TSR against the Nasdaq 100 index for the two- and three-year periods ending fiscal 2019 and fiscal 2020, respectively, as shown below.

 

LOGO

FY2018 PRU Design FY 2018 FY 2019 FY 2020 50% - FY2018 EPS Performance (A) Payout Range 0% - 200% for each metric 25% - 2-year TSR Performance (B) 25% - 3-year TSR Performance (C) A + B + C = Total Number of PRUs Earned (Subject to continued employment, all of the earned shares are released at the end of FY2020)

For fiscal 2018, our PRU design reflected a renewed focus on linking executive compensation to operational execution and stockholder value creation. The Compensation Committee believed that using independently-measured corporate metrics (non-GAAP EPS and relative TSR) for the FY18 PRUs would motivate our executive team by providing distinct separate opportunities to earn awards. Non-GAAP EPS was chosen to help create a near-term measure for goal achievement and short-term stockholder value creation that could be impacted by the performance of the executive team, while also supplementing the non-GAAP operating income performance metrics under the FY17 PRUs and the non-GAAP operating income and revenue performance metrics under the FY18 Executive Annual Incentive Plan.

For the FY18 PRUs, adjusted non-GAAP EPS is calculated as GAAP profit before tax, adjusted, as applicable, to exclude website security and PKI results included in our third quarter of fiscal year 2018 results, stock-based compensation expense, charges related to the amortization of intangible assets, restructuring, separation, transition and other related expenses, acquisition and integration expenses, certain gains or losses on litigation contingencies and settlements, the impact from deferred revenue and inventory fair value adjustments as part of business combination accounting entries, non-cash interest expense, gains on divestitures and sale of assets, loss from equity interest, income from discontinued operations and certain other income and expense items that management considers unrelated to Symantec’s core operations, less GAAP tax expense excluding (i) the discrete impacts of changes in tax legislation, (ii) most other significant discrete items, (iii) certain unique GAAP reporting requirements under discontinued operations and (iv) the income tax effects of the non-GAAP adjustment to our operating results described above. This amount is divided by a fixed share count, which eliminates dilution or stock buybacks from impacting the financial performance in the calculation of non-GAAP EPS. For purposes of calculating achievement of this metric, foreign exchange movements were held constant at plan rates, pursuant to the terms of the plan.

The two and three-year relative TSR metric was chosen to enable evaluation of Company performance against its peers while maintaining multi-year sustainability of stockholder value creation. We changed our TSR benchmark group to the Nasdaq 100 index from the S&P 500 which was used in prior year PRU plans, because the Compensation Committee believed the Nasdaq 100 index is more closely aligned to Symantec in terms of industries and companies represented.

 

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With respect to the non-GAAP EPS metric of the FY18 PRUs, 50% of the shares underlying the FY18 PRUs (“FY18 Year One Shares”) are eligible to be earned based on the achievement of the non-GAAP EPS threshold amount. Depending on actual results, 0% to 200% of the FY18 Year One Shares will be eligible to be earned at the end of the 3-year performance period. With some exceptions (including acceleration of vesting upon a change in control of our Company under the terms of the Symantec Executive Retention Plan, as amended), the FY18 Year One Shares earned at the end of fiscal 2018 will vest, if at all, only at the end of fiscal 2020 (the “FY18 PRU Performance Period”), and the named executive officer must be employed by us at the end of such period in order to vest in the award. The following table presents threshold, target and maximum performance levels and payouts at the non-GAAP EPS metric:

 

     EPS Performance as
a Percentage of
Target (%)
     EPS Payout as
a Percentage of
Target (%)
 

Threshold Level Payout %

     95        50  

Target Level Payout %

     100        100  

Maximum Payout %

     108        200  

For fiscal 2018, our non-GAAP EPS target under the FY18 PRUs was $1.64 per share with a threshold level of $1.56 per share. The Compensation Committee determined that we achieved 95.2% of the target level of this metric, resulting in the threshold level having been achieved and 50.5% of the FY18 Year One Shares becoming eligible to be earned at the end of the FY18 PRU Performance Period at the end of fiscal 2020.

With respect to the relative TSR metric of the FY18 PRUs, 25% of the shares underlying the FY18 PRUs (“FY18 Year Two Shares”) are eligible to be earned based on the achievement of the Company’s relative TSR threshold amount over the two-year TSR performance ending on the last day of fiscal 2019, measured against the two-year TSR performance of companies comprising the Nasdaq 100 index over the same period. The companies deemed to be in the Nasdaq 100 index for this purpose consist of those companies that make up the Nasdaq 100 index at the end of fiscal 2019. Depending on achievement of this metric, 0% to 200% of the FY18 Year Two Shares will be eligible to be earned at the end of the FY18 PRU Performance Period. With some exceptions (including acceleration of vesting upon a change in control under the terms of the Symantec Executive Retention Plan, as amended), the FY18 Year Two Shares vest, if at all, only at the end of the FY18 PRU Performance Period, and the named executive officer must be employed by us at the end of such period in order to vest in the award.

An additional 25% of the shares underlying the FY18 PRUs (“FY18 Year Three Shares”) are eligible to be earned only based on the achievement of the Company’s relative TSR threshold amount over the three-year TSR performance ending on the last day of fiscal 2020, as measured against the three-year TSR performance of companies comprising the Nasdaq 100 index over the same period. The companies deemed to be in the Nasdaq 100 index for this purpose consist of those companies that make up the Nasdaq 100 index at the end of fiscal 2020. Depending on the achievement of this metric, 0% to 200% of the FY18 Year Three Shares will be eligible to be earned at the end of the FY18 PRU Performance Period. With some exceptions (including acceleration of vesting upon a change in control of our Company under the terms of the Symantec Executive Retention Plan, as amended), the FY18 Year Three Shares vest, if at all, only at the end of the FY18 PRU Performance Period, and the named executive officer must be employed by us at the end of such period in order to vest in the award. If our TSR performance applicable to the FY18 Year Two Shares (2-year performance) is below target, any unearned shares below the target level are added to the FY18 Year Three Shares. TSR is calculated using a 60-trading day average stock price at the beginning and end of the applicable period plus the value of dividends provided in the respective period.

 

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The following table presents threshold, target and maximum performance levels and payouts of the relative TSR metric for the FY18 Year Two Shares and the FY18 Year Three Shares:

 

     TSR Percentile
Rank against
Nasdaq 100
     TSR Payout as a
Percentage of Target (%)
 

Threshold Level Payout %

     25th        50  

Target Level Payout %

     50th        100  

Maximum Payout %

     75th        200  

Details of PRUs granted to our named executive officers in fiscal 2018 are disclosed in the Grants of Plan-Based Awards table on page 106 and summarized in the last table within the next subsection below.

Equity Grant Summary: The following table summarizes the number of shares granted subject to equity awards in fiscal 2018, the value of each award and the total value of the equity awards for each named executive officer as of the grant date (with all values of RSU awards based upon the closing price for a share of our common stock of $29.71 on June 9, 2017). The grant values provided below were established in the context of various factors, including competitive award opportunities for direct peer roles and potential alternative roles for which key individuals were potential candidates and the strategic importance of roles relative to the fiscal year 2018 and ongoing execution of the business transformation begun in fiscal 2017.

For Messrs. Clark, Noviello and Fey, fiscal 2018 marked each executive’s first full fiscal year with Symantec following the acquisition of Blue Coat in August 2016 and included each executive’s first full-year equity grant by Symantec. Accordingly, comparisons with certain equity grant amounts listed for fiscal 2017 herein (for example, in the Summary Compensation Table, below) may not take into account the grants each of these executives received in fiscal 2017 by Blue Coat prior to the close of the acquisition. Please refer to Note 2 to the Summary Compensation Table on page 103 for additional information regarding the calculation of the PRU value at grant date.

 

Name of NEO

   Target PRUs (#)      PRU Value at
Grant Date ($)
     RSUs (#)      RSU Value at
Grant Date ($)
     Total Target
Equity Incentive
Awards Value
at Grant Date ($)
 

Gregory S. Clark

     339,674        11,657,612        145,575        4,325,033        15,982,645  

Michael D. Fey

     317,029        10,880,435        135,870        4,036,698        14,917,133  

Nicholas R. Noviello

     158,514        5,440,200        67,935        2,018,349        7,458,549  

Scott C. Taylor

     101,902        3,497,276        43,672        1,297,495        4,794,772  

Francis C. Rosch

     271,739        9,326,082        116,460        3,460,026        12,786,109  

Previously Granted Long Term Incentive Pay Outcomes

Our fiscal 2018 financial results resulted in compensation plan payouts for long term incentive plan awards that had been made in fiscal 2016 and fiscal 2017. The payouts reflect mixed results relative to the performance goals established for the respective plans in the different fiscal years.

The FY16 PRUs paid out at 112.2% of target based on a combination of fiscal 2016 EPS results and subsequent total stockholder return (“TSR”) versus the S&P 500 over fiscal 2017 and fiscal 2018.

The FY17 PRU was funded at 268.20% of target, based on fiscal 2018 adjusted non-GAAP operating income results that were ahead of the original goals and delivered achievement of 109.29% of target. 250% of the shares were earned and vested at the end of fiscal 2018, with the remaining shares vesting at the end of fiscal 2019.

 

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The FY18 PRUs were structured so that 50% of the awards were eligible to be earned based on fiscal 2018 non-GAAP EPS (the FY18 Year One Shares). We achieved non-GAAP EPS of $1.56 per share, or 95.2% of this metric, resulting in the threshold level having been achieved and 50.5% of the FY18 Year One Shares (25.25% of the total FY18 PRUs) becoming eligible to be earned at the end of the FY18 PRU Performance Period at the end of fiscal 2020. The remaining 50% of FY18 PRUs will be eligible to vest based on two and three year relative TSR; any shares earned based on relative TSR performance will vest at the end of fiscal year 2020.

Fiscal Year 2016 PRU Achievement

 

LOGO

FY2016 PRU Design FY 2018 FY 2019 FY 2020 50% of shares earned based on FY2016 EPS TSR used as a Modifier (A) modified based on TSR Payout Range 100% - FY2016 1-year TSR Q1-Q3 EPS 0% - 150% Performance (B) Performance (A) 50% of shares earned based on FY2016 EPS(A) modified based on 2-year TSR Performance (C) EPS Payout Range 0% - 133% (A x 50% x B)+ (A x 50% x C) = Total Number of PRUs Earned (all of the earned shares are released after FY2020 end)

The PRUs granted to our named executive officers in fiscal 2016 (the “FY16 PRUs”) were eligible to be earned only if we achieved a threshold of non-GAAP EPS for the first three quarters of fiscal 2016. For purposes of calculating achievement for fiscal 2016, we define non-GAAP EPS as GAAP profit before tax, including discontinued operations, adjusted to exclude stock-based compensation expense, charges related to the amortization of intangible assets, restructuring, separation, transition and other related expenses, certain expenses related to transition service agreements with our former information management business, and certain other income and expense items that management considered unrelated to Symantec’s core operations, less GAAP tax expense excluding the income tax effects of the non-GAAP adjustment to our operating results described above. This amount is divided by diluted weighted-average shares outstanding for the period. For purposes of calculating achievement of this metric, foreign exchange movements were held constant at plan rates.

Our fiscal 2016 awards were granted and specifically designed by our Compensation Committee to enhance our pay for performance culture with a component directly linked to our TSR over two and three-year periods. Depending on our achievement of this metric, 0% to 133% of the target shares would be eligible to be earned at the end of the second and third fiscal year after the fiscal year of grant, based on, and subject to further adjustment as a result of, the achievement of the TSR ranking for our Company as compared to the S&P 500. If any target shares became eligible (the “eligible shares”) to be earned in the second and third fiscal year after the fiscal year of grant as a result of achievement of the non-GAAP EPS metric for the fiscal year of grant, then 50% to 150% of one-half of the eligible shares would be earned based on the achievement of the TSR goal for the two years ended at the end of the second fiscal year after the fiscal year of grant and 50% to 150% of one-half of the eligible shares (plus any eligible shares not earned at the end of the second fiscal year after the

 

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fiscal year of grant if less than 100% of the TSR goal is achieved for the two-year period then ended) would be earned based on the achievement of the TSR goal for the three years ended at the end of the third fiscal year after the fiscal year of grant. For the FY16 PRUs, we measure the performance period of the TSR to one year (fiscal 2017) and two years (fiscal 2017-2018 period) to exclude in each case the impact of the Veritas separation which took place during fiscal 2016. Subject to certain exceptions (including acceleration of vesting upon a change in control of our Company under the terms of the Symantec Executive Retention Plan, as amended), the award shall vest, if at all, only at the end of the third year of the performance period (i.e., fiscal 2018), and the named executive officer must be employed by us at the end of such period in order to vest in the award.

Below is the summary of our FY16 PRU performance metric achievements. The three-year performance period for the fiscal 2016 awards granted in fiscal 2016 completed at the end of fiscal 2018. The Compensation Committee certified an overall payout of 106.45% of the target award level.

 

Non-GAAP EPS    2-Year TSR    3-Year TSR
Performance

as % of

Target

   Eligible
Shares as %
of Target
Shares
   S&P 500
Percentile
Ranking
   Payout as %
of Target
   S&P 500
Percentile
Ranking
   Payout as %
of Target
   Overall
Payout
88.71%    81.19%    94th    150.00%    56th    112.24%    106.45%

Fiscal Year 2017 PRU Achievement

 

LOGO

FY2017 PRU Design FY 2017 FY 2018 FY 2019 100% - FY2018 Operating Income Addl Vesting Period Up to 250% of target award vested after for the portion Payout Range FY2018 (A) exceeding 250% of 0% - 300% target award (B) A + B = Total Number of PRUs Earned (Subject to continued employment, earned shares up to 250% of target award are released after FY2018 end; earned shares exceeding 250% of target award are released after FY 2019)

As noted above, the achievement associated with the FY17 PRUs marks a significant element of executive compensation that was determined on fiscal 2018 results and awarded in fiscal 2019. As a key component of our fiscal 2017 long-term equity incentive compensation program, in June 2016, our Compensation Committee granted PRUs to our then-current executive team, including Messrs. Taylor and Rosch under our 2013 Equity Incentive Plan. Similarly, in anticipation of their joining our executive team, Blue Coat granted Messrs. Clark, Fey and Noviello PRUs under an identical Blue Coat equity plan prior to the Blue Coat acquisition closing. At the time of grant in June 2016, the Company had announced a cost savings plan and business transformation initiatives which the Compensation Committee recognized would involve a multi-year effort on the part of the Company’s executives. Accordingly, the FY17 PRUs were designed with a performance metric that would focus the Company’s efforts on producing significantly increased profitability by the end of fiscal 2018. The Compensation Committee revised the performance metric and the targets upward in March 2017 to take into account the Blue Coat and LifeLock acquisitions, and subsequently adjusted the targets down in October 2017 in connection with the divestiture of the Company’s website security business and related PKI assets to DigiCert, Inc., which divestiture was completed in October 2017 (the October 2017 adjustment also took into consideration the effect of two small acquisitions that were completed in July 2017).

 

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The Compensation Committee chose fiscal 2018 non-GAAP operating income as the appropriate metric for the FY17 PRUs because it provided a powerful incentive to both complete the Company’s business transformation goal while also requiring the executive team to deliver increased profitability. Taking into account the revisions to the performance metric in March 2017 and October 2017, the fiscal 2018 non-GAAP operating income target under the FY17 PRUs was $1,560 million, and the Company achieved $1,705 million in adjusted non-GAAP operating income in fiscal 2018, resulting in the achievement of 109.29% of target, with funding at 268.20% of target, 250% of which was earned and vested at the end of fiscal 2018, as discussed below. The Compensation Committee believes the targets set in June 2016, and subsequently revised in March 2017 and October 2017, had the desired effect to drive the demonstrated growth in non-GAAP operating income from fiscal 2016 to fiscal 2018.

For purposes of calculating performance under the FY17 PRUs, we define non-GAAP operating income as our fiscal 2018 GAAP operating income, adjusted, as applicable, to exclude website security and PKI results included in our third quarter of fiscal year 2018 results, stock-based compensation expense, charges related to the amortization of intangible assets, restructuring, separation, transition and other related expenses, acquisition and integration expenses, certain gains or losses on litigation contingencies and settlements, the impact from deferred revenue and inventory fair value adjustments as part of business combination accounting entries and certain other income and expense items that management and/or the Compensation Committee considers unrelated to Symantec’s core operations. Non-GAAP operating income was adjusted under FY17 PRUs to (i) allow for the negative impact of up to $91 million of foreign exchange rates on revenue, with no limit on the positive foreign exchange impact, and (ii) adjusted beneficially for changes to Symantec’s capital structure that positively impacted Symantec’s EPS on a non-GAAP Basis, such as cash interest expense savings due to prepayment of indebtedness.

Depending on our achievement of this metric, 0% to 300% of the target shares were eligible to be earned at the end of fiscal 2018, subject to additional vesting conditions in certain cases as discussed below. To further encourage continued service to our Company and our stockholders, for any achievement above 250% of target to be earned, the participant must generally be employed by our Company through the end of fiscal 2019 when the additional payout in excess of 250% will be made.

Below is the summary of our FY17 PRU performance metric achievement:

 

             
 

FY18

non-GAAP
Operating
Income

Target ($)
(millions)

FY18

non-GAAP
Operating
Income

Actual ($)
(millions)

FY18

Non-GAAP
Operating
Income
Performance

as a % of
Target

Vesting

Level
as a % of

Target Award

Eligible

Shares

as a % of
Target

Shares
at end of
FY18

Eligible

Shares
as a % of
Target
Shares
at end of
FY19

 

Fiscal 2017 PRU

 

1,560

 

1,705

 

109.29

 

268.20

 

250.00

 

18.20

 

For purposes of calculating performance under the FY17 PRUs, our FY18 non-GAAP operating income target was $1,560 million and our actual FY18 non-GAAP operating income was $1,705 million. The Compensation Committee determined that we achieved 109.29% of target, resulting in a payout of 268.20% of target under the FY17 PRUs. According to the terms of the FY17 PRUs, 250% of the plan payout was earned at the end of fiscal 2018, and the additional 18.2% (the excess amount above 250% as described above) is eligible to be earned at the end of fiscal 2019, provided the participant is employed by our Company through the end of fiscal 2019.

Details of PRUs granted to our named executive officers in fiscal 2017 are disclosed in the Grants of Plan-Based Awards table on page 106 and summarized in the last table within the next subsection below.

 

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Fiscal Year 2018 PRU Achievement

In designing the fiscal 2018 long-term incentive program, the Compensation Committee chose non-GAAP earnings per share (“EPS”) and relative total stockholder return (“TSR”) against the Nasdaq 100 index as the applicable performance metrics for the fiscal 2018 PRU awards (the “FY18 PRUs”). These awards may be earned over three years based on the Company’s achievement of non-GAAP EPS for fiscal 2018, as adjusted under the plan, along with relative TSR against the Nasdaq 100 index for the two-year and three-year periods ending at the completion of fiscal 2019 and fiscal 2020, respectively, as described below. Our Compensation Committee established the non-GAAP EPS portion of the FY18 PRUs because it believed it would allow evaluation of Company performance on its short-term strategy execution, while requiring longer-term three-year vesting to provide alignment with stockholders over a more extended time period. This EPS metric is balanced by longer-term relative TSR measurement of stockholder value creation which requires Symantec to match or exceed median market results to achieve a payout of target or a greater number of shares.

 

    

FY18

non-GAAP

EPS

Target

 

18 non-GAAP

EPS

Actual

  Achievement
as a
Percentage
of Target
 

Eligible Shares as a % of

Target Shares at end of FY18

Fiscal 2017 PRU

  $1.64 per share   $1.56 per share   95.20%   50.5% of the FY18 Year One Shares (20.25% of the total FY18 PRUs) became eligible to be earned at the end of fiscal 2020.

For fiscal 2018, our non-GAAP EPS target under the FY18 PRUs was $1.64 per share with a threshold performance level of $1.56 per share. The Compensation Committee determined that we achieved a fiscal 2018 non-GAAP EPS of $1.56 per share, or 95.20% of this metric, resulting in the threshold level having been achieved and 50.5% of the FY18 Year One Shares becoming eligible to be earned at the end of the FY18 PRU Performance Period at the end of fiscal 2020.*

 

*

See “Compensation Components—III. Equity Incentive Awards – Performance Restricted Stock Units (PRUs)” below for a description of adjusted non-GAAP EPS target and relative TSR.

Health and Welfare Benefits; Perquisites

All named executive officers are eligible to participate in our Section 401(k) plan (which includes our matching contributions), health and dental coverage, life insurance, disability insurance, paid time off, and paid holidays on the same terms as are available to all employees generally. These rewards are designed to be competitive with overall market practices, and are in place to attract and retain the talent needed in the business. In addition, named executive officers are eligible to participate in the deferred compensation plan, and to receive other benefits described below.

Deferred Compensation: Symantec’s named executive officers are eligible to participate in a nonqualified deferred compensation plan that provides management employees on our U.S. payroll with a base salary of $180,000 or greater (including our named executive officers) the opportunity to defer up to 75% of base salary, 100% of sales commissions, and 100% of annual incentive payments for payment at a future date. This plan is provided to be competitive in the executive talent market, and to provide executives with a tax-efficient alternative for receiving earnings. Three of our named executive officers participated in this plan during fiscal 2018. The plan is described further under “Non-Qualified Deferred Compensation in Fiscal 2018,” on page 109.

Perquisites: Symantec’s executive officers typically do not receive perquisites, except in limited circumstances when deemed appropriate and approved by the Compensation Committee. For

 

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example, an additional benefit available to executive officers is reimbursement for up to $10,000 for financial planning services. We also provide a car service for our CEO and incurred $155,196 in costs through the end of fiscal 2018 under this ongoing arrangement. In fiscal 2018, we entered into an aircraft lease agreement with our CEO for Company use of an aircraft owned by Mr. Clark, under which Mr. Clark recognized $3,075 in imputed income in fiscal 2018. The Compensation Committee provides these perquisites for business-related purposes and believes they are prevalent in the marketplace for executive talent. The value of the perquisites we provide is taxable to the named executive officers and the incremental cost to us for providing these perquisites is reflected in the Summary Compensation Table. These benefits are disclosed in the All Other Compensation column of the Summary Compensation Table on page 109.

Change of Control and Severance Arrangements: Our Executive Retention Plan provides (and the terms of our PRUs provide) participants with “double trigger” acceleration of vesting of equity awards and, if applicable, such awards become immediately exercisable, where the individual’s employment is terminated without cause, or is constructively terminated, within 12 months after a change in control of our Company (as defined in the plan). In the case of PRUs granted prior to fiscal 2017, PRUs will vest at target if the change in control occurs prior to the first performance period and will vest as to eligible shares based on the results for the initial performance period if the change in control occurs following the first performance period but before the end of the third performance period. In the case of PRUs granted in fiscal 2017, PRUs will vest at target regardless of whether the change in control event occurs prior to or during the performance period. The PRUs granted in fiscal 2018 will also vest at target if the change in control event takes place during the three-year performance period.

We believe that this double trigger acceleration appropriately furthers the intent of the applicable plan without providing an undue benefit to those executives who continue to be employed following a change in control transaction. The intent of the plan is to enable named executive officers to have a balanced perspective in making overall business decisions in the context of a potential acquisition of our Company, as well as to be competitive with market practices. The Compensation Committee believes that change in control benefits, if structured appropriately, serve to minimize the distraction caused by a potential transaction and reduce the risk that key talent would leave our Company before a transaction closes.

The change in control and severance payments and benefits described above do not influence and are not influenced by the other elements of compensation as these benefits serve different objectives than the other elements. We do not provide for gross-ups of excise tax values under Section 4999 of the Code. Rather, we allow the named executive officer to reduce the benefit received or waive the accelerated vesting of options to avoid excess payment penalties.

Details of each individual named executive officer’s severance payments and benefits, including estimates of amounts payable in specified circumstances in effect as of the end of fiscal 2018, are disclosed under “Potential Payments Upon Termination or Change- in-Control” below.

FACTORS WE CONSIDER IN DETERMINING OUR COMPENSATION PROGRAMS

The Compensation Committee applies a number of compensation policies and analytic tools in implementing our compensation principles. These policies and tools guide the Compensation Committee in determining the mix and value of the compensation components for our named executive officers, consistent with our compensation philosophy. They include:

Focus on Pay-for-Performance: Our executive compensation program is designed to reward executives for results. As described below, the pay mix for our named executive officers emphasizes variable pay in the form of short-term cash and long-term equity awards. For cash awards, short-term

 

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results are measured by annual non-GAAP operating income, annual non-GAAP revenue and, for all our named executive officers except the CEO, individual performance. A significant portion of equity grants for our named executive officers are directly based on our financial performance. The value of the remainder of the equity grants to our named executive officers depends on the Company share price performance.

A Total Rewards Approach: Elements of the total rewards offered to our executive officers include base salary, short- and long-term incentives including equity awards, health benefits and a deferred compensation program.

Appropriate Market Positioning: Our general pay positioning strategy is to target the levels of base salary, annual short-term cash incentive structure and long-term equity incentive opportunities and benefits for our named executive officers with reference to the relevant market data for each position. Nonetheless, the Compensation Committee bases its decisions on its subjective judgment and may set the actual components for an individual named executive officer above or below the positioning benchmark based on factors such as experience, performance achieved, specific skills or competencies, the desired pay mix (e.g., emphasizing short- or long-term results) and our budget.

Competitive Market Assessments: Market competitiveness is one factor that the Compensation Committee considers each year in determining a named executive officer’s overall compensation package, including pay mix. The Compensation Committee relies on various data sources to evaluate the market competitiveness of each pay element, including publicly-disclosed data from a peer group of companies and published survey data from a broader set of information technology companies that the Compensation Committee believes represent Symantec’s competition in the broader talent market, based on the advice of Mercer, an outside consulting firm engaged by the Compensation Committee for fiscal 2018. The proxy statements of peer group companies provide detailed pay data for the highest-paid executives. Survey data, which we obtain from the Radford Global Technology Survey, provides compensation information on a broader group of executives and from a broader group of information technology companies, with positions matched based on specific job scope and responsibilities. The Compensation Committee considers data from these sources as a framework for making compensation decisions for each named executive officer’s position.

The information technology industry in which we compete is characterized by rapid rates of change and intense competition from small and large companies, and the companies within this industry have significant cross-over in leadership talent needs. As such, we compete for executive talent with leading software and services companies as well as in the broad information technology industry. We face particularly intense competition with companies located in the geographic areas where Symantec operates, regardless of specific industry focus or company size. Further, consistent with prior years, in part because we believe that stockholders measure our performance against a wide array of technology peers, for fiscal 2018 the Compensation Committee used a peer group that consists of a broad group of high technology companies in different market segments that were of a comparable size to us. The Compensation Committee used this peer group, as well as other relevant market data, to evaluate named executive officer pay levels.

The Compensation Committee reviews our peer group on an annual basis, with input from Mercer, and the group may be adjusted from time to time based on, among other factors, a comparison of revenues, market capitalization, industry, peer group performance, merger and acquisition activity and stockholder input. The Compensation Committee reviewed and revised our peer group for fiscal 2018. The following criteria were used to select our updated peer group to be used to evaluate named executive officer pay levels in connection with setting compensation for fiscal 2018:

 

   

Business with software development focus including security related businesses where possible;

 

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Similar breadth, complexity and global reach as Symantec; and

 

   

Annual revenue 0.5x to 2.0x as a starting point but including companies based on an assessment of overlapping geography, engineering focus and executive talent competition.

The Compensation Committee selected the following companies as our fiscal 2018 peer group:

Fiscal 2018 Symantec Peer Group

 

Activision Blizzard, Inc.

   eBay Inc.    Red Hat Inc.

Adobe Systems Incorporated

   Electronic Arts Inc.    Salesforce.com, Inc.

Autodesk, Inc.

   FireEye, Inc.    Synopsys, Inc.

Akamai Technologies Inc.

   Intuit Inc.    VMware, Inc.

CA, Inc.

   Palo Alto Networks Inc.   

Citrix Systems, Inc.

   PayPal Holdings, Inc.   

LinkedIn and Yahoo! were removed from our fiscal 2018 peer group as a result of their acquisitions. The Compensation Committee evaluated our peer group for fiscal 2019 and determined to keep the companies otherwise the same for fiscal 2019.

Appropriate Pay Mix: Consistent with our pay-for-performance philosophy, our executive officers’ compensation is structured so that a large portion of their total direct compensation is paid based on the performance of our Company (modified by individual achievement). In determining the mix of the various reward elements and the value of each component, the Compensation Committee takes into account the executive’s role, the competitiveness of the market for executive talent, company performance, individual performance, internal pay equity and historical compensation. In making its determinations with regard to compensation, the Compensation Committee reviews the various compensation elements for the CEO and our other named executive officers (including base salary, target annual bonus and the value of vested and unvested equity awards actually or potentially issued).

The percentage of an executive officer’s compensation opportunity that is “at-risk,” or variable instead of fixed, is based primarily on the officer’s level of influence at Symantec. Executive officers generally have a greater portion of their pay at risk through short- and long-term incentive programs than the rest of our employee population because of their relatively greater responsibility and ability to influence our Company’s performance.

 

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As illustrated by the following charts, for fiscal 2018, approximately 95% of our CEO’s target total direct compensation (sum of annual base salary, target annual incentive, and grant date fair value of equity awards) was at-risk, and on average approximately 94% of our other named executive officers’ compensation opportunity was at-risk compensation. As a result of no annual incentives being paid to our executive officers for fiscal 2018, actual pay was delivered 94% in the form of equity for our CEO and an average of 93% for our NEOs other than the CEO.

 

Fiscal 2018 Total Direct Compensation Mix(1)

 

LOGO

  

Fiscal 2018 Total Direct Compensation Mix(1)

 

LOGO

 

(1) 

Does not equal 100% due to rounding.

Form and Mix of Long-Term Equity Incentive Compensation: The long-term equity incentive compensation component of our regular annual executive compensation program consists of PRUs and RSUs for all of our named executive officers. The Compensation Committee’s allocation between these two forms of equity is designed to strike the appropriate balance between performance and retention for long-term equity incentive awards.

For fiscal 2018, our CEO received approximately 70% of the value of his target annual equity incentive award in the form of PRUs and 30% in the form of RSUs. Other named executive officers, also received, on average, approximately 70% of the target annual equity incentive award in the form of PRUs and 30% in the form of RSUs. We consider slightly lower proportional weighting of base salary in the CEO’s total direct compensation, compared to the other named executive officers, to be appropriate given both the level of total direct compensation and the broader level of influence over Company performance associated with the CEO role.

The percentages described above (and other percentage-based equity award values discussed below) are generally based on the grant date fair value of the shares of common stock underlying the RSUs, and the grant date fair value of the PRUs at the target level award size.

In making its compensation decisions and recommendations, the Compensation Committee may consider factors such as the individual executive’s responsibilities, performance, industry experience, current pay mix, total compensation competitiveness, previous equity awards, retention considerations, and other factors.

Compensation Risk Assessment: The Compensation Committee, in consultation with Mercer, conducted its annual risk analysis of Symantec’s compensation policies and practices and does not believe that our compensation programs encourage excessive or inappropriate risk taking by our executives, or that they are reasonably likely to have a material adverse effect on Symantec.

Burn Rate and Dilution: We closely manage how we use our equity to compensate employees. We compute our “gross burn rate” as the total number of shares granted under all of our equity incentive plans during a period divided by the weighted average number of shares of common stock

 

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outstanding during that period and expressed as a percentage. We compute our “net burn rate” as the total number of shares granted under all of our equity incentive plans during a period, minus the total number of shares returned to such plans through awards cancelled during that period, divided by the weighted average number of shares of common stock outstanding during that period, and expressed as a percentage. We compute “overhang” as the total number of shares underlying options and awards outstanding plus shares available for issuance under all of our equity incentive plans (other than our Employee Stock Purchase Plan) at the end of a period divided by the weighted average number of shares of common stock outstanding during that period and expressed as a percentage. The Compensation Committee reviews and approves our equity usage for our equity compensation programs throughout the year based on our business and talent strategy and competitive market practices to attract, motivate and retain talent. In addition, the Compensation Committee considers the accounting charges that will be reflected in our financial statements under GAAP when establishing the forms of equity to be granted and the size of the overall pool available. For fiscal 2018, our gross burn rate was 1.49%, our net burn rate was 0.96% and our overhang was 12.23%.

Roles of Our Compensation Committee, Independent Directors, Executive Officers and Consultants in our Compensation Process

The Compensation Committee, which is comprised entirely of independent directors, is responsible for overseeing all of Symantec’s compensation programs, including the review and recommendation to the independent directors of our Board of all compensation arrangements for our CEO and the review and approval of the compensation arrangement for our other named executive officers.

The independent members of the Board evaluate our CEO’s performance and the Compensation Committee then reviews and recommends to the independent members of the Board all compensation arrangements for our CEO. After discussion, the independent members of the Board determine our CEO’s compensation. The Compensation Committee also discusses the performance of the other named executive officers with our CEO, reviews the compensation recommendations that our CEO submits for the other named executive officers, makes any appropriate adjustments and approves their compensation. While our CEO provides input and makes compensation recommendations with respect to executive officers other than himself, our CEO does not make recommendations with respect to his own compensation or participate in the deliberations regarding the setting of his own compensation by the Board or the Compensation Committee.

Since fiscal 2004, the Compensation Committee has engaged Mercer, an outside consulting firm, to provide advice and ongoing recommendations on executive compensation matters. The Compensation Committee oversees Mercer’s engagement. Mercer representatives meet informally with the Compensation Committee Chair and the Chief Human Resources Officer and also with the Compensation Committee during its regular meetings, including in executive sessions from time to time without any members of management present.

As part of its engagement for fiscal 2018, Mercer provided, among other services, advice and recommendations on the amount and form of executive and director compensation. For example, Mercer evaluated and advised the Compensation Committee on the peer group that the Compensation Committee uses to develop a market composite for purposes of establishing named executive officer pay levels (as described below), the competitiveness of our executive and director compensation programs, the design of awards and proposed performance metrics and opportunity ranges for incentive plans, compensation-related trends and developments in our industry and the broader talent market and regulatory developments relating to compensation practices.

We paid Mercer approximately $478,000 for executive compensation services in fiscal 2018. In addition, management engaged and Symantec paid Mercer and its affiliates for other services,

 

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including approximately $3,719,621 of unrelated consulting and business services in fiscal 2018. We also reimbursed Mercer and its affiliates for reasonable travel and business expenses. The Compensation Committee did not review or approve the other services provided by Mercer and its affiliates to Symantec, as those services were approved by management in the normal course of business within the scope of the Compensation Committee’s pre-authorization for such services. Based in part on policies and procedures implemented by Mercer to ensure the objectivity of its executive compensation consultants and the Compensation Committee’s assessment of Mercer’s independence pursuant to the SEC rules, the Compensation Committee concluded that the consulting advice it receives from Mercer is objective and not influenced by Mercer and its affiliates’ other relationships with Symantec and that no conflict of interest exists that will prevent Mercer from being independent consultants to the Compensation Committee.

The Compensation Committee establishes our compensation philosophy, approves our compensation programs and solicits input and advice from several of our executive officers and Mercer. As mentioned above, our CEO provides the Board and the Compensation Committee with feedback on the performance of our executive officers and makes compensation recommendations (other than with respect to his own compensation) that are presented to the Compensation Committee for their approval. Our CEO, Chief Human Resources Officer and General Counsel regularly attend the Compensation Committee’s meetings to provide their perspectives on competition in the industry, the needs of the business, information regarding Symantec’s performance and other advice specific to their areas of expertise. In addition, at the Compensation Committee’s direction, Mercer works with our Chief Human Resources Officer and other members of management to obtain information necessary for Mercer to make their own recommendations as to various matters, as well as to evaluate management’s recommendations.

Equity Grant Practices: The Compensation Committee generally approves grants of equity awards to the named executive officers at its first meeting of each fiscal year, or shortly thereafter through subsequent action. The grant date for all equity grants made to employees, including the named executive officers, is generally the 10th day of the month following the applicable meeting. If the 10th day is not a business day, the grant is generally made on the previous business day. The Compensation Committee does not coordinate the timing of equity awards with the release of material, nonpublic information. RSUs may be granted from time to time throughout the year, but all RSUs (with the exception of grants assumed with acquisitions) generally vest on either March 1, June 1, September 1 or December 1 for administrative reasons.

Change of Control and Severance Arrangements: The vesting of certain stock options, RSUs and PRUs held by our named executive officers will accelerate if they are subject to an involuntary (including constructive) termination of employment under certain circumstances. For additional information about these arrangements, see “—Health and Welfare Benefits; Perquisites —Change of Control and Severance Arrangements” above and “Potential Payments Upon Termination or Change-in-Control,” below.

RELATED POLICIES AND CONSIDERATIONS

To ensure that the overall executive compensation structure is aligned with stockholder interests and competitive with the market, we maintain the following policies:

Stock Ownership Requirements

We believe that in order to align the interests of our executive officers with those of our stockholders, our executive officers should have a financial stake in our Company. We have maintained stock ownership requirements for our executive officers since October 2005. For fiscal

 

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2018, our executive officers were required to hold shares of our common stock (excluding stock options and unvested RSUs and PRUs) with value equal to:

 

   

CEO: 6x base salary (increased from 5x base salary effective August 1, 2017 to further align with interests of stockholders);

 

   

CFO and President and COO: 3x base salary; and

 

   

Executive Vice Presidents: 2x base salary.

The executive officer is required to acquire and thereafter maintain the stock ownership required within four years of becoming an executive officer of Symantec. During the four-year transition period, each executive officer must retain at least 50% of all net (after-tax) equity grants until the required stock ownership level is met.

As of October 10, 2018, all of our named executive officers have reached the stated ownership requirements for fiscal 2018. See the table below for individual ownership levels relative to the executive’s ownership requirement.

 

Named Executive Officer

   Ownership
Requirement (1)

(# of shares)
     Holdings as of
October 10, 2018

(# of shares)
 

Gregory S. Clark

     301,508        2,901,511  

Michael D. Fey

     130,402        1,007,398  

Nicholas R. Noviello

     97,990        363,952  

Scott C. Taylor

     60,302        350,364  

Francis C. Rosch (2)

     n/a        n/a  

 

(1) 

Based on the closing price for a share of our common stock of $19.90 on October 10, 2018.

 

(2) 

Mr. Rosch served as our Executive Vice President, Consumer Digital Safety through June 28, 2018.

Recoupment “Clawback” Policies

In 2017, we adopted a recoupment, or “clawback”, policy applicable to all performance-based compensation granted to the Company’s officers (even after they leave Symantec). In August 2018, our Board further expanded this clawback policy to allow for recoupment for certain violations of the Company’s policies. This updated policy supplements the contractual clawback rights we have had in all of our executive compensation plans since fiscal 2009 (providing for the return of any excess compensation received by an executive officer if our financial statements are the subject of a restatement due to error or misconduct).

Insider Trading, Hedging and Pledging Policies

Our Insider Trading Policy prohibits all directors and employees from short-selling Symantec stock or engaging in transactions involving Symantec-based derivative securities, including, but not limited to, trading in Symantec-based option contracts (for example, buying and/or writing puts and calls). It also prohibits pledging Symantec stock as collateral for a loan. Notwithstanding this policy, the Board granted a waiver from the prohibition against transactions with respect to derivative securities for Mr. Feld and Starboard solely for the purpose of enabling Starboard to exercise the forward contracts that were in existence before Mr. Feld was appointed to the Board and that were described in Starboard’s Schedule 13D with respect to the Company filed with the SEC on August 16, 2018. The grant of this waiver was conditioned upon Mr. Feld’s and Starboard’s compliance with all applicable laws and all other provisions of our Insider Trading Policy in connection with such derivative securities transactions.

 

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In addition, our Insider Trading Policy prohibits our directors, officers, employees and contractors from purchasing or selling Symantec securities while in possession of material, non-public information. It also requires that each of our directors, our Chief Executive Officer, our President, and our Chief Financial Officer conduct any open market sales of our securities only through use of stock trading plans adopted pursuant to Rule 10b5-1 of the Exchange Act. Rule 10b5-1 allows insiders to sell and diversify their holdings in our stock over a designated period by adopting pre-arranged stock trading plans at a time when they are not aware of material nonpublic information about us, and thereafter sell shares of our common stock in accordance with the terms of their stock trading plans without regard to whether or not they are in possession of material nonpublic information about the Company at the time of the sale. All other executives are strongly encouraged to trade using Exchange Act Rule 10b5-1 plans.

Tax and Accounting Considerations on Compensation

The financial reporting and income tax consequences to the Company of individual compensation elements are important considerations for the Compensation Committee when it reviews compensation practices and makes compensation decisions. While structuring compensation programs that result in more favorable tax and financial reporting treatment is a general principle, the Compensation Committee balances these goals with other business needs that may be inconsistent with obtaining the most favorable tax and accounting treatment for each component of its compensation.

Deductibility by Symantec. Section 162(m) of the Code generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1 million paid to certain executive officers. While the Compensation Committee may consider the deductibility of awards as one factor in determining our executive compensation, it also looks at other factors in making its executive compensation decisions and retains the flexibility to grant awards or pay compensation the Compensation Committee determines to be consistent with its goals for Symantec’s executive compensation program, even if the awards may not be deductible by Symantec for tax purposes.

Recent changes to Section 162(m) in connection with the passage of the Tax Cuts and Jobs Act repealed the exception to the deductibility limit that were previously available for “qualified performance-based compensation” (including stock option grants, performance-based cash bonuses and performance-based equity awards, such as performance-based restricted stock units) effective for taxable years beginning after December 31, 2017. Compensation paid to certain of our executive officers for taxable years beginning prior to December 31, 2017 remains deductible if such compensation would otherwise be deductible for such taxable year. The Tax Cuts and Jobs Act also increased the number of executive officers who are affected by the loss of deductibility effective for taxable years beginning after December 31, 2017. As a result, any compensation paid to certain of our executive officers for taxable years beginning after December 31, 2017 in excess of $1 million will be non-deductible unless it qualifies for transition relief afforded by the Tax Cuts and Jobs Act to compensation payable pursuant to certain binding arrangements in effect on November 2, 2017 (including performance-based restricted stock units granted to our executive officers who were “covered employees” within the meaning of Section 162(m) that were intended to qualify as performance-based compensation for purposes of Section 162(m) and that were granted prior to such time but not yet vested or settled).

We believe that compensation expense incurred in respect of the exercise of our stock options granted to our executive officers prior to November 2, 2017 will continue to be deductible pursuant to this transition rule. However, because of uncertainties in the interpretation and implementation of the changes to Section 162(m) in the Tax Cuts and Jobs Act, including the scope of the transition relief, we can offer no assurance of such deductibility with respect to payment of cash bonuses paid or RSUs or PRUs settled after December 31, 2017.

 

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Tax Implications for Officers. Section 409A of the Code imposes additional income taxes on executive officers for certain types of deferred compensation that do not comply with Section 409A. The Company attempts in good faith to structure compensation so that it either conforms with the requirements of or qualifies for an exception under Code Section 409A. Sections 280G and 4999 of the Code imposes an excise tax on payments to executives of severance or change of control compensation that exceed the levels specified in the Section 280G rules. Our named executive officers could receive the amounts shown in the section entitled “Potential Payments Upon Termination or Change-in-Control” (beginning on page 108 below) as severance or change of control payments that could implicate this excise tax. As mentioned above, we do not offer our officers as part of their change of control benefits any gross ups related to this excise tax under Code Section 4999.

Accounting Considerations. The Compensation Committee also considers the accounting and cash flow implications of various forms of executive compensation. In its financial statements, the Company records salaries and cash-based performance-based compensation incentives as expenses in the amount paid, or estimated to be paid, to the named executive officers. Accounting rules also require the Company to record an expense in its financial statements for equity awards, even though equity awards are not paid in cash to employees. The accounting expense of equity awards to employees is calculated in accordance with the requirements of FASB Accounting Standards Codification Topic 718. The Compensation Committee believes, however, that the many advantages of equity compensation, as discussed above, more than compensate for the non-cash accounting expense associated with them.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during fiscal 2018 were Geraldine B. Laybourne, David L. Mahoney, Robert S. Miller and Daniel H. Schulman. None of the members of the Compensation Committee in fiscal 2018 were at any time during fiscal 2018 or at any other time an officer or employee of Symantec or any of its subsidiaries, and none had or have any relationships with Symantec that are required to be disclosed under Item 404 of Regulation S-K. None of Symantec’s executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our Board or Compensation Committee during fiscal 2018.

Compensation Committee Report

The information contained in the following report of Symantec’s Compensation Committee is not considered to be “soliciting material,” “filed” or incorporated by reference in any past or future filing by Symantec under the Exchange Act or the Securities Act of 1933 unless and only to the extent that Symantec specifically incorporates it by reference. The Compensation Committee has reviewed and discussed with management the CD&A contained in this Annual Report on Form 10-K. Based on this review and discussion, the Compensation Committee has recommended to the Board that the CD&A be included in our proxy statement and our Annual Report on Form 10-K for the fiscal year ended March 30, 2018.

By: The Compensation and Leadership Development Committee of the Board:

David L. Mahoney (Chair)

Peter A. Feld*

Geraldine B. Laybourne

Robert S. Miller

Daniel H. Schulman

 

*

Joined the Compensation Committee on September 16, 2018.

 

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Reconciliation of Selected GAAP Measures to Non-GAAP Measures

(In millions, except per share data)

 

     March 30, 2018     Year Ended
March 31, 2017
    April 1, 2016  

Net revenues (GAAP)

   $ 4,834     $ 4,019     $ 3,600  

Deferred revenue fair value adjustment

     126       144       -  
  

 

 

   

 

 

   

 

 

 

Net revenues (Non-GAAP)

   $ 4,960     $ 4,163     $ 3,600  
  

 

 

   

 

 

   

 

 

 

Operating income (loss) (GAAP)

   $ 49     $ (100   $ 457  

Deferred revenue fair value adjustment

     126       144       -  

Inventory fair value adjustment

     -       24       -  

Unallocated corporate charges

     -       -       186  

Stock-based compensation

     610       440       161  

Amortization of intangible assets

     453       293       86  

Restructuring, transition and other costs

     410       273       136  

Acquisition-related costs

     60       120       -  

Litigation settlement

     2       -       -  
  

 

 

   

 

 

   

 

 

 

Operating income (Non-GAAP)

   $ 1,710     $ 1,194     $ 1,026  
  

 

 

   

 

 

   

 

 

 

Operating margin (GAAP)

     1.0 %      (2.5 %)      12.7 % 

Operating margin (Non-GAAP)

     34.5 %      28.7 %      28.5 % 

Diluted net income (loss) per share (GAAP) (1)

   $ 1.70     $ (0.17   $ 3.71  

Adjustments to diluted net income (loss) per share

      

Deferred revenue fair value adjustment

     0.19       0.23       -  

Inventory fair value adjustment

     -       0.04       -  

Unallocated corporate charges

     -       -       0.28  

Stock-based compensation

     0.91       0.71       0.24  

Amortization of intangible assets

     0.68       0.47       0.13  

Restructuring, transition and other costs

     0.61       0.44       0.20  

Acquisition-related costs

     0.09       0.19       -  

Litigation settlement

     0.00       -       -  

Non-cash interest expense

     0.07       0.06       -  

Gain on divestiture and gain on sale of assets

     (0.98     -       -  

Loss from equity interest

     0.04       -       -  

Income tax reform

     (0.99     -       -  

Other income tax effects and adjustments

     (0.65     (0.54     1.42  
  

 

 

   

 

 

   

 

 

 

Total adjustment from continuing operations

     (0.02     1.61       2.27  

Total adjustment from discontinued operations

     (0.02     (0.21     (4.94

Incremental dilution effect

     -       (0.05     (0.01
  

 

 

   

 

 

   

 

 

 

Diluted net income per share (Non-GAAP)

   $ 1.67     $ 1.18     $ 1.03  
  

 

 

   

 

 

   

 

 

 

Diluted weighted-average shares outstanding (GAAP)

     668       618       670  

Incremental dilution

     -       27       6  
  

 

 

   

 

 

   

 

 

 

Diluted weighted-average shares outstanding (Non-GAAP)

     668       645       676  
  

 

 

   

 

 

   

 

 

 

 

(1) 

Net income (loss) per share amounts may not add due to rounding

Objective of non-GAAP measures: We believe our presentation of non-GAAP financial measures, when taken together with corresponding GAAP financial measures, provides meaningful supplemental

 

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information regarding the Company’s operating performance for the reasons discussed below. Our management team uses these non-GAAP financial measures in assessing Symantec’s performance, as well as in planning and forecasting future periods. Due to the importance of these measures in managing the business, we use non-GAAP measures in the evaluation of management’s compensation. These non-GAAP financial measures are not computed according to GAAP and the methods we use to compute them may differ from the methods used by other companies. Non-GAAP financial measures are supplemental and should not be considered a substitute for financial information presented in accordance with GAAP and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Deferred revenue fair value adjustment: Our non-GAAP net revenues eliminate the impact of deferred revenue purchase accounting adjustments required by GAAP. GAAP requires an adjustment to the liability for acquired deferred revenue such that the liability approximates how much we, the acquirer, would have to pay a third party to assume the liability. We believe that eliminating the impact of this adjustment improves the comparability of revenues between periods. Also, although the adjustment amounts will never be recognized in our GAAP financial statements, we do not expect the acquisitions to affect the future renewal rates of revenues excluded by the adjustments. In addition, our management uses non-GAAP net revenues, adjusted for the impact of purchase accounting adjustments to assess our operating performance and overall revenue trends. Nevertheless, non-GAAP net revenues has limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP net revenues. We believe these adjustments are useful to investors as an additional means to reflect revenue trends of our business. However, other companies in our industry may not calculate these measures in the same manner which may limit their usefulness for comparative purposes.

Inventory fair value adjustment: Purchase accounting requires us to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. These non-GAAP adjustments to our cost of revenues exclude the expected profit margin component that is recorded under purchase accounting associated with our acquisitions. We believe the adjustments are useful to investors as an additional means to reflect cost of revenues and gross margin trends of our business.

Unallocated corporate charges: A significant portion of the segments’ expenses 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 called 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 former information management business (“Veritas”), but not classified within discontinued operations, were not reallocated to our other segments. We eliminate these unallocated corporate charges from our non-GAAP operating results to facilitate a more meaningful comparison of our past operating performance to current operating results.

Stock-based compensation: This consists of expenses for employee restricted stock units, performance-based awards, bonus share programs, stock options and our employee stock purchase plan, determined in accordance with GAAP. We evaluate our performance both with and without these measures because stock-based compensation is a non-cash expense and can vary significantly over time based on the timing, size, nature and design of the awards granted, and is influenced in part by certain factors that are generally beyond our control, such as the volatility of the market value of our common stock. In addition, for comparability purposes, we believe it is useful to provide a non-GAAP financial measure that excludes stock-based compensation to facilitate the comparison of our results to those of other companies in our industry.

 

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Amortization of intangible assets: Amortization of intangible assets consists of amortization of acquisition-related intangibles assets such as developed technology, customer relationships and trade names acquired in connection with business combinations. We record charges relating to the amortization of these intangibles within both cost of revenues and operating expenses in our GAAP financial statements. Under purchase accounting, we are required to allocate a portion of the purchase price to intangible assets acquired and amortize this amount over the estimated useful lives of the acquired intangible assets. However, the purchase price allocated to these assets is not necessarily reflective of the cost we would incur to internally develop the intangible asset. Further, amortization charges for our acquired intangible assets are inconsistent in size and are significantly impacted by the timing and valuation of our acquisitions. We eliminate these charges from our non-GAAP operating results to facilitate an evaluation of our current operating performance and provide better comparability to our past operating performance.

Restructuring, transition and other costs: Restructuring charges are costs associated with a formal restructuring plan and are primarily related to employee severance and benefit arrangements. Other charges include facilities and other exit and disposal costs, including asset write-offs. Transition costs are associated with formal discrete strategic information technology initiatives and primarily consist of consulting charges associated with our enterprise resource planning and supporting systems and costs to automate business processes. In addition, transition costs include expenses associated with our divestitures. We exclude restructuring, transition and other costs from our non-GAAP results as we believe that these costs are incremental to core activities that arise in the ordinary course of our business and do not reflect our current operating performance, and that excluding these charges facilitates a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

Acquisition-related costs: These represent the transaction and business integration costs related to significant acquisitions that are charged to operating expense in our GAAP financial statements. These costs include incremental expenses incurred to affect these business combinations such as advisory, legal, accounting, valuation, and other professional or consulting fees. We exclude these cost from our non-GAAP results as they have no direct correlation to the operation of our business, and because we believe that the non-GAAP financial measures excluding these costs provide meaningful supplemental information regarding the spending trends of our business. In addition, these costs vary, depending on the size and complexity of the acquisitions, and are not indicative of costs of future acquisitions.

Litigation settlement: We may periodically incur charges or benefits related to litigation settlements. We exclude these charges and benefits when associated with a significant settlement because we do not believe they are reflective of ongoing business and operating results.

Non-cash interest expense and amortization of debt issuance costs: In accordance with GAAP, we separately account for the value of the conversion feature on our convertible notes as a debt discount that reflects our assumed non-convertible debt borrowing rates. We amortize the discount and debt issuance costs over the term of the related debt. We exclude the difference between the imputed interest expense, which includes the amortization of the conversion feature and of the issuance costs, and the coupon interest payments because we believe that excluding these costs provides meaningful supplemental information regarding the cash cost of our convertible debt and enhance investors’ ability to view the Company’s results from management’s perspective.

Gain on divestitures: We periodically recognize gains on divestitures, including in fiscal 2018 related to our WSS and PKI solutions. We have excluded these gains for purposes of calculating our non-GAAP results. We believe making these adjustments facilitates a better evaluation of our current operating performance and comparisons to past operating results.

 

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Gain (loss) from equity interest: We record gains or losses in equity method investments representing net income or loss attributable to our noncontrolling interest in companies over which we have limited control and visibility. We exclude such gains and losses in full because we lack control over the operations of the investee and the related gains and losses are not indicative of our ongoing core results.

Income tax effects and adjustments: Prior to the third quarter of fiscal 2018, we used a projected long-term non-GAAP tax rate that reflected the elimination of the effects of the non-GAAP adjustments to our operating results described above and significant discrete items, as well as certain unique GAAP reporting requirements under discontinued operations as a result of the sale of Veritas in order to provide better consistency across the interim financial reporting periods. Starting with the third quarter of fiscal 2018, as a result of U.S. tax reform, we use a non-GAAP tax rate that excludes (1) the discrete impacts of changes in tax legislation, (2) most other significant discrete items, (3) certain unique GAAP reporting requirements under discontinued operations and (4) the income tax effects of the non-GAAP adjustment to our operating results described above. We believe making these adjustments facilitates a better evaluation of our current operating performance and comparisons to past operating results. Our tax rate is subject to change for a variety of reasons, such as significant changes in the geographic earnings mix due to acquisition and divestiture activities or fundamental tax law changes in major jurisdictions where we operate.

Discontinued operations: In August 2015, we entered into a definitive agreement to sell the assets of Veritas to Carlyle. The transaction closed on January 29, 2016. The results of Veritas, including the net gain on divestiture of $3.0 billion, are presented as discontinued operations in our Consolidated Statements of Operations and thus have been excluded from non-GAAP net income for all reported periods.

Diluted GAAP and non-GAAP weighted-average shares outstanding: Diluted GAAP and non-GAAP weighted-average shares outstanding are the same, except in periods that there is a GAAP loss from continuing operations. In accordance with GAAP, we do not present dilution for GAAP in periods in which there is a loss from continuing operations. However, if there is non-GAAP net income, we present dilution for non-GAAP weighted-average shares outstanding in an amount equal to the dilution that would have been presented had there been GAAP income from continuing operations for the period.

 

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Summary of Compensation

The following table shows for the fiscal year ended March 30, 2018, compensation awarded to or paid to, or earned by each individual who served as our Chief Executive Officer, our Chief Financial Officer during fiscal 2018 and the three most highly compensated executive officers who were serving as executive officers (other than as our Chief Executive Officer or Chief Financial Officer) at the end of fiscal 2018 (the “named executive officers”).

Summary Compensation Table for Fiscal 2018

 

Name and Principal

Position

  Fiscal
Year
    Salary ($)     Bonus ($)     Stock
Awards (1)(2) ($)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation ($)
    All Other
Compensation ($)
    Total ($)  

Gregory S. Clark

Chief Executive

Officer

    2018       1,000,000       -       15,982,645       -       - (3)       364,936 (4)       17,347,581  
    2017       666,667 (5)       -       4,269,815 (6)       -       743,333 (7)       379,937 (8)       6,059,752 (6)  
               

Nicholas R. Noviello

Executive Vice

President and CFO

    2018       650,000       -       7,458,549       -       - (3)       47,606 (9)       8,156,155  
    2017       433,333 (5)       -       1,077,917 (6)       -       479,673 (7)       172,740 (10)       2,163,663 (6)  
               

Michael D. Fey

President and COO

    2018       865,000       -       14,917,133       -       - (3)       41,832 (11)       15,823,965  
    2017       544,167 (5)       -       2,856,660 (6)       -       909,370 (7)       131,000 (12)       4,441,197 (6)  
                 

Scott C. Taylor

Executive Vice

President, General

Counsel and

Secretary

    2018       600,000       -       4,794,772       -       - (3)       621,788 (13)       6,016,560  
    2017       600,000       150,000 (14)       4,831,307       -       568,374 (7)       363,462 (15)       6,513,143  
    2016       593,939       -       3,082,307       -       283,380 (16)       86,028 (17)       4,045,654  
               
               
Francis C. Rosch Former Executive Vice President, Consumer Digital Safety*     2018       700,000       -       12,786,109       -       - (3)       755,059 (18)       14,241,168  
    2017       612,500 (19)       -       6,039,114       -       623,970 (7)       461,965 (20)       7,737,549  
    2016       504,394       -       5,137,221       -       320,750 (16)       97,334 (21)       6,059,699  
               
               

 

*

Mr. Rosch served as our Executive Vice President, Consumer Digital Safety through June 28, 2018.

 

(1) 

The amounts shown in this column reflect the aggregate grant date fair value of awards, calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 for RSUs and PRUs) and was determined based on the fair value of our common stock on the date of grant/modification, except for the amounts listed for Messrs. Clark, Noviello and Fey for fiscal 2017 and described further in footnote 6 below. For a discussion of the valuation methodology used to value the PRUs awarded during fiscal years 2016, 2017 and 2018, see footnote 2 below. For details of the awards granted in fiscal 2018, see the table “Grants of Plan-Based Awards”, below.

 

(2) 

The FY18 PRUs are based on a three-year performance period. The FY18 PRUs are eligible to be earned if we achieve at least the threshold level of the performance goal for adjusted non-GAAP EPS for fiscal 2018 and at least the threshold level of the performance goals for relative TSR against the Nasdaq 100 index for the two- and three- year periods ending fiscal 2019 and fiscal 2020, respectively. Depending on our achievement of these metrics, 0% to 200% of the target shares are eligible to be earned at the end of fiscal 2020, provided the participant is employed with the Company through the end of fiscal 2020, with certain exceptions. One-half of the eligible shares will be based on the achievement of the adjusted non-GAAP EPS performance goal, one-quarter of the eligible shares will be based on the achievement of the two-year relative TSR performance goal, and the remaining one-quarter of shares will be based on the achievement of the three-year relative TSR performance goal.

The FY17 PRUs were a one-time design award based on a one-year performance period ended fiscal 2018. The FY17 PRUs are eligible to be earned if we achieve at least 50% of the target level non-GAAP operating income performance for fiscal 2018. Depending on our achievement of this metric, 0% to 300% of the target shares were eligible to be earned with the first 250% of the target shares eligible to be earned at the end of fiscal 2018 and any remaining eligible shares (up to 50% for an aggregate of 300%) eligible to be earned at the end of fiscal 2019, provided the participant is employed with the Company through the end of fiscal 2019 with certain exceptions.

The FY16 PRUs are based on a three-year performance period. The FY16 PRUs are eligible to be earned if we achieve at least 70% of the target level non-GAAP EPS performance. Depending on our achievement of this metric, 0% to 133% of the target shares was eligible to be earned at the end of the fiscal 2016, based on, and subject to further adjustment as a result of, the achievement of the TSR goal for our Company as compared to the S&P 500 (the market-related component) in fiscal 2017 and 2018. If any target shares become eligible (the “eligible shares”) to be earned as a result of achievement of the performance-

 

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related component, then 50% to 150% of one-half of the eligible shares may be earned based on the achievement of the TSR goal for the first and second fiscal years and 50% to 150% of the remaining one-half of the eligible shares (plus any eligible shares not earned at the end of the second fiscal year) may be earned based on the achievement of the TSR goal for the first, second and third fiscal years. Consistent with ASC Topic 718, the full grant date fair value for the market-related component, or the TSR adjustment, for the entire three-year performance cycle is included in the amounts shown for the year of grant and was determined using a Monte Carlo simulation option pricing model (“Monte Carlo model”) as of the date the PRUs were awarded.

The table below sets forth the grant date fair value (prior to any applicable modifications) determined in accordance with ASC Topic 718 principles for the performance-related components of these awards (i) based upon the probable outcome of the fiscal years 2016, 2017 and 2018 performance-related component as of the grant date, and (ii) based upon achieving the maximum level of performance under the fiscal years 2016, 2017 and 2018 performance-related component as of the grant date. Also set forth below are the grant date fair values pertaining to the market-related component or the TSR adjustment and significant inputs and assumptions used in the Monte Carlo model, determined upon grant in fiscal years 2016, 2017 and 2018, and which are not subject to probable or maximum outcome assumptions.

 

Name

   Fiscal
Year
     Probable Outcome of
Performance
Conditions Grant
Date Fair Value
($)
     Maximum
Outcome of
Performance
Conditions Grant
Date Fair Value
($)
    Market-Related
Component Grant
Date Fair Value
($)
 

Gregory S. Clark

     2018        11,657,612        23,315,223       N/A  

Nicholas R. Noviello

     2018        5,440,200        10,880,401       N/A  

Michael D. Fey

     2018        10,880,435        21,760,871       N/A  

Scott C. Taylor

     2018        3,497,277        6,994,553       N/A  
     2017        2,866,870        8,600,609       N/A  
     2016        1,814,793        2,584,234       1,943,033  

Francis C. Rosch

     2018        9,326,082        18,652,165       N/A  
     2017        3,583,574        10,750,722       N/A  
     2016        3,024,672        4,307,081       3,238,407  

 

Grant Date

   Fiscal Year      Grant Date
Fair Value
per Unit ($)
     Volatility (%)      Risk-Free
Interest
Rate (%)
 

6/9/2017

     2018        34.32        23.23        1.47  

6/10/2015

     2016        27.03        22.55        1.07  

We adjusted the performance metrics under our FY17 PRU grants on March 8, 2017. The incremental modification charges were based on the Company’s stock price on the date of the modification ($29.60) multiplied by the incremental expected achievement percentage multiplied by the number of granted units. Volatility and interest rate were not factors.

For Messrs. Clark, Noviello and Fey, fiscal 2018 marked each executive’s first full fiscal year with Symantec following the acquisition of Blue Coat by Symantec in August 2016. The amounts listed for fiscal 2018 for such executives include each executive’s first full-year equity incentive grant by Symantec. The grants listed for such executives in fiscal 2017 do not take into account any grants such executives received in fiscal 2017 by Blue Coat prior to the close of the acquisition.

 

(3) 

No annual bonus under the FY18 Executive Annual Incentive Plan was earned in fiscal 2018 because the minimal threshold performance metrics were not met.

 

(4) 

Represents (a) $199,665 for dividend equivalent payments on stock awards, (b) $7,000 of matching contributions to Mr. Clark’s account under our 401(k) plan, (c) $155,196 related to our provision of car and driver services for Mr. Clark, and (d) $3,075 imputed income charges to Mr. Clark for personal passengers flights on the corporate aircraft.

 

(5) 

Represents the base salary earned by such executive from the closing of the Blue Coat acquisition in August 2016 through the end of fiscal 2017. The fiscal 2017 annual base salary for Messrs. Clark, Noviello, and Fey was $1,000,000, $650,000 and $865,000, respectively. Mr. Fey’s annual base salary, initially set at $800,000 in August 2016, was increased to $865,000 effective February 1, 2017.

 

(6) 

These amounts represent the incremental fair values of modified PRUs that were granted prior to and assumed by us at the closing of the Blue Coat acquisition. Under SEC rules, we are required to disclose in the Stock Awards column the grant date fair value of each equity award computed in accordance with ASC 718. However, no grant date fair value was recorded by Symantec for these awards in accordance with ASC 718 because they were awarded by Blue Coat’s board of directors prior to the closing of the Blue Coat acquisition. As a result, the amounts reported in the Stock Awards column above may

 

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understate the compensation awarded to these executive officers for fiscal 2017 because they do not include any grant date fair value for such awards. In March 2017 we adjusted the performance metrics under our FY17 PRU grants to reflect both the impact of the acquisitions of Blue Coat and LifeLock on the fiscal 2017 financial plan and to account for the transformational impact on our business of our cost and complexity reduction initiatives. As a result of these adjustments, incremental fair values of the modified awards are included in the Stock Awards column above and further described in the table below.

 

     2017 Stock Awards  

Name

   FY17 PRU
Modification
Charge
($)
     2017 Total (Without
PRU Modification
Charges)
($)
 

Gregory S. Clark

     4,269,815        -  

Michael D. Fey

     2,856,660        -  

Nicholas R. Noviello

     1,077,917        -  

 

(7)

Represents the executive officer’s annual bonus under the FY17 Executive Annual Incentive Plan, which was earned in fiscal 2017 and paid in fiscal 2018.

 

(8)

Represents (a) $250,000 in bonus payment earned by Mr. Clark prior to the closing of the Blue Coat acquisition under Blue Coat’s Fiscal 2017 Bonus Plan, but paid by Symantec in October 2016, (b) $75,000 for reimbursement of Mr. Clark’s attorney’s fees in connection with the negotiation of his employment agreement with us, (c) $32,515 for dividend equivalent payments on stock awards, (d) $17,422 related to our provision of car and driver services for Mr. Clark and (e) $5,000 of matching contributions to Mr. Clark’s account under our 401(k) plan.

 

(9)

Represents (a) $34,685 for dividend equivalent payments on stock awards, (b) $6,271 of matching contributions to Mr. Noviello’s account under our 401(k) plan, (c) $5,000 for reimbursement for tax services, (d) $930 in contributions to Mr. Noviello’s Company-sponsored long-term disability insurance and (e) $720 in Company wellness credit.

 

(10)

Represents (a) $162,500 in bonus payment earned by Mr. Noviello prior to the closing of the Blue Coat acquisition under Blue Coat’s Fiscal 2017 Bonus Plan, but paid by Symantec in October 2016, (b) $5,417 of matching contributions to Mr. Noviello’s account under our 401(k) plan and (c) $4,823 for dividend equivalent payments on stock awards.

 

(11)

Represents (a) $24,817 for dividend equivalent payments on stock awards, (b) $6,000 of matching contributions to Mr. Fey’s account under our 401(k) plan, (c) $6,000 for reimbursement for tax services, (d) $4,085 for coverage of expenses related to attendance at the fiscal 2018 sales achiever’s trip, and (d) $930 in contributions to Mr. Fey’s Company-sponsored long-term disability insurance.

 

(12)

Represents (a) $125,000 in bonus payment earned by Mr. Fey prior to the closing of the Blue Coat acquisition under Blue Coat’s Fiscal 2017 Bonus Plan, but paid by Symantec in October 2016 and (b) $6,000 of matching contributions to Mr. Fey’s account under our 401(k) plan.

 

(13)

Represents (a) $614,283 for dividend equivalent payments on stock awards, (b) $4,625 of matching contributions to Mr. Taylor’s account under our 401(k) plan, (c) $1,950 for reimbursement for tax services, and (d) $930 in contributions to Mr. Taylor’s Company-sponsored long-term disability insurance.

 

(14)

Represents an additional bonus paid to Mr. Taylor in connection with his service as a member of the Office of the President during the CEO transition process announced in April 2016.

 

(15)

Represents (a) $354,812 for dividend equivalent payments on stock awards, (b) $5,125 of matching contributions to Mr. Taylor’s account under our 401(k) plan, and (c) $3,525 for reimbursement for tax services.

 

(16)

Represents the executive officer’s annual bonus under the Executive Annual Incentive Plans for fiscal 2016, which was earned in fiscal 2016 and paid in fiscal 2017.

 

(17)

Represents (a) $60,816 for dividend equivalent payments on stock awards, (b) $15,834 for reimbursement for tax services, (c) $6,188 of matching contributions to Mr. Taylor’s account under our 401(k) plan, (d) $2,335 in contributions to Mr. Taylor’s Company-sponsored life insurance policy and (e) $855 in contributions to Mr. Taylor’s Company-sponsored long-term disability insurance.

 

(18)

Represents (a) $722,048 for dividend equivalent payments on stock awards, (b) $6,000 of matching contributions to Mr. Rosch’s account under our 401(k) plan, (c) $4,415 for reimbursement for tax services, (d) $22,386 for coverage of expenses related to attendance at the fiscal 2018 sales achiever’s trip, and (e) $210 in contributions to Mr. Rosch’s Company-sponsored long-term disability insurance.

 

(19)

Mr. Rosch’s base annual salary increased from $525,000 to $700,000 during fiscal 2017 to compensate him for his expanded role and responsibilities following the LifeLock acquisition.

 

 

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(20)

Represents (a) $440,020 for dividend equivalent payments on stock awards, (b) $8,063 of matching contributions to Mr. Rosch’s account under our 401(k) plan, (c) $7,907 for coverage of expenses related to attendance at the fiscal 2016 sales achiever’s trip, and (d) $5,975 for reimbursement for tax and services.

 

(21)

Represents (a) $55,763 for dividend equivalent payments on stock awards, (b) $23,853 for coverage of expenses related to attendance at the fiscal 2015 sales achiever’s trip and paid in fiscal 2016, (c) $6,638 of matching contributions to Mr. Rosch’s account under our 401(k) plan, (d) $6,211 for spousal medical benefits, (e) $2,955 for reimbursement for tax services and (f) $1,914 in contributions to Mr. Rosch’s Company-sponsored life insurance policy.

The following table shows for the fiscal year ended March 30, 2018 certain information regarding grants of plan-based awards to our named executive officers from our incentive plans:

Grants of Plan-Based Awards in Fiscal 2018

 

Name

  Grant
Date
   

 

 

Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards (1)

    Estimated Future Payouts
Under Equity Incentive Plan
Awards  (2)
    All Other
Stock
Awards:
Number
of
Shares
of

Stock or
Units (3)
(#)
    All Other
Option
Awards:
Number

of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date Fair
Value
of Stock
and

Option
Awards (4)
($)
 
  Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
 
Clark, Gregory S.     6/9/17       750,000       1,500,000       3,000,000       169,837       339,674       679,348       145,575       -       -       15,982,645  
Noviello, Nicholas R.     6/9/17       113,750       650,000       1,820,000       79,257       158,514       317,028       67,935       -       -       7,458,549  
Fey, Michael D.     6/9/17       227,063       1,297,500       3,633,000       158,515       317,029       634,058       135,870       -       -       14,917,133  
Taylor, Scott C     6/9/17       105,000       600,000       1,680,000       50,951       101,902       203,804       43,672       -       -       4,794,772  
Rosch, Francis C.     6/9/17       122,500       700,000       1,960,000       135,870       271,739       543,478       116,460       -       -       12,786,109  

 

(1) 

Represents threshold, target and maximum payouts with respect to each applicable metric under the FY18 Executive Annual Incentive Plan. For a summary of the terms of the FY18 Executive Annual Incentive Plan, see “Compensation Discussion & Analysis (CD&A) — Compensation Components — Executive Annual Incentive Plans” beginning on page 76.

 

(2) 

The amounts shown in these rows reflect the threshold, target, and maximum potential eligible shares to be earned for the PRUs awarded during fiscal 2018 and as further described in the CD&A section beginning on page 72. These FY18 PRUs are eligible to be earned at the end of fiscal 2020 and are based on the achievement of performance goals for adjusted non-GAAP EPS for the one-year performance period ended March 30, 2018 and the relative TSR ranking for our Company as compared to the Nasdaq 100 index for the two- and three- year performance periods ending March 29, 2019 and April 3, 2020, respectively.

 

(3) 

These RSUs vest as to 30% on June 1, 2018, 30% on June 1, 2019, and 40% on June 1, 2020.

 

(4) 

The aggregate grant date fair value of the equity incentive plan awards is calculated by multiplying the target number of shares by the PRU grant date fair value on June 9, 2017, which was $34.32. For additional details on the grant date fair value of the PRUs, see footnotes 1 and 2 to the Summary Compensation Table above. The aggregate grant date fair value of Other Stock Awards is the number of shares multiplied by the RSU grant date fair value on June 9, 2017, which was $29.71.

For a summary of the terms of the FY18 Executive Annual Incentive Plan, see “Compensation Discussion & Analysis (CD&A) — Compensation Components — Executive Annual Incentive Plans” above. Details of acceleration of the equity awards described are disclosed under “Compensation Discussion & Analysis (CD&A) — Health and Welfare Benefits; Perquisites — Change in Control and Severance Arrangements” above and “Potential Payments Upon Termination or Change-in-Control” below.

 

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The following table shows for the fiscal year ended March 30, 2018, certain information regarding outstanding equity awards at fiscal year-end for our named executive officers.

Outstanding Equity Awards at Fiscal Year-End 2018

 

          Option Awards     Stock Awards  

Name

  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options
Exercisable

(#)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares
or Units

of Stock
That Have

Not
Vested
(#)
    Market
Value of
Shares or

Units of
Stock
That Have
Not
Vested (1)
($)
    Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,

Units or
Other  Rights

that
Have Not

Yet Vested
(#)
    Equity
Incentive

Plan Awards:
Value
of Unearned
Shares, Units
or Other

Rights
that  Have

Not
Yet Vested (1)
($)
 

Gregory S. Clark

    6/9/2017             145,575 (2)       3,763,114       425,441 (3)       10,997,650  
    (4  )               288,499 (5)       7,457,699       2,579,198 (6)       66,672,268  
    (4  ) (7)       2,860,006       805,265       6.73       9/9/2025          

Nicholas R. Noviello

    6/9/2017               67,935 (8)       1,756,120       198,538 (3)       5,132,207  
    (4  )               88,908 (9)       2,298,272       651,119 (6)       16,831,426  
    (4  ) (10)       875,570       231,613       8.35       1/27/2026