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EX-32.02 - EXHIBIT 32.02 - SYMANTEC CORPa092818exhibit3202.htm
EX-32.01 - EXHIBIT 32.01 - SYMANTEC CORPa092818exhibit3201.htm
EX-31.02 - EXHIBIT 31.02 - SYMANTEC CORPa092818exhibit3102.htm
EX-31.01 - EXHIBIT 31.01 - SYMANTEC CORPa092818exhibit3101.htm

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 28, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      
For the Transition Period from                to                
Commission File Number 000-17781
image0a09.jpg
 Symantec Corporation
(Exact name of the registrant as specified in its charter)
Delaware
  
77-0181864
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. employer
Identification no.)
 
 
 
350 Ellis Street
  
 
Mountain View, California
  
94043
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code:
(650) 527-8000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ   No o
Indicate by check mark whether the registrant has submitted electronically 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 þ   No o
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 þ
  
Accelerated filer o
  
Non-accelerated filer o
  
Smaller reporting company o
 
  
 
 
Emerging growth company o
 
 
 
 
 
 
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No þ
The number of shares of Symantec common stock, $0.01 par value per share, outstanding as of November 5, 2018 was 638,888,439 shares.
 



SYMANTEC CORPORATION
FORM 10-Q
Quarterly Period Ended September 28, 2018
TABLE OF CONTENTS

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, our Quarterly Report on Form 10-Q for the first quarter of fiscal 2019 ended June 29, 2018, and this 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 filed our late Annual Report on Form 10-K for the fiscal year ended March 30, 2018 on October 26, 2018 and the delinquent Quarterly Report on Form 10-Q for the first quarter of fiscal 2019 ended June 29, 2018 is being filed simultaneously herewith.


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMANTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except par value per share amounts)
 
September 28,
2018
 
March 30, 2018 (1)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,147

 
$
1,774

Short-term investments
289

 
388

Accounts receivable, net
537

 
809

Other current assets
445

 
522

Total current assets
3,418

 
3,493

Property and equipment, net
778

 
778

Intangible assets, net
2,433

 
2,643

Goodwill
8,328

 
8,319

Other long-term assets
1,277

 
526

Total assets
$
16,234

 
$
15,759

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
158

 
$
168

Accrued compensation and benefits
165

 
262

Current portion of long-term debt
597

 

Contract liabilities
2,113

 
2,368

Other current liabilities
378

 
372

Total current liabilities
3,411

 
3,170

Long-term debt
4,442

 
5,026

Long-term contract liabilities
633

 
735

Deferred income tax liabilities
652

 
592

Long-term income taxes payable
1,066

 
1,126

Other long-term liabilities
80

 
87

Total liabilities
10,284


10,736

Commitments and contingencies (Note 16)


 


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

 

Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 632 and 624 shares issued and outstanding as of September 28, 2018 and March 30, 2018, respectively
4,867

 
4,691

Accumulated other comprehensive income (loss)
(17
)
 
4

Retained earnings
1,100

 
328

Total stockholders’ equity
5,950

 
5,023

Total liabilities and stockholders’ equity
$
16,234

 
$
15,759

 
(1)
Derived from audited financial statements.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Net revenues
$
1,175

 
$
1,240

 
$
2,331

 
$
2,415

Cost of revenues
256

 
262

 
505

 
519

Gross profit
919

 
978

 
1,826

 
1,896

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
365

 
434

 
751

 
867

Research and development
231

 
241

 
468

 
474

General and administrative
114

 
160

 
247

 
309

Amortization of intangible assets
51

 
55

 
104

 
114

Restructuring, transition and other costs
56

 
97

 
152

 
185

Total operating expenses
817

 
987

 
1,722

 
1,949

Operating income (loss)
102

 
(9
)
 
104

 
(53
)
Interest expense
(52
)
 
(57
)
 
(104
)
 
(141
)
Other expense, net
(22
)
 
(3
)
 
(41
)
 
(9
)
Income (loss) from continuing operations before income taxes
28

 
(69
)
 
(41
)
 
(203
)
Income tax expense (benefit)
36

 
(53
)
 
32

 
(77
)
Loss from continuing operations
(8
)
 
(16
)
 
(73
)
 
(126
)
Income (loss) from discontinued operations, net of income taxes

 
4

 
5

 
(19
)
Net loss
$
(8
)
 
$
(12
)

$
(68
)
 
$
(145
)
 
 
 
 
 
 
 
 
Income (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Continuing operations
$
(0.01
)
 
$
(0.03
)
 
$
(0.12
)
 
$
(0.21
)
Discontinued operations
$

 
$
0.01

 
$
0.01

 
$
(0.03
)
Net loss per share - basic and diluted
$
(0.01
)
 
$
(0.02
)
 
$
(0.11
)
 
$
(0.24
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic and diluted
630

 
615

 
627

 
612

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.075

 
$
0.075

 
$
0.15

 
$
0.15

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

4


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in millions)
 
Three Months Ended
 
Six Months Ended
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Net loss
$
(8
)
 
$
(12
)
 
$
(68
)
 
$
(145
)
Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustments
1

 

 
(23
)
 
(2
)
Reclassification adjustments for gain included in net loss

 
(3
)
 

 
(3
)
Net foreign currency translation adjustments
1

 
(3
)
 
(23
)
 
(5
)
Other comprehensive income from equity method investee
2

 

 
2

 

Other comprehensive income (loss), net of taxes
3

 
(3
)
 
(21
)
 
(5
)
Comprehensive loss
$
(5
)
 
$
(15
)
 
$
(89
)
 
$
(150
)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


SYMANTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
 
Six Months Ended
 
September 28,
2018
 
September 29,
2017
OPERATING ACTIVITIES:
 
 
 
Net loss
$
(68
)
 
$
(145
)
(Income) loss from discontinued operations, net of income taxes
(5
)
 
19

Adjustments:
 
 
 
Amortization and depreciation
305

 
328

Impairments of long-lived assets
7

 
20

Stock-based compensation expense
210

 
323

Deferred income taxes
3

 
(189
)
Other
18

 
32

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable, net
286

 
115

Accounts payable
(12
)
 
20

Accrued compensation and benefits
(81
)
 
(75
)
Contract liabilities
(111
)
 
(27
)
Income taxes payable
(67
)
 
30

Other assets
55

 
(9
)
Other liabilities
31

 
(21
)
Net cash provided by continuing operating activities
571

 
421

Net cash used in discontinued operating activities

 
(31
)
Net cash provided by operating activities
571

 
390

INVESTING ACTIVITIES:
 
 
 
Additions to property and equipment
(95
)
 
(72
)
Payments for acquisitions, net of cash acquired
(17
)
 
(361
)
Proceeds from maturities and sales of short-term investments
99

 

Purchases of short-term investments

 
(201
)
Other
(7
)
 

Net cash used in investing activities
(20
)
 
(634
)
FINANCING ACTIVITIES:
 
 
 
Repayments of debt

 
(2,010
)
Net proceeds from sales of common stock under employee stock incentive plans
6

 
74

Tax payments related to restricted stock units
(53
)
 
(83
)
Dividends and dividend equivalents paid
(110
)
 
(114
)
Payment for dissenting stockholder settlement

 
(68
)
Net cash used in financing activities
(157
)
 
(2,201
)
Effect of exchange rate fluctuations on cash and cash equivalents
(21
)
 
34

Change in cash and cash equivalents
373

 
(2,411
)
Cash held for sale (1)

 
(10
)
Beginning cash and cash equivalents
1,774

 
4,247

Ending cash and cash equivalents
$
2,147

 
$
1,826

 
(1)
The impact of assets and liabilities reclassified as held for sale during the period was not considered in the changes in operating assets and liabilities within cash flows from operating activities.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


SYMANTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Description of Business and Significant Accounting Policies
Business
Symantec Corporation (“Symantec,” the “Company,” “we,” “us,” and “our” refer to Symantec Corporation and all of its subsidiaries) is a global leader in cybersecurity. We provide security products, services and solutions to organizations and individuals. 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 our Norton and LifeLock offerings) help consumers protect their information, identities, devices and networks at home and online.
Basis of presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) for interim financial information. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 30, 2018. The results of operations for the three and six months ended September 28, 2018, are not necessarily indicative of the results expected for the entire fiscal year.
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to three and six-month periods in this report relate to fiscal periods ended September 28, 2018 and September 29, 2017. The six months ended September 28, 2018 and September 29, 2017 each consisted of 26 weeks. Our 2019 fiscal year consists of 52 weeks and ends on March 29, 2019.
Use of estimates
The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Such estimates include, but are not limited to, the determination of revenue recognition, valuation of goodwill, intangible assets and long-lived assets, income taxes, valuation of stock-based awards and recognition of stock-based compensation expense, and loss contingencies. Management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ significantly from these estimates, and such differences may be material to the Condensed Consolidated Financial Statements.
Significant accounting policies
There have been no material changes to our significant accounting policies as of and for the six months ended September 28, 2018, except for those noted in Note 2 and Note 3, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 30, 2018.
Note 2. Recent Accounting Standards
Recently adopted authoritative guidance
Revenue Recognition - Contracts with Customers. In May 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance for revenue from contracts with customers. The standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services. In addition, companies are required to capitalize certain contract acquisition costs, including commissions paid, when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a straight-line basis consistent with the timing of transfer of the products or services to which the asset relates.
On March 31, 2018, the first day of our fiscal 2019, we adopted the new guidance on a modified retrospective basis, applying the practical expedient to all uncompleted contracts as of March 31, 2018, and as a result, results for reporting periods beginning in the first quarter of our fiscal 2019 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported under the prior revenue recognition guidance.
During the three and six months ended September 28, 2018, as a result of the adoption of the new revenue recognition guidance, our net revenue increased $4 million and $9 million, respectively, and operating expenses decreased $2 million and $11 million, respectively.

7


The effects of the adoption of the new revenue recognition guidance on our September 28, 2018 Condensed Consolidated Balance Sheets were as follows:
 
As of September 28, 2018
(In millions)
As Reported
 
Balances Without Adoption of New Standard
 
Effect of Change
Accounts receivable, net
$
537

 
$
491

 
$
46

Other current assets (1)
$
445

 
$
431

 
$
14

Other long-term assets (2)
$
1,277

 
$
1,229

 
$
48

Total assets
$
16,234

 
$
16,126

 
$
108

 
 
 
 
 
 
Short-term contract liabilities
$
2,113

 
$
2,213

 
$
(100
)
Other current liabilities
$
378

 
$
347

 
$
31

Long-term contract liabilities
$
633

 
$
715

 
$
(82
)
Deferred income tax liabilities
$
652

 
$
606

 
$
46

Total liabilities
$
10,284

 
$
10,389

 
$
(105
)
 
 
 
 
 
 
Accumulated other comprehensive loss
$
(17
)
 
$
(13
)
 
$
(4
)
Retained earnings
$
1,100

 
$
883

 
$
217

Total stockholders’ equity
$
5,950

 
$
5,737

 
$
213

 
(1)
As reported includes short-term deferred commissions of $92 million. The balance without adoption of new standard includes short-term deferred commissions of $82 million.
(2)
As reported includes long-term deferred commissions of $88 million. The balance without adoption of new standard includes long-term deferred commissions of $41 million.
The adoption of the new revenue recognition guidance had no impact on our Condensed Consolidated Statements of Cash Flows.
Financial Instruments - Recognition and Measurement. In January 2016, the FASB issued new authoritative guidance on financial instruments. The new guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. We adopted this new guidance in the first quarter of fiscal 2019. Substantially all of our equity investments that were not accounted for under the equity method were previously accounted for under the cost method and are now accounted for using the measurement alternative defined as cost, less impairments, adjusted for observable price changes. Based on the composition of our investment portfolio, the adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
Income Taxes - Intra-Entity Asset Transfers Other Than Inventory. In October 2016, the FASB issued new authoritative guidance that requires entities to immediately recognize the tax consequences of intercompany asset transfers, excluding inventory, at the transaction date, rather than deferring the tax consequences under legacy GAAP. We adopted this new guidance in the first quarter of fiscal 2019 using a modified retrospective transition method. The adoption resulted in a cumulative-effect adjustment of a $742 million increase to retained earnings. This cumulative-effect adjustment primarily consisted of additional deferred tax assets related to an intra-entity sale of intangible assets in periods prior to adoption, partially offset by the write-off of income tax consequences deferred from pre-adoption intra-entity transfers and other liabilities for amounts not recognized under legacy GAAP.

8


Opening Balance Sheet Adjustments
The following summarizes the effect of adopting the above new accounting standards:
(in millions)
Balance as of March 30, 2018
 
Revenue Recognition Guidance
 
Accounting for Income Taxes Guidance
 
Opening Balance as of March 31, 2018
Accounts receivable, net
$
809

 
$
24

 
$

 
$
833

Other current assets (1)
$
522

 
$
(8
)
 
$
(8
)
 
$
506

Other long-term assets (2)
$
526

 
$
57

 
$
750

 
$
1,333

Total assets
$
15,759

 
$
73

 
$
742

 
$
16,574

 
 
 
 
 
 
 
 
Short-term contract liabilities
$
2,368

 
$
(107
)
 
$

 
$
2,261

Other current liabilities
$
372

 
$
(2
)
 
$

 
$
370

Long-term contract liabilities
$
735

 
$
(62
)
 
$

 
$
673

Deferred income tax liabilities
$
592

 
$
47

 
$

 
$
639

Total liabilities
$
10,736

 
$
(124
)
 
$

 
$
10,612

 
 
 
 
 
 
 
 
Retained earnings
$
328

 
$
197

 
$
742

 
$
1,267

 
(1)
The balance as of March 30, 2018, includes income tax receivable and prepaid income taxes of $107 million and short-term deferred commissions of $94 million. The opening balance as of March 31, 2018, includes income tax receivable and prepaid income taxes of $99 million and short-term deferred commissions of $86 million.
(2)
The balance as of March 30, 2018, includes long-term deferred commissions of $35 million, long-term income tax receivable and prepaid income taxes of $61 million and deferred income tax assets of $46 million. The opening balance as of March 31, 2018, includes long-term deferred commissions of $92 million, long-term income tax receivable and prepaid income taxes of $29 million and deferred income tax assets of $828 million.
Recently issued authoritative guidance not yet adopted
Leases. In February 2016, the FASB issued new guidance on lease accounting which will require lessees to recognize assets and liabilities on their balance sheet for the rights and obligations created by operating leases and will also require disclosures designed to give users of financial statements information on the amount, timing, and uncertainty of cash flows arising from leases. The new guidance will be effective for us in our first quarter of fiscal 2020. Early adoption is permitted but we do not plan to adopt the provisions of the new guidance early. We are currently in the assessment phase to determine the adoption methodology and are evaluating the impact of this new standard on our Consolidated Financial Statements and disclosures. We expect that most of our operating lease commitments will be subject to the new standard and recognized as lease liabilities and right-of-use assets upon adoption, which will increase the total assets and total liabilities we report. We are evaluating the impact to our Consolidated Financial Statements as it relates to other aspects of the business.
Credit Losses. In June 2016, the FASB issued new authoritative guidance on credit losses which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, we will be required to use a new forward-looking “expected loss” model. Additionally, for available-for-sale debt securities with unrealized losses, we will measure credit losses in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will be effective for us in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements.
Accumulated Other Comprehensive Income. In February 2018, the FASB issued new authoritative guidance that will permit entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (H.R.1) (the “Act”) to retained earnings. The amendment will be effective for us in our first quarter of fiscal 2020. If we decide to adopt this amendment, we do not expect that it will have a material impact on our Consolidated Financial Statements.
Internal-Use Software. In August 2018, the FASB issued new guidance that clarifies the accounting for implementation costs in a cloud computing arrangement. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will be effective for us in our first quarter of fiscal 2021, with early adoption permitted. We are currently evaluating the adoption date and the impact of the adoption of this guidance on our Consolidated Financial Statements and disclosures.
Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our consolidated financial position, operating results or disclosures.


9


Note 3. Revenues
General
We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services. Revenue is recognized net of allowances for returns, discounts, distributor incentives and end-user rebates, and any taxes collected from customers and subsequently remitted to governmental authorities.
For arrangements with multiple performance obligations, which may include hardware, software licenses, cloud services, support and maintenance, and professional services, we allocate revenue to each performance obligation on a relative fair value basis based on management’s estimate of stand-alone selling price (“SSP”). Judgment is required to determine the SSP for each performance obligation. The determination of SSP is made by taking into consideration observable prices in historical transactions. When observable prices in historical transactions are not available or are inconsistent, we estimate SSP based on observable prices in historical transactions of similar products, pricing discount practices, product margins, and other factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation.
Enterprise Security
Revenue for our Enterprise Security products is earned from arrangements that can include various combinations of software licenses, cloud services, hardware, support and maintenance, and professional services, which are sold directly to end-users or through a multi-tiered distribution channel.
We generally do not offer rights of return for Enterprise Security products and the distribution channel does not hold inventory. As a result, historical returns and related reserves have been insignificant. We offer channel rebates and marketing programs for our Enterprise Security products. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ performance compared to the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. We had reserves for Enterprise Security rebates and marketing programs of $6 million recorded in Other current liabilities as of September 28, 2018, and $6 million recorded against Accounts receivable, net as of March 30, 2018.
Consumer Digital Safety
We sell consumer products and services directly to end-users and consumer packaged software products through a multi-tiered distribution channel.
We offer various channel and end-user rebates for our Consumer Digital Safety products. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ performance compared to the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for end-user rebates are estimated based on the terms and conditions of the promotional program, actual sales during the promotion, the amount of redemptions received, historical redemption trends by product and by type of promotional program, and the value of the rebate. We record estimated reserves for channel and end-user rebates as an offset to revenue or contract liabilities. We had reserves for Consumer Digital Safety rebates of $10 million recorded in Other current liabilities as of September 28, 2018 and $21 million recorded against Accounts receivable, net as of March 30, 2018. For consumer products that include content updates, rebates are recognized as a ratable offset to revenue or contract liabilities over the term of the subscription.
Performance obligations
At contract inception, we assess the products and services promised in the contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both capable of being distinct and distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. In determining whether products and services are considered distinct performance obligations, we assess whether the customer can benefit from the products and services on their own or together with other readily available resources, and whether our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.

10


Our typical performance obligations include the following:
Performance Obligation
 
When Performance Obligations is Typically Satisfied
Products and services transferred at a point in time:
 
 
License with distinct deliverables
 
When software activation keys have been made available for download
Hardware with distinct deliverables
 
When control of the product passes to the customer; typically upon shipment
Products and services transferred over time:
 
 
License with interrelated deliverables
 
Over the expected performance term, beginning on the date that software activation keys are made available to the customer
Cloud hosted solutions
 
Over the contract term, beginning on the date that service is made available to the customer
Support and maintenance
 
Ratably over the course of the service term
Professional services
 
As the services are provided
Timing of revenue recognition
As a result of the adoption of the new revenue recognition guidance, the timing of recognition of certain of our performance obligations has changed. For example, certain term-based licenses with distinct performance obligations have a portion of revenue recognized up front when the software activation keys have been made available for download, whereas these arrangements were previously recognized over time. In addition, allocating the transaction price for perpetual software licenses and support on a relative standalone selling price basis under the new guidance has generally resulted in more revenue allocated to the upfront license compared to the residual method of allocation under the previous guidance. Conversely, certain of our perpetual licenses are not distinct from their accompanying support and maintenance under the new guidance and are now recognized over time.
The following table provides our revenue disaggregated by the timing of recognition under both the new guidance and the legacy guidance during the three months ended September 28, 2018:
(In millions)
As Reported
 
Amounts Without Adoption of New Standard
 
Effect of Change
Enterprise Security:
 
 
 
 
 
Products and services transferred at a point in time
$
110

 
$
71

 
$
39

Products and services transferred over time
$
464

 
$
498

 
$
(34
)
Consumer Digital Safety:
 
 
 
 
 
Products and services transferred at a point in time
$
12

 
$
12

 
$

Products and services transferred over time
$
589

 
$
590

 
$
(1
)
Total
 
 
 
 
 
Products and services transferred at a point in time
$
122

 
$
83

 
$
39

Products and services transferred over time
$
1,053

 
$
1,088

 
$
(35
)

11


The following table provides our revenue disaggregated by timing of recognition under the new guidance and the legacy guidance during the six months ended September 28, 2018:
(In millions)
As Reported
 
Amounts Without Adoption of New Standard
 
Effect of Change
Enterprise Security:
 
 
 
 
 
Products and services transferred at a point in time
$
209

 
$
132

 
$
77

Products and services transferred over time
$
921

 
$
988

 
$
(67
)
Consumer Digital Safety:
 
 
 
 
 
Products and services transferred at a point in time
$
24

 
$
24

 
$

Products and services transferred over time
$
1,177

 
$
1,178

 
$
(1
)
Total
 
 
 
 
 
Products and services transferred at a point in time
$
233

 
$
156

 
$
77

Products and services transferred over time
$
2,098

 
$
2,166

 
$
(68
)
Contract liabilities
Contract liabilities consist of deferred revenue and customer deposit liabilities and represent cash payments received or due in advance of our performance obligations. Deferred revenue represents billings under non-cancelable contracts before the related product or service is transferred to the customer. Certain arrangements in our Consumer Digital Safety segment include terms that allow the end user to terminate the contract and receive a pro-rata refund for a period of time. In these arrangements, we have concluded there are no enforceable rights and obligations during the period in which the option to cancel is exercisable by the customer and therefore the consideration received or due from the customer is recorded as a customer deposit liability.
During the three and six months ended September 28, 2018, we recognized $841 million and $1,492 million, respectively, of revenue from our beginning contract liabilities balance.
Contract acquisition costs
Sales commissions that are incremental to obtaining a customer contract for which revenue is deferred are accrued and capitalized, and subsequently amortized to sales and marketing expense on a straight-line basis over three years, the expected period of benefit. In arriving at the average period of benefit, we evaluate both qualitative and quantitative factors which include historical customer renewal rates, anticipated renewal periods, and the estimated useful life of the underlying product sold as part of the transaction. Commissions paid on renewals of support and maintenance are not commensurate with the initial commissions paid, and therefore the amortization period of commissions for initial contracts considers the estimated term of specific anticipated renewal contracts over the life of the customer.
During the three and six months ended September 28, 2018, we recognized $24 million and $47 million, respectively, of amortization expense of capitalized contract acquisition costs. There were no impairment losses recognized during the periods.
Remaining performance obligations
Remaining performance obligations represent contracted revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of September 28, 2018, we had $2,779 million of remaining performance obligations and the approximate percentages expected to be recognized as revenue in the future are as follows:
 
Total Remaining Performance Obligations
 
Percent Expected to be Recognized as Revenue
(In millions, except percentages)
 
0 - 12 Months
 
13 - 24 Months
 
25 - 36 Months
 
Over 36 Months
Enterprise Security
$
1,750

 
65
%
 
23
%
 
10
%
 
2
%
Consumer Digital Safety
1,029

 
96
%
 
3
%
 
1
%
 
%
Total
$
2,779

 
76
%
 
16
%
 
6
%
 
2
%
Note 4. Acquisitions
Fiscal 2019 acquisitions
During the six months ended September 28, 2018, we completed acquisitions of companies for an aggregate purchase price of $17 million, net of $2 million cash acquired.
Fiscal 2018 acquisitions
In July 2017, we completed our acquisitions of Israel-based Fireglass Ltd. and Skycure Ltd. The total aggregate consideration for these acquisitions, primarily consisting of cash, was $345 million, net of $15 million cash acquired. In addition,

12


during the six months ended September 29, 2017, we completed acquisitions of other companies for an aggregate purchase price of $29 million, net of cash acquired.
Pro forma results of operations for our fiscal 2019 and fiscal 2018 acquisitions have not been presented because they were not material to our consolidated results of operations, either individually or in the aggregate.
Note 5Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:
(In millions)
Enterprise Security
 
Consumer Digital Safety
 
Total
Balance as of March 30, 2018
$
5,734

 
$
2,585

 
$
8,319

Acquisitions
7

 
6

 
13

Translation adjustments
(2
)
 
(2
)
 
(4
)
Balance as of September 28, 2018
$
5,739

 
$
2,589

 
$
8,328

Intangible assets, net
 
September 28, 2018
 
March 30, 2018
(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
1,464

 
$
(457
)
 
$
1,007

 
$
1,462

 
$
(357
)
 
$
1,105

Developed technology
1,020

 
(453
)
 
567

 
1,037

 
(361
)
 
676

Finite-lived trade names and other
13

 
(9
)
 
4

 
13

 
(8
)
 
5

Total finite-lived intangible assets
2,497

 
(919
)
 
1,578

 
2,512

 
(726
)
 
1,786

Indefinite-lived trade names
852

 

 
852

 
852

 

 
852

In-process research and development
3

 

 
3

 
5

 

 
5

Total intangible assets
$
3,352

 
$
(919
)
 
$
2,433

 
$
3,369

 
$
(726
)
 
$
2,643

Amortization expense for purchased intangible assets is summarized below:
 
Three Months Ended
 
Six Months Ended
 
Statements of Operations Classification
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
 
Customer relationships and other
$
51

 
$
55

 
$
104

 
$
114

 
Operating expenses
Developed technology
59

 
61

 
117

 
116

 
Cost of revenues
Total
$
110

 
$
116

 
$
221

 
$
230

 
 
As of September 28, 2018, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:
(In millions)
September 28,
2018
Remainder of 2019
$
219

2020
437

2021
326

2022
264

2023
222

Thereafter
110

Total
$
1,578


13


Note 6. Supplementary Information (in millions)
Cash and cash equivalents:
 
September 28,
2018
 
March 30,
2018
Cash
$
441

 
$
1,016

Cash equivalents
1,706

 
758

Total cash and cash equivalents
$
2,147

 
$
1,774

Other current assets:
 
September 28,
2018
 
March 30,
2018
Prepaid expenses
$
162

 
$
177

Income tax receivable and prepaid income taxes
64

 
107

Short-term deferred commissions
92

 
94

Assets held for sale
26

 
26

Other
101

 
118

Total other current assets
$
445

 
$
522

In October 2018, we completed the sale of certain land and buildings that were reported as assets held for sale as of September 28, 2018 and March 30, 2018 for a sales price of $26 million, net of selling costs, which was equal to their carrying value.
Property and equipment, net:
 
September 28,
2018
 
March 30,
2018
Land
$
65

 
$
66

Computer hardware and software
1,095

 
1,081

Office furniture and equipment
108

 
110

Buildings
365

 
365

Leasehold improvements
331

 
339

Construction in progress
54

 
29

Total property and equipment, gross
2,018

 
1,990

Accumulated depreciation and amortization
(1,240
)
 
(1,212
)
Total property and equipment, net
$
778

 
$
778

Other long-term assets:
 
September 28,
2018
 
March 30,
2018
Cost method investments
$
175

 
$
175

Equity method investment
74

 
134

Long-term income tax receivable and prepaid income taxes
26

 
61

Deferred income tax assets
834

 
46

Long-term deferred commissions
88

 
35

Other
80

 
75

Total other long-term assets
$
1,277

 
$
526


14


Short-term contract liabilities:
 
September 28,
2018
 
March 30,
2018
Deferred revenue
$
1,658

 
$
2,368

Customer deposit liabilities
455

 

Total short-term contract liabilities
$
2,113

 
$
2,368

Long-term income taxes payable:
 
September 28,
2018
 
March 30,
2018
Deemed repatriation tax payable
$
772

 
$
824

Uncertain tax positions (including interest and penalties)
294

 
302

Total long-term income taxes payable
$
1,066

 
$
1,126

Other income (expense), net:
 
Three Months Ended
 
Six Months Ended
 
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Interest income
$
11

 
$
5

 
$
18

 
$
11

Loss from equity interest
(34
)
 

 
(60
)
 

Foreign exchange loss
(3
)
 
(7
)
 
(12
)
 
(21
)
Other
4

 
(1
)
 
13

 
1

Total other expense, net
$
(22
)
 
$
(3
)
 
$
(41
)
 
$
(9
)
Note 7. Financial Instruments and Fair Value Measurements
For financial instruments measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability.
The three levels of inputs that may be used to measure fair value are:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

15


Assets measured and recorded at fair value on a recurring basis
The following table summarizes our financial instruments measured at fair value on a recurring basis:
 
September 28, 2018
 
March 30, 2018
(In millions)
Fair Value
 
Level 1
 
Level 2
 
Fair Value
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
1,569

 
$
1,569

 
$

 
$
679

 
$
679

 
$

Certificates of deposit
137

 

 
137

 
79

 

 
79

Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
288

 

 
288

 
374

 

 
374

Commercial paper

 

 

 
2

 

 
2

Certificates of deposit
1

 

 
1

 
12

 

 
12

Total
$
1,995

 
$
1,569

 
$
426

 
$
1,146

 
$
679

 
$
467

The following table presents the contractual maturities of our investments in debt securities as of September 28, 2018:
(In millions)
Fair Value
Due in one year or less
$
69

Due after one year through five years
220

Total
$
289

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.
Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments, equity method investment and our long-term debt.
Non-marketable equity investments
Our non-marketable equity investments are investments in privately-held companies without a readily determinable fair value. Prior to March 31, 2018, we accounted for substantially all of these investments at cost less impairment and recognized realized gains or losses from sale or impairment in Other expense, net in our Condensed Consolidated Statements of Operations.
Effective March 31, 2018, we adopted the new accounting guidance related to the recognition and measurement of financial instruments. As a result, starting the first quarter of fiscal 2019, we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Gains and losses on these investments, whether realized or unrealized, are recognized in Other expense, net in our Condensed Consolidated Statements of Operations. As of September 28, 2018 and March 30, 2018, the carrying value of our non-marketable equity investments was $175 million.
Equity method investment
Our investment in equity securities that is accounted for using the equity method is included in Long-term other assets in our Condensed Consolidated Balance Sheets and consists of our equity investment in a privately-held company that had a carrying value of $74 million and $134 million at September 28, 2018 and March 30, 2018, respectively.
We recorded a loss from equity interests of $34 million and $60 million during the three and six months ended September 28, 2018, respectively, in Other expense, net in our Condensed Consolidated Statements of Operations. This loss for the six months ended September 28, 2018 was reflected as a reduction in the carrying amount of our investment in equity interests in our Condensed Consolidated Balance Sheets.
The following table summarizes unaudited financial data from the privately-held company which was provided to us on a three-month lag:
(In millions)
Three Months Ended September 28, 2018
 
Six Months Ended September 28, 2018
Revenue
$
74

 
$
140

Gross profit
$
61

 
$
114

Net loss
$
(123
)
 
$
(205
)

16


Current and long-term debt
As of September 28, 2018 and March 30, 2018, the total fair value of our current and long-term fixed rate debt was $3.9 billion. The fair value of our variable rate debt approximated its carrying value. The fair values of all our debt obligations were based on Level 2 inputs.
Note 8Debt
The following table summarizes components of our debt:
(In millions, except percentages)
September 28,
2018
 
March 30,
2018
 
Effective
Interest Rate
Senior Term Loan A-2 due August 1, 2019
$
600

 
$
600

 
LIBOR plus (1)

4.2% Senior Notes due September 15, 2020
750

 
750

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

 
500

 
3.76
%
Senior Term Loan A-5 due August 1, 2021
500

 
500

 
LIBOR plus (1)

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

 
1,250

 
2.66
%
3.95% Senior Notes due June 15, 2022
400

 
400

 
4.05
%
5.0% Senior Notes due April 15, 2025
1,100

 
1,100

 
5.23
%
Total principal amount
5,100

 
5,100

 
 
Less: Unamortized discount and issuance costs
(61
)
 
(74
)
 
 
Total debt
5,039

 
5,026

 
 
Less: current portion
(597
)
 

 
 
Total long-term debt
$
4,442

 
$
5,026

 
 
 
(1)
The senior term facilities bear interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) plus a margin based on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt and the underlying loan agreements. The interest rates for the outstanding senior term loans are as follows:
 
September 28,
2018
 
March 30,
2018
Senior Term Loan A-2 due August 1, 2019
3.69
%
 
3.31
%
Senior Term Loan A-5 due August 1, 2021
3.92
%
 
3.54
%
As of September 28, 2018, the future contractual maturities of debt by fiscal year are as follows:
(In millions)
September 28,
2018
2020
$
600

2021
1,250

2022
1,750

2023
400

Thereafter
1,100

Total future maturities of debt
$
5,100

Based on the closing price of our common stock of $21.28 on September 28, 2018, the if-converted values of our 2.5% and 2.0% Convertible Senior Notes exceeded the principal amount by approximately $134 million and $53 million, respectively.
The following table sets forth total interest expense recognized related to our 2.5% and 2.0% Convertible Senior Notes:
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Contractual interest expense
$
10

 
$
9

 
$
19

 
$
19

Amortization of debt discount and issuance costs
$
4

 
$
4

 
$
8

 
$
8

Revolving credit facility
We have an unsecured revolving credit facility to borrow up to $1.0 billion through May 10, 2021. For our current credit rating, borrowings under the revolving credit facility are subject to the same interest rate as our Senior Term Loan A-2. We are obligated

17


to pay commitment fees on the unused commitment at a rate based on our debt ratings. As of September 28, 2018 and March 30, 2018, there were no borrowings outstanding under this revolving credit facility.
Covenant compliance
The Senior Term Loan agreements A-2, A-5 and our revolving credit facility contain customary representations and warranties, affirmative and negative covenants, including compliance with specified financial ratios, non-financial covenants for financial reporting, and restrictions on subsidiary indebtedness, liens, stock repurchases and dividends (with exceptions permitting our regular quarterly dividend). Our Convertible Senior Notes agreements and the agreement for our 5.0% Senior Note due April 15, 2025 also require us to file periodic reports with the U.S. Securities and Exchange Commission (the “SEC”) by specified deadlines.
As of September 28, 2018, we had not met the requirements in the Senior Term Loan agreements A-2, A-5, the revolving credit facility agreement, the Convertible Senior Notes agreements and the agreement for our 5.0% Senior Note due April 15, 2025 to deliver audited financial statements for our fiscal year ended March 30, 2018 and file our Annual Report on Form 10-K for such period with the SEC. In addition, we subsequently did not meet the requirements under the Convertible Senior Notes agreements and the agreement for our 5.0% Senior Note due April 15, 2025 to file our quarterly report on Form 10-Q for our fiscal quarter ended June 29, 2018 with the SEC by the specified deadline.
On June 22, 2018, we reached an agreement with lenders to waive the financial reporting requirements under the Senior Term Loan agreements A-2, A-5 and the revolving credit facility agreement through October 27, 2018. On October 26, 2018 we satisfied these requirements for our fiscal year ended March 30, 2018 by filing our Form 10-K for such period with the SEC.
The filing of our Form 10-K on October 26, 2018 and the simultaneous filing herewith of the Form 10-Q for the first quarter ended June 29, 2018 also satisfied our SEC reporting requirements for our year ended March 30, 2018 and our quarter ended June 29, 2018, respectively, under the Convertible Senior Notes agreements and the agreement for our 5.0% Senior Note due April 15, 2025.
Because we expected as of September 28, 2018 that we would comply with all of our debt covenants before any applicable grace periods as defined in the associated indentures for the 5% Notes and the Convertible Senior Notes passed and waivers expired, we have classified all of the associated outstanding debt as long-term debt in our Condensed Consolidated Balance Sheets except for the portion that is due in the twelve months following September 28, 2018.
Note 9. Derivatives
We conduct business in numerous currencies throughout our worldwide operations and our entities hold monetary assets or liabilities, earn revenues and/or incur costs in currencies other than their functional currency. As a result, we are exposed to foreign exchange gains or losses which impact our operating results. As part of our foreign currency risk mitigation strategy, we have entered into foreign exchange forward contracts for up to six months in duration. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates.
The notional amount of our outstanding foreign exchange forward contracts in U.S. dollar equivalent was as follows:
(In millions)
September 28,
2018
 
March 30,
2018
Foreign exchange forward contracts purchased
$
641

 
$
697

Foreign exchange forward contracts sold
$
35

 
$
151

The fair value of our foreign exchange forward contracts is presented on a gross basis in our Condensed Consolidated Balance Sheets. As of September 28, 2018 and March 30, 2018, the fair value was insignificant. To mitigate losses in the event of nonperformance by counterparties, we have entered into master netting arrangements with our counterparties that allow us to settle payments on a net basis. The effect of netting on our derivative assets and liabilities was not material as of September 28, 2018 and March 30, 2018.
Our foreign exchange forward contracts are not designated as hedging instruments. The related gain (loss) recognized in Other expense, net in our Condensed Consolidated Statements of Operations was as follows:
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Foreign exchange forward contracts gain (loss)
$
(2
)
 
$

 
$
(38
)
 
$
10


18


Note 10. Restructuring, Transition and Other Costs
Our restructuring, transition and other costs consist primarily of severance, facilities, transition and other related costs. Severance costs generally include severance payments, outplacement services, health insurance coverage and legal costs. Included in other exit and disposal costs are advisory fees incurred in connection with restructuring events and facilities exit costs, which generally include rent expense and lease termination costs, less estimated sublease income. Transition costs are incurred in connection with Board of Directors approved discrete strategic information technology transformation 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 divestitures of our product lines.
Fiscal 2019 Plan
In August 2018, we announced a restructuring plan (the “Fiscal 2019 Plan”) under which we will initiate targeted reductions of up to approximately 8% of our global workforce. We estimate that we will incur total costs in connection with the Fiscal 2019 Plan of approximately $50 million, primarily for severance and termination benefits. These actions are expected to be completed in fiscal 2019. As of September 28, 2018, no significant costs have been incurred related to our Fiscal 2019 Plan.
Fiscal 2017 Plan
We initiated a restructuring plan in the first quarter of fiscal 2017 to reduce complexity by means of long-term structural improvements (the “Fiscal 2017 Plan”), under which we reduced headcount and closed certain facilities. These actions were substantially completed at the end of our first quarter of fiscal 2019. As of September 28, 2018, liabilities for excess facility obligations at several locations around the world are expected to be paid throughout the respective lease terms, the longest of which extends through fiscal 2025.
Restructuring, transition and other costs summary
Our restructuring, transition and other costs are presented in the table below:
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Severance and termination benefit costs
$

 
$
12

 
$
12

 
$
39

Other exit and disposal costs
1

 
1

 
10

 
17

Asset write-offs

 
8

 
2

 
9

Transition costs
55

 
76

 
128

 
120

Total restructuring, transition and other costs
$
56

 
$
97

 
$
152

 
$
185

Restructuring summary
Our activities related to our restructuring plans are presented in the table below:
(In millions)
Balance as of March 30, 2018
 
Net Charges
 
Cash
Payments
 
Balance as of September 28, 2018
 
Cumulative Incurred to Date
Severance and termination benefit costs
$
10

 
$
12

 
$
(20
)
 
$
2

 
$
149

Other exit and disposal costs
15

 
10

 
(11
)
 
14

 
141

Total
$
25

 
$
22

 
$
(31
)
 
$
16

 
$
290

The restructuring liabilities are included in Other current liabilities and Other long-term liabilities in our Condensed Consolidated Balance Sheets.
Note 11Income Taxes
The following table summarizes our effective tax rate for income (loss) from continuing operations for the periods presented:
 
Three Months Ended
 
Six Months Ended
(In millions, except percentages)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Income (loss) from continuing operations before income taxes
$
28

 
$
(69
)
 
$
(41
)
 
$
(203
)
Income tax expense (benefit)
$
36

 
$
(53
)
 
$
32

 
$
(77
)
Effective tax rate
129
%
 
77
%
 
(78
)%
 
38
%

19


For each of the three and six months ended September 28, 2018, we recorded an income tax expense on discontinued operations of $4 million. For the three and six months ended September 29, 2017, we recorded an income tax benefit on discontinued operations of $4 million and an income tax expense on discontinued operations of $37 million, respectively.
Our effective tax rate for continuing operations for the three and six months ended September 28, 2018 was based on the statutory tax rate of 21%. Our effective tax rate for continuing operations for the three and six months ended September 28, 2018 differs from the federal statutory income tax rate primarily due to the tax expense from one-time adjustments for newly issued guidance on the Act and other changes in response to tax reform, partially offset by the benefits of lower-taxed international earnings, the research and development tax credit and foreign derived intangible income deduction.
Our effective tax rate for continuing operations for the three and six months ended September 29, 2017 differs from the federal statutory income tax rate primarily due to the benefits of lower-taxed international earnings, the research and development tax credit, and excess tax benefits related to stock-based compensation, partially offset by various permanent differences.
As of September 28, 2018, we have not completed our accounting for the tax effects of the 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. On August 21, 2018, the U.S. Internal Revenue Service (“IRS”) issued a notice providing additional guidance on the application of new provisions under Section 162(m) regarding deductibility of stock-based compensation enacted with the Act. On September 13, 2018, the U.S. Department of the Treasury released proposed regulations under the Global Intangible Low-Taxed Income (“GILTI”) regime of the Act. We have made provisional estimates for the effect of this guidance on our fiscal year 2019 tax provision.
The Act contained a one-time transition tax that is based on our total post-1986 earnings and profits (“E&P”) that we previously deferred from U.S. income taxes. In fiscal 2018, we recorded a provisional amount for our one-time transition tax liability of our foreign subsidiaries. We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. Future accounting guidance may also change our provisional estimates for the transition tax. On August 1, 2018, the IRS and U.S. Department of the Treasury issued proposed regulations on the one-time transition tax under Section 965 on untaxed foreign earnings of U.S. controlled foreign companies and other specified foreign corporations, which was enacted under the Act. Additional guidance on the transition tax was provided in the form of an IRS notice on October 1, 2018. We have made provisional estimates for the effect of the proposed regulations and are in the process of evaluating the impact of the notice on our estimate for transition tax liability. During the three and six months ended September 28, 2018, we recorded a tax expense of approximately $29 million and $24 million, respectively, to increase our provisional estimate for the transition tax liability in response to new legislation and guidance. This impacted the effective tax rate by 104.3% and (59.9)% for the three and six months ended September 28, 2018, respectively.
We have not completed our analysis of the deferred tax accounting for the new taxes on GILTI and, therefore, have not recorded provisional amounts. We have not determined whether our accounting policy will be to record these amounts as deferred taxes or as period costs. We do not have sufficient information to complete the analysis and are awaiting potential further guidance required to evaluate the impact of deferred tax accounting for these provisions. As of September 28, 2018, because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have only considered the GILTI impact related to current-year operations in our estimated annual effective tax rate and have not provided deferred taxes for future reversal of GILTI timing items.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease, whether by payment, release, or a combination of both, in the next 12 months by $13 million, which could reduce our income tax provision and therefore benefit the resulting effective tax rate.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.

20


Note 12Stockholders' Equity
Dividends
The following table summarizes dividends declared and paid and dividend equivalents paid for the periods presented:
 
Three Months Ended
 
Six Months Ended
(In millions, except per share data)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Dividends declared and paid
$
48

 
$
46

 
$
95

 
$
92

Dividend equivalents paid
2

 
2

 
15

 
22

Total dividends and dividend equivalents paid
$
50

 
$
48

 
$
110

 
$
114

On November 1, 2018, we announced a cash dividend of $0.075 per share of common stock to be paid in December 2018. All shares of common stock issued and outstanding and all restricted stock units (“RSUs”) and performance-based restricted stock units (“PRUs”) as of the record date will be entitled to the dividend and dividend equivalents, respectively. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.
Stock Repurchase Program
Under our current stock repurchase program, we may purchase shares of our outstanding common stock through open market and accelerated stock repurchase transactions. As of September 28, 2018, the remaining balance of our stock repurchase authorization was $800 million and does not have an expiration date.
Accumulated other comprehensive income (loss)
Components of Accumulated other comprehensive income (loss), net of taxes, were as follows:
(In millions)
Foreign Currency
Translation Adjustments
 
Unrealized Loss on
Available-For-Sale
Securities
 
Equity Method Investee
 
Total
Balance as of March 30, 2018
$
8

 
$
(4
)
 
$

 
$
4

Other comprehensive loss before reclassifications
(23
)
 

 
2

 
(21
)
Balance as of September 28, 2018
$
(15
)
 
$
(4
)
 
$
2

 
$
(17
)
Note 13Stock-Based Compensation
Stock-based compensation expense
The following table sets forth the stock-based compensation expense recognized for our equity incentive plans:
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Cost of revenues
$
4

 
$
9

 
$
9

 
$
15

Sales and marketing
31

 
50

 
62

 
93

Research and development
39

 
53

 
78

 
94

General and administrative
23

 
64

 
61

 
121

Total stock-based compensation expense
$
97

 
$
176

 
210

 
323

Income tax benefit for stock-based compensation expense
$
(21
)
 
$
(58
)
 
(47
)
 
(109
)

21


The following table summarizes additional information related to our stock-based compensation:
 
Six Months Ended
(In millions, except per grant data)
September 28,
2018
 
September 29,
2017
RSUs:
 
 
 
Weighted-average fair value per award granted and assumed
$
21.65

 
$
30.08

Awards granted and assumed
12

 
10

Total fair value of awards released
$
195

 
$
234

Outstanding and unvested
21

 
23

PRUs:
 
 
 
Weighted-average fair value per award granted and assumed
$
21.23

 
$
32.94

Awards granted and assumed
2

 
4

Total fair value of awards released
$
8

 
$
23

Outstanding and unvested at target payout
5

 
9

Stock options:
 
 
 
Total intrinsic value of stock options exercised
$
11

 
$
103

Outstanding
13

 
15

Restricted stock:
 
 
 
Outstanding and unvested
1

 
1

PRUs
As of September 28, 2018, 12 million PRUs that vested on March 30, 2018 remained unreleased.
Liability-classified awards settled in shares
For certain employees, we settled fiscal 2018 bonuses in approximately 1 million RSUs. These awards were granted and vested in the first quarter of fiscal 2019. Certain fiscal 2019 bonuses are expected to be settled in RSUs in the first quarter of fiscal 2020. As of September 28, 2018 and March 30, 2018, the total liability associated with liability-classified awards was $14 million and $25 million, respectively, which is presented in Accrued compensation and benefits in our Condensed Consolidated Balance Sheets.
Employee stock purchase plan
In August 2018, we cancelled the issuance of common stock under our 2008 Employee Stock Purchase Plan for the 6-month purchase period ended August 15, 2018, as a result of the delayed filing of our Annual Report on Form 10-K for the fiscal year ended March 30, 2018. All participant contributions were refunded. In addition, the enrollment in the purchase period beginning August 16, 2018 was delayed.
As of September 28, 2018, the total unrecognized stock-based compensation costs, net of estimated forfeitures, were as follows:
(In millions)
Unrecognized compensation cost
 
Weighted-average remaining years
RSUs
$
312

 
2.0 years
PRUs
66

 
1.2 years
Options
15

 
1.5 years
Restricted stock
27

 
1.8 years
Liability-classified awards settled in shares
30

 
1.2 years
Total
$
450

 
 
Note 14Net Income Per Share
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding during the period using the treasury stock method. Dilutive potentially issuable common shares includes the dilutive effect of the shares underlying convertible debt and employee equity awards. Diluted loss per share was the same as basic loss per share for each of the three and six months ended September 28, 2018 and September 29, 2017, as there was a loss from continuing operations in the periods and inclusion of potentially issuable shares was anti-dilutive.

22


The components of basic and diluted net income (loss) per share are as follows:
 
Three Months Ended
 
Six Months Ended
(In millions, except per share amounts)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Loss from continuing operations
$
(8
)
 
$
(16
)
 
$
(73
)
 
$
(126
)
Income (loss) from discontinued operations, net of income taxes

 
4

 
5

 
(19
)
Net loss
$
(8
)
 
$
(12
)
 
$
(68
)
 
$
(145
)
Income (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Continuing operations
$
(0.01
)
 
$
(0.03
)
 
$
(0.12
)
 
$
(0.21
)
Discontinued operations
$

 
$
0.01

 
$
0.01

 
$
(0.03
)
Net loss per share - basic and diluted
$
(0.01
)
 
$
(0.02
)
 
$
(0.11
)
 
$
(0.24
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic and diluted
630

 
615

 
627

 
612

 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from diluted net income per share calculation:
 
 
 
 
 
 
 
Convertible debt
91

 
91

 
91

 
91

Employee equity awards
50

 
54

 
50

 
54

Total
141

 
145

 
141

 
145

Under the treasury stock method, our Convertible Senior Notes will generally have a dilutive impact on net income per share when our average stock price for the period exceeds approximately $16.77 per share for the 2.5% Convertible Senior Notes and $20.41 per share for the 2.0% Convertible Senior Notes. The conversion feature of both notes was anti-dilutive during the three and six months ended September 28, 2018 and September 29, 2017 as there was a loss from continuing operations in the periods.
Note 15Segment and Geographic Information
We operate in the following two reporting segments, which are the same as our operating segments:
Enterprise Security. Our Enterprise Security segment focuses on providing solutions to protect organizations so they can securely conduct business while leveraging new platforms and data. Our Enterprise Security portfolio includes products, services and solutions that are delivered as part of an Integrated Cyber Defense Platform.
Consumer Digital Safety. Our Consumer Digital Safety segment focuses on providing a comprehensive Digital Safety solution to protect information, devices, networks and the identities of consumers. This solution includes our Norton-branded security solutions and LifeLock identity theft protection solutions.
Operating segments are based upon the nature of our business and how our business is managed. Our Chief Operating Decision Makers (“CODM”), consisting of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), use our operating segment financial information to evaluate segment performance and to allocate resources.

23


There were no inter-segment sales for the periods presented. The following table summarizes the operating results of our reportable segments:
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Total Segments:
 
 
 
 
 
 
 
Net revenues
$
1,175

 
$
1,240

 
$
2,331

 
$
2,415

Operating income
$
366

 
$
399

 
$
685

 
$
723

Enterprise Security:
 
 
 
 
 
 
 
Net revenues
$
574

 
$
686

 
$
1,130

 
$
1,332

Operating income
$
80

 
$
147

 
$
136

 
$
241

Consumer Digital Safety:
 
 
 
 
 
 
 
Net revenues
$
601

 
$
554

 
$
1,201

 
$
1,083

Operating income
$
286

 
$
252

 
$
549

 
$
482

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 consist primarily of stock-based compensation expense; amortization of intangible assets; restructuring, transition and other costs; and acquisition-related costs.
The following table provides a reconciliation of our total reportable segments’ operating income to our total operating income (loss):
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Total segment operating income
$
366

 
$
399

 
$
685

 
$
723

Reconciling items:
 
 
 
 
 
 
 
Stock-based compensation expense
97

 
176

 
210

 
323

Amortization of intangible assets
110

 
116

 
221

 
230

Restructuring, transition and other costs
56

 
97

 
152

 
185

Acquisition-related costs
1

 
19

 
3

 
38

Other

 

 
(5
)
 

Total consolidated operating income (loss) from continuing operations
$
102

 
$
(9
)
 
$
104

 
$
(53
)
The following table summarizes net revenues by significant products and services categories:
 
Three Months Ended
 
Six Months Ended
(In millions)
September 28,
2018
 
September 29,
2017
 
September 28,
2018
 
September 29,
2017
Enterprise Security:
 
 
 
 
 
 
 
Endpoint and information protection
$
256

 
$
245

 
$
509

 
$
482

Network and web security
187

 
205

 
360