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Symantec 10-K 2008 Documents found in this filing:Table of Contents
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number
000-17781
SYMANTEC CORPORATION
Registrant’s telephone number, including area code:
(408) 517-8000
Securities registered pursuant to Section 12(b) of the
Act:
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
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 o No þ
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 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
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, 2007 as
reported on the Nasdaq Global Select Market: $16,723,116,226.
Number of shares outstanding of the registrant’s common
stock as of April 25, 2008: 840,122,348
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
stockholders in connection with our Annual Meeting of
Stockholders for 2008 are incorporated by reference into
Part III herein.
SYMANTEC
CORPORATION
FORM 10-K
For the Fiscal Year Ended March 28, 2008
“Symantec,” “we,” “us,” and
“our” refer to Symantec Corporation and all of its
subsidiaries. Symantec, the Symantec Logo, Norton, and Veritas
are trademarks or registered trademarks of Symantec in the
U.S. and other countries. Other names may be trademarks of
their respective owners.
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The discussion below contains forward-looking statements, which
are subject to safe harbors under the Securities Act of 1933, as
amended, or the Securities Act, and the Securities Exchange Act
of 1934, as amended, or the Exchange Act. Forward-looking
statements include references to our ability to utilize our
deferred tax assets, as well as statements including words such
as “expects,” “plans,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“projects,” and similar expressions. In addition,
statements that refer to projections of our future financial
performance, anticipated growth and trends in our businesses and
in our industries, the anticipated impacts of acquisitions, and
other characterizations of future events or circumstances are
forward-looking statements. These statements are only
predictions, based on our current expectations about future
events and may not prove to be accurate. We do not undertake any
obligation to update these forward-looking statements to reflect
events occurring or circumstances arising after the date of this
report. These forward-looking statements involve risks and
uncertainties, and our actual results, performance, or
achievements could differ materially from those expressed or
implied by the forward-looking statements on the basis of
several factors, including those that we discuss under
Item 1A, Risk Factors, beginning on page 13. We
encourage you to read that section carefully.
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Symantec is a global leader in providing security, storage and
systems management solutions to help businesses and consumers
secure and manage their information. We provide customers
worldwide with software and services that protect, manage and
control information risks related to security, data protection,
storage, compliance, and systems management. We help our
customers manage cost, complexity and compliance by protecting
their IT infrastructure as they seek to maximize value from
their IT investments.
We deliver a comprehensive and diverse set of security and
availability products and services to large enterprises,
governments, small and medium-sized businesses, and consumers on
a worldwide basis. Our delivery network includes direct, inside,
and channel sales resources that support our ecosystem of more
than 44,000 partners worldwide, as well as various relationships
with original equipment manufacturers, or OEMs, Internet service
providers, or ISPs, and retail and online stores. We operate in
three geographic regions: Americas, which includes United
States, Canada, and Latin America; EMEA, which includes Europe,
Middle East and Africa; and Asia Pacific Japan (APJ).
We operate primarily in two growing, diversified markets within
the software sector: the security market and the storage
software market. The security market includes products that
protect consumers and enterprises from threats to endpoint
devices, computer networks, and electronic information. Over the
past several years, we have seen security threats continue to
evolve from traditional viruses, worms, Trojan horses, and other
vulnerabilities, and more recently from threats such as phishing
(attacks that use spoofed websites and emails designed to record
keystrokes or to deceive recipients into divulging personal
financial data), email fraud, and identity theft. We have also
seen security rise to a top priority for enterprises as
information security is increasingly linked to regulatory
compliance. This evolution is a key driver of our research and
development and acquisition strategies, as we strive to
differentiate our solutions from the competition and address our
customers’ changing needs.
The storage software market includes products that manage,
archive, protect, and recover business-critical data. We believe
that the security and storage software markets are converging as
customers increasingly require our help in mitigating their risk
profiles and managing their storage solutions in order to secure
and manage their most valuable asset — their
information. The worldwide storage software market consists of
storage management, server and application management, backup
and archiving, and infrastructure software products and
services. Key drivers of demand in this market include the
ever-increasing quantity of data being collected, the need for
data to be protected, recoverable, and accessible at all times,
and the need for a growing number of critical applications to be
continuously available and highly performing.
Other factors driving demand in these markets include the
increase in the number of Internet users, computing devices, and
companies conducting business online, the continuous automation
of business processes, the on-going desire of organizations to
manage their overall IT risk, the increasing pressure on
companies to lower storage and server management costs while
simultaneously increasing the utilization, availability levels,
and performance of their existing IT infrastructure, and the
increasing importance of document retention and regulatory
compliance solutions.
In the ever-changing threat landscape and increasingly complex
IT environment for consumers and enterprises alike, we believe
product differentiation will be the key to sustaining market
leadership. Thus, we continually work to enhance the features
and functionality of our existing products, extend our product
leadership, and create innovative solutions for our customers.
We focus on generating profitable and sustainable growth through
internal research and development, licensing from third parties,
and acquisitions of companies with leading technologies.
During fiscal 2008, we took the following actions to support our
business:
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Founded in 1982, Symantec has grown to approximately
$5.9 billion in revenue in fiscal 2008, positioning
Symantec as the fourth largest independent software company in
the world based on revenue. We have operations in more than 40
countries and our principal executive offices are located at
20330 Stevens Creek Blvd., Cupertino, California 95014. Our
telephone number at that location is
(408) 517-8000.
Our home page on the Internet is www.symantec.com. Other
than the information expressly set forth in this annual report,
the information contained, or referred to, on our website is not
part of this annual report.
For information regarding our revenue by segment, revenue by
geographical area, and long-lived assets by geographical area,
see Note 19 of the Notes to Consolidated Financial
Statements in this annual report. For information regarding the
amount and percentage of our revenue contributed in each of our
product categories and our financial information, including
information about geographic areas in which we operate, see
Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations and
Note 19 of the Notes to Consolidated Financial Statements
in this annual report. For information regarding risks
associated with our international operations, see Item 1A,
Risk Factors.
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Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. During most of fiscal 2008, we had six operating
segments: Consumer Products, Security and Data Management, Data
Center Management, Services, Altiris, and Other. The Other
segment is comprised of sunset products and products nearing the
end of their life cycle and also includes general and
administrative expenses; amortization of acquired product
rights, other intangible assets, and other assets; charges, such
as acquired in-process research and development, patent
settlements, stock-based compensation, and restructuring; and
certain indirect costs that are not charged to the other
operating segments.
During the March 2008 quarter, we modified our segment reporting
structure in line with business operational changes associated
with Enrique Salem’s promotion to Chief Operating Officer
in January 2008. The following changes have been made to our
segment reporting structure:
The revised segment structure as noted above has been reflected
in our financial results for all periods presented in this
annual report.
Our Consumer Products segment provides suites and services that
include Internet security, PC tuneup, and backup for individual
users and home offices. Our
Nortontm
brand of consumer security software products provides protection
for
Windows®,
Macintosh®,
Windows-Mobile®,
and
Symbiantm
platforms.
Many of Symantec’s consumer products include an ongoing
commitment to provide product technology and feature updates
throughout the typical
12-month
term of the subscription, to help ensure up-to-the-minute
protection against the latest threats. Most of the products that
we are currently marketing or developing feature
LiveUpdatetm
functionality, which automatically updates these products with
the latest technology, malware protection, antispyware
definitions, antiphishing and antispam blacklists, parental
control databases, and many other types of security and
application data.
During fiscal 2008, the growth in our consumer business was
driven by the evolving threat landscape, including malicious
threats and crimeware, and increased demand for products that
secure sensitive online consumer interactions, such as financial
transactions, online backup and identity management. Our primary
consumer products are: Norton
360tm,
Norton Internet
Securitytm,
and Norton AntiVirus.
Our Security and Compliance segment focuses on helping our
customers standardize, automate and drive down the costs of
day-to-day security activities.
Our primary security and compliance solutions address the
following areas:
Our endpoint security and management offerings enable
organizations to evaluate, protect, and remediate both managed
and unmanaged systems as they connect to corporate assets.
Integrated solutions help customers protect critical network
endpoints such as desktops, servers, laptops, and mobile devices
against known and unknown threats using technologies such as
antivirus, antispyware, firewall, intrusion prevention, network
access control, advanced management, and monitoring.
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Endpoint management solutions help customers further secure and
ultimately reduce the cost of owning information technology by
automating management tasks, including backup, recovery,
deployment, migration, inventory, patch management, IT asset and
service management, business process automation, data archiving
and remote control. Products include
Symantectm
Endpoint Protection, Symantec Network Access Control, and
Altiristm
Total Management Suite.
Our Information Risk Management solutions provide a common
framework for customers to consistently enforce data security
policies across endpoints, networks, email, storage systems, and
archiving. These solutions are built on market-leading policy
management, archiving and retention, data loss prevention,
antispam, and content filtering technologies, allowing IT
professionals to proactively mitigate data security risks and
policy violations while rapidly and cost-effectively responding
to
e-Discovery
requests. We also help customers define, control, and govern
their IT policies from a central location, enabling them to
protect critical assets and reduce business risk by probing for
network vulnerabilities, monitoring threats in real-time,
retaining logs for analysis, managing security incidents, and
demonstrating compliance with internal mandates and external
regulations. Products include Symantec Information
Foundationtm,
Symantec Mail Security, Symantec Enterprise
Vaulttm,
Vontutm
Data Loss Prevention, Symantec Control Compliance Suite,
Symantec Security Information Manager, and Symantec Enterprise
Security
Managertm.
Our Storage and Server Management segment focuses on providing
enterprise customers with storage management, high availability,
and data protection solutions across heterogeneous storage and
server platforms. These solutions enable companies to
standardize on a single layer of infrastructure software that
works on every major distributed operating system and supports
every major storage device, database, and application.
Our primary storage and server management solutions address the
following areas:
These solutions provide file systems, volume management,
clustering, storage resource management, storage utilization
management, Storage Area Network management, storage
virtualization and replication. They also enable enterprises to
manage large storage environments and ensure the availability of
critical applications. Products include Veritas CommandCentral
Storage, Veritas Storage
Foundationtm,
and
Veritastm
Cluster Server.
Symantec’s data protection family of products are designed
to ensure successful backup and recovery of information and
systems for organizations ranging from small to large
enterprises using the latest disk, tape, de-duplication,
indexing and virtual technologies. Products include Veritas
NetBackuptm,
Veritas NetBackup
PureDisktm,
Symantec Backup
Exectm,
and Symantec Backup Exec System Recovery.
Our Services segment delivers Consulting, Managed, Hosted and
Education services that complement our products and assist with
product sales.
Symantec Managed Services enable customers to place
resource-intensive IT operations under the management of
experienced Symantec specialists in order to optimize existing
resources and focus on strategic IT projects. Symantec Hosted
Services leverage infrastructure managed in a Symantec
environment to help customers reduce IT complexity, manage IT
risk, and to lower cost of operations. Symantec recently
launched the Symantec Protection Network, a
software-as-a-service platform that brings a range of
availability technologies to small to medium-sized
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businesses. Currently two offerings are in the market
— Symantec Online Backup and Symantec Online Storage
for Backup Exec.
Symantec Consulting provides product enablement and residency
services to enable customers to maximize the value of their
investment in Symantec’s products and solutions. In
addition, Symantec Consulting provides customers advisory
services in the areas of security and availability. Education
Services provides a full range of programs, including technical
training and security awareness training, to help customers
optimize their Symantec solutions.
We sell our consumer products and services to individuals and
home offices globally through a multi-tiered network of
distribution partners. Our strategy is to place our products in
a variety of channels where consumers might consider purchasing
security, PC tuneup and backup products.
Our products are available to customers through channels that
include distributors, retailers, direct marketers,
Internet-based resellers, OEMs, system builders, educational
institutions, and ISPs. We separately sell annual content update
subscriptions directly to end-users primarily through the
Internet. We also sell some of our products and product upgrades
in conjunction with channel partners through direct mail/email
and over the Internet.
Sales in the Consumer Products business through our electronic
distribution channel, which includes sales derived from OEMs,
subscriptions, upgrades, online sales, and renewals, grew by
$174 million in fiscal 2008 over fiscal 2007. During fiscal
2008, approximately 73 percent of revenue in the Consumer
Products segment came from our electronic channels.
We sell and market our products and related services to
enterprise customers both directly and through a variety of
indirect sales channels, which include value-added resellers, or
VARs, large account resellers, or LARs, distributors, system
integrators, or SIs, and OEMs. Our enterprise customers include
many leading global corporations, small and medium-sized
businesses, and many government agencies around the world. Some
of our sales efforts are targeted to senior executives and IT
department personnel who are responsible for managing a
company’s IT initiatives.
Our primary method of demand generation for enterprise customers
is through our direct sales force. We ended fiscal 2008 with
approximately 9,200 individuals in our sales and services team.
Account managers are responsible for customer relationships and
opportunity management and are supported by product and services
specialists.
We complement our direct sales efforts with indirect sales
channels such as resellers, VARs, LARs, distributors, and SIs,
primarily to address the small to medium-sized enterprise
market. We sell our products through authorized distributors in
more than 40 countries throughout the world. Our top distributor
during fiscal 2008 was Ingram Micro, Inc.
Another important element of our Enterprise Solutions strategy
involves our relationships with OEM partners that incorporate
our products into their products, bundle our products with their
products, or serve as authorized resellers of our products.
Our marketing expenditure relates primarily to advertising and
promotion, which includes demand generation and brand
recognition of our consumer and enterprise products. Our
advertising and promotion efforts include, but are not limited
to, electronic and print advertising, trade shows, collateral
production, and all forms of direct marketing. We also invest in
cooperative marketing campaigns with distributors, resellers,
retailers, OEMs, and industry partners.
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We invest in various retention marketing and customer loyalty
programs to help drive renewals and encourage customer advocacy
and referrals. We also provide focused vertical marketing
programs in targeted industries and countries.
We typically offer two types of rebate programs within most
countries: volume incentive rebates to channel partners and
promotional rebates to distributors and end-users. Distributors
and resellers earn volume incentive rebates primarily based upon
product sales to end-users. We also offer rebates to individual
users who purchase products through various resale channels.
We regularly offer upgrade rebates to consumers purchasing a new
version of a product. Both volume incentive rebates and end-user
rebates are accrued as an offset to revenue.
Symantec has centralized support facilities throughout the world
that provide rapid, around-the-clock responses to a wide range
of customer inquiries. We have support facilities with experts
in technical areas associated with the products we produce and
the operating environments in which these products are deployed
by many of our customers. Our technical support experts provide
customers with information on product implementation and usage,
issue resolution, and countermeasures and identification tools
for new threats. Support is available in multiple languages
including Cantonese, Dutch, English, French, German, Italian,
Japanese, Korean, Mandarin, Portuguese, and Spanish. We believe
that enhanced language support is an important element of our
success and plan to continue our investments in the delivery of
non-English technical support.
Symantec provides customers various levels of enterprise support
offerings depending on their needs. Business Critical Services,
our highest level of protection provides personalized, proactive
support from technical experts for enterprises that require
secure, uninterrupted access to their data and applications. Our
enterprise security support program offers annual maintenance
support contracts to enterprise customers worldwide, including
content, upgrades, and technical support. Our standard technical
support includes the following: unlimited hotline service
delivered by telephone, fax, email, and over the Internet;
immediate patches for severe problems; and, periodic software
updates and access to our technical knowledge base and
frequently asked questions.
Our consumer product support program provides self-help online
services, phone, chat, and email support to consumers worldwide.
A team of product experts, editors, and language translators are
dedicated to maintaining the robustness of the online knowledge
base. Generally, we use an outside vendor to provide telephone
product support for a fee. Customers that subscribe to
LiveUpdate receive automatic downloads of the latest virus
definitions, application bug fixes, and patches for most of our
consumer products.
Our solutions are used worldwide by individual and enterprise
customers in a wide variety of industries, small, medium and
large enterprises, as well as various governmental entities. In
fiscal 2008, 2007 and 2006, one distributor, Ingram Micro,
accounted for 10%, 11% and 13%, respectively, of our total net
revenues. Our distributor arrangements with Ingram Micro consist
of several non-exclusive, independently negotiated agreements
with its subsidiaries, each of which cover different countries
or regions. Each of these agreements is separately negotiated
and is independent of any other contract (such as a master
distribution agreement), and these agreements are not based on
the same form of contract. None of these contracts was
individually responsible for over 10 percent of our total
net revenues in each of the last three fiscal years. In fiscal
2008, 2007 and 2006, one reseller, Digital River, accounted for
11%, 12% and 11%, respectively, of our total net revenues.
Research and development expenses, exclusive of in-process
research and development associated with acquisitions, were
$895 million, $867 million, and $682 million in
fiscal 2008, 2007, and 2006, respectively. We believe that
technical leadership is essential to our success and we expect
to continue to commit substantial resources to research and
development.
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Symantec embraces a global R&D strategy with teams of
engineers worldwide focused on product development, pure
research and on tailoring our products to meet regional
requirements. Conducting R&D close to our customers ensures
that we have intimate knowledge of the markets we serve and a
better link between our customers and our labs. Symantec strives
to maintain long-term technological leadership by nurturing
innovation, generating new ideas and developing next-generation
technologies across all of our business.
Symantec Research Labs is a group designed to foster new
technologies and products to help us maintain leadership in
existing markets. The team focuses on short, medium, and
long-term applied research, develops new products in emerging
areas, participates in government-funded research projects, and
partners with universities to conduct research to support
Symantec’s needs.
Our Security Response experts, located at research centers
throughout the world, are focused on collecting and analyzing
the latest malware threats, ranging from network security
threats and vulnerabilities to viruses and worms. All this data
is collected through our Symantec Global Intelligence Network,
which provides insight into emerging trends in attacks,
malicious code activity, phishing, spam, and other threats. The
Security Response team is also focused on developing new
technologies and approaches to protecting customers’
information and systems.
Independent contractors are used for various aspects of the
product development process. In addition, elements of some of
our products are licensed from third parties.
Our strategic technology acquisitions are designed to enhance
the features and functionality of our existing products, as well
as extend our product leadership. We use strategic acquisitions
to provide certain technology, people, and products for our
overall product and services strategy. We consider both time to
market and potential market share gains when evaluating
acquisitions of technologies, product lines, or companies. We
have completed a number of acquisitions of technologies,
companies, and products in the past, and we have also disposed
of technologies and products. We may acquire
and/or
dispose of other technologies, products and companies in the
future.
During fiscal 2008, we completed the following acquisitions:
In addition, on April 18, 2008, we acquired AppStream Inc.,
a provider of application streaming technology, an on-demand
delivery mechanism that leverages the power of application
virtualization to enable greater flexibility and control.
For further discussion of our acquisitions, see Notes 4 and
20 of the Notes to Consolidated Financial Statements in this
annual report.
Our markets are consolidating, are highly competitive, and are
subject to rapid changes in technology. We are focused on
integrating next generation technology capabilities into our
solution set in order to differentiate ourselves from the
competition. We believe that the principal competitive factors
necessary to be successful in our industry also include, time to
market, price, reputation, financial stability, breadth of
product offerings, customer support, brand recognition, and
effective sales and marketing efforts.
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In addition to the competition we face from direct competitors,
we face indirect or potential competition from retail,
application providers, operating system providers, network
equipment manufacturers, and other OEMs, who may provide various
solutions and functions in their current and future products. We
also compete for access to retail distribution channels and for
the attention of customers at the retail level and in corporate
accounts. In addition, we compete with other software companies,
operating system providers, network equipment manufacturers and
other OEMs to acquire technologies, products, or companies and
to publish software developed by third parties. We also compete
with other software companies in our effort to place our
products on the computer equipment sold to consumers by OEMs.
The competitive environments in which each segment operates are
described below.
Some of the channels in which our consumer products are offered
are highly competitive. Our competitors are sometimes intensely
focused on customer acquisition, which has led such competitors
to offer their technology for free, engage in aggressive
marketing, or enter into competitive partnerships.
Our primary competitors in the Consumer Products segment are
McAfee, Inc., Microsoft Corporation, and Trend Micro Inc. There
are also several smaller regional security companies that we
compete against primarily in the EMEA and APJ regions.
In the security and compliance markets, we compete against many
companies that offer competing products to our technology
solutions and competing services to our response and support
services. Our primary competitors in the security market are
Cisco Systems, Inc., McAfee, Microsoft, and Trend Micro. There
are also several smaller regional security companies that we
compete against primarily in the EMEA and APJ regions.
The markets for storage and server management are intensely
competitive. In the areas of data protection and storage and
server management, our primary competitors are CA Inc.,
CommVault Systems, Inc., EMC, Inc., Hewlett-Packard Co., IBM
Corp., Microsoft, Oracle Corp., and Sun Microsystems, Inc.
We believe that the principal competitive factors for our
services segment include technical capability, customer
responsiveness, and our ability to hire and retain talented and
experienced services personnel. Our primary competitors in the
services segment are EMC, Hewlett-Packard, IBM, and regional
specialized consulting firms. In the managed security services
business, our primary competitors are IBM and VeriSign, Inc.
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 generally
non-transferable and have a perpetual term. We also educate our
employees on trade secret protection and employ measures to
protect our facilities, equipment, and networks.
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Symantec and the Symantec logo are trademarks or registered
trademarks in the U.S. and other countries. In addition to
Symantec and the Symantec logo, we have used, registered,
and/or
applied to register other specific trademarks and service marks
to help distinguish our products, technologies, and services
from those of our competitors in the U.S. and foreign
countries and jurisdictions. We enforce our trademark, service
mark, and trade name rights in the U.S. and abroad. 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 a number of U.S. and foreign issued patents and
pending patent applications, including patents and rights to
patent applications acquired through strategic transactions,
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.
As is typical for many large software companies, our business is
seasonal. Software license and maintenance orders are generally
higher in our third and fourth fiscal quarters and lower in our
first and second fiscal quarters. A significant decline in
license and maintenance orders is typical in the first quarter
of our fiscal year as compared to license and maintenance orders
in the fourth quarter of the prior fiscal year. In addition, we
generally receive a higher volume of software license and
maintenance orders in the last month of a quarter, with orders
concentrated in the later part of that month. We believe that
this seasonality primarily reflects customer spending patterns
and budget cycles, as well as the impact of compensation
incentive plans for our sales personnel. Revenue generally
reflects similar seasonal patterns but to a lesser extent than
orders because revenue is not recognized until an order is
shipped or services are performed and other revenue recognition
criteria are met, and because a significant portion of our
in-period revenue is provided by the ratable recognition of our
deferred revenue balance.
As of March 28, 2008, we employed more than
17,600 people worldwide, approximately 53 percent of
whom reside in the U.S. Approximately 6,200 employees
work in sales and marketing; 5,200 in research and development;
3,900 in support and services; and 2,300 in management,
manufacturing, and administration.
Our Internet address is www.symantec.com. We make
available free of charge on our website our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
and current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission, or SEC. Other than the information expressly set
forth in this annual report, the information contained, or
referred to, on our website is not part of this annual report.
The public may also read and copy any materials we file with the
SEC at the SEC’s Public Reference Room at
100 F Street, NE, Room 1580, Washington, DC
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website at www.sec.gov
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that contains reports, proxy and information statements, and
other information regarding issuers, such as us, that file
electronically with the SEC.
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.
If we
are unable to develop new and enhanced products and services
that achieve widespread market acceptance, or if we are unable
to continually improve the performance, features, and
reliability of our existing products and services or adapt our
business model to keep pace with industry trends, our business
and operating results could be adversely affected.
Our future success depends on our ability to respond to the
rapidly changing needs of our customers by developing or
introducing new products, product upgrades, and services 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. New product development and
introduction involves a significant commitment of time and
resources and is subject to a number of risks and challenges
including:
In addition, if we cannot adapt our business models to keep pace
with industry trends, our revenue could be negatively impacted.
In connection with our enterprise software offerings, we license
our applications on a variety of bases, such as per server, per
processor, or based on performance criteria such as per amount
of data processed or stored. If enterprises continue to migrate
towards solutions, such as virtualization, which allow
enterprises to run multiple applications and operating systems
on a single server and thereby reduce the number of servers they
are required to own and operate, we may experience lower license
revenues unless we are able to successfully change our
enterprise licensing model or sell additional software to take
into account the impact of these new solutions.
If we are not successful in managing these risks and challenges,
or if our new products, product upgrades, and services are not
technologically competitive or do not achieve market acceptance,
our business and operating results could be adversely affected.
We are subject to fluctuations in demand for our products and
services due to a variety of factors, including general economic
conditions, competition, product obsolescence, technological
change, shifts in buying patterns
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and budget constraints of our actual and potential customers,
levels of broadband usage, 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 product sales. If demand for our products
declines, our revenues and gross margin could be adversely
affected. For example, if the challenging economic conditions in
the United States or other key markets continue or deteriorate
further, we may experience slower or negative revenue growth and
our business and operating results might suffer.
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 drop
in revenue that could adversely affect our business and
operating results. To compete successfully, we must maintain a
successful research and development effort to develop new
products and services and enhance existing products and
services, 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, we could
experience a negative effect on our competitive position and our
financial results.
Our traditional competitors include independent software vendors
that offer software products that directly compete with our
product offerings. In addition to competing with these vendors
directly for sales to end-users of our products, we compete with
them for the opportunity to have our products bundled with the
product 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 products
with the products of our competitors or if they more actively
promote our competitors’ products than our products. In
addition, software vendors who have bundled our products with
theirs may choose to bundle their software with their own or
other vendors’ software or may limit our access to standard
product interfaces and inhibit our ability to develop products
for their platform.
We face growing competition from network equipment and computer
hardware manufacturers and large operating system providers.
These firms are increasingly developing and incorporating into
their products data protection and storage and server management
software that competes at some levels with our product
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
products.
Another growing industry trend is the software-as-a-service
(“SaaS”) business model, whereby software vendors
develop and host their applications for use by customers over
the Internet. This allows enterprises to obtain the benefits of
commercially licensed, internally operated software without the
associated complexity or high initial
set-up and
operational costs. Advances in the SaaS business model could
enable the growth of our competitors and could affect the
success of our traditional software licensing models. We have
recently released our own SaaS offerings. However, it is
uncertain whether our SaaS strategy will prove successful or
whether we will be able to successfully incorporate our SaaS
offering into our current licensing models. Our inability to
successfully develop and market SaaS product offerings could
cause us to lose business to competitors.
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. We also face competition from many
smaller companies that specialize in particular segments of the
markets in which we compete.
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We sell our products 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. Special risks associated with
this sales channel include:
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:
OEM Sales Channels. A significant 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:
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, we may
have reduced sales or increased bad debt expense that could
adversely affect our operating results. In addition, reliance on
multiple channels subjects us to
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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 result in adverse operating results in
future periods.
We have in the past acquired, and we expect to acquire in the
future, other businesses, business units, and technologies.
Acquisitions can involve a number of special risks and
challenges, including:
Integrating acquired businesses has been and will continue to be
a complex, time consuming, and expensive process, and can impact
the effectiveness of our internal control over financial
reporting.
If integration of our acquired businesses is not successful, we
may not realize the potential benefits of an acquisition or
undergo other adverse effects that we currently do not foresee.
To integrate acquired businesses, we must implement our
technology systems in the acquired operations and integrate and
manage the personnel 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.
Any of the foregoing, and other factors, could harm our ability
to achieve anticipated levels of profitability from acquired
businesses or to realize other anticipated benefits of
acquisitions. In addition, because acquisitions of high
technology companies are inherently risky, no assurance can be
given that our previous or future acquisitions will be
successful and will not adversely affect our business, operating
results, or financial condition.
In June 2006, we sold $2.1 billion in aggregate principal
amount of convertible senior notes. As a result of the sale of
the notes, we have a substantially greater amount of long term
debt than we have maintained in the past. In addition, we have
entered into a credit facility with a borrowing capacity of
$1 billion and we borrowed $200 million under the
facility in November 2007 to fund a portion of the purchase
price of our acquisition of Vontu, Inc. Our credit facility
allows us immediate access to an additional $800 million of
domestic funds if we identify opportunities for its use. From
time to time in the future, we may also incur indebtedness in
addition to the amount available under our credit facility. Our
maintenance of substantial levels of debt could adversely affect
our flexibility to take advantage of certain corporate
opportunities and could adversely affect our financial condition
and results of operations.
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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. We plan to expand our
international operations, but such expansion is contingent upon
the financial performance of our existing international
operations as well as our identification of growth
opportunities. Our international operations are subject to risks
in addition to those faced by our domestic operations, including:
A significant portion of our transactions outside of the
U.S. are denominated in foreign currencies. Accordingly,
our future operating results will continue to be subject to
fluctuations in foreign currency rates. We may be negatively
affected by fluctuations in foreign currency rates in the
future, especially if international sales continue to grow as a
percentage of our total sales.
The level of corporate tax from sales to our
non-U.S. customers
is less than the level of tax from sales to our
U.S. customers. This benefit is contingent upon existing
tax regulations in the U.S. and in the countries in which
our international operations are located. Future changes in
domestic or international tax regulations could adversely affect
our ability to continue to realize these tax benefits.
Because we offer very complex products, undetected errors,
failures, or bugs may occur, especially when products 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
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networking configurations, which may cause errors or failures in
our products or may expose undetected errors, failures, or bugs
in our products. 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 products or
releases until after commencement of commercial shipments. In
the past, we have discovered software errors, failures, and bugs
in certain of our product offerings after their introduction
and, in some cases, may have experienced delayed or lost
revenues as a result of these errors.
Errors, failures, or bugs in products released by us could
result in negative publicity, product 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 products in applications that are critical to
their businesses and may have a greater sensitivity to defects
in our products than to defects in other, less critical,
software products. In addition, if an actual or perceived breach
of information integrity 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 products could be harmed. Alleviating
any of these problems could require significant expenditures of
our capital and other resources and could cause interruptions,
delays, or cessation of our product licensing, which could cause
us to lose existing or potential customers and could adversely
affect our operating results.
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 products and services,
effectively manage or expand our business, or increase our
revenues.
Our future success depends upon our ability to recruit and
retain our key management, technical, sales, marketing, finance,
and other critical 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. 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. 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 available for issuance under our equity compensation
plans, and recent changes in accounting rules require us to
treat the issuance of employee stock options and other forms of
equity-based compensation as compensation expense. As a result,
we may decide to 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.
Key personnel have left our company in the past and there likely
will be additional departures of key personnel from time to time
in the future. 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 and our
internal control over financial reporting, and the results of
our operations. In addition, hiring, training, and successfully
integrating replacement sales and other personnel could be time
consuming, may cause additional disruptions to our operations,
and may be unsuccessful, which could negatively impact future
revenues.
We have been named as a party to class action lawsuits, and we
may be named in additional litigation. The expense of defending
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 negatively impact our business, results of
operations, and cash flows.
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From time to time, we receive claims that we have infringed the
intellectual property rights of others, including claims
regarding patents, copyrights, and trademarks. In addition,
former employers of our former, current, or future employees may
assert claims that such employees have improperly disclosed to
us the 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.
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 shipment delays or other disruptions in our business
that could materially and adversely affect our operating results.
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,
all of 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,
alone or through our alliances with the Business Software
Alliance (“BSA”), or the Software &
Information Industry Association (SIIA), 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.
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 (GPL), GNU Lesser General Public
License (LGPL), the Mozilla Public License, the BSD License, and
the Apache License. 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. If we
combine our proprietary software with open source software in a
certain manner, we could, under certain of the open source
licenses, be required to release the source code of our
proprietary software. 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
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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.
Although we believe we have sufficient controls in place to
prevent intentional disruptions, we expect to be an ongoing
target of attacks specifically designed to impede the
performance of our products. Similarly, experienced computer
programmers may attempt to penetrate our network security or the
security of our website and misappropriate proprietary
information or cause interruptions of our services. Because the
techniques used by such computer programmers to access or
sabotage networks change frequently and may not be recognized
until launched against a target, we may be unable to anticipate
these techniques. Our activities could be adversely affected and
our reputation and future sales harmed if these intentionally
disruptive efforts are successful.
We offer technical support services with many of our products.
We may be unable to respond quickly enough to accommodate
short-term increases in customer demand for support services. We
also may be unable to modify the format of our support services
to compete with changes in support services provided by
competitors or successfully integrate support for our customers.
Further customer demand for these services, without
corresponding revenues, could increase costs and adversely
affect our operating results.
We have outsourced a substantial portion of our worldwide
consumer support functions to third party service providers. If
these companies experience financial difficulties, do not
maintain sufficiently skilled workers and resources to satisfy
our contracts, or otherwise fail to perform at a sufficient
level under these contracts, the level of support services to
our customers may be significantly disrupted, which could
materially harm our relationships with these customers.
Our financial results have been in the past, and may continue to
be in the future, materially affected by non-cash and other
accounting charges, including:
For example, in connection with our acquisition of Veritas, we
have recorded approximately $2.8 billion of acquired
product rights and other intangible assets and $8.6 billion
of goodwill. We have recorded and will continue to record future
amortization charges with respect to a portion of these
intangible assets and stock-based compensation expense related
to the stock options to purchase Veritas common stock assumed by
us. In addition, we will evaluate our long-lived assets,
including property and equipment, goodwill, acquired product
rights, and other intangible assets, whenever events or
circumstances occur which indicate that these assets might be
impaired. Goodwill is evaluated annually for impairment in the
fourth quarter of each fiscal year or more frequently if events
and circumstances warrant, and our evaluation depends to a large
degree on estimates and assumptions made by our management. Our
assessment of any impairment of goodwill is based on a
comparison of the fair value of each of our reporting units to
the carrying value of that reporting unit. Our determination of
fair value relies on management’s assumptions of our future
revenues, operating costs, and other relevant factors. If
management’s estimates of future operating results change,
or if there are changes to other assumptions such as the
discount rate
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applied to future operating results, the estimate of the fair
value of our reporting units could change significantly, which
could result in a goodwill impairment charge.
The foregoing types of accounting charges may also be incurred
in connection with or as a result of other business
acquisitions. The price of our common stock could decline to the
extent that our financial results are materially affected by the
foregoing accounting charges.
Our effective tax rate could be adversely affected by several
factors, many of which are outside of our control, including:
The price of our common stock could decline if our financial
results are materially affected by an adverse change in our
effective tax rate.
We report our results of operations based on our determinations
of the amount of taxes owed in the various tax jurisdictions in
which we operate. From time to time, we receive notices that a
tax authority to which we are subject has determined that we owe
a greater amount of tax than we have reported to such authority,
and we are regularly engaged in discussions, and sometimes
disputes, with these tax authorities. We are engaged in disputes
of this nature at this time. 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.
Our quarterly financial results have fluctuated in the past and
are likely to vary significantly in the future due to a number
of factors, many of which are outside of our control and which
could adversely affect our operations and operating results. If
our quarterly financial results or our predictions of future
financial results fail to meet the expectations of securities
analysts and investors, our stock price could be negatively
affected. Any volatility in our quarterly financial results may
make it more difficult for us to raise capital in the future or
pursue acquisitions that involve issuances of our stock. 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 products may cause our
quarterly financial results to fluctuate, including:
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Any of the foregoing factors could cause the trading price of
our common stock to fluctuate significantly.
The market price of our common stock has experienced significant
fluctuations in the past and may continue to fluctuate in the
future, and as a result you could lose the value of your
investment. The market price of our common stock may be affected
by a number of factors, including:
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The stock market in general, and the market prices of stocks of
technology companies in particular, have experienced extreme
price volatility that has adversely affected, and may continue
to adversely affect, the market price of our common stock for
reasons unrelated to our business or operating results.
There are currently 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.
Our properties consist primarily of owned and leased office
facilities for sales, research and development, administrative,
customer service, and technical support personnel. Our Dublin,
Ireland facility also includes manufacturing operations. Our
corporate headquarters is located in Cupertino, California in a
532,000 square foot facility that we own. We occupy an
additional 796,000 square feet in the San Francisco
Bay Area, of which 592,000 square feet is owned and
204,000 square feet is leased. Our leased facilities are
occupied under leases that expire at various times through 2022.
The following table presents the approximate square footage of
our facilities as of March 28, 2008:
We believe that our existing facilities are adequate for our
current needs and that the productive capacity of our facilities
is substantially utilized.
Information with respect to this Item may be found in
Note 18 of the Notes to Consolidated Financial Statements
in this annual report which information is incorporated into
this Item 3 by reference.
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal 2008.
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Our common stock is traded on the Nasdaq Global Select Market
under the symbol “SYMC.” The high and low sales prices
set forth below are as reported on the Nasdaq Global Select
Market.
As of March 28, 2008, there were 3,456 stockholders of
record of Symantec common stock. Symantec has never declared or
paid any cash dividends on its capital stock. We currently
intend to retain future earnings for use in our business, and,
therefore, we do not anticipate paying any cash dividends on our
capital stock in the foreseeable future.
Stock repurchases during the three-month period ended
March 28, 2008 were as follows:
On June 14, 2007, we announced that our Board of Directors
authorized the repurchase of $2 billion of Symantec common
stock, without a scheduled expiration date. As of March 28,
2008, $1 billion remained authorized for future
repurchases. For information with regard to our stock repurchase
programs, See Note 12 of the Notes to Consolidated
Financial Statements in this annual report, which information is
incorporated herein by reference.
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These performance graphs 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.
The graph below compares the cumulative total stockholder return
on Symantec common stock from March 31, 2003 to
March 31, 2008 with the cumulative total return on the
S&P 500 Composite Index and the S&P Information
Technology Index over the same period (assuming the investment
of $100 in Symantec common stock and in each of the other
indices on March 31, 2003, and reinvestment of all
dividends, although no dividends other than stock dividends have
been declared on Symantec common stock). The comparisons in the
graph below are based on historical data and are not intended to
forecast the possible future performance of Symantec common
stock.
*$100 invested on 3/31/03 in stock or index —
including reinvestment of dividends. Fiscal year ending
March 31.
Copyright
©
2008, Standard & Poor’s, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
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The graph below compares the cumulative total stockholder return
on Symantec common stock from June 23, 1989 (the date of
Symantec’s initial public offering) to March 31, 2008
with the cumulative total return on the S&P 500 Composite
Index and the S&P Information Technology Index over the
same period (assuming the investment of $100 in Symantec common
stock and in each of the other indices on June 30, 1989,
and reinvestment of all dividends, although no dividends other
than stock dividends have been declared on Symantec common
stock). Symantec has provided this additional data to provide
the perspective of a longer time period which is consistent with
Symantec’s history as a public company. The comparisons in
the graph below are based on historical data and are not
intended to forecast the possible future performance of Symantec
common stock.
COMPARISON
OF 19-YEAR CUMULATIVE TOTAL RETURN*
Among Symantec Corporation, The S & P 500 Index And The S & P Information Technology Index 
*$100 invested on 6/23/89 in stock or 5/31/89 in
index — including reinvestment of dividends. Fiscal
year ending March 31.
Copyright
©
2008, Standard & Poor’s, a division of The
McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
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The following selected consolidated financial data is derived
from the Consolidated Financial Statements included in this
annual report. This data is qualified in its entirety by and
should be read in conjunction with the more detailed
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.
During the past five fiscal years, we have made the following
acquisitions:
Each of these acquisitions was accounted for as a business
purchase and, accordingly, the operating results of these
businesses have been included in the Consolidated Financial
Statements included in this annual report since their respective
dates of acquisition.
Five-Year
Summary
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OVERVIEW
Symantec is a global leader in providing security, storage and
systems management solutions to help businesses and consumers
secure and manage their information. We provide customers
worldwide with software and services that protect, manage and
control information risks related to security, data protection,
storage, compliance, and systems management. We help our
customers manage cost, complexity and compliance by protecting
their IT infrastructure as they seek to maximize value from
their IT investments.
We have a 52/53-week fiscal year ending on the Friday closest to
March 31. Unless otherwise stated, references to fiscal
years in this report relate to fiscal year and periods ended
March 28, 2008, March 30, 2007 and March 31,
2006. Our 2009 fiscal year will consist of 53 weeks and
will end on April 3, 2009.
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On April 6, 2007, we completed our acquisition of Altiris
Inc., a leading provider of IT management software that enables
businesses to easily manage and service network-based endpoints.
We used approximately $841 million of our cash and cash
equivalents to fund the acquisition, which amount was net of
Altiris’ cash and cash equivalents balance. We believe this
acquisition enables us to help customers better manage and
enforce security policies at the endpoint, identify and protect
against threats, and repair and service assets.
On November 30, 2007, we completed our acquisition of
Vontu, Inc. (“Vontu”), a provider of Data Loss
Prevention (DLP) solutions that assists organizations in
preventing the loss of confidential or proprietary information,
for approximately $298 million in cash, which amount was
net of Vontu’s cash and cash equivalents balance. On
November 29, 2007, we borrowed $200 million under our
five-year $1 billion senior unsecured revolving credit
facility to partially finance this acquisition.
In February 2008, we contributed $150 million in cash to
our joint venture with Huawei Technologies Co., Ltd. in exchange
for a 49% interest in the joint venture. The joint venture will
develop, manufacture, market and support security and storage
appliances to global telecommunications carriers and enterprise
customers.
Our operating segments are significant strategic business units
that offer different products and services, distinguished by
customer needs. During the March 2008 quarter, we modified the
segment reporting structure in line with business operational
changes associated with Enrique Salem’s promotion to Chief
Operating Officer in January 2008. The following changes have
been made to our segment reporting structure: (1) the
Security and Data Management segment was renamed the Security
and Compliance segment; (2) the Altiris segment, in its
entirety, has been moved into the Security and Compliance
segment; (3) the Data Center Management segment was renamed
the Storage and Server Management segment; and (4) the
Backup Exec products were moved from the Security and Data
Management segment to the Storage and Server Management segment.
As a result of these changes, we now operate in five operating
segments: Security and Compliance, Storage and Server
Management, Consumer Products, Services, and Other. The new
business structure more directly aligns the operating segments
with markets and customers, and we believe will establish more
direct lines of reporting responsibilities, speed decision
making, and enhance the ability to pursue strategic growth
opportunities. All financial information from periods prior to
these changes in reportable segments contained in this annual
report has been recast, where appropriate, in this annual report
to reflect the revised segment reporting structure noted above.
For further descriptions of our operating segments, see
Note 19 of the Notes to Consolidated Financial Statements
in this annual report. Our reportable segments are the same as
our operating segments.
Our net income was $464 million for fiscal 2008 as compared
to $404 million and $157 million for fiscal 2007 and
2006, respectively. The higher net income for fiscal 2008 as
compared to fiscal 2007 was primarily due to higher revenue in
fiscal 2008 compared to fiscal 2007 as well as a net gain from
settlements of litigation of $59 million in fiscal 2008 for
which there was no corresponding gain in fiscal 2007. Our net
income for fiscal 2008 was partially offset by higher operating
expenses, including a loss on sale of a business of
$95 million related to the disposition of our APM business,
for which there is no corresponding charge in fiscal 2007.
The higher net income for fiscal 2007 as compared to fiscal 2006
was primarily due to the write-off in fiscal 2006 of
$285 million of acquired in-process research and
development, or IPR&D, as a result of the Veritas
acquisition for which there is no comparable charge in fiscal
2007. This increase was partially offset by $154 million of
stock-based compensation expense related to our adoption of
Statement of Financial Accounting Standards, or SFAS,
No. 123R, Share-Based Payment, effective April 1,
2006, higher employee compensation costs resulting from
increased employee headcount, and $70 million of
restructuring charges compared to $25 million in fiscal
2006.
Revenue for fiscal 2008 was $5.9 billion, or 13%, higher
than revenue for fiscal 2007. For fiscal 2008 we realized
revenue growth across all of our geographic regions as compared
to fiscal 2007 and fiscal 2006 and experienced revenue growth in
all of our segments. Foreign currency fluctuations positively
impacted our
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international revenue growth in fiscal 2008 compared to fiscal
2007. In fiscal 2007, foreign currency fluctuations also
positively impacted our revenue growth internationally compared
to fiscal 2006. We are unable to predict the extent to which
revenues in future periods will be impacted by changes in
foreign currency exchange rates. If international sales become a
greater portion of our total sales in the future, changes in
foreign exchange rates may have a potentially greater impact on
our revenues and operating results. In addition, our April 2007
acquisition of Altiris contributed $194 million to our
revenue increase from fiscal 2007 to fiscal 2008.
Our deferred revenue at March 28, 2008 was 12% higher than
at the corresponding amount as of March 30, 2007. Increased
sales related to some of our enterprise products and the
depreciation of the U.S. dollar against foreign currencies
drove the increase in deferred revenue realized for the year
ended March 28, 2008. In recent periods, the percentage of
our in-period revenue that has resulted from the amortization of
our deferred revenue balance has been increasing, and we believe
this trend has normalized as we are over twelve months into the
transition of combining our buying programs for all of our
enterprise offerings. The factors contributing to the growth in
revenue and deferred revenue are discussed more fully in
“Results of Operations” below.
In the fourth quarter of fiscal 2007, we implemented a cost
savings initiative, which included a workforce reduction of
approximately 6% worldwide. We have fully implemented this cost
savings initiative in fiscal 2008. In the December 2007 quarter,
we implemented another restructuring plan to continue our focus
on controlling costs. These cost savings initiatives resulted in
restructuring charges totaling $74 million for the year
ended March 28, 2008 and we expect to incur additional
charges during fiscal year 2009 as a result of this plan.
Our gross margins and operating expenses were affected during
fiscal 2008 as a result of recent changes in the terms of some
of our relationships with key Original Equipment Manufacturers
(“OEMs”). We have negotiated new contract terms with
some of our OEM partners, which have resulted in some payments
to OEM partners being included in our Consolidated Statements of
Income as Operating expenses rather than Cost of revenues. In
general, payments to OEMs made on a placement fee per unit basis
will be treated as Operating expenses, while payments based on a
revenue-sharing model will be amortized as Cost of revenues. The
increase in Operating expenses will more than offset the
decrease in Cost of revenues because placement fee arrangements
are expensed on an estimated average cost basis, while
revenue-sharing arrangements are generally amortized ratably
over a one-year period, and because payments to OEMs increased.
These recent changes have largely been in effect for fiscal 2008
and we do not expect the trend relating to placement fees
increasing Operating expense and decreasing Cost of revenues to
continue.
Cash flows were strong in fiscal 2008 as we achieved
$1.8 billion in operating cash flow. We ended fiscal 2008
with $2.4 billion in cash, cash equivalents, and short-term
investments. In addition, during fiscal 2008 we repurchased
81 million shares of our common stock at an average price
of $18.53, for total consideration of $1.5 billion.
The preparation of the Consolidated Financial Statements and
related notes included in this annual report in accordance with
generally accepted accounting principles in the United States,
requires us to make estimates, which include 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.
Historically, our critical accounting estimates have not
differed materially from actual results; however, actual results
may differ from these estimates under different conditions. If
actual results differ from these estimates and other
considerations used in estimating amounts reflected in the
Consolidated Financial Statements included in this annual
report, the resulting changes could have a material adverse
effect on our Consolidated Statements of Income, and in certain
situations, could have a material adverse effect on liquidity
and our financial condition.
A critical accounting estimate is based on judgments and
assumptions about matters that are uncertain at the time the
estimate is made. Different estimates that reasonably could have
been used or changes in accounting estimates could materially
impact the operating results or financial condition. We believe
that the estimates
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described below represent our critical accounting estimates, as
they have the greatest potential impact on our consolidated
financial statements. See also Note 1 of the Notes to the
Consolidated Financial Statements included in this annual report.
We recognize revenue in accordance with generally accepted
accounting principles that have been prescribed for the software
industry. We recognize revenue primarily pursuant to the
requirements of Statement of Position
97-2,
Software Revenue Recognition, and any applicable
amendments or modifications. Revenue recognition requirements in
the software industry are very complex and require us to make
many estimates.
In arrangements that include multiple elements, including
perpetual software licenses and maintenance
and/or
services, and packaged products with content updates, we
allocate and defer revenue for the undelivered items based on
vendor specific objective evidence, or VSOE, of the fair value
of the undelivered elements, and recognize the difference
between the total arrangement fee and the amount deferred for
the undelivered items as revenue. Our deferred revenue consists
primarily of the unamortized balance of enterprise product
maintenance, consumer product content updates, and arrangements
where VSOE does not exist. Deferred revenue totaled
approximately $3.1 billion as of March 28, 2008, of
which $415 million was classified as “Long-term
deferred revenue” in the Consolidated Balance Sheets. VSOE
of each element is based on the price for which the undelivered
element is sold separately. 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 undelivered items such as maintenance, then the
entire arrangement fee is recognized ratably over the
performance period. 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.
For our consumer products that include content updates, we
recognize revenue and the associated cost of revenue ratably
over the term of the subscription upon sell-through to
end-users. We recognize deferred revenue and inventory for the
respective revenue and cost of revenue amounts of unsold product
held by our distributors and resellers.
We expect our distributors and resellers to maintain adequate
inventory of consumer packaged products to meet future customer
demand, which is generally four or six weeks of customer demand
based on recent buying trends. We ship product to our
distributors and resellers at their request and based on valid
purchase orders. Our distributors and resellers base the
quantity of orders on their estimates to meet future customer
demand, which may exceed the expected level of a four or six
week supply. We offer limited rights of return if the inventory
held by our distributors and resellers is above the expected
level of a four or six week supply. We estimate future returns
under these limited rights of return in accordance with
Statement of Financial Standard (“SFAS”) No. 48,
Revenue Recognition When Right of Return Exists. We
typically offer liberal rights of return if inventory held by
our distributors and resellers exceeds the expected level.
Because we cannot reasonably estimate the amount of excess
inventory that will be returned, we primarily offset deferred
revenue against trade accounts receivable for the amount of
revenue in excess of the expected inventory levels.
Reserves for product returns. We reserve for
estimated product returns as an offset to revenue based
primarily on historical trends. We fully reserve for obsolete
products in the distribution channels as an offset to deferred
revenue. If we made different estimates, material differences
could result in the amount and timing of our net revenues for
any period presented. More or less product may be returned than
what was estimated
and/or the
amount of inventory in the channel could be different than what
was estimated. These factors and unanticipated changes in the
economic and industry environment could make actual results
differ from our return estimates.
Reserves for rebates. We estimate and record
reserves for channel and end-user rebates as an offset to
revenue. For consumer products that include content updates,
rebates are recorded as a ratable offset to revenue over the
term of the subscription. Our estimated reserves for channel
volume incentive rebates are based on distributors’ and
resellers’ actual performance against 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 programs, actual sales during the promotion, amount
of actual redemptions received, historical redemption trends by
product and by type of promotional program, and the value of the
rebate. We also consider
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current market conditions and economic trends when estimating
our reserves for rebates. If we made different estimates,
material differences may result in the amount and timing of our
net revenues for any period presented.
When we acquire businesses, we allocate the purchase price to
tangible assets and liabilities and identifiable intangible
assets acquired. Any residual purchase price is recorded as
goodwill. The allocation of the purchase price requires
management to make significant estimates in determining the fair
values of assets acquired and liabilities assumed, especially
with respect to intangible assets. These estimates are based on
historical experience and information obtained from the
management of the acquired companies. These estimates can
include, but are not limited to, the cash flows that an asset is
expected to generate in the future, the appropriate
weighted-average cost of capital, and the cost savings expected
to be derived from acquiring an asset. These estimates are
inherently uncertain and unpredictable. In addition,
unanticipated events and circumstances may occur which may
affect the accuracy or validity of such estimates.
Goodwill. At March 28, 2008, goodwill was
$11.2 billion, other intangible assets, net were
$1.2 billion, and acquired product rights, net were
$649 million. We assess goodwill and intangible assets with
indefinite life for impairment within our reporting units
annually or more often if events or changes in circumstances
indicate that the carrying value may not be recoverable in
accordance with SFAS No. 142 “Goodwill and
Other Intangible Assets” (“SFAS 142”).
The provisions of SFAS 142 require that a two-step
impairment test be performed on goodwill. In the first step, we
compare the fair value of each reporting unit to its carrying
value. Our reporting units are consistent with our reportable
segments. If the fair value of the reporting unit exceeds the
carrying value of the equity assigned to that unit, goodwill is
not considered to be impaired and we are not required to perform
further testing. If the carrying value of the equity assigned to
the reporting unit exceeds the fair value of the reporting unit,
then we must perform the second step of the impairment test in
order to determine the implied fair value of that reporting
unit’s goodwill. If the carrying value of the reporting
unit’s goodwill exceeds its implied fair value, then we
would record an impairment loss equal to the excess.
To determine the reporting units’ fair value in the current
year evaluation, we use the income approach under which we
calculate the fair value of each reporting unit based on the
estimated discounted future cash flows of that unit. Our cash
flow assumptions are based on historical and forecasted revenue,
operating costs, growth rates and other relevant factors. If
management’s estimates of future operating results change,
or if there are changes to other assumptions, the estimate of
the fair value of our goodwill could change significantly. Such
change could result in goodwill impairment charges in future
periods, which could have a significant impact on our operating
results and financial condition.
In the fourth quarter of fiscal 2008, we performed our annual
impairment analysis of goodwill. If management’s estimates
of future operating results change, or if there are changes to
other assumptions, the estimate of the fair value of our
goodwill could change significantly. Such change could result in
goodwill impairment charges in future periods, which could have
a significant impact on our consolidated financial statements.
Intangible Assets. We assess the impairment of
other identifiable intangible assets according to SFAS 142
whenever events or changes in circumstances indicate that an
asset’s carrying amount may not be recoverable. An
impairment loss would be recognized when the sum of the
estimated future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying
amount. Such impairment loss would be measured as the difference
between the carrying amount of the asset and its fair value. Our
cash flow assumptions are based on historical and forecasted
revenue, operating costs, and other relevant factors. If
management’s estimates of future operating results change,
or if there are changes to other assumptions, the estimate of
the fair value of our acquired product rights and other
identifiable intangible assets could change significantly. Such
change could result in impairment charges in future periods,
which could have a significant impact on our operating results
and financial condition. During fiscal 2008 we recorded an
impairment charge of $95 million primarily for the write
down of intangible assets related to the sale of our Application
Performance Management business.
Long-Lived Assets. We account for long-lived
assets in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” We record impairment charges on long-lived
assets to be held and
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used when we determine that the carrying value of the long-lived
assets may not be recoverable. Based upon the existence of one
or more indicators of impairment, we measure any impairment of
long-lived assets based on a projected undiscounted cash flow
method using assumptions determined by our management to be
commensurate with the risk inherent in our current business
model. Our estimates of cash flows require significant judgment
based on our historical results and anticipated results and are
subject to many triggering factors which could change and cause
a material impact to our operating results or financial
condition. During fiscal 2008, we recorded an impairment charge
of $1 million for our Newport News, VA building held for
sale.
Acquired Product Rights. We account for
acquired product rights in accordance with
SFAS No. 86, “Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed”. We
record impairment charges on acquired product rights when we
determine that the net realizable value of the assets may not be
recoverable. To determine the net realizable value of the
assets, we use the estimated future gross revenues from each
product. Our estimated future gross revenues of each product are
based on company forecasts and are subject to change. During
fiscal 2008, we did not have any indications of impairment.
We have estimated expenses for excess facilities related to
consolidating, moving, and relocating personnel or sites as a
result of restructuring activities and business acquisitions. In
determining our estimates, we obtain information from
third-party leasing agents to calculate anticipated third-party
sublease income and the vacancy period prior to finding a
sublessee. Market conditions may affect our ability to sublease
facilities on terms consistent with our estimates. Our ability
to sublease facilities on schedule or to negotiate lease terms
resulting in higher or lower sublease income than estimated may
affect our accrual for site closures. In addition, differences
between estimated and actual related broker commissions, tenant
improvements, and other exit costs may increase or decrease our
accrual upon final negotiation. If we made different estimates
regarding these various components of our excess facilities
costs, the amount recorded for any new period presented could
vary materially from those actually recorded.
Effective April 1, 2006, we adopted the provisions of, and
accounted for stock-based compensation in accordance with,
SFAS No. 123R. Under SFAS No. 123R, we must
measure the fair value of all stock-based awards, including
stock options, restricted stock units, or RSUs, and purchase
rights under our employee stock purchase plan, or ESPP, on the
date of grant and amortize the fair value of the award over the
requisite service period. We elected the modified prospective
application method, under which prior periods are not revised
for comparative purposes. The valuation provisions of
SFAS No. 123R apply to new awards and to awards that
were outstanding as of the effective date and are subsequently
modified. For stock-based awards granted on or after
April 1, 2006, we recognize stock-based compensation
expense on a straight-line basis over the requisite service
period, which is generally the vesting period. We also recognize
estimated compensation expense for the unvested portion of
awards that were outstanding as of the effective date on a
straight-line basis over the remaining service period using the
compensation costs estimated for the SFAS No. 123 pro
forma disclosures.
We currently use the Black-Scholes option-pricing model to
determine the fair value of stock options. The determination of
the fair value of stock-based awards on the date of grant using
an option-pricing model is affected by our stock price as well
as assumptions regarding a number of complex and subjective
variables. These variables include our expected stock price
volatility over the term of the awards, actual and projected
employee stock option exercise and cancellation behaviors,
risk-free interest rates, and expected dividends.
We estimate the expected life of options granted based on an
analysis of our historical experience of employee exercise and
post-vesting termination behavior considered in relation to the
contractual life of the option. Expected volatility is based on
the average of historical volatility for the period commensurate
with the expected life of the option and the implied volatility
of traded options. The risk free interest rate is equal to the
U.S. Treasury constant maturity rates for the period equal
to the expected life. We do not currently pay cash dividends on
our common stock and do not anticipate doing so in the
foreseeable future. Accordingly, our expected dividend yield is
zero. We are required to estimate forfeitures at the time of
grant and revise those estimates in subsequent periods if actual
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forfeitures differ from those estimates. We estimate forfeitures
of stock options, RSUs, and ESPP purchase rights at the time of
grant based on historical experience and record compensation
expense only for those awards that are expected to vest. All
stock-based awards are amortized on a straight-line basis over
the requisite service periods of the awards, which are generally
the vesting periods.
If factors change and we employ different assumptions for
estimating stock-based compensation expense in future periods or
if we decide to use a different valuation model, the amount of
such expense recorded in future periods may differ significantly
from what we have recorded in the current period.
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable, characteristics not
present in our option grants. Existing valuation models,
including the Black-Scholes and lattice binomial models, may not
provide reliable measures of the fair values of our stock-based
compensation. Consequently, there is a risk that our estimates
of the fair values of our stock-based compensation awards on the
grant dates may bear little resemblance to the actual values
realized upon the exercise, expiration, early termination, or
forfeiture of those stock-based payments in the future. Certain
stock-based payments, such as employee stock options, may expire
worthless or otherwise result in zero intrinsic value as
compared to the fair values originally estimated on the grant
date and reported in our financial statements. Alternatively,
value may be realized from these instruments that is
significantly higher than the fair values originally estimated
on the grant date and reported in our financial statements.
The application of these principles may be subject to further
interpretation and refinement over time. There are significant
differences among valuation models, and there is a possibility
that we will adopt different valuation models in the future.
This may result in a lack of consistency in future periods and
materially affect the fair value estimate of stock-based
payments. It may also result in a lack of comparability with
other companies that use different models, methods, and
assumptions.
Stock-based compensation expense related to employee stock
options, RSUs, and employee stock purchases recognized under
SFAS No. 123R for the year ended March 28, 2008
was $164 million.
We evaluate contingent liabilities including threatened or
pending litigation in accordance with SFAS No. 5,
“Accounting for Contingencies”. We assess the
likelihood of any adverse judgments or outcomes from a potential
claim or legal proceeding, as well as potential ranges of
probable losses, when the outcomes of the claims or proceedings
are probable and reasonably estimable. A determination of the
amount of accrued liabilities required, if any, for these
contingencies is made after the analysis of each separate
matter. Because of uncertainties related to these matters, we
base our estimates on the information available at the time of
our assessment. As additional information becomes available, we
reassess the potential liability related to its pending claims
and litigation and may revise our estimates. Any revisions in
the estimates of potential liabilities could have a material
impact on our operating results and financial position. As of
March 28, 2008, we recognized a loss for the pending
settlement of a class action lawsuit related to a
pre-acquisition contingency of Veritas for $21.5 million.
The amount was determined based upon existing facts and
circumstances of the outcome and estimates that we could
reasonably and likely pay.
We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. The
provision for income taxes is computed using the asset and
liability method, under which deferred tax assets and
liabilities are recognized for the expected future tax
consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities, and for
operating loss and tax credit carryforwards in each jurisdiction
in which we operate. Deferred tax assets and liabilities are
measured using the currently enacted tax rates that apply to
taxable income in effect for the years in which those tax assets
are expected to be realized or settled. We record a valuation
allowance to reduce deferred tax assets to the amount that is
believed more likely than not to be realized.
We are required to compute our income taxes in each federal,
state, and international jurisdiction in which we operate. This
process requires that we estimate the current tax exposure as
well as assess temporary differences
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between the accounting and tax treatment of assets and
liabilities, including items such as accruals and allowances not
currently deductible for tax purposes. The income tax effects of
the differences we identify are classified as current or
long-term deferred tax assets and liabilities in our
Consolidated Balance Sheets. Our judgments, assumptions, and
estimates relative to the current provision for income tax take
into account current tax laws, our interpretation of current tax
laws, and possible outcomes of current and future audits
conducted by foreign and domestic tax authorities. Changes in
tax laws or our interpretation of tax laws and the resolution of
current and future tax audits could significantly impact the
amounts provided for income taxes in our Consolidated Balance
Sheets and Consolidated Statements of Income. We must also
assess the likelihood that deferred tax assets will be realized
from future taxable income and, based on this assessment,
establish a valuation allowance, if required. Our determination
of our valuation allowance is based upon a number of
assumptions, judgments, and estimates, including forecasted
earnings, future taxable income, and the relative proportions of
revenue and income before taxes in the various domestic and
international jurisdictions in which we operate. To the extent
we establish a valuation allowance or change the valuation
allowance in a period, we reflect the change with a
corresponding increase or decrease to our tax provision in our
Consolidated Statements of Income, or to goodwill to the extent
that the valuation allowance related to tax attributes of the
acquired entities.
We failed to file in a timely fashion the final pre-acquisition
tax return for Veritas, and as a result, it is uncertain whether
we can claim a lower tax rate on a dividend made from a Veritas
foreign subsidiary under the American Jobs Creation Act of 2004.
We are currently petitioning the IRS for relief to allow us to
claim the lower rate of tax. Because we were unable to obtain
this relief prior to filing the Veritas tax return in May 2006,
we have paid $130 million of additional U.S. taxes.
The potential outcomes with respect to our payment of this
amount include:
In June 2006, the Financial Accounting Standards Board, or FASB,
issued Interpretation No., or FIN, 48, Accounting for
Uncertainty in Income Taxes — an interpretation of
SFAS No. 109. The provisions of FIN 48 became
effective beginning in the first quarter of fiscal 2008. See
“Newly Adopted and Recently Issued Accounting
Pronouncements” under Summary of Significant Accounting
Policies included in the Consolidated Financial Statements in
this annual report for further discussion.
In December 2007, the FASB issued SFAS No. 141
(revised), Business Combinations. The accounting
treatment related to pre-acquisition uncertain tax positions
will change when SFAS No. 141(R) becomes effective,
which will be in first quarter of our fiscal year 2010. See
“Newly Adopted and Recently Issued Accounting
Pronouncements” under Summary of Significant Accounting
Policies included in the Consolidated Financial Statements in
this annual report for further discussion.
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RESULTS
OF OPERATIONS
Total Net
Revenues
Net revenues increased in fiscal 2008 as compared to fiscal 2007
primarily due to higher amortization of deferred revenue as a
result of the higher amount of deferred revenue at the beginning
of the fiscal 2008 period than at the beginning of the fiscal
2007 period and increased sales related to our Backup Exec,
Storage Foundation, and Net Backup products. Our total deferred
revenue grew from $2.754 billion to $3.077 billion in
fiscal 2008 and grew from $2.163 billion to
$2.754 billion in fiscal 2007. The higher deferred revenue
balance at the beginning of fiscal 2008 is due to a greater
portion of the revenue from transactions being subject to
deferral since the beginning of the third quarter of fiscal 2007
than was the case in prior periods as discussed below. In
addition, we realized $194 million due to the new sales of
products from our April 6, 2007 acquisition of Altiris for
which there is no comparable revenue in the same prior year
period and a favorable foreign currency impact in fiscal 2008 as
compared to fiscal 2007.
As noted above, we realized an increase in recognized revenue
from deferred revenue in fiscal 2008. This increase in deferred
revenue resulted from combining our buying programs for all of
our enterprise offerings, negotiating more transactions that
commit customers to multi-year periods, offering more
flexibility in contractual terms and in product deployments, and
providing more services in combination with license and
maintenance sales. In the December 2006 quarter, we combined our
buying programs for all of our enterprise offerings to provide
our customers and partners a single vendor relationship and
simplify the way we do business. Previously, our storage and
availability products and services were sold under Veritas’
pre-merger buying programs, while our security products and
services were sold under our historical buying programs. The
combination of buying programs resulted in a change in the VSOE
for some of our storage and availability products and services.
This change, coupled with an increased number of maintenance
renewals sold with a license component, resulted in a larger
portion of revenues associated with contracts being classified
as Content, subscriptions, and maintenance revenue, which is
subject to deferral, instead of Licenses revenue, which is
generally recognized immediately. These factors resulted in
lower recognized revenue growth rates in the first six months of
fiscal 2008 and in fiscal 2007.
Some of our customers have also requested increased flexibility
in product deployments in site license arrangements. This may
result in an increase in deferred revenue and classification of
all revenues associated with the specific contract as Content,
subscriptions, and maintenance revenue, which is recognized over
time, as VSOE may not exist in certain types of flexible
deployment contracts. As a result of our initiative to offer
customers a more comprehensive solution to protect and manage a
global IT infrastructure, we have seen an increasing amount of
services sold in conjunction with license and maintenance
contracts. Inclusion of such services often results in increased
deferred revenue and increased classification of revenues as
Content, subscriptions, and maintenance revenue, as VSOE may not
exist for some of the services provided.
Net revenues increased in fiscal 2007 as compared to fiscal 2006
primarily due to the new sales of the storage and availability
products and services from our July 2005 acquisition of Veritas
for the full twelve months in the 2007 period compared to nine
months in the 2006 period. We were required under purchase
accounting rules to reduce the amount of Veritas’ deferred
revenue that we recorded in connection with the acquisition of
Veritas to an amount equal to the fair value of our contractual
obligation related to that deferred revenue. Unless otherwise
specified, “storage and availability products and
services” include products and services obtained through
our acquisition of Veritas, and complementary products and
services obtained or developed subsequent to such acquisition.
These products and services contributed $518 million of net
revenues in the June 2006 quarter for which there was no
comparable revenue in the June 2005 quarter. The remainder of
the revenue increase is due to
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increases in our consumer products revenue and services
offerings of $181 million and $92 million,
respectively, due to continued growth in demand. The segment
discussions that follow further describe the revenue increases.
These increases are partially offset by the effects of the
increased flexibility in contract terms and the combination of
our buying programs discussed above.
Beginning with the release of our 2006 consumer products that
include content updates in the December 2005 quarter, we
recognize revenue related to these products ratably. As a
result, this revenue has been classified as Content,
subscriptions, and maintenance beginning in the December 2005
quarter. In addition, as noted above, increased flexibility in
contract terms and the combination of our buying programs in the
December 2006 quarter have impacted revenue recognition. These
changes caused a larger portion of revenue associated with
contracts to be classified as Content, subscriptions, and
maintenance revenue, which is subject to deferral, instead of
Licenses revenue, which is generally recognized immediately, as
discussed above in “Total Net Revenues.”
Content, subscriptions, and maintenance revenues increased in
fiscal 2008 as compared to fiscal 2007 primarily due to an
increase of $394 million in revenue related to enterprise
products and services, excluding acquired Altiris products. This
increase in enterprise product and services revenue was largely
attributable to higher amortization of deferred revenue, for the
reasons discussed above in “Total Net Revenues.” In
addition, Content, subscriptions, and maintenance revenues
increased $82 million from new sales of products from our
acquisition of Altiris for which there is no comparable revenue
in the prior period. The increase is also due to a favorable
foreign currency impact.
Content, subscriptions, and maintenance revenues increased in
fiscal 2007 as compared to fiscal 2006 primarily due to the new
sales of the storage and availability products and services from
our acquisition of Veritas for the full twelve months in the
2007 period compared to nine months in the 2006 period. These
products and services contributed $250 million of Content,
subscriptions, and maintenance revenues in the June 2006 quarter
for which there was no comparable revenue in the June 2005
quarter. In addition, in fiscal 2007, Content, subscriptions,
and maintenance revenue related to our enterprise products
increased $271 million due to the fact that the amount of
revenue recognized in the comparable 2006 period was lower as a
result of the purchase accounting adjustment discussed under
“Total Net Revenues” above. Revenue related to our
consumer products increased $179 million as compared to the
2006 period due primarily to growth in Norton Internet Security
products and online revenues due to growth in the use of the
Internet, and increased awareness and sophistication of security
threats. Enterprise products and services, excluding
Veritas-related products and services, increased
$309 million as a result of growth in our maintenance
renewals due to an increasing installed base, increased demand
for our service offerings, other acquisitions, and the
combination of our buying programs implemented in the December
2006 quarter, which impacted our VSOE methodology and
classification of Licenses revenue and Content, subscriptions,
and maintenance revenue, as discussed above under “Total
Net Revenues.”
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Licenses revenue increased in fiscal 2008 as compared to fiscal
2007 primarily due to an increase of $112 million from new
sales of products from our acquisition of Altiris for which
there is no comparable revenue in the prior period and a
favorable foreign currency impact. This increase is offset by a
decrease in license revenues from the Security and Compliance
and Storage and Server Management segments of $68 million
(excluding acquired Altiris products, which mitigated the
decline in license revenues from those products), as a result of
increased flexibility in contract terms and the combination of
our buying programs in the December 2006 quarter, causing a
larger portion of revenue associated with contracts to be
classified as Content, subscriptions, and maintenance revenue
instead of Licenses revenue during the first half of fiscal 2008.
Licenses revenue increased in fiscal 2007 as compared to fiscal
2006 primarily due to the inclusion of the storage and
availability products obtained through our acquisition of
Veritas for the full twelve months in the 2007 period compared
to nine months in the 2006 period. These products contributed
$268 million of Licenses revenues in the June 2006 quarter
for which there was no comparable revenue in the June 2006
quarter. Excluding this June 2006 contribution, License revenues
were down in both Security and Data Management and Data Center
Management segments as a result of the increased flexibility in
contract terms and the combination of our buying programs
implemented in the December 2006 quarter, both of which caused a
larger portion of contracts to be classified as Content,
subscriptions, and maintenance, which is subject to deferral,
instead of Licenses revenue, which is generally recognized
immediately, as discussed above in “Total Net
Revenues.”
Net
revenues and operating income by segment
Consumer Products revenues increased in fiscal 2008 compared to
fiscal 2007 due to an aggregate increase of $286 million in
revenue from our Norton Internet Security and Norton 360
products. These increases are due to the increase in demand for
these products during both fiscal 2007 and fiscal 2008, as the
revenue from our consumer products is generally recognized
ratably over the 12 months after the product is sold. These
increases are partially offset by aggregate decreases of
$129 million in revenue from our Norton AntiVirus and
Norton System Works products. This decrease results from our
customers’ continued migration to our Norton Internet
Security product and our new Norton 360 product, which offer
broader protection and backup features to address the rapidly
changing threat environment. Our electronic orders include sales
derived from OEMs, subscriptions, upgrades, online sales, and
renewals. Revenue from electronic orders (which includes sales
of the aforementioned products)
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grew by $174 million in fiscal 2008 as compared to fiscal
2007. Included in the total Consumer Products segment revenue
increase is a favorable foreign currencies impact.
Consumer Products revenues increased in fiscal 2007 as compared
to fiscal 2006 primarily due to an increase of $293 million
in revenue from our Norton Internet Security products. This
increase was partially offset by aggregate decreases in revenue
from our Norton AntiVirus and Norton System
Workstm
products of $100 million. These decreases resulted from our
customers’ migration to the Norton Internet Security
products, which offer broader protection to address the rapidly
changing threat environment. Our electronic orders include OEM
subscriptions, upgrades, online sales, and renewals. Revenue
from electronic orders (which includes sales of our Norton
Internet Security products and our Norton AntiVirus products)
grew by $221 million in fiscal 2007 as compared to fiscal
2006.
Total expenses from our Consumer segment increased
$183 million in fiscal 2008 as compared to fiscal 2007. The
increase is primarily a result of higher OEM placement fees,
which is primarily a result of placement fees being recognized
as operating expense as discussed in “Cost of
Revenues” below.
Total expenses increased $160 million in fiscal 2007 as
compared to fiscal 2006. The increase is driven by higher OEM
placement fees. The balance of the increase is primarily a
result of higher salary and related expenses.
Security and Compliance revenues increased in fiscal 2008
compared to fiscal 2007 primarily due to $194 million of
new sales of products from our acquisition of Altiris for which
there is no comparable revenue in the same prior year period.
Included in the total Security and Compliance segment revenue
increase is a favorable foreign currencies impact.
Security and Compliance revenues increased in fiscal 2007 as
compared to fiscal 2006 primarily due to new sales of our
Enterprise Vault product, which was acquired with Veritas, for
the full twelve months in the 2007 period compared to nine
months in the 2006 period. This product contributed
$38 million of revenue in the June 2006 quarter for which
there was no comparable revenue in the June 2005 quarter. In
addition the purchase accounting adjustment, discussed under
“Total Net Revenues” above, contributed
$20 million (cumulatively) in the September 2006, December
2006, and March 2007 quarters as compared to the comparable
quarters of the prior year. In addition, revenues increased
$34 million in fiscal 2007 as a result of acquisitions,
excluding Veritas, for which there was not a full twelve months
of revenue or no comparable revenue in fiscal 2006.
Total expenses from our Security and Compliance segment
increased $169 million in fiscal 2008 as compared to fiscal
2007. The increase is primarily a result of higher salary and
commissions which includes the impact of the fiscal 2008 Altiris
and Vontu acquisitions.
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Storage and Server Management revenues increased in fiscal 2008
compared to fiscal 2007 primarily due to an aggregate increase
in revenue from our Backup Exec, Storage Foundation, and Net
Backup products of $203 million, driven by increased demand
for products related to the standardization and simplification
of data center infrastructure and higher amortization of
deferred revenue, as a result of the higher amount of deferred
revenue at the beginning of fiscal 2008 than at the beginning of
fiscal 2007, for the reasons discussed above in “Total Net
Revenues.” Included in the total Storage and Server
Management segment revenue increase is a favorable foreign
currencies impact.
Storage and Server Management revenues increased in fiscal 2007
compared to fiscal 2006 primarily due to new sales of storage
and availability products from our acquisition of Veritas for
the full twelve month period compared to nine months in the
fiscal 2006 period. These products contributed $452 million
of revenue in the June 2006 quarter for which there was no
comparable revenue in the June 2005 quarter. The effect of the
purchase accounting adjustment discussed under “Total Net
Revenues” above also contributed $220 million to the
increase in revenue in fiscal 2007. Excluding the effects of the
aforementioned items, revenue in fiscal 2007 as compared to
fiscal 2006 was relatively flat due to the combination of the
buying programs for all of our enterprise offerings in the
December 2006 quarter. This combination resulted in lower
recognized revenue and increased deferred revenue as discussed
under “Total Net Revenues” above.
Total expenses from our Storage and Server Management segment
increased $130 million in fiscal 2008 as compared to fiscal
2007. The increase is primarily a result of the impairment of
intangible assets related to the APM business of
$95 million. Additionally, increases in Sales expenses
drove costs higher for the Storage and Server Management group.
Services revenues increased in fiscal 2008 compared to fiscal
2007 primarily due to an increase in consulting services of
$48 million as a result of increased demand for a more
comprehensive solution by purchasing our service offerings in
conjunction with the purchase of our products and the increased
desire for customers to augment the
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capabilities of their own IT staff with our onsite consultants.
In addition, Services revenue increased $11 million due to
increased demand for our Business Critical Services in fiscal
2008 as compared to fiscal 2007.
Services revenue increased in fiscal 2007 as compared to fiscal
2006 primarily due to a $57 million increase in security
consulting services and the inclusion of the storage and
availability services obtained through our acquisition of
Veritas for the full twelve months in the 2007 period compared
to nine months in the 2006 period. Included in the above
increase is $28 million of Services revenues from these
acquired services offerings in the June 2006 quarter for which
there was no comparable revenue in the June 2005 quarter. In
addition, Services revenue increased $15 million due to
increased demand for our Business Critical Services in fiscal
2007 as compared to fiscal 2006.
Total expenses from our Services segment increased
$32 million in fiscal 2008 as compared to fiscal 2007. The
increase is primarily a result of higher salary and wages to
support the increase in revenue.
Revenue from our Other segment is comprised primarily of sunset
products and products nearing the end of their life cycle.
Revenues from the Other segment for fiscal 2008 compared to
fiscal 2007 and for fiscal 2007 compared to fiscal 2006 were
immaterial. The Other segment also includes general and
administrative expenses; amortization of acquired product
rights, other intangible assets, and other assets; charges, such
as acquired in-process research and development, stock-based
compensation, and restructuring; and certain indirect costs that
are not charged to the other operating segments.
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International revenues increased in fiscal 2008 as compared to
fiscal 2007 primarily due to increased revenues related to our
Storage and Server Management and Security and Compliance
products of $272 million, as a result of increased demand
for products related to the standardization and simplification
of data center infrastructure and higher amortization of
deferred revenue for the reasons described above. These products
contributed $179 million in increased revenues in the
Americas in fiscal 2008 as compared to fiscal 2007. Sales of new
products from our acquisition of Altiris increased revenues in
the international regions and the Americas by $72 million
and $122 million, respectively, for which there is no
comparable revenue in the prior period. Growth in revenues in
international regions and the Americas from sales of products of
our Consumer Products of $96 million and $60 million,
respectively, was driven by prior period demand for Norton
Internet Security products. Foreign currencies had a favorable
impact on net revenues in fiscal 2008 compared to fiscal 2007.
International revenues increased in fiscal 2007 as compared to
fiscal 2006 primarily due to new sales of storage and
availability products and services from our acquisition of
Veritas for the full twelve months in the 2007 period compared
to nine months in the 2006 period. These products and services
contributed $232 million of international revenues in the
June 2006 quarter for which there was no comparable revenue in
the June 2005 quarter. In the Americas, these products
contributed $286 million in the June 2006 quarter for which
there was no comparable revenue in the June 2005 quarter. In
addition, a portion of the revenue increase in fiscal 2007 is
due to the fact that the amount of revenue recognized in the
comparable 2006 period was lower as a result of the purchase
accounting adjustment discussed under “Total Net
Revenues” above. The purchase accounting adjustment
increased fiscal 2007 revenues by $188 million in the
Americas and $83 million in the international regions
compared to fiscal 2006. Growth in our Consumer Products
segment, driven by Norton Internet Security, resulted in a
$129 million increase in the international regions and a
$52 million increase in the Americas in fiscal 2007
revenues versus fiscal 2006. Both domestic and international
revenue from enterprise offerings were negatively impacted
primarily due to the increased flexibility in our contract terms
and the combination of our buying programs. These changes
resulted in a larger portion of contracts being subject to
deferral and a correspondingly lower amount of revenue
recognized in the current period, as discussed in “Total
Net Revenues” above. Foreign currencies had a favorable
impact on net revenues in fiscal 2007 compared to fiscal 2006.
We are unable to predict the extent to which revenues in future
periods will be impacted by changes in foreign currency exchange
rates. If international sales become a greater portion of our
total sales in the future, changes in foreign currency exchange
rates may have a potentially greater impact on our revenues and
operating results.
Cost of
Revenues
Cost of revenues consists primarily of amortization of acquired
product rights, fee-based technical support costs, costs of
billable services, payments to OEMs under revenue-sharing
arrangements, manufacturing and direct material costs, and
royalties paid to third parties under technology licensing
agreements.
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Gross margin increased in fiscal 2008 as compared to fiscal 2007
due primarily to an increase in revenue and the fact that the
terms of several of our OEM arrangements changed from
revenue-sharing arrangements to placement fee arrangements in
late fiscal 2007. Placement fee arrangements are expensed on an
estimated average cost basis, while revenue-sharing arrangements
are generally amortized ratably over a one-year period. In
addition, we realized year over year increases in services and
technical support costs.
Cost of content, subscriptions, and maintenance consists
primarily of fee-based technical support costs, costs of
billable services, and payments to OEMs under revenue-sharing
agreements.
Cost of content, subscriptions, and maintenance decreased as a
percentage of the related revenue in fiscal 2008 as compared to
fiscal 2007. The year over year decrease in cost of content,
subscriptions, and maintenance as a percentage of the related
revenue is primarily driven by higher revenues and lower OEM
royalties as a percentage of revenue more than offsetting
increases in Services expenses.
We expect the impact of moving many of our OEM payments from
Cost of revenues to Operating expenses to be reduced in future
periods as the change had been in effect for most of fiscal
2008. Our past OEM payments were primarily revenue-sharing
arrangements, which were generally amortized to Cost of revenues
over a one-year period. Several of the arrangements negotiated
in late fiscal 2007 are placement fee arrangements, for which
the costs are expensed on an estimated average cost basis and
classified as operating expenses.
Cost of licenses consists primarily of royalties paid to third
parties under technology licensing agreements and manufacturing
and direct material costs.
Cost of licenses decreased as a percentage of the related
revenue in fiscal 2008 as compared to fiscal 2007. The year over
year decrease in Cost of licenses as a percentage of the related
revenue is primarily attributable to higher revenues and to a
lesser extent due to lower obsolescence reserves. Fiscal 2007
had relatively high obsolescence reserves due to the
Company’s decision to exit certain aspects of the appliance
business.
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Acquired product rights are comprised of developed technologies
and patents from acquired companies. The amortization in fiscal
2008 was higher than fiscal 2007 primarily due to amortization
associated with the Altiris acquisition, offset in part by
certain acquired product rights becoming fully amortized. For
further discussion of acquired product rights and related
amortization, see Notes 4 and 7 of the Notes to
Consolidated Financial Statements in this annual report.
Operating
Expenses
Sales and marketing expense as a percentage of total revenues
increased to 41% in fiscal 2008 as compared to 39% in fiscal
2007. The percentage increase and increase in absolute dollars
in sales and marketing expenses in fiscal 2008 as compared to
fiscal 2007 is primarily due to higher employee compensation
expense as a result of the Altiris and Vontu acquisitions and
the OEM placement fees as discussed above under “Financial
Results and Trends.” We negotiated new contract terms with
some of our OEM partners in fiscal 2007, for which the expense
commenced being recognized in the fourth quarter of fiscal 2007.
In addition, these new contract terms had the effect of moving
our OEM payments from Cost of revenues to Operating expenses.
Sales and marketing expense as a percentage of total revenues
increased to 39% in fiscal 2007 as compared to 36% in fiscal
2006. The percentage increase and increase in absolute dollars
in sales and marketing expenses in fiscal 2007 as compared to
fiscal 2006 is primarily due to higher employee compensation
expense of approximately $335 million resulting from an
increase in employee headcount. Higher employee compensation
expense includes the effect of adopting of
SFAS No. 123R, which added $56 million of
stock-based compensation expense in fiscal 2007 for which there
is no comparable expense in fiscal 2006. In addition,
approximately $171 million of the increase is due to an
additional three months of sales and marketing expenses related
to the Veritas acquisition, which is included for the full year
of fiscal 2007 as compared to nine months in fiscal 2006.
Advertising expense increased in fiscal 2007 as compared to
fiscal 2006 primarily as a result of changes in our OEM
arrangements.
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Research and development expense as a percentage of total
revenues has remained relatively constant in fiscal 2008, fiscal
2007 and fiscal 2006. The increase in absolute dollars in fiscal
2008 as compared to fiscal 2007 is attributable to a higher
employee compensation expense primarily related to the Altiris
and Vontu acquisitions. The increase in fiscal 2007 as compared
to fiscal 2006 was due primarily to higher employee compensation
expense of approximately $108 million resulting from an
increase in employee headcount. Higher employee compensation
expense includes the effect of adopting of
SFAS No. 123R, which added $57 million of
stock-based compensation expense in fiscal 2007 for which there
is no comparable expense in fiscal 2006. In addition,
approximately $96 million of the increase is due to an
additional three months of research and development expenses
related to the Veritas acquisition, which is included for the
full year of fiscal 2007 as compared to nine months in fiscal
2006.
General and administrative expense as a percentage of total
revenues has remained relatively constant in fiscal 2008, fiscal
2007, and fiscal 2006. The increase in general and
administrative expenses in fiscal 2008 as compared with fiscal
2007 is primarily due to higher salaries and wages resulting
from the Altiris and Vontu acquisitions offset by a gradual
reduction in headcount during fiscal 2008. The increase in
absolute dollars in general and administrative expenses in
fiscal 2007 as compared to fiscal 2006 was due primarily to
higher employee compensation expense of approximately
$73 million resulting from an increase in employee
headcount. Higher employee compensation includes the effect of
adopting SFAS No. 123R, which added $24 million
of stock-based compensation expense in fiscal 2007 for which
there is no comparable expense in fiscal 2006. In addition,
approximately $20 million of the increase is due to an
additional three months of general and administrative expenses
related to the Veritas acquisition, which are included for the
full year in fiscal 2007 as compared to nine months in fiscal
2006.
Other purchased intangible assets are comprised of customer
base, tradenames, partnership agreements, and marketing-related
assets. The increased amortization in fiscal 2008 is primarily
associated with a full year of amortization of intangible assets
associated with the Altiris purchase which occurred in April
2007. The increased amortization in fiscal 2007 is primarily
associated with a full year of amortization associated with the
Veritas acquisition which occurred in July 2005 and the
acquisitions of Company-i Limited and 4FrontSecurity, Inc. that
occurred during fiscal 2007. For further discussion of other
intangible assets from acquisitions and related amortization,
see Note 7 of the Notes to Consolidated Financial
Statements in this annual report.
During fiscal 2006, we wrote off IPR&D totaling
$285 million, of which $284 million was in connection
with our acquisition of Veritas. The IPR&D was written off
because the acquired technologies had not reached technological
feasibility and had no alternative uses. Technological
feasibility is defined as being equivalent to
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completion of a beta-phase working prototype in which there is
no remaining risk relating to the development. At the time of
the acquisition in July 2005, Veritas was developing new
products in multiple product areas that qualify as IPR&D.
These efforts included NetBackup 6.1, Backup Exec 11.0, Server
Management 5.0, and various other projects. At the time of the
acquisition, it was estimated that these IPR&D development
efforts would be completed over the following 12 to
18 months at an estimated total cost of $120 million.
As of March 28, 2008, all IPR&D projects had been
completed on schedule and within expected costs.
In fiscal 2008, we approved and initiated a restructuring plan
(“2008 Plan”) to reduce costs, implement management
structure changes and optimize the business structure and
discontinue certain products. Projects within the plan began in
the third quarter of 2008 and are expected to be completed by
the fourth quarter of 2009. Total remaining costs of the
restructuring plan, consisting of severance and benefits and
excess facilities costs, are estimated to range between
approximately $80 million and $110 million. In fiscal
2007, we entered into restructuring plans (“2007
Plans”) to consolidate facilities and reduce operating
costs through headcount reductions. We also consolidated certain
facilities and exited facilities as a result of earlier
acquisitions. In fiscal 2006, we entered into restructuring
plans (“2006 Plans”) to reduce job redundancy in the
Americas, EMEA and Asia Pacific Japan and to consolidate certain
facilities in Europe and Asia. Future severance and benefit
costs and facilities charges for both the 2007 Plans and 2006
Plans are not expected to be significant.
We recognized $74 million in restructuring charges in
fiscal 2008 compared to $70 million in fiscal 2007. Charges
in fiscal 2008 were $59 million of severance and benefit
costs and $15 million for contract termination costs for
exited facilities. In fiscal 2008, severance and benefit costs
of $42 million related to the 2008 Plan and
$16 million related to the 2007 Plans. In addition,
facilities contract termination costs of $9 million related
to the 2007 Plans and $5 million were acquisition-related
charges for Altiris and Vontu that occurred in fiscal 2008. In
fiscal 2007, severance and benefit costs of $69 million and
an insignificant amount for facilities termination costs for the
2007 Plans. Included in the $69 million for severance and
benefit costs were $13 million which were
acquisition-related charges for Veritas and others that occurred
in fiscal 2006. In fiscal 2006, we recognized $18 million
of severance and benefit costs and $7 million for contract
termination costs for exited facilities were recognized.
In fiscal 2007, we recorded $1 million of integration
charges in connection with our April 2007 acquisition of
Altiris. These integration charges consisted of costs incurred
for consulting services and other professional fees. In
connection with our acquisition of Veritas, we recorded
integration costs of $16 million in fiscal 2006, which
consisted primarily of costs incurred for consulting services
and other professional fees.
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The decrease in Interest income in fiscal 2008 as compared to
fiscal 2007 was due to lower average interest rates and a lower
average Cash and cash equivalents and Short-term investment
balances. The increase in Interest income in fiscal 2007 as
compared to fiscal 2006 was due primarily to a higher average
cash and cash equivalents and investment balances and higher
average interest rates realized on those balances.
Interest expense in fiscal 2008 and fiscal 2007 was due
primarily to the interest and amortization of issuance costs
related to our 0.75% and 1.00% Convertible Senior Notes
issued in June 2006. Fiscal 2007 also includes interest and
accretion related to the 0.25% Convertible Subordinated
Notes that we assumed in connection with our acquisition of
Veritas. The 0.25% Veritas Convertible Subordinated Notes were
paid in full during August 2006. Interest expense in fiscal 2006
was due primarily to the Veritas 0.25% Convertible
Subordinated Notes.
In fiscal 2008 we recorded a net gain from Settlements of
litigation.
In fiscal 2007, Other income (expense), net includes a gain of
$20 million on the sale of our buildings in Milpitas,
California, and Maidenhead, United Kingdom.
Our effective tax rate on Income before income taxes was
approximately 35%, 36%, and 57% in fiscal 2008, 2007, and 2006,
respectively. The effective tax rate for fiscal 2008 reflects
the impact of non-deductible stock-based compensation offset by
U.S. tax benefits from domestic manufacturing deductions.
The effective tax rate for fiscal 2007 reflects the impact of
non-deductible stock-based compensation offset by foreign
earnings taxed at a lower rate than the U.S. tax rate. The
effective tax rate for fiscal 2006 reflects the impact of the
IPR&D charges and other acquisition-related charges that
are nondeductible for tax reporting purposes, partially offset
by foreign earnings taxed at a lower rate than the U.S. tax
rate, and the effect of the
true-up of
taxes on repatriated earnings.
We believe realization of substantially all of our deferred tax
assets as of March 28, 2008 of $694 million, after
application of the valuation allowance, is more likely than not
based on the future reversal of temporary tax differences.
Realization of approximately $55 million of our deferred
tax assets as of March 28, 2008 is dependent upon future
taxable earnings exclusive of reversing temporary differences in
certain foreign jurisdictions. Levels of future taxable income
are subject to the various risks and uncertainties discussed in
Item 1A, Risk Factors, set forth
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in this annual report. An additional valuation allowance against
net deferred tax assets may be necessary if it is more likely
than not that all or a portion of the net deferred tax assets
will not be realized. We will assess the need for an additional
valuation allowance on a quarterly basis. Of the
$38 million total valuation allowance provided against our
deferred tax assets, approximately $30 million is
attributable to acquisition-related assets, the benefit of which
will reduce goodwill when and if realized. The valuation
allowance decreased by $22 million in fiscal 2008;
$19 million was reclassified as FIN 48 reserves,
$3 million was attributable to acquisition-related assets.
In the March 2005 quarter, we repatriated $500 million from
certain of our foreign subsidiaries that qualified for the 85%
dividends received deduction under the provisions of the
American Jobs Creation Act of 2004, or the Jobs Act, enacted in
October 2004. In May 2005, clarifying language was issued by the
U.S. Department of Treasury and the IRS with respect to the
treatment of foreign taxes paid on the earnings repatriated
under the Jobs Act and in September 2005, additional clarifying
language was issued regarding the treatment of certain
deductions attributable to the earnings repatriation. As a
result of this clarifying language, we reduced the tax expense
attributable to the repatriation by approximately
$21 million in fiscal 2006.
On March 29, 2006, we received a Notice of Deficiency from
the IRS claiming that we owe additional taxes, plus interest and
penalties, for the 2000 and 2001 tax years based on an audit of
Veritas. The incremental tax liability asserted by the IRS was
$867 million, excluding penalties and interest. On
June 26, 2006, we filed a petition with the U.S. Tax
Court protesting the IRS claim for such additional taxes. On
August 30, 2006, the IRS answered our petition and this
issue has been docketed for trial in U.S. Tax Court and is
scheduled to begin on June 30, 2008. In the March 2007
quarter, we agreed to pay $7 million out of
$35 million originally assessed by the IRS in connection
with several of the lesser issues covered in the assessment. The
IRS has also agreed to waive the assessment of penalties. In a
Motion to Amend filed March 20, 2008, the IRS moved to
change its position on the remaining issue in the case. If
allowed, the IRS’ new position would decrease the
incremental tax liability for the remaining issue to
approximately $545 million, excluding interest.
We strongly believe the IRS’ position with regard to this
matter is inconsistent with applicable tax laws and existing
Treasury regulations, and that our previously reported income
tax provision for the years in question is appropriate. No
payments will be made on the assessment until the issue is
definitively resolved. If, upon resolution, we are required to
pay an amount in excess of our provision for this matter, the
incremental amounts due would be accounted for principally as
additions to the cost of the Veritas purchase price. Any
incremental interest accrued subsequent to the date of the
Veritas acquisition would be recorded as an expense in the
period the matter is resolved.
In the fourth quarter of fiscal 2006, we made $90 million
of tax-related adjustments to the purchase accounting for
Veritas, consisting of $120 million of additional
pre-acquisition tax reserve-related adjustments, partially
offset by a $30 million reduction in other pre-acquisition
taxes payable. While we strongly disagree with the IRS over both
its transfer pricing methodologies and the amount of the
assessment, we have established additional tax reserves for all
Veritas pre-acquisition years to account for both contingent tax
and interest risk.
On March 30, 2006, we received notices of proposed
adjustment from the IRS with regard to an unrelated audit of
Symantec for fiscal 2003 and 2004. The IRS claimed that we owed
an incremental tax liability with regard to this audit of
$110 million, excluding penalties and interest. The
incremental tax liability primarily relates to transfer pricing
matters between Symantec and a foreign subsidiary. On
September 5, 2006, we executed a closing agreement with the
IRS with respect to the audit of Symantec’s fiscal 2003 and
2004 federal income tax returns. The closing agreement
represents the final assessment by the IRS of additional tax for
these fiscal years of approximately $35 million, including
interest. Based on the final settlement, a tax benefit of
$8 million was recognized.
In the fourth quarter of fiscal 2006, we increased our tax
reserves by an additional $64 million in connection with
all open Symantec tax years (fiscal 2003 to 2006). Since these
reserves relate to licensing arising from acquired technology,
the additional accruals are primarily offset by deferred taxes.
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We are as yet unable to confirm our eligibility to claim a lower
tax rate on a distribution made from a Veritas foreign
subsidiary prior to the acquisition. The distribution was
intended to be made pursuant to the Jobs Act, and therefore
eligible for a 5.25% effective U.S. federal rate of tax, in
lieu of the 35% statutory rate. We are seeking a ruling from the
IRS on the matter. Because we were unable to obtain this ruling
prior to filing the Veritas tax return in May 2006, we have paid
$130 million of additional U.S. taxes. Since this
payment relates to the taxability of foreign earnings that are
otherwise the subject of the IRS assessment, this additional
payment reduced the amount of taxes payable accrued as part of
the purchase accounting for pre-acquisition contingent tax
risks. For further information, see Note 17 of the Notes to
Consolidated Financial Statements in this annual report and
Critical Accounting Estimates — Income Taxes
above.
In connection with the note hedge transactions discussed in
Note 9 of the Notes to the Consolidated Financial
Statements in this annual report, we established a deferred tax
asset of approximately $232 million to account for the
book-tax basis difference in the convertible notes resulting
from note hedge transactions. The deferred tax asset has been
accounted for as an increase to Capital in excess of par value.
The Company adopted the provisions of FASB Interpretation
No. 48, FIN 48, Accounting for Uncertainty in
Income Taxes, effective March 31, 2007. FIN 48
addresses the accounting for and disclosure of uncertainty in
income tax positions, by prescribing a minimum recognition
threshold that a tax position is required to satisfy before
being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods,
disclosure and transition.
The cumulative effect of adopting FIN 48 was a decrease in
tax reserves of $16 million, resulting in a decrease in
Veritas goodwill of $10 million, an increase of
$5 million to Retained Earnings balance, and a
$1 million increase in Capital in excess of par value. Upon
adoption, the gross liability for unrecognized tax benefits at
March 31, 2007 was $456 million, exclusive of interest
and penalties.
LIQUIDITY
AND CAPITAL RESOURCES
We have historically relied primarily on cash flow from
operations, borrowings under a credit facility, issuances of
convertible notes and equity securities for our liquidity needs.
Key sources of cash include earnings from operations and
existing cash, cash equivalents, short-term investments, and our
revolving credit facility.
In July 2006, we entered into a five-year $1 billion senior
unsecured revolving credit facility that expires in July 2011.
During fiscal 2008, we borrowed $200 million under the
credit facility. In order to maintain availability to draw on
the credit facility, we must maintain certain covenants,
including a specified ratio of debt to earnings before interest,
taxes, depreciation, and amortization as defined as well as
various other non-financial covenants. As of March 28,
2008, we were in compliance with these covenants.
As of March 28, 2008, we had cash and cash equivalents of
$1.9 billion and short-term investments of
$537 million resulting in a net liquidity position (unused
availability of the credit facility, cash and cash equivalents
and short-term investments) of $3.2 billion.
We believe that our cash balances, cash that we generate over
time from operations, and our borrowing capacity will be
sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next
12 months.
Our principal cash requirements include working capital, capital
expenditures, payments of principal and interest on our debt and
payments of taxes. In addition, we regularly evaluate our
ability to repurchase stock, pay debts and acquire other
businesses.
Acquisition-Related. We generally use cash to
fund the acquisition of other businesses and from time to time
use our revolving credit facility when necessary. In April 2007,
we acquired the outstanding common stock of
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Altiris, Inc. and paid $841 million, net of cash acquired,
which reflects $165 million of cash acquired and
$17 million of cash paid for transaction costs. In November
2007, we acquired Vontu, Inc. and paid $298 million, net of
cash acquired. We used $200 million borrowed under a
five-year, $1 billion senior unsecured revolving credit
facility to partially fund the purchase. In January 2008, we
acquired Transparent Logic Technologies, Inc., and paid
$12 million in cash. During fiscal 2007, we paid cash of
$33 million for the acquisitions of other businesses.
During fiscal 2006, we had net sales of available-for-sale
securities of $3.4 billion and cash of $541 million
acquired through the acquisition of Veritas, net of cash
expenditures for our other acquisitions in fiscal 2006. In
connection with the Veritas acquisition, we assumed
Veritas’ 0.25% Convertible Subordinated Notes, or the
Veritas 0.25% Notes, with a principal amount of
$520 million due August 1, 2013, and a short-term loan
with a principal amount of euros 411 million, which was
paid in its entirety in fiscal 2006. In August 2006, we
repurchased all $520 million of the Veritas
0.25% notes with cash, which reflected principal plus
interest.
Stock Repurchases. During fiscal 2008, we
repurchased a total of 81 million shares, or
$1.5 billion, of our Company’s common stock. At
March 28, 2008 we have $1 billion remaining under the
plan authorized by the Board of Directors in June 2007.
Issuance of Convertible Senior Notes. In June
2006, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes (“Senior Notes”)
due June 15, 2011, and $1.0 billion principal amount
of 1.00% Convertible Senior Notes due June 15, 2013,
to initial purchasers in a private offering for resale to
qualified institutional buyers pursuant to SEC Rule 144A.
Concurrently with the issuance of the Senior Notes, we entered
into note hedge transactions with affiliates of certain of the
initial purchasers whereby we have the option to purchase up to
110 million shares of our common stock at a price of $19.12
per share.
The following table provides information about our significant
contractual obligations and commitments as of March 28,
2008:
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The following table summarizes, for the periods indicated,
selected items in our Consolidated Statements of Cash Flows:
Operating
Activities
Net cash provided by operating activities during fiscal 2008
resulted largely from net income of $464 million, plus
non-cash depreciation and amortization charges of
$824 million, non-cash stock-based compensation expense of
$164 million, income taxes payable of $197 million and
an increase in deferred revenue of $127 million. These
amounts were partially offset by a decrease in non-cash deferred
income taxes of $180 million.
Net cash provided by operating activities during fiscal 2007
resulted largely from net income of $404 million, plus
non-cash depreciation and amortization charges of
$811 million, non-cash stock-based compensation expense of
$154 million, and an increase in deferred revenue of
$400 million. These amounts were partially offset by a
decrease in income taxes payable of $182 million, primarily
due to the timing of tax payments.
Investing
Activities
Fiscal 2008 Compared to Fiscal 2007: Cash used
for investing activities was $1.5 billion for 2008 compared
to $222 million for 2007. Cash used in fiscal 2008
primarily related to an aggregate payment of $1.2 billion
in cash for acquisitions which included Altiris for
$841 million and Vontu for $298 million and the joint
venture with Huawei Technologies Co., Ltd. for
$150 million. During fiscal 2007, we paid $33 million
for acquisitions of other businesses. Cash used in fiscal 2007
primarily related to the net increase in property and equipment
partially offset by the net purchase of short-term investments.
Both periods reflect consistent levels of capital purchasing
partially offset by proceeds from the sale of exited or excess
facilities.
Fiscal 2007 Compared to Fiscal 2006: Cash used
in investing activities was $222 million in fiscal 2007
compared to cash provided by investing activities of
$3.6 billion for 2006. Cash used in fiscal 2007 for the
acquisition of other businesses was $33 million compared to
cash provided by investing activities of $541 million
acquired through the acquisition of Veritas, net of cash
expenditures for our other acquisitions in fiscal 2006.
Additionally, we recognized net proceeds from sales of
available-for-sale securities of $3.4 billion during fiscal
2006, which was primarily associated with the liquidation of
assets assumed in the acquisition of Veritas.
Financing
Activities
Fiscal 2008 Compared to Fiscal 2007: Cash used
in financing was $1.1 billion in fiscal 2008 compared to
$1.3 billion in 2007. Cash used in fiscal 2008 primarily
related to the repurchase of 81 million shares of our
common stock for $1.5 billion which was partially offset by
the net proceeds of $224 million received from the issuance
of our common stock through employee stock plans and the
$200 million borrowed under the senior unsecured revolving
credit facility to finance the Vontu acquisition. Cash used in
fiscal 2007 primarily related to the repurchase of
162 million shares of our common stock for
$2.8 billion whereby $1.5 billion was funded by the
proceeds from the issuance of Senior Notes for
$2.1 billion. Also during fiscal 2007, we purchased hedges
related to the Senior Notes for $592 million and paid
$520 million for the repurchase of Veritas
0.25% Convertible
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Subordinated Notes, or the 0.25% Notes assumed in the
Veritas acquisition; these amounts were partially offset by
$326 million received from the sale of common stock
warrants and $230 million received from the issuance of our
common stock through employee stock plans.
Fiscal 2007 Compared to Fiscal 2006: During
fiscal 2006, we repurchased 174 million shares of our
common stock for $3.6 billion and repaid the entire balance
of $491 million from a short-term loan assumed in the
Veritas acquisition, partially offset by $210 million in
proceeds from the issuance of our common stock through employee
stock plans.
As a result of Company-i meeting target billings conditions in
the first quarter of fiscal 2008, as was stipulated in the
Company-i merger agreement, we paid the former shareholders of
Company-i an additional $11 million in cash. This increase
in purchase price resulted in a respective increase in goodwill.
Holders of the Senior Notes may convert their Senior Notes prior
to maturity upon the occurrence of certain circumstances. Upon
conversion, we would pay the holder the cash value of the
applicable number of shares of Symantec common stock, up to the
principal amount of the note. Amounts in excess of the principal
amount, if any, may be paid in cash or in stock at our option.
As of March 28, 2008, the conditions to convertibility of
the Senior Notes had not been met.
We have certain royalty commitments associated with the shipment
and licensing of certain products. Royalty expense is generally
based on a dollar amount per unit shipped or a percentage of
underlying revenue. Certain royalty commitments have minimum
commitment obligations; however, as of March 28, 2008 all
such obligations are insignificant.
As permitted under Delaware law, we have agreements whereby we
indemnify our officers and directors for certain events or
occurrences while the officer or director is, or was, serving at
our request in such capacity. The maximum potential amount of
future payments we could be required to make under these
indemnification agreements is not limited; however, we have
directors and officers’ insurance coverage that reduces our
exposure and may enable us to recover a portion of any future
amounts paid. We believe the estimated fair value of these
indemnification agreements in excess of applicable insurance
coverage is minimal.
We provide limited product warranties and the majority of our
software license agreements contain provisions that indemnify
licensees of our software from damages and costs resulting from
claims alleging that our software infringes the intellectual
property rights of a third party. Historically, payments made
under these provisions have been immaterial. We monitor the
conditions that are subject to indemnification to identify if a
loss has occurred.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles.
SFAS No. 162 defines the order in which accounting
principles that are generally accepted should be followed.
SFAS No. 162 is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight
Board (“PCAOB”) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. We do not expect the
adoption of SFAS No. 162 to have a material impact on
our consolidated financial statements.
In April 2008, the FASB finalized Staff Position
(“FSP”)
No. 142-3,
Determination of the Useful Life of Intangible Assets.
The position amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB
Statement of Financial
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Accounting Standard (“SFAS”) No. 142, Goodwill
and Other Intangible Assets. The position applies to
intangible assets that are acquired individually or with a group
of other assets and both intangible assets acquired in business
combinations and asset acquisitions.
FSP 142-3
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. We are
currently evaluating the impact of the pending adoption of
FSP 142-3
on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133.
SFAS No. 161 requires disclosures of how and why an
entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for and how derivative
instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows.
SFAS No. 161 is effective for fiscal years beginning
after November 15, 2008, with early adoption permitted. We
are currently evaluating the impact of the pending adoption of
SFAS No. 161 on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51. The standard
changes the accounting for noncontrolling (minority) interests
in consolidated financial statements including the requirements
to classify noncontrolling interests as a component of
consolidated stockholders’ equity, to identify earnings
attributable to noncontrolling interests reported as part of
consolidated earnings, and to measure the gain or loss on the
deconsolidated subsidiary using the fair value of the
noncontrolling equity investment. Additionally,
SFAS No. 160 revises the accounting for both increases
and decreases in a parent’s controlling ownership interest.
SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. We
do not expect the adoption of SFAS No. 160 to have a
material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141
(revised “R”), Business Combinations. This
standard changes the accounting for business combinations by
requiring that an acquiring entity measures and recognizes
identifiable assets acquired and liabilities assumed at the
acquisition date fair value with limited exceptions. The changes
include the treatment of acquisition related transaction costs,
the valuation of any noncontrolling interest at acquisition date
fair value, the recording of acquired contingent liabilities at
acquisition date fair value and the subsequent re-measurement of
such liabilities after acquisition date, the recognition of
capitalized in-process research and development, the accounting
for acquisition-related restructuring cost accruals subsequent
to acquisition date, and the recognition of changes in the
acquirer’s income tax valuation allowance.
SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008, with early adoption
prohibited. We are currently evaluating the impact of the
pending adoption of SFAS No. 141(R) on our
consolidated financial statements. The accounting treatment
related to pre-acquisition uncertain tax positions will change
when SFAS No. 141(R) becomes effective, which will be
in first quarter of our fiscal year 2010. At such time, any
changes to the recognition or measurement of uncertain tax
positions related to pre-acquisition periods will be recorded
through income tax expense, where currently the accounting
treatment would require any adjustment to be recognized through
the purchase price. See Note 17 of the Notes to the
Consolidated Financial Statements for further details.
In August 2007, the FASB issued proposed FASB “FSP”
No. APB
14-a,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement). The proposed FSP would require the issuer of
convertible debt instruments with cash settlement features to
separately account for the liability and equity components of
the instrument. The debt would be recognized at the present
value of its cash flows discounted using the issuer’s
nonconvertible debt borrowing rate at the time of issuance. The
equity component would be recognized as the difference between
the proceeds from the issuance of the note and the fair value of
the liability. The proposed FSP would also require an accretion
of the resultant debt discount over the expected life of the
debt. The proposed transition guidance requires retrospective
application to all periods presented, and does not grandfather
existing instruments. In March 2008, the FASB approved moving
the proposed FSP to final guidance. The final guidance will be
effective for fiscal years beginning after December 15,
2008, and interim periods within those years. Entities will be
required to apply guidance retrospectively for all periods
presented. If the FSP is issued as proposed, we expect the
increase in non-cash interest expense recognized on our
consolidated financial statements to be significant.
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In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of SFAS No. 115.
SFAS No. 159 permits companies to choose to
measure certain financial instruments and certain other items at
fair value and requires unrealized gains and losses on items for
which the fair value option has been elected to be reported in
earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. We are currently in the
process of evaluating the impact of SFAS No. 159 on
our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
establishes a framework for measuring the fair value of assets
and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some
cases require, estimates of fair market value.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those
fiscal years. In February 2008, the FASB issued FSP
No. FAS 157-1,
Application of SFAS No. 157 to SFAS No. 13
and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement
under SFAS No. 13 and FSP
No. FAS 157-2,
Effective Date of SFAS No. 157. Collectively, the
Staff Positions defer the effective date of
SFAS No. 157 to fiscal years beginning after
December 15, 2008, for nonfinancial assets and nonfinancial
liabilities except for items that are recognized or disclosed at
fair value on a recurring basis at least annually, and amend the
scope of SFAS 157. We are currently evaluating the impact
of the pending adoption of SFAS 157 on our consolidated
financial statements.
In September 2006, the FASB issued Emerging Issues Task Force
(“EITF”) Issue
No. 06-1,
Accounting for Consideration Given by a Service Provider to a
Manufacturer or Reseller of Equipment Necessary for an
End-Customer to Receive Service from the Service Provider.
EITF Issue
No. 06-1
requires that we provide disclosures regarding the nature of
arrangements in which we provide consideration to manufacturers
or resellers of equipment necessary for an end-customer to
receive service from us, including the amounts recognized in the
Consolidated Statements of Income. EITF Issue
No. 06-1
is effective for fiscal years beginning after June 15,
2007. We do not expect the adoption of EITF Issue
No. 06-1
to have a material impact on our consolidated financial
statements.
We are exposed to various market risks related to fluctuations
in interest rates, foreign currency exchange rates, and equity
prices. 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.
Our exposure to interest rate risk relates primarily to our
short-term investment portfolio and the potential losses arising
from changes in interest rates. Our investment objective is to
achieve the maximum return compatible with capital preservation
and our liquidity requirements. Our strategy is to invest our
cash in a manner that preserves capital, maintains sufficient
liquidity to meet the cash requirements of the company,
maximizes yields consistent with approved credit risk, and
limits inappropriate concentrations of investment by sector,
credit, or issuer. We classify our cash equivalents and
short-term investments in accordance with
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. We consider investments in
instruments purchased with an original maturity of 90 days
or less to be cash equivalents. We classify our short-term
investments as available-for-sale, and short-term investments
consist of marketable debt or equity securities with original
maturities in excess of 90 days. Our cash equivalents and
short-term investment portfolios consist primarily of money
market funds, commercial paper, corporate debt securities, and
U.S. government and government-sponsored debt securities.
Our short-term investments do not include equity investments in
privately held companies. Our short-term investments are
reported at fair value with unrealized gains and losses, net of
tax, included in Accumulated other comprehensive income within
Stockholders’ equity in the Consolidated Balance Sheets.
The amortization of premiums and discounts on the investments,
realized gains and losses, and declines in value judged to be
other-than-temporary on available-for-sale securities are
included in Other income (expense), net in the Consolidated
Statements of Income. We use the specific identification method
to determine cost in calculating realized gains and losses upon
sale of short-term investments.
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The following table presents the fair value and hypothetical
changes in fair values on short-term investments sensitive to
changes in interest rates (in millions):
The modeling technique used above measures the change in fair
market value arising from selected potential changes in interest
rates. Market changes reflect immediate hypothetical parallel
shifts in the yield curve of plus 150 bps, plus
100 bps, plus 50 bps, minus 25 bps, and minus
75 bps.
We conduct business in 36 currencies through our worldwide
operations and, as such, we are exposed to foreign currency
exposure risk. Foreign currency risks are associated with our
cash and cash equivalents, investments, receivables, and
payables denominated in foreign currencies. Fluctuations in
exchange rates will result in foreign exchange gains and losses
on these foreign currency assets and liabilities and are
included in Other income (expense), net. Our objective in
managing foreign exchange activity is to preserve stockholder
value by minimizing the risk of foreign currency exchange rate
changes. Our strategy is to primarily utilize forward contracts
to hedge foreign currency exposures. Under our program, gains
and losses in our foreign currency exposures are offset by
losses and gains on our forward contracts. Our forward contracts
generally have terms of 35 days or less. At the end of the
reporting period, open contracts are marked-to-market with
unrealized gains and losses included in Other income (expense),
net.
The following table presents a sensitivity analysis on our
foreign forward exchange contract portfolio using a statistical
model to estimate the potential gain or loss in fair value that
could arise from hypothetical appreciation or depreciation of
foreign currency (in millions):
In June 2006, we issued $1.1 billion principal amount of
0.75% Convertible Senior Notes due 2011 and
$1.0 billion of 1.00% Convertible Senior Notes due
2013. Holders may convert their Senior Notes prior to maturity
upon the occurrence of certain circumstances. Upon conversion,
we would pay the holder the cash value of the applicable number
of shares of Symantec common stock, up to the principal amount
of the note. Amounts in excess of the principal amount, if any,
may be paid in cash or in stock at our option. Concurrent with
the issuance of the Senior Notes, we entered into convertible
note hedge transactions and separately, warrant transactions, to
reduce the potential dilution from the conversion of the Senior
Notes and to mitigate any negative effect such conversion may
have on the price of our common stock.
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For business and strategic purposes, we also hold equity
interests in several privately held companies, many of which can
be considered to be in the
start-up or
development stages. These investments are inherently risky and
we could lose a substantial part or our entire investment in
these companies. These investments are recorded at cost and
classified as Other long-term assets in the Consolidated Balance
Sheets. As of March 28, 2008, these investments had an
aggregate carrying value of $6 million.
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
We have a 52/53-week fiscal accounting year. Accordingly, we
have presented quarterly fiscal periods, each comprised of
13 weeks, as follows:
Not applicable.
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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 Chief Executive Officer and our Chief Financial
Officer have concluded, based on 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 of 1934, as amended) by our
management, with the participation of our Chief Executive
Officer and our Chief Financial Officer, that our disclosure
controls and procedures were effective as of the end of the
period covered by this report.
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 Securities Exchange Act of 1934, as amended) 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 28, 2008, based on criteria
established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Our management has concluded that, as of March 28, 2008,
our internal control over financial reporting was effective
based on these criteria.
The Company’s independent registered public accounting firm
has issued an attestation report regarding its assessment of the
Company’s internal control over financial reporting as of
March 28, 2008, which appears on page 66.
There were no changes in our internal control over financial
reporting during the quarter ended March 28, 2008 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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.
None
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The information required by this item is incorporated by
reference to Symantec’s Proxy Statement for its 2008 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 28, 2008.
The information required by this item is incorporated by
reference to Symantec’s Proxy Statement for its 2008 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 28, 2008.
The information required by this item is incorporated by
reference to Symantec’s Proxy Statement for its 2008 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 28, 2008.
The information required by this item is incorporated by
reference to Symantec’s Proxy Statement for its 2008 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 28, 2008.
The information required by this item is incorporated by
reference to Symantec’s Proxy Statement for its 2008 Annual
Meeting of Stockholders to be filed with the SEC within
120 days after the end of the fiscal year ended
March 28, 2008.
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Upon written request, we will provide, without charge, a copy of
this annual report, including the consolidated financial
statements and financial statement schedule. All requests should
be sent to:
Symantec Corporation
Attn: Investor Relations
20330 Stevens Creek Boulevard
Cupertino, California 95014
408-517-8000
a) The following documents are filed as part of this report:
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Exhibits: The following exhibits are filed as
part of or furnished with this annual report as applicable:
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