SOURCE: Symantec Corporation

Symantec Corporation

October 23, 2013 16:01 ET

Symantec Reports Second Quarter Fiscal 2014 Results

Results and Revised Fiscal Year Outlook Reflect the Significant Transformation Now Underway; While Positioning the Company for Greater Long-Term Growth, Despite Lower Revenue, Symantec Delivered Better Than Expected Operating Margin and EPS

MOUNTAIN VIEW, CA--(Marketwired - Oct 23, 2013) - Symantec Corp. (NASDAQ: SYMC) today reported revenue of $1.64 billion for its second quarter of fiscal year 2014, ended September 27, 2013, down 4 percent year-over-year and down 3 percent after adjusting for currency.

"Since announcing our strategy in January, we made significant changes that will help us become more successful at delivering value to customers and partners. We've reallocated resources to develop new integrated offerings, split the sales organization into renewals and new business teams, and simplified our management structure," said Steve Bennett, president and chief executive officer, Symantec. "While this was a challenging quarter in our transition year, we expect our actions to translate into growth. We remain committed to our FY15-FY17 targets and are confident that we are on the right track."

"The actions we took were necessary and will build a strong foundation for long-term growth," said Drew Del Matto, acting chief financial officer, Symantec. "We fell short on revenue in the September quarter, but over-delivered on operating margin and EPS. Due to the second quarter shortfall and the significant changes we are driving, we are lowering our FY14 guidance."

GAAP Results for the Second Quarter of Fiscal Year 2014

  • GAAP operating margin was 15.1 percent compared with 17.5 percent for the same quarter last year.
  • GAAP net income was $241 million compared with net income of $189 million for the year-ago period.
  • GAAP diluted earnings per share were $0.34, up 26 percent year-over-year.
  • GAAP deferred revenue as of September 27, 2013 was $3.50 billion compared with $3.62 billion as of September 28, 2012, down 3 percent year-over-year.
  • Cash flow from operating activities was $191 million, up 7 percent year-over-year.

Non-GAAP Results for the Second Quarter of Fiscal Year 2014

  • Non-GAAP operating margin was 27.6 percent compared with 27.0 percent for the same quarter last year, up 60 basis points year-over-year and flat after adjusting for currency.
  • Non-GAAP net income was $355 million, compared to $318 million for the year-ago period, up 12 percent year-over-year.
  • Non-GAAP diluted earnings per share were $0.50, compared with $0.45 for the year-ago period, an increase of 11 percent.

Business Segment and Geographic Highlights for the Quarter

In alignment with our 4.0 strategy, we created three new business segments. Below is a breakdown of our results by segments and geographies.

  • The User Productivity & Protection segment, which is comprised of endpoint security and management, encryption, and our mobile offerings, represented 44 percent of total revenue and declined 3 percent year-over-year (2 percent after adjusting for currency) to $719 million.
  • The Information Security segment declined 2 percent year-over-year (1 percent after adjusting for currency) to $316 million. This segment represented 19 percent of total revenue and includes Symantec's security capabilities such as our mail & web security, authentication services, data center security, Managed Security Services (MSS), hosted security services, and Data Loss Prevention (DLP) businesses.
  • The Information Management segment represented 37 percent of total revenue and declined 5 percent year-over-year (6 percent after adjusting for currency) to $602 million. This segment is comprised of offerings related to backup and recovery, information intelligence, which includes archiving and e-discovery, and information availability, which we previously referred to as storage management.
  • International revenue represented 52 percent of total revenue and decreased 3 percent year-over-year (2 percent after adjusting for currency).
  • The Europe, Middle East and Africa region represented 28 percent of total revenue and increased 4 percent year-over-year (down 1 percent after adjusting for currency).
  • The Asia Pacific/Japan region represented 18 percent of total revenue and decreased 14 percent year-over-year (5 percent after adjusting for currency).
  • The Americas, including the United States, Latin America and Canada, represented 54 percent of total revenue and decreased 3 percent year-over-year (4 percent after adjusting for currency).

Capital Allocation

Symantec ended the quarter with cash, cash equivalents and short-term investments of $3.8 billion compared to $4.0 billion, a decrease of 4 percent year-over-year. On September 18, 2013, we paid a dividend of $0.15 per share for a total of $105 million. Also, during the quarter, Symantec repurchased 5.0 million shares for $125 million at an average price of $24.99. At the end of the second quarter, Symantec had $908 million remaining for future repurchases in the current board authorized stock repurchase plan.

Symantec's Board of Directors has declared a quarterly cash dividend of $0.15 per common share to be paid on December 18, 2013 to all shareholders of record as of the close of business on November 25, 2013. The ex-dividend date will be November 21, 2013.

Fiscal Year 2014 Guidance

Given the September quarter shortfall and the significant transformation we are driving, we have lowered our annual guidance. For fiscal 2014, Symantec expects:

  • Revenue to decline 3 to 4 percent in constant currency
  • Non-GAAP operating margin to expand by 30 to 60 basis points
  • Non-GAAP earnings per share to be between -1.0 and 1.5 percent compared to the prior fiscal year

Third Quarter Fiscal Year 2014 Guidance

For the third quarter of fiscal 2014, Symantec expects:

  • Revenue of $1.63 billion to $1.67 billion, compared to $1.79 billion in the year-ago period.
  • GAAP operating margin of 17.0 percent to 17.6 percent compared to 17.0 percent in the year-ago period.
  • Non-GAAP operating margin of 25.6 percent to 26.2 percent compared to 25.9 percent in the year-ago period.
  • GAAP diluted earnings per share between $0.26 and $0.28 as compared to $0.31 in the year-ago period.
  • Non-GAAP diluted earnings per share between $0.41 and $0.43 as compared to $0.45 in the year-ago period.

Guidance assumes an exchange rate of $1.35 per Euro for the December 2013 quarter versus the actual weighted average rate of $1.30 and an end of period rate of $1.32 per Euro for the December 2012 quarter. Our guidance assumes an effective tax rate of 28 percent and a common stock equivalents total for the quarter of approximately 707 million shares.

Conference Call

Symantec has scheduled a conference call for 5 p.m. ET/2 p.m. PT today to discuss the results of its fiscal second quarter 2014, ended September 27, 2013 and to review guidance. Interested parties may access the conference call on the Internet at http://www.symantec.com/invest. To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. A replay and script of our officers' remarks will be available on the investor relations' home page shortly after the call is completed.

About Symantec

Symantec protects the world's information, and is the global leader in security, backup and availability solutions. Our innovative products and services protect people and information in any environment -- from the smallest mobile device, to the enterprise data center, to cloud-based systems. Our industry-leading expertise in protecting data, identities and interactions gives our customers confidence in a connected world. More information is available at www.symantec.com or by connecting with Symantec at: go.symantec.com/socialmedia.

NOTE TO EDITORS: If you would like additional information on Symantec Corporation and its products, please visit the Symantec News Room at http://www.symantec.com/news. All prices noted are in U.S. dollars and are valid only in the United States.

Symantec and the Symantec Logo are trademarks or registered trademarks of Symantec Corporation or its affiliates in the U.S. and other countries. Other names may be trademarks of their respective owners.

FORWARD-LOOKING STATEMENTS: This press release contains statements regarding our financial and business results, which may be considered forward-looking within the meaning of the U.S. federal securities laws, including projections of future revenue, operating margin and earnings per share, as well as projections of amortization of acquisition-related intangibles and stock-based compensation and restructuring charges. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include those related to: general economic conditions; maintaining customer and partner relationships; the anticipated growth of certain market segments, particularly with regard to security and storage; the competitive environment in the software industry; changes to operating systems and product strategy by vendors of operating systems; fluctuations in currency exchange rates; the timing and market acceptance of new product releases and upgrades; the successful development of new products and integration of acquired businesses, and the degree to which these products and businesses gain market acceptance. Actual results may differ materially from those contained in the forward-looking statements in this press release. We assume no obligation, and do not intend, to update these forward-looking statements as a result of future events or developments. Additional information concerning these and other risks factors is contained in the Risk Factors sections of our Form 10-K for the year ended March 29, 2013.

USE OF NON-GAAP FINANCIAL INFORMATION: Our results of operations have undergone significant change due to a series of acquisitions, the impact of stock-based compensation, impairment charges and other corporate events. To help our readers understand our past financial performance and our future results, we supplement the financial results that we provide in accordance with generally accepted accounting principles, or GAAP, with non-GAAP financial measures. The method we use to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies. Our non-GAAP results are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Investors are encouraged to review the reconciliation of our non-GAAP financial measures to the comparable GAAP results, which is attached to our quarterly earnings release and which can be found, along with other financial information, on the investor relations' page of our website at www.symantec.com/invest.

         
 
SYMANTEC CORPORATION
Condensed Consolidated Balance Sheets
(In millions, unaudited)
 
    September 27,   March 29,
    2013   2013 (1) (2)
             
ASSETS            
             
Current assets:            
  Cash and cash equivalents   $ 3,727   $ 4,685
  Short-term investments     105     62
  Trade accounts receivable, net     573     1,031
  Inventories, net     16     24
  Deferred income taxes     174     169
  Deferred commissions     114     130
  Other current assets     261     315
    Total current assets     4,970     6,416
             
Property and equipment, net     1,091     1,122
Intangible assets, net     852     977
Goodwill     5,859     5,841
Long-term deferred commissions     28     29
Other long-term assets     114     123
    Total assets   $ 12,914   $ 14,508
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Accounts payable   $ 249   $ 334
  Accrued compensation and benefits     312     422
  Deferred revenue     3,003     3,496
  Current portion of long-term debt     -     997
  Other current liabilities     343     318
    Total current liabilities     3,907     5,567
             
Long-term debt     2,094     2,094
Long-term deferred revenue     498     521
Long-term deferred tax liabilities     474     426
Long-term income taxes payable     222     318
Other long-term obligations     62     60
    Total liabilities     7,257     8,986
             
    Total stockholders' equity     5,657     5,522
      Total liabilities and stockholders' equity   $ 12,914   $ 14,508
             
             
(1) Derived from audited consolidated financial statements.
 
(2) This presentation includes revised amounts from a change in accounting policy related to the accounting for commissions. Please see Appendix A for more details.
 
 
                         
   
SYMANTEC CORPORATION  
Condensed Consolidated Statements of Income  
(Dollars in millions, except per share data, unaudited)  
   
          Year-Over-Year  
    Three Months Ended     Growth Rate  
    September 27,     September 28,           Constant  
    2013     2012 (2)     Actual     Currency(1)  
                             
Net revenue:                            
  Content, subscription, and maintenance   $ 1,499     $ 1,498     0 %   0 %
  License     138       201     -31 %   -31 %
    Total net revenue     1,637       1,699     -4 %   -3 %
                             
Cost of revenue:                            
  Content, subscription, and maintenance     252       247              
  License     19       18              
  Amortization of intangible assets     13       19              
    Total cost of revenue     284       284     0 %   0 %
Gross profit     1,353       1,415     -4 %   -4 %
                             
Operating expenses:                            
  Sales and marketing     592       667              
  Research and development     248       247              
  General and administrative     114       109              
  Amortization of intangible assets     29       72              
  Restructuring and transition     122       23              
    Total operating expenses     1,105       1,118     -1 %   0 %
Operating income     248       297     -16 %   -19 %
                             
  Interest income     3       2              
  Interest expense     (20 )     (35 )            
  Other income, net     20       1              
Income before income taxes     251       265     -5 %   N/A  
                             
  Provision for income taxes     10       76              
Net income attributable to Symantec Corporation stockholders   $ 241     $ 189     28 %   N/A  
                             
Net income per share attributable to Symantec Corporation stockholders -- basic    
$ 0.34
     
$ 0.27
             
Net income per share attributable to Symantec Corporation stockholders -- diluted    
$ 0.34
     
$ 0.27
             
Weighted-average shares outstanding attributable to Symantec Corporation stockholders -- basic    
699
     
702
             
Weighted-average shares outstanding attributable to Symantec Corporation stockholders -- diluted    
707
     
708
             
                             
Cash dividends declared per common share   $ 0.15       -              
                             
(1) Management refers to growth rates adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. We compare the percentage change in the results from one period to another period in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rates in effect during the respective prior periods.  
   
(2) This presentation includes revised amounts from a change in accounting policy related to the accounting for commissions. Please see Appendix A for more details.  
   
   
                         
                         
   
SYMANTEC CORPORATION  
Condensed Consolidated Statements of Income  
(Dollars in millions, except per share data, unaudited)  
   
          Year-Over-Year  
    Six Months Ended     Growth Rate  
    September 27,     September 28,           Constant  
    2013     2012 (2)     Actual     Currency(1)  
                             
Net revenue:                            
  Content, subscription, and maintenance   $ 3,019     $ 2,973     2 %   2 %
  License     327       394     -17 %   -17 %
    Total net revenue     3,346       3,367     -1 %   0 %
                             
Cost of revenue:                            
  Content, subscription, and maintenance     515       496              
  License     41       35              
  Amortization of intangible assets     28       37              
    Total cost of revenue     584       568     3 %   3 %
Gross profit     2,762       2,799     -1 %   -1 %
                             
Operating expenses:                            
  Sales and marketing     1,243       1,335              
  Research and development     509       496              
  General and administrative     233       219              
  Amortization of intangible assets     100       144              
  Restructuring and transition     205       58              
    Total operating expenses     2,290       2,252     2 %   3 %
Operating income     472       547     -14 %   -15 %
                             
  Interest income     6       5              
  Interest expense     (45 )     (64 )            
  Other income (expense), net     38       (5 )            
Income before income taxes     471       483     -2 %   N/A  
                             
  Provision for income taxes     73       134              
Net income attributable to Symantec Corporation stockholders   $ 398     $ 349     14 %   N/A  
                             
Net income per share attributable to Symantec Corporation stockholders -- basic    
$ 0.57
     
$ 0.49
             
Net income per share attributable to Symantec Corporation stockholders -- diluted    
$ 0.56
     
$ 0.49
             
Weighted-average shares outstanding attributable to Symantec Corporation stockholders -- basic    
698
     
709
             
Weighted-average shares outstanding attributable to Symantec Corporation stockholders -- diluted    
707
     
714
             
                             
Cash dividends declared per common share   $ 0.30       -              
                             
(1) Management refers to growth rates adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. We compare the percentage change in the results from one period to another period in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rates in effect during the respective prior periods.  
                             
(2) This presentation includes revised amounts from a change in accounting policy related to the accounting for commissions. Please see Appendix A for more details.  
   
   
             
   
SYMANTEC CORPORATION  
Condensed Consolidated Statements of Cash Flows  
(In millions, unaudited)  
   
    Six Months Ended  
    September 27,     September 28,  
    2013     2012 (1)  
                 
OPERATING ACTIVITIES:                
Net income   $ 398     $ 349  
Adjustments to reconcile net income to net cash provided by operating activities:                
  Depreciation     139       141  
  Amortization of intangible assets     128       181  
  Amortization of debt issuance costs and discounts     5       29  
  Stock-based compensation expense     77       83  
  Deferred income taxes     51       4  
  Excess income tax benefit from the exercise of stock options     (13 )     (1 )
  Net gain from sale of short-term investments     (32 )     -  
  Other     11       8  
  Net change in assets and liabilities, excluding effects of acquisitions:                
    Trade accounts receivable, net     465       203  
    Inventories, net     8       5  
    Deferred commissions     20       27  
    Accounts payable     (92 )     (34 )
    Accrued compensation and benefits     (110 )     (107 )
    Deferred revenue     (556 )     (339 )
    Income taxes payable     (72 )     42  
    Other assets     31       (24 )
    Other liabilities     45       (49 )
      Net cash provided by operating activities     503       518  
                 
INVESTING ACTIVITIES:                
  Purchases of property and equipment     (118 )     (168 )
  Cash payments for acquisitions, net of cash acquired     (17 )     (28 )
  Purchases of short-term investments     (102 )     -  
  Proceeds from sale of short-term investments     67       46  
  Other     -       2  
      Net cash used in investing activities     (170 )     (148 )
                 
FINANCING ACTIVITIES:                
  Repayments of debt and other obligations     (1,189 )     -  
  Proceeds from convertible note hedge     189       -  
  Net proceeds from sales of common stock under employee stock benefit plans     160       75  
  Excess income tax benefit from the exercise of stock options     13       1  
  Tax payments related to restricted stock units     (30 )     (11 )
  Dividends paid, net     (210 )     -  
  Repurchases of common stock     (250 )     (501 )
  Purchase of additional equity interest in subsidiary     -       (92 )
  Proceeds from debt issuance, net of discount     -       996  
  Debt issuance costs     -       (7 )
      Net cash (used in) provided by financing activities     (1,317 )     461  
                 
Effect of exchange rate fluctuations on cash and cash equivalents     26       9  
Change in cash and cash equivalents     (958 )     840  
Beginning cash and cash equivalents     4,685       3,162  
Ending cash and cash equivalents   $ 3,727     $ 4,002  
                 
(1) This presentation includes revised amounts from a change in accounting policy related to the accounting for commissions. Please see Appendix A for more details.  
   
   
SYMANTEC CORPORATION
Reconciliation of Selected GAAP Measures to Non-GAAP Measures (1)
(Dollars in millions, except per share data, unaudited)
 
                                      Year-Over-Year
    Three Months Ended     Non-GAAP
Growth Rate
    September 27, 2013     September 28, 2012 (3)          
    GAAP     Adj     Non-GAAP     GAAP     Adj     Non-GAAP     Actual   Constant
Currency
(2)
                                                         
Net revenue   $ 1,637       N/A     $ 1,637     $ 1,699       N/A     $ 1,699     -4%   -3%
                                                         
Gross profit   $ 1,353     $ 17     $ 1,370     $ 1,415     $ 23     $ 1,438     -5%   -4%
  Stock-based compensation             4                       4                  
  Amortization of intangible assets             13                       19                  
                                                         
Gross margin %     82.7 %             83.7 %     83.3 %             84.6 %   -90 bps   -80 bps
                                                         
Operating expenses:   $ 1,105     $ 186     $ 919     $ 1,118     $ 139     $ 979     -6%   -5%
  Stock-based compensation             34                       41                  
  Amortization of intangible assets             29                       72                  
  Restructuring and transition             122                       23                  
  Acquisition related expenses             1                       3                  
                                                         
Operating expenses as a % of revenue     67.5 %             56.1 %     65.8 %             57.6 %   -150 bps   -80 bps
                                                         
Operating income   $ 248     $ 203     $ 451     $ 297     $ 162     $ 459     -2%   -3%
                                                         
Operating margin %     15.1 %             27.6 %     17.5 %             27.0 %   60 bps   0 bps
                                                         
Net income:   $ 241     $ 114     $ 355     $ 189     $ 129     $ 318     12%   N/A
  Gross profit adjustment             17                       23                  
  Operating expense adjustment             186                       139                  
  Non-cash interest expense             -                       15                  
  Gain on sale of short-term investments             (16 )                     -                  
  Income tax effect on above items             (75 )                     (47 )                
  Tax related adjustments:                                                        
    Release of pre-acquisition tax contingencies             -                       (7 )                
    Change in valuation allowance             2                       6                  
                                                         
Diluted net income per share attributable to Symantec Corporation stockholders   $ 0.34     $ 0.16     $ 0.50     $ 0.27     $ 0.18     $ 0.45     11%   N/A
                                                         
Diluted weighted-average shares outstanding attributable to Symantec Corporation stockholders    
707
             
707
     
708
             
708
    0%   N/A
                                                         
(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial measures prepared in accordance with GAAP. For a detailed explanation of these non-GAAP measures, please see Symantec's Explanation of Non-GAAP Measures and Other Items in Appendix A.
 
(2) Management refers to growth rates adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. We compare the percentage change in the results from one period to another period in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rates in effect during the respective prior periods.
 
(3) This presentation includes revised amounts from a change in accounting policy related to the accounting for commissions. Please see Appendix A for more details.
 
 
             
   
SYMANTEC CORPORATION  
Revenue and Deferred Revenue Detail (1)  
(Dollars in millions, unaudited)  
   
             
    Three Months Ended  
    September 27, 2013     September 28, 2012  
GAAP Revenue                
  Content, subscription, and maintenance   $ 1,499     $ 1,498  
  License     138       201  
Total Revenue   $ 1,637     $ 1,699  
GAAP Revenue - Y/Y Growth Rate                
  Content, subscription, and maintenance     0 %     3 %
  License     -31 %     -12 %
Total Y/Y Growth Rate     -4 %     1 %
GAAP Revenue - Y/Y Growth Rate in Constant Currency                
  Content, subscription, and maintenance     0 %     7 %
  License     -31 %     -9 %
Total Y/Y Growth Rate in Constant Currency     -3 %     5 %
                 
GAAP Revenue by Segment (2)                
  User Productivity & Protection   $ 719     $ 743  
  Information Security     316       324  
  Information Management     602       632  
GAAP Revenue by Segment - Y/Y Growth Rate (2)                
  User Productivity & Protection     -3 %     -1 %
  Information Security     -2 %     11 %
  Information Management     -5 %     -2 %
GAAP Revenue by Segment - Y/Y Growth Rate in Constant Currency (2)                
  User Productivity & Protection     -2 %     3 %
  Information Security     -1 %     14 %
  Information Management     -6 %     2 %
                 
GAAP Revenue by Geography                
  International   $ 848     $ 873  
  US     789       826  
    Americas (U.S., Latin America, Canada)     890       922  
    EMEA     457       441  
    Asia Pacific & Japan     290       336  
GAAP Revenue by Geography - Y/Y Growth Rate                
  International     -3 %     1 %
  US     -4 %     2 %
    Americas (U.S., Latin America, Canada)     -3 %     2 %
    EMEA     4 %     -4 %
    Asia Pacific & Japan     -14 %     6 %
GAAP Revenue by Geography - Y/Y Growth Rate in Constant Currency                
  International     -2 %     7 %
  US     -5 %     2 %
    Americas (U.S., Latin America, Canada)     -4 %     2 %
    EMEA     -1 %     7 %
    Asia Pacific & Japan     -5 %     8 %
                 
GAAP Deferred Revenue   $ 3,501     $ 3,619  
GAAP Deferred Revenue - Y/Y Growth Rate     -3 %     5 %
GAAP Deferred Revenue - Y/Y Growth Rate in Constant Currency     -3 %     5 %
                 
(1) Management refers to growth rates adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. We compare the percentage change in the results from one period to another period in order to provide a framework for assessing how our underlying businesses performed. To exclude the effects of foreign currency rate fluctuations, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rates in effect during the respective prior periods (or, in the case of deferred revenue, converted into United States dollars at the actual exchange rate in effect at the end of the prior period).  
                 
(2) This presentation includes revised amounts from a change in segment reporting. Please see Appendix A for more details.  
   
   
             
   
SYMANTEC CORPORATION  
Operating Margin by Segment Detail (1) (2)  
(Dollars in millions, unaudited)  
   
             
    Three Months Ended  
    September 27, 2013     September 28, 2012  
Operating Income by Segment                
  User Productivity & Protection   $ 257     $ 267  
  Information Security     49       14  
  Information Management     145       178  
    Total Operating Income by Segment     451       459  
Reconciling Items:                
  Stock-based compensation     38       45  
  Amortization of intangible assets     42       91  
  Restructuring and transition     122       23  
  Acquisition related expenses     1       3  
Total Consolidated Operating Income   $ 248     $ 297  
                 
GAAP Operating Margin by Segment                
  User Productivity & Protection     36 %     36 %
  Information Security     16 %     4 %
  Information Management     24 %     28 %
                 
(1) This presentation includes revised amounts from a change in segment reporting. Please see Appendix A for more details.  
                 
(2) This presentation includes revised amounts from a change in accounting policy related to the accounting for commissions. Please see Appendix A for more details.  
             
 
SYMANTEC CORPORATION
Guidance and Reconciliation of GAAP to Non-GAAP Operating Margin and Earnings Per Share
(Dollars in billions, except per share data, unaudited)
             
We include certain non-GAAP measures in the tracking and forecasting of our earnings and management of our business. For a detailed explanation of these non-GAAP measures, please see our Explanation of Non-GAAP Measures and Other Items in Appendix A.
 
Guidance   Year Ended March 28, 2014
Year-Over-Year Growth Rate
             
Revenue range in constant currency(1)   (4)% - (3)%
             
Non-GAAP operating margin in constant currency (1)   30 bps - 60 bps
             
Non-GAAP diluted earnings per share range   (1)% - 1.5%
             
Revenue Guidance   Three Months Ending December 27, 2013
    Year-Over-Year Growth Rate
Range   Actual   Constant Currency (1)
             
GAAP revenue range   $1.63 - $1.67   (9)% - (7)%   (8)% - (6)%
             
    Three Months Ending December 27, 2013
        Year-Over-Year Growth Rate
Operating Margin Guidance and Reconciliation   Range   Actual   Constant Currency (1)
             
GAAP operating margin   17.0% - 17.6%   0 bps - 60 bps   (8) bps - 52 bps
  Add back:            
  Stock-based compensation   3.1%        
  Amortization of intangible assets, non-cash interest expense and restructuring & transition expenses   5.5%        
Non-GAAP operating margin   25.6% - 26.2%   (30) bps - 30 bps   (35) bps - 25 bps
             
    Three Months Ending December 27, 2013
        Year-Over-Year Growth Rate
Earnings Per Share Guidance and Reconciliation   Range   Actual
         
GAAP diluted earnings per share range   $0.26 - $0.28   (16)% - (10)%
  Add back:        
  Stock-based compensation, net of taxes   $0.05    
  Amortization of intangible assets, non-cash interest expense and restructuring & transition expenses, net of taxes   $0.10    
Non-GAAP diluted earnings per share range   $0.41 - $0.43   (9)% - (4)%
             
(1) Management refers to growth rates adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. We compare the percentage change in the results from one period to another period in order to provide a framework for assessing how our underlying businesses performed. To exclude the effects of foreign currency rate fluctuations, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rates in effect during the respective prior periods (or, in the case of deferred revenue, converted into United States dollars at the actual exchange rate in effect at the end of the prior period).
 
 
SYMANTEC CORPORATION
Explanation of Non-GAAP Measures and Other Items
Appendix A
 

Change in accounting policy: Effective March 30, 2013, we changed our accounting policy for sales commissions that are incremental and directly related to customer sales contracts in which revenue is deferred. These commission costs are accrued and capitalized upon execution of a non-cancelable customer contract, and subsequently expensed over the term of such contract in proportion to the related future revenue streams. For commission costs where revenue is recognized, the related commission costs are recorded in the period of revenue recognition. Prior to this change in accounting policy, commission costs were expensed in the period in which they were incurred. The adoption of this accounting policy change has been applied retrospectively to all periods presented in this document, in which the cumulative effect of the change has been reflected as of the beginning of the first period presented.

Segment reporting: We previously announced our new strategic direction during the fourth quarter of fiscal 2013. As part of the strategy, we made changes to the organization and to performance measurements. During the first quarter of fiscal 2014, we modified our segment reporting structure to more readily match our operating structure. The historical periods presented have been adjusted to reflect the modified reporting structure, which are now the following:

  • User Productivity & Protection
  • Information Security
  • Information Management

Historically, we reported our Other segment which consisted primarily of sunset products and products nearing the end of their life cycle. As such there was no revenue associated with this segment. Additionally, this Other segment included certain general and administrative expenses, amortization of intangible assets, stock-based compensation expense, restructuring and transition expenses, and certain indirect costs that were not charged to the other operating segments. Effective fiscal 2014, we will allocate all of our shared expenses from this Other segment to the three new segments except for the following reconciling items: stock-based compensation, amortization of intangible assets, restructuring and transition, impairment of intangible assets, impairment of assets held for sale, acquisition/divestiture-related expenses and settlements of litigation.

The non-GAAP financial measures included in the tables adjust for the following items: business combination accounting entries, stock-based compensation expense, restructuring and transition charges, charges related to the amortization of intangible assets, impairments of assets and certain other items. We believe the presentation of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company's operating performance for the reasons discussed below. Our management uses these non-GAAP financial measures in assessing the Company's operating results, as well as when planning, forecasting and analyzing future periods. We believe that these non-GAAP financial measures also facilitate comparisons of the Company's performance to prior periods and to our peers and that investors benefit from an understanding of these non-GAAP financial measures.

Stock-based compensation: Consists of expenses for employee stock options, restricted stock units, restricted stock awards, performance based awards and our employee stock purchase plan determined in accordance with the authoritative guidance on stock-based compensation. When evaluating the performance of our individual business units and developing short and long term plans, we do not consider stock-based compensation charges. Our management team is held accountable for cash-based compensation, but we believe that management is limited in its ability to project the impact of stock-based compensation and accordingly is not held accountable for its impact on our operating results. Although stock-based compensation is necessary to attract and retain quality employees, our consideration of stock-based compensation places its primary emphasis on overall shareholder dilution rather than the accounting charges associated with such grants. In addition, for comparability purposes, we believe it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of our core business and to facilitate the comparison of our results to the results of our peer companies. Furthermore, unlike cash-based compensation, the value of stock-based compensation is determined using complex formulas that incorporate factors, such as market volatility, that are beyond our control.

         
         
    Three months ended
    September 27,   September 28,
    2013   2012
Cost of revenue   $ 4   $ 4
Sales and marketing     15     17
Research and development     12     13
General and administrative     7     11
  Total stock-based compensation   $ 38   $ 45
               
               

Amortization of intangible assets: When conducting internal development of intangible assets, accounting rules require that we expense the costs as incurred. In the case of acquired businesses, however, we are required to allocate a portion of the purchase price to the accounting value assigned to intangible assets acquired and amortize this amount over the estimated useful lives of the acquired intangible assets. The acquired company, in most cases, has itself previously expensed the costs incurred to develop the acquired intangible assets, and the purchase price allocated to these assets is not necessarily reflective of the cost we would incur in developing the intangible asset. We eliminate these amortization charges from our non-GAAP operating results to provide better comparability of pre- and post-acquisition operating results and comparability to results of businesses utilizing internally developed intangible assets.

Restructuring and transition: We have engaged in various restructuring and transition activities over the past several years that have resulted in costs associated with severance, facilities costs, and transition and other related costs. Transition and other related costs consist of severance costs associated with acquisition integrations in efforts to streamline our business operations, associated with the implementation of a new Enterprise Resource Planning system, and costs related to the outsourcing of certain back office functions. Each restructuring and transition activity has been a discrete event based on a unique set of business objectives or circumstances, and each has differed from the others in terms of its operational implementation, business impact and scope. We do not engage in restructuring or transition activities in the ordinary course of business. While our operations previously benefited from the employees and facilities covered by our various restructuring charges, these employees and facilities have benefited different parts of our business in different ways, and the amount of these charges has varied significantly from period to period. We believe that it is important to understand these charges and, we believe that investors benefit from excluding these charges from our operating results to facilitate a more meaningful evaluation of current operating performance and comparisons to past operating performance.

SYMANTEC CORPORATION
Explanation of Non-GAAP Measures and Other Items
Appendix A (continued)

Acquisition related expenses: The authoritative guidance on business combinations requires us to record in the statement of income, certain items that at the time of an acquisition would have been recorded to goodwill under the old authoritative guidance. We have excluded the effect of acquisition-related expenses from our non-GAAP operating expenses and net income measures. We incurred expenses in connection with our acquisitions, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related expenses consist of professional service expenses. We believe it is useful for investors to understand the effects of these items on our operations. Although acquisition-related expenses generally diminish over time with respect to past transactions, we generally will incur these expenses in connection with any future transactions.

Non-cash interest expense: Effective April 4, 2009, we adopted authoritative guidance on convertible debt instruments, which changed the method of accounting for our convertible notes. Under this authoritative guidance, our EPS and net income calculated in accordance with GAAP have been reduced as a result of recognizing incremental non-cash interest expense. We believe it is useful to provide a non-GAAP financial measure that excludes this incremental non-cash interest expense in order to better understand the long-term performance of our core business and to facilitate the comparison of our results to the results of our peer companies.

Gain on sale of short-term investments: This constitutes the gain from the sale of the Company's short-term investments. The Company's management excludes this gain when evaluating its ongoing performance and therefore excludes this gain when presenting non-GAAP financial measures.

Release of pre-acquisition tax contingencies: During the second quarter of fiscal 2013, certain tax accruals related to pre-acquisition contingencies were effectively settled. As a result, we realized benefits to GAAP net income of $12 million and non-GAAP net income of $5 million.

The non-GAAP benefit was due to the reversal of accrued interest recorded in our income statement during our post acquisition periods. Accordingly, the amount of this accrual has not been excluded from Symantec's non-GAAP results.

Release of tax contingencies: During the second quarter of fiscal 2014, we realized a GAAP tax benefit of $33 million for resolution of a tax matter related to the sale of our 49% ownership interest in the joint venture with Huawei during the fourth quarter of fiscal 2012. The related gain on the sale in the fourth quarter of fiscal 2012 was excluded from non-GAAP results and, accordingly, we have excluded the tax benefit from our non-GAAP results.

During the second quarter of fiscal 2014 we settled the Symantec 2005 through 2008 IRS audit. As a result, we realized a non-GAAP benefit of $24 million related to this settlement.

Change in valuation allowance: As a result of an election made for state income tax purposes, we determined that it is not more-likely-than-not that we will utilize certain of our state tax credit carryforwards based on GAAP income allocated to the state. Accordingly, during the second quarter of fiscal 2013, we recorded a valuation allowance against certain state tax credit carryforwards.

In connection with the settlement of the Symantec 2005 through 2008 IRS audit during the second quarter of fiscal 2014, we reassessed the amount of state tax credits to be utilized to offset the state tax liability for the amended returns. Accordingly, we have increased the valuation allowance for the additional amount of unutilized tax credits.

To enhance consistency and comparability of results across periods, we exclude the impact of these releases of the valuation allowance from our non-GAAP results.