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Symantec Reports Strong Second Quarter Earnings Growth Results Driven by Storage, High-Growth Areas and Continued Focus on Margin Expansion CUPERTINO, CA--(MARKET WIRE)--Oct 29, 2008 -- Symantec Corp. (NasdaqGS:SYMC - News) today reported
the results of its second quarter of fiscal year 2009, ended
Oct. 3, 2008.
GAAP revenue for the quarter was $1.518 billion and non-GAAP
revenue was
$1.523 billion, up 6 percent over the comparable period
a year ago. Foreign
currency movements positively impacted non-GAAP revenue
by approximately
3.5 percentage points year-over-year, and negatively impacted
revenue by 2
percentage points sequentially.
Quarterly Results GAAP Results: GAAP operating margins for the second quarter were 14.3 percent. GAAP net income for the second quarter of fiscal year 2009 was $140 million compared with $50 million for the same quarter last year. GAAP diluted earnings per share were $0.16 compared with earnings per share of $0.06 for the same quarter last year. GAAP deferred revenue at the end of the quarter was $2.713 billion compared with $2.599 billion for the same quarter last year. Cash flow from operating activities for the second quarter of fiscal year 2009 was $248 million compared with $331 million for the same quarter last year. This reduction was driven by increased cash tax payments versus the year ago period in which we received a tax refund, resulting in a year-over-year differential of more than $100 million. Non-GAAP Results: Non-GAAP operating margins for the second quarter were 29.1 percent, up 390 basis points year-over-year. Non-GAAP net income for the second quarter of fiscal year 2009 was $311 million, up 18 percent compared with $263 million for the same quarter last year. Non-GAAP diluted earnings per share were $0.37, up 28 percent compared with earnings per share of $0.29 for the year ago quarter. Non-GAAP deferred revenue was $2.721 billion, up 4 percent compared with $2.624 billion at the end of the second quarter of fiscal year 2008. Foreign currency movements negatively impacted non-GAAP deferred revenue by 1 percentage point year-over-year, and negatively impacted deferred revenue by 5 percentage points sequentially. For a detailed reconciliation of our GAAP to non-GAAP results, please refer to the attached condensed consolidated financial statements. During the September 2008 quarter we repurchased 9.3 million shares, equivalent to $200 million. There is $600 million left in the current stock repurchase board authorization. "In the face of a slowing economic environment around the world, Symantec continued to generate growth in both our core business and in high growth areas which are becoming increasingly important to our customers," said John W. Thompson, chairman and chief executive officer, Symantec. "I am also quite pleased with our continued operating margin expansion and earnings growth, which is a result of our ongoing focus on managing costs and expenses." Business Segment and Geographic Highlights For the quarter, Symantec's Storage and Server Management segment represented 38 percent of total non-GAAP revenue and grew 12 percent year-over-year. The Consumer business represented 29 percent of total non-GAAP revenue and grew 2 percent year-over-year. The Security and Compliance segment represented 26 percent of total non-GAAP revenue and grew 1 percent year-over-year. Services represented 7 percent of total non-GAAP revenue and grew 16 percent year-over-year. International revenue represented 50 percent of total non-GAAP revenue in the second quarter of fiscal year 2009 and grew 5 percent year-over-year. The Europe, Middle East and Africa region represented 32 percent of total non-GAAP revenue for the quarter and grew 3 percent year-over-year. The Asia Pacific/Japan revenue for the quarter represented 14 percent of total non-GAAP revenue and grew 11 percent year-over-year. The Americas, including the United States, Latin America and Canada, represented 54 percent of total non-GAAP revenue and increased 6 percent year-over-year. Quarterly Highlights Symantec signed 326 agreements worldwide versus 302 in the same period a year ago with a contract value of more than $300,000 each. Of the 326 agreements, 77 had a value of more than $1 million each versus 64 in the same period a year ago. In the second quarter of fiscal year 2009, 87 percent of the large transactions included multiple products. Symantec signed new or extended agreements with customers including HealthEast Care System, the largest health care provider in the Twin Cities' East Metro area; Flagstar Bank, a community bank with 175 banking centers in Michigan, Indiana and Georgia and 150 loan offices in 23 states; the United States Air Force, one of seven uniformed services of the United States; Consonus Technologies, a leading provider of IT infrastructure, data center, and managed services solutions; United States Forest Service; Horizon Blue Cross Blue Shield of New Jersey, the state's largest health insurer; Northern Norway Regional Health Authority, which is responsible for public hospitals in northern Norway; Bundesagentur für Arbeit of Nuremberg, Germany; NTT DOCOMO, a leading Japanese mobile communications company; CBA/Commonwealth Bank, one of Australia's leading providers of integrated financial services; and Korea Exchange, a world-class Premier Exchange. Third Quarter Fiscal Year 2009 Guidance Guidance assumes an exchange rate of $1.25 per Euro for the December 2008 quarter versus the actual average rate of $1.45 per Euro and the end period rate of $1.47 per Euro for the December 2007 quarter. For the third quarter of fiscal year 2009, ending Jan. 2, 2009, GAAP revenue is estimated between $1.446 billion and $1.496 billion. GAAP diluted earnings per share are estimated between $0.11 and $0.14. GAAP deferred revenue is expected to be in the range of $2.696 billion and $2.821 billion. Non-GAAP revenue for the quarter is estimated between $1.450 billion and $1.500 billion. Non-GAAP diluted earnings per share are estimated between $0.30 and $0.33. Non-GAAP deferred revenue is expected to be in the range of $2.700 billion and $2.825 billion. Conference Call Symantec has scheduled a conference call for 5 p.m. ET/2 p.m. PT today to discuss the results from the second quarter of fiscal year 2009, ended Oct. 3, 2008, 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 Web site 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 is a global leader in providing security, storage and systems management solutions to help businesses and consumers secure and manage their information. Headquartered in Cupertino, Calif., Symantec has operations in more than 40 countries. More information is available at www.symantec.com. 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 statements relating to projections of future revenue, earnings per share and deferred revenue, 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: 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 Factor section of our Form 10-K for the year ended March 28, 2008. USE OF NON-GAAP FINANCIAL INFORMATION: Our results of operations have undergone significant change due to a series of acquisitions, the impact of SFAS 123(R) 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 Web site at www.symantec.com/invest.
SYMANTEC CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
October 3, March 28,
2008 2008
-------------- --------------
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 2,262,157 $ 1,890,225
Short-term investments 42,485 536,728
Trade accounts receivable, net 645,179 758,200
Inventories 26,590 34,138
Deferred income taxes 196,273 193,775
Other current assets 258,495 316,852
-------------- --------------
Total current assets 3,431,179 3,729,918
Property and equipment, net 942,754 1,001,750
Acquired product rights, net 526,143 648,950
Other intangible assets, net 1,141,443 1,243,524
Goodwill 11,323,506 11,207,357
Investment in joint venture 133,073 150,000
Other long-term assets 65,120 55,291
Long-term deferred income taxes 58,781 55,304
-------------- --------------
Total assets $ 17,621,999 $ 18,092,094
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 210,027 $ 169,631
Accrued compensation and benefits 344,051 431,345
Current deferred revenue 2,337,237 2,661,515
Income taxes payable 50,196 72,263
Short-term borrowing - 200,000
Other current liabilities 228,906 264,832
-------------- --------------
Total current liabilities 3,170,417 3,799,586
Convertible senior notes 2,100,000 2,100,000
Long-term deferred revenue 375,989 415,054
Long-term deferred tax liabilities 194,728 219,341
Long-term income taxes payable 491,612 478,743
Other long-term liabilities 95,961 106,187
-------------- --------------
Total liabilities 6,428,707 7,118,911
Stockholders' equity:
Common stock 8,357 8,393
Additional paid-in capital 9,121,142 9,139,084
Accumulated other comprehensive income 182,580 159,792
Retained earnings 1,881,213 1,665,914
-------------- --------------
Total stockholders' equity 11,193,292 10,973,183
-------------- --------------
Total liabilities and stockholders'
equity $ 17,621,999 $ 18,092,094
============== ==============
* Derived from audited financials
SYMANTEC CORPORATION
Condensed Consolidated Statements of Income
(In thousands, except earnings per share data)
Three Months Ended Six Months Ended
October 3, September 28, October 3, September 28,
2008 2007 2008 2007
----------- ------------ ----------- ------------
(Unaudited) (Unaudited)
Net revenues:
Content,
subscriptions,
and maintenance $ 1,180,715 $ 1,117,165 $ 2,471,707 $ 2,203,683
Licenses 337,295 301,924 696,625 615,744
----------- ------------ ----------- ------------
Total net
revenues 1,518,010 1,419,089 3,168,332 2,819,427
Cost of revenues:
Content,
subscriptions,
and maintenance 212,070 205,572 430,644 415,238
Licenses 10,398 9,892 18,845 21,130
Amortization of
acquired product
rights 86,602 89,062 171,563 178,422
----------- ------------ ----------- ------------
Total cost of
revenues 309,070 304,526 621,052 614,790
----------- ------------ ----------- ------------
Gross profit 1,208,940 1,114,563 2,547,280 2,204,637
Operating expenses:
Sales and
marketing 596,983 595,162 1,259,802 1,163,692
Research and
development 219,049 221,057 450,484 446,635
General and
administrative 84,838 86,405 177,604 172,250
Amortization of
other purchased
intangible
assets 55,651 56,926 111,030 113,851
Restructuring 9,790 9,578 26,795 28,578
Impairment of
assets 26,204 86,546 26,204 86,546
----------- ------------ ----------- ------------
Total
operating
expenses 992,515 1,055,674 2,051,919 2,011,552
----------- ------------ ----------- ------------
Operating income 216,425 58,889 495,361 193,085
Interest income 12,302 19,179 30,290 40,000
Interest expense (6,712) (6,617) (16,281) (12,908)
Other income
(expense), net (8,782) 1,965 (8,843) 3,231
----------- ------------ ----------- ------------
Income before income
taxes and loss from
joint venture 213,233 73,416 500,527 223,408
Provision for
income taxes 62,414 23,048 156,835 77,834
Loss from joint
venture 10,746 - 16,927 -
----------- ------------ ----------- ------------
Net income $ 140,073 $ 50,368 $ 326,765 $ 145,574
=========== ============ =========== ============
Earnings per share -
basic $ 0.17 $ 0.06 $ 0.39 $ 0.16
Earnings per share -
diluted $ 0.16 $ 0.06 $ 0.38 $ 0.16
Weighted-average
shares outstanding -
basic 838,489 875,662 838,537 883,652
Weighted-average
shares outstanding -
diluted 852,334 892,759 853,174 901,683
SYMANTEC CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
Six Months Ended
October 3, September 28,
2008 2007
------------- -------------
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 326,765 $ 145,574
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 411,567 417,493
Stock-based compensation expense 89,495 81,734
Impairment of assets 25,870 86,546
Deferred income taxes (917) (103,900)
Income tax benefit from the exercise of
stock options 17,929 17,268
Excess income tax benefit from the
exercise of stock options (16,007) (13,529)
Loss from joint venture 16,927 -
Realized and other than temporary
impairment loss on investments 2,330 -
Other 11,235 3,076
Net change in assets and liabilities,
excluding effects of acquisitions:
Trade accounts receivable, net 99,884 118,986
Inventories 5,945 10,497
Accounts payable (986) 7,647
Accrued compensation and benefits (81,905) (418)
Deferred revenue (228,632) (229,013)
Income taxes payable (51,477) 131,436
Other assets 72,683 50,404
Other liabilities (38,839) (41,523)
------------- -------------
Net cash provided by operating activities 661,867 682,278
INVESTING ACTIVITIES:
Purchase of property and equipment (125,339) (138,029)
Proceeds from sales of property and
equipment 39,547 -
Cash payments for business acquisitions,
net of cash and cash equivalents
acquired (186,826) (852,286)
Purchases of available-for-sale
securities (172,891) (640,570)
Proceeds from sales of available-for-sale
securities 667,693 498,386
------------- -------------
Net cash provided by (used in) investing
activities 222,184 (1,132,499)
FINANCING ACTIVITIES:
Repurchase of common stock (399,894) (899,984)
Net proceeds from sales of common stock
under employee stock benefit plans 185,537 130,220
Repayment of short-term borrowing (200,000) -
Excess income tax benefit from the
exercise of stock options 16,007 13,529
Repayment of other long-term liability (3,716) (7,604)
Tax payments related to restricted stock
issuance (14,830) (3,050)
------------- -------------
Net cash used in financing activities (416,896) (766,889)
Effect of exchange rate fluctuations on cash
and cash equivalents (95,223) 46,440
------------- -------------
Increase (decrease) in cash and cash
equivalents 371,932 (1,170,670)
Beginning cash and cash equivalents 1,890,225 2,559,034
------------- -------------
Ending cash and cash equivalents $ 2,262,157 $ 1,388,364
============= =============
SYMANTEC CORPORATION
Reconciliation of Non-GAAP Adjustments
Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
October 3, September 28, October 3, September 28,
2008 2007 2008 2007
----------- ------------ ----------- ------------
NET REVENUES:
GAAP net revenues $ 1,518,010 $ 1,419,089 $ 3,168,332 $ 2,819,427
Deferred revenue
related to
acquisitions(1) 4,969 18,243 9,740 40,749
----------- ------------ ----------- ------------
Non-GAAP net revenues $ 1,522,979 $ 1,437,332 $ 3,178,072 $ 2,860,176
=========== ============ =========== ============
GROSS PROFIT:
GAAP gross profit $ 1,208,940 $ 1,114,563 $ 2,547,280 $ 2,204,637
Deferred revenue
related to
acquisitions(1) 4,969 18,243 9,740 40,749
Stock-based
compensation (2) 4,240 4,499 7,876 8,895
Amortization of
acquired product
rights (3) 86,602 89,062 171,563 178,422
----------- ------------ ----------- ------------
Gross profit
adjustment 95,811 111,804 189,179 228,066
----------- ------------ ----------- ------------
Non-GAAP gross profit $ 1,304,751 $ 1,226,367 $ 2,736,459 $ 2,432,703
=========== ============ =========== ============
OPERATING EXPENSES:
GAAP operating
expenses $ 992,515 $ 1,055,674 $ 2,051,919 $ 2,011,552
Stock-based
compensation (2) (40,408) (36,490) (81,619) (72,838)
Amortization of
other intangible
assets (3) (55,651) (56,926) (111,030) (113,851)
Restructuring (4) (9,790) (9,578) (26,795) (28,578)
Impairment of
assets(5) (26,281) (86,546) (25,870) (86,546)
Gain on sale of
assets (6) 1,341 - 1,341 -
Executive
incentive bonuses
(7) - (1,314) 396 (3,116)
Integration (8) - - - (441)
----------- ------------ ----------- ------------
Operating
expense
adjustment (130,789) (190,854) (243,577) (305,370)
----------- ------------ ----------- ------------
Non-GAAP operating
expenses $ 861,726 $ 864,820 $ 1,808,342 $ 1,706,182
=========== ============ =========== ============
OPERATING INCOME:
GAAP operating income $ 216,425 $ 58,889 $ 495,361 $ 193,085
Gross profit
adjustment 95,811 111,804 189,179 228,066
Operating expense
adjustment 130,789 190,854 243,577 305,370
----------- ------------ ----------- ------------
Non-GAAP operating
income $ 443,025 $ 361,547 $ 928,117 $ 726,521
=========== ============ =========== ============
NET INCOME:
GAAP net income $ 140,073 $ 50,368 $ 326,765 $ 145,574
Gross profit
adjustment 95,811 111,804 189,179 228,066
Operating expense
adjustment 130,789 190,854 243,577 305,370
Settlements of
litigation (9) 1,748 - 1,748 -
Joint venture:
Amortization of
other
intangible
assets/stock-
based
compensation(10) 2,035 - 3,405 -
Income tax effect
on above items
(11) (59,279) (90,391) (111,717) (153,677)
----------- ------------ ----------- ------------
Non-GAAP net income $ 311,177 $ 262,635 $ 652,957 $ 525,333
=========== ============ =========== ============
EARNINGS PER SHARE -
DILUTED:
GAAP earnings per
share $ 0.16 $ 0.06 $ 0.38 $ 0.16
Stock-based
compensation
adjustment per
share, net of tax
(2) 0.04 0.04 0.08 0.07
Other non-GAAP
adjustments per
share, net of tax
(1, 3-10) 0.17 0.19 0.31 0.35
----------- ------------ ----------- ------------
Non-GAAP earnings per
share $ 0.37 $ 0.29 $ 0.77 $ 0.58
=========== ============ =========== ============
WEIGHTED-AVERAGE
SHARES OUTSTANDING -
DILUTED:
GAAP weighted-average
shares outstanding 852,334 892,759 853,174 901,683
=========== ============ =========== ============The non-GAAP financial measures included in the tables above are non-GAAP net revenues, non-GAAP net income and non-GAAP earnings per share, which adjust for the following items: business combination accounting entries, stock-based compensation expense, restructuring charges, charges related to the amortization of intangible assets and acquired product rights, write-downs 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. (1) Fair value adjustment to deferred revenue. We have completed several business combinations and acquisitions for a variety of strategic purposes over the past few years. As is the case with our existing business, at the time of acquisition, these acquired businesses recorded deferred revenue related to past transactions for which revenue would be recognized in future periods as revenue recognition criteria are satisfied. The purchase accounting entries for these acquisitions require us to write down a portion of this deferred revenue to its then current fair value. Consequently, in post acquisition periods, we do not recognize the full amount of this deferred revenue. When measuring the performance of our business, however, we add back non-GAAP revenue associated with certain types of deferred revenue that were excluded as a result of these purchase accounting adjustments, as we believe that this provides information about the operating impact of the acquired businesses in a manner consistent with the revenue recognition for our pre-existing products and services. We believe that the inclusion of this revenue provides useful information to our management, as well as to investors. (2) Stock-based compensation. Consists of expenses for employee stock options, restricted stock units, restricted stock awards and our employee stock purchase plan determined in accordance with Statement of Financial Accounting Standards Number 123(R), or SFAS 123(R). 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 compensation, the value of stock-based compensation is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Further, we believe it is useful to investors to understand the impact of SFAS 123(R) to our results of operations. For the three and six months ended October 3, 2008 and September 28, 2007, respectively, stock-based compensation was allocated as follows:
Three Months Ended Six Months Ended
October 3, September 28, October 3, September 28,
2008 2007 2008 2007
------------ ------------- ------------ -------------
Cost of revenues $ 4,240 $ 4,499 $ 7,876 $ 8,895
Sales and marketing 18,172 13,957 37,532 28,420
Research and
development 14,026 14,841 27,153 29,008
General and
administrative 8,210 7,692 16,934 15,410
------------ ------------- ------------ -------------
Total stock-based
compensation $ 44,648 $ 40,989 $ 89,495 $ 81,733
============ ============= ============ =============(3) Amortization of acquired product rights and other 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 intangibles. 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. (4) Restructuring. We have engaged in various restructuring activities over the past several years that have resulted in costs associated with severance, benefits, outplacement services, and excess facilities. Each restructuring 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 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; however, we do not believe that these charges are indicative of future operating results and that investors benefit from an understanding of our operating results without giving effect to them. (5) Impairment of Assets. Following a review of our real estate holdings we determined that certain long-term assets were underutilized. As a result, we have committed to sell vacant buildings and land. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we have classified these assets as held for sale and adjusted the assets' carrying value when above the fair market value less cost to sell. During the September 2007 quarter, management determined that certain tangible and intangible assets and liabilities of the Storage and Server Management segment (formally the Data Center Management segment) did not meet the long term strategic objectives of the segment, and we recorded a write-down in the value of these assets and liabilities to the respective estimated fair value. On March 8, 2008 these assets were sold to a third party. We do not believe that these charges are indicative of future operating results and believe that investors benefit from an understanding of our operating results without giving effect to them. (6) Gain on sale of assets. During the September 2008 quarter, we sold two buildings. We exclude these gains because each is a unique one-time occurrence that is not closely related to, or a function of, our ongoing operations. (7) Executive incentive bonuses. We have excluded bonuses related to acquisitions and executive sign-on bonuses for newly hired executives. We expect the benefit from these hires and retentions to extend over an indeterminate future period, but under GAAP we are required to expense the entire cost of the bonus in the period paid. We exclude these amounts to provide better comparability of the periods that include and do not include these charges. We believe that investors benefit from an understanding of our operating results for the periods presented without giving effect to these charges. (8) Integration. These charges consist of expenses incurred for consulting services and other professional fees associated with integration activities of acquisitions. Because these expenses are non-recurring and unique to specific acquisitions, we believe they are not indicative of future operating results and that investors benefit from an understanding of our operating results without giving effect to them. (9) Settlements of litigation. From time to time we are party to legal settlements. We exclude the impact of these settlements because we do not consider this litigation to be part of the ongoing operation of our business and because of the singular nature of the claims underlying the matter. (10) Joint venture. Consistent with the reasons discussed in footnotes 2 and 3 above, we exclude stock-based compensation charges and amortization of other intangible assets related to the joint venture from our non-GAAP net income. (11) Income tax effect on above items. This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP adjustments on non-GAAP net income.
SYMANTEC CORPORATION
Reconciliation of GAAP Revenue Components to Non-GAAP Revenue Components
(In thousands)
(Unaudited)
Three Months Ended Oct 3, 2008 Six Months Ended Oct 3, 2008
------------------------------ ------------------------------
Non-GAAP Non-GAAP
Adjustments Adjustments
GAAP (1) Non-GAAP GAAP (1) Non-GAAP
---------- -------- ---------- ---------- -------- ----------
Net Revenues $1,518,010 $ 4,969 $1,522,979 $3,168,332 $ 9,740 $3,178,072
Revenue by
Segment (2)
Security &
Compliance
Group $ 400,992 $ 2,192 $ 403,184 $ 846,639 $ 5,468 $ 852,107
Storage and
Server
Management
Group 572,309 230 572,539 1,187,465 889 1,188,354
Consumer 437,655 2,537 440,192 909,986 3,345 913,331
Services 106,624 10 106,634 223,337 37 223,374
Other $ 430 $ - $ 430 $ 905 $ 1 $ 906
Revenue by
Geography:
Americas
(3) $ 821,823 $ 4,415 $ 826,238 $1,683,277 $ 8,208 $1,691,485
EMEA 480,182 479 480,661 1,038,021 1,289 1,039,310
Asia Pacific
/Japan $ 216,005 $ 75 $ 216,080 $ 447,034 $ 243 $ 447,277
Total U.S.
Revenue $ 754,674 $ 4,414 $ 759,088 $1,539,979 $ 8,196 $1,548,175
Total
International
Revenue $ 763,336 $ 555 $ 763,891 $1,628,353 $ 1,544 $1,629,897
Three Months Ended Sep 28, 2007 Six Months Ended Sep 28, 2007
------------------------------ ------------------------------
Non-GAAP Non-GAAP
Adjustments Adjustments
GAAP (1) Non-GAAP GAAP (1) Non-GAAP
---------- -------- ---------- ---------- -------- ----------
Net Revenues $1,419,089 $ 18,243 $1,437,332 $2,819,427 $ 40,749 $2,860,176
Revenue by
Segment (2)
Security &
Compliance
Group $ 388,524 $ 10,961 $ 399,485 $ 776,193 $ 24,166 $ 800,359
Storage
and
Server
Management
Group 507,956 4,398 512,354 1,013,536 10,092 1,023,628
Consumer 433,508 - 433,508 857,258 - 857,258
Services 88,773 2,884 91,657 171,871 6,491 178,362
Other $ 328 $ - $ 328 $ 569 $ - $ 569
Revenue by
Geography:
Americas
(3) $ 764,470 $ 12,222 $ 776,692 $1,515,919 $ 27,173 $1,543,092
EMEA 460,485 5,191 465,676 918,289 11,676 929,965
Asia Pacific
/Japan $ 194,134 $ 830 $ 194,964 $ 385,219 $ 1,900 $ 387,119
Total U.S.
Revenue $ 695,517 $ 12,027 $ 707,544 $1,377,163 $ 26,723 $1,403,886
Total
International
Revenue $ 723,572 $ 6,216 $ 729,788 $1,442,264 $ 14,026 $1,456,290The non-GAAP financial measures included in the tables above are non-GAAP net revenues, non-GAAP net income and non-GAAP earnings per share, which adjust for the following items: business combination accounting entries, stock-based compensation expense, restructuring charges, charges related to the amortization of intangible assets and acquired product rights, write-downs 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. (1) We have completed several business combinations and acquisitions for a variety of strategic purposes over the past few years. As is the case with our existing business, at the time of acquisition, these acquired businesses recorded deferred revenue related to past transactions for which revenue would be recognized in future periods as revenue recognition criteria are satisfied. The purchase accounting entries for these acquisitions require us to write down a portion of this deferred revenue to its then current fair value. Consequently, in post acquisition periods, we do not recognize the full amount of this deferred revenue. When measuring the performance of our business, however, we add back non-GAAP revenue associated with certain types of deferred revenue that were excluded as a result of these purchase accounting adjustments, as we believe that this provides information about the operating impact of the acquired businesses in a manner consistent with the revenue recognition for our pre-existing products and services. We believe that the inclusion of this revenue provides useful information to our management, as well as to investors. (2) During the first quarter of fiscal year 2009, Altiris services' revenue was reclassified from the Security and Compliance segment to the Services segment. Data shown from the prior periods have been reclassified to match the current reporting structure. (3) The Americas includes the United States, Latin America, and Canada.
SYMANTEC CORPORATION
Reconciliation of GAAP deferred revenue
to Non-GAAP deferred revenue
(in thousands)
(Unaudited)
As of:
Oct 03, Jul 04, Mar 28, Dec 28, Sep 28,
2008 2008 2008 2007 2007
----------- ----------- ----------- ----------- -----------
Deferred
revenue
reconciliation
GAAP deferred
revenue $ 2,713,226 $ 3,011,682 $ 3,076,569 $ 2,877,173 $ 2,598,597
Add back:
Deferred
revenue
related to
acquisitions
(1) 7,833 12,834 11,662 19,856 25,888
----------- ----------- ----------- ----------- -----------
Non-GAAP
deferred
revenue $ 2,721,059 $ 3,024,516 $ 3,088,231 $ 2,897,029 $ 2,624,485
=========== =========== =========== =========== ===========
As of:
Jun 29, Mar 30, Dec 29, Sep 29,
2007 2007 2006 2006
----------- ----------- ----------- -----------
Deferred
revenue
reconciliation
GAAP deferred
revenue $ 2,664,775 $ 2,753,783 $ 2,559,201 $ 2,325,355
Add back:
Deferred
revenue
related to
acquisitions
(1) 44,007 17,958 25,448 22,263
----------- ----------- ----------- -----------
Non-GAAP
deferred
revenue $ 2,708,782 $ 2,771,741 $ 2,584,649 $ 2,347,618
=========== =========== =========== ===========We include certain non-GAAP revenue and deferred revenue components in the tracking and forecasting of our revenue and management of our business. This includes non-GAAP revenue associated with deferred revenue that was excluded as a result of purchase accounting adjustments related to acquisitions. We believe the non-GAAP deferred revenue measures set forth above are useful to investors, and such items are used by our management, because this revenue is reflective of our ongoing operating results. (1) We have completed several business combinations and acquisitions for a variety of strategic purposes over the past few years. As is the case with our existing business, at the time of acquisition, these acquired businesses had recorded deferred revenue related to past transactions for which revenue would be recognized in future periods as revenue recognition criteria are satisfied. The purchase accounting entries for these acquisitions require us to write down a portion of this deferred revenue to its then current fair value. Consequently, in post acquisition periods, we do not recognize the full amount of this deferred revenue. When measuring the performance of our business, however, we add back certain types of deferred revenue that were excluded as a result of these purchase accounting adjustments, as we believe that this provides information about the operating impact of the acquired businesses in a manner consistent with the revenue recognition for our pre-existing products and services. We believe that the inclusion of this deferred revenue provides useful information to our management, as well as to investors.
SYMANTEC CORPORATION
Guidance - Reconciliation of Projected GAAP Revenue, GAAP Deferred Revenue
and GAAP Earnings per Share
to Non-GAAP Revenue, Deferred Revenue and Earnings per Share
(Unaudited)
Three Months Ending:
January 2, 2009
--------------------
Revenue reconciliation (in millions)
GAAP revenue range $ 1,446 - $ 1,496
Add back:
Deferred revenue related to acquisitions (1) 4
--------------------
Non-GAAP revenue range $ 1,450 - $ 1,500
====================
Earnings per share reconciliation
GAAP earnings per share range $ 0.11 - $ 0.14
Add back:
Stock-based compensation, net of tax (2) 0.04
Deferred revenue related to acquisitions,
amortization of acquired product rights and
other intangible assets, and restructuring net
of tax (1,3,4) 0.15
--------------------
Non-GAAP earnings per share range $ 0.30 - $ 0.33
====================
As of :
January 2, 2009
--------------------
Deferred revenue reconciliation (in millions)
GAAP deferred revenue range $ 2,696 - $ 2,821
Add back:
Deferred revenue related to acquisitions (1) 4
--------------------
Non-GAAP deferred revenue range $ 2,700 - $ 2,825
====================We believe the presentation of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the Company's operating performance by excluding certain items that may not be indicative of the Company's core business, operating results or future outlook. Our management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing the Company's operating results both as a consolidated entity and at the business unit level, 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. These measures are used by our management for the reasons associated with each of the adjusting items as described below. (1) Fair value adjustment to deferred revenue. We have completed several business combinations and acquisitions for a variety of strategic purposes over the past few years. As is the case with our existing business, at the time of acquisition, these acquired businesses recorded deferred revenue related to past transactions for which revenue would be recognized in future periods as revenue recognition criteria are satisfied. The purchase accounting entries for these acquisitions require us to write down a portion of this deferred revenue to its then current fair value. Consequently, in post acquisition periods, we do not recognize the full amount of this deferred revenue. When measuring the performance of our business, however, we add back non-GAAP revenue associated with certain types of deferred revenue that were excluded as a result of these purchase accounting adjustments, as we believe that this provides information about the operating impact of the acquired businesses in a manner consistent with the revenue recognition for our pre-existing products and services. We believe that the inclusion of this revenue and deferred revenue provides useful information to our management, as well as to investors. (2) Stock-based compensation. Consists of expenses for employee stock options, restricted stock units, restricted stock awards and our employee stock purchase plan determined in accordance with Statement of Financial Accounting Standards Number 123(R), or SFAS 123(R). 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 compensation, the value of stock-based compensation is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Further, we believe it is useful to investors to understand the impact of SFAS 123(R) to our results of operations. (3) Amortization of acquired product rights and other 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 intangibles. 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. (4) Restructuring. We have engaged in various restructuring activities over the past several years that have resulted in costs associated with severance, benefits, outplacement services, and excess facilities. Each restructuring 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 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; however, we do not believe that these charges are indicative of future operating results and that investors benefit from an understanding of our operating results without giving effect to them. Contact: MEDIA CONTACT:
Melissa Martin
Symantec Corp.
408-517-8475
Melissa_martin@symantec.com
INVESTOR CONTACT:
Helyn Corcos
Symantec Corp.
408-517-8324
hcorcos@symantec.com
Source: Symantec
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