Market Overview

Symantec Reports Second Quarter Fiscal Year 2018 Results

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Financial Q2 Highlights

  • Q2 GAAP revenue $1.240 billion, up 27% year over year; non-GAAP
    revenue $1.276 billion, up 26% year over year
  • Strong Enterprise business activity from market-leading Integrated
    Cyber Defense platform; double digit year-over-year deferred revenue
    growth excluding impact from divestiture
  • Consumer Digital Safety revenue exceeds expectations, driven by strong
    retention and growth in average revenue per user
  • Completed previously announced cost reduction and synergy programs
    ahead of schedule

Operational Q2 Highlights

  • Continued focus on innovation with the introduction of Symantec
    Endpoint Security for the Cloud Generation, offering advanced
    capabilities in deception technology, mobile threat defense and
    Endpoint Detection and Response (EDR)
  • Continue to lead industry in cyber threat research
  • Robust demand for secure web gateway, with refresh underway
  • Rapid growth in Enterprise cloud security offerings
  • Record LifeLock enrollments; strong start to cross-sell of LifeLock
    into Norton customer base
  • Completed sale of Website Security and related PKI solutions to
    DigiCert

Symantec Corp. (NASDAQ:SYMC) today reported its second quarter fiscal
year 2018 results, ended September 29, 2017.

Greg Clark, Symantec CEO said, "As large-scale, sophisticated attacks
during the quarter underscored the importance of cyber security, more
organizations and individuals entrusted their protection to Symantec's
Integrated Cyber Defense Platform and Consumer Digital Safety solutions.
In particular, our Consumer business exceeded our expectations due to
heightened demand for a single trusted partner to help protect their
digital lives."

"Our focus on execution is working. We've successfully returned our
Consumer Digital Safety segment to growth, our Enterprise segment had
strong business activity with substantial year-over-year deferred
revenue growth and we completed our cost reduction commitments ahead of
schedule."

To help 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. Additional information regarding our
non-GAAP definition is provided below.

Results for the Second Quarter of Fiscal Year 2018

           
      Q2 FY18     Q2 FY17     Y/Y Change
GAAP                  
Revenue     $1,240M     $979M     27%
Operating Margin     (0.7%)     (1.2%)     50 bps
EPS (Diluted)     ($0.02)     ($0.23)     $0.21
Non-GAAP                  
Revenue     $1,276     $1,015     26%
Operating Margin     34.1%     29.2%     490 bps
EPS (Diluted)     $0.40     $0.30     $0.10
 

2018 Guidance

       
      GAAP     Non-GAAP
Third Quarter 2018            

Revenue

    $1,227 – $1,257     $1,250 – $1,280
Operating Margin     (3%) – (2%)     36% – 37%
EPS     N/A     $0.42 - $0.46
Fiscal 2018            
Revenue     $4,877 – $4,977     $5,000 – $5,100
Operating Margin     1% – 2%     35% – 36%
EPS     N/A     $1.66 – $1.76
 

As we completed the sale of our Website Security and related PKI
solutions to DigiCert on October 31, 2017, the related revenues and
expenses for the month of October are included in our guidance. Revenues
from these products were $203 million and $214 million in the first six
months of FY18 and FY17, respectively. Due to the impact of the sale on
our GAAP operating results for Q3 FY18, and the lack of information
available to estimate the resulting net gain and income (loss) from our
equity ownership, we are unable to provide GAAP EPS guidance for Q3 or
the full year of fiscal 2018 at this time.

Symantec's Board of Directors has declared a quarterly cash dividend of
$0.075 per common share to be paid on December 13, 2017, to all
shareholders of record as of the close of business on November 20, 2017.

Conference Call

Symantec has scheduled a conference call for 4:30 p.m. ET / 1:30 p.m. PT
today to discuss its second quarter fiscal 2018 results, ended September
29, 2017 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.
For telephone access to the conference, call (877) 475-6198 within the
United States or (970) 297-2372 from outside the United States. Please
call 15 minutes early on November 1 and give the operator conference ID
number 98698099.

A replay and our prepared remarks will be available on the investor
relations home page shortly after the call is completed.

About Symantec

Symantec Corporation (NASDAQ:SYMC), the world's leading cyber security
company, helps organizations, governments and people secure their most
important data wherever it lives. Organizations across the world look to
Symantec for strategic, integrated solutions to defend against
sophisticated attacks across endpoints, cloud and infrastructure.
Likewise, a global community of more than 50 million people and families
rely on Symantec's Norton and LifeLock product suites to protect their
digital lives at home and across their devices. Symantec operates one of
the world's largest civilian cyber intelligence networks, allowing it to
see and protect against the most advanced threats. For additional
information, please visit www.symantec.com or
connect with us on Facebook,
Twitter,
and LinkedIn.

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, the Symantec logo and the Checkmark 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 which may be considered forward-looking within the meaning of
the U.S. federal securities laws, including the information contained
under the caption "2018 Guidance" and the statements regarding
Symantec's other projected financial and business results, including
demand for its products and services, Symantec's enhanced capabilities
and the impact of the Website Security and PKI solutions divestiture.
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: the divestiture of our web security and PKI solutions and
risks related thereto; the retention of employees of acquired companies
and the ability of Symantec to successfully integrate acquired companies
and to achieve expected benefits; general economic conditions;
fluctuations and volatility in Symantec's stock price; the ability of
Symantec to successfully execute strategic plans; the ability to
maintain customer and partner relationships; anticipated growth of
certain market segments; our sales pipeline and business strategy;
fluctuations in tax rates and currency exchange rates; the impact
related to our future adoption of the new revenue and other accounting
standards; the timing and market acceptance of new product releases and
upgrades; and 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. Symantec assumes no obligation, and does not intend, to update
these forward-looking statements as a result of future events or
developments. Additional information concerning these and other risk
factors is contained in the Risk Factors sections of Symantec's Form
10-K for the fiscal year ended March 31, 2017.

USE OF NON-GAAP FINANCIAL INFORMATION: Our results of operations have
undergone significant change due to the impact of purchase accounting on
revenue and cost of revenue, certain acquisition, divestiture and
integration costs, discontinued operations, stock-based compensation,
restructuring and transition matters, charges related to the
amortization of intangible assets, non-cash interest expense and
amortization of debt issuance costs and certain other income and expense
items that management considers unrelated to the Company's core
operations. 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 results. 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. Non-GAAP financial
measures are supplemental, should not be considered a substitute for
financial information presented in accordance with GAAP and should be
read only in conjunction with our consolidated financial statements
prepared in accordance with GAAP. Our management team uses these
non-GAAP financial measures in assessing Symantec's operating results,
as well as when planning, forecasting and analyzing 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: http://www.symantec.com/invest.

 

SYMANTEC CORPORATION

Condensed Consolidated Balance Sheets
(In millions, unaudited)
             
    September 29,     March 31,
2017    

2017 (1)

 
ASSETS
 
Current assets:
Cash and cash equivalents $ 1,826 $ 4,247
Short-term investments 200 9
Accounts receivable, net 514 649
Assets held for sale 746 -
Other current assets   401       419
Total current assets   3,687       5,324
 
Property and equipment, net 868 937
Intangible assets, net 2,847 3,004
Goodwill 8,301 8,627
Equity investments 159 158
Other long-term assets   134       124
Total assets $ 15,996     $ 18,174
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 187 $ 180
Accrued compensation and benefits 193 272
Current portion of long-term debt 130 1,310
Deferred revenue 2,041 2,353
Income taxes payable 36 30
Liabilities held for sale 303 -
Other current liabilities   397       477
Total current liabilities   3,287       4,622
 
Long-term debt 6,079 6,876
Long-term deferred revenue 473 434
Deferred income tax liabilities 2,239 2,401
Long-term income taxes payable 280 251
Other long-term obligations   103       103
Total liabilities   12,461       14,687
       
Total stockholders' equity   3,535       3,487
Total liabilities and stockholders' equity     $ 15,996     $ 18,174
 
(1) Derived from audited consolidated financial
statements.
 
               
SYMANTEC CORPORATION
Condensed Consolidated Statements of Operations
(In millions, except per share data, unaudited)
                         
Three Months Ended     Six Months Ended

September 29,

September 30, September 29, September 30,
2017     2016     2017     2016
 
Net revenues $ 1,240 $ 979 $ 2,415 $ 1,863
Cost of revenues 262     210     519     359
Gross profit 978     769     1,896     1,504
 
Operating expenses:
Sales and marketing 434 338 867 629
Research and development 241 200 474 370
General and administrative 160 145 309 229
Amortization of intangible assets 55 34 114 48
Restructuring, transition and other 97     64     185     134
Total operating expenses 987     781     1,949     1,410
Operating income (loss) (9)     (12)     (53)     94
 
Interest income 5 4 11 9
Interest expense (57) (52) (141) (79)
Other income (expense), net (8)     10     (20)     23
Income (loss) from continuing operations before income taxes (69)     (50)     (203)     47
Income tax expense (benefit) (53)     19     (77)     50
Loss from continuing operations (16) (69) (126) (3)
Income (loss) from discontinued operations, net of income taxes 4     (75)     (19)     (6)
Net loss $ (12)     $ (144)     $ (145)     $ (9)
 
Income (loss) per share – basic and diluted:
Continuing operations $ (0.03) $ (0.11) $ (0.21) $ 0.00

Discontinued operations

$ 0.01 $ (0.12) $ (0.03) $ (0.01)
Net loss per share – basic and diluted $ (0.02) $ (0.23) $ (0.24) $ (0.01)
 
Weighted-average shares outstanding – basic and diluted 615 620 612 617
 
Cash dividends declared per common share     $ 0.075     $ 0.075     $ 0.15     $ 0.15
 
 
SYMANTEC CORPORATION
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited)
 
    Six Months Ended
September 29,     September 30,
2017     2016
 
OPERATING ACTIVITIES:
Net loss $ (145) $ (9)
Loss from discontinued operations, net of income taxes 19 6
Adjustments to continuing operating activities:
Depreciation and amortization, including debt issuance costs and
discounts
361 205
Stock-based compensation expense 323 134
Deferred income taxes (189) 49
Other 19 31
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net 115 225
Accounts payable 20 (66)
Accrued compensation and benefits (75) (35)
Deferred revenue (27) (213)
Income taxes (5) (841)
Other assets 26 6
Other liabilities   (21)       (51)
Net cash provided by (used in) continuing operating activities 421 (559)
Net cash used in discontinued operating activities   (31)       (153)
Net cash provided by (used in) operating activities   390       (712)
 
INVESTING ACTIVITIES:
Additions to property and equipment (72) (39)
Payments for acquisitions, net of cash acquired (361) (4,533)
Purchases of short-term investments (201) -
Proceeds from maturities and sale of short-term investments - 31
Other   -       7
Net cash used in investing activities   (634)       (4,534)
 
FINANCING ACTIVITIES:
Repayments of debt and other obligations (2,010) (17)
Proceeds from issuance of debt, net of issuance costs - 4,999
Net proceeds from sales of common stock under employee stock benefit
plans
74 49
Tax payments related to restricted stock units (83) (34)
Dividends and dividend equivalents paid (114) (120)
Payment for dissenting shareholder settlement (68) -
Other   -       10
Net cash provided by (used in) financing activities   (2,201)       4,887
 
Effect of exchange rate fluctuations on cash and cash equivalents   34       (14)
Change in cash and cash equivalents (2,411) (373)
Cash held for sale (1) (10) -
Beginning cash and cash equivalents   4,247       5,983
Ending cash and cash equivalents     $ 1,826     $ 5,610
 
(1) The impact of assets and liabilities reclassified as
held for sale during the period was not considered in the changes in
operating assets and liabilities within cash flows from operating
activities.
 
 
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     Growth Rate
September 29,     September 30,     Constant
2017     2016    

Actual

   

Currency (3)

 
Net revenues (GAAP) $ 1,240 $ 979 27%
Deferred revenue fair value adjustment (2)   36       36            
Net revenues (Non-GAAP) $ 1,276 $ 1,015 26%
Foreign exchange impact (3)   (4)       -            
Net revenues in constant currency (Non-GAAP) $ 1,272 $ 1,015 25%
 
Operating loss (GAAP) $ (9) $ (12) (25%)
Deferred revenue fair value adjustment (2) 36 36
Inventory fair value adjustment - 11
Stock-based compensation 176 85
Amortization of intangible assets 116 69
Restructuring, transition and other 97 64
Acquisition and integration costs   19       43            
Operating income (non-GAAP) $ 435 $ 296 47%
Foreign exchange impact (3)   2       -            
Operating income in constant currency (Non-GAAP) $ 437     $ 296           48%
 
Operating margin (GAAP)

(0.7%)

(1.2%)

50 bps
Operating margin (Non-GAAP) 34.1% 29.2% 490 bps
Operating margin in constant currency (Non-GAAP)   34.4%       29.2%           520 bps
 
Net loss (GAAP) $ (12) $ (144) (92%)
Adjustments to loss from continuing operations:
Deferred revenue fair value adjustment (2) 36 36
Inventory fair value adjustment - 11
Stock-based compensation 176 85
Amortization of intangible assets 116 69
Restructuring, transition and other 97 64
Acquisition and integration costs 19 43
Non-cash interest expense and amortization of debt issuance costs 5 12
Income tax effects and adjustments   (165)       (59)            
Total adjustments to loss from continuing operations $ 284     $ 261            
Net income (loss) adjustment from discontinued operations (4) 75
Net income (Non-GAAP) $ 268     $ 192     40%      
 
Diluted income (loss) per share:
Loss per share from continuing operations (GAAP) $ (0.03) $ (0.11)
Adjustments to loss from continuing operations 0.43 0.41
Income per share from continuing operations (Non-GAAP) 0.40 0.30
 
Income (loss) per share from discontinued operations (GAAP) $ 0.01 $ (0.12)
Adjustments to income (loss) from discontinued operations (0.01) 0.12
Income (loss) per share from discontinued operations (Non-GAAP) - -
 
Diluted net loss per share (GAAP) $ (0.02) $ (0.23)
Diluted net income per share (Non-GAAP)   0.40       0.30            
 
Diluted weighted-average shares outstanding (GAAP) 615 620
Diluted weighted-average shares outstanding (Non-GAAP) (4)       666       644            
 
(1) This presentation includes non-GAAP measures.
Non-GAAP financial measures are supplemental and should not be
considered a substitute for financial information presented in
accordance with GAAP. For a detailed explanation of these non-GAAP
measures, please see Appendix A.
(2) The adjustment for the three months ended September
29, 2017 and September 30, 2016 relates to the Blue Coat and
LifeLock deferred revenue fair value adjustments as a result of
purchase accounting. For further information please see Appendix A.

(3) Management refers to growth rates in constant
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. Non-GAAP constant currency
revenues and operating income (loss) are calculated by translating
current quarter revenues and operating income (loss),
respectively, using prior period exchange rates. Constant currency
growth (expressed as a percentage) is calculated by determining
the increase in the current quarter non-GAAP constant currency
revenues and operating income (loss) over prior period revenues
and operating margins.

(4) Diluted GAAP and non-GAAP weighted-average shares
outstanding are the same except in periods that there is a GAAP loss
from continuing operations. In accordance with authoritative
accounting guidance, we do not present dilution for GAAP in periods
in which there is a loss from continuing operations. However, if
there is non-GAAP net income, we present dilution for non-GAAP
weighted-average shares outstanding in an amount equal to the
dilution that would have been presented had there been GAAP income
from continuing operations for the period.
 
           
SYMANTEC CORPORATION

Guidance and Reconciliation of GAAP to Non-GAAP Revenue and
Operating Income
(1)

(Dollars in millions, except per share data, unaudited)
                   
Third Quarter Fiscal Year 2018                  
 
Revenue Guidance     Three Months Ending December 29, 2017
 
GAAP revenue range $1,227

-

 

$1,257
Add back:
Deferred revenue fair value adjustment

 

$23

Non-GAAP revenue range     $1,250     -     $1,280
 
Operating Margin Guidance and Reconciliation     Three Months Ending December 29, 2017
 
GAAP operating margin (3%) - (2%)
Add back:
Deferred revenue fair value adjustment

 

1%

Stock-based compensation

 

13%

Amortization of intangible assets

 

9%

Other non-GAAP adjustments

 

16%

Non-GAAP operating margin     36%     -     37%
Fiscal Year 2018                  
 
Revenue Guidance     Year Ending March 30, 2018
 
GAAP revenue range $4,877 - $4,977
Add back:
Deferred revenue fair value adjustment

 

$123

Non-GAAP revenue range     $5,000     -     $5,100
 
Operating Margin Guidance and Reconciliation     Year Ending March 30, 2018
 
GAAP operating margin 1% - 2%
Add back:
Deferred revenue fair value adjustment

 

2%

Stock-based compensation

 

13%

Amortization of intangible assets

 

9%

Other non-GAAP adjustments

 

10%

Non-GAAP operating margin    

35%

    -     36%
 
(1) This presentation includes non-GAAP measures.
Non-GAAP financial measures are supplemental and should not be
considered a substitute for financial information presented in
accordance with GAAP. For a detailed explanation of these non-GAAP
measures, please see Appendix A.
 

SYMANTEC CORPORATION

Explanation of Non-GAAP Measures and Other Items

Appendix A

Objective of non-GAAP measures: We believe
our presentation of non-GAAP financial measures, when taken together
with corresponding GAAP financial measures, provides meaningful
supplemental information regarding the Company's operating performance
for the reasons discussed below. Our management team uses these non-GAAP
financial measures in assessing our operating results, as well as when
planning, forecasting and analyzing future periods. We believe that
these non-GAAP financial measures also facilitate comparisons of our
performance to prior periods and that investors benefit from an
understanding of the non-GAAP financial measures. Non-GAAP financial
measures are supplemental and should not be considered a substitute for
financial information presented in accordance with GAAP.

Discontinued operations: In August 2015, we
entered into a definitive agreement to sell the assets of our
information management business ("Veritas") to Carlyle. The transaction
closed on January 29, 2016. The results of Veritas are presented as
discontinued operations in our Consolidated Statements of Operations and
thus have been excluded from non-GAAP net income and segment results for
all reported periods.

Net revenues: Our non-GAAP net revenues
eliminates the impact of the Blue Coat and LifeLock deferred revenue
purchase accounting adjustments required by U.S. GAAP. U.S. GAAP
requires an adjustment to the liability for acquired deferred revenue
such that the liability approximates how much we, the acquirer, would
have to pay a third party to assume the liability. We believe that
eliminating the impact of this adjustment improves the comparability of
revenues between periods. Also, although the adjustment amounts will
never be recognized in our U.S. GAAP financial statements, we do not
expect the acquisitions to affect the future renewal rates of revenues
excluded by the adjustments. In addition, our management uses non-GAAP
net revenues, excluding the impact of purchase accounting adjustments to
assess our operating performance and overall revenue trends.
Nevertheless, non-GAAP net revenues has limitations as an analytical
tool and should not be considered in isolation or as a substitute for
U.S. GAAP net revenues. Additionally, other companies in our industry
may not calculate these measures in the same manner which may limit
their usefulness for comparative purposes.

Inventory fair value adjustment: Purchase
accounting requires us to measure acquired inventory at fair value. The
fair value of inventory reflects the acquired company's cost of
manufacturing plus a portion of the expected profit margin. These
non-GAAP adjustments to our cost of revenues in fiscal 2017 exclude the
expected profit margin component that is recorded under purchase
accounting associated with our acquisition of Blue Coat. We believe the
adjustments are useful to investors as an additional means to reflect
cost of revenues and gross margin trends of our business.

Stock-based compensation: This consists of
expenses for employee stock options, restricted stock units, 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 strategic plans, we do not consider
stock-based compensation charges. Our management team is held
accountable for cash-based compensation, but not for stock-based
compensation expenses as we believe that management is limited in its
ability to project the impact of stock-based compensation would have on
our operating results. 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. The
following table sets forth our stock-based compensation expenses for the
reported periods:

    Three Months Ended
September 29,     September 30,
2017 2016
Cost of revenue $ 9 $ 5
Sales and marketing 50 24
Research and development 53 24
General and administrative   64   32
Total stock-based compensation $ 176 $ 85
 

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.

Acquisition and integration costs: These
represent the transaction and integration costs associated with the Blue
Coat and LifeLock acquisitions that are charged to expense for GAAP
purposes. These costs include all incremental expenses incurred to
effect these business combinations. Acquisition costs include advisory,
legal, accounting, valuation, and other professional or consulting fees.
We exclude the transaction and integration expenses from our non-GAAP
results as they are related to acquisitions and thus have no direct
correlation to the operation of our business, and because we believe
that the non-GAAP financial measures excluding these costs provide
meaningful supplemental information regarding our operational
performance. In addition, excluding these costs from the non-GAAP
measures facilitates comparisons to our historical operating results.

Restructuring, transition and other: We
have engaged in various restructuring activities over the past several
years which have resulted in severance, facilities and other exit and
disposal costs, including asset write-offs. We have also engaged in
various transition and other activities which resulted in related costs
primarily consisting of consulting charges associated with the
implementation of new enterprise resource planning systems and costs to
automate business processes, as well as costs associated with our
divestitures of product lines. Each restructuring, transition, and other
activity has been a discrete event based on a unique set of business
objectives or circumstances, each has differed from the others in terms
of its operational implementation, business impact and scope, and the
amount of these charges has varied significantly from period to period.
We believe that it is important to understand the impact of these
activities and that investors benefit from the presentation of non-GAAP
financial measures excluding these charges to facilitate a more
meaningful evaluation of our current operating performance and
comparisons to our past operating performance.

Non-cash interest expense and amortization of debt
issuance costs
: In accordance with GAAP, we separately account
for the value of the conversion feature on our convertible notes as a
debt discount, which is amortized in a manner that reflects our debt
borrowing rates. Additionally, we amortize debt issuance costs over the
term of the related debt. We exclude the difference between the imputed
interest expense, which includes the amortization of the conversion
feature and of the issuance costs, and the coupon interest expense,
because we believe that excluding these costs provides meaningful
supplemental information regarding operational performance, along with
enhancing investors' ability to view the Company's results from
management's perspective. In addition, we believe excluding these costs
from the non-GAAP measures facilitates comparisons to our historical
operating results.

Income tax effects and adjustments: Our
non-GAAP tax rate for fiscal year 2017 and the first two quarters of
fiscal 2018 was 28.7% and 29.5%, respectively. We use a projected
long-term non-GAAP tax rate in order to provide better consistency
across the interim financial reporting periods by eliminating the
effects of stock based compensation, amortization of intangible assets
and restructuring, and transition and other related charges. The
long-term projected non-GAAP tax rate also reflects the elimination of
the effects of certain discontinued operations and unique GAAP reporting
requirements under discontinued operations as a result of the sale of
Veritas. This long-term tax rate could be subject to change for a
variety of reasons, such as significant changes in the geographic
earnings mix due to acquisition and divestiture activities or
fundamental tax law changes in major jurisdictions where we operate. We
evaluate and assess the appropriateness of this rate annually, giving
due consideration to the impacts of significant events and structural
changes in the Company.

Diluted GAAP and non-GAAP weighted-average shares
outstanding
: Diluted GAAP and non-GAAP weighted-average shares
outstanding are the same except in periods that there is a GAAP loss
from continuing operations. In accordance with authoritative accounting
guidance, we do not present dilution for GAAP in periods in which there
is a loss from continuing operations. However, if there is non-GAAP net
income, we present dilution for non-GAAP weighted-average shares
outstanding in an amount equal to the dilution that would have been
presented had there been GAAP income from continuing operations for the
period.

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