Market Overview

Symantec Reports Fiscal First Quarter 2019 Results

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Q1 GAAP revenue was $1.156 billion, non-GAAP revenue was $1.165 billion

GAAP Diluted EPS was $(0.10), non-GAAP Diluted EPS was $0.34

Implementation of ASC 606 had a $0.03 positive impact to GAAP diluted
EPS and a $0.01 positive impact to non-GAAP diluted EPS

Cash flow from operating activities for Q1 was $334M

Symantec Corp. (NASDAQ:SYMC) today reported results for its first
quarter fiscal year 2019 ended June 29, 2018.

"We are pleased with our revenue, earnings and cash flow from operations
in the first quarter," said Greg Clark, Symantec CEO. "We believe that
Symantec is well positioned to execute against the opportunity in the
cyber defense market. Following a successful fiscal year 2018 in our
Enterprise Security segment, first quarter fiscal year 2019 enterprise
implied billings were below expectations due to longer than expected
sales cycles for large, multi-product platform sales. This pipeline
management issue was isolated to North America. In our Consumer Digital
Safety segment, we were pleased to have strong revenue growth in the
first quarter. We have adjusted our guidance for the remainder of fiscal
year 2019 to reflect our outlook on our business. We believe demand
remains strong across our products and services and are confident in our
long-term strategy to drive organic growth and leverage our scale,
innovation and capital to create industry-leading platform solutions."

Starting with the first quarter of fiscal 2019, Symantec reports its
results under Accounting Standard Codification ("ASC") 606. We did not
recast certain historical financial information as we elected to use the
modified retrospective transition method.

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 methods we use to produce non-GAAP
results are not in accordance with GAAP and may differ from the methods
used by other companies. Additional information regarding our non-GAAP
measures are provided below.

First Quarter Fiscal 2019 Financial Highlights (ASC 606)

  • GAAP revenue was $1.156 billion, non-GAAP revenue was $1.165 billion
  • GAAP operating margin of 0.1%, non-GAAP operating margin of 28.1%
  • GAAP Diluted EPS was $(0.10), non-GAAP Diluted EPS was $0.34
  • Cash flow from operations of $334 million

We are providing the following results of operations under the previous
revenue recognition standard, ASC 605, in order to provide investors
with a direct comparison to guidance and prior results.

First Quarter Fiscal 2019 Financial Highlights (ASC 605)

  • GAAP revenue was $1.151 billion, non-GAAP revenue was $1.160 billion
  • GAAP operating margin of (1.1)%, non-GAAP operating margin of 27.0%
  • GAAP Diluted EPS was $(0.13), non-GAAP Diluted EPS was $0.33

Second Quarter and Fiscal Year 2019 Guidance (ASC 606)

                 
Second Quarter Fiscal 2019       GAAP       Non-GAAP
Revenue       $1,122M - $1,152M       $1,130M - $1,160M
Operating Margin       (1%) - 1%       26% - 28%
EPS (Diluted)       ($0.08) - ($0.04)       $0.31 - $0.35
Fiscal Year 2019
Revenue       $4,640M - $4,760M       $4,670M - $4,790M
Operating Margin       4% - 5%       30%
EPS (Diluted)       ($0.04) - $0.08       $1.47 - $1.57
           

Symantec's Board of Directors has declared a quarterly cash dividend of
$0.075 per common share to be paid on September 12, 2018, to all
shareholders of record as of the close of business on August 20, 2018.

Update of Previously Released Financial Results for Q4 and Fiscal
Year 2018

Subsequent to the release of our financial results for the fourth
quarter fiscal year 2018, consistent with SEC guidance on provisional
reporting for accounting impacts of the Tax Cuts and Jobs Act (the
"Act"), we have continued to update our analysis and refine our
calculations of the effects of the enactment of the Act, including the
impact of the one-time transition tax liability on the earnings of our
foreign subsidiaries. Due to the ongoing Audit Committee investigation,
we have not yet filed our annual report on Form 10-K for fiscal year
2018, and our fourth quarter of fiscal year 2018 and subsequent periods
remain open periods from an accounting perspective, subject to
adjustment for material updates. In connection with our most recent
quarterly reporting cycle, we have updated our fourth quarter and fiscal
year 2018 provisional transition tax expense, resulting in a $15 million
increase to our tax provision and a corresponding increase of long-term
income taxes payable and income taxes receivable. Our financial results
for the fourth quarter and fiscal year 2018 in our earnings materials
posted to our investor relations website have been revised to reflect
this adjustment. The computation of the one-time tax on the earnings of
our foreign subsidiaries, as well as our net deferred tax liability and
other aspects of the Act is based on our current understanding and
assumptions regarding the impact of the Act, and may continue to change
as additional clarification and implementation guidance is issued and as
the interpretation of the Act evolves over time. This adjustment is
solely related to the provisional impacts of the Act and is unrelated to
the ongoing Audit Committee investigation.

Ongoing Audit Committee Investigation

As previously disclosed, Symantec's Audit Committee is conducting an
internal investigation in connection with concerns raised by a former
employee regarding the Company's public disclosures including commentary
on historical financial results, its reporting of certain non-GAAP
measures including those that could impact executive compensation
programs, certain forward-looking statements, stock trading plans and
retaliation. The investigation is ongoing. The Company's financial
results and guidance may be subject to change based on the outcome of
the Audit Committee investigation. At this time, the Company does not
anticipate a material adverse impact on its historical financial
statements for the third quarter of fiscal year 2018 and prior. As noted
above, our fourth quarter of fiscal year 2018 and subsequent periods
remain open periods from an accounting perspective, subject to
adjustment for material updates.

For additional details regarding Symantec's results and outlook, please
see the Supplemental Information on the investor relations page of our
website at: http://www.symantec.com/invest.

Conference Call

Symantec has scheduled a conference call for 5:00 p.m. ET / 2:00 p.m. PT
today to discuss its results for its first quarter fiscal year 2019
ended June 29, 2018 and to review guidance. Interested parties may
access the conference call through Symantec's Investor Relations website
at http://investor.symantec.com/investor-relations/events-calendar/.
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 and give the operator conference ID number 7188405.

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 statements regarding the
expected impact of the ongoing Audit Committee investigation, the
information contained under the caption "Fiscal Year 2019 Guidance (ASC
606)" and the statements regarding Symantec's other projected financial
and business results, including demand for its products and services,
Symantec's enhanced capabilities, and Symantec's continued cost and
operating efficiencies. 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: our ability to continue to
integrate and fully achieve the expected benefits from acquired
businesses; 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; the ability of Symantec to achieve its cost and operating
efficiency goals; the anticipated growth of certain market segments;
Symantec's sales pipeline and business strategy; fluctuations in tax
rates and foreign currency exchange rates and the impact of the recently
enacted tax reform legislation; the impact related to Symantec's 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 the degree to which these
products gain market acceptance. Other risks include, but are not
limited to, risks relating to the ongoing internal investigation by the
Audit Committee, including: (i) the risk that the internal investigation
may take longer to complete than expected (ii) the risk that the
internal investigation identifies errors, which may be material, in the
Company's financial results, or impacts the timing of Company filings;
and (iii) the risk of legal proceedings or government investigations
relating to the subject of the internal investigation or related
matters. 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 most recent reports on Form 10-K and
Form 10-Q.

USE OF NON-GAAP FINANCIAL INFORMATION: We use non-GAAP measures
of adjusted revenues, operating margin, net income and earnings per
share, which are adjusted from results based on GAAP to include certain
purchase accounting adjustments and exclude certain expenses, gains and
losses. Additionally, we provide the non-GAAP metric of implied
billings. These non-GAAP financial measures are provided to enhance the
user's understanding of our past financial performance and our prospects
for the future. Our management team uses these non-GAAP financial
measures in assessing Symantec's performance, as well as in planning and
forecasting future periods. These non-GAAP financial measures are not
computed according to GAAP and the methods we use to compute them 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. Readers 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 including
Supplemental Information, on the investor relations page of our website
at: http://www.symantec.com/invest.

 

 

       
     
SYMANTEC CORPORATION
Condensed Consolidated Balance Sheets (1)
(In millions, unaudited)
           
June 29, 2018  

March 30, 2018 (2)

 
ASSETS
 
Current assets:
Cash and cash equivalents $ 2,001 $ 1,774
Short-term investments 324 388
Accounts receivable, net 502 809
Other current assets   545     523
Total current assets   3,372     3,494
 
Property and equipment, net 758 778
Intangible assets, net 2,532 2,643
Goodwill 8,322 8,319
Other long-term assets   1,303     526
Total assets $ 16,287   $ 15,760
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 170 $ 168
Accrued compensation and benefits 165 260
Contract liabilities (3) 2,137 2,356

Other current liabilities

  439     369

Total current liabilities

  2,911     3,153
 
Long-term debt 5,032 5,026
Long-term contract liabilities (3) 630 735
Deferred income tax liabilities 597 594
Long-term income taxes payable 1,110 1,124
Other long-term liabilities   83     87
Total liabilities   10,363     10,719
     
Total stockholders' equity   5,924     5,041
  Total liabilities and stockholders' equity   $ 16,287   $ 15,760
 

(1) We adopted the new revenue recognition accounting
standard (ASC 606) on a modified retrospective basis during Q1
FY19. The results for Q1 FY19 are presented under the new revenue
recognition accounting standard, while prior period amounts are
not adjusted and continue to be reported under the prior revenue
recognition accounting standard (ASC 605).

(2) Subsequent to the release of our financial results
for the fourth quarter fiscal year 2018, consistent with SEC
guidance on provisional reporting for accounting impacts of the
Tax Cuts and Jobs Act (the "Act"), Symantec has continued to
update our analysis and refine our calculations of the effects of
the enactment of the Act, including the impact of the one-time
transition tax liability on the earnings of our foreign
subsidiaries. As a result, we have updated our fourth quarter and
fiscal year 2018 provisional transition tax expense, resulting in
a $15 million non-cash, increase to our tax provision and a
corresponding impact on long-term income taxes payable and income
taxes receivable. Accordingly, we have updated our GAAP financial
results for the fourth quarter and fiscal year 2018 in our
earnings materials. There is no impact to our non-GAAP results.

(3) As a result of the new revenue recognition
accounting standard (ASC 606), amounts we have previously referred
to as deferred revenue are now referred to as contract
liabilities, which consist of the total of what is now identified
as deferred revenue and customer deposit liabilities in all
schedules throughout this document.

 
         
   
SYMANTEC CORPORATION

Condensed Consolidated Statements of Operations (1)

(In millions, except per share data, unaudited)
         
Three Months Ended
June 29, 2018   June 30, 2017
 
Net revenues $ 1,156 $ 1,175
Cost of revenues   249       257  
Gross profit   907       918  
 
Operating expenses:
Sales and marketing 388 433
Research and development 236 233
General and administrative 133 149
Amortization of intangible assets 53 59
Restructuring, transition and other costs   96       88  
Total operating expenses   906       962  
Operating income (loss)   1       (44 )
 
Interest expense (52 ) (84 )
Other expense, net   (22 )     (6 )
Loss from continuing operations before income taxes   (73 )     (134 )
Income tax benefit   (6 )     (24 )
Loss from continuing operations (67 ) (110 )
Income (loss) from discontinued operations, net of income taxes   4       (23 )
Net loss $ (63 )   $ (133 )
 
Income (loss) per share – basic and diluted:
Continuing operations $ (0.11 ) $ (0.18 )
Discontinued operations $ 0.01 $ (0.04 )
Net loss per share – basic and diluted $ (0.10 ) $ (0.22 )
 
Weighted-average shares outstanding – basic and diluted     624       609  
 

(1) We adopted the new revenue recognition accounting
standard (ASC 606) on a modified retrospective basis during Q1
FY19. The results for Q1 FY19 are presented under the new revenue
recognition accounting standard, while prior period amounts are
not adjusted and continue to be reported under the prior revenue
recognition accounting standard (ASC 605).

 
         
   
SYMANTEC CORPORATION
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited)
         
Three Months Ended
June 29, 2018   June 30, 2017
 
OPERATING ACTIVITIES:
Net loss $ (63 ) $ (133 )
(Income) loss from discontinued operations, net of income taxes (4 ) 23
Adjustments:
Amortization and depreciation 152 165
Impairment of long-lived assets 4 14
Stock-based compensation expense 113 147
Deferred income taxes (42 ) (62 )
Other (17 ) 26
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable, net 321 188
Accounts payable 19 (32 )
Accrued compensation and benefits (74 ) (68 )
Contract liabilities (106 ) (21 )
Income taxes payable 18 40
Other assets (27 ) 3
Other liabilities   40     (39 )
Net cash provided by continuing operating activities 334 251
Net cash used in discontinued operating activities   -     (38 )
Net cash provided by operating activities   334     213  
 
INVESTING ACTIVITIES:
Additions to property and equipment (44 ) (47 )
Payments for acquisitions, net of cash acquired (5 ) (8 )
Proceeds from maturities and sale of short-term investments 64 -
Other   (5 )   1  
Net cash provided by (used in) investing activities   10     (54 )
 
FINANCING ACTIVITIES:
Repayments of debt - (2,010 )
Net proceeds from sales of common stock under employee stock
incentive plans
4 11
Tax payments related to restricted stock units (42 ) (61 )
Dividends and dividend equivalents paid   (63 )   (66 )
Net cash used in financing activities   (101 )   (2,126 )
 
Effect of exchange rate fluctuations on cash and cash equivalents   (16 )   26  
Change in cash and cash equivalents 227 (1,941 )
Beginning cash and cash equivalents   1,774     4,247  
Ending cash and cash equivalents   $ 2,001     $ 2,306  
 
 
 
SYMANTEC CORPORATION
Reconciliation of Selected GAAP Measures to Non-GAAP Measures
(1) (2)
(Dollars in millions, except per share data, unaudited)
 
  Three Months Ended
June 29, 2018   June 30, 2017

 

  Effect of Adoption  

 

 

 

ASC 606

  of ASC 606  

ASC 605

 

ASC 605

 
Net revenues $ 1,156 $ (5 ) $ 1,151 $ 1,175
Contract liabilities fair value adjustment   9       -       9       53  
Net revenues (Non-GAAP) $ 1,165     $ (5 )   $ 1,160     $ 1,228  
 
Operating income (loss) $ 1 $ (14 ) $ (13 ) $ (44 )
Contract liabilities fair value adjustment 9 - 9 53
Stock-based compensation 113 - 113 147
Amortization of intangible assets 111 - 111 114
Restructuring, transition and other costs 96 - 96 88
Acquisition-related costs 2 - 2 19
Litigation settlement gain   (5 )     -       (5 )     -  

Operating income (Non-GAAP)

$ 327     $ (14 )   $ 313     $ 377  
 
Operating margin 0.1 % (1.1 %) (3.7 %)
Operating margin (Non-GAAP) 28.1 % 27.0 % 30.7 %
 
Net loss $ (63 ) $ (15 ) $ (78 ) $ (133 )
Adjustments to income (loss) from continuing operations:
Contract liabilities fair value adjustment 9 - 9 53
Stock-based compensation 113 - 113 147
Amortization of intangible assets 111 - 111 114
Restructuring, transition and other costs 96 - 96 88
Acquisition-related costs 2 - 2 19
Litigation settlement (5 ) - (5 ) -
Non-cash interest expense 6 - 6 27
Loss from equity interest 29 - 29 -
Other income tax effects and adjustments   (63 )     5       (58 )     (117 )
Total adjustment from continuing operations   298       5       303       331  
Total adjustment from discontinued operations   (4 )     -       (4 )     23  
Net income (Non-GAAP) $ 231     $ (10 )   $ 221     $ 221  
 
Diluted net income (loss) per share (3) $ (0.10 ) $ (0.03 ) $ (0.13 ) $ (0.22 )
Adjustments to diluted net income (loss) per share
Contract liabilities fair value adjustment 0.01 - 0.01 0.09
Stock-based compensation 0.18 - 0.18 0.24
Amortization of intangible assets 0.18 - 0.18 0.19
Restructuring, transition and other costs 0.15 - 0.15 0.14
Acquisition-related costs 0.00 - 0.00 0.03
Litigation settlement (0.01 ) - (0.01 ) -
Non-cash interest expense 0.01 - 0.01 0.04
Loss from equity interest 0.05 - 0.05 -
Other income tax effects and adjustments   (0.10 )     0.01       (0.09 )     (0.19 )
Total adjustment from continuing operations   0.48       0.01       0.49       0.54  
Total adjustment from discontinued operations (0.01 ) - (0.01 ) 0.04
Incremental dilution effect   (0.03 )     0.01       (0.02 )     (0.03 )
Diluted net income per share (Non-GAAP) $ 0.34     $ (0.01 )   $ 0.33     $ 0.33  
 
Diluted weighted-average shares outstanding 624 - 624 609
Incremental dilution   47       -       47       55  
Diluted weighted-average shares outstanding (Non-GAAP) (4)     671       -       671       664  
 
(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) We adopted the new revenue recognition accounting
standard on (ASC 606) a modified retrospective basis during Q1 FY19.
The results for Q1 FY19 are presented under the new revenue
recognition accounting standard, while prior period amounts are not
adjusted and continue to be reported under the prior revenue
recognition accounting standard (ASC 605).
(3) Net income per share amounts may not add due to
rounding.
(4) Diluted GAAP and non-GAAP weighted-average shares
outstanding are the same, except in periods in which there is a GAAP
loss from continuing operations. In accordance with GAAP, 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
Reconciliation of GAAP Revenue to Non-GAAP Implied Billings (1)
(2)
(In millions, unaudited)
         
Three Months Ended
June 29, 2018   June 30, 2017
 
Total Company Implied Billings (Non-GAAP)
Total revenue $ 1,156 $ 1,175
Add: Contract liabilities (end of period) 2,767 2,794
Less: Contract liabilities (beginning of period) (3,091 ) (2,787 )
Contract liabilities adjustment due to adoption of the new revenue
recognition standard
157 -
Other Contract liabilities adjustments (3)   7       17  
Implied billings (Non-GAAP) $ 996     $ 1,199  
 
Enterprise Security Implied Billings (Non-GAAP)
Total revenue $ 556 $ 646
Add: Contract liabilities (end of period) 1,714 1,784
Less: Contract liabilities (beginning of period) (1,998 ) (1,791 )
Contract liabilities adjustment due to adoption of the new revenue
recognition standard
174 -
Other Contract liabilities adjustments (3)   7       17  
Implied billings (Non-GAAP) $ 453     $ 656  
 
Consumer Digital Safety Implied Billings (Non-GAAP)
Total revenue $ 600 $ 529
Add: Contract liabilities (end of period) 1,053 1,010
Less: Contract liabilities (beginning of period) (1,093 ) (996 )
Contract liabilities adjustment due to adoption of the new revenue
recognition standard
  (17 )     -  
Implied billings (Non-GAAP)   $ 543     $ 543  
 
(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) We adopted the new revenue recognition accounting
standard (ASC 606) on a modified retrospective basis during Q1 FY19.
The results for Q1 FY19 are presented under the new revenue
recognition accounting standard, while prior period amounts are not
adjusted and continue to be reported under the prior revenue
recognition accounting standard (ASC 605).
(3) Other contract liabilities adjustments include
contract liabilities acquired during the period and the change in
contract liabilities related to Veritas discontinued operations.
 
             
     
SYMANTEC CORPORATION

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

(Dollars in millions, except per share data, unaudited)
             
Second Quarter Fiscal Year 2019      

 

   
 
Revenue Guidance            
 
GAAP revenue range $1,122 - $1,152
Adjustment:
Contract liabilities fair value adjustment

 

$8

Non-GAAP revenue range   $1,130   -   $1,160
 
Operating Margin Guidance and Reconciliation            
 
GAAP operating margin (1%)

-

1%
Adjustments:
Contract liabilities fair value adjustment

 

1%

Stock-based compensation

 

10%

Amortization of intangible assets

 

10%

Restructuring, transition and other costs

 

6%

Non-GAAP operating margin   26%   -   28%
 
Earnings Per Share Guidance and Reconciliation            
 
GAAP diluted loss per share range (2) ($0.08) - ($0.04)
Adjustments:
Contract liabilities fair value adjustment

 

$0.01

Stock-based compensation

 

$0.19

Amortization of intangible assets

 

$0.17

Restructuring, transition and other costs

 

$0.11

Other income and expense adjustments

 

$0.01

Income tax effects and adjustments

 

($0.08)

Incremental dilution effect

 

($0.02)

Non-GAAP diluted earnings per share range (2)   $0.31   -   $0.35
Fiscal Year 2019            
 
Revenue Guidance            
 
GAAP revenue range $4,640 - $4,760
Adjustment:
Contract liabilities fair value adjustment

 

$30

Non-GAAP revenue range   $4,670   -   $4,790
 
Operating Margin Guidance and Reconciliation            
 
GAAP operating margin 4% - 5%
Adjustments:
Contract liabilities fair value adjustment

 

1%

Stock-based compensation

 

10%

Amortization of intangible assets

 

9%

Restructuring, transition and other costs

 

6%

Non-GAAP operating margin (3)   30%   -   30%
 
Earnings Per Share Guidance and Reconciliation            
 
GAAP diluted income (loss) per share range (2) ($0.04) - $0.08
Adjustments:
Contract liabilities fair value adjustment

 

$0.05

Stock-based compensation

 

$0.72

Amortization of intangible assets

 

$0.69

Restructuring, transition and other costs

 

$0.44

Other income and expense adjustments

 

$0.07

Income tax effects and adjustments ($0.38) ($0.40)
Incremental dilution effect

 

($0.08)

Non-GAAP diluted earnings per share range (2)   $1.47   -   $1.57
 
(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) GAAP income (loss) per share and adjustments per
share are calculated using basic share count of 630 million and 634
million for Q2 FY19 and FY19, respectively. Non-GAAP income per
share is calculated using diluted shares of 663 million and 667
million for Q2 FY19 and FY19, respectively.
(3) Amounts may not add due to rounding.
 

SYMANTEC CORPORATION
Appendix A
Explanation
of Non-GAAP Measures

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 Symantec's performance, as well as in
planning and forecasting future periods. Due to the importance of these
measures in managing the business, we use non-GAAP measures in the
evaluation of management's compensation. These non-GAAP financial
measures are not computed according to GAAP and the methods we use to
compute them may differ from the methods used by other companies.
Non-GAAP financial measures are supplemental and 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.

Contract liabilities adjustment: Our
non-GAAP net revenues eliminate the impact of contract liabilities
purchase accounting adjustments required by GAAP. GAAP requires an
adjustment to the liability for acquired contract liabilities 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 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, adjusted for 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 GAAP net revenues. We
believe these adjustments are useful to investors as an additional means
to reflect revenue trends of our business. However, 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 exclude the expected profit
margin component that is recorded under purchase accounting associated
with our acquisitions. 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 restricted stock units, performance based awards,
bonus share programs, stock options and our employee stock purchase
plan, determined in accordance with GAAP. We evaluate our performance
both with and without these measures because stock-based compensation is
a non-cash expense and can vary significantly over time based on the
timing, size, nature and design of the awards granted, and is influenced
in part by certain factors that are generally beyond our control, such
as the volatility of the market value of our common stock. In addition,
for comparability purposes, we believe it is useful to provide a
non-GAAP financial measure that excludes stock-based compensation to
facilitate the comparison of our results to those of other companies in
our industry.

Amortization of intangible assets:
Amortization of intangible assets consists of amortization of
acquisition-related intangibles assets such as developed technology,
customer relationships and trade names acquired in connection with
business combinations. We record charges relating to the amortization of
these intangibles within both cost of revenues and operating expenses in
our GAAP financial statements. Under purchase accounting, we are
required to allocate a portion of the purchase price to intangible
assets acquired and amortize this amount over the estimated useful lives
of the acquired intangible assets. However, the purchase price allocated
to these assets is not necessarily reflective of the cost we would incur
to internally develop the intangible asset. Further, amortization
charges for our acquired intangible assets are inconsistent in size and
are significantly impacted by the timing and valuation of our
acquisitions. We eliminate these charges from our non-GAAP operating
results to facilitate an evaluation of our current operating performance
and provide better comparability to our past operating performance.

Restructuring, transition and other costs:
Restructuring charges are costs associated with a formal restructuring
plan and are primarily related to employee severance and benefit
arrangements. Other charges include facilities and other exit and
disposal costs, including asset write-offs. Transition costs are
associated with formal discrete strategic information technology
initiatives and primarily consist of consulting charges associated with
our enterprise resource planning and supporting systems and costs to
automate business processes. In addition, transition costs include
expenses associated with our divestitures. We exclude restructuring,
transition and other costs from our non-GAAP results as we believe that
these costs are incremental to core activities that arise in the
ordinary course of our business and do not reflect our current operating
performance, and that excluding these charges facilitates a more
meaningful evaluation of our current operating performance and
comparisons to our past operating performance.

Acquisition-related costs: These represent
the transaction and business integration costs related to significant
acquisitions that are charged to operating expense in our GAAP financial
statements. These costs include incremental expenses incurred to affect
these business combinations such as advisory, legal, accounting,
valuation, and other professional or consulting fees. We exclude these
cost from our non-GAAP results as they 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 the spending trends of our business. In addition,
these costs vary, depending on the size and complexity of the
acquisitions, and are not indicative of costs of future acquisitions.

Litigation settlement: We may periodically
incur charges or benefits related to litigation settlements. We exclude
these charges and benefits when associated with a significant settlement
because we do not believe they are reflective of ongoing business and
operating results.

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 that reflects our assumed non-convertible debt borrowing
rates. We amortize the discount and 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 payments because we
believe that excluding these costs provides meaningful supplemental
information regarding the cash cost of our convertible debt and enhance
investors' ability to view the Company's results from management's
perspective.

Gain on divestitures: We periodically
recognize gains on divestitures, including in fiscal 2018 related to our
WSS and PKI solutions. We have excluded these gains for purposes of
calculating our non-GAAP results. We believe making these adjustments
facilitates a better evaluation of our current operating performance and
comparisons to past operating results.

Gain (loss) from equity interest: We record
gains or losses in equity method investments representing net income or
loss attributable to our noncontrolling interest in companies over which
we have limited control and visibility. We exclude such gains and losses
in full because we lack control over the operations of the investee and
the related gains and losses are not indicative of our ongoing core
results.

Income tax effects and adjustments: Prior
to the third quarter of fiscal 2018, we used a projected long-term
non-GAAP tax rate that reflected the elimination of the effects of the
non-GAAP adjustments to our operating results described above and
significant discrete items, as well as certain unique GAAP reporting
requirements under discontinued operations as a result of the sale of
Veritas in order to provide better consistency across the interim
financial reporting periods. Starting with the third quarter of fiscal
2018, as a result of U.S. tax reform, we use a non-GAAP tax rate that
excludes (1) the discrete impacts of changes in tax legislation, (2)
most other significant discrete items, (3) certain unique GAAP reporting
requirements under discontinued operations and (4) the income tax
effects of the non-GAAP adjustment to our operating results described
above. We believe making these adjustments facilitates a better
evaluation of our current operating performance and comparisons to past
operating results. Our tax rate is 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.

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.

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 GAAP, 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.

Implied billings: We define implied
billings as total revenue plus the change in adjusted contract
liabilities. The change in contract liabilities excludes contract
liabilities acquired or divested during the period as well as the change
in contract liabilities related to discontinued operations that does not
amortize to revenue from continuing operations. We consider implied
billings to be a useful metric for management and investors because it
facilitates an analysis of changes in contract liabilities balances that
are an indicator of the health and visibility of our business. There are
several limitations related to the use of implied billings versus
revenue calculated in accordance with GAAP. First, implied billings
include amounts that have not yet been recognized as revenue. Second,
our calculation of implied billings may be different from other
companies in our industry, some of which may not use implied billings,
may calculate implied billings differently, may have different implied
billing frequencies, or may use other financial measures to evaluate
their performance, all of which could reduce the usefulness of implied
billings as a comparative measure. We compensate for these limitations
by providing specific information regarding GAAP revenue and evaluating
implied billings together with revenue calculated in accordance with
GAAP.

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